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As filed with the Securities and Exchange Commission on August 4, 1995
Registration No. 33-78110
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 5
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
S.O.I. INDUSTRIES, INC.
(Name of small business issuer in its charter)
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DELAWARE 2500 59-2158586
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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16910 DALLAS PARKWAY, SUITE 100, DALLAS, TEXAS 75248, (214) 248-1922
(Address and telephone number of principal executive offices)
KEVIN B. HALTER, JR., 16910 DALLAS PARKWAY, SUITE 100, DALLAS,
TEXAS 75248, (214) 248-1922 (Name, address and telephone
number, including area code, of agent for service)
Copies to:
Morgan F. Johnston, Esq.
16910 Dallas Parkway, Suite 100
Dallas, Texas 75248
(214) 248-1922
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED PROPOSED
CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) FEE
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COMMON STOCK 3,568,000 $3.06 $10,918,080 $3,764.85
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(1) Estimated solely for purpose of calculating registration fee. The Selling
Stockholders may sell the Common Stock on terms to be determined at the time of
sale.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
3,568,000 SHARES
S.O.I. INDUSTRIES, INC.
COMMON STOCK
(PAR VALUE $.000025 PER SHARE)
All of the 3,568,000 shares of Common Stock offered hereby are being
sold by the Selling Stockholders. See "Selling Stockholders." S.O.I. Industries,
Inc. (the "Company") will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. The Common Stock is traded on the American
Stock Exchange (the "AMEX") under the symbol "SOI." On August 2, 1995, the last
reported sale price of the Common Stock on the AMEX was $1.25 per share.
_______________
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_______________
The date of this Prospectus is _______, 1995.
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AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices
of the Commission at Seven World Trade Center, 13th Floor, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in such
Registration Statement. For further information with respect to the Company and
the Common Stock being offered, reference is hereby made to the Registration
Statement and to the exhibits thereto.
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the Company and
its business before purchasing the Common Stock offered hereby.
RECENT CHANGE IN CONTROL; LIMITED OPERATING HISTORY UNDER NEW BOARD OF DIRECTORS
On January 26, 1994, pursuant to an agreement between Halter Capital
Corporation, a Texas corporation ("HCC") and Donald E. Courtney, an officer and
director of the Company, HCC acquired 2,075,143 shares of Common Stock from Mr.
Courtney. HCC also owns 100 shares of Common Stock that it acquired prior to its
acquisition of Mr. Courtney's shares. HCC also has sole voting power over an
additional 1,842,857 shares of Common Stock pursuant to certain voting
agreements dated December 2, 1993 and January 26, 1994. The 3,918,100 shares of
Common Stock beneficially owned by HCC represent approximately 28% of the issued
and outstanding shares of the Common Stock. All of the members of the Board of
Directors resigned except Mr. Courtney. The number of directors was increased
from six to seven and Mr. Courtney appointed persons to fill the six remaining
vacancies on the Board of Directors. Such persons were nominated by HCC. Mr.
Courtney subsequently resigned his position as an officer and director of the
Company effective June 28, 1994. See "Management."
The Company has a limited operating history under its new Board of
Directors. There can be no assurance that the Company will be able to continue
to develop and market its products and services successfully or operate on a
profitable basis in the future.
POTENTIAL ADVERSE EFFECT OF INDUSTRY AND ECONOMIC CONDITIONS UPON OPERATIONS
The operations of certain of the Company's subsidiaries are subject to
fluctuations as a consequence of various factors affecting the construction,
retail and home improvement industries, including interest rates, availability
of credit, general economic conditions, levels of building activity and weather
patterns. The Company anticipates that its sales and operating results will
fluctuate from time to time as a result of these factors.
In addition, one of the Company's subsidiaries, American Quality
Manufacturing Corporation ("AQM"), may be subject to decreased sales and
profitability during the first and fourth quarters of each calendar year,
resulting from the seasonal effect of winter weather on construction. Unusually
long periods of cold or wet weather could have an adverse effect on the
Company's sales and profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
POTENTIAL ADVERSE EFFECT OF FLUCTUATIONS IN PRICES AND SUPPLIES OF RAW MATERIALS
UPON OPERATIONS
AQM is dependent upon outside suppliers for all of its raw material
needs and, therefore, is subject to fluctuations in prices of raw materials. In
particular, AQM's results of operations are affected significantly by increases
in the market prices of wood and wood products such as particle board. AQM buys
its raw materials at market-based prices from numerous independent suppliers.
Prices of wood and wood products can be adversely affected by, among other
things: (i) an overall shortage of lumber in the United States caused by poor
weather in timber harvesting areas; (ii) governmental restrictions on lumber
harvesting in the Pacific Northwest; (iii) an increase in housing construction;
(iv) increased demand for papermill by-products, which are the primary materials
used in the production of particle board; and (v) increased substitution of
particle board for solid wood. Specifically, lumber prices rose approximately
14% during fiscal year 1994.
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No assurances can be given that prices will not increase significantly
in the future. If the economy improves, demand for raw materials may increase,
which could further affect prices. The nature of future governmental laws and
regulations relating to timber harvesting and their impact, if any, on wood and
wood product prices and on AQM's business, financial condition and results of
operations cannot be predicted.
POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock is currently traded on the AMEX. The Company believes
that such factors as quarterly variations in the Company's financial results,
announcements regarding the operations of the Company and developments affecting
the Company or its markets have caused significant fluctuation in the market
price of the Common Stock and could continue to do so in the future. In
addition, the stock market in general has recently experienced extreme price and
volume fluctuations. These fluctuations have often been unrelated to the
operating performance of the Company and its subsidiaries. Broad market
fluctuations may adversely affect the market price of the Common Stock. See
"Price Range of Common Stock."
COMPETITION
The Company and its subsidiaries compete with a number of other
businesses that have greater financial, technical and human resources. Such
companies may develop products or services that may be more effective than the
Company's products or services and may be more successful in marketing their
products or services than the Company. No assurance can be given that the
Company will be able to compete successfully. See "Business."
REQUIREMENTS FOR CONTINUED LISTING ON THE AMEX; DISCLOSURE RELATING TO
LOW-PRICED STOCKS
Under the rules for continued listing on the AMEX, a company is
required to maintain certain minimum requirements. The AMEX will consider
suspending dealings and delisting the Common Stock if, among other things, (i)
the number of shares of Common Stock outstanding (exclusive of certain
affiliates and concentrated holdings) is less than 200,000, (ii) the number of
round lot stockholders of record is less than 300, or (iii) the aggregate market
value of the Common Stock is less than $1,000,000. Failure of the Company to
meet the maintenance requirements of the AMEX could result in the Common Stock
being delisted from the AMEX. The Common Stock would then be traded on the OTC
Bulletin Board maintained by the National Association of Securities Dealers,
Inc., which is generally considered to be a less efficient market than the AMEX.
The Company has no reason to believe that the Company will be delisted from the
AMEX.
In addition, if the Company's securities are delisted, they would be
subject to Rule 15c2-6 promulgated under the Exchange Act that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those persons with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse). For transactions
covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to the purchase. Consequently, the rule may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this offering to sell their securities in
the secondary market. The delisting from the AMEX may also cause a decline in
share price, loss of news coverage of the Company, and difficulty in obtaining
subsequent financing.
The Commission has also recently adopted regulations which define a
"penny stock" to be any equity security that has a market price (as defined in
such regulations) less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules would require the delivery
prior to any transaction in a penny stock, of a disclosure schedule prepared by
the Commission relating to the penny stock market. Disclosure would also have to
be made about
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commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and its presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account together with
information on the limited market in penny stocks.
ANTI-TAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Such provisions could impede any merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of the Company. See "Description of Capital Stock."
SHARES ELIGIBLE FOR SALE AS A RESULT OF THIS OFFERING
Prior to this offering, the 3,568,000 shares of Common Stock covered
hereby could only be disposed of in accordance with certain exemptions to the
Securities Act, including Rule 144 promulgated thereunder. Rule 144 allows the
resale of unregistered securities subject to certain restrictions and
conditions. Rule 144 provides, among other things, that persons holding
restricted securities for a period of two years may each sell in brokerage
transactions every three months an amount equal to 1% of the Company's
outstanding shares or the weekly reported volume of trading during the four
calendar weeks preceding the filing of a notice of proposed sale, whichever is
greater. Upon the effectiveness of this Registration Statement, all 3,568,000
shares of Common Stock will be freely tradeable. No prediction can be made as to
the effect, if any, that sales of Common Stock or the availability of such
shares for sale will have on the market prices prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.
LACK OF CASH DIVIDENDS
At the present time, the Company intends to use any earnings which may
be generated to finance the growth of the Company's business. Accordingly, while
payment of cash dividends rests within the discretion of the Board of Directors,
the Company does not presently intend to pay cash dividends and there can be no
assurance such dividends will be paid in the future. See "Dividend Policy."
POTENTIAL CONFLICT OF INTEREST
As the holder of approximately 48% of the issued and outstanding common
stock of Digital Communications Technology Corporation ("DCT"), the Company
elects the DCT Board of Directors. There are four persons who serve on the Board
of Directors of both the Company and DCT. The overlapping members of the Board
of Directors of DCT and the Company will be involved in decisions concerning the
Company and DCT's ongoing operations and continued development. These members
therefore may be subject to possible conflicts of interest related to business
matters in general. Accordingly, the management of both companies believe that
there are policies in place to minimize any material conflicts of interest. For
example, any potential corporate business opportunity or acquisition known to
such members must be first offered to the company which has the most direct
business interest or relationship with the proposed opportunity or acquisition.
Although the Company does not currently know of any such conflicts, its policy
with regard to any potential conflicts of interest which any overlapping Board
member may have is for such Board member to fully inform both Boards of
Directors of such potential conflict and the non-overlapping Board members must
approve any action taken to resolve the conflict.
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Similarly, conflicts of interest may arise between the companies
themselves. However, as the Company conducts business principally through its
subsidiaries, the Company believes it has no direct material business conflict
with DCT. Moreover, the Company believes that it is more efficient, and thereby
will maximize the benefits to the Company's stockholders, to consummate any
business opportunity or acquisition directly related to DCT's business at the
DCT level. Although the Company does not currently know of any such conflicts,
in the event that any potential conflicts of interest arise, any related Board
of Director actions will be approved by the non-overlapping directors of both
companies. Furthermore, the companies have generally followed the practice of
requiring that any material transaction between DCT and the Company be approved
by the non-overlapping directors of both companies.
POTENTIAL ACQUISITIONS OF BUSINESS ENTERPRISES
Although no specific acquisitions are currently contemplated, the
Company may achieve growth through acquisitions of existing business enterprises
in the future. The Company does not plan to limit such potential acquisitions to
any particular industry. Accordingly, there can be no assurance that the Company
can integrate such businesses into its operations or that it can operate such
businesses on a profitable basis in the future. In addition, there can be no
assurance that future acquisition opportunities will become available, that such
future acquisitions can be accomplished on favorable terms, or that such
acquisitions will result in profitable operations in the future. In addition,
many of the Company's acquisitions are structured as stock exchanges.
Fluctuations in the Common Stock may have an adverse effect on the Company's
ability to make additional acquisitions. See " -- Possible Volatility of Stock
Price."
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THE COMPANY
The Company is a diversified management company engaged, through its
subsidiaries, in video duplication, kitchen and bathroom cabinet production and
light fixture manufacturing. The significant subsidiaries of the Company (the
"Subsidiaries") are DCT, a Delaware corporation doing business as MagneTech
Corporation, AQM, a Delaware corporation doing business as American Cabinet,
Inc. and Tempo Lighting, Inc. ("Tempo"), a Delaware corporation. The Company's
primary business is to (i) procure goods and services for the Company and the
Subsidiaries on more favorable terms than the individual Subsidiaries could
obtain, and (ii) provide management expertise to the Subsidiaries, particularly
in the areas of employee benefits, public relations and funds management.
The Company was incorporated in the State of Florida in 1982 and
changed its state of incorporation by means of a merger with a Delaware
corporation to the State of Delaware in 1987. The address of the Company's
principal executive office is 16910 Dallas Parkway, Suite 100, Dallas, Texas
75248 and its telephone number is (214) 248-1922.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock offered by this Prospectus.
DIVIDEND POLICY
The Company currently intends to retain all earnings to finance the
development and expansion of its operations. The Company does not anticipate
paying cash dividends on its shares of Common Stock in the foreseeable future.
The Company's future dividend policy will be determined by its Board of
Directors on the basis of various factors, including but not limited to the
Company's results of operations, financial condition, business opportunities and
capital requirements. The payment of dividends will also be subject to the
requirements of Delaware law, as well as restrictive financial covenants in the
Company's existing and future credit agreements.
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PRICE RANGE OF COMMON STOCK
The Common Stock of the Company was quoted on the Nasdaq Stock Market
until November 19, 1993 under the symbol "LAMP." The following table sets forth
the range of representative high and low closing bid prices for the Common Stock
for the periods indicated. Quotations represent inter-dealer prices, do not
include retail markups, markdowns or commissions and may not represent actual
transactions.
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HIGH LOW
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FISCAL 1993
First Quarter $ .88 $ .25
Second Quarter .50 .28
Third Quarter .75 .38
Fourth Quarter .91 .59
FISCAL 1994
First Quarter 1.06 .81
Second Quarter 3.81 1.81
(through November 19, 1993)
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The Common Stock of the Company has been listed on the AMEX since
November 19, 1993 under the symbol "SOI." The following table sets forth the
high and low sales prices of the Common Stock on the AMEX for the periods
indicated.
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HIGH LOW
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FISCAL 1994
Second Quarter $4.06 $2.75
(from November 19, 1993)
Third Quarter 3.87 3.00
Fourth Quarter 3.56 2.06
FISCAL 1995
First Quarter 2.62 1.62
Second Quarter 2.56 1.63
Third Quarter 3.00 1.31
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On August 2, 1995, the last reported sale price the Common Stock was
$1.25 per share. On August 2, 1995, there were 478 stockholders of record of
the Common Stock.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Fiscal Year 1994:
Consolidated net sales for the year ended June 30, 1994 increased
approximately $19,577,000 or 135% as compared to consolidated net sales for the
year ended June 30, 1993. This significant sales growth is due primarily to the
sales provided from the Company's new Cabinet and Furniture segment, formed upon
the acquisition of American Quality Manufacturing Corporation ("AQM") on January
1, 1994, and through the significant sales growth of the Company's Video
Production and Duplication segment during the year ended June 30, 1994.
Approximately $9.6 million of the increased sales related to the Cabinet and
Furniture segment and $9.5 million related to increased sales from the Video
Production and Duplication segment. Sales from the Home Furnishings segment
increased approximately $450,000.
Operating income also increased for the year ended June 30, 1994,
however not at the same rate as the net sales. Operating income increased by
approximately $162,000 or 17% from the year ended June 30, 1993. As a percentage
of net sales, the operating income actually declined from approximately 6.6% to
3.3% for the years ended June 30, 1993 and 1994, respectively. This percentage
decline is attributable to increases in cost of goods sold, resulting from
higher volume sales at lower margins experienced at the Company's Video
Production and Duplication segment and the addition of the Cabinet and Furniture
segment which generally operates at lower margins than the Company's other
segments. Despite the increases in cost of goods sold, both selling expenses and
general and administrative expenses, as a percentage of net sales, were
consistent for the years ended June 30, 1994 and 1993. Management is continuing
to focus on holding operating costs to a minimum and is implementing strategies
at both of the above-mentioned segments to improve the operating margins
reported in the 1994 fiscal year.
Approximately $589,000 was added to other income during the year ended
June 30, 1994 related to realized gains earned from the Company's marketable
securities portfolio. Throughout the year, the Company invested funds in quality
equity securities through high quality brokers and, by policy, limits the amount
of exposure in any one equity investment. Such investments are continually
monitored to reduce the risk of adverse stock market volatility. Cash not
invested in securities is placed on account with high quality brokerage firms,
which is swept daily into a federally insured money market account, or placed on
account with federally insured national banks. The asset balance recorded for
these funds invested in marketable securities at June 30, 1994 was approximately
$3,379,000. An unrealized holding loss account balance of approximately $388,000
is also recorded as a separate component of shareholders' equity to account for
declines below cost of certain of the marketable securities held in the
Company's investment portfolio. The Company also realized a gain of
approximately $1,240,000 related to sales of 347,975 shares of the common stock
of Digital Communications Technology Corporation ("DCT").
The Company experienced a large increase in interest expense during the
fiscal year 1994 from approximately $169,000 to $595,000 for the years ended
June 30, 1993 and 1994, respectively. The primary reasons for this increase were
due to (1) the Video Production and Duplication segment's additional borrowings
supporting the expansion of that segment and (2) the addition of the Company's
Cabinet and Furniture segment with its line of credit and other short-term
borrowing needs.
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A significant 267% increase in net income occurred for the year ended
June 30, 1994. This increase is substantially attributable to the gain
recognized on the sale of DCT common stock and to the realized gain earned from
the Company's marketable securities portfolio. Management expects the Video
Production and Duplication segment to increase its contribution to net income in
the future and expects the Furniture and Cabinet segment to continue to
positively affect net income.
On February 14, 1994, the Company issued 1,329,836 shares of the
Company's Common Stock in exchange for 580,538 shares of the common stock of
DCT. The transaction was recorded at fair value of the stock exchanged. This
exchange had no net effect on total shareholders' equity.
The financial statements for the year ended June 30, 1994 have been
restated to properly reflect the minority interest due to the February 14, 1994
stock exchange between DCT and the Company. The effect of this transaction was
previously reported as a component of the gain on the sale of the 347,975 shares
of DCT common stock. As a result of the change, net income and retained earnings
decreased by approximately $390,000 and earnings per share decreased $0.03, from
$0.16 to $0.13.
Fiscal Years 1993 and 1992:
Consolidated net sales for the year ended June 30, 1993 continued the
trend of sales growth from the prior year, increasing approximately $6,147,000
or 73.2% from the net sales for the year ended June 30, 1992. The significant
sales growth of the Company experienced in fiscal year 1993 was due primarily to
the expansion of the Company's Video Production and Duplication segment and
operation of its high-speed duplication facility. The sales growth prior to
fiscal year 1993 was relatively modest.
Along with improved sales during the year ended June 30, 1993,
operating income improved dramatically from an operating loss of approximately
$200,000 for the year ended June 30, 1992 to an operating income of
approximately $958,000 for the year ended June 30, 1993. Net income also
improved to approximately $338,000 from $10,000 for the years ended June 30,
1993 and 1992, respectively. Improved operating margins in both industry
segments contributed to these results which exceeded management's expectations.
In addition to improved operating margins, management's emphasis on cost
containment for both selling expenses and general and administrative expenses
contributed to the overall decline, as a percentage of net sales, of these areas
during the year ended June 30, 1993.
Video Production and Duplication Segment
The Video Production and Duplication segment offers video and audio
tape duplication and production services and satellite communications services.
Fiscal Year 1994:
This segment's continued expansion led to the full operation of the new
high-speed duplicating facility along with expanded capacity at the segment's
other locations. This expansion, in turn, resulted in dramatic sales growth in
fiscal year 1994. Net sales for the year ended June 30, 1994 increased 95.8% to
approximately $19,374,000. This increase is due to growing sales at all
locations, especially at the Company's high-speed duplication facility in
Indiana. Management has focused the majority of its sales efforts toward the
"retail sell through market." This market centers on pre-recorded video tapes
which are sold at the retail level. The video tapes sold to this market are
typically recorded on a narrower band width (i.e. extended play mode) in order
to record more programming on less video tape at a lesser cost. The segment's
customer base has become increasingly dominated by the companies which
distribute these videos to the retail sell through market and
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therefore management has positioned the Company to capitalize on this portion of
the video industry. As exemplified by the sales increase in fiscal year 1994,
the overall industry is expanding; and, consequently, the segment's business is
also expanding. Management expects the growth in the industry to continue
through at least the next fiscal year, and therefore expects growth in sales as
well. Management is also studying newer technologies along with the overall film
and entertainment industry in order to position the Company to capitalize on
future developments in technology and the industry.
Although net sales increased significantly, operating income for this
segment did not increase at the same rate. Operating income increased 48% to
approximately $1,372,000 for the year ended June 30, 1994. When compared as a
percentage of sales however, operating income declined from approximately 9.4%
of net sales to 7.1% of net sales for the years ended June 30, 1993 and 1994,
respectively. This declining percentage of net sales is primarily due to cost of
goods sold, which have increased at a faster rate than sales. As a percentage of
net sales, cost of goods sold was approximately 74.0% and 71.7% for the years
ended June 30, 1994 and 1993, respectively. The increased cost of goods sold is
due to lower margins earned from the higher volume retail sell through business
of the segment. As the segment's customer mix continues to change, emphasizing
higher volume sales, the margins earned on each sale will decrease. However,
management expects the sales volume to expand, mitigating the effects effects of
the lower margins.
In the quarter ended December 31, 1993, after evaluating the historical
contribution of this segment's Video Plus, Inc. subsidiary and considering the
expected future contribution of this subsidiary, management decided to sell
Video Plus, Inc. The operations of Video Plus, Inc. have therefore been removed
from the operating section of the consolidated statements of income for all
periods presented, and the income or loss from operations of Video Plus, Inc.
have been segregated under discontinued operations. The net effect of the
operation of Video Plus, Inc. for the year ended June 30, 1994 was a loss of
approximately $95,000.
As described in the notes to the financial statements, only one
customer accounted for more than 10% of this segment's sales. This customer
accounted for approximately 21% of the segment's sales for the year ended June
30, 1994 as compared to 17% for the year ended June 30, 1993. Management is
currently negotiating sales contracts with other customers in order to continue
to diversify its customer base.
Fiscal Years 1993 and 1992:
Initial operations of the Indianapolis high-speed duplication facility
led to increased sales from this segment. Net sales for this segment increased
approximately $5,090,000 or 106% for the year ended June 30, 1993 which was a
further increase in net sales of approximately $1,440,000 or 43% for the year
ended June 30, 1992. Because of this sales growth, this segment became the major
contributor of sales to the consolidated sales of SOI in fiscal year 1992. This
segment provided approximately 46%, 57% and 68% of total consolidated net sales
for the years ended June 30, 1991, 1992 and 1993, respectively.
This segment's operating profit for the year ended June 30, 1993 also
grew with sales, increasing approximately $763,000 from $164,000 to $927,000 for
the years ended June 30, 1992 and 1993, respectively. The increased sales were
the primary reason for the increased operating profit, as the growth rate of
cost of sales increased proportionally with sales. However, contributing to the
improvements were also declines, as a percentage of sales, in both selling and
general and administrative expenses.
Interest expense related to this segment increased from approximately
$4,700 for the year ended June 30, 1992 to approximately $202,000 for the year
ended June 30, 1993. The increase was due primarily to additional debt incurred
by the segment to fund the expanded operations at the Indianapolis facility.
Both short-term and
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long-term debt was incurred and was directly related to the start of operations
at the Indianapolis facility. Proceeds from the debt were used to acquire
equipment and inventory for the new facility.
Cabinet and Furniture Segment
The Cabinet and Furniture segment was formed with the acquisition of
AQM, effective January 1, 1994. AQM is a manufacturer of unfinished wood cabinet
products and vanities for the home. Additionally, this segment has recently
introduced a line of finished cabinet products and has designed and developed
full-scale prototypes for several styles of home leisure products, including
home entertainment centers and electronic furniture centers.
Net sales from this segment comprised approximately $9,586,000 or 28%
of SOI's consolidated net sales for the year ended June 30, 1994. As this only
represents net sales from the acquisition date to June 30, 1994, this segment is
expected to have a significant impact on the future consolidated operations of
SOI. In the fiscal year ended June 30, 1994, this segment provided an operating
profit of approximately $286,000. Results of operations, though positive, were
still not at the level expected by management. Due to the addition of finished
cabinets to AQM's product mix, changes were necessitated in the production
process which led to higher costs to produce the segment's products. Management
made these product changes in order to improve both sales and gross margins in
order to position the segment for future growth and profitability. Along with
the focus on sales, management also intends to continue its focus on cost
containment in the inventory and overhead areas, as well as emphasizing the
credit and collection process.
In order to further assess the financial condition of this segment, a
comparison of the segment's full year results of operations to the prior year is
necessary even though SOI only operated this segment for six months of the
current fiscal year. (Note that the reference to the prior fiscal year of AQM is
May 31, 1993. AQM's fiscal year end was changed to June 30 in the 1994 fiscal
year to match SOI's fiscal year end.)
Net sales for the year ended June 30, 1994 increased approximately 3.5%
from the year ended May 31, 1993. The increased sales were obtained despite the
effects of poor weather in February which forced a plant slow down and the
cessation of shipping for several days. Management's efforts to devote more
attention to sales began to produce increased sales in the last quarter of
fiscal 1994. In addition, management was able to increase sales prices to offset
the increases experienced in its raw material product costs.
Even when discounting the effects of the inclement weather noted above,
the sales growth experienced by this segment was still less than management
expectations. The sales results were due to adjustments in purchasing patterns
made by two of the segment's major customers. One customer began a restructuring
of its operations, closing some unprofitable retail locations and therefore
consolidating some of its inventory from closed stores to its other locations.
Another major customer, due to a shortage in storage and shelf space,
discontinued its orders of assembled cabinets, preferring instead to order the
segment's ready to assemble products. Management intends to increase its
marketing efforts in order to offset these lost sales. Additionally, management
expects that the new finished cabinet product line and a proposed new home
leisure product will contribute to sales growth in the future.
This segment relied on three major customers for approximately 40% of
its gross sales for the year ended June 30, 1994. This dependence is down from
reliance on four major customers for approximately 56% of gross sales for the
year ended May 31, 1993. Management is currently negotiating sales agreements
with several large home centers and plans to continue to diversify its customer
base in order to reduce dependence on a small group of customers.
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Cost of sales as a percentage of net sales increased from approximately
83.6% to 85.4% for the years ended May 31, 1993 and June 30, 1994, respectively.
This increase was primarily due to the addition and establishment of the
finished cabinet product line and the costs incurred initiating production at
the segment's Burlington, Kansas facility. In addition, the segment incurred
additional costs during the last six months of the year ended June 30, 1994 in
redesigning an entire product line for a major customer and redesigning its
other products in order to conform their sizes to industry norms. Management
anticipates that increased sales from the segment's higher margin finished
cabinet product line will improve its overall gross margins.
Home Furnishings Segment
The Home Furnishings segment designs, manufactures, assembles and
markets a line of medium priced residential and commercial lighting fixtures.
Fiscal Year 1994:
In the fiscal year ended June 30, 1994, the Home Furnishings segment
generated approximately $92,000 of operating income from approximately
$5,158,000 in net sales. This is an approximate 68% increase in operating income
and an approximate 11% increase in net sales from the prior fiscal year. The
increase in net sales is due primarily to expanded listings of the Company's
products in a major customer's approved buying list. Department and sales
managers at major retailers are authorized to order merchandise only from the
retailers' approved buying lists, therefore, expanded listings of the Company's
products on these lists should yield higher sales. Management expects to add
more of its products to other retailers' approved buying lists which will
increase sales.
During the fiscal year ended June 30, 1994, the Company moved some of
its lamp assembling activity from its Hialeah, Florida facility to its lamp base
manufacturing facility in Bangs, Texas. A limited product line is now
manufactured in the Bangs facility which enhances the Company's ability to sell
more products to the central and western portions of the United States due to
reductions in freight costs the Company must charge its customers. The costs
incurred in establishing the limited product line manufacturing capability in
Bangs, Texas resulted in increased costs. Although this segment's operating
income as a percentage of net sales increased slightly from approximately 1% of
net sales in fiscal year 1993 to approximately 2% of net sales in fiscal year
1994, the segment's gross profit percentage (gross profit as a percentage of net
sales) declined slightly from approximately 28% to 26%. Management expects the
gross profit percentage to improve to previous years' levels based on experience
gained with the assembly operations at the Bangs facility.
Fiscal Years 1993 and 1992:
Sales for this segment increased approximately $1,057,000 for the year
ended June 30, 1993 increasing from approximately $3,591,000 for the year ended
June 30, 1992. Sales improved as a result of the overall improvement in the
economy, which increased consumer spending and increased demand for the
segment's products. Additionally, increased sales volume to a large retailer
also contributed to the improved sales.
Operating profit also showed improvement, increasing from an operating
loss of approximately $43,000 for the year ended June 30, 1992 to an operating
profit of approximately $55,000 for the year ended June 30, 1993. The
improvement was due primarily to increased sales while holding selling costs
near the same level as the prior year and actually reducing general and
administrative expense from the amount incurred for the year ended June 30,
1992. Additionally, the gross profit margins earned by the Company increased
substantially from the fiscal year 1992 levels. The segment's management
analyzed all product lines during fiscal 1993 in order to determine which items
were not performing up to management's expectations. Based on this analysis,
several product lines
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were discontinued. In addition, management eliminated high cost, low margin
items in order to focus on more profitable items. Management also instituted an
effort to reduce manufacturing costs in order to remain competitive. This focus
resulted in a headcount reduction, contributing to the improved profit margins.
CAPITAL RESOURCES
During the year ended June 30, 1994, the Company acquired, through its
various subsidiaries, approximately $2,762,000 in equipment. Approximately
$2,317,000 was invested in equipment during the fiscal year ended June 30, 1994
at the Company's Video Production and Duplication segment. The majority of the
acquired equipment was used in the Video Production and Duplication segment's
high speed duplication facility in Indiana, however equipment was added and
upgraded at its Florida locations as well. These purchases were financed through
additional long-term debt. Due to the segment's expanding customer base and due
to production at near capacity at the segment's operating locations, future
expansion is being considered by management and will be financed through
operations and/or additional long-term debt.
Approximately $361,000 and $45,000 was invested in equipment at the
Company's Cabinet and Furniture segment and Home Furnishings segment,
respectively. These equipment acquisitions were made with funds provided from
operations and were necessary to position the respective segments to expand
their product offerings and maintain competitive position. Management expects to
maintain its current level of capital acquisitions for the Cabinet and Furniture
segment and expects only limited fixed asset expenditures for the Home
Furnishings segment through the 1995 fiscal year in order to modernize and
improve plant equipment.
In addition, effective January 1, 1994, the Company, through its Video
Production and Duplication segment, acquired 100% of the capital stock of Tapes
Unlimited, Inc. ("Tapes Unlimited") for $500,000 and 75,000 shares of the DCT's
common stock, valued at $180,000. Tapes Unlimited primarily provides video tape
loading services, and has locations in Florida and Minnesota. As of June 30,
1994, total assets related to Tapes Unlimited approximated $1,212,000 and total
liabilities were $613,000. Management anticipates that this acquisition will
provide added flexibility and capacity to load blank and programmed tape as well
as add to the Video Production and Duplication segment's customer base.
In May 1994, AQM entered into a long-term capital lease obligation for
the use of a manufacturing facility and certain manufacturing equipment in
Burlington, Kansas. The lease requires monthly payments of approximately $6,000.
This 185,000 square foot facility will facilitate AQM's entry into its finished
cabinet product line by providing extra capacity at minimal additional overhead
cost.
LIQUIDITY
During the year ended June 30, 1994, the Company's cash flows from
operating activities resulted in a net use of cash from operating activities of
approximately $508,000. This is compared with cash used in operating activities
of approximately $1,473,000 for the year ended June 30, 1993. The current year
change in overall operating cash flow position of the Company is primarily the
result of the growth in operations of the Company and improvements in inventory
levels. The overall net use of operating cash flow was due to an approximate
$3,446,000 increase in accounts receivable and an approximate $1,462,000
increase in inventory. These increases were offset somewhat by increases in
accounts payable and accrued expenses of approximately $314,000 and $1,268,000,
respectively.
A portion of the increased accounts receivable is due to the
substantial increase in sales of the Video Production and Duplication segment of
the Company and the addition of the Cabinet and Furniture segment, however
increased sales is only part of the explanation for the growth in accounts
receivable. Throughout all the
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Company's industry segments, the demand by customers for longer payment terms
resulted in an expansion of accounts receivable balances. These market pressures
to extend longer payment terms are reflected in the accounts receivable
conversion period (measuring how quickly the Company, on average, collects its
accounts receivable). This conversion period increased from 51 days to 81 days
for the years ended June 30, 1993 and 1994, respectively.
Additionally, a portion of the increase in accounts receivable is due
to an increase in receivables directly attributable to the sales from initial
operations of AQM's Burlington, Kansas manufacturing facility in the last
quarter of fiscal year 1994. Operations for the initial 90 days at the
Burlington plant were primarily concentrated on the production of a customized
line of finished cabinets. Inherent in the sales of customized products are
slower collections until the customer is completely satisfied as to finish,
size, workmanship, etc. The slower collection period caused a significant drain
on the Cabinet and Furniture segment's cash resources, and therefore, management
discontinued all new and pending orders for the custom cabinet line by the end
of the fourth quarter of fiscal 1994 and converted all production at the
Burlington facility to component production for final use at AQM's Conway,
Arkansas facility. This change utilizes the capacity and technology of the
Burlington facility to produce large quantities of components and emphasizes
management's philosophy to revise production and product lines as necessary.
Management will continue to monitor and exercise close scrutiny on the
credit and collections process in order to improve collections while preserving
the Company's competitive position. Despite the demand for longer collection
terms, management does not expect any significant detriment toward its
short-term liquidity.
The increase in inventory also affected the liquidity of the Company
for the year ended June 30, 1994. All inventory components (raw materials, work
in process and finished goods) increased during the 1994 fiscal year. A large
portion of the increase from approximately $4,069,000 to $6,520,000 as of June
30, 1993 and 1994, respectively related to the expanded operations provided by
the acquisition of AQM and also the expanded operations of the Video Production
and Duplication segment. Despite the growth of the Company, inventory --
primarily work in process inventory -- was in excess of optimum levels. This
occurred at both the Cabinet and Furniture segment and at the Video Production
and Duplication segment.
The June 30, 1994 work in process inventory at the Cabinet and
Furniture segment was higher than historical levels because AQM was in the
process of altering its production operations to include two new product lines.
This segment began producing finished kitchen cabinets in the first quarter of
fiscal year 1995 in addition to its already successful unfinished product lines,
and has begun offering cabinets made from oak along with the materials used
previously. At June 30, 1994, work in process levels were increased in order to
feed production for the new product lines as well as existing products. Along
with adding new product lines, AQM also added capacity by leasing the plant
facility in Burlington, Kansas. This facility currently manufactures
sub-assemblies (primarily doors and face frames) which are then shipped to AQM's
Conway facility for cabinet construction and final shipment to customers. The
expansion of operations and change in production methods resulted in the
increase in work in process inventory as well as expanding AQM's needs for raw
materials. As AQM achieves full production of the new product lines and begins
to phase out older product lines, work in process inventory levels should
decline, however the levels of raw materials are not expected to decline
significantly.
The Company's raw materials component of inventory increased from
approximately $4,069,000 to $5,092,000 as of June 30, 1994 and 1993,
respectively due primarily to expansion of the Company. However, as a percentage
of total inventory, the raw materials component actually declined from 86.4% to
78.1% as of June 30, 1993 and 1994, respectively. This improvement in the
inventory mix is due to increased use of local raw materials suppliers at the
Video Production and Duplication segment instead of the overseas suppliers used
in the year ended June 30, 1993. By utilizing local suppliers, this segment
avoided the shipping delays of up to 5 to 8
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weeks while the inventory was in transit. The raw materials purchases from
overseas suppliers required use of letters of credit and the materials were
shipped "FOB shipping point," requiring the Company to carry the inventory on
the financial records for several weeks before the materials were delivered to
the Company's plant facilities. By reducing the materials purchased from
overseas suppliers, this segment has reduced the quantities of raw materials
inventoried and has offset other uses of operating cash by buying from local
suppliers on 30 day terms.
Notwithstanding the increased work in process levels at the Cabinet and
Furniture segment described above, both the work in process and finished goods
inventory components at all segments will fluctuate somewhat depending on the
size and number of orders being processed at any given time. Typically, the
Company's subsidiaries do not inventory significant quantities of finished
products, and ships them immediately upon completion. Management will continue
to focus on ensuring that shipments are made immediately upon project completion
and by minimizing the amounts of raw materials purchased.
During the year ended June 30, 1994, the Company's cash needs were met
primarily through utilization of readily available credit lines to fund the
expansion needs and through operations. The Company's increases in long-term and
short-term borrowings were used primarily to fund the expansion of operations at
the Video Production and Duplication segment's Indianapolis facility. Long-term
liquidity needs are anticipated to be met through sales growth and separate
financing arrangements. Management expects that the Company will continue to
meet all obligations as they come due, and no vendor/supplier problems are
expected.
OTHER COMMENTS
The Company's Video Production and Duplication segment's sales levels
generally follow the retail sell through markets, which typically peak in the
fall and early winter months as retail demand and holiday orders are met. The
segment has mitigated this seasonality by increasing sales efforts to lower
volume, but higher margin customers such as corporate training video duplication
and the video rental market. Even by utilizing these techniques, sales levels
are still lower in the summer months.
The Company's Cabinet and Furniture segment's sales levels generally
follow remodeling and other "do it yourself" retail markets, which traditionally
peak in the winter and spring. Therefore, this segment is subjected to seasonal
influences, with the highest level of sales typically realized in the period
from January through May.
The costs of the Cabinet and Furniture segment's products are subject
to inflationary pressures and commodity price fluctuations. Inflationary
pressure has been relatively modest over the past five years, except for lumber
prices, which rose approximately 14% during the fiscal year 1994. However, the
segment has generally been able to mitigate the effects of inflation and
commodity price fluctuations through sales price increases and cost savings in
other areas.
The Company was required to adopt Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes" in the first quarter
of fiscal year 1994. As permitted under SFAS 109, prior years' financial
statements have not been restated. The adoption of this standard did not have a
material effect on the consolidated financial statements of the Company for the
year ended June 30, 1994.
In September 1994, the Company settled a lawsuit against its former
President and Chairman that alleged he caused the Company to sell him its
wholly-owned subsidiary, CeraTech Corporation, for less than fair value in June
1992. The former President paid the Company $750,000 on September 16, 1994, in
full settlement of the lawsuit.
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NINE MONTHS ENDED MARCH 31, 1995
Overview
Net sales increased approximately $584,000 for the three months ended
March 31, 1995 as compared to the corresponding quarter of the prior year. For
the nine months ended March 31, 1995, net sales increased approximately
$13,049,000. The primary reason for this large increase was the acquisition of
AQM on January 1, 1994, the operations of which were not included for the entire
nine month period of the prior fiscal year. AQM also experienced an increase in
sales for the three month period ended March 31, 1995 which offset a slight
decline in sales at the Company's other major subsidiary, DCT during the same
three month period.
Despite the increased sales revenue, the Company generated operating
losses for both the three months and nine months ended March 31, 1995. This
decline was due to lower margins earned on the higher volume sales at the
Company's DCT subsidiary and to the historically lower margin, but higher
volume, earned on sales at the Company's AQM subsidiary. Increased public
relations costs along with increased legal and professional costs contributed to
higher general and administrative costs, adding to the operating losses. In
addition, reflected in the statement of income for the nine months ended March
31, 1995 are adjustments to the first quarter income statements of the Company's
AQM subsidiary in the amount of $812,000. The Company is currently registering
500,000 shares of its AQM common stock for distribution to the Company's
stockholders pursuant to a Registration Statement on Form S-1. In connection
with the Securities and Exchange Commission's review of such Registration
Statement, two adjustments were required to conform the financial statements
with generally accepted accounting principles. One adjustment increased AQM's
allowance for doubtful accounts by $400,000 and the other adjustment expensed
$412,000 of development costs which had previously been capitalized. The effect
of these adjustments is a reduction of the Company's consolidated net income by
$812,000 or approximately $0.06 per share.
Liquidity
For the nine months ended March 31, 1995, the Company used
approximately $1,591,000 in cash for operating activities. This is compared with
approximately $704,000 in cash used in operating activities for the nine months
ended March 31, 1994. The increased use of cash from operations is primarily the
result of increases in inventory along with increases in accounts receivable and
other assets. The decrease in accrued liabilities was offset by a corresponding
increase in accounts payable, therefore this did not have a material impact on
operating cash flows.
The increase in inventory is due almost entirely to an increase in the
raw materials component of inventory. The percentage of raw materials to total
inventory increased from 78% at June 30, 1994 to 85% at March 31, 1995. This
increase was the result of growth in inventory at both DCT and AQM which
increased approximately $955,000 and $655,000, respectively from June 30, 1994
to March 31, 1995.
Management at DCT increased purchases of raw materials in the third
quarter ended March 31, 1995 based on news of upcoming price increases by
several of DCT's significant vendors. The higher levels of raw materials in
inventory are expected to continue into the next two quarters as DCT uses these
materials in production, however management believes that the lower prices
obtained justifies the effect on DCT's and the Company's cash flow.
All components of inventory increased at AQM during the period from
June 30, 1994 to March 31, 1995. AQM experiences the highest levels of
production during the spring as higher levels of orders and re-orders by the
large homecenters are filled. Additionally, production at AQM's Burlington,
Kansas facility has increased
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since June 30, 1994 creating the need for higher levels of inventory, coinciding
with the higher levels of production.
Despite the increased inventory levels at DCT, the inventory turnover
(annualized based on the nine month period ended March 31, 1995) was
approximately 5 times, which equaled DCT's inventory turnover for the year ended
June 30, 1994. The build up of inventory is therefore keeping pace with the
overall sales of this subsidiary.
The inventory turnover at AQM (annualized based on the nine month
period ended March 31, 1995) of approximately 8 times is a decline from this
subsidiary's year end position of approximately 9 times. This decline is due to
purchases of additional inventory items required for AQM's new finished cabinet
product line along with the new oak and birch product lines.
A portion of the increased accounts receivable is due to the increase
in sales for the nine month period ended March 31, 1995 at the Company's DCT
subsidiary and is also due to the addition of the Company's AQM subsidiary,
which was acquired on January 1, 1994. However, increased sales is only part of
the explanation for the growth in accounts receivable. The demand by the
Company's customers for longer payment terms resulted in an expansion of
accounts receivable balances. The initial effect of this expansion has been
absorbed and the average collection period (measuring how quickly the Company,
on average, collects its accounts receivable) has begun to level out. This
conversion period was 81 days at June 30, 1994 and declined to 63 days at March
31, 1995. Additional collection efforts at some of the Company's subsidiaries
resulted in this decline. Management will continue to monitor and exercise close
scrutiny on the credit and collections process in order to improve collections
while preserving the Company's competitive position. Despite the demand for
longer payment terms, management does not expect any significant detriment
toward its short-term liquidity.
The increase in prepaid expenses and other current assets of
approximately $468,000 also contributed to the overall net use of cash from
operations. The increase in this asset category was due to an increase in
prepaid insurance at the Company's Tempo Lighting, Inc. ("Tempo") subsidiary
along with an increase in the Federal income tax benefit due to the recent
operating losses.
Approximately $2,164,000 of cash was used in investing activities for
the nine months ended March 31, 1995 as compared to approximately $310,000 used
in investing activities for the nine months ended March 31, 1994. Capital
expenditures, discussed below in the Capital Resources section, accounted for
the major portion of the cash used during both periods. Other uses of cash for
investing activities were related to additional investments in the Company's
marketable securities portfolio (discussed in the Results of Operations section,
below). The improved cash position for the nine months ended March 31, 1994 was
the result of the sale of the Company's Video Plus, Inc. subsidiary, the
disposition of which is discussed in the Results of Operations section, below.
During the nine months ended March 31, 1995, the Company's cash needs
were met primarily through financing activities by utilizing its available
credit lines and the addition of approximately $1,069,000 of long-term debt to
fund expansion needs. The Company's increases in long-term and short-term
borrowings were used primarily to fund the conversion of AQM's facilities to
implement a new product line. Additionally, some borrowings were used to acquire
additional fixed assets, specifically another satellite uplink unit at the
Company's DCT subsidiary. Long-term liquidity needs are anticipated to be met
through sales growth and separate financing arrangements. Management expects
that the Company will continue to meet most obligations as they come due, and no
vendor/supplier problems are expected.
On November 17, 1994, the Board of Directors declared the payment of a
dividend to its stockholders. Stockholders of record on November 30, 1994
received 1 share of NewCare Health Corporation ("NWCA")
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common stock for each 85 shares of the Company's Common Stock held as of the
record date. The NWCA common stock was distributed from the Company's marketable
securities portfolio and consisted of approximately 165,000 shares of NWCA
valued at approximately $578,000.
Capital Resources
During the nine months ended March 31, 1995, the Company made capital
expenditures through its various subsidiaries of approximately $1,919,000. This
compares with capital expenditures of approximately $2,035,000 for the nine
months ended March 31, 1994. Of the approximate $1,919,000, $800,000 was
invested in equipment and leasehold improvements at the Company's AQM subsidiary
associated with the subsidiary's conversion to a new product line. The remaining
capital expenditures were primarily concentrated at the Company's DCT subsidiary
where additional expansion of the subsidiary's high-speed duplicating facility
is underway along with general upgrading of equipment. The AQM purchases were
financed through additional short and long-term debt as well as through
operations, and the DCT purchases were financed through operations, with a
portion financed through long-term debt. The installation of the new product
line is substantially complete at AQM, therefore further significant investments
in equipment are not anticipated at this time. However, due to DCT's expanding
customer base, future expansion is being considered by management and will be
financed through operations and/or additional long-term debt.
Results of Operations
Net sales for the three months ended March 31, 1995 as compared to the
corresponding quarter of the prior year increased 5% from approximately
$11,140,000 for the three months ended March 31, 1994 to approximately
$11,724,000 for the three months ended March 31, 1995. Similarly, net sales
increased 56% from approximately $23,424,000 for the nine months ended March 31,
1994 to approximately $36,473,000 for the nine months ended March 31, 1995. The
primary reason for the large increase in sales for the nine months ended March
31, 1995 is due to the acquisition of AQM on January 1, 1994 which provided
approximately $8.5 million of the increased sales for the nine months ended
March 31, 1995. Additionally, the acquisition of DCT's subsidiary, Tapes
Unlimited, Inc. on January 1, 1994 also provided approximately $1.7 million of
the increased sales for the same nine month period. The remaining sales increase
for both the nine and three month periods ended March 31, 1995 was due to AQM's
expansion of operations.
Net sales at DCT for the three month period ended March 31, 1995
declined by approximately $68,000. Sales at DCT are historically lower during
the third and fourth quarters. The cyclical nature of sales at DCT is even more
pronounced with the focus on the retail sell through market. This market
supplies video tapes for resale to retail markets which experience their highest
sales during the holiday season. Consequently, sales for DCT were expected to be
at their highest during the first and second quarters.
An operating loss was generated in both the three months ended March
31, 1995 and for the nine months ended March 31, 1995 as compared to operating
profits in the corresponding periods of the prior year; this occurred despite
increases in sales. The decline is primarily attributable to increases in cost
of goods sold which, as a percentage of sales, increased from 78% to 84% for the
three months ended March 31, 1995 and from 76% to 81% for the nine month periods
ended March 31, 1995. The increases resulted from higher volume sales at lower
margins experienced at DCT and the addition of AQM which generally operates at
lower margins than the Company's other subsidiaries. Additionally, higher than
expected material costs at DCT increased cost of goods sold along with lower
margins at Tapes Unlimited, Inc. The Company's Tempo subsidiary also experienced
lower margins due to higher material costs which also contributed to the
operating loss. Management will continue its efforts to pass on material cost
increases to the Company's customers and will continue its focus on cost
containment, especially in labor costs, to ensure more efficiency is obtained
and thereby reducing current cost
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levels even though sales volume increases. There can be no assurances that these
measures will produce positive results.
As a percentage of net sales, both selling expenses and general and
administrative expenses increased for the three month periods ended March 31,
1995 and for the nine month period ended March 31, 1995. As a percentage of net
sales, selling expenses were approximately 8.1% as compared to 6.8% for the
three month periods ended March 31, 1995 and 1994, respectively. Likewise, for
the nine month periods ending March 31, 1995 and 1994, selling expenses were
approximately 7.2% and 6.2% of net sales, respectively. Due to the change in
customer mix at DCT to higher volume customers, DCT's sales commissions have
increased with the higher volume sales. Additionally, increased advertising and
promotion costs have also increased selling expenses.
General and administrative expenses increased from approximately
$1,434,000 to $2,996,000 for the nine months ended March 31, 1994 and 1995,
respectively. When compared as a percentage of net sales, general and
administrative expenses increased from 6.6% to 8.3% for the three months ended
March 31, 1994 and 1995, respectively and from 6.1% to 8.2% for the nine month
periods ended March 31, 1994 and 1995, respectively. Approximately $648,000 of
the increase for the nine month period ended March 31, 1995 is directly
attributable to the addition of the Company's AQM subsidiary. The remaining
increases are due to a second quarter increase in the allowance for doubtful
accounts, primarily at AQM, increased legal and professional expenses
attributable to AQM and the overall growth of the Company and increased public
relations expenses.
Operating profit for the nine months ended March 31, 1995 was also
affected by development costs incurred at AQM in the development of new product
lines. The new product lines, which utilize standardized components and other
wood types and include finished cabinets, have now been implemented, therefore
further development costs related to these product lines are not currently
anticipated.
Approximately $848,000 was added to other income during the nine months
ended March 31, 1995 related to realized gains and other income earned from the
Company's marketable securities portfolio. The Company invests funds in quality
equity securities through high quality brokers and, by policy, limits the amount
of exposure in any one equity investment. Such investments are continually
monitored to reduce the risk of adverse stock market volatility. Cash not
invested in securities is placed on account with high quality brokerage firms,
which is swept daily into a federally insured money market account, or placed on
account with federally insured national banks.
In September 1994, the Company settled a lawsuit against its former
President and Chairman that alleged he caused the Company to sell him its
wholly-owned subsidiary, CeraTech Corporation, for less than fair value in June
1992. The former President paid the Company $750,000 on September 16, 1994, in
full settlement of the lawsuit.
The Company experienced a large increase in interest expense during the
quarter ended March 31, 1995 as compared to the quarter ended March 31, 1994,
increasing from approximately $159,000 to $378,000, respectively. Likewise,
interest expense for the nine month periods ended March 31, 1994 and 1995
increased from approximately $302,000 to $979,000, respectively. The primary
reasons for this increase were due to (1) the addition of the Company's AQM
subsidiary with its line of credit and other short-term borrowing needs and (2)
an increase in the overall prime lending rate on which several of the Company's
borrowing rates are based.
In the quarter ended December 31, 1993, after evaluating the historical
contribution of DCT's Video Plus, Inc. subsidiary and considering the expected
future contribution of this subsidiary, management decided to sell Video Plus,
Inc. The operations of Video Plus, Inc. have therefore been removed from the
operating section of the consolidated statements of income for all periods
presented, and the income or loss from operations of Video
20
<PAGE> 22
Plus, Inc. have been segregated under discontinued operations. For the nine
months ended March 31, 1994, the effect of these discontinued operations was a
loss of approximately $152,000.
Other Comments
DCT's sales levels generally follow the retail sell through markets,
which typically peak in the fall and early winter months as retail demand and
holiday orders are met. The subsidiary has mitigated this seasonality by
increasing sales efforts to lower volume, higher margin customers such as
corporate training video duplication and the video rental market. Even by
utilizing these techniques, sales levels are still lower in the summer months.
AQM's sales levels generally follow remodeling and other "do it
yourself" retail markets, which traditionally peak in the winter and spring.
Therefore, this segment is subjected to seasonal influences, with the highest
level of sales typically realized in the period from January through April.
The costs of DCT's and AQM's products are subject to inflationary
pressures and commodity price fluctuations. Inflationary pressure has been
relatively modest over the past five years, except for lumber prices, which rose
approximately 14% during the fiscal year 1994. However, both subsidiaries have
generally been able to mitigate the effects of inflation and commodity price
fluctuations through sales price increases and cost savings in other areas.
PENDING LITIGATION
On March 17, 1995, the Company announced that it had filed on behalf of
itself and AQM a lawsuit in the Chancery Court of Faulkner County, Arkansas
against DeWayne Davis, the former Chief Executive Officer, Chief Financial
Officer and director of AQM. In the lawsuit, the companies charge Mr. Davis with
fraud, self-dealing, misappropriation of company assets, misappropriation of
trade secrets, breach of fiduciary duty and other causes of action for certain
alleged acts committed as a director and officer of AQM and the Company. One of
the alleged acts involved the purchase of materials and timber products from
American Plywood Sales, Inc. ("APS"), a wholly-owned subsidiary of Builders
Warehouse Association, Inc. ("BWA"). (Mr. Davis controlled BWA as a director and
major shareholder.) The lawsuit alleges that these purchases were at prices in
excess of those that could have been obtained by purchasing materials directly
from the suppliers. Additionally, the lawsuit seeks recovery of certain amounts
deemed by the Company's management to be unauthorized compensation and executive
benefits. AQM is not seeking any recovery from BWA or APS for amounts paid for
materials purchased in the current or preceding fiscal periods.
AQM has begun internal discovery to determine the amount of recovery
being sought through the litigation. Management has determined, however that no
material impact to the historical financial statements will be incurred.
Further, the potential recovery, if any, will be accounted for as a gain
contingency under Statement of Financial Accounting Standards No. 5, "Accounting
for Contingencies;" therefore no potential benefits will be reflected in the
accompanying financial statements until they are realized.
Mr. Davis has countersued AQM alleging incomplete compensation during
his tenure as an executive officer of AQM. AQM believes that the amounts claimed
under this countersuit are not material to the financial statements of AQM. In
addition, BWA has filed a lawsuit against AQM and the Company on the basis that
AQM allegedly owes APS for wood products purchased by AQM from APS. These
purchases were previously recorded as incurred and therefore the effect of this
claim is already reflected in AQM's interim financial statements. AQM has ceased
purchasing any materials from APS and has secured alternative suppliers which
AQM believes will meet its production requirements.
21
<PAGE> 23
BUSINESS
GENERAL
The Company is a diversified management company engaged, through its
Subsidiaries, in video duplication, kitchen and bathroom cabinet production and
light fixture manufacturing.
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
The Company owns approximately 48% of the issued and outstanding
capital stock of DCT, a publicly-held company whose common stock is listed on
the AMEX.
Products. DCT is an integrated video and audio communications company
which offers video and audio tape duplication and satellite communications
services. DCT duplicates a variety of video and audio cassettes, including
full-length movies, training, music, sales, sports and educational programs. DCT
offers its reproduction services to industrial companies, advertising agencies,
direct selling organizations and educational and religious groups and its
customers include Blockbuster Entertainment, Polygram, Tandy, Foot Locker and
Burger King. DCT's satellite communications system is capable of transmitting
live or pre-recorded programming from remote locations to satellites. DCT's
satellite communications customers include local, network and cable television
operators.
Customers. During the year ended June 30, 1994, one customer,
Polygram, accounted for approximately 21% of DCT's sales. During the year
ended June 30, 1993, two of DCT's largest customers, Polygram and Atlantic
Distribution, accounted for 17% and 14%, respectively, of its sales.
Approximately 32% of DCT's revenues were derived from Atlantic Distribution
during the year ended June 30, 1992.
Raw Materials and Manufacturing. DCT purchases blank audio and video
cassettes for its reproduction business from several distributors at market
prices in the United States and the Pacific Rim. The cassettes are readily
available on the open market. The majority of DCT's video duplication equipment
is manufactured by several major manufacturers in Japan and purchased from
domestic distributors.
The equipment utilized in DCT's satellite broadcasting business
includes two KU band broadcasting trucks, cameras, generators, telephonic
equipment and dual transmitters. DCT purchases its materials and equipment from
several major manufacturers and believes that the loss of any of its suppliers
or manufacturers would not have a material adverse effect on DCT's business,
financial condition and results of operations.
Properties. DCT duplicates video and audio tapes at two facilities, one
located in Ft. Lauderdale, Florida and one located in Indianapolis, Indiana. The
Ft. Lauderdale facility, which is made up of two adjacent buildings and covers a
total of approximately 24,000 square feet, is a real-time duplication facility
with the capacity to duplicate 45,000 videos per day. The Indianapolis facility,
which covers approximately 66,000 square feet, is a fully automated, state of
the art high-speed duplication facility with the capacity to duplicate 160,000
videos per day.
Competition. DCT's industry is highly competitive. There are other
commercial video duplicating and satellite broadcasting companies which compete
with DCT and have greater financial resources and sales volume than DCT. DCT
depends upon its ability to provide quality services at competitive prices to
its customers in order to be competitive.
22
<PAGE> 24
Employees. As of May 15, 1995, DCT had a total of approximately 206
employees, all of whom are full-time employees. None of the employees are
represented by a labor union. The Company believes that DCT has good relations
with its employees.
AMERICAN QUALITY MANUFACTURING CORPORATION
The Company presently owns approximately 98.5% of the issued and
outstanding common stock of AQM.
The Company is in the process of distributing to its stockholders
500,000 of its shares of AQM common stock. Based on the 14,010,828 shares of the
Company's Common Stock issued and outstanding on June 21, 1995, the distribution
will be made on the basis of one share of AQM common stock for every 28.05
shares of the Company's Common Stock outstanding on the date of the
distribution. The 500,000 shares of AQM common stock to be distributed are
currently being registered pursuant to a Registration Statement on Form S-1.
Upon effectiveness of such Registration Statement and after the distribution of
the 500,000 shares of AQM common stock, the Company will own approximately 91.5%
of the issued and outstanding common stock of AQM.
Products. AQM believes that it is one of the largest manufacturers of
unfinished wood cabinet products and vanities for the home, including kitchen
cabinets, bathroom cabinets and vanities and storage cabinets. AQM has also
recently introduced a line of finished cabinet products and has designed and
developed full-scale prototypes for several styles of home leisure products,
including home entertainment centers and electronic furniture centers. AQM
distributes its products to the remodeling and new construction markets through
a variety of channels, including home centers and independently owned retailers.
Customers. The following three customers accounted for the following
percentages of AQM's sales in fiscal year 1993: Payless Cashways (26.51%); The
Home Depot (18.64%); and Grossman's (18.25%). The following three customers
accounted for the following percentages of AQM's sales in fiscal year 1994:
Payless Cashways (17.82%); Grossman's (10.32%); and The Home Depot (12.86%). The
loss of any of these customers could have a material adverse effect on AQM. As
is customary in the industry, AQM does not have long-term supply contracts with
any of its customers.
Raw Materials and Manufacturing. The materials used in AQM's
manufacturing operations include oak and birch lumber, particle board, fiber
board, laminates, paper and vinyl coverings, glass, furniture hardware and
packaging material. AQM is dependent upon outside suppliers for all of its raw
material needs and, therefore, is subject to fluctuations in prices of raw
materials. In particular, AQM's results of operations are affected significantly
by increases in the market prices of wood and wood products such as particle
board. AQM buys its raw materials at market-based prices from numerous
independent suppliers. Prices of wood and wood products can be adversely
affected by, among other things: (i) an overall shortage of lumber in the United
States caused by poor weather in timber harvesting areas; (ii) governmental
restrictions on lumber harvesting in the Pacific Northwest; (iii) an increase in
housing construction; (iv) increased demand for papermill by-products, which are
the primary materials used in the production of particle board; and (v)
increased substitution of particle board for solid wood. AQM purchases these
materials from various suppliers at market prices and believes that the loss of
any one of its suppliers would not have a material adverse effect on AQM's
business, financial condition and results of operations.
Properties. AQM manufactures its products in two facilities, one
located in Conway, Arkansas and the other in Burlington, Kansas. The Conway
facility, which was opened in 1990, covers approximately 200,000 square feet.
The Burlington facility, which was opened in 1991 and which the Company leased
in March 1994, covers approximately 185,000 square feet.
23
<PAGE> 25
Competition. The industry in which AQM operates is highly competitive
and includes a large number of both domestic and foreign manufacturers. Certain
of AQM's competitors have greater sales volumes and greater financial resources
than AQM.
The Company believes the following factors have enabled AQM to compete
effectively: (i) its low cost products that are attractively styled and high
quality; (ii) its ability to anticipate new markets and distribution channels
for its products; (iii) its continuing effort to improve its products; (iv) its
low cost production capabilities and stable, experienced work force; (v) its
strong commitment to customer service; and (vi) its experienced management team.
Employees. As of March 10, 1995, AQM had a total of approximately 367
employees, approximately 300 of whom are full-time employees. None of the
employees are represented by a labor union. The Company believes that AQM has
good relations with its employees.
TEMPO LIGHTING, INC.
The Company owns all of the issued and outstanding common stock of
Tempo.
Products. Tempo designs, manufactures, assembles and markets a line of
medium-priced residential and commercial lamps and lighting fixtures. Tempo's
current line consists of approximately 525 designs that include medium-priced
contemporary and traditional table lamps, floor lamps and lighting fixtures and
a line of slightly higher-priced contemporary table and floor lamps under the
trade name "Infiniti Lighting." Tempo's products are sold throughout the United
States and the Caribbean principally to furniture stores, department stores and
lighting specialty shops including JC Penney and Burdine's Stores. The
products are also sold to large commercial users, such as office buildings and
hotels.
Customers. During the year ended June 30, 1994, one customer of Tempo,
JC Penney, accounted for approximately 15% of Tempo's revenues. During the year
ended June 30, 1993, two customers of Tempo, JC Penney and Rent-a-Center,
accounted for approximately 15% each of Tempo's revenues.
Raw Materials and Manufacturing. The raw materials used in Tempo's
manufacturing operations are glassware, ceramic, brass, wood, plastic and
various types of fabric. Tempo also purchases various component parts such as
electrical sockets and castings. Tempo purchases its raw materials and component
parts from several suppliers and believes that the loss of any of its suppliers
would not have a material adverse effect on Tempo's business, financial
condition and results of operations.
Properties. Tempo manufactures its products at two facilities, one in
Hialeah, Florida and one in Bangs, Texas. The Hialeah facility covers
approximately 27,000 square feet and the Bangs facility covers approximately
52,000 square feet. Tempo's manufacturing operations consist of fabrication,
assembly and testing of the parts and components, painting, finishing, firing
and decorating. Tempo also has fully integrated lamp shade manufacturing
operations. Tempo also has showrooms and sales offices in Dallas, Texas,
Atlanta, Georgia and High Point, North Carolina.
Competition. The lighting fixture industry is highly fragmented,
consisting of many companies that compete with Tempo that are larger and have
greater resources. The Company believes that Tempo's principal competitive
advantages are its high product quality, variety of products and competitive
prices.
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<PAGE> 26
Employees. As of May 15, 1995, Tempo had a total of approximately 86
employees, all of whom are full-time employees. None of the employees are
represented by a labor union. The Company believes that Tempo has good relations
with its employees.
PROPERTIES
Set forth below is certain information with respect to the Company's
principal properties. The Company believes that all of these properties are
adequately insured, in good condition and suitable for the uses described below.
<TABLE>
<CAPTION>
Lease
Approximate Size Owned/ Expiration
LOCATION Primary Use (Square Feet) Leased Date
- -------- ----------- ---------------- ------ ---------------
<S> <C> <C> <C> <C>
Hialeah, Manufacturing 27,000 Leased(1) July 1996
Florida Office
Ft.Lauderdale, Duplication 12,000 Leased Month to Month
Florida Office
Ft.Lauderdale, Warehouse 12,000 Owned(2)
Florida
Indianapolis, Duplication 66,000 Leased June 1999
Indiana
Conway, Manufacturing 200,000 Leased(3) December 2009
Arkansas Office
Burlington, Manufacturing 185,000 Leased(4) May 2014
Kansas Office
Bangs, Manufacturing 52,000 Owned(5)
Texas
Dallas, Showroom 1,416 Leased May 1996
Texas Sales
Atlanta, Showroom 1,500 Leased November 1996
Georgia Sales
High Point, Showroom 2,773 Leased May 2000
North Carolina Sales
</TABLE>
(1) Donald E. Courtney, a former director and officer of the Company,
is a partner in the partnership that owns the Hialeah facility. See "Certain
Relationships and Related Transactions."
(2) The Company purchased this facility on March 31, 1992 for a
purchase price of $398,000.
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<PAGE> 27
(3) DeWayne Davis, a former director and officer of the Company and
AQM, is a major shareholder in American Industries, Inc., which owns the Conway
facility. See "Certain Relationships and Related Transactions."
(4) AQM has leased the Burlington, Kansas facility from the Coffey
County, Kansas Board of County Commissioners for a term of 20 years. Upon
expiration of the initial 20-year term, the Company has the option to renew the
lease for an additional 20-year term or purchase the facility.
(5) The Company purchased the Bangs facility on June 10, 1992. The
purchase price for the Bangs facility was $300,000 with a down payment of
$100,000 and a deed of trust in the amount of $200,000 to be paid over a period
of 72 months at an interest rate of 9% per annum and monthly payments of $3,605.
ENVIRONMENTAL REGULATIONS
The Company's operations, through its subsidiaries AQM and Tempo, are
subject to extensive federal, state and local laws, regulations and ordinances
relating to the generation, storage, handling, emission, transportation and
discharge of certain materials, substances and waste into the environment.
Permits are required for certain of the Company's operations and are subject to
revocation, modification and renewal by governmental authorities.
Governmental authorities have the power to enforce compliance with
their regulations, and violators may be subject to fines, injunctions or both.
Compliance with these regulations has not in the past had a material effect on
the Company's earnings, capital expenditures or competitive position. The
Company anticipates increased federal and state environmental regulation
affecting it as a manufacturer, particularly regarding emissions and the use of
certain materials in the production process. In particular, regulations
currently being issued under the Clean Air Act Amendments of 1990 likely will
subject the Company to new standards regulating emissions of certain hazardous
air pollutants from certain of its manufacturing operations. The Environmental
Protection Agency's development of these standards is still at a preliminary
stage. The Company cannot at this time estimate the impact of these new
standards on the Company's operations, future capital expenditure requirements
or the cost of compliance.
The manufacturing facilities of AQM and Tempo ship waste products to
various disposal sites. To the extent that such waste products include hazardous
substances that could be discharged into the environment at such disposal sites
or elsewhere, the Company could be potentially subject to laws which provide for
responses to and liability for releases of hazardous substances into the
environment and liability for natural resource damages. One example of such laws
is the federal Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"). Generally, liability under CERCLA is joint and
several and is determined without regard to fault. In addition to CERCLA,
similar state or other laws and regulations may impose the same or even broader
liability for releases of hazardous substances.
LITIGATION
The Company may from time to time be party to various legal actions
arising in the ordinary course of its business. In addition, the Company is
currently involved in litigation with a former officer and director of the
Company and AQM. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Pending Litigation." The Company does not
believe that it is currently involved in any pending actions that will have a
material adverse effect on its business, financial condition and results of
operations.
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<PAGE> 28
MANAGEMENT
The following table sets forth certain information about the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kevin B. Halter 59 President, Chief Executive Officer
Chairman of the Board
Sanford M. Whitman 60 Chief Financial Officer, Vice President
and Treasurer
Kevin B. Halter, Jr. 34 Vice President, Secretary and Director
Gary C. Evans 36 Director
Charles Acton 62 Director
James Smith 58 Director
</TABLE>
Set forth below is a description of the backgrounds of the executive
officers and directors of the Company.
Kevin B. Halter has served as President, Chief Executive Officer and
Chairman of the Board of the Company since June 28, 1994. Mr. Halter also served
as Vice Chairman of the Board of the Company from January 1994 to June 28, 1994.
Mr. Halter has served as Vice Chairman of the Board of DCT since February 1994.
Mr. Halter also serves as Chairman of the Board of Directors of AQM. In
addition, Mr. Halter has served as Chairman of the Board and Chief Executive
Officer of Halter Capital Corporation ("HCC"), a privately-held investment and
consulting company, since 1987. From 1987 until October 1992, Mr. Halter was a
director and officer of Halter Venture Corporation, a publicly-held company
based in Dallas, Texas. Mr. Halter is the father of Kevin B. Halter, Jr.
Sanford M. Whitman has served as Chief Financial Officer of the Company
since 1992 and as Vice President and Treasurer since January 1994. Mr. Whitman
has also held these offices in AQM since March 1995. Mr. Whitman has also served
as Chief Financial Officer of DCT and Tempo since 1992 and has served as Vice
President, Treasurer and Assistant Secretary of DCT since January, 1994. In
addition, Mr. Whitman has served as Chief Financial Officer, Vice President and
Treasurer of AQM since March 1995. Mr. Whitman served as Controller of U.S.
Brass Corporation from 1979 to 1988 and as Chief Financial Officer of the
Roberts Group from 1990 through 1992. Mr. Whitman was an independent consultant
from 1989 through 1990.
Kevin B. Halter, Jr. has served as Vice President, Secretary and
director of the Company and DCT since January 1994. Mr. Halter has also served
as Secretary and director of AQM since February 1994. He is also the President
of Securities Transfer Corporation, a registered stock transfer company, a
position he has held since 1987. Mr. Halter is also Vice President and Secretary
of HCC. Mr. Halter also served as a director and officer of Texas American
Group, Inc., a publicly-held company, from 1987 to July 1989 and as a director
and officer of Ceetac Corporation, a publicly-held company, from the Spring of
1991 until September 1991. Mr. Halter is the son of Kevin B. Halter.
Gary C. Evans currently serves as a director of the Company. Mr. Evans
has served as Chairman of the Board, President and Chief Executive Officer of
Hunter Resources, Inc. (formerly Intramerican Corporation) since September 1992.
Mr. Evans also served as President, Chief Operating Officer and director of
Hunter Resources, Inc. from December 1990 to September 1992. He was President
and Chief Executive Officer of Sunbelt Energy, Inc. and its subsidiaries from
1985 to December 1990. Mr. Evans is President and Chief Executive Officer of
Gruy Petroleum Management Co. and IOM Gas, Inc., wholly-owned subsidiaries of
Hunter Resources, Inc. Mr.
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<PAGE> 29
Evans was Vice President and Manager of the Southwestern region of the Energy
division of Mercantile Bank of Canada for four years prior to forming Sunbelt
Energy, Inc.
Charles Acton has served as a director of the Company since January
1994. Mr. Acton has served as President and Chief Executive Officer of
Duncanville National Bank since June 1989.
James Smith has served as a director of the Company since March 1995.
Mr. Smith has served as President of Pension Analysis Bureau, Inc., a consulting
firm specializing in the administration of company retirement and profit sharing
plans, since 1993. Mr. Smith also served as Vice President of Pension Analysis
Bureau, Inc. from 1988 to 1992.
All directors of the Company hold office until the next annual meeting
of stockholders or until their successors have been elected and qualified.
Executive officers are elected by the Company's Board of Directors to hold
office until their respective successors are elected and qualified.
The Company's Bylaws provide that directors may be paid their expenses,
if any, and may be paid a fixed sum for attendance of each Board of Directors
meeting. No directors received any compensation for attending Board meetings
during the fiscal year ended June 30, 1994.
The Company is currently involved in litigation with a former officer
and director of the Company and AQM. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Pending Litigation."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee, each composed of at least two independent directors. The
Audit Committee, composed of Kevin B. Halter, Gary C. Evans and Charles Acton,
recommends the annual appointment of the Company's auditors, with whom the Audit
Committee will review the scope of audit and non-audit assignments and related
fees, accounting principals used by the Company in financial reporting, internal
auditing procedures and the adequacy of the Company's internal control
procedures. The Compensation Committee, composed of Kevin B. Halter, Gary C.
Evans and Charles Acton, will administer the Company's ESOP and 1988 Employee
Stock Option Plan and make recommendations to the Board of Directors regarding
compensation for the Company's executive officers.
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<PAGE> 30
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid
by the Company to its President for the fiscal years ended June 30, 1994, 1993
and 1992. None of the Company's other executive officers and directors received
cash or non-cash compensation in excess of $100,000 for the fiscal year ended
June 30, 1994.
<TABLE>
<CAPTION>
Long Term Compensation
Awards Payouts
------ -------
ANNUAL COMPENSATION
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other
and Annual Restricted
Principal Compen- Stock Options/ LTIP All Other
Position Year Salary Bonus sation Awards SARs(#) Payouts Compensation
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald E. Courtney 1994 $96,300 - - - - - -
President and 1993 $96,300 - - - - - -
Chairman of the Board 1992 $96,300 - - - - - -
</TABLE>
The following table sets forth a summary of each exercise of stock
options during fiscal year 1994 with respect to the Company's executive
officers.
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED
---- ----------- --------
<S> <C> <C>
Donald E. Courtney, 300,000 $1,050,000
President and Chairman
of the Board
</TABLE>
EMPLOYMENT AGREEMENTS
The Company had an employment agreement with Donald E. Courtney
providing for a salary of $96,300 per annum. In addition, Mr. Courtney received
the use of an automobile and reimbursement for expenses incurred on behalf of
the Company. The employment agreement also contained, among other things,
covenants by Mr. Courtney in the event of termination for cause not to associate
with a business that competes with the Company for a period of five years after
cessation of employment. The Company also has an employment agreement with Mr.
Sanford Whitman for a term of 3 years providing for a salary of $60,000 per
annum. In addition, Mr. Whitman is to receive life insurance and reimbursement
for expenses incurred on behalf of the Company. The employment agreement also
contains, among other things, covenants by Mr. Whitman in the event of
termination for cause not to associate with a business that competes with the
Company for a period of five years after cessation of employment.
DCT has employment agreements with its key employees, Jack D. Brown,
Jr. and Jim N. Weinberg. The employment agreements extend for one year and
provide for bonus arrangements based on specified formulas.
AQM has an employment agreement with Clifford Patton providing for a
salary of $100,000 per year for a term of 3 years. In addition, Mr. Patton will
receive the use of an automobile and reimbursement for expenses incurred on
behalf of AQM. The employment agreement also contains, among other things,
covenants by Mr. Patton in the event of termination for cause not to associate
with a business that competes with AQM for a period of one year after cessation
of employment.
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<PAGE> 31
EMPLOYEE STOCK OWNERSHIP PLAN
The Company's ESOP provides retirement benefits to substantially all
employees. The ESOP is a qualified employee benefit plan under the Internal
Revenue Code of 1986, as amended. There are 800,000 shares of Common Stock
available for the ESOP. Employees of DCT are also eligible to participate in the
ESOP.
On January 7, 1991, the Employee Stock Ownership Trust (the "ESOT")
purchased 800,000 shares of Common Stock at fair market value as determined by
the average bid and ask price information obtained from the National Quotation
System, Inc. The holders of such Common Stock are entitled to vote on all
matters presented to holders of Common Stock. The ESOT provides for pass through
of voting rights to the ESOP participants and beneficiaries.
1988 EMPLOYEE STOCK OPTION PLAN
On March 19, 1988, the Company's Board of Directors adopted the S.O.I.
Industries, Inc. 1988 Employee Stock Option Plan (the "Plan"). The Plan was
approved by a vote of the stockholders on July 3, 1989.
The administration of the Plan rests with the Compensation Committee
(the "Committee"). Subject to the express provisions of the Plan and the Board
of Directors, the Committee shall have complete authority in its discretion to
determine those employees to whom, and the price at which options shall be
granted, the option periods and the number of shares of Common Stock to be
subject to each option. The Committee shall also have the authority in its
discretion to prescribe the time or times at which the options may be exercised
and limitations upon the exercise of options (including limitations effective
upon the death or termination of employment of the optionee), and the
restrictions, if any, to be imposed upon the transferability of shares acquired
upon exercise of options. In making such determinations, the Committee may take
into account the nature of the services rendered by respective employees, their
present and potential contributions to the success of the Company or its
subsidiaries, and such other factors as the Committee in its discretion shall
deem relevant.
An option may be granted under the Plan only to an employee of the
Company or its subsidiaries. The Plan made available for option 2,000,000 shares
of the Company's Common Stock.
If an optionee ceases to be employed by the Company or any of its
subsidiaries, his or her options shall terminate immediately; provided, however,
that if an optionee's cessation of employment with the Company and its
subsidiaries is due to his death or retirement with the consent of the Company
or any of its subsidiaries, the optionee may, at any time within twelve months
in the event of death, or three months after such cessation of employment,
exercise his options to the extent that he was entitled to exercise them on the
date of cessation of employment, but in no event shall any option be exercisable
more than five years from the date it was granted.
The term of each option granted under the Plan will be for such period
not exceeding five years as the Committee shall determine. Each option granted
under the Plan will be exercisable on such date or dates and during such period
and for such number of shares as shall be determined pursuant to the provisions
of the option agreement evidencing such option. Subject to the express
provisions of the Plan, the Committee shall have complete authority, in its
discretion, to determine the extent, if any, and the conditions under which an
option may be exercised in the event of the death of the optionee or in the
event the optionee leaves the employ of the Company or has his employment
terminated by the Company. The purchase price for shares of Common Stock under
each option shall be determined by the Committee at the time of the option's
issuance and may be less than the fair market value of such shares on the date
on which the options are granted. The agreements evidencing the
30
<PAGE> 32
grant of options may contain other terms and conditions, consistent with the
Plan, that the Committee may approve.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 15, 1995
with regard to the beneficial ownership of the Common Stock by (i) each person
known to the Company to be the beneficial owner of 5% or more of its outstanding
Common Stock, (ii) by the officers, directors and key employees of the Company
individually and (iii) by the officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENT
------------------ -------
<S> <C> <C>
Halter Capital Corporation 3,918,100 28
16910 Dallas Parkway #100
Dallas, Texas 75248
Digital Communications 3,066,678(1) 23
Technology Corporation
3941 SW 47th Avenue
Ft. Lauderdale, FL 33314
Kevin B. Halter 4,018,100(2)(3) 29
Sanford M. Whitman 12,285 (6)
Kevin B. Halter, Jr. 4,018,100(2)(3) 29
DeWayne Davis 750,000(4) 5.7
Gary C. Evans 144,312(5) (6)
Charles Acton 1,455 (6)
All directors and officers as a 4,183,295 30
group (6 persons)
</TABLE>
(1) The Company owns approximately 48% of the issued and outstanding
common stock of DCT. See "Business" and "Certain Relationships and Related
Transactions."
(2) Kevin B. Halter and Kevin B. Halter Jr. serve as directors and
officers of HCC and as a result may each be deemed to be the beneficial owner of
the 3,918,100 shares of Common Stock beneficially owned by HCC. However,
pursuant to Rule 1 6a-3 promulgated under the Exchange Act, they expressly
disclaim that they are the beneficial owner, for purposes of Section 16 of the
Exchange Act, of any such stock, other than those shares in which they have an
economic interest.
(3) This number includes 100,000 shares of Common Stock which are
subject to an option which is currently exercisable.
(4) This number includes 550,000 shares held by Mr. Davis (a former
director and officer of the Company) and 200,000 s hares held in a trust for the
benefit of his children established on August 1, 1988, with Sharon Davis, wife
of Mr. Davis , serving as Trustee. Pursuant to Rule 16a-3 promulgated under the
Exchange
31
<PAGE> 33
Act, Mr. Davis expressly disclaims that he is the beneficial owner,
for purposes of Section 16 of the Exchange Act, of any of the 200,000 shares
held in trust, ot her than those in which he has an economic interest.
(5) This number includes 9,177 shares of Common Stock held by Mr. Evans
and 135,135 shares of Common Stock held by Evans Equity L.L.P., in which Mr.
Evans is a member.
(6) Less than 1%.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSITION AGREEMENT
In connection with the initial public offering of DCT on May 12, 1989,
the Company entered into a transition agreement (the "Transition Agreement")
with DCT for a ten year period commencing on May 12, 1989 (the "Closing Date")
during which the Company is required to furnish to DCT certain financial,
accounting, data processing, management, and other administrative services for a
monthly fee of $1,300. Prior to the Closing Date, DCT had been paying the
Company an equivalent amount on a month to month basis. The Transition Agreement
was amended as of January 1, 1992 so that the administrative fee to be paid each
month by DCT, Tempo, and Omni Doors, Inc., a wholly-owned subsidiary of the
Company, is $17,00 0, $4,500 and $1,000 respectively. In February 1994, the
Board of Directors agreed that there would be no further fees paid to the
Company pursuant to the Transition Agreement until the Board expressly agrees to
resume such fees at a later date.
In November 1994, the Board of Directors agreed to reinstate
administrative fees to be paid each month by DCT, Tempo, and Omni Doors, Inc.
of $26,800, $7,300 and $400, respectively. In addition, the Company instituted
monthly administrative fees of $18,300 for AQM and $3,200 from Tapes Unlimited,
Inc., a wholly-owned subsidiary of DCT.
The Transition Agreement also provides that, as long as the Company
owns either (i) 25% of DCT's shares provided no other stockholder owns more than
40% of the outstanding shares of Common Stock or (ii) at least a majority of
DCT's shares, DCT will be required to obtain the Company's approval, in
accordance with certain corporate approval procedures established by the Company
for certain transactions. The Transition Agreement also provides that DCT will
indemnify the Company in the event of certain liabilities under the Securities
Act.
LEASE OF HIALEAH FACILITY
Donald E. Courtney, the former President and Chairman of the Board of
the Company, is a partner in a partnership that owns the property leased by the
Company at 1051 East 24th Street, Hialeah, Florida. See "Business --
Properties." Mr. Court ney is a 50% partner and the remaining 50% is owned by
unrelated parties. Management of the Company believes the rental rates and
other terms and conditions of the lease are competitive with comparable
properties in the area and are at least as favorable as could be obtained from
an unrelated party.
EXCHANGE OF SHARES WITH DCT
On May 4, 1992 the Board of Directors agreed to exchange shares of the
Company's Common Stock for common stock of its subsidiary, DCT. On May 7, 1992
the exchange of shares was made based on the average price of the stock of both
companies on that day. The 3,000,000 shares of DCT stock that were exchanged
were worth approximately $2,062,500 and were exchanged for 1,736,842 shares of
the Company's Common Stock worth approximately $2,062,500. The reason for this
share exchange was that DCT had issued warrants to purchase
32
<PAGE> 34
DCT common stock in DCT's initial public offering, and the Company wished to
retain the same percentage of ownership in DCT upon exercise of the warrants
and the sale of related common stock.
On January 27, 1994 the Board of Directors agreed to exchange
additional shares of the Company's Common Stock for common stock of DCT. On
February 14, 1994 the exchange of shares was made based on the average price of
the stock of both companies on January 27, 1994. The 580,538 shares of DCT's
common stock that were exchanged were worth approximately $4,574,636 and were
exchanged for 1,329,836 shares of the Company's Common Stock worth approximately
$4,574,636. The reason for the share exchange was that the Company wished to
sell certain shares of its DCT common stock pursuant to Rule 144 and still
retain the same percentage of ownership in DCT upon such sale.
EXCHANGE OF SHARES WITH CERATECH CORPORATION
On June 30, 1992 the Board of Directors of the Company (with Donald E.
Courtney abstaining) voted to exchange all of the outstanding shares of CeraTech
Corporation, a former wholly-owned subsidiary of the Company, with Mr. Courtney
in exchange for 1,500,000 of his shares of the Company's Common Stock and
repayment of $273,497 of outstanding debt to the Company owed by CeraTech
Corporation. The debt was repaid at $10,000 per month plus interest at the Wall
Street Journal "prime rate" as published in the first edition of each month on
the unpaid balance. In determining the fairness of the transaction, the Board of
Directors received a report from an independent certified accountant. The
directors ratified the transaction on August 7, 1992.
LEASE OF CONWAY FACILITY
DeWayne Davis, a former director and officer of the Company, owns 50%
of the outstanding common stock of American Industries, Inc., which owns the
Conway facility. The monthly rental payment is $20,000 and the lease expires on
December 31, 2009. Management of the Company believes the rental rates and other
terms and conditions of the lease are competitive with comparable properties in
the area and are at least as favorable as could be obtained from an unrelated
party.
Mr. Davis is also a director and former officer of BWA. In the past,
AQM has purchased a portion of its plywood needs from APS, a subsidiary of BWA.
For fiscal years ended June 30, 1994 and May 31, 1993, APS sold AQM
approximately $2,000,000 and $4,900,000 worth of wood products, respectively. At
the time of the purchases, AQM believed that APS charged AQM on a competitive
price basis. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Pending Litigation." AQM has ceased purchasing any
materials from BWA or APS and has secured alternative suppliers which AQM
believes will meet its production requirements.
ISSUANCE OF AQM COMMON STOCK TO HCC
On October 1, 1994, AQM issued 90,000 shares of its common stock to HCC
as compensation for certain consulting services pursuant to a consulting
agreement. The consulting services to be provided by HCC to AQM included the
preparing of proposals regarding AQM becoming a public company and preparation
and review of all documents required to be filed with the Securities and
Exchange Commission in order to effectuate the distribution, including AQM's
registration statement and all necessary amendments. In addition, HCC will
provide certain other services which include preparing public relations
materials for AQM, providing introductions to brokerage firms, coordinating
conference calls with brokerage professionals, assisting with brokerage
presentations and assistance in the process of raising capital through
introductions to underwriters and private investors and preparation and review
of private placement memorandums or registration statements, if necessary.
33
<PAGE> 35
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective January 1993, the Company retained the accounting firm of
Wainberg, Zipper, Strauss & Co., P.A. its independent auditors. The Company's
former accounting firm, Mishkin, Horowitz & Boas, P.A., was dissolved and
effectively ceased to exist as of January 1993. The Company has had no
disagreements with Mishkin, Horowitz & Boas, P.A. on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure or reportable events.
Effective January 1994, the Company engaged the accounting firm of
Morrison, Brown, Argiz & Company as its independent auditors. The Company's
former accounting firm, Wainberg, Zipper, Strauss & Co., P.A., was dissolved and
effectively ceased to exist as of January 1994. The Company has had no
disagreements with Wainberg, Zipper, Strauss & Co., P.A. on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure or any reportable items.
The accounting firm of Morrison, Brown, Argiz & Co., the independent
auditors for the Company, was dismissed effective as of December 6, 1994. During
the fiscal year ended June 30, 1994 and the interim period subsequent to June
30, 1994, there have been no disagreements with Morrison, Brown, Argiz & Co. on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure or any reportable events. Morrison,
Brown, Argiz & Co.'s report on the financial statements for the fiscal year
ended June 30, 1994 contained no adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope or accounting
principles.
The Company engaged the accounting firm of Coopers & Lybrand L.L.P. as
independent auditors for the Company, effective as of December 6, 1994. During
the fiscal years ended June 30, 1993 and 1994 and the interim period subsequent
to June 30, 1994, there have been no consultations with Coopers & Lybrand L.L.P.
on any matter of accounting principles to a specific transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's financial statements.
DESCRIPTION OF CAPITAL STOCK
The Certificate of Incorporation, as amended (the "Certificate of
Incorporation") of the Company authorizes the issuance of 20,000,000 shares of
Common Stock, par value $.000025 per share. Holders of Common Stock are entitled
to one vote for each share on each matter submitted to a vote of stockholders.
All outstanding shares of Common Stock of record are fully paid, validly issued
and nonassessable and the holders of Common Stock have no preemptive rights to
subscribe for or to purchase any additional securities issued by the Company.
The Certificate of Incorporation provides for cumulative voting. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in the distribution of assets remaining
after payment of debts and expenses. There are no conversion, sinking fund or
redemption provisions, or any restrictions on alienability with respect to the
Common Stock.
The holders of Common Stock are entitled to receive dividends, when and
if declared by the Board of Directors, out of funds legally available therefor.
See "Dividend Policy."
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Section 203 of the
Delaware General Corporation Law (the "DGCL") contain certain provisions that
may make the acquisition of control of the Company by means of a tender offer,
open market purchase, proxy fight or otherwise more difficult.
34
<PAGE> 36
Business Combinations. The Company is a Delaware corporation and is
subject to Section 203 of the DGCL. In general, subject to certain exceptions,
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless upon consummation of such transaction,
the interested stockholder owned 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding those shares owned by (x) persons
who are directors and also officers and (y) employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer)
or unless the business combination is, or the transaction in which such person
became an interested stockholder was, approved in a prescribed manner. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or,
in the case of affiliates and associates of the issuer, did own within the last
three years) 15% or more of the corporation's voting stock other than a person
who owned such shares on December 23, 1987.
Indemnification. The Certificate of Incorporation provides that the
Company shall advance expenses to and indemnify each director and officer of the
Company to the fullest extent permitted by law and will limit the liability of
directors to corporations and their stockholders for monetary damages in certain
circumstances.
35
<PAGE> 37
SELLING STOCKHOLDERS
The following table provides certain information with respect to the
shares of Common Stock held by each Selling Stockholder.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF COMMON NUMBER OF SHARES OF COMMON
STOCK BENEFICIALLY SHARES OF COMMON STOCK BENEFICIALLY
OWNED BEFORE THE STOCK REGISTERED OWNED AFTER THE
NAME OFFERING HEREUNDER OFFERING
---- -------- --------- --------
<S> <C> <C> <C>
Halter Capital Corporation (1) 2,075,143 2,075,143 -0-
DeWayne Davis(2) 650,000 650,000 -0-
Donald E. Courtney (3) 300,000 300,000 -0-
Evans Equity, L.L.C. (4) 135,135 135,135 -0-
Richard A. Hansen 100,000 100,000 -0-
Kwai Chung Corporation 100,000 100,000 -0-
Edward J. Lott 100,000 100,000 -0-
Stuart G. Johnston, Jr. 70,000 70,000 -0-
M.D. Abel 15,000 15,000 -0-
Catherine J. Alven 15,000 15,000 -0-
Gary C. Evans (4) 7,722 7,722 -0-
</TABLE>
(1) HCC beneficially owns 3,918,100 shares, or approximately 28%, of
the issued and outstanding Common Stock. The 2,075,143 shares registered in
this Registration Statement were acquired by HCC from Donald E. Courtney. HCC
also owns 100 shares of Common Stock it had acquired prior to its acquisition of
Mr. Courtney's shares. HCC also has sole voting control over an additional
1,842,857 shares of Common Stock held by various Selling Stockholders and
certain other holders of the Common Stock. See "Risk Factors --Recent Change In
Control; Limited Operating History Under New Board of Directors ." The following
members of the Board of Directors of HCC also hold the following positions in
the Company: Mr. Kevin B. Halter, President, Chief Executive Officer and
Chairman of the Board and Mr. Kevin B. Halter, Jr., Executive Vice Pres ident,
Secretary and director. See "Management."
(2) Mr. Davis formerly served as a director and officer of AQM and on
the Company's and DCT's Board of Directors.
(3) Mr. Courtney formerly served as the President and Chairman of the
Board of the Company.
(4) Gary C. Evans, a member of Evans Equity, L.L.C., currently serves
on the Company's Board of Directors.
36
<PAGE> 38
PLAN OF DISTRIBUTION
Any or all of the shares of Common Stock may be sold from time to time
to purchasers directly by any of the Selling Stockholders. Alternatively, any of
the Selling Stockholders may from time to time offer the shares of Common Stock
through underwriters, dealers or agents, who may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Stockholders or the purchasers of shares of Common Stock for whom they may act
as agents. The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of shares of Common Stock may be deemed to be
underwriters, and any profit on the sale of shares of Common Stock by them and
any discounts, commissions or concessions received by any such underwriters,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act. At the time a particular offering of shares of Common
Stock is made, to the extent required, a Prospectus Supplement will be
distributed which will set forth the aggregate amount and type of Common Stock
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions and other items
constituting compensation from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
Each Selling Stockholder may be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-2, 10b-6 and 10b-7, which provisions may limit the timing
of purchases and sales of any of the securities by the Selling Stockholders.
Pursuant to agreements entered into with the Selling Stockholders at
the time the Common Stock was issued, the Company will pay substantially all of
the expenses incident to the registration offering and sale of the Common Stock
to the public other than commissions and discounts of underwriters, dealers or
agents, if any. Such expenses (excluding such commissions and discounts) are
estimated to be $56,764.85.
EXPERTS
The financial statements as of June 30, 1994 and the year then ended
included in this Prospectus have been audited by Morrison, Brown, Argiz &
Company, independent auditors. The financial statements of AQM, which statements
reflect total assets of $11,186,645 as of June 30, 1994 and total revenues of
$9,585,572 for the six months then ended, were audited by S. W. Hatfield +
Associates, independent auditors. The financial statements as of June 30, 1993
and the year then ended included in this Prospectus have been audited by
Wainberg, Zipper, Strauss & Co., P.A., independent auditors and the financial
statements as of June 30, 1992 and the year then ended included in this
Prospectus have been audited by Mishkin, Horowitz & Boas, P.A., independent
auditors, as stated in their reports incorporated by reference herein are
included in reliance upon the reports of such firms given upon their authority
as experts in accounting and auditing.
37
<PAGE> 39
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
38
<PAGE> 40
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of S.O.I. Industries, Inc. (Audited)
Report of Morrison, Brown, Argiz & Company F- 1
Report of Wainberg, Zipper, Strauss & Co., P.A. F- 2
Report of Mishkin, Horowitz & Boas, P.C. F- 3
Report of S.W. Hatfield + Associates, Independent Public Accountants F- 4
Balance Sheets as of F- 5
June 30, 1994 and 1993
Statements of Operations for the Years Ended F- 7
June 30, 1994, 1993 and 1992
Statements of Shareholders' Equity for Years Ended F- 9
June 30, 1994, 1993 and 1992
Statements of Cash Flows for the Years Ended F- 10
June 30, 1994, 1993 and 1992
Notes to Financial Statements F- 12
Pro Forma Consolidated Financial Information of S.O.I. Industries, Inc.
(Unaudited)
Introduction to Pro Forma Financial Information F- 33
Pro Forma Statement of Income for the Year Ended June 30, 1994 F- 34
Notes to Pro Forma Financial Information F- 35
Annual Financial Statements of American Quality Manufacturing Corporation
(formerly American Cabinet, Inc.) 1993, 1992 and 1991 (Audited)
Report of S.W. Hatfield + Associates, Independent Certified Public F- 37
Accountants
Balance Sheets as of May 31, 1993 and 1992 F- 38
Statements of Operations for the Years Ended May 31, 1993, 1992 and 1991 F- 40
Statements of Changes in Shareholders' Equity for the Years Ended F- 41
May 31, 1993, 1992 and 1991
Statements of Cash Flows for the Years Ended May 31, 1993, 1992 and 1991 F- 42
</TABLE>
39
<PAGE> 41
<TABLE>
<S> <C>
Notes to Financial Statements F- 44
Schedules to Financial Statements F- 52
Interim Financial Statements of American Quality Manufacturing Corporation
(formerly American Cabinet, Inc.)(Unaudited)
Balance Sheet as of November 30, 1993 F- 58
Statements of Income for the Six Months Ended November 30, 1993 F- 59
and 1992
Statements of Income for the Three Months Ended November 30, 1993 F- 60
and 1992
Statements of Cash Flows for the Six Months Ended November 30, 1993 F- 61
and 1992
Notes to Interim Financial Statements F- 63
Interim Consolidated Financial Statements of S.O.I. Industries, Inc.(Unaudited)
Balance Sheets as of March 31, 1995 and June 30, 1994 F- 65
Statements of Income for the Nine Months Ended March 31, 1995 F- 66
and 1994
Statements of Cash Flows for the Nine Months Ended March 31, 1995 F- 67
and 1994
Notes to Interim Financial Statements F- 68
</TABLE>
40
<PAGE> 42
[MORRISON, BROWN, ARGIZ & COMPANY LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
S.O.I. Industries, Inc. and Subsidiaries
We have audited the consolidated balance sheet of S.O.I. Industries, Inc. and
Subsidiaries as of June 30, 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year 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 audit. We did not audit the financial
statements of American Quality Manufacturing Corporation, a wholly-owned
subsidiary, which statements reflect total assets of $11,186,645, as of June
30, 1994, and total revenues of $9,585,572 for the six months then ended.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for this
subsidiary, is based solely on the report of the other auditors. The
consolidated financial statements of S.O.I. Industries, Inc. and Subsidiaries
as of June 30, 1993 and 1992, were audited by other auditors whose reports
dated August 12, 1993 and September 2, 1992, respectively, expressed
unqualified opinions on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of S.O.I. Industries, Inc. and
Subsidiaries at June 30, 1994, and the results of their operations and cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
As discussed in NOTE 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes and for certain investments
in debt and equity securities. Also as discussed in NOTE 1, the consolidated
financial statements as of June 30, 1994 have been restated.
MORRISON, BROWN, ARGIZ & COMPANY
Certified Public Accountants
/s/ Morrison, Brown, Argiz & Company
Miami, Florida
August 31, 1994
Except with respect to NOTE 1B as to which
the date is June 15, 1995 and to NOTE 15
as to which the date is September 16, 1994
F-1
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
S.O.I. Industries, Inc. and Subsidiaries
We have audited the consolidated balance sheet of S.O.I. Industries, Inc. and
Subsidiaries as of June 30, 1993, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is the express an opinion on these financial statements based
on our audit. The financial statements of S.O.I. Industries, Inc. and
Subsidiaries as of June 30, 1992 and 1991, were audited by other auditors whose
report dated September 2, 1992, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of S.O.I. Industries, Inc. and
Subsidiaries at June 30,1993, and the results of their operations and cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Miami, Florida
August 12, 1993
WAINBERG, ZIPPER, STRAUSS & CO.
Certified Public Accountants
F-2
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors
S.O.I. Industries, Inc.
We have audited the consolidated Statement of Financial Condition of S.O.I.
Industries, Inc. as of June 30, 1992 and 1991 and the related consolidated
Statements of Operations, Shareholders' Equity and Cash Flows for each of the
two years in the period ended June 30, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards, Those standards require that we plan and perform the audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of S.O.I.
Industries, Inc. at June 30, 1992 and 1991 and the consolidated results of
their operations and cash flows for each of the two years in the period ending
June 30, 1992, in conformity with generally accepted accounting principles.
Miami, Florida
September 2, 1992
MISHKIN, HOROWITZ & BOAS, P.A.
Certified Public Accountants
F-3
<PAGE> 45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholder
American Quality Manufacturing Corporation
(formerly American Cabinet, Incorporated)
We have audited the accompanying balance sheets of American Quality
Manufacturing Corporation (a Delaware corporation) (formerly American Cabinet,
Incorporated) (a wholly-owned subsidiary of S. O. I. Industries, Inc.) as of
June 30, 1994 and May 31, 1993, and the related statements of operations,
changes in shareholder's equity and cash flows for each of the years ended May
31, 1993 and 1992. Additionally, we have audited the condensed balance sheets as
of December 31, 1993 (pre-acquisition by S. O. I. Industries, Inc.) and January
1, 1994 (post-acquisition by S. O. I. Industries, Inc.) and the statements of
operations and cash flows for each of the six month periods ended December 31,
1993 and June 30, 1994. Further, we have audited the transitional statements of
operations and cash flows for the month ended June 30, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of American Quality Manufacturing
Corporation (formerly American Cabinet, Incorporated) as of June 30, 1994,
January 1, 1994, December 31, 1993 and May 31, 1993, and the results of its
operations and its cash flows for each of the years ended May 31, 1993 and 1992;
for the six month periods ended June 30, 1994 and December 31, 1993 and for the
month ended June 30, 1993, respectively, in conformity with generally accepted
accounting principles.
As described in Note C to the financial statements, the Company changed its
method of accounting for income taxes in 1993 as required by the provisions of
Statement of Financial Accounting Standards No. 109.
Further, as discussed in Notes L and P in the Notes to Financial Statements, the
Company has significant transactions with affiliates.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying financial statement
schedules as listed in the accompanying index are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These financial statement schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements, and in our opinion, fairly present in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
August 24, 1994 (except for Note P as to
which the date is March 17, 1995)
F-4
<PAGE> 46
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 892,745 $ 755,340
Restricted cash 500,000 -
Marketable securities 3,379,472 3,418
Accounts receivable, net of allowance
for doubtful accounts 7,532,560 2,029,695
Loans receivable, related parties 301,876 6,537
Inventories 6,520,034 4,069,180
Prepaid expenses and other current assets 146,863 94,596
----------- -----------
TOTAL CURRENT ASSETS 19,273,550 6,958,766
PROPERTY, PLANT AND EQUIPMENT 8,166,518 4,376,376
GOODWILL 2,934,551 -
DEFERRED TAX ASSET 618,677 -
NET ASSETS OF DISCONTINUED SUBSIDIARY - 2,809,995
OTHER ASSETS 67,498 35,131
----------- -----------
$31,060,794 $14,180,268
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 47
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
<TABLE>
<CAPTION>
1994 1993
---------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 332,313 $ -
Revolving line of credit 6,624,896 1,750,000
Current portion of long-term debt 869,058 306,040
Current portion of ESOP note payable 121,745 128,571
Current portion of capital lease obligations 45,894 -
Accounts payable 4,037,492 1,218,247
Accrued liabilities 1,959,283 324,550
Payable to officers 132,558 -
Federal and State income taxes payable 621,377 133,230
----------- -----------
TOTAL CURRENT LIABILITIES 14,744,616 3,860,638
----------- -----------
LONG-TERM DEBT, less current maturities 2,717,166 1,638,306
----------- -----------
ESOP NOTE PAYABLE, less current maturities 355,089 460,715
----------- -----------
CAPITAL LEASE OBLIGATIONS, less current maturities 529,829 -
----------- -----------
DEFERRED INCOME TAXES 361,652 162,500
----------- -----------
MINORITY INTEREST 3,542,812 3,038,676
----------- -----------
COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock, 20,000,000 shares of $.000025
par value per share authorized; 10,901,470
issued June 30, 1994 and 8,859,470 issued
June 30, 1993 273 222
Additional paid-in capital 6,524,282 3,698,918
Retained earnings 3,149,640 1,909,579
Due from ESOP (476,834) (589,286)
Net unrealized holding loss on securities (387,731) -
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 8,809,630 5,019,433
----------- -----------
$31,060,794 $14,180,268
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 48
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
SALES, Net $34,117,088 $14,540,008 $ 8,392,878
----------- ----------- -----------
COSTS AND EXPENSES
Cost of goods sold (exclusive of
depreciation and amortization) 25,737,200 10,435,526 6,164,381
Selling expenses 2,991,262 1,253,763 1,004,609
General and administrative expenses 2,956,846 1,177,071 1,059,279
Depreciation and amortization 1,311,816 715,653 364,589
----------- ----------- -----------
TOTAL COSTS AND EXPENSES 32,997,124 13,582,013 8,592,858
----------- ----------- -----------
OPERATING INCOME (LOSS) 1,119,964 957,995 (199,980)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Realized gains on investment transactions 588,783 - -
Interest and other income 29,504 27,780 35,178
Interest expense (595,415) (168,994) (65,834)
Gain on sale of subsidiary's common stock 1,239,820 - -
----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) 1,262,692 (141,214) (30,656)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 2,382,656 816,781 (230,636)
PROVISIONS (CREDIT) FOR INCOME TAXES 708,800 310,513 (80,067)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST 1,673,856 506,268 (150,569)
DISCONTINUED OPERATIONS:
Income from operations 66,735 151,993 276,688
Loss on disposal of discontinued operations (162,164) - -
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 1,578,427 658,261 126,119
MINORITY INTEREST 338,366 320,339 115,913
----------- ---------- -----------
NET INCOME $ 1,240,061 $ 337,922 $ 10,206
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 49
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ----------
<S> <C> <C> <C>
WEIGHTED AVERAGE SHARES OF COMMON
STOCK OUTSTANDING 9,894,701 8,974,855 10,359,470
========= ========= ==========
EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $ .17 $ .06 $ (.01)
Income from discontinued operations .01 .02 .02
Loss on disposal of discontinued operations (.02) - -
---------- --------- ----------
Income before minority interest .16 .08 .01
Minority interest .03 .04 .01
---------- --------- ----------
NET INCOME $ .13 $ .04 $ .00
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 50
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NET UNREALIZED
---------------------- PAID-IN RETAINED DUE FROM HOLDING LOSS
SHARES AMOUNT CAPITAL EARNINGS ESOP ON SECURITIES
---------- -------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1991 10,359,470 $ 259 $ 4,190,746 $ 1,561,451 $ (846,398) $ -
EXERCISE OF WARRANTS - - 512,208 - - -
REDUCTION OF ESOP NOTE PAYABLE - - - - 128,541 -
NET INCOME FOR YEAR - - - 10,206 - -
---------- -------- ----------- ----------- ---------- ---------
BALANCE, JUNE 30, 1992 10,359,470 259 4,702,954 1,571,657 (717,857) -
EXERCISE OF WARRANTS - - 297,557 - - -
SHARE EXCHANGE AGREEMENT - CERATECH CORP. (1,500,000) (37) (1,301,593) - - -
REDUCTION OF ESOP NOTE PAYABLE - - - 128,571 -
NET INCOME FOR YEAR - - - 337,922 - -
------------ -------- ----------- ----------- ---------- ---------
BALANCE, JUNE 30, 1993 8,859,470 222 3,698,918 1,909,579 (589,286) -
EXERCISE OF WARRANTS AND STOCK EXCHANGE - - 371,978 - - -
SHARE EXCHANGE AGREEMENT - AMERICAN
QUALITY MANUFACTURING CORP. 1,300,000 33 2,274,967 - - -
EXERCISE OF STOCK OPTIONS 530,000 13 132,487 - - -
SHARES ISSUED FOR SERVICES 212,000 5 45,932 - - -
REDUCTION OF ESOP NOTE PAYABLE - - - - 112,452 -
NET UNREALIZED HOLDING LOSS ON SECURITIES - - - - - (387,731)
NET INCOME FOR YEAR - - - 1,240,061 - -
---------- -------- ----------- ----------- ---------- ---------
BALANCE, JUNE 30, 1994 10,901,470 $ 273 $ 6,524,282 $ 3,149,640 $ (476,834) $(387,731)
========== ======== =========== =========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 51
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1994 1993 1992
----------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 1,240,061 $ 337,922 $ 10,206
----------- ----------- ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,311,816 715,653 364,589
Provision for doubtful accounts 475,889 - -
Gain on sale of assets (2,588) (10,104) -
Gain on sale of subsidiary's common stock (1,239,820) - -
Loss on disposal of discontinued operations 162,164 - -
Reserve for obsolescence 127,283 - -
Change in accounts receivable (3,446,447) (1,855,063) (374,215)
Change in inventories (1,461,545) (2,343,986) (182,427)
Change in prepaid expenses and other assets (362,464) 14,705 23,046
Change in accounts payable 314,484 89,794 778,393
Change in accrued liabilities 1,268,042 83,274 28,114
Change in income taxes payable and
deferred income taxes 456,137 170,666 104,429
Change in prepaid income taxes - 123,753 (37,139)
Change in notes receivable - - 75,000
Change in minority interest 649,389 1,199,978 722,614
------------ ------------ ------------
TOTAL ADJUSTMENTS (1,747,660) (1,811,330) 1,502,404
------------- ----------- ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (507,599) (1,473,408) 1,512,610
------------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for acquisition of property,
plant and equipment (2,762,184) (2,370,094) (2,522,322)
Change in other assets 151,480 (43,342) (73,588)
Purchases of marketables securities (12,136,672) - (74,818)
Proceeds from sales of marketable securities 7,885,713 71,400 -
Change in loans receivable, related parties 2,388,234 (521,930) 25,610
Proceeds from sale of assets 19,996 24,321 -
Repayment of loan receivable from
former subsidiary - 273,497 -
Purchase of subsidiaries (604,498) (342,917) -
Proceeds from sale of subsidiary 342,917 - -
Proceeds from sale of subsidiary's common stock 1,667,645 - -
------------ ----------- ------------
NET CASH USED IN INVESTING
ACTIVITIES (3,047,369) (2,909,065) (2,645,118)
------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 52
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings, net 1,466,139 2,109,173 518,264
Proceeds from revolving line of credit, net 2,099,171 1,600,000 150,000
Proceeds from issuance of common stock 132,500 229,274 512,208
Proceeds from amounts due from ESOP 112,452 128,571 128,541
Repayment on ESOP note payable (112,452) (128,571) (128,541)
Payments on capital lease obligations (5,437) - -
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,692,373 3,938,447 1,180,472
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 137,405 (444,026) 47,964
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 755,340 1,199,366 1,151,402
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 892,745 $ 755,340 $ 1,199,366
=========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 622,649 $ 279,438 $ 65,794
Income taxes $ 521,046 $ 253,129 $ 87,512
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<S> <C> <C> <C>
Common stock issued for services and acquisition $ 45,937 $ - $ -
========== =========== ===========
</TABLE>
Exchange of 1,329,836 shares for 580,538 of Digital Communications Technology
Corporation on February 14, 1994 (Note 2).
Exchange of 1,736,842 shares for 3,000,000 of Digital Communications
Technology Corporation on May 5, 1992 (Note 2).
Share exchange agreement of 1,500,000 shares in S.O.I. Industries, Inc. on July
1, 1992 for the investment in CeraTech Corporation (Note 2).
Share exchange agreement of 1,300,000 shares for the investment in American
Quality Manufacturing Corporation. (Note 2).
The Company acquired equipment in the amount of $581,160 under the terms of a
capital lease.
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 53
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) PRINCIPLES OF CONSOLIDATION
For the year ended June 30, 1994, the accompanying
consolidated financial statements include the accounts for
S.O.I. Industries, Inc. (the "Company") and its wholly-owned
subsidiaries, Tempo Lighting, Inc., Omni Doors, Inc. and
American Quality Manufacturing Corporation (American). The
Company also has a 50.21% ownership in Digital
Communications Technology Corporation (Digital) and
Digital's wholly-owned subsidiaries, Tapes Unlimited, Inc.
and Tapes Unlimited USA, Inc., which are also included in
the consolidated financial statements. All significant
transactions have been eliminated.
As of June 30, 1994, Digital owns 3,066,678 shares of the
Company's common stock, which shares have been eliminated in
consolidation.
For the year ended June 30, 1993, the accompanying
consolidated financial statements include the Company and
its subsidiaries, Tempo Lighting, Inc., Omni Doors, Inc.
MagneTech Corporation, and MagneTech Corporation's
subsidiary, Video Plus, Inc. All significant intercompany
transactions have been eliminated.
On April 29, 1994, the shareholders of MagneTech Corporation
approved a resolution to change the name of that company to
Digital Communications Technology Corporation.
The primary business of the Company is to provide executive
managerial functions for the consolidated group. Digital
and its subsidiaries are in the business of video and audio
tape production and duplication, as well as satellite
broadcasting. Tempo Lighting, Inc. designs, manufactures,
assembles and markets a line of medium-priced residential
and commercial lamps and lighting fixtures.
B) RESTATEMENT
The financial statements for the year ended June 30, 1994,
have been restated to properly reflect the minority interest
due to the stock exchange between Digital and the Company.
The effect of the transaction was previously reported as a
component of the gain on the sale of subsidiary's common
stock. As a result of the change, net income and retained
earnings decreased by approximately $390,000 and earnings
per share decreased $.03 from $.16 to $.13.
F-12
<PAGE> 54
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
C) INVENTORIES
Inventories are valued at the lower of cost (first-in,
first-out method) or market. Inventories consisted of the
following at June 30:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Raw materials $ 5,092,038 $ 3,514,868
Work-in-process 1,027,936 291,987
Finished goods 400,060 262,325
----------- -----------
$ 6,520,034 $ 4,069,180
=========== ===========
</TABLE>
D) MARKETABLE SECURITIES
The Company has adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115) as of June 30, 1994.
The statement is effective for fiscal years beginning after
December 15, 1993; however, earlier application is
permitted.
Under FAS 115, debt securities and equity securities that
have readily determinable fair values are to be classified
in three categories:
HELD TO MATURITY - the positive intent and ability to hold
to maturity. Amounts are reported at amortized cost,
adjusted for amortization of premiums and accretion of
discounts.
TRADING SECURITIES - bought principally for purpose of
selling them in the near term. Amounts are reported at fair
value, with unrealized gains and losses included in
earnings.
AVAILABLE FOR SALE - not classified in one of the above
categories. Amounts are reported at fair value, with
unrealized gain and losses excluded from earnings and
reported separately as a component of shareholders' equity,
net of related tax effects.
Gains or losses on dispositions of securities are based on
the net difference of the proceeds and the adjusted carrying
amounts of the securities sold, using the specific
identification method. The Company's marketable securities
which consists of investments in common stocks, are all
classified as available for sale.
E) SALES OF SUBSIDIARY STOCK
The Company records its proportionate share of increases in
subsidiary equity (primarily Digital) in accordance with
Securities and Exchange Commission Staff Accounting Bulletin
51.
F-13
<PAGE> 55
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
F) ACCOUNTS RECEIVABLE
The Company's accounts receivable are reflected net of
allowance for doubtful accounts of $775,875, $109,076 and
$200,187 in 1994, 1993 and 1992, respectively.
G) INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for
Income Taxes" (FAS 109). As permitted under FASB 109, prior
years' consolidated financial statements have not been
restated.
FAS 109 changes the criteria for the recognition and
measurement of deferred tax assets and liabilities,
including net operating loss and tax credit carryovers.
Deferred taxes are recorded based upon differences between
the financial statement and tax bases of assets and
liabilities and available tax credit carryovers.
The Company files consolidated federal and state income tax
returns with all of its subsidiaries except Digital
Communications Technology Corporation, which files
separately.
H) CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
I) RESTRICTED CASH
American Quality Manufacturing Corporation is self-insured
for its workers compensation insurance in accordance with
the applicable requirements of the laws of the State of
Arkansas. The Company was required by the State oversight
body to deposit a specified sum of money in one or more
certificates of deposit to be held by the Company in trust
on behalf of the Company's workers to ensure the payment of
employee claims. The Company's Certificate of Authority for
Self-Insurance expires on May 1, 1995 and must be renewed
annually. In the event of nonrenewal, the Company
anticipates that it will be able to acquire coverage through
normal business insurance markets. The certificates of
deposit are classified as "restricted cash" on the balance
sheet, and as they are not available for use in the normal
course of business, are not considered to be cash or a cash
equivalent for purposes of the statement of cash flows.
F-14
<PAGE> 56
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
J) GOODWILL
Goodwill associated with the purchase of American Quality
Manufacturing Company, Tapes Unlimited, Inc. and Tapes
Unlimited U.S.A., Inc. is being amortized over 15 years.
The goodwill is reflected net of accumulated amortization of
$83,305.
K) CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts at a
high credit quality financial institution. The balances, at
times, may exceed federally insured limits. At June 30,
1994, the Company exceeded the insured limit by
approximately $958,000.
L) RECLASSIFICATION
Certain amounts reflected in the June 30, 1993 and 1992
statements have been reclassified to conform to the 1994
presentation.
NOTE 2 - ACQUISITIONS AND DIVESTITURES
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
Digital Communications Technology Corporation was incorporated on
November 12, 1987, under the laws of the State of Delaware, as a
wholly-owned subsidiary of the Company and was authorized to issue
10,000 shares of $.01 par voting common stock. On January 25, 1989,
Digital Communications Technology Corporation reorganized its
capital structure which had the effect of creating a class of $.0001
par value common stock, of which 20,000,000 shares were authorized,
and to account for a 4,800-for-1 stock split which converted
Digital's 1,000 issued and outstanding shares of $.01 par value
common stock into 4,800,000 shares of $.0001 par value common stock.
On February 15, 1990, the Board of Directors of Digital authorized a
four-for-one stock split and a change of par value of its common
shares from $.0001 to $.000025 thereby increasing the authorized
shares to 80,000,000.
On July 1, 1992, Digital's Board of Directors reduced the authorized
shares of common stock from 80,000,000 to 50,000,000.
On October 1, 1992, Digital's Board of Directors authorized a
one-for-eight reverse stock split and change in par value of the
shares from $.000025 to $.0002, thereby reducing the authorized
shares of common stock to 6,250,000.
F-15
<PAGE> 57
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 2 - ACQUISITIONS AND DIVESTITURES (CONTINUED)
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION (CONTINUED)
On May 12, 1989, Digital conducted an initial public offering of
2,300,000 shares. The securities offered were Units, consisting of
one share of common stock, par value $.0001 (the "Shares") and one
redeemable warrant (the "Warrants"). The amount of the net proceeds
received from the sale, after the payment of expenses, was
$1,896,188. The Warrants (after the four-for-one stock split above)
are exercisable by the holder thereof to purchase one Share per
Warrant at an exercise price of $.30 per share.
On May 5, 1992, the Board of Directors of Digital agreed to an
exchange of stock with the Company, of approximately 10% of
Digital's outstanding shares (3,000,000 shares) in exchange for
shares in the Company in an amount equal in value to the Digital's
shares (1,736,842 shares of the Company). The purpose of this
exchange was to ensure that after all of the Digital Warrants are
redeemed, the Company remained the owner of at least 51% of the
issued and outstanding shares of Digital. On May 7, 1992, the Board
of Directors of Digital called the Warrants.
On July 3, 1992, Digital purchased 1,000 shares (representing 100%
ownership) of Video Direct, Inc. for $342,917. The closing of this
transaction took place July 13, 1992. As of June 30, 1992, Digital
had advanced to Video Direct, Inc. $50,000. On July 13, 1992,
Video Direct, Inc. was merged into Video Plus, Inc., a Delaware
corporation, and became a wholly-owned subsidiary of Digital. The
acquisition was accounted for using the purchase method of
accounting and the results of operations of Video Plus, Inc. is
included in Digital's Consolidated Statement of Operations
subsequent to July 13, 1992. Goodwill of $508,199 was recorded as
part of this transaction and was being amortized over its estimated
useful life of forty years.
On December 6, 1993, Digital sold its subsidiary, Video Plus, Inc.
Consequently, the operations and net assets of Video Plus, Inc. have
been segregated from the Company's consolidated financial statements
and have been presented as discontinued operations. The income from
discontinued operations is reflected net of tax of $38,854 and the
loss on disposal is reflected net of the related tax benefit of
$94,416 in the consolidated statements of operations. Additionally,
the financial information related to June 30, 1993 has been restated
to reflect the sale of Video Plus, Inc. and is reflected net of
income tax in the amount of $84,800.
On May 25, 1993, Digital's Board of Directors authorized the
issuance and sale of 125,000 shares of common stock at $1.25 per
share to a financial advisory firm.
F-16
<PAGE> 58
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 2 - ACQUISITIONS AND DIVESTITURES (CONTINUED)
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION (CONTINUED)
On March 25, 1994, Digital finalized the purchase of Tapes
Unlimited, Inc. and Tapes Unlimited USA, Inc. Notwithstanding the
closing date, the effective date for the consummation of the
transactions was deemed to be January 1, 1994. The consolidated
statements of operations reflect transactions since the effective
date. The transaction was recorded under the purchase method of
accounting. The excess of the purchase price over the basis of the
net assets acquired was recorded as goodwill in the amount of
$589,795.
On February 14, 1994, Digital issued 580,538 shares of common stock
to the Company in exchange for 1,329,836 shares of common stock of
the Company. The transaction was recorded at the fair value of the
stock exchanged, which amounted to $4,574,633.
During the year ended June 30, 1994, the Company sold 347,975 shares
of the common stock of Digital for $1,667,645 resulting in a
realized gain in the amount of $1,239,820. Subsequent to this
transaction, the Company owned 50.21% of Digital's common stock.
CERATECH CORPORATION
On March 19, 1988, the Company purchased the assets and properties
of CeraTech Corporation, a/k/a Drake Studio, Ltd., an Illinois
corporation for $800,000. On March 21, 1988, the Company deposited
$500,000 in an escrow account pursuant to the terms of the Asset
Purchase Agreement under which the escrowed funds were paid to the
Seller one year from the date of the Agreement. On March 22, 1988,
CeraTech Corporation was incorporated under the law of the State of
Delaware. The Company capitalized CeraTech Corporation with $1,000
and transferred the purchased assets to it.
On June 30, 1992, the Board of Directors of the Company voted to
exchange all of the outstanding shares of CeraTech with the Chief
Executive Officer of the Company, in exchange for 1,500,000 of his
shares of the Company and the repayment of $273,497 of outstanding
debt to the Company owed by CeraTech. The debt will be repaid at
$10,000 per month plus interest at Wall Street Journal "prime rate"
on the unpaid balance. The principles involved in determining the
fairness of the transaction were the judgment of the Board combined
with a report from an independent public accountant. The report was
received and the Directors ratified the transaction on August 7,
1992.
The results of operations have been restated to present the results
of operations of CeraTech Corporation as discontinued operations for
the year ended June 30, 1992 and are reflected net of income taxes
in the amount of $174,093.
F-17
<PAGE> 59
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 2 - ACQUISITIONS AND DIVESTITURES (CONTINUED)
AMERICAN QUALITY MANUFACTURING CORPORATION
Effective January 1, 1994, the Company acquired all of the issued
and outstanding capital stock of American Quality Manufacturing
Corporation a Delaware corporation. The transaction involved the
transfer of 1,300,000 shares of the Company's common stock valued at
$2,275,000 to the shareholders of American in exchange for all of
the issued and outstanding capital stock of American. The
transaction was accounted for under the purchase method of
accounting. As a result of this transaction, American became a
wholly-owned subsidiary of the Company.
American manufactures unfinished kitchen cabinets and prefinished
bathroom vanities and medicine cabinets. Its customers include
major home centers such as Home Depot, Payless Cashways, Grossman's
and buying co-operatives such as H.W.I. and Cotter. American
Cabinet's major competitors include Waterfield and Continental.
American occupies a 200,000 square foot plant in Conway, Arkansas
and employs approximately 300 persons.
The consolidated statements of operations reflect the transactions
since the effective date. Goodwill of $2,323,293, calculated below,
was recorded as part of this transaction and is being amortized over
fifteen years.
<TABLE>
<CAPTION>
<S> <C>
Acquisition price $ 2,275,000
Fair market value of
assets purchased (6,069,673)
Fair market value of
liabilities assumed 6,117,966
-----------
Goodwill $ 2,323,293
===========
</TABLE>
In connection with the execution of a long-term capital lease by
American, American assumed certain operating liabilities of a former
tenant of the facility. The operating liabilities approximated
$105,600 were paid and are being amortized over 15 years using the
straight-line method.
F-18
<PAGE> 60
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 2 - ACQUISITIONS AND DIVESTITURES (CONTINUED)
The pro-forma financial information including American as of June
30, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Sales $ 44,177,659 $ 30,687,484
============ ============
Income from continuing
operations before minority
interest $ 1,707,164 $ 785,640
============ ============
Net income $ 1,358,901 $ 536,676
============ ============
Earnings per share $ .14 $ .05
============ ============
</TABLE>
NOTE 3 - MARKETABLE SECURITIES
Marketable securities consist of listed common stocks with an
aggregate cost of $4,254,377. At June 30, 1994, the marketable
securities portfolio contained unrealized gains of $29,520 and
unrealized losses of $904,425 resulting in the carrying amount of
$3,379,472 reflected on the balance sheet. The net unrealized
holding loss on securities reported in the statement of shareholders
equity for the year ended June 30, 1994 is net of the deferred tax
impact of $323,899 and the minority interest in a subsidiary's
unrealized holding loss of $163,275.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
provided on the straight-line basis over the estimated useful lives
of the related assets, which range from 3 to 32 years, for financial
reporting purposes. Depreciation expense was $1,247,720, $715,653
and $364,589 for the years ended June 30, 1994, 1993 and 1992
respectively. Property and accumulated depreciation are summarized
as follows at June 30:
<TABLE>
<CAPTION>
Useful
1994 1993 Lives
----------- ----------- ----------
<S> <C> <C> <C>
Land $ 93,000 $ 93,000 -
Buildings and improvements 976,872 514,052 7-32 years
Machinery and equipment 9,128,207 4,753,743 5-7 years
Leasehold improvements 166,309 281,958 3-10 years
Furniture and fixtures 335,293 92,350 5-7 years
Transportation equipment 417,682 379,445 3-5 years
Computer equipment 149,688 165,099 3-5 years
Master tapes 4,000 4,000 5 years
----------- -----------
11,271,051 6,283,647
Less accumulated depreciation
and amortization 3,104,533 1,907,271
----------- -----------
Net property, plant and equipment $ 8,166,518 $ 4,376,376
=========== ===========
</TABLE>
F-19
<PAGE> 61
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Maintenance and repairs are charged to operations as incurred.
Other renewals and betterments are capitalized.
In April 1994, American entered into a long-term capital lease with
Coffey County, Kansas for a building and manufacturing equipment.
The following summarizes the carrying value of the leased assets as
of June 30, 1994. These amounts are included in the table above.
<TABLE>
<S> <C>
Building $ 328,923
Equipment 548,412
----------
877,335
Depreciation and accumulated depreciation (14,428)
----------
$ 862,907
==========
</TABLE>
NOTE 5 - REVOLVING LINES OF CREDIT
The Company and its subsidiaries, Digital and Tempo Lighting, Inc.
have revolving line of credit agreements which permit aggregate
borrowings up to $6,100,000 based upon certain percentages applied
to eligible accounts receivable and inventory. Interest is payable
on all outstanding cash advances at the bank's prime rate plus 1/4%.
Any unpaid principal and accrued interest is due on demand, but
$700,000 is due no later than January 1, 1995 and $5,400,000 is due
no later than January, 1996. The lines of credit are secured by
substantially all accounts receivable and inventories and all
equipment not being used to collateralize other equipment and
mortgage notes.
The agreements further provide that the Company and its subsidiaries
must comply with certain covenants, the most restrictive of which
requires a minimum net leverage ratio as defined by the agreement.
These lines of credit are guaranteed by the Company and its
subsidiaries. As of June 30, 1994, $2,925,000 has been drawn
against Digital's and Tempo's lines of credit. American Quality
Manufacturing Corporation has a $3,500,000 line of credit. Interest
at the bank's prime rate plus 2% is payable monthly, and principal
and unpaid accrued interest is due October, 1994, or on demand.
The line of credit is collateralized by trade accounts receivable,
inventories, certain machinery and equipment and a second mortgage
on the building. This loan was renegotiated in August, 1994, (see
NOTE 15). As of June 30, 1994, the outstanding balance was
$3,700,000.
F-20
<PAGE> 62
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<S> <C>
$375,000 term note payable to a bank; interest at the bank's prime rate
plus 2% payable in monthly installments of approximately $10,417 plus
accrued interest. Final payment due in January, 1995; collateralized by
trade accounts receivable, inventories, certain machinery and equipment
and a second mortgage on the building.
$ 52,083
$20,299 note payable to a finance company; interest at 8.00%; payable in
monthly installments of $636, including interest; final payment due in
October 1997; collateralized by a vehicle. 16,197
$500,000 note payable to a bank assumed in the execution of a lease;
interest at 7.0%, payable monthly. Principal and unpaid interest due in
August 1994; collateralized by the accounts receivable of Sherwood
Cabinets, Inc. Paid in full in August, 1994.
206,583
Mortgage payable in monthly installments of $3,605 including interest at
9%, maturing in June 1998; secured by real estate in Texas.
144,941
Loan payable to a bank in monthly installments of $3,198 including
interest at 8.25%, maturing April, 2007; secured by real estate.
296,181
Loan payable to a bank in monthly installments of $1,062 plus interest at
prime plus 2% (9.25% at June 30, 1994), maturing April, 1998; secured by
equipment. 39,448
Vehicle loans payable to a bank in monthly installments of $406, $274 and
$274 including interest at 10.29%, 8.66% and 8.66%, respectively. These
notes mature April, 1997 and March, 1996, respectively, and are secured
by the corresponding company vehicles.
22,662
Loan payable to a bank in monthly principal installments of $7,440 plus
interest at prime plus 1% (8.25% at June 30, 1994), maturing June, 1997;
secured by equipment and inventory at the Indianapolis facility. This
loan requires both the Company and Digital to comply with certain
financial covenants defined in the agreement.
483,634
</TABLE>
F-21
<PAGE> 63
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
<TABLE>
<S> <C>
Loan payable to a bank in monthly installments of $4,886 plus interest at
prime plus .25% (7.5% at June 30, 1994), maturing November, 1998; secured
by the Company's receivables, inventory and equipment. 293,157
Loan payable to a bank in monthly installments of $29,000 plus interest
at prime plus .25% (7.5% at June 30, 1994), maturing December, 1998;
secured by the Company's receivables, inventory, and equipment. This
loan requires both the Company and Digital to comply with certain
financial covenants defined in the agreement.
1,572,125
Loan payable to a bank in monthly installments of $6,149 including
interest at 7.43%, secured by first and second liens on equipment;
guaranteed by the Parent. 459,213
----------
3,586,224
869,058
-----------
$ 2,717,166
===========
</TABLE>
The approximate maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
Years Ending June 30,
<S> <C>
1995 $ 869,058
1996 636,716
1997 814,968
1998 695,779
1999 131,350
Thereafter 438,353
-----------
$ 3,586,224
===========
</TABLE>
F-22
<PAGE> 64
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company's Employee Stock Ownership Plan (ESOP) provides
retirement benefits to substantially all employees. The ESOP is a
qualified employee benefit plan exempt from taxation under the
Internal Revenue Code of 1986, as amended. There are 800,000 common
shares in the ESOP. Employees of Digital began to participate in the
ESOP as of January 1, 1992. Payments by the Company for the years
ended June 30, 1994, 1993 and 1992 were $148,699, $170,510, and
$189,543, respectively, including interest.
On January 7, 1991, the Employee Stock Ownership Trust (ESOT)
purchased 800,000 common shares of the Company from the Company's
then chairman of the Board of Directors, for $900,000. The common
shares are entitled to vote on all matters presented to holders of
common shares, voting together as a class. The ESOP provides for pass
through of voting rights to the ESOP participants and beneficiaries.
The ESOT purchased the common shares of the Company using the
proceeds of a bank loan to the Company. The loan is collateralized by
all of the tangible and intangible assets of the Company and its
Subsidiaries and is guaranteed by the Company and its Subsidiaries.
The ESOT will service this obligation with contributions from the
Companies as required. Payments on the note of the ESOT are made in
monthly principal installments of $10,145 plus interest. The note is
due on May, 1998. Interest is charged at the Bank's prime lending
rate plus 1/4%. The loan agreement also provides that the Company may
be obligated to pay the ESOT loan upon the occurrence of certain
events of default.
In addition, the loan agreement requires the Company to maintain
several predetermined financial ratios.
Future maturities of the Company's associated long-term debt are as
follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
1995 $121,745
1996 121,745
1997 121,745
1998 111,599
--------
$476,834
========
</TABLE>
The borrowing by the Company for the ESOP is reflected as a liability
on the balance sheet. The unallocated portion of the ESOP shares is
reflected as a receivable due from ESOP as a reduction of
shareholders' equity. As the principal portion of the note is repaid,
the liability and the ESOT loan obligation are reduced concurrently.
Additionally, as the principal of the note is reduced, the common
shares held by the ESOT are proportionally allocated to the
employees' accounts on the basis of compensation.
F-23
<PAGE> 65
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 8 - CAPITAL LEASE OBLIGATIONS
On April 22, 1994, American entered into a long-term capitalized
lease obligation with Coffey County, Kansas for the use of a building
and the acquisition of certain manufacturing equipment. The building
portion of the lease is for a term of 20 years and requires monthly
payments of $2,500 and the purchase of the facility for $500,000 at
the expiration of the lease term. The equipment portion of the lease
is for 10 years and requires monthly payments of approximately
$3,300. The equipment may be purchased by American at the expiration
of the lease for $1.00.
Further, the lease requires American to be responsible for all taxes,
insurance and maintenance on the facility and equipment. At present,
the building is not subject to local ad valorem taxes. If at any time
during the lease term the building becomes subject to local ad
valorem taxes, American has the right to enter into a new 20 year
lease on the facility at terms identical to the existing agreement.
The lease contains a liquidated damages clause requiring American to
pay damages to the lessor equal to 30 months rent ($75,000). To
guarantee the availability of these funds, American is required to
deposit the sum of $1,000 per month into an interest-bearing escrow
account for 75 months, commencing May 1, 1994. As of June 30, 1994,
American has $2,000 on deposit related to this agreement. The lease
further provides for the complete release of this escrow account
after ten years.
At the inception of the lease, the discounted present value of each
payment stream related to the equipment and the building (using a
10.0% effective incremental borrowing rate) was $252,237 and
$328,923, respectively.
The future noncancellable maturities of the lease payable at June 30,
1994 are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
1995 $ 70,000
1996 70,000
1997 70,000
1998 70,000
1999 70,000
2000-2004 343,333
2005-2009 150,000
2010-2014 645,000
-----------
1,488,333
Less amounts representing interest (912,610)
-----------
575,723
Less current maturities (45,894)
-----------
Long-term portion $ 529,829
===========
</TABLE>
F-24
<PAGE> 66
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 9 - LEASE COMMITMENTS
The Company leases various of its office facilities under operating
leases expiring through June, 1999. The leases provide for increases
based on real estate taxes and expenses. The Company also leases
facilities on a month-to-month basis. Rent expense for the years
ended June 30, 1994, 1993 and 1992 were $623,582, $467,981, and
$458,527, respectively.
The Company is also obligated under operating leases for office
equipment expiring through August 1994.
In January 1994, American Quality Manufacturing Corporation executed
a long-term operating lease for the use of its corporate offices and
primary manufacturing facility with its former parent company,
American Industries, Inc. The lease is for a period of 15 years and
expires on December 31, 2009.
The lease through May 31, 1994, called for monthly payments of
approximately $17,321 per month. For the period June 1, 1994 through
May 31, 1995, the lease requires monthly payments of $20,000.
Additionally, the Company is responsible for all insurance, taxes and
maintenance on the facility.
Further, the lease provides for annual increases in the monthly
payments based on an annual calculation whereby the rental payment is
to be increased by the incremental increase in the Consumer Price
Index (1967=100) when the incremental increase on an annual basis
from June to June of each lease year exceeds five (5) percentage
points. Additionally, the lease states that the minimum monthly lease
payment shall not fall below $20,000 per month, effective on June 1,
1994. Total rent expense under this agreement for the period ended
June 30, 1994 of approximately $193,212 was paid or accrued.
The future annual noncancellable lease payments associated with these
leases are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
1995 $ 697,425
1996 668,274
1997 619,664
1998 568,784
1999 529,116
Thereafter 2,520,000
----------
$5,603,263
==========
</TABLE>
F-25
<PAGE> 67
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 10 - STOCK OPTION PLAN
On March 19, 1988, the Company's Board of Directors adopted the
S.O.I. Industries, Inc. 1988 Employees' Stock Option Plan. The plan
was approved by a vote of shareholders on July 3, 1989. As of June
30, 1994, there are 1,425,000 shares reserved for issuance under the
1988 plan.
On January 22, 1990, the Board of Directors adopted the Digital 1990
Employees' Stock Option Plan. As of June 30, 1994, there were 492,500
shares reserved for future issuance at exercise prices which range
from $1.00 to $1.50 per share.
<TABLE>
<CAPTION>
Options Exercise Price Per Share
------- ------------------------
1988 Plan 1990 Plan 1988 Plan 1990 Plan
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Beginning balance
July 1, 1992 575,000 266,375 $.25 $1.00 to $1.50
Granted - -
Exercised (25,000) - $.25
--------- ------------
$1.00 to $1.50
Balance outstanding
June 30, 1993 550,000 266,375 $.25 $1.00 to $1.50
Granted - 1,250 $.25 $1.00 to $1.50
Exercised (530,000) (7,500) $.25 $1.00 to $1.50
---------- --------
Balance outstanding
June 30, 1994 20,000 260,125
========= =========
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS
TRANSITION AGREEMENT WITH DIGITAL
In connection with its public offering, Digital entered into a
Transition Agreement with the Company for a ten year period
commencing on May 12, 1989 (the "Closing Date") during which period
the Company is required to furnish to Digital certain financial,
accounting, data processing, management, and other administrative
services for which the Company received a monthly fee in an amount
equal to $1,300. Prior to closing date, Digital had been paying the
Company an equivalent amount on a month-to-month basis.
Subject to certain exceptions, the Transition Agreement provides for
assumptions and indemnities designed to place financial
responsibility for the liability to Digital's business with Digital.
The Transition Agreement provides that, as long as the Company owns
either (i) 25% of Digital's shares provided no other shareholder owns
more than 40% of the outstanding shares or (ii) at least a majority
of Digital's shares, Digital will be required to obtain the Company's
approval, in accordance with certain corporate approval procedures
established by the Company, for certain transactions.
F-26
<PAGE> 68
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 11 - RELATED PARTY TRANSACTIONS (CONTINUED)
TRANSITION AGREEMENT WITH DIGITAL (CONTINUED)
Due to the rapid growth of Digital and other companies comprising the
S.O.I. Group, the Transition Agreement was amended as of January 1,
1992 to more properly allocate the time and expense of the Company.
The administrative fees to be paid by Digital, Tempo Lighting, Omni
Door and CeraTech (through June 30, 1992) are $12,500, $4,500, $1,000
and $4,500, respectively. Commencing October 1, 1992, administrative
fees of $4,500 per month were also charged to Digital's subsidiary,
Video Plus, Inc. Payments of these fees were waived as of January 1,
1994.
ESCROW OF SHARES
As part of the underwriting agreement for Digital's public offering,
S.O.I. agreed to escrow 3,200,000 shares of common stock of Digital
(the "Shares") for a period of three years to be issued to S.O.I.
based on the attainment by Digital of certain financial objectives.
Any escrowed shares not released from the escrow and delivered to
S.O.I. would be released and delivered to Digital as a contribution
to its capital. Accordingly, 800,651 shares were delivered to Digital
from escrow and on October 29, 1991 the shares were canceled.
NOTE 12 - EMPLOYMENT AGREEMENTS
Tapes Unlimited, Inc. entered into two employment agreements with its
previous owners. Both agreements are for a term of five years ending
in March 1999. One agreement calls for an annual salary of $40,000,
with any additional compensation or bonus at the discretion of the
Board of Directors. The other agreement calls for an annual salary of
$52,000 and a bonus arrangement based on specified formulas.
Video Plus, Inc. had a written employment agreement with one of its
key employees. The agreement was transferred as part of the sale of
Video Plus, Inc.
Digital entered into employment agreements on July 1, 1994 with two
officers. The agreements are for a term of three years and contain
certain bonus provisions.
On February 1, 1994, the Company entered into an employment agreement
with an officer for a term of three years which contains certain
bonus provisions. The minimum annual salaries (excluding bonus
arrangements) for the years ending June 30 are as follows:
<TABLE>
<S> <C>
1995 $ 324,000
1996 324,000
1997 294,000
1998 92,000
1999 69,000
--------
$1,103,000
==========
</TABLE>
F-27
<PAGE> 69
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 13 - SEGMENT INFORMATION
BUSINESS SEGMENT DATA FROM CONTINUING OPERATIONS FOR THE YEAR ENDED
JUNE 30, 1994
<TABLE>
<CAPTION>
VIDEO
CABINETS PRODUCTION
AND HOME AND
FURNITURE FURNISHINGS DUPLICATION CONSOLIDATED
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sales $ 9,585,572 $5,157,736 $19,373,780 $34,117,088
=========== ========== =========== ===========
Operating profit $ 285,928 $ 92,002 $ 1,372,129 $ 1,750,059
=========== ========== ===========
General corporate revenue
and (expense), net 1,228,012
Interest expense (595,415)
------------
Income from continuing
operations before
income taxes $ 2,382,656
============
Identifiable assets of
continuing operations
at June 30, 1994 $11,186,645 $3,064,517 $15,193,423 $ 29,444,585
=========== ========== ===========
Corporate assets 1,616,209
------------
Total assets at June 30,
1994 $ 31,060,794
============
Depreciation and
amortization $ 198,769 $ 99,638 $ 1,012,689 $ 1,311,816
============ =========== =========== ============
Capital expenditures $ 361,247 $ 45,570 $ 2,355,367 $ 2,762,184
============ =========== =========== ===========
</TABLE>
F-28
<PAGE> 70
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 13 - SEGMENT INFORMATION (CONTINUED)
BUSINESS SEGMENT DATA FROM CONTINUING OPERATIONS FOR THE YEAR ENDED
JUNE 30, 1993
<TABLE>
<CAPTION>
VIDEO
PRODUCTION
HOME AND
FURNISHINGS DUPLICATION CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
Sales $ 4,647,648 $ 9,892,360 $14,540,008
=========== ============ ===========
Operating profit $ 54,762 $ 927,334 $ 982,096
=========== ============
General corporate revenue and
(expense), net 3,679
Interest expense (168,994)
-----------
Income from continuing operations
before income taxes $ 816,781
===========
Identifiable assets of continuing
operations at June 30, 1993 $ 3,079,965 $ 7,616,680 $10,696,645
=========== ============
Corporate assets 673,628
Assets of discontinued operations 2,809,995
-----------
Total assets at June 30, 1993 $14,180,268
===========
Depreciation and amortization $ 93,611 $ 622,042 $ 715,653
=========== ============ ===========
Capital expenditures $ 110,772 $ 2,259,322 $ 2,370,094
=========== ============ ===========
</TABLE>
F-29
<PAGE> 71
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 13 - SEGMENT INFORMATION (CONTINUED)
BUSINESS SEGMENT DATA FROM CONTINUING OPERATIONS FOR THE YEAR ENDED
JUNE 30, 1992
<TABLE>
<CAPTION>
VIDEO
PRODUCTION
HOME AND
FURNISHINGS DUPLICATION CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
Sales $ 3,590,675 $ 4,802,203 $ 8,392,878
============ ============ ============
Operating profit(loss) $ (42,781) $ 163,604 $ 120,823
============ ============
General corporate revenue and
(expense), net (285,625)
Interest expense (65,834)
------------
Loss from continuing operations
before income taxes $ (230,636)
============
Identifiable assets of continuing
operations at June 30, 1992 $ 2,463,410 $ 6,219,251 $ 8,682,661
============ ============
Corporate assets 445,582
Assets of discontinued operation 1,336,675
------------
Total assets at June 30, 1992 $ 10,464,918
============
Depreciation and amortization $ 64,367 $ 300,222 $ 364,589
============ ============ ============
Capital expenditures $ 323,162 $ 2,171,529 $ 2,494,691
============ ============ ============
</TABLE>
NOTE 14 - SALES TO MAJOR CUSTOMERS
During the year ended June 30, 1994, only one customer accounted for
more than 10% of Digital's sales. The customer accounted for
approximately 21% of Digital's sales. During the year ended June 30,
1993, two of Digital's largest customers accounted for 17% and 14%,
respectively, of its revenues. Approximately 1% and 32% of Digital's
revenues were derived from a third major customer during the years
ended June 30, 1993 and 1992. Video Direct, Inc. which became a
subsidiary of Digital on July 13, 1992, accounted for 4% of its sales
during the year ended June 30, 1992.
During the year ended June 30, 1994, one customer of the home
furnishing segment accounted for approximately 15% of the segment's
revenues. During the year ended June 30, 1993, two customers of the
home furnishing segment accounted for approximately 15% each of the
segment's revenues.
Three customers of American accounted for more than 10% each of
American's total sales for the year ended June 30, 1994.
F-30
<PAGE> 72
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 15 - INCOME TAXES
Effective July 1, 1993, the Company adopted FAS No. 109 "Accounting
for Income Taxes". The cumulative effect as of July 1, 1993 on
deferred taxes was negligible.
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1994
---------
<S> <C>
Current:
Federal $ 853,488
State 66,624
---------
920,112
---------
Deferred:
Federal (182,415)
State (28,897)
---------
(211,312)
---------
$ 708,800
=========
</TABLE>
Reconciliations of the differences between income taxes computed at
federal statutory tax rates and consolidated provisions for income
taxes are as follows:
<TABLE>
<CAPTION>
1994
----
<S> <C>
Tax at federal statutory rate 34.0%
Increase in tax:
State income tax-net 3.3
Decrease in tax:
Change in deferred income taxes 7.6
----
29.7%
====
</TABLE>
The tax effects of significant temporary differences which comprise
the deferred tax assets and liabilities at June 30, 1994 are as
follows:
<TABLE>
<S> <C>
Assets:
Allowance for doubtful accounts $ 479,700
Reserve for inventory obsolescence 217,283
Investments - unrealized holding losses 874,905
----------
1,571,888
Liabilities:
Property and equipment - depreciation 964,284
----------
Net Asset $ 607,604
==========
</TABLE>
F-31
<PAGE> 73
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 16 - SUBSEQUENT EVENT
In August 1994, the Company guaranteed (along with its subsidiaries)
a term loan and a revolving line of credit issued to American Quality
Manufacturing Corporation. The term loan is in the amount of $600,000
and the revolving line of credit has a limit of $5,000,000.
The Board of Directors of American approved the creation of a stock
option plan for its officers and employees. As of August 24, 1994,
the proposed plan had not been developed as to the number of shares
involved, the appropriate vesting schedule and the option price per
share.
In September, 1994, the Company settled a suit against its former
president that alleged the Company was caused to sell to him its
wholly-owned subsidiary, Cera-tech Corp. for less than fair value in
June, 1992. The former president paid the Company $750,000 cash on
September 16, 1994, in full settlement.
F-32
<PAGE> 74
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
The Pro Forma Consolidated Statements of Income for the year ended
June 30, 1994 present the consolidated results of continuing operations of
S.O.I. Industries, Inc. and Subsidiaries ("SOI" or the "Registrant") and
American Quality Manufacturing Corporation ("AQM") -- formerly American Cabinet
Incorporated. The acquisition of AQM by SOI was effective as of January 1,
1994 and is accounted for as a purchase in accordance with APB Opinion No. 16,
"Business Combinations."
These pro forma statements include all material adjustments necessary
to present the pro forma historical results of the above described transaction.
The pro forma information does not purport to be indicative of the financial
position or the results of operations which would have actually been obtained
if the acquisition transaction had been consummated on the date indicated. In
addition, the pro forma financial information does not purport to be indicative
of the financial position or results of operations that may be obtained in the
future.
The pro forma financial information has been prepared by the
Registrant and all calculations have been made by the Registrant based on
assumptions deemed appropriate by the Registrant. Certain of these assumptions
are set forth under the Notes to Pro Forma Consolidated Financial Information.
The pro forma financial information should be read in conjunction with
the Registrant's historical Financial Statements and Notes thereto and the
related historical Financial Statements and Notes thereto for the acquired
company.
F-33
<PAGE> 75
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
American
Quality
S.O.I. Industries Manufacturing
Inc. and Corporation Pro Forma
Subsidiaries (1) Adjustments Pro Forma
----------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales, net $34,117,088 $10,059,844 $44,176,932
---------- ---------- ----------
Costs and expenses:
Cost of goods sold 25,737,200 8,824,053 34,561,253
Selling expenses 2,991,262 656,017 3,647,279
General and administrative expenses 2,956,846 327,117 (2c) 75,323
(2d) 47,500 3,406,786
Depreciation 1,311,816 241,513 (2b) 35,600
(2e) (47,500) 1,541,429
---------- ---------- ----------
Total costs and expenses 32,997,124 10,048,700 43,156,747
---------- ---------- ----------
Operating income (loss) 1,119,964 11,144 1,020,185
---------- ---------- ----------
Other income (expenses):
Realized gains on investment transactions 588,783 588,783
Interest and other income 29,504 784 30,288
Interest expense (595,415) (120,228)(2c) 75,323 (640,320)
Gain on sale of subsidiary's common stock 1,629,820 1,629,820
Equity in loss of affiliated company (128,074) (128,074)
Other expense (58,889)(2a) (70,947) (129,836)
---------- ---------- ----------
Income (loss) before income taxes and
minority interest 2,772,656 (295,263) 2,370,846
Provision (benefit) for income taxes 708,800 (34,000)(3) (100,000) 574,800
---------- ---------- ----------
Income (loss) from continuing operations
before minority interest 2,063,856 (261,263) 1,796,046
Minority interest 348,263 (4) (46,197) 302,066
---------- ---------- ----------
Net income from continuing operations $ 1,715,593 $ (261,263) $ 1,493,980
========== ========== ==========
Pro forma weighted average shares of common
stock outstanding 9,894,701 9,894,701
========== ==========
Pro forma earnings per share from
continuing operations $ 0.16 $ 0.15
========== ==========
</TABLE>
F-34
<PAGE> 76
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
The Pro Forma Statement of Income for the year ended June 30, 1994 is derived
from the historical Statements of Income for S.O.I. Industries, Inc. and
Subsidiaries ("SOI" or the "Registrant") and American Quality Manufacturing
Corporation ("AQM") -- formerly American Cabinet, Incorporated. The pro forma
financial information reflects adjustments to record the effect of the
acquisition of AQM by SOI, which was effective January 1, 1994. This
transaction is recorded pursuant to APB Opinion No. 16, "Business Combinations,"
and is accounted for as a purchase. For purposes of this pro forma financial
information, the pro forma income statement for the year ended June 30, 1994
reflects the acquisition as if it had occurred on July 1, 1993.
The pro forma information does not purport to be indicative of the financial
position or the results of operations which would have actually been obtained if
the acquisition transaction had been consummated on the date indicated. In
addition, the pro forma financial information does not purport to be indicative
of the financial position or results of operations that may be obtained in the
future.
The pro forma financial information should be read in conjunction with the
Registrant's historical Financial Statements and Notes thereto and the related
historical Financial Statements and Notes thereto of the acquired company.
The footnotes depicted on the Pro Forma Consolidated Financial Information are
described below:
(1) The pro forma statement of income balances used for American Quality
Manufacturing Corporation have been adjusted to reflect operations of the
period from July 1, 1993 to January 1, 1994, the acquisition date referred
to above. The balances were obtained by subtracting the audited balances
of AQM used in the consolidated financial statements of SOI from the income
statement of AQM for the twelve month period from July 1, 1993 to June 30,
1994.
(2) Adjustment required to record additional six months depreciation of
certain of AQM's fixed assets which have been adjusted to fair value as of
January 1, 1994 on the audited financial statements. These adjustments also
reflect adjustments necessary to record an additional six months
amortization of the excess purchase price over fair value of net assets
acquired. Additionally, depreciation associated with depreciable real
estate property not acquired by SOI is adjusted to reflect the pro forma
effects of the transfer of the real estate assets prior to the acquisition
by SOI.
The adjustments are detailed, as follows:
General and administrative expenses:
<TABLE>
<S> <C>
(a) Goodwill amortization
($2,128,406 amortized over 15
years, straight line method) 70,947
(b) Additional depreciation for equipment
adjusted to market value. 35,600
(c) Lease expenses for lease of building
(Essentially a reclassification from interest
expense, as lease agreement requires
lease payments which substantially equal
the interest and principal payments on
the associated debt.) 75,323
</TABLE>
F-35
<PAGE> 77
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED FINANCIAL INFORMATION, continued
(Unaudited)
(2) continued
<TABLE>
<S> <C>
(d) Lease expense (The above portion
covered the interest portion of the
related debt, this is the remaining
"principal portion") 47,500
(e) Depreciation on building, no longer
required (47,500)
--------
Totals $181,870
========
</TABLE>
(3) The tax effect of pro forma adjustments to earnings before taxes is based
on the estimated federal and state statutory tax rates.
(4) The effect of minority interest is based on the minority interest
percentage used at the fiscal year end of SOI.
F-36
<PAGE> 78
[S.W. HATFIELD + ASSOCIATES LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholder
American Quality Manufacturing Corporation
(formerly American Cabinet, Incorporated)
We have audited the accompanying balance sheets of American Quality
Manufacturing Corporation (a Delaware corporation) (formerly American Cabinet,
Incorporated) (a wholly-owned subsidiary of S. O. I. Industries, Inc.) as of
May 31, 1993 and 1992, and the related statements of operations, changes in
shareholder's equity and cash flows for each of the three years in the period
ended May 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 financial statements referred to above present fairly, in
all material respects, the financial position of American Quality Manufacturing
Corporation (formerly American Cabinet, Incorporated) as of May 31, 1993 and
1992, and the results of its operations and its cash flows for each of the
three years in the period ended May 31, 1993 in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying financial statement
schedules are presented for the purpose of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These financial statement schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements, and in our
opinion, fairly present in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
As discussed in Note H in the Notes to Financial Statements, the Company has
significant transactions with affiliates.
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
May 20, 1994
F-37
<PAGE> 79
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
BALANCE SHEETS
May 31, 1993 and 1992
ASSETS
------
<TABLE>
<CAPTION>
1993 1992
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash (Note B1) $ 23,550 $6,781
Restricted cash (Note C) 400,000 400,000
Accounts and advances receivable
Trade, net of allowance for doubtful
accounts of $431,481 and $306,771,
respectively (Note B2) 3,170,196 2,582,842
Affiliates (Note I) 96,026 50,889
Other 3,458 5,132
Income taxes due from former parent (Note B6) 59,158 59,158
Inventory (Note B3 and D) 892,462 1,173,194
Prepaid expenses 29,705 43,167
Funds on deposit with Trustee (Note H) 108,625 71,623
--------- ----------
TOTAL CURRENT ASSETS 4,783,180 4,392,786
--------- ---------
PROPERTY, PLANT AND EQUIPMENT (Notes B4, E and H) 4,334,256 4,336,404
Less accumulated depreciation (1,240,383) (1,015,358)
--------- ---------
NET PROPERTY, PLANT AND EQUIPMENT 3,093,873 3,321,046
--------- ---------
OTHER ASSETS
Investment in affiliated company (Note F) 981,750 468,804
Funds on deposit with Trustee (Note H) 35,867 35,867
Bond issue costs, net of accumulated
amortization of $28,787 and $22,390,
respectively (Note B5) 67,168 73,565
---------- ----------
TOTAL OTHER ASSETS 1,084,785 578,236
--------- ---------
TOTAL ASSETS $8,961,838 $8,292,068
========= =========
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 80
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
BALANCE SHEETS - CONTINUED
May 31, 1993 and 1992
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<TABLE>
<CAPTION>
1993 1992
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ - $ 320,202
Note payable to a bank (Note G) 2,903,076 2,347,742
Current maturities of long-term debt (Note H) 221,645 222,230
Accounts payable
Trade 1,928,931 2,175,483
Officers 98,589 20,000
Affiliate 17,446 16,485
Other accrued expenses
Salaries, wages and related expenses 205,678 187,516
Commissions 108,843 120,124
Interest 79,821 82,812
Advertising allowances 178,303 283,606
Other 181,955 155,810
--------- ---------
TOTAL CURRENT LIABILITIES 5,924,287 5,932,010
--------- ---------
LONG-TERM DEBT, net of current maturities (Note H) 1,517,917 1,739,562
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes J and K)
SHAREHOLDER'S EQUITY (Note A)
Preferred stock; $0.00001 par value; 10,000,000
shares authorized, none issued and outstanding - -
Common stock; $0.00001 par value; 25,000,000
shares authorized, 5,910,000 shares issued and
outstanding, respectively 59 59
Additional paid-in capital 1,601,532 569,383
Retained earnings (deficit) (81,957) 51,054
--------- ----------
TOTAL SHAREHOLDER'S EQUITY 1,519,634 620,496
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $8,961,838 $8,292,068
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 81
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
STATEMENTS OF OPERATIONS
Years ended May 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Gross sales (Note J) $ 20,638,152 $ 20,196,089 $ 20,486,154
Less discounts and allowances (1,655,930) (1,567,505) (1,380,419)
------------ ------------ ------------
NET SALES 18,982,222 18,628,584 19,105,735
------------ ------------ ------------
COST OF GOODS SOLD
Direct costs 12,821,256 13,403,246 12,851,553
Freight 2,834,744 2,726,266 3,066,436
Depreciation and amortization 206,676 211,209 209,294
------------ ------------ ------------
TOTAL COST OF GOODS SOLD 15,862,676 16,340,721 16,127,283
------------ ------------ ------------
GROSS PROFIT 3,119,546 2,287,863 2,978,452
------------ ------------ ------------
OPERATING EXPENSES
Selling expenses 1,549,072 2,021,070 1,907,139
General and administrative expenses 794,356 725,266 402,654
Depreciation and amortization 48,178 63,838 60,702
------------ ------------ ------------
TOTAL OPERATING EXPENSES 2,391,606 2,810,174 2,370,495
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 727,940 (522,311) 607,957
OTHER INCOME (EXPENSE)
Interest income 2,422 6,188 13,918
Interest expense (344,746) (371,495) (401,773)
Other (9,492) (10,701) (152,597)
Gain (loss) on disposal of assets 10,006 (70,771) 6,765
Amortization of goodwill (18,564) -- --
Equity in loss of affiliated company (500,577) -- --
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (860,951) (446,779) (533,687)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (133,011) (969,090) 74,270
FEDERAL AND STATE INCOME TAXES (Note A6) -- -- (17,000)
============ ============ ============
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (133,011) (969,090) 57,270
EXTRAORDINARY ITEM - Benefit of tax
net operating loss carryforward -- 154,761 --
----------- ------------ ------------
NET INCOME (LOSS) $ (133,011) $ (814,329) $ 57,270
============ ============ ============
Earnings (loss) per weighted-average
share of common stock outstanding
Before extraordinary item $ (0.02) $ (0.16) $ 0.01
Extraordinary item -- 0.02 --
------------ ------------ ------------
Total $ (0.02) $ (0.14) $ 0.01
============ ============ ============
Weighted-average number of shares outstanding 5,910,000 5,910,000 5,910,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 82
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
Years ended May 31, 1993, 1992, and 1991
<TABLE>
<CAPTION>
Common stock Additional Retained
------------ paid-in earnings
Shares Amount capital (deficit) Total
--------- ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balances at June 1, 1990 5,910,000 $59 $ 941 $808,113 $809,113
Net income for the year - - - 57,270 57,270
========= === ========== ========= ==========
Balances at May 31, 1991 5,910,000 59 941 865,383 866,383
Contribution of additional
paid-in capital by shareholder
(Note F) - - 568,442 - 568,442
Net loss for the year - - - (814,329) (814,329)
========= === ========== ========= ==========
Balances at May 31, 1992 5,910,000 59 569,383 51,054 620,496
Effect of new issues of
common stock of affiliated
company sold at more than
book value (Note F) - - 1,032,149 - 1,032,149
Net loss for the year - - - (133,011) (133,011)
========= === ========== ========= ==========
Balances at May 31, 1993 5,910,000 $59 $1,601,532 $ (81,957) $1,519,634
========= === ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 83
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
STATEMENTS OF CASH FLOWS
Years ended May 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(133,011) $(814,329) $ 57,270
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 254,854 275,047 269,996
Amortization of goodwill 18,564 -- --
Bad debt expense 116,484 100,005 79,000
(Gain) loss on disposition of assets (10,006) 70,771 (6,765)
Income taxes due to (from) parent company -- (154,761) 17,000
Equity in loss of affiliated company 500,577 -- --
(Increase) decrease in:
Accounts receivable - trade and other (702,164) 321,183 (751,739)
Accrued interest receivable -- 3,354 4,540
Inventory 280,732 (93,837) (413,639)
Prepaid expenses and other assets 13,524 69,806 (24,504)
Increase (decrease) in:
Accounts payable and accrued expenses (318,827) 477,956 844,176
Accrued interest payable (2,991) (9,037) (1,467)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,736 246,158 73,868
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances (to) from affiliates (45,137) 163,731 (67,549)
Purchase of stock and warrants in affiliated company -- (362) --
Proceeds from sale of property and equipment 17,679 13,775 29,187
Purchase of property and equipment (28,957) (365,532) (369,599)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (56,415) (188,388) (407,961)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank overdraft (320,202) 166,605 (108,147)
Increase (decrease) in amounts due from affiliates 961 1,430 --
Increase in advances from officers 78,589 -- --
Principal advances (repayments) on line of credit 555,334 (225,778) 593,232
Principal repayments on long-term debt (222,232) (146,712) (41,799)
Payments (deposited with) used by bond trustee
for debt service (37,002) 136,330 (93,797)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 55,448 (68,125) 349,489
--------- --------- ---------
INCREASE (DECREASE) IN CASH 16,769 (10,355) 15,396
Cash at beginning of year 6,781 17,136 1,740
--------- --------- ---------
Cash at end of year $ 23,550 $ 6,781 $ 17,136
========= ========= =========
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 84
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
STATEMENTS OF CASH FLOWS -CONTINUED
Years ended May 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CASH PAID DURING THE YEAR FOR
Interest $347,737 $380,532 $417,709
======== ======== ========
Income taxes $ - $ - $ -
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Contribution of land by parent company as
additional paid-in capital $ - $100,000 $ -
======== ======== ========
Contribution of equity securities in an affiliated
company as additional paid-in capital $ - $468,442 $ -
======== ======== ========
Acquisition of office furniture and vehicles with
long term debt and line of credit advances $ - $ - $ 17,091
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 85
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE A - ENTITY AND ORGANIZATION
American Cabinet, Incorporated (ACI or Company) (an Arkansas corporation) is a
manufacturer and distributor of kitchen and bathroom cabinets, fixtures and
related wood products. The Company sells its products to wholesalers and
retailers in the home building, improvement and remodeling industries.
ACI merged with American Quality Manufacturing Corporation (AQMC), a Delaware
Corporation, upon AQMC's incorporation on May 27, 1994. This merger
effectively reincorporated ACI in the State of Delaware and changed its
corporate name to AQMC. As a result of this merger, the Company converted
their authority to issue up to 1,000 shares of $100.00 par value common stock
into authority to issue up to 25,000,000 shares of $0.00001 par value common
stock. In addition, the Company authorized the issuance of up to 10,000,000
shares of $0.00001 par value preferred stock in such series as the Board of
Directors may designate. As of May 20, 1994, no series had been designated and
no preferred shares were issued and outstanding.
The merger was accomplished by ACI exchanging 100% of its issued and
outstanding shares (100 shares) for 5,910,000 shares of American Quality
Manufacturing Corporation. All outstanding share amounts presented in the
financial statements have been restated to give effect to the merger as if it
had occurred on the first day of the earliest period presented.
Effective January 1, 1994, the Company's sole shareholder, American Industries,
Inc., exchanged 100% of the issued and outstanding shares of common stock of
the Company for unregistered, restricted common stock of S. O. I. Industries,
Inc. (a publicly-held corporation). The effect of this transaction caused the
Company to change from a wholly-owned subsidiary of American Industries, Inc.
to a wholly-owned subsidiary of S. O. I. Industries, Inc. This change in
ownership of the Company was accounted for as a purchase by S. O. I.
Industries, Inc.
Subsequent to May 31, 1993 and prior to the Company's acquisition by S. O. I.
Industries, Inc., the Company declared and paid a property dividend; consisting
of land, building, investment in affiliated company and related long-term debt
on the land and building to its then parent company, American Industries, Inc.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, including accounts in book overdraft positions,
certificates of deposit and other highly-liquid investments with maturities
of three months or less, when purchased, to be cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
F-44
<PAGE> 86
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
2. Accounts and advances receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers which are located throughout the United
States. Because of the credit risk involved, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts which
will eventually become uncollectible. In the event of complete
non-performance, the maximum exposure to the Company is the recorded amount
of trade accounts receivable shown on the balance sheet at the date of
non-performance.
3. Inventories
Inventories consist of lumber and other related products, work-in-process
and finished goods. These items are valued at the lower of cost or market
using the first-in, first-out method.
4. Property, plant and equipment
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets using
accelerated and straight-line methods.
Gains and losses from disposition of property and equipment are recognized
as incurred and are included in operations.
5. Bond issue costs
Bond issue costs represent costs paid in conjunction with the industrial
development bond financing discussed in Note H and are being amortized over
the life of the bond issue using the straight-line method.
6. Income taxes
The Company is included in the consolidated Federal and State income tax
returns of its respective parent company. A provision for separate company
income taxes payable to or receivable from its parent company is made based
on the Company's separate income or loss using either the statutory state
tax rate or the marginal federal income tax rate applicable to the Company
in relation to the consolidated group.
Deferred income taxes are provided for significant temporary differences in
the recognition of revenue and expenses for financial reporting and income
tax reporting purposes, where appropriate and material.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes", effective June 1, 1993.
No material effect on the financial statements resulted from the adoption
of this standard.
F-45
<PAGE> 87
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
7. Earnings (loss) per share
Earnings (loss) per common share is computed by dividing net income by the
weighted average number of common shares outstanding during each year.
8. Reclassifications
Certain amounts have been reclassified in the 1992 and 1991 financial
statements to conform to the current year's presentation.
NOTE C - RESTRICTED CASH
During the fiscal year ended May 31, 1990, the Company became self-insured for
its workers compensation insurance in accordance with the applicable
requirements of the State of Arkansas laws. The Company was required by the
State oversight body to purchase a certificate of deposit to be held in trust
on the Company's workers behalf to ensure the payment of employee claims. The
Company's Certificate of Authority for Self-Insurance expires in October 1994
and must be renewed annually. In the event of nonrenewal, the Company will be
able to acquire coverage through normal business insurance markets.
The certificate of deposit is classified as "restricted cash" on the balance
sheet, and as it is not available for use in the normal course of business, is
not considered to be cash or a cash equivalent for purposes of the Statement of
Cash Flows.
NOTE D - INVENTORIES
Inventories consist of the following at May 31, 1993 and 1992, respectively:
<TABLE>
<CAPTION>
1993 1992
-------- ---------
<S> <C> <C>
Finished goods $152,985 $ 164,804
Work in process 82,725 228,492
Raw materials 656,752 779,898
-------- ---------
$892,462 $1,173,194
======== ==========
</TABLE>
F-46
<PAGE> 88
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consist of the following components as of May 31, 1993
and 1992:
<TABLE>
<CAPTION>
Estimated
1993 1992 useful life
----------- ----------- ---------------
<S> <C> <C> <C>
Building $ 1,682,811 $ 1,676,216 15 to 40 years
Machinery and equipment 1,744,584 1,739,303 7 to 12 years
Land and improvements 493,487 489,097 15 years
Office furniture and equipment 367,863 355,172 5 to 10 years
Vehicles 45,511 76,616 3 to 5 years
----------- -----------
4,334,256 4,336,404
Accumulated depreciation (1,240,383) (1,015,358)
----------- -----------
$ 3,093,873 $ 3,321,046
=========== ===========
</TABLE>
For the years ended May 31, 1993, 1992 and 1991, respectively, approximately
$248,456, $268,649 and $263,599 was charged to operations, as components of
cost of sales and general and administrative expenses, for depreciation
expense.
In December 1993, the Company declared and paid a property dividend consisting
of land, buildings and related long-term debt (Note H) to its parent company.
NOTE F - INVESTMENT IN AFFILIATED COMPANY
On May 28, 1992, the Company's former parent, American Industries, Inc.
contributed 1,348,126 (post March 10, 1993 one-for-four reverse split) shares
of unregistered, restricted common stock of Builders Warehouse Association,
Inc. (BWA), a publicly-owned corporation, as additional paid-in capital to the
Company. This stock was acquired on September 20, 1991 by American Industries,
Inc. subject to Rule 144 of the Securities and Exchange Commission. The
1,348,126 shares represented approximately 49.0% of all issued and outstanding
stock in BWA at the contribution date and, accordingly, the investment is
maintained on the equity method of accounting. Included in the value of the
transaction was goodwill of approximately $154,656, representing the excess of
American Industries' cost over the Company's share of the book value of BWA at
the contribution date.
During the year ended May 31, 1993, BWA issued approximately 714,000 additional
shares of common stock reducing the Company's ownership position from
approximately 49.0% to 39.0%. These new shares were issued at an average price
of $4.42 per share which was approximately $3.71 per share in excess of BWA's
book value. The effect of these BWA transactions was to increase the Company's
investment by approximately $1,032,000 as an increase in additional paid-in
capital.
For BWA's year ended May 31, 1993, they had total assets of approximately
$5,173,000; total liabilities of approximately $3,052,000; and a net loss for
the year of approximately $1,284,000.
F-47
<PAGE> 89
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE F - INVESTMENT IN AFFILIATED COMPANY - CONTINUED
At May 31, 1993, 30,000 shares of this investment were being held by a bank as
collateral for a loan made by the bank to another company related to the
Company by common ownership and management.
In December 1993, the Company declared and paid a property dividend of this
investment back to its then parent company, American Industries, Inc.
NOTE G - NOTES PAYABLE
Notes payable consist of the following at May 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
$3,500,000 line of credit payable to a bank;
interest at the bank's prime rate plus 2 percent
(8.00% at May 31, 1993); interest payable monthly
and principal and unpaid accrued interest due
October 1993 or on demand; collateralized by trade
accounts receivable, inventories, certain machinery
and equipment and a second mortgage on the building.
Note was renewed at the scheduled October 1993
maturity through October 1994. $2,903,076 $2,347,742
========= =========
</TABLE>
NOTE H - LONG-TERM DEBT
Long-term debt consists of the following as of May 31, 1993 and 1992,
respectively:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
$1,870,000 Industrial Development Bond Issue;
interest ranging from 7.2% to 7.6%; interest
payable semi-annually and principal payable
annually, as scheduled; final maturity in
December 2005; collateralized by a first
mortgage on the building and certain machinery
and equipment. $1,540,000 $1,630,000
$375,000 term note payable to a bank;
interest at the bank's prime rate plus 2 percent
(8.00% at May 31, 1993); payable in monthly
installments of approximately $10,417 plus
accrued interest. Final payment due in January 1995.
Collateralized by trade accounts receivable,
inventories, certain machinery and equipment and
a second mortgage on the building. 197,917 322,917
</TABLE>
F-48
<PAGE> 90
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE H - LONG-TERM DEBT - CONTINUED
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
$17,090 note payable to a finance company; interest
at 10.75%; payable in monthly installments of $557,
including interest; final payment due in October
1993; collateralized by a vehicle. 1,645 7,792
$10,857 note payable to a finance company; interest
at 14.0%; payable in monthly installments of
$370, including interest; final payment due
September 1992; collateralized by a vehicle. - 1,083
---------- ----------
Total long-term debt 1,739,562 1,961,792
Less current portion (221,645) (222,230)
---------- ----------
Long-term portion $1,517,917 $1,739,562
========== ==========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending
May 31 Amount
------------ ----------
<S> <C>
1994 $ 221,645
1994 172,917
1995 110,000
1996 120,000
1997 125,000
Thereafter 990,000
----------
$1,739,562
==========
</TABLE>
The Industrial Development Bond Issue represents an issue of the Arkansas
Development Finance Authority (ADFA) for the construction of the Company's
office and manufacturing facility located in Conway, Arkansas and for the
acquisition of certain new manufacturing equipment. The bond issue is dated
December 1, 1988 and has a final scheduled maturity of December 1, 2005. The
interest rate on the bonds could increase to a maximum of 11.5% in the future
should an event occur that deems the bond issue to be taxable under the
Internal Revenue Code.
The bond documents and related trust indenture require the Company deposit all
undisbursed bond proceeds and make monthly payments into an interest bearing
sinking fund to provide for scheduled interest and principal payments as they
mature. Additionally, the bond documents require the trustee of the bond issue
maintain on deposit an amount equal to two months payments, as defined in the
bond documents, while unpaid principal remains outstanding. These various
deposits are classified as current and long-term based on their related purpose
and availability for debt service.
F-49
<PAGE> 91
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE H - LONG-TERM DEBT - CONTINUED
Below is a summary of amounts on deposit with the bond trustee as of May 31,
1993 and 1992, respectively.
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Redemption and interest account $108,625 $ 71,623
Debt service reserve account 35,867 35,867
-------- --------
$144,492 $107,490
======== ========
</TABLE>
The bond issue is collateralized by the Company's office and manufacturing
facility and the accompanying land with a book value of approximately
$1,890,425 and manufacturing equipment with a book value of approximately
$294,598 at May 31, 1993.
Total interest expense for the years ended May 31, 1993, 1992 and 1991 was
approximately $344,746, $371,495 and $401,773, respectively. Additionally,
$7,904 (net of offsetting interest earned of $13,293), $15,632 (net of
offsetting interest earned of $21,888) and $14,468 (net of offsetting interest
earned of $29,615) was included in operating expenses for the years ended May
31, 1993, 1992 and 1991, respectively, for the carrying costs of the
certificate of deposit purchased for worker's compensation self- insurance.
NOTE I - RELATED PARTY TRANSACTIONS
The Company purchases raw materials from American Plywood Sales, Inc., a
subsidiary of Builders Warehouse Association, Inc.. For the years ended May
31, 1993, 1992 and 1991, approximately $4,900,000, $4,900,000 and $5,900,000
was purchased from American Plywood Sales, Inc., respectively. Additionally,
the Company has approximately $587,504 and $728,622 classified as accounts
payable - trade for amounts due to this affiliate as of May 31, 1993 and 1992,
respectively.
The Company paid a management fee to its former parent company, American
Industries, Inc., to provide management, financial and marketing support. For
the years ended May 31, 1993, 1992 and 1991, management fees amounted to
approximately $-0-, $7,500 and $85,000, respectively.
F-50
<PAGE> 92
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE J - ECONOMIC DEPENDENCE
Included in gross sales of approximately $20,600,000, $20,200,000 and
$20,500,000 for the years ended May 31, 1993, 1992 and 1991, respectively, are
the following amounts sold to major customers; each representing more than 10%
of total gross sales:
<TABLE>
<CAPTION>
1993 1992 1990
----------- ----------- ----------
<S> <C> <C> <C>
Customer 1 $ 3,600,000 $ 3,500,000 $3,200,000
Customer 2 3,500,000 2,700,000 2,400,000
Customer 3 2,800,000 2,100,000 1,600,000
Customer 4 1,600,000 1,300,000 1,100,000
Customer 5 -- 1,300,000 --
----------- ----------- ----------
$11,500,000 $10,900,000 $8,300,000
=========== =========== ==========
</TABLE>
NOTE K - SUBSEQUENT EVENTS
On April 21, 1994, the Company entered into a agreement with Coffey County,
Kansas for the lease of a cabinet manufacturing facility and certain production
equipment located in Coffey County, Kansas. As part of the agreement, the
Company was required to assume and retire a $500,000 note payable between
Sherwood Cabinets, Inc. (sherwood), the former tenant, and a bank. The assumed
note is to be repaid from the collection of accounts receivable which arose
from Sherwood's operations and were pledged as collateral for the $500,000 note
payable.
The lease of the plant facility is for a term of twenty years with an option to
extend the lease for an additional twenty years. This lease requires monthly
payments of $2,500. The lease of the production equipment is for a period of
ten years and requires monthly payments of $3,333. The equipment may be
purchased by the Company for $1 at the expiration of the lease term.
Concurrent with the execution of the above agreement, the Company entered into
agreements, covering noncompetition and other issues, with the three (3) former
officers of Sherwood for a period of one year from the agreement execution
date.
F-51
<PAGE> 93
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
SCHEDULE II - ACCOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
May 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Deductions Balance at end of period
----------------------------------------------------
Balance at (1) (2) (1) (2)
beginning Amounts Amounts
Name of Debtor of period Additions collected written off Current Not current
- -------------------------------------- ---------- --------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
May 31, 1993
American Industries, Inc. $ 4,401 $48,360 $ - $ - $ 52,761 $ -
Trinity Development Company, Inc. 40,603 - - - 40,603 -
OMNI Corporation 277 332 - - 609 -
American Plywood Sales, Inc. 667 - 291 - 376 -
Builders Warehouse Association, Inc. 4,941 - 3,264 - 1,677 -
-------- ------- -------- --- -------- ---
$ 50,889 $48,692 $ 3,555 $ - $ 96,026 $ -
======== ======= ======== === ======== ===
May 31, 1992
American Industries, Inc. $ - $ 4,401 $ - $ - $ 4,401 $ -
Trinity Development Company, Inc. 197,929 - 157,326 - 40,603 -
OMNI Corporation - 277 - - 277 -
American Plywood Sales, Inc. 2,742 - 2,075 - 667 -
Builders Warehouse Association, Inc. 13,949 - 9,008 - 4,941 -
-------- ------- -------- --- -------- ---
$214,620 $ 4,678 $168,409 $ - $ 50,889 $ -
======== ======= ======== === ======== ===
May 31, 1991
Trinity Development Company, Inc. $152,603 $45,326 $ - $ - $197,929 $ -
American Plywood Sales, Inc. - 2,742 - - 2,742 -
Builders Warehouse Association, Inc. - 13,949 - - 13,949 -
-------- ------- -------- --- -------- ---
$152,603 $62,017 $ - $ - $214,620 $ -
======== ======= ======== === ======== ===
</TABLE>
F-52
<PAGE> 94
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
SCHEDULE V - PROPERTY AND EQUIPMENT
Years ended May 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Beginning Additions Sales and Ending
Balance at cost Retirements Balance
---------- --------- ------------ --------
<S> <C> <C> <C> <C>
Year ended May 31, 1993
Machinery and equipment $1,739,303 $ 5,281 $ -- $1,744,584
Building 1,676,216 6,595 -- 1,682,811
Office furniture and equipment 355,172 12,691 -- 367,863
Land and improvements 489,097 4,390 -- 493,487
Vehicles 76,616 -- 31,105 45,511
---------- -------- ---------- ----------
$4,336,404 $ 28,957 $ 31,105 $4,334,256
========== ======== ========== ==========
Year ended May 31, 1992
Machinery and equipment (1) $1,575,373 $279,535 $ 115,605 $1,739,303
Building 1,610,777 65,439 -- 1,676,216
Office furniture and equipment 341,779 13,393 -- 355,172
Land and improvements (2) 381,932 107,165 -- 489,097
Vehicles 76,616 -- -- 76,616
---------- -------- ---------- ----------
$3,986,477 $465,532 $ 115,605 $4,336,404
========== ======== ========== ==========
Year ended May 31, 1991
Machinery and equipment (1) $1,416,088 $176,980 17,695 $1,575,373
Building 1,586,227 24,550 -- 1,610,777
Leasehold improvements -- -- -- --
Office furniture and equipment 298,482 46,684 3,387 341,779
Land and improvements (1) 270,954 110,978 -- 381,932
Vehicles 83,957 27,497 34,838 76,616
---------- -------- ---------- ----------
$3,655,708 $386,689 $ 55,920 $3,986,477
========== ======== ========== ==========
</TABLE>
(1) Significant additions to machinery and equipment and building principally
represent the capitalized cost of construction and acquisition of assets for
the Company's office and manufacturing facility.
(2) Increase relates to land contributed by parent company as additional paid-in
capital.
F-53
<PAGE> 95
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
SCHEDULE VI - ACCUMULATED DEPRECIATION - PROPERTY AND EQUIPMENT
Years ended May 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Beginning Additions Sales and Other Ending
Balance to expense Retirements Changes Balance
---------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1993
Machinery and equipment $ 623,713 $143,489 $ -- $ -- $ 767,202
Building 104,058 41,858 -- -- 145,916
Office furniture and equipment 209,712 42,858 -- -- 252,570
Land and improvements 25,446 12,687 -- -- 38,133
Vehicles 52,429 7,564 23,431 -- 36,562
---------- -------- ------- ------ ----------
$1,015,358 $248,456 $23,431 $ -- $1,240,383
========== ======== ======= ====== ==========
Year ended May 31, 1992
Machinery and equipment $ 512,118 $142,654 $31,059 $ -- $ 623,713
Building 63,006 41,052 -- -- 104,058
Office furniture and equipment 153,613 56,099 -- -- 209,712
Land and improvements 13,144 12,302 -- -- 25,446
Vehicles 35,887 16,542 -- -- 52,429
---------- -------- ------- ------ ----------
$ 777,768 $268,649 $31,059 $ -- $1,015,358
========== ======== ======= ====== ==========
Year ended May 31, 1991
Machinery and equipment $ 381,915 $137,247 $ 7,044 $ -- $ 512,118
Building 25,603 37,403 -- -- 63,006
Leasehold improvements -- -- -- -- --
Office furniture and equipment 103,621 51,160 1,168 -- 153,613
Land and improvements -- 13,144 -- -- 13,144
Vehicles 36,528 24,645 25,286 -- 35,887
---------- -------- ------- ------ ----------
$ 547,667 $263,599 $33,498 $ -- $ 777,768
========== ======== ======= ====== ==========
</TABLE>
F-54
<PAGE> 96
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
May 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Beginning Charged to Ending
Balance Costs and expenses Deductions Balance
--------- ------------------ ---------- -------
<S> <C> <C> <C> <C>
Year ended May 31, 1993
Allowance for bad debts $306,771 $126,774 $2,064 $431,481
======== ======== ====== ========
Year ended May 31, 1992
Allowance for bad debts $149,771 $157,000 $ -- $306,771
======== ======== ====== ========
Year ended May 31, 1991
Allowance for bad debts $ 70,771 $ 79,000 $ -- $149,771
======== ======== ====== ========
</TABLE>
F-55
<PAGE> 97
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
SCHEDULE IX - SHORT TERM BORROWINGS
May 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
(2) (3)
Maximum Average Weighted
(1) Weighted amount amount average
Balance average outstanding outstanding interest
at the interest during during during
end of year rate the year the year the year
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1993
Note payable to bank $3,190,993 8.00% $3,316,669 $2,899,409 11.27%
========== ==== ========== ========== =====
Year ended May 31, 1992
Note payable to bank $2,670,658 8.50% $2,952,511 $2,529,353 12.13%
========== ==== ========== ========== =====
Year ended May 31, 1991
Note payable to bank $2,677,792 10.50% $2,735,589 $2,237,613 15.19%
========== ===== ========== ========== =====
</TABLE>
(1) - Balance includes both line-of-credit and term financing under master loan
agreement.
(2) - Computed by averaging the bank balance as of the first day of the fiscal
year and the respective end of the month balances.
(3) - Computed by dividing the interest paid by the average amount outstanding
during the year.
F-56
<PAGE> 98
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
(a wholly-owned subsidiary of S. O. I. Industries, Inc.)
SCHEDULE X - SUPPLEMENTAL INCOME STATEMENT INFORMATION
Years ended May 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Maintenance and repairs $ 77,050 $148,853 $145,846
======== ======== ========
Amortization of bond issue costs $ 6,397 $ 6,397 $ 6,397
======== ======== ========
Taxes, other than income and
payroll $ 42,167 $ 41,315 $ 28,947
======== ======== ========
Royalties $ -- $ -- $ --
======== ======== ========
Advertising $528,306 $772,601 $717,194
======== ======== ========
</TABLE>
F-57
<PAGE> 99
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
BALANCE SHEET
November 30, 1993
(Unaudited)
__________
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 104,707
Restricted cash 400,000
Accounts receivable, less allowance
for doubtful accounts of $89,000 2,932,626
Inventories 1,059,155
Prepaid expenses and other 163,335
---------
Total current assets 4,659,823
---------
Property, plant and equipment, net of $1,341,953 of
accumulated depreciation 3,205,794
Investment in Builder's Warehouse Association 691,017
Other assets 103,586
---------
Total assets $8,660,220
=========
LIABILITIES
Current liabilities:
Note payable, bank $2,665,207
Current portion, long-term debt 95,000
Trade accounts payable 1,702,197
Accrued liabilities 1,180,738
Other current liabilities 125,000
---------
Total current liabilities 5,768,142
---------
Long-term debt 1,641,866
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.00001; 10,000,000
shares authorized -
Common stock, par value $0.00001; 25,000,000
shares authorized, 5,910,000 shares
outstanding at November 30, 1993 59
Additional paid-in capital 1,601,532
Retained earnings (deficit) (351,379)
Total stockholders' equity 1,250,212
---------
Total liabilities and stockholders' equity $8,660,220
=========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-58
<PAGE> 100
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
STATEMENTS OF INCOME
For the six months ended November 30, 1993 and 1992
(Unaudited)
___________
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Net sales $8,867,480 $8,844,118
--------- ---------
Costs and Expenses:
Cost of goods sold 7,660,992 7,566,607
Selling expenses 663,299 785,815
General and administrative expenses 364,162 306,134
--------- ---------
Total costs and expenses 8,688,453 8,658,556
--------- ---------
Operating profit 179,027 185,562
--------- ---------
Other income (expense):
Interest and other income 12,513 18,283
Interest expense (170,530) (170,215)
Other expense (9,282) (9,282)
Equity in loss of affiliated company (277,150)
--------- ---------
(444,449) (161,214)
--------- ---------
(Loss) income before provision for income taxes (265,422) 24,348
Provision for income taxes 4,000 8,500
--------- ---------
Net (loss) income $ (269,422) $ 15,848
========= =========
Weighted average shares of common
stock outstanding 5,910,000 5,910,000
========= =========
(Loss) income per share $ (0.05) $ Nil
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-59
<PAGE> 101
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
STATEMENTS OF INCOME
For the three months ended November 30, 1993 and 1992
(Unaudited)
___________
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Net sales $3,881,310 $3,757,916
--------- ---------
Costs and Expenses:
Cost of goods sold 3,273,781 3,154,056
Selling expenses 351,098 371,641
General and administrative expenses 178,165 161,772
--------- ---------
Total costs and expenses 3,803,044 3,687,469
--------- ---------
Operating profit 78,266 70,447
--------- ---------
Other income (expense):
Interest and other income 5,500 5,703
Interest expense (85,392) (83,861)
Other expense 4,641 (9,282)
Equity in loss of affiliated company (73,401)
--------- ---------
(148,652) (87,440)
--------- ---------
(Loss) income before provision for income taxes (70,386) (16,993)
Provision for income taxes
--------- ---------
Net (loss) income $ (70,386) $ (16,993)
========= =========
Weighted average shares of common
stock outstanding 5,910,000 5,910,000
========= =========
(Loss) income per share $ (0.01) $ Nil
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-60
<PAGE> 102
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
STATEMENTS OF CASH FLOWS
For the six months ended November 30, 1993 and 1992
(unaudited)
______________
<TABLE>
<CAPTION>
1993 1992
========== =========
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (269,422) $ 15,848
---------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 118,199 127,204
Gain on sale of equipment and vehicles (3,547) (900)
Equity in loss of affiliated company 277,150
Decrease in accounts receivable 396,212 184,100
(Increase) decrease in inventories (166,693) 235,439
Increase in prepaid expenses and other (25,005) (58,356)
(Increase) decrease in other assets (551) 6,337
Decrease in trade accounts payable (342,769) (613,646)
Increase in accrued liabilities 608,093 178,677
(Decrease) increase in other current liabilities (56,955) 104,607
---------- ---------
Total adjustments 804,134 163,462
---------- ---------
Net cash provided by (used in) operating activities 534,712 179,310
---------- ---------
Cash flows from investing activities:
Purchases of equipment and vehicles (233,573) (8,963)
Proceeds from dispositions of equipment and vehicles 20,583 11,344
---------- ---------
Net cash used in investing activities (212,990) 2,381
---------- ---------
Cash flows from financing activities:
Net repayments under line of credit agreements (237,869) (20,672)
Principal repayments on long-term debt (2,696) (167,441)
---------- ---------
Net cash provided by financing activities (240,565) (188,113)
---------- ---------
Net increase (decrease) in cash 81,157 (6,422)
Cash at beginning of period 23,550 6,781
---------- ---------
Cash at end of period $ 104,707 $ 359
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 57,348 $ 60,588
========== =========
Income taxes $ 0 $ 0
========== =========
</TABLE>
The accompanying notes are an integral
part of the financial statements
F-61
<PAGE> 103
AMERICAN QUALITY MANUFACTURING CORPORATION
STATEMENTS OF CASH FLOWS, continued
For the nine months ended March 31, 1994 and 1993
(unaudited)
______________
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Effective January 1, 1994, 100% of the common stock of the Company was acquired
by S.O.I. Industries, Inc. ("SOI"). As part of this acquisition, accounted for
as a purchase, 1,300,000 shares of SOI stock were exchanged for substantially
all the net assets of the Company, as follows:
<TABLE>
<S> <C>
Acquisition price (1,300,000 shares of SOI common stock) $ 2,275,000
Fair value of assets acquired 6,113,889
Liabilities assumed (5,967,295)
-----------
Goodwill $ 2,128,406
===========
</TABLE>
Prior to the acquisition of the Company by SOI, and pursuant to the acquisition
agreement, the Company distributed certain assets and related liabilities to its
former sole shareholder in the form of a non-cash dividend. The net book values
of these assets are summarized as follows:
<TABLE>
<S> <C>
Land and improvements, net of related debt and sinking fund $ 651,555
Investment in equity security $ 439,049
</TABLE>
The accompanying notes are an integral
part of the financial statements
F-62
<PAGE> 104
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
____________
1. Summary of Significant Accounting Policies:
Basis of Presentation
American Cabinet, Incorporated is a manufacturer and distributor of kitchen
and bathroom cabinets, fixtures and related wood products. The Company
sells its products to wholesale and retailers in the home building,
improvement and remodeling industries.
American Cabinet, Incorporated merged with American Quality Manufacturing
Corporation (the Company) upon the Company's incorporation on May 27, 1994.
This merger effectively reincorporated American Cabinet, Incorporated in
the state of Delaware and changed its corporate name to American Quality
Manufacturing Corporation. As a result of this merger, the Company
converted their authority to issue up to 1,000 shares of $0.00001 par value
common stock into authority to issue up to 25,000,000 shares of $0.00001
par value common stock. In addition, the Company authorized the issuance
of up to 10,000,000 shares of $0.00001 par value preferred stock in such
series as the Board of Directors may designate.
The merger was accomplished by American Cabinet exchanging 100% of its
issued and outstanding shares (100 shares) for 5,910,000 shares of American
Quality Manufacturing Corporation. All outstanding share amounts presented
in the financial statements have bee restated to give effect to the merger
as if it had occurred on the first day of the earlie period presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these unaudited interim
financial statements. These financial statements should be read in
conjunction with the financial statements and the notes there included in
the Company's annual audited financial statements.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to conform with generally accepted accounting
principles.
2. Inventories
Inventories consisted of the following as of November 30, 1993:
<TABLE>
<S> <C>
Finished goods $ 174,731
Work in process 144,400
Raw materials 740,024
---------
$1,059,155
=========
</TABLE>
F-63
<PAGE> 105
AMERICAN QUALITY MANUFACTURING CORPORATION
(formerly American Cabinet, Incorporated)
NOTES TO INTERIM FINANCIAL STATEMENTS, continued
(Unaudited)
____________
3. Property and Equipment
Property and equipment consisted of the following components as of March
31, 1994:
<TABLE>
<S> <C>
Machinery and equipment $ 1,954,775
Building and improvements 1,873,491
Office furniture and equipment 374,467
Vehicles 44,031
Land 300,983
----------
4,547,747
Accumulated depreciation (1,341,953)
----------
$ 3,205,794
==========
</TABLE>
4. Subsequent Event
Effective January 1, 1994, all of the common stock of the Company was
acquired by S.O.I. Industries, Inc. ("SOI"). Prior to this stock
acquisition, certain real estate and invest assets, along with the
associated debt, were transferred to the Company's former parent company in
accordance with the terms of the acquisition agreement. The fair value of
the consideration exchanged for the Company's stock exceeded the fair value
of the remaining net assets of the Company by approximately $2,128,000.
This amount has been recorded as goodwill, and will be reflected on the
financial statements of the Company.
F-64
<PAGE> 106
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 884,706 $ 892,745
Restricted cash 500,000 500,000
Marketable securities 3,808,331 3,379,472
Accounts receivable, less allowance
for doubtful accounts of $1,067,381 at
March 31, 1995 and $775,875 at
June 30, 1994 8,367,395 7,532,560
Inventories 8,258,827 6,520,034
Loans receivable, related parties 301,876
Prepaid expenses and other 614,469 146,863
---------- ----------
Total current assets 22,433,728 19,273,550
---------- ----------
Property, plant and equipment, net of
accumulated depreciation 8,777,094 8,166,518
Goodwill, net of accumulated amortization 2,782,519 2,934,551
Deferred tax asset 486,477 618,677
Other assets 93,093 67,498
---------- ----------
Total assets $34,572,911 $31,060,794
========== ==========
LIABILITIES
Current liabilities:
Revolving lines of credit $ 9,290,194 $ 6,624,896
Current portion, long-term debt 897,620 914,952
Current portion, ESOP note payable 121,745 121,745
Trade accounts payable 5,763,988 4,037,492
Accrued liabilities 487,440 2,291,596
Federal and state income taxes payable 621,377
Payable to officers 20,000 132,558
Other current liabilities 818,757
---------- ----------
Total current liabilities 17,399,744 14,744,616
---------- ----------
Long-term debt, less current maturities 4,333,587 3,246,995
ESOP note payable, less current maturities 263,780 355,089
Deferred income taxes 361,652 361,652
Minority interest 3,931,462 3,542,812
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $0.000025; 20,000,000
shares authorized, 10,944,150 and 10,901,470
shares outstanding at March 31, 1995 and
June 30, 1994, respectively 274 273
Additional paid-in capital 6,130,530 6,524,282
Retained earnings 2,904,843 3,149,640
Due from ESOP (385,525) (476,834)
Net unrealized holding loss on investment securities (367,436) (387,731)
---------- ----------
Total stockholders' equity 8,282,686 8,809,630
---------- ----------
Total liabilities and stockholders' equity $34,572,911 $31,060,794
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-65
<PAGE> 107
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
March 31, March 31,
------------------------------ -----------------------------
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $11,723,746 $11,139,541 $36,473,155 $23,424,441
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of goods sold (exclusive of depreciation
and amortization, shown separately below) 9,903,035 8,738,172 29,500,358 17,865,004
Research and development expenses (exclusive
of depreciation and amortization, shown
separately below) 412,452
Selling expenses (exclusive of depreciation
and amortization, shown separately below) 947,667 755,216 2,618,478 1,459,130
General and administrative expenses (exclusive
of depreciation and amortization, shown
separately below) 955,741 733,229 2,958,389 1,433,971
Depreciation and amortization 519,270 396,241 1,460,796 924,981
---------- ---------- ---------- ----------
Total costs and expenses 12,325,713 10,622,858 36,950,473 21,683,086
---------- ---------- ---------- ----------
Operating profit (601,967) 516,683 (477,318) 1,741,355
---------- ---------- ---------- ----------
Other income (expense):
Interest and other income 123,580 1,387,034 1,694,674 1,416,755
Interest expense (377,911) (158,821) (978,854) (301,587)
---------- ---------- ---------- ----------
(254,331) 1,228,213 715,820 1,115,168
---------- ---------- ---------- ----------
Income from continuing operations before
provision for income taxes and minority interest (856,298) 1,744,896 238,502 2,856,523
Provision for income taxes (261,460) 649,300 204,713 1,126,500
---------- ---------- ---------- ----------
Income from continuing operations
before minority interest (594,838) 1,095,596 33,789 1,730,023
Minority interest in net income of
consolidated subsidiary (126,132) 111,054 278,586 348,250
---------- ---------- ---------- ----------
Income from continuing operations before
discontinued operations (468,706) 984,542 (244,797) 1,381,773
Discontinued operations:
Loss from operations of Video Plus, Inc., net of
applicable income taxes of $54,000 105,589
Loss on sale of Video Plus, Inc. (257,582)
----------
(151,993)
----------
Net income $ (468,706) $ 984,542 $ (244,797) $ 1,229,780
========== ========== ========== ==========
Weighted average shares of common
stock outstanding 10,934,906 9,592,670 10,934,906 9,592,670
========== ========== ========== ==========
Earnings per share:
Continuing operations $ (0.04) $ 0.10 $ (0.02) $ 0.15
Discontinued operations 0.00 0.00 0.00 (0.02)
---------- ---------- ---------- ----------
Net income $ (0.04) $ 0.10 $ (0.02) $ 0.13
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-66
<PAGE> 108
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended
March 31,
--------------------------------
1995 1994
(Unaudited) (Unaudited)
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (244,797) $ 1,229,780
---------- ----------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,460,796 924,981
Increase in accounts receivable (834,835) (2,683,408)
Increase in inventories (1,738,793) (1,091,653)
Increase in prepaid expenses and other (467,606) (360,872)
Increase (decrease) in accounts payable 1,726,496 (179,485)
(Decrease) increase in accrued liabilities (985,399) 231,126
(Decrease) increase in income taxes payable (489,177) 647,566
(Decrease) increase in minority interest (17,661) 577,515
---------- ----------
Net cash used in operating activities (1,590,976) (704,450)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of Video Plus, Inc. 2,634,865
Decrease in loans receivable, related parties 189,318 6,537
Change in marketable securites - available for sale (408,564) (953,105)
Decrease in other assets (25,595) 37,269
Capital expenditures (1,919,340) (2,035,401)
---------- ----------
Net cash used in investing activities (2,164,181) (309,835)
---------- ----------
Cash flows from financing activities:
Net long-term borrowings 1,069,260 1,318,811
Net short-term borrowings 2,665,298
Payments on loan from related party (61,200)
Proceeds from issuance of common stock 12,560 66,764
Payments made on note due from ESOP (91,309) (82,016)
Decrease in note payable - ESOP 91,309 82,016
---------- ----------
Net cash provided by financing activities 3,747,118 1,324,375
---------- ----------
(Decrease) increase in cash and cash equivalents (8,039) 310,090
Cash and cash equivalents at beginning of period 892,745 1,109,008
---------- ----------
Cash and cash equivalents at end of period $ 884,706 $ 1,419,098
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (non-capitalized) $ 978,854 $ 301,587
========== ==========
Income taxes $ 482,324 $ 441,175
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-67
<PAGE> 109
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
_____________
1. Summary of Significant Accounting Policies:
The accompanying consolidated financial statements include the accounts of
S.O.I. Industries, Inc. (the "Company") and its wholly-owned subsidiaries,
Digital Communications Technology Corporation and Subsidiary ("DCT"),
American Quality Manufacturing Corporation ("AQM"), Tempo Lighting, Inc.
("Tempo") and Omni Doors, Inc.
During the quarter ended December 31, 1993, Digital Communications
Technology Corporation sold its subsidiary, Video Plus, Inc. Consequently,
the operations and net assets of Video Plus, Inc. have been segregated from
the Company's financial statements and have been presented as discontinued
operations. Additionally, the financial information related to December
31, 1993 has been restated to reflect the sale of Video Plus, Inc.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these unaudited interim
financial statements. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's annual audited financial statements.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to conform with generally accepted accounting
principles. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
2. Marketable Securities:
Marketable securities consist of listed common stocks with an aggregate
cost, based on specific identification, of $3,379,472 as of March 31, 1995.
The net unrealized holding loss as of March 31, 1995 was $367,436. All of
the Company's securities are classified as available for sale securities.
3. Inventories:
The inventories are valued at the lower of cost (first-in, first-out
method) or market and consisted of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $7,020,003 $5,092,038
Work-in process 824,856 1,027,936
Finished goods 413,968 400,060
--------- ---------
$8,258,827 $6,520,034
========== ==========
</TABLE>
F-68
<PAGE> 110
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
_____________
4. Property, Plant and Equipment:
Property, plant and equipment and related accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
----------- ------------
<S> <C> <C>
Land $ 93,000 $ 93,000
Buildings and improvements 1,400,622 1,143,181
Machinery and equipment 11,642,687 10,034,870
---------- ----------
13,136,309 11,271,051
Less: accumulated depreciation 4,359,215 3,104,533
---------- ----------
$ 8,777,094 $ 8,166,581
=========== ============
</TABLE>
5. Lines of Credit:
The Company's subsidiaries, DCT and Tempo, have revolving line of credit
agreements which permit aggregate borrowings up to $6,300,000 based upon
certain percentages applied to eligible accounts receivable and inventory.
Interest is payable on all outstanding cash advances at the bank's prime
rate plus 1/4%. Any unpaid principal and accrued interest is due on demand
and is all due no later than January 1996. The lines are secured by
substantially all accounts receivable and inventories and all equipment not
being used to collateralize other equipment and mortgage notes.
The agreements further provide that the Company and its subsidiaries must
comply with certain covenants, the most restrictive of which requires a
minimum net leverage ratio as defined by the agreement. These lines of
credit are guaranteed by the Company and its subsidiaries. As of March 31,
1995, $4,614,800 had been drawn against DCT's and Tempo's lines of credit.
The Company's AQM subsidiary has a $6,500,000 line of credit agreement
bearing interest at the bank's prime interest rate plus 2%. The line of
credit is limited to a borrowing base consisting of the sum of 85% of
eligible accounts receivable (as defined) and 50% of AQM's eligible
inventory of raw materials and finished goods. At any time during the life
of the loan facility, the borrowing base attributable to inventory may not
exceed $1,000,000. The loan facility is collateralized by a first interest
in all acquired goods, inventory, accounts receivable, property and
equipment, other financial instruments (if any) and all other intangibles
of AQM. This loan facility is guaranteed by the Company. As of March 31,
1995, approximately $4,675,000 was outstanding on this loan facility.
F-69
<PAGE> 111
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
_____________
6. Long-Term Debt:
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1944
---------- ---------
<S> <C> <C>
Long-term debt consists of various
mortgages and notes payable with
interest rates ranging from 7% to
2 percent over prime. Monthly payments
range from $274 to $29,000 and
expiration dates range from 1995
through 2007. $5,352,952 $3,586,224
Less: current portion 1,019,365 869,058
--------- ---------
$4,333,587 $2,717,166
========= =========
</TABLE>
7. Stock Option Plan:
On March 19, 1988, the Company's Board of Directors adopted the S.O.I.
Industries, Inc. 1988 Employees' Stock Option Plan, reserving 2,000,000
shares of common stock for this purpose. The plan was subsequently approved
by a vote of shareholders. At March 31, 1995, there were 1,425,000 shares
reserved for future issuance. No options were granted during the nine
months ended March 31, 1995.
8. Pending Litigation:
During March 1995, the Company dismissed Mr. DeWayne Davis as the Chief
Financial Officer of AQM and subsequently filed a lawsuit on behalf of AQM
against Mr. Davis alleging malfeasance and improprieties for a breach of
his fiduciary duties to AQM based upon his relationship with Builders
Warehouse Association, Inc. ("BWA") and its subsidiary, American Plywood
Sales, Inc., while he was associated with AQM and, simultaneously, a member
of BWA's Board of Directors. Additionally, the lawsuit seeks recovery of
certain amounts deemed by the Company's management to be unauthorized
compensation and/or executive benefits. The Company is not seeking any
recovery from BWA for amounts paid for materials purchased in the current
or preceding fiscal periods.
The Company has begun internal discovery to determine the amount of the
recovery being sought through the litigation and the future impact to the
Company's financial statements. However, preliminary investigations have
revealed that no material impact to the Company's financial statements for
the nine months ended March 31, 1995 will be incurred. Further, the
potential recovery, if any, qualifies as a "gain contingency" under
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies;" therefore, no potential benefits are reflected in the
accompanying financial statements.
Related to this litigation, Mr. Davis has sued AQM alleging incomplete
compensation during his tenure as an executive officer of the Company. The
Company believes this action to be without merit. Any amounts related to
this counterclaim would be immaterial to the accompanying financial
statements. Additionally, BWA has filed a lawsuit against AQM and the
Company on the basis that AQM allegedly owes a subsidiary of BWA for wood
products purchased by AQM from BWA's subsidiary. These purchases were
previously recorded as incurred and therefore the effect of this claim is
already reflected in the accompanying financial statements.
F-70
<PAGE> 112
No dealer, salesman or any other person has been
authorized to give any information or to make any
representation other than those contained in this
Prospectus in connection with the offering herein
contained, and if given or made, such information
or representation must not be relied upon as
having been authorized by the Company. This
Prospectus does not constitute an offer to sell
any security other than the registered securities
to which it relates, or an offer to or
solicitation of any person in any jurisdiction in
which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any
circumstance, create an implication that there has
been no change in the facts herein set forth since
the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information 2
Risk Factors 3
The Company 7
Use of Proceeds 7
Dividend Policy 7
Price Range of Common Stock 8
Management's Discussion and 9
Analysis of Financial Condition
and Results of Operations
Business 22
Management 27
Executive Compensation 29
Security Ownership of Certain 31
Beneficial Owners and Management
Certain Relationships and Related 32
Transactions
Changes In and Disagreements With 34
Accountants on Accounting and
Financial Disclosure
Description of Capital Stock 34
Selling Stockholders 36
Plan of Distribution 37
Experts 37
Disclosure of Commission Position 38
On Indemnification for
Securities Act Liabilities
Index to Financial Statements 39
- --------------------------
</TABLE>
Until _________, 1995 (90 days after the date of
this Prospectus), all dealers effecting
transactions in the registered securities, whether
or not participating in this distribution, may be
required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with
respect to their to their unsold allotments or
subscriptions.
S. O. I. INDUSTRIES, INC.
PROSPECTUS
2,918,000 SHARES
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Company provides for the
indemnification of officers, directors, agents and employees of the Company to
the fullest extent permitted by the General Corporation Law of the State of
Delaware ("Delaware Code"). Pursuant to Section 145 of the Delaware Code, the
Company generally has the power to indemnify its present and former directors,
officers, employees and agents against expenses incurred by them in connection
with any suit to which they are, or are threatened to be made, a party by
reason of their serving in such positions so long as they acted in good faith
and in a manner they reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action, they had no
reasonable cause to believe their conduct was unlawful. The Company has the
power to purchase and maintain insurance for such persons. The statute also
expressly provides that the power to indemnify authorized thereby is not
exclusive of any rights granted under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
The above discussion of the Company's Certificate of Incorporation and
of Section 145 of the Delaware Code is not intended to be exhaustive and is
qualified in its entirety by such Bylaws and the Delaware Code.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the offering, all of which are to be borne
by the Company, are as follows:
<TABLE>
<S> <C>
SEC Filing Fee $ 3,764.85
Printing Expense 500.00
Accounting Fees and Expenses $ 2,500.00
Legal Fees and Expenses $ 50,000.00
Blue Sky Fees and Expenses -0-
----------
TOTAL $56,764.85
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On May 4, 1992 the Board of Directors agreed to exchange shares of the
Company's Common Stock for common stock of its subsidiary, Digital
Communications Technology Corporation ("DCT"). On May 7, 1992 the exchange of
shares was made based on the average price of the stock of both companies on
that day. The 3,000,000 shares of DCT stock that were exchanged were worth
approximately $2,062,500 and were exchanged for 1,736,842 shares of the
Company's Common Stock worth approximately $2,062,500.
On January 27, 1994 the Board of Directors agreed to exchange
additional shares of the Company's Common Stock for common stock of DCT. On
February 14, 1994 the exchange of shares was made based on the average price of
the stock of both companies on January 27, 1994. The 580,538 shares of DCT's
common stock that were exchanged were worth approximately $4,574,636 and were
exchanged for 1,329,836 shares of the Company's Common Stock worth
approximately $4,574,636.
II-1
<PAGE> 114
On February 1, 1994, the Company acquired all of the issued and
outstanding stock of American Quality Manufacturing Corporation, formerly
American Cabinet, Inc. ("AQM") pursuant to a Stock Exchange Agreement dated
November 30, 1993, by and among DeWayne Davis, Robert L. Ott, Trustee of the
Robert L. Ott Revocable Trust, J. R. Ott, Joanna O. Burger and Sharon F. Davis,
Trustee UA dtd 8/1/88 (collectively referred to as the "Davis Group"). By
virtue of said transaction, AQM became a wholly-owned subsidiary of the
Company. The transaction involved the exchange of 1,300,000 shares of the
Company's Common Stock, par value $.000025, to the Davis Group in exchange for
100% controlling interest of AQM.
The Company relied on the exemption from registration under the
Securities Act set forth in Section 4(2) thereof. No underwriters were used in
connection with the foregoing transactions.
ITEM 27. EXHIBITS
2.1 Stock Exchange Agreement dated November 30, 1993 by and
between American Quality Manufacturing Corporation and the
Company (5)
3.1 Certificate of Incorporation and Bylaws of the Company (1)
3.2 Certificate of Amendment of the Company (2)
4.0 Specimen Certificate of Common Shares, par value $.000025 (6)
5.0 Opinion of Morgan F. Johnston, Esq. (6)
9.0 Voting Agreement dated December 2, 1993, by and among DeWayne
Davis, Robert L. Ott, Trustee of the Robert L. Ott Revocable
Trust, J.R. Ott, Joanna O. Burger, Sharon Davis, Trustee UA
dtd 8/1/88 and Halter Capital Corporation (6)
Voting Agreement dated January 26, 1994, by and between Kwai
Chung Corporation, a Turks and Caicos corporation and Halter
Capital Corporation (6)
Voting Agreement dated January 26, 1994, by and between M. D.
Abel and Halter Capital Corporation (6)
Voting Agreement dated January 26, 1994, by and between Stuart
G. Johnston, Jr. and Halter Capital Corporation (6)
Voting Agreement dated January 26, 1994, by and between
Richard A. Hansen and Halter Capital Corporation (6)
Voting Agreement dated January 26, 1994, by and between
Catherine J. Alven and Halter Capital Corporation (6)
Voting Agreement dated January 26, 1994, by and between Edward
J. Lott and Halter Capital Corporation (6)
Voting Agreement dated January 26, 1994, by and between Gary
C. Evans and Halter Capital Corporation (6)
II-2
<PAGE> 115
Voting Agreement dated January 26, 1994, by and between Evans
Equity, L.L.C. and Halter Capital Corporation (6)
10.1 Lease Agreements (1)
10.2 Lease Agreement for High Point, North Carolina showroom (4)
10.3 Lease Agreement dated January 2, 1994 by and between American
Industries, Inc. and American Quality Manufacturing
Corporation (6)
10.4 Lease Agreement dated May 21, 1994 by and among American
Quality Manufacturing Corporation, the Board of County
Commissioners, Coffey County, Kansas and the Company (6)
10.5 Promissory Note between the Company and MagneTech
Corporation (3)
10.6 The Company's Employees' Stock Ownership Plan Documents (3)
(i) Employee Stock Option Plan
(ii) Stock Purchase Agreement
(iii) ESOP Loan Agreement
(iv) Non-negotiable Promissory Loan Documents (3)
10.7 Employment Contract between the Company and
Donald E. Courtne (1)
22.0 List of Subsidiaries (6)
23.1 Consent of Morrison, Brown, Argiz & Company
23.2 Consent of Wainberg, Zipper, Strauss & Co., P.A.
23.3 Consent of Mishkin, Horowitz & Boas, P.A.
23.4 Consent of S. W. Hatfield + Associates
23.5 Consent of Morgan F. Johnston, Esq. (included in Exhibit 5.0)
27.1 Financial Data Schedule
II-3
<PAGE> 116
(1) These exhibits were previously filed by the Company with the Commission as
Exhibits to its Registration Statement No. 33-1 4668-A and are respectively
incorporated herein by specific reference thereto.
(2) These exhibits were previously filed by the Company with the Commission as
Exhibits to its Amendment No. 2 to its Registration Statement No. 33-14668-A
and are respectively incorporated herein by specific reference thereto.
(3) These exhibits were previously filed with the Commission by the Company as
Exhibits to its Form 8-K and are respectively incorporated herein by specific
reference thereto.
(4) These exhibits were previously filed with the Commission by the Company as
Exhibits to its Form 10-K for the year ended June 30, 1993 and are respectively
incorporated herein by specific reference thereto.
(5) This exhibit was previously filed by the Company with the Commission as an
Exhibit to its Form 8-K dated February 14, 1994 and is incorporated by
reference herein by specific reference thereto.
(6) These exhibits were previously filed by the Company with the Commission as
Exhibits to its Registration Statement on Form SB-2 filed on June 29, 1994 and
are incorporated by reference herein by specific reference thereto.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
II-4
<PAGE> 117
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and has duly caused this Amendment No.
5 to be signed on its behalf by the undersigned thereunto duly authorized, in
the City of Dallas, State of Texas, on the 3rd of August, 1995.
S.O.I. INDUSTRIES, INC.
By: /s/ Kevin B. Halter
_____________________________
Kevin B. Halter, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature
<S> <C>
/s/ Kevin B. Halter
______________________________ August 3, 1995
Kevin B. Halter, President
(Principal Executive Officer) and
Director
/s/ Sanford M. Whitman *
______________________________ August 3, 1995
Sanford M. Whitman, Chief
Financial Officer (Principal
Financial and Accounting Officer),
Vice President and Treasurer
/s/ Kevin B. Halter, Jr. *
______________________________ August 3, 1995
Kevin B. Halter, Jr., Vice
President, Secretary and Director
/s/ Gary C. Evans *
______________________________ August 3, 1995
Gary C. Evans, Director
</TABLE>
<PAGE> 119
<TABLE>
<S> <C>
______________________________ August 3, 1995
Charles Acton, Director
______________________________
James Smith, Director August 3, 1995
* By: /s/ Kevin B. Halter
________________________
pursuant to Power of Attorney previously filed
with the Securities and Exchange Commission
</TABLE>
<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
23.1 Consent of Morrison, Brown, Argiz & Co.
23.2 Consent of Wainberg, Zipper, Strauss & Co., P.A.
23.3 Consent of Mishkin, Horowitz & Boas, P.A.
23.4 Consent of S. W. Hatfield + Associates
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the use of our report on
the Consolidated Financial Statements of S.O.I. Industries, Inc. as of June 30,
1994 and for the year then ended, and to all references to our firm, included in
or made a part of this Pre-Effective Amendment No. 5 to Form SB-2.
MORRISON, BROWN, ARGIZ & COMPANY
Miami, Florida
August 4, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the use of our report on
the Consolidated Financial Statements of S.O.I. Industries, Inc. as of June 30,
1993 and for the year then ended, and to all references to our firm, included in
or made a part of this Pre-Effective Amendment No. 5 to Form SB-2.
WAINBERG, ZIPPER, STRAUSS & COMPANY
Miami, Florida
August 4, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the use of our report on
the Consolidated Financial Statements of S.O.I. Industries, Inc. as of June 30,
1992 and for the year then ended, and to all references to our firm, included in
or made a part of this Pre-Effective Amendment No. 5 to Form SB-2.
MISHKIN, HOROWITZ & BOAS, P.A.
Miami, Florida
August 4, 1995
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in the Pre-Effective Amendment No. 5 to Form SB-2
Registration Statement under The Securities Act of 1933 of S. O. I. Industries,
Inc. (a Delaware corporation) our report dated May 20, 1994 on the financial
statements of American Quality Manufacturing Corporation (a wholly-owned
subsidiary of S. O. I. Industries, Inc. and a Delaware corporation) as of May
31, 1993 and 1992 and for each of the three years in the period ended May 31,
1993, accompanying the financial statements contained in such Pre-Effective
Amendment No. 5 to Form SB-2 Registration Statement Under The Securities Act of
1933, and to the use of our name and the statements with respect to us as
appearing under the heading "Experts".
Further, we consent to the use in the Pre-Effective Amendment No. 5 to Form SB-2
Registration Statement under The Securities Act of 1933 of S. O. I. Industries,
Inc. (a Delaware corporation) our report dated August 24, 1994 on the financial
statements of American Quality Manufacturing Corporation (a wholly-owned
subsidiary of S. O. I. Industries, Inc. and a Delaware corporation) as of June
30, 1994 and May 31, 1993 and for each of the years ended June 30, 1994, May 31,
1993, May 31, 1993 and for the transitional month ended June 30, 1993,
accompanying the financial statements contained in such Pre-Effective Amendment
No. 5 to Form SB-2 Registration Statement Under The Securities Act of 1933.
Additionally, we consent to the use of our name and the statements with respect
to us as appearing under the heading "Experts".
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
August 1, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1994
<PERIOD-START> JUL-01-1994 JUL-01-1993
<PERIOD-END> MAR-31-1995 JUN-30-1994
<CASH> 884,706 892,745
<SECURITIES> 3,808,331 3,379,472
<RECEIVABLES> 9,434,776 8,308,435
<ALLOWANCES> 1,067,381 775,875
<INVENTORY> 8,258,827 6,520,034
<CURRENT-ASSETS> 22,433,728 19,273,550
<PP&E> 13,136,309 11,271,051
<DEPRECIATION> 4,359,215 3,104,533
<TOTAL-ASSETS> 34,572,911 31,060,794
<CURRENT-LIABILITIES> 17,399,744 14,744,616
<BONDS> 4,333,587 2,717,166
<COMMON> 274 273
0 0
0 0
<OTHER-SE> 8,282,412 8,809,357
<TOTAL-LIABILITY-AND-EQUITY> 34,572,911 31,060,794
<SALES> 11,723,746 34,117,088
<TOTAL-REVENUES> 11,723,746 34,117,088
<CGS> 9,903,035 25,737,200
<TOTAL-COSTS> 12,325,713 32,997,124
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 475,889
<INTEREST-EXPENSE> 377,911 595,415
<INCOME-PRETAX> (856,298) 2,382,656
<INCOME-TAX> (261,460) 708,800
<INCOME-CONTINUING> (594,838) 1,673,856
<DISCONTINUED> 0 (95,429)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (468,706) 1,240,061
<EPS-PRIMARY> (0.04) 0.13
<EPS-DILUTED> (0.04) 0.13
</TABLE>
