UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-QSB/A
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission file number: 1-12572
S.O.I. INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 59-2158586
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16910 Dallas Parkway, Suite 100, Dallas, Texas 75248
(Address of principal executive offices)
(214) 248-1922
(Issuer's telephone number)
_________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares outstanding of the common stock of the registrant
on May 8, 1995, the latest practicable date, was 14,010,828.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [ X ]
<PAGE>
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 718,914 $ 892,745
Restricted cash 500,000 500,000
Marketable securities 4,140,185 3,379,472
Accounts receivable, less allowance
for doubtful accounts of $842,771 at
September 30, 1994 and $775,875 at
June 30, 1994 8,805,458 7,532,560
Inventories 6,236,955 6,520,034
Loans receivable, related parties 301,876
Prepaid expenses and other 806,183 146,863
------------ -----------
Total current assets 21,207,695 19,273,550
------------ -----------
Property, plant and equipment 7,863,960 8,166,518
Goodwill, net of accumulated amortization 2,883,754 2,934,551
Deferred tax asset 848,426 618,677
Other assets 84,887 67,498
----------- -----------
Total assets $ 32,888,722 $ 31,060,794
=========== ===========
LIABILITIES
Current liabilities:
Revolving lines of credit $ 7,311,465 $ 6,624,896
Current portion, long-term debt 723,348 869,058
Current portion, ESOP note payable 121,745 121,745
Current portion of capital lease obligations 77,600 45,894
Trade accounts payable 6,590,669 4,037,492
Accrued liabilities 412,459 2,291,596
Federal and state income taxes payable 226,306 621,377
Payable to officers 291,619 132,558
Other current liabilities 812,505
----------- -----------
Total current liabilities 16,567,716 14,744,616
----------- -----------
Long-term debt, less current maturities 3,036,405 2,717,166
ESOP note payable, less current maturities 324,653 355,089
Capital lease obligations, less current maturities 504,480 529,829
Deferred income taxes 361,652 361,652
Minority interest 3,669,541 3,542,812
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $0.000025; 20,000,000
shares authorized, 10,908,950 and 10,901,470
shares outstanding at September 30, 1994 and
June 30, 1994, respectively 273 273
Additional paid-in capital 6,586,236 6,524,282
Retained earnings 2,951,905 3,149,640
Due from ESOP (446,398) (476,834)
Net unrealized holding loss on investment securities (667,741) (387,731)
----------- -----------
Total stockholders' equity 8,424,275 8,809,630
----------- -----------
Total liabilities and stockholders' equity $ 32,888,722 $ 31,060,794
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
1
<PAGE>
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
1994 1993
----------- -----------
<S> <C> <C>
Net sales $ 10,616,640 $ 4,077,017
----------- -----------
Costs and Expenses:
Cost of goods sold (exclusive of depreciation
and amortization, shown separately below) 8,525,578 2,964,084
Research and development (exclusive of depreciation
and amortization, shown separately below) 412,000
Selling expenses (exclusive of depreciation
and amortization, shown separately below) 838,624 340,955
General and administrative expenses (exclusive
of depreciation and amortization, shown
separately below) 1,349,642 267,334
Depreciation and amortization 380,478 255,453
---------- -----------
Total costs and expenses 11,506,322 3,827,826
---------- -----------
Operating (loss) profit (889,682) 249,191
========== ===========
Other income (expense):
Gain on sales of marketable securities 338,009
Settlement of lawsuit 750,000
Interest and other income 7,071 35,507
Interest expense (264,569) (82,855)
----------- -----------
830,511 (47,348)
----------- -----------
(Loss) income from continuing operations before
provision for income taxes and minority interest (59,171) 201,843
Provision for income taxes 237,263 97,600
----------- -----------
(Loss) income from continuing operations
before minority interest (296,434) 104,243
Minority interest in net income of
consolidated subsidiary 98,699 166,925
----------- -----------
(Loss) income from continuing operations before
discontinued operations (395,133) (62,682)
Income from operations of discontinued operations,
net of applicable income taxes of $117,800 224,589
----------- -----------
Net (loss) income $ (395,133) $ 161,907
=========== ===========
Weighted average shares of common
stock outstanding 10,903,340 8,891,970
(Loss) earnings per share:
Continuing operations $ (0.04) $ (0.01)
Discontinued operations 0.00 0.03
----------- -----------
Net (loss) income $ (0.04) $ 0.02
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE>
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (395,133) $ 161,907
----------- -----------
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 380,478 255,453
Provision for doubtful accounts 66,896 19,920
Reserve for inventory obsolescence 36,000
Stock issued to employees as compensation 69,696
Gain on sales of marketable securities (338,009)
Increase in accounts receivable (1,339,794) (240,236)
Decrease (increase) in inventories 247,079 (853,505)
(Increase) decrease in prepaid expenses and other (676,709) 25,518
Increase in accounts payable 2,553,177 603,179
Decrease in accrued liabilities (973,510) (53,259)
Decrease in income taxes payable and deferred
income taxes (624,820) (73,747)
Increase in minority interest 93,050 166,925
----------- -----------
Net cash provided by operating activities (901,599) 12,155
----------- -----------
Cash flows from investing activities:
Capital expenditures (77,920) (1,787,619)
Increase in marketable securities (422,704)
Repayment of loan receivable from affiliates 301,876 6,537
Change in net assets of discontinued operation (484,379)
----------- -----------
Net cash used in investing activities (198,748) (2,265,461)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term borrowings, net 186,245 1,324,227
Proceeds from revolving line of credit, net 686,569 550,000
Proceeds from issuance of common stock 60,060 79,450
Payments on capital lease obligations (6,358)
Payments made on note due from ESOP (30,436) (32,143)
Increase in note payable - ESOP 30,436 32,143
----------- -----------
Net cash provided by financing activities 926,516 1,953,677
----------- -----------
Decrease in cash and cash equivalents (173,831) (299,629)
Cash and cash equivalents at beginning of period 892,745 755,340
----------- -----------
Cash and cash equivalents at end of period $ 718,914 $ 455,711
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 263,454 $ 82,855
=========== ===========
Income taxes $ 636,121 $ 195,400
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
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
September 30, 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. Inventories:
The inventories are valued at the lower of cost (first-in, first-out method)
or market and consisted of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994
----------- -----------
<S> <C> <C>
Raw materials $ 5,343,215 $ 5,092,038
Work-in process 574,547 1,027,936
Finished goods 319,193 400,060
----------- -----------
$ 6,236,955 $ 6,520,034
=========== ===========
</TABLE>
4
<PAGE>
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
_____________
3. Property, Plant and Equipment:
Property, plant and equipment and related accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994
----------- -----------
<S> <C> <C>
Land $ 93,000 $ 93,000
Buildings and improvements 1,172,058 1,143,181
Machinery and equipment 10,019,255 10,034,870
----------- ------------
11,284,313 11,271,051
Less: accumulated depreciation 3,420,353 3,104,533
----------- ------------
$ 7,863,960 $ 8,166,518
=========== ============
</TABLE>
4. Revolving Lines of Credit:
The Company's subsidiaries, DCT and Tempo, 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
September 30, 1994, $2,875,000 had been drawn against DCT's and Tempo's
lines of credit.
The Company's AQM subsidiary has a $5,000,000 revolving line of credit
agreement bearing interest at the bank's prime interest rate plus 1.25%.
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 the lesser of $1,500,000 or the component attributable to accounts
receivable. 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 and its other subsidiaries. As
of September 30, 1994, approximately $4,387,000 was outstanding on this
loan facility.
5
<PAGE>
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
_____________
5. Long-Term Debt:
<TABLE>
<CAPTION>
Long-term debt is summarized as follows:
September 30, June 30,
1994 1994
----------- -----------
<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. $ 3,759,753 $ 3,586,224
Less: current portion 723,348 869,058
----------- -----------
$ 3,036,405 $ 2,717,166
=========== ===========
</TABLE>
6. 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 September 30, 1994, there were 1,425,000
shares reserved for future issuance. No options were granted during the
three months ended September 30, 1994.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Net sales increased approximately $6,540,000 for the three months ended
September 30, 1994 as compared to the corresponding quarter of the prior year.
The primary reason for this large increase was due to the acquisition of
American Quality Manufacturing Corporation ("AQM") on January 1, 1994, the
operations of which were not included in the corresponding quarter of the prior
fiscal year. However, increased sales were also experienced at all of the
Company's subsidiaries. Both operating profit and net income also increased in
the current quarter as compared to the three months ended September 30, 1993.
The increase in operating profit was directly attributable to the increased
sales of the Company, while net income also received a boost from gains on
sales of the Company's marketable securities and from the settlement of a
lawsuit.
Liquidity
For the three months ended September 30, 1994, the Company used
approximately $902,000 in cash from operating activities. This is compared with
approximately $12,000 in cash provided by operating activities for the three
months ended September 30, 1993. The decline in the overall operating cash
flow position of the Company is primarily the result of the net loss experienced
in the quarter ended September 30, 1995 along with an approximate $1,340,000
increase in accounts receivable and an approximate $974,000 decrease in
accrued liabilities. Management closely monitors accounts payable to ensure
that early payment discounts are utilized, but also preserves cash by ensuring
that accounts are not paid before they are due.
A portion of the increased accounts receivable is due to the increase in
sales at the Company's Digital Communications Technology Corporation ("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. Throughout all the
Company's subsidiaries, 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 was 81 days at
June 30, 1994 and declined slightly to 75 days at September 30, 1994.
Additional collections efforts at some of the Company's subsidiaries resulted
in this decline, however the Company's DCT subsidiary actually experienced an
increase in the average collection period. 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.
During the three months ended September 30, 1994, the Company's cash needs
were met primarily through utilization of its readily available credit lines to
fund expansion needs and through its operations. The Company's increases in
7
<PAGE>
long-term and short-term borrowings were used primarily to fund the conversion
of AQM's facilities to implement a new product line. 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.
Capital Resources
During the three months ended September 30, 1994, the Company made capital
expenditures through its various subsidiaries of approximately $78,000.
This compares with capital expenditures of approximately $1,788,000 for
the three months ended September 30, 1993. The capital expenditures were
primarily concentrated at the Company's DCT subsidiary where additional
expansion of the subsidiary's high-speed duplicating facility is underway.
These purchases were financed through operations. Due to DCT's expanding
customer base and due to production at near capacity at DCT's operating
locations, future expansion is being considered by management and will be
financed through operations and/or additional long-term debt.
Results of Operations
Net sales as compared to the corresponding quarter of the prior year
increased 160% from approximately $4,077,000 for the three months ended
September 30, 1993 to approximately $10,617,000 for the three months ended
September 30, 1994. The primary reason for the large increase in sales is due
to the acquisition of AQM on January 1, 1994. Approximately $4.3 million of the
increased sales in the quarter ended September 30, 1994 related to AQM.
Approximately $1.7 million of the increase is attributable to increased sales at
the Company's DCT subsidiary, with the remaining sales increases resulting from
the Company's other subsidiaries. Sales at DCT increased for the quarter ended
September 30, 1994 as management continued to 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 are expected to be at their highest during the first and second
quarters.
Operating profit declined for the three months ended September 30, 1994 as
compared to the corresponding quarter of the prior year. Operating profit
decreased from approximately $249,000 to an operating loss of $890,000 for the
three month periods ended September 30, 1993 and 1994, respectively. As a
percentage of net sales, the operating profit actually declined from
approximately 6.1% to (8.4%) for the first quarters ended September 30, 1993
and 1994, respectively. This percentage decline is primarily attributable to
costs incurred at AQM related to development of new product lines. AQM incurred
significant expenses to enable its plant facilities to produce finished
cabinets, while continuing to produce its traditional unfinished cabinet product
lines. More expenses are expected in the next quarter, but the major
expenditures related to this new product line have been incurred in the first
quarter ended September 30, 1994. In addition, increases in cost of goods sold
resulting from higher volume sales at lower margins experienced at DCT along
with the addition of AQM, which generally operates at lower margins than the
Company's other subsidiaries, contributed to this decline.
8
<PAGE>
As a percentage of net sales, selling expenses were consistent for the
three month periods ended September 30, 1994 and 1993, however general and
administrative expenses increased from 7% of net sales to 13% of net sales.
Approximately $490,000 was added to general and administrative expenses at AQM
relating to the reconfiguration of the Kansas facility to meet operational
requirements compatible with AQM's other facility. This, along with
expenditures of $412,000 for development and set-up of AQM's new product lines
caused the operating losses experienced in the quarter. 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.
Approximately $338,000 was added to other income during the three months
ended September 30, 1994 related to realized gains 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 September 30, 1994 as compared to the quarter ended September 30,
1993, increasing from approximately $83,000 to $265,000, respectively. The
primary reasons for this increase were due to (1) the addition of the Company's
Cabinet and Furniture segment 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 Plus, Inc. have been
segregated under discontinued operations. The net effect of the operation of
Video Plus, Inc. for the quarter ended September 30, 1994 was income of
approximately $225,000. For the entire fiscal year ended June 30, 1994, the net
effect of this discontinued operation was a reduction to net income of
approximately $95,000.
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
9
<PAGE>
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 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, 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.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
S.O.I. INDUSTRIES, INC.
By: /s/ Sanford M. Whitman Date: November 28, 1995
Sanford M. Whitman, Vice President
and Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,218,914
<SECURITIES> 4,140,185
<RECEIVABLES> 9,648,229
<ALLOWANCES> (842,771)
<INVENTORY> 6,236,955
<CURRENT-ASSETS> 21,207,695
<PP&E> 11,284,313
<DEPRECIATION> (3,420,353)
<TOTAL-ASSETS> 32,888,722
<CURRENT-LIABILITIES> 16,567,716
<BONDS> 3,865,538
<COMMON> 273
0
0
<OTHER-SE> 8,424,002
<TOTAL-LIABILITY-AND-EQUITY> 32,888,722
<SALES> 10,616,640
<TOTAL-REVENUES> 10,616,640
<CGS> 8,525,578
<TOTAL-COSTS> 8,525,578
<OTHER-EXPENSES> 2,980,744
<LOSS-PROVISION> 66,896
<INTEREST-EXPENSE> 264,569
<INCOME-PRETAX> (59,171)
<INCOME-TAX> 237,263
<INCOME-CONTINUING> (395,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (395,133)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
