<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-KSB/A
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from __________ to __________
Commission file number: 1-12572
S.O.I. INDUSTRIES, INC.
(Name of small business issuer 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; telephone number)
(214) 248-1922
(Issuer's telephone number)
Securities registered pursuant to Section 12 (b) of the Exchange Act:
Title of each class: Name of exchange on which registered:
COMMON STOCK AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12 (g) of the Exchange Act: None
Check whether issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ]
No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The aggregate market value of the Common Stock held by non-affiliates
of the registrant as of September 29, 1995 was at least $5,810,000. Revenues
for the year ended June 30, 1995 were $23,279,817.
As of September 29, 1995, the registrant had issued and outstanding
14,330,755 shares of Common Stock, par value $.000025 per share.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of the Company (Audited)
F-1 Independent Auditors' Reports
F-4 Balance Sheets as of June 30, 1995 and 1994
F-6 Statements of Operations for the Years Ended June 30, 1995 and 1994
F-7 Statements of Stockholders' Equity for the Years Ended June 30,
1995 and 1994
F-8 Statements of Cash Flows for the Years Ended June 30, 1995 and 1994
F-10 Notes to Financial Statements
Consolidated Financial Statements of the Company's significant
unconsolidated affiliate - Digital Communications Technology
Corporation (Audited)
F-27 Independent Auditors' Reports
F-29 Balance Sheets as of June 30, 1995 and 1994
F-30 Statements of Operations for the Years Ended June 30, 1995 and 1994
F-31 Statements of Stockholders' Equity for the Years Ended June 30,
1995 and 1994
F-32 Statements of Cash Flows for the Years Ended June 30, 1995 and 1994
F-34 Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
S.O.I. Industries, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of S.O.I.
Industries, Inc. and Subsidiaries as of June 30, 1995, 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 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.
We also audited the adjustment described in Note 20 that was applied to restate
the June 30, 1994 financial statements. In our opinion, such adjustment is
appropriate and has been properly applied to the June 30, 1994 financial
statements.
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. and Subsidiaries as of June 30, 1995, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
September 25, 1995
F-1
<PAGE> 25
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
S.O.I. Industries, Inc. and Subsidiaries
We have audited the consolidated statement of operations of S.O.I. Industries,
Inc. and Subsidiaries and the related consolidated statements of shareholders'
equity and cash flows for the year then ended June 30, 1994. 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 revenues of $9,585,572 for the six
months ended June 30, 1994. 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.
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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our report and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the results of operations of S.O.I. Industries, Inc. and
Subsidiaries, changes in their shareholders' equity and their cash flows for
the year then ended June 30, 1994, 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 certain investments in debt and equity
securities. Also as discussed in the first paragraph of NOTE 20, 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 the first paragraph of NOTE 20
as to which the date is June 15, 1995 and to the
disclosures regarding the Company's settlement
of a lawsuit with a former officer as to which the
date is September 16, 1994
F-2
<PAGE> 26
[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
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 the Notes 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 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 on page F-2 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/ S. W. HATFIELD + ASSOCIATES
Dallas, Texas
August 24, 1994
F-3
<PAGE> 27
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 203,410
Restricted cash 500,000
Marketable securities 923,212
Accounts receivable, net of allowance for doubtful accounts of $1,087,262 3,666,972
Inventories 3,152,456
Income taxes receivable 525,442
Prepaid expenses and other current assets 107,042
Deferred income taxes 179,976
------------
Total current assets 9,258,510
Property, plant and equipment, net 2,837,109
Investment in Digital Communications Technology Corporation 3,027,191
Goodwill, net of accumulated amortization of $219,232 2,104,265
Other assets, net 356,444
------------
$ 17,583,519
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 28
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, CONTINUED
JUNE 30, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Revolving line of credit $ 4,557,421
Current maturities of long-term debt 428,327
Current maturities of capital lease obligations 10,093
Accounts payable, trade 3,583,438
Accounts payable, affiliate 601,736
Accrued liabilities 984,383
------------
Total current liabilities 10,165,398
Long-term debt, net of current maturities 1,233,615
Capital lease obligations, net of current maturities 516,800
Deferred income taxes 179,976
Other 80,472
------------
Total liabilities 12,176,261
------------
Shareholders' equity:
Common stock; $.000025 par value; 20,000,000 shares authorized; 12,745,457
shares issued and outstanding 319
Additional paid-in capital 6,769,560
Less shares deemed treasury stock; 1,585,298 shares (Note 1) (598,162)
Accumulated deficit (75,291)
Due from ESOP (355,089)
Net unrealized holding loss on securities (334,079)
------------
Total shareholders' equity 5,407,258
------------
$ 17,583,519
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 29
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
(1) (2)
1995 1994
------------ ---------------
(as restated)
<S> <C> <C>
Sales, net $ 23,279,817 $ 32,748,225
------------ ---------------
Costs and expenses:
Cost of goods sold (exclusive of depreciation and amortization) 21,106,605 24,610,100
Selling expenses 2,333,607 2,873,727
General and administrative expenses 2,953,814 2,720,298
Depreciation and amortization 678,913 1,311,816
------------ ---------------
Total costs and expenses 27,072,939 31,515,941
------------ ---------------
Operating (loss) income (3,793,122) 1,232,284
------------ ---------------
Other income (expense):
Realized gains on investment transactions, net 355,348 588,783
Interest and other income 798,303 40,621
Interest expense (689,880) (590,423)
Loss on equity investment in Digital Communications Technology Corporation (109,348) -
Gain on sale of affiliates/subsidiary's common stock 228,728 1,239,820
------------ ---------------
Total other income 583,151 1,278,801
------------ ---------------
(Loss) income from continuing operations before income tax benefit (provision) (3,209,971) 2,511,085
Benefit (provision) for income taxes 562,320 (756,059)
------------ ---------------
(Loss) income before discontinued operations and minority interest (2,647,651) 1,755,026
Loss from discontinued operations, net of income tax benefit of $8,405 - (14,435)
Loss on disposal of discontinued operations net of income tax benefit of $94,416 - (162,164)
------------ ---------------
(Loss) income before minority interest (2,647,651) 1,578,427
Minority interest - (338,366)
------------ ---------------
Net (loss) income $ (2,647,651) $ 1,240,061
============ ===============
Weighted average shares of common stock outstanding 12,541,468 9,557,181
============ ===============
Earnings (loss) per share of common stock:
(Loss) income from continuing operations $ (.21) $ .18
Discontinued operations, net of income taxes - -
Loss on disposal of discontinued operations - (.01)
------------ ---------------
(Loss) income before minority interest (.21) .17
Minority interest - (.04)
------------ ---------------
Net (loss) earnings $ (.21) $ .13
============ ===============
</TABLE>
(1) The 1995 financial statements account for the investment in Digital
Communications Technology Corporation using the equity method.
(2) The 1994 financial statements account for the investment in Digital
Communications Technology Corporation using the consolidation method.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 30
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Additional Shares Retained
----------------------- Paid-In Deemed (Deficit)
Shares Amount Capital Treasury Stock Earnings
---------- --------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1993 8,884,670 $ 222 $ 3,698,918 $ - $1,909,579
Exercise of warrants and stock exchange - - 371,978 - -
Share exchange agreement, American Quality
Manufacturing Corporation 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 - -
Treasury stock 262,120 (262,120)
Reduction in due from ESOP - - - - -
Net unrealized holding loss on securities - - - - -
Net income - - - - 1,240,061
---------- --------- ----------- ----------- ----------
Balance at June 30, 1994 10,926,670 273 6,786,402 (262,120) 3,149,640
Adjustment (Note 20) - - 163,275 - -
---------- --------- ----------- ----------- ----------
Balance at June 30, 1994 as restated 10,926,670 273 6,949,677 (262,120) 3,149,640
Shares held by Digital Communications
Technology Corporation 1,801,307 45 (45) - -
Net unrealized holding loss on securities
relating to Digital Communications
Technology Corporation - - (613,989) - -
Issuance of affiliate stock in excess of
book value - - 85,316 - -
Exercise of stock options 10,000 1 2,499 - -
Shares issued for services 7,480 - 10,060 - -
Treasury stock (Note 1) 336,042 (336,042)
Reduction in due from ESOP - - - - -
Dividends of securities - - - - (577,280)
Net unrealized holding loss on securities - - - - -
Net loss - - - - (2,647,651)
---------- --------- ----------- ----------- ----------
Balance at June 30, 1995 12,745,457 $ 319 $ 6,769,560 $ (598,162) $ (75,291)
========== ========= =========== =========== ==========
<CAPTION>
Due Net Unrealized
From Holding Loss
ESOP On Securities
---------- ---------------
<S> <C> <C>
Balance at July 1, 1993 $ (589,286) $ -
Exercise of warrants and stock exchange - -
Share exchange agreement, American Quality
Manufacturing Corporation - -
Exercise of stock options - -
Shares issued for services - -
Treasury stock
Reduction in due from ESOP 112,452 -
Net unrealized holding loss on securities - (387,731)
Net income - -
---------- ----------
Balance at June 30, 1994 (476,834) (387,731)
Adjustment (Note 20) - (487,174)
---------- ----------
Balance at June 30, 1994 as restated (476,834) (874,905)
Shares held by Digital Communications
Technology Corporation - -
Net unrealized holding loss on securities
relating to Digital Communications
Technology Corporation - 613,989
Issuance of affiliate stock in excess of
book value - -
Exercise of stock options - -
Shares issued for services - -
Treasury stock (Note 1)
Reduction in due from ESOP 121,745 -
Dividends of securities - -
Net unrealized holding loss on securities - (73,163)
Net loss - -
---------- ----------
Balance at June 30, 1995 $ (355,089) $ (334,079)
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 31
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -------------
(as restated)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(2,647,651) $ 1,240,061
----------- -------------
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization 678,913 1,311,816
Provision for bad debts 588,404 475,889
Gain on sale of property, plant and equipment (75,714) (2,588)
Gain on sale of Digital Communications Technology Corporation's common stock (228,728) (1,239,820)
Issuance of affiliate stock in excess of book value 85,316 -
Gain on sale of marketable securities, available for sale (355,348) (588,783)
Dividends of securities (577,280) -
Loss on disposal of discontinued operations - 162,164
Loss on equity investment in Digital Communications Technology Corporation 109,348 -
Reserve for obsolescence 148,676 127,283
Change in:
Accounts receivable 278,385 (3,446,447)
Inventories 2,964 (1,461,545)
Prepaid expenses and other current assets 8,467 (362,464)
Accounts payable, trade 1,327,517 314,484
Payable to officers (132,558) -
Accounts payable, affiliate 352,736 -
Accrued liabilities (543,620) 1,268,042
Income tax receivable (525,442) -
Income taxes payable and deferred income taxes (517,758) 456,137
Other long-term liabilities 73,855 649,389
----------- -------------
Total adjustments 698,133 (2,336,443)
----------- -------------
Net cash used in operating activities (1,949,518) (1,096,382)
----------- -------------
Cash flows from investing activities:
Change in other assets (207,601) 151,480
Purchases of marketable securities (5,547,672) (12,136,672)
Proceeds from sales of marketable securities 5,944,869 8,474,496
Change in loans receivable, related parties 301,876 2,388,234
Purchases of property, plant and equipment (605,479) (2,762,184)
Proceeds from sale of Digital Communications Technology Corporation's common stock 243,275 -
Proceeds from sale of property, plant and equipment 26,271 19,996
Proceeds from insurance settlement 192,500 -
Purchase of subsidiaries - (604,498)
Proceeds from sale of subsidiary - 342,917
Proceeds from sale of subsidiary's common stock - 1,667,645
----------- -------------
Net cash provided by (used in) investing activities 348,039 (2,458,586)
----------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings, net 745,304 1,353,687
Proceeds from revolving lines of credit, net 482,092 2,099,171
Proceeds from issuance of common stock 2,500 132,500
Payment from ESOP 121,745 112,452
Payments on capital lease obligations (107,184) (5,437)
Payment of bank overdraft (332,313) -
----------- -------------
Net cash provided by financing activities 912,144 3,692,373
----------- -------------
Net (decrease) increase in cash and cash equivalents (689,335) 137,405
Cash and cash equivalents at beginning of year 267,324 755,340
Cash and cash equivalents at beginning of year related to Digital Communications
Technology Corporation 625,421 -
----------- -------------
Cash and cash equivalents at end of year $ 203,410 $ 892,745
=========== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE> 32
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
(as restated)
<S> <C> <C>
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest $ 681,090 $ 622,649
============= =============
Income taxes 522,993 521,046
============= =============
Noncash investing and financing activities:
Common stock issued for services and acquisition $ 10,060 $ 45,937
============= =============
Investment securities issued for dividends $ 577,280 $ -
============= =============
Acquisition of equipment on a long-term capital lease $ 58,354 $ 481,160
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE> 33
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
The consolidated financial statements include the accounts for S.O.I.
Industries, Inc. ("S.O.I.") and all majority-owned subsidiaries
(collectively referred to as the "Company"). The subsidiaries include
Tempo Lighting, Inc. ("Tempo"), Omni Doors, Inc. ("Omni") and American
Quality Manufacturing Corporation ("AQM"). Significant intercompany
accounts and transactions have been eliminated.
The Company also has a 46.81% ownership in Digital Communications
Technology Corporation ("DCT") and DCT's wholly-owned subsidiary, Tapes
Unlimited, Inc. ("Tapes") as of June 30, 1995. At June 30, 1994, the
Company's investment in DCT was 50.21%. As a result of S.O.I.'s
decrease in ownership of DCT, the method used to account for the
investment in DCT has changed from the consolidation method to the
equity method. The impact of the change in methods was to increase the
loss from continuing operations and the loss per share of common stock
from continuing operations by $592,288 and $.06, respectively. The
market value of DCT's stock held by the Company had an aggregate market
value of $4,534,452 as of June 30, 1995.
As of June 30, 1995 and 1994, DCT owns 3,386,605 and 3,066,678 shares of
S.O.I.'s common stock, respectively. The Company has utilized the
treasury stock method in accounting for the reciprocal shareholdings.
The shares deemed treasury stock represents the ownership interest
S.O.I. has in itself through its investment in DCT.
The primary business of S.O.I. is to provide executive managerial
functions for the consolidated group. Tempo designs, manufacturers,
assembles and markets a line of medium-priced residential and commercial
lamps and lighting fixtures. AQM manufacturers and distributes kitchen
and bathroom cabinets, fixtures and related wood products. Omni
manufactures and distributes industrial metal doors. DCT and its
subsidiaries are in the business of video and audio tape production and
duplication, as well as satellite broadcasting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-10
<PAGE> 34
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
MARKETABLE SECURITIES
Marketable securities consist of equity securities and money market
funds. The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" as of June 30, 1994. Prior
to the adoption of SFAS No. 115, marketable securities were stated at
cost, which approximated fair market value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
computed using the straight-line basis over the estimated useful lives
ranging from three to forty years. Gains and losses resulting from the
disposition on retirement of property, plant and equipment are included
in operations in the current period.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED (GOODWILL)
Excess of costs over fair value of net assets acquired represents the
excess of the purchase price over the fair market value of the tangible
net assets acquired in business combinations accounted for by the
purchase method.
The Company continually reevaluates the propriety of the carrying amount
of goodwill as well as the amortization period to determine whether
current events and circumstances warrant adjustments to the carrying
value and/or revised estimates of useful lives. At this time, the
Company believes that no significant impairment of the goodwill has
occurred and that no reduction of the estimated useful lives is
warranted.
ISSUANCE OF SUBSIDIARY AND AFFILIATES STOCK
Issuances of stock by the Company's subsidiaries or affiliates that
cause changes in the Company's ownership percentage in the
subsidiary/affiliate are accounted for as additions to paid-in capital.
F-11
<PAGE> 35
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
INCOME TAXES
The Company files its federal and state income tax returns on a
consolidated basis except DCT, which files separately. The Company
accounts for income taxes utilizing the liability method described in
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). Deferred income taxes are recorded to
reflect the consequences on future years of differences between the tax
basis of assets and liabilities and their financial reporting amounts.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share ("EPS") are computed by dividing net income
(loss) by the weighted average number of outstanding common shares
excluding Treasury Shares which represents the number of shares S.O.I.
owns of itself through its affiliate, DCT. Shares released to Employee
Stock Ownership Plan ("ESOP") participants as well as the shares held in
trust are considered outstanding for the EPS computation.
RECLASSIFICATION
Certain amounts reflected in the June 30, 1994 statements have been
reclassified to conform with current year presentation.
3. RESTRICTED CASH:
AQM is self-insured for its workers' compensation insurance in
accordance with the applicable requirements of the laws of the State of
Arkansas. AQM was required by the state oversight body to deposit
$500,000 in one or more certificates of deposit to be held in trust on
behalf of AQM's workers to ensure the payment of employee claims. AQM's
Certificate of Authority for Self-Insurance expires on May 1, 1996 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.
F-12
<PAGE> 36
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. INVENTORIES:
Inventories consist of the following at June 30, 1995:
<TABLE>
<S> <C>
Raw materials $ 2,001,257
Work in process 694,866
Finished goods 605,009
------------
3,301,132
Less slow moving and obsolete reserve (148,676)
------------
$ 3,152,456
============
</TABLE>
5. ACQUISITIONS AND DIVESTITURES:
DCT
On December 6, 1993, DCT sold its subsidiary, Video Plus, Inc. The
results of operations of Video Plus, Inc. have been reported separately
as a discontinued operation in the consolidated statements of operations
for the year ended June 30, 1994. The income from discontinued
operations for this subsidiary was $66,735, net of tax of $38,854 and
the loss on disposal for this subsidiary was $162,164, net of tax of
$94,416 for the year ended June 30, 1994. There were no remaining
assets or liabilities for Video Plus, Inc. at June 30, 1994.
On March 25, 1994, DCT finalized the purchase of Tapes Unlimited, Inc.
and Tapes Unlimited USA, Inc. (collectively "Tapes"). 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 for the year ended June 30, 1994 reflect
transactions since the effective date.
In June 1995, DCT discontinued the operations of Tapes. The results
of operations of Tapes for the year ended June 30, 1994 have been
reported separately as a discontinued operation in the consolidated
statements of operations.
F-13
<PAGE> 37
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Summarized results of operations of Tapes for 1994 are as follows:
<TABLE>
<S> <C>
Net sales $ 1,368,863
=============
Operating loss $ (117,519)
=============
Loss before income taxes $ (128,429)
Income tax benefit 47,259
-------------
Loss from discontinued operations $ (81,170)
=============
</TABLE>
On February 14, 1994, DCT 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
common stock of DCT for $1,667,645 resulting in a realized gain in the
amount of $1,239,820. During the year ended June 30, 1995, the Company
sold 117,000 shares of common stock of DCT for $243,275 resulting in a
realized gain in the amount of $228,728.
During the year ended June 30, 1995, DCT sold 170,631 shares of common
stock to third parties. The excess value DCT received over book value
resulted in an increase of $85,316 to additional paid-in capital on the
Company's books.
AQM
Effective January 1, 1994, the Company acquired all of the issued and
outstanding capital stock of AQM, 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 AQM in exchange
for all of the issued and outstanding capital stock of AQM. The
transaction was accounted for under the purchase method of accounting.
As a result of this transaction, AQM became a wholly-owned subsidiary of
the Company.
The consolidated statements of operations reflect the transaction since
the effective date. Goodwill of $2,323,293 was recorded as part of this
transaction and is being amortized over fifteen years.
F-14
<PAGE> 38
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The pro forma financial information including AQM for the twelve-month
period ended June 30, 1994 would have been as follows:
<TABLE>
<S> <C>
Sales $44,177,659
===========
Income from continuing operations before minority interest $ 1,707,164
===========
Net income $ 1,358,901
===========
Earnings per share $ .14
===========
</TABLE>
6. MARKETABLE SECURITIES:
Marketable securities consist of equity securities and money market
funds. The securities have an aggregate cost of $1,257,291 at June 30,
1995. The marketable securities portfolio contains net unrealized
losses of $334,079 as of June 30, 1995. This resulted in the carrying
amount of $923,212 at June 30, 1995. The net unrealized holding loss
has no deferred tax impact due to the full valuation allowance currently
recorded against this loss, see Note 17.
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.
7. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at June 30, 1995:
<TABLE>
<S> <C>
Land $ 20,000
Buildings and leaseholds 870,572
Machinery and equipment 2,548,912
Furniture and fixtures 292,640
Vehicles 77,890
------------
3,810,014
Less accumulated depreciation and amortization (972,905)
------------
$ 2,837,109
============
</TABLE>
Included in property, plant and equipment at June 30, 1995 are assets
under capital leases as follows:
F-15
<PAGE> 39
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<S> <C>
Building $ 328,923
Equipment 506,806
------------
835,729
Less accumulated depreciation (109,263)
------------
Net book value $ 726,466
============
</TABLE>
8. REVOLVING LINES OF CREDIT:
Tempo has a revolving line of credit agreement which permits aggregate
borrowings up to $900,000 with interest payable on all outstanding cash
advances at the bank's prime rate plus 1/4% (9.25% at June 30, 1995).
AQM has a $6,500,000 line of credit payable to a bank with interest at
the bank's prime rate plus 2% (11% at June 30, 1995). Borrowings under
the revolving line of credit are limited to the sum of 85% of eligible
accounts receivable and 50% of eligible inventory. The line of credit
requires compliance with certain covenants. On June 30, 1995, AQM has
exceeded its borrowing base relating to eligible inventory.
Additionally, AQM has approximately $117,000 of inventory on consignment
with customers which is prohibited under the terms of the agreement. On
September 22, 1995, AQM and the Company entered into an amendment and
forbearance agreement with the bank whereby the bank agreed to amend the
loan documents and forbear from enforcing its rights and remedies under
the loan documents until March 31, 1996. In order to induce the bank to
enter into this agreement, the Company pledged 515,000 shares of DCT
common stock to the bank. After March 31, 1996, the bank will have the
right to call the loan.
The lines of credit are collateralized by substantially all accounts
receivable and inventories and all equipment not being used to
collateralize other equipment and mortgage notes. The agreements
provide that the Company 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. In
addition, the Company has guaranteed DCT's $5,400,000 line of credit.
As of June 30, 1995, $3,840,000 has been drawn upon DCT's line of
credit. The Company has also guaranteed a bank loan for DCT with an
outstanding balance of $419,324 at June 30, 1995.
As of June 30, 1995, $550,000 and $4,007,421 have been drawn against
Tempo's and AQM's, lines of credit, respectively.
F-16
<PAGE> 40
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Average short-term borrowings under revolving credit agreements were
$4,949,066 in 1995, at an average interest rate of 9.89%.
9. LONG-TERM DEBT:
<TABLE>
<S> <C>
Long-term debt consisted of the following at June 30, 1995:
Term note payable to bank at the bank's prime rate (9% at June 30,
1995) plus 2% payable in monthly installments of $20,417, due March 2000.
Collateralized by accounts receivable, inventories, equipment and fixtures $ 1,163,749
Note payable to finance company, interest at 8%, payable in monthly
installments of $636, due in October 1996, collateralized by a vehicle 9,625
Mortgage payable in monthly installments of $3,605 including interest at 9%,
maturing in June 1998, collateralized by real estate in Texas 113,479
Note payable to bank in monthly installments of $10,145 plus interest at the
bank's prime rate plus 1/4%, maturing 1998, collateralized by tangible and
intangible assets 355,089
Other 20,000
------------
1,661,942
Less current maturities of long-term debt (428,327)
------------
$ 1,233,615
============
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending June 30:
1996 $ 428,327
1997 406,941
1998 397,957
1999 245,004
2000 183,713
-----------
$ 1,661,942
===========
</TABLE>
Certain loan agreements require, among other provisions, that the
Company comply with requirements for maintaining certain cash flow and
other financial ratios.
F-17
<PAGE> 41
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. EMPLOYEE STOCK OWNERSHIP PLAN:
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 DCT began to participate in the ESOP as of January 1, 1992.
Payments by the Company for the year ended June 30, 1995 were $162,428,
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 initially purchased the common shares of the Company using the
proceeds of a bank loan to the Company. In October of 1993, the
outstanding balance on this loan was refinanced with a bank and is
included in long-term debt. The loan has an outstanding balance of
$355,089 at June 30, 1995. The unallocated portion of the ESOP shares
is reflected as a receivable due from ESOP as a reduction of
shareholders' equity. Additionally, as the principal of the loan is
reduced, the common shares held by the ESOT are proportionally allocated
to the employees' accounts on the basis of compensation. Shares are
granted at no cost to the employee; compensation expense is equal to the
fair market value of such stock on the date of grant.
11. CAPITAL LEASE OBLIGATIONS:
On April 22, 1994, AQM entered into a long-term capital lease obligation
with Coffey County, Kansas for a building and certain manufacturing
equipment. The building portion of the lease is for a term of twenty
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 ten years and requires monthly
payments of approximately $3,300.
F-18
<PAGE> 42
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Future minimum lease payments under capital leases together with the
present value of the future minimum lease payments at June 30, 1995 are
as follows:
<TABLE>
<S> <C>
1996 $ 85,134
1997 85,134
1998 85,134
1999 85,134
2000 73,780
Thereafter 1,135,814
------------
1,550,130
Less amounts representing interest (1,023,237)
------------
Present value of future minimum lease payments 526,893
Less current maturities (10,093)
------------
Capital lease obligation, net of current maturities $ 516,800
============
</TABLE>
12. OPERATING LEASES:
The Company leases various of its office facilities under operating
leases expiring through 2009. The leases provide for rent increases
based on real estate taxes and expenses. Certain office facility leases
provide for increases in the monthly payments based on the incremental
increase in the Consumer Price Index. The Company also leases
facilities on a month-to-month basis. Rent expense for the years ended
June 30, 1995 and 1994 was $486,236 and $623,582, respectively.
The future minimum lease payments under noncancelable operating leases
are as follows:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C>
1996 $ 393,972
1997 360,606
1998 338,517
1999 332,485
2000 312,195
Thereafter 2,760,064
-----------
$ 4,497,839
===========
</TABLE>
F-19
<PAGE> 43
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. STOCK OPTION PLAN:
On March 19, 1988, the Company's Board of Directors adopted the S.O.I.
1988 Employees' Stock Option Plan. As of June 30, 1995, there are
1,425,000 shares reserved for issuance under the plan.
<TABLE>
<CAPTION>
Exercise Price
Options Per Share
------- ----------------
<S> <C> <C>
Balance, June 30,1994 20,000 $ .25
Exercised (10,000) $ .25
-------
Balance, June 30, 1995 10,000 $ .25
=======
</TABLE>
14. EMPLOYMENT AGREEMENTS:
S.O.I. and AQM entered into employment agreements with officers on
February 1, 1994 and March 4, 1995, respectively. The agreements are
for terms of three years and contain certain bonus provisions. The
minimum annual salaries (excluding bonus arrangements) for the years
ending June 30, are as follows:
<TABLE>
<S> <C>
1996 $ 172,000
1997 148,000
1998 66,666
-----------
$ 386,666
===========
</TABLE>
F-20
<PAGE> 44
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. SEGMENT INFORMATION:
Business segment data from continuing operations for the year ended
June 30, 1995:
<TABLE>
<CAPTION>
Cabinets and Home
Furniture Furnishings Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Sales, net $ 18,410,778 $ 4,869,039 $ 23,279,817
============ =========== ============
Operating loss $ (3,234,184) $ (152,692) $ (3,386,876)
============ ===========
General corporate revenue, net 866,785
Interest expense (689,880)
------------
Loss from continuing operations before income taxes $ (3,209,971)
============
Identifiable assets at June 30, 1995 $ 10,310,202 $ 2,606,632 $ 12,916,834
============ ===========
Corporate assets 4,666,685
------------
Total assets at June 30, 1995 $ 17,583,519
============
Depreciation and amortization $ 582,898 $ 96,015 $ 678,913
============ =========== ============
Capital expenditures $ 545,593 $ 59,886 $ 605,479
============ =========== ============
</TABLE>
F-21
<PAGE> 45
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Business segment data from continuing operations for the year ended June
30, 1994 (as restated):
<TABLE>
<CAPTION>
Cabinets and Home Video Production
Furniture Furnishings and Duplication Consolidated
------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Sales, net $ 9,585,572 $ 5,157,736 $ 18,004,917 $32,748,225
============ ============ ============ ===========
Operating profit $ 285,928 $ 92,002 $ 1,427,720 $ 1,805,650
============ ============ ============
General corporate revenue, net 1,295,858
Interest expense (590,423)
-----------
Income from continuing operations
before income taxes $ 2,511,085
===========
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 $ 1,013,409 $ 1,311,816
============ ============ ============ ===========
Capital expenditures $ 361,247 $ 45,570 $ 2,355,367 $ 2,762,184
============ ============ ============ ===========
</TABLE>
16. CONCENTRATION OF CREDIT RISK:
The Company had cash in bank deposit accounts in excess of federally
insured limits of approximately $584,000 at June 30, 1995.
In the normal course of business, management evaluates the credit
worthiness of customers and extends credit. The three largest customers
of AQM and Tempo accounted for approximately 47% and 27%, respectively,
of accounts receivable at June 30, 1995.
F-22
<PAGE> 46
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
17. INCOME TAXES:
The components of income tax (benefit) provision are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ------------
(as restated)
<S> <C> <C>
Current:
Federal $ (554,672) $ 1,077,730
State (1,804) 97,854
----------- ------------
(556,476) 1,175,584
----------- ------------
Deferred:
Federal (10,124) (359,398)
State 4,280 (60,127)
----------- ------------
(5,844) (419,525)
----------- ------------
(Benefit) provision $ (562,320) $ 756,059
=========== ============
</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>
1995 1994
---------- ------------
(as restated)
<S> <C> <C>
Tax at federal statutory rate (34.0)% 34.0%
State income tax, net (3.6) 3.6
Change in valuation allowance 15.3 (12.9)
Other 4.8 5.4
----- -----
(17.5)% 30.1%
===== =====
</TABLE>
F-23
<PAGE> 47
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The tax effects of significant temporary differences which comprise the
deferred tax assets and liabilities at June 30, 1995 are as follows:
<TABLE>
<S> <C>
Reserve for inventory obsolescence $ 56,430
Investments, unrealized holding losses 127,062
Accrued liabilities 149,506
Net operating loss carryforwards 346,690
Allowance for doubtful accounts 280,451
Deferred rent 33,733
Property and equipment (179,976)
----------
813,896
Valuation allowance (813,896)
----------
$ -
==========
</TABLE>
18. QUARTERLY DATA:
The results of operations for the quarters ended September 30, 1994,
December 31, 1994 and March 31, 1995 have been restated to correct for
accounting errors determined in the course of preparation of the
Company's year-end financial statements. The errors involved certain
adjustments primarily related to the capitalization of display units,
inventory adjustments and the related tax effects. The following is a
summary of these corrections on the reported results:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Three Months Ended
September 30, 1994 December 31, 1994 March 31, 1995
-------------------------- -------------------------- --------------------------
As Reported As Restated As Reported As Restated As Reported As Restated
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operating income (loss) $ 335,833 $ 22,139 $ 696,102 $ 378,302 $ (856,298) $ (1,046,499)
Net income (loss) $ 634,480 $ 227,038 $ 211,599 $ (201,176) $ (468,706) $ (715,749)
Net income (loss) per share $ 0.06 $ 0.02 $ 0.02 $ (0.02) $ (.04) $ (.07)
</TABLE>
For the three months ended June 30, 1995, these accounting errors
increased the operating loss and net loss by $145,017 and $188,356,
respectively.
F-24
<PAGE> 48
S.O.I. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
19. SUBSEQUENT EVENT:
The majority shareholder of S.O.I. has transferred shares of S.O.I.'s
common stock that it previously owned to certain creditors of AQM in
settlement of the creditors' outstanding claims against AQM. As of
September 25, 1995, 530,286 shares of S.O.I. have been transferred in
satisfaction of approximately $417,000 of debt. The Company intends to
issue new, restricted shares to the majority shareholder for the dollar
amount of claims satisfied and will treat this as a capital
contribution.
20. PRIOR PERIOD ADJUSTMENT:
The financial statements for the year ended June 30, 1994, have been
restated to properly reflect the minority interest in DCT. 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 per share.
The balance of net unrealized holding losses on securities at June 30,
1994 reflected in the consolidated statements of stockholders' equity
has been restated to reflect a valuation allowance against deferred tax
assets that should have been recorded in 1994 to reflect the tax benefit
of unrealized capital losses on marketable securities.
F-25
<PAGE> 49
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
F-26
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Digital Communications Technology Corporation
Fort Lauderdale, Florida:
We have audited the accompanying consolidated balance sheet of Digital
Communications Technology Corporation and Subsidiaries as of June 30, 1995, 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 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 1995 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Digital
Communications Technology Corporation and Subsidiaries as of June 30, 1995, and
the consolidated results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
We also audited the adjustment to net unrealized holding losses and the
adjustment to reduce the investment in S.O.I. Industries, Inc. to book value
described in Note 15 which adjustments were applied to restate the June 30,
1994 financial statements. In our opinion, such adjustments are appropriate
and have been properly applied to the June 30, 1994 financial statements.
/s/ COOPERS & LYBRAND L.L.P.
Miami, Florida
August 25, 1995
F-27
<PAGE> 51
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
Digital Communications Technology Corporation
and Subsidiaries
We have audited the consolidated statement of income of Digital Communications
Technology Corporation and Subsidiaries as of June 30, 1994, and the related
consolidated statements of shareholders' equity, and cash flows for the year
ended June 30, 1994. 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 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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 results of operations of Digital
Communications Technology Corporation and Subsidiaries, changes in their
shareholders' equity and their cash flows for the year then ended June 30,
1994, in conformity with generally accepted accounting principles.
As discussed in NOTE 2 to the consolidated financial statements, in 1994 the
Company changed its methods of accounting for income taxes and for certain
investments in debt and equity securities.
MORRISON, BROWN, ARGIZ & COMPANY
Certified Public Accountants
/s/ Morrison, Brown, Argiz & Company
Miami, Florida
August 8, 1994
F-28
<PAGE> 52
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1995
<TABLE>
<CAPTION>
ASSETS 1995
<S> <C>
Current assets:
Cash and cash equivalents $ 284,837
Marketable securities 2,574,626
Accounts receivable, net of allowance for doubtful accounts of $1,065,300 3,143,689
Inventories 4,058,293
Prepaid expenses and other current assets 345,126
------------
Total current assets 10,406,571
Property, plant and equipment, net 5,239,564
Other assets 31,158
Loans receivable, related parties 601,736
------------
$ 16,279,029
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 3,840,000
Current portion of long-term debt 2,735,418
Accounts payable 2,165,725
Accrued liabilities 418,376
------------
Total current liabilities 9,159,519
------------
Long-term debt, less current portion 644,144
------------
Deferred tax liability 8,392
------------
Commitments (Notes 8 and 12)
Shareholders' Equity:
Common stock, 25,000,000 shares of $.0002 par value per share
authorized; 5,961,188 shares issued, 5,301,809 shares outstanding 1,192
Additional paid-in capital 6,567,062
Retained earnings 1,710,867
Investment in S.O.I. Industries, Inc. (1,198,158)
Net unrealized holding loss on securities (613,989)
------------
Total shareholders' equity 6,466,974
------------
$ 16,279,029
============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-29
<PAGE> 53
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net sales $20,894,025 $ 18,004,917
----------- ------------
Costs and expenses:
Cost of goods sold (exclusive of depreciation) 16,094,788 13,490,134
Selling expenses 1,040,280 776,955
General and administrative expenses 1,793,171 1,275,855
Depreciation and amortization 1,154,880 977,524
----------- ------------
Total costs and expenses 20,083,119 16,520,468
----------- ------------
Operating income 810,906 1,484,449
Interest expense (700,251) (352,403)
Realized gain on sales of marketable securities 512,971 259,110
Other income 142,208 36,564
----------- ------------
Income from continuing operations before income taxes and
change in accounting principle 765,834 1,427,720
Provision for income taxes 283,167 525,372
----------- ------------
Income from continuing operations before change in accounting
principle 482,667 902,348
Discontinued operations (Note 14):
Loss from discontinued operations, net of related income taxes (321,140) (14,435)
Loss on disposal of discontinued operations, net of related income taxes (443,400) (162,164)
----------- ------------
(Loss) income before cumulative effect of change in accounting
principle (281,873) 725,749
Cumulative effect on prior years of change in method of accounting for
income taxes 0 26,285
----------- ------------
Net (loss) income $ (281,873) $ 699,464
=========== ============
Weighted average shares of common stock outstanding 5,264,773 4,890,820
=========== ============
Net (loss) income per common share:
Income from continuing operations $ 0.09 $ 0.18
(Loss) income from discontinued operations (0.06) 0
Loss on disposal of discontinued operations (0.08) (0.03)
----------- ------------
(Loss) income before cumulative effect of accounting change (0.05) 0.15
Cumulative effect of change in method of accounting for income taxes 0 (0.01)
----------- ------------
Net (loss) income per common share $ (0.05) $ 0.14
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-30
<PAGE> 54
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Additional Investment Net Unrealized
--------------------------- Paid-In Retained in S.O.I. Holding Loss
Shares Amount Capital Earnings Industries, Inc. on Securities
------ ------ ------- -------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 5,042,927 $ 1,010 $ 6,916,360 $ 1,615,905 $ (2,062,500) $ 0
Exchange of shares with
S.O.I. Industries, Inc. 580,538 116 4,574,520 0 (4,574,636) 0
Shares issued 167,092 32 273,166 0 0 0
Net depreciation of securities 0 0 0 0 0 (327,929)
Net income 0 0 0 699,464 0 0
------------ ------------ ----------- ------------ ------------ ------------
Balance, June 30, 1994, as
previously reported 5,790,557 1,158 11,764,046 2,315,369 (6,637,136) (327,929)
Adjustment (Note 15) 0 0 0 0 0 (189,309)
Adjustment to reduce
investment in S.O.I.
Industries, Inc. to book
value (Note 15) 0 0 (5,466,349) 0 5,466,349 0
------------ ------------ ----------- ------------ ------------ ------------
Balance, June 30, 1994,
as restated 5,790,557 1,158 6,297,697 2,315,369 (1,170,787) (517,238)
Purchase of S.O.I. Industries,
Inc. shares 0 0 0 0 (27,371) 0
Excess over book value of
amounts paid for shares of
S.O.I. Industries, Inc. 0 0 0 (322,629) 0 0
Exercise of options 142,705 28 179,377 0 0 0
Shares issued 27,926 6 89,988 0 0 0
Net depreciation of securities 0 0 0 0 0 (96,751)
Net loss 0 0 0 (281,873) 0 0
------------ ------------ ----------- ------------ ------------ ------------
Balance, June 30, 1995 $ 5,961,188 $ 1,192 $ 6,567,062 $ 1,710,867 $ (1,198,158) $ (613,989)
============ ============ =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-31
<PAGE> 55
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (281,873) $ 699,464
------------ ------------
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Depreciation and amortization (including $74,068 in 1995 and
$35,162 in 1994 from discontinued operations 1,228,948 1,012,686
Gain on sale of marketable securities (512,971) (259,110)
Cumulative effect of change in accounting principle 0 26,285
Loss on sale of property, plant and equipment 106,272 0
Provision for bad debts 745,776 372,645
Reserve for inventory obsolescence 0 127,283
Loss on disposal of subsidiary 530,637 162,164
Deferred tax benefit (87,282) 0
Increase in accounts receivable (890,666) (1,879,511)
Increase in inventories (842,355) (557,952)
Increase in prepaid expenses and other assets (313,772) (229,172)
Increase in other assets (13,798) 0
Increase in accounts payable 404,154 724,836
(Decrease) increase in accrued liabilities (12,904) 157,233
(Decrease) increase in income taxes payable (169,077) 68,152
------------ ------------
Net cash (used for) provided by
operating activities (108,911) 425,003
------------ ------------
Cash flows from investing activities:
Net assets of discontinued subsidiary 0 2,809,995
Change in marketable securities (99,343) (2,317,191)
Acquisition of property, plant and equipment (1,226,568) (2,317,131)
Proceeds from sales of property, plant and equipment 24,000 0
Net advances to affiliates (352,736) (606,900)
Purchase of Parent Company shares (350,000) 0
Acquisition of subsidiary 0 (500,000)
Proceeds from sale of subsidiary 0 342,917
------------ ------------
Net cash used for investing activities (2,004,647) (2,588,310)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-32
<PAGE> 56
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from financing activities:
Borrowings from bank $ 838,932 $ 3,225,023
Payments to bank (625,790) (801,303)
Proceeds from revolving lines of credit, net 1,290,433 0
Proceeds from issuance of common stock 269,399 53,198
------------ -----------
Net cash provided by financing activities 1,772,974 2,476,918
------------ -----------
Net (decrease) increase in cash and cash equivalents (340,584) 313,611
Cash and cash equivalents, beginning of year 625,421 311,810
------------ -----------
Cash and cash equivalents, end of year $ 284,837 $ 625,421
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 686,559 $ 421,798
============ ===========
Income taxes $ 380,247 $ 521,046
============ ===========
Supplemental schedule of non-cash investing and
financing activities:
Common stock issued for services and acquisition $ 0 $ 220,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-33
<PAGE> 57
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
On April 29, 1994, the shareholders of MagneTech Corporation approved a
resolution to change the name of the Company to Digital Communications
Technology Corporation (the "Company"). The Company was incorporated on
November 12, 1987, under the laws of the State of Delaware, as a
wholly-owned subsidiary of S.O.I. Industries, Inc. ("S.O.I"). As of
June 30, 1995, S.O.I. owned approximately 47% of the Company.
The Company is in the business of video and audio tape production and
duplication. Sales for the years ended June 30, 1995 and 1994 were
generated from tape duplicating at the Fort Lauderdale and Indianapolis
facilities, as well as satellite broadcasting and video production.
On July 3, 1992, the Company purchased 1,000 shares (representing 100%
ownership) of Video Direct, Inc. for $342,917. The closing of this
transaction took place July 13, 1992. On July 13, 1992, Video Direct,
Inc. was merged into Video Plus, Inc., a Delaware corporation, and
became a wholly-owned subsidiary of the Company. On December 6, 1993,
the Company sold its subsidiary, Video Plus, Inc. Such sale was
accounted for as a discontinued operation (See Note 14).
On March 25, 1994, the Company 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. On June 30, 1994, Tapes
Unlimited USA, Inc. was liquidated into its parent, Tapes Unlimited,
Inc. Tapes Unlimited, Inc. provides tapes loading services. On June 9,
1995, the operations of Tapes Unlimited, Inc. were discontinued (See
Note 14).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements for the years ended
June 30, 1995 and 1994 include the accounts of Digital Communications
Technology Corporation, (F/K/A MagneTech Corporation) and its
wholly-owned subsidiary, Tapes Unlimited, Inc., whose operations were
discontinued on June 9, 1995. All significant intercompany transactions
have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (FAS
115) as of June 30, 1994.
F-34
<PAGE> 58
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
MARKETABLE SECURITIES, CONTINUED
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.
Marketable securities consist of listed common stocks with an aggregate
cost, based on specific identification, of $3,188,614 as of June 30,
1995. The gross unrealized holding losses as of June 30, 1995 were
$643,547, and the net unrealized holding gains were $29,558. All of the
Company's securities are classified as available for sale securities.
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.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method)
or market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives
of the related assets, which range from 3 to 32 years. Costs of repairs
and maintenance are charged to operating expense as incurred;
improvements and betterments are capitalized; when items are retired or
otherwise disposed of, the related costs and accumulated depreciation
are removed from the accounts and any resulting gains or losses are
credited or charged to income.
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109).
As permitted, the consolidated financial statements prior to the
adoption of the new standard were not restated.
SFAS 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.
F-35
<PAGE> 59
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NET (LOSS) INCOME PER COMMON SHARE
The net income (loss) per common share has been calculated using the
weighted average shares outstanding during each year. Such weighted
average shares have been reduced by the number of treasury shares owned
by the Company through its investment in S.O.I. The number of treasury
shares owned were approximately 659,400 and 634,700 at June 30, 1995 and
1994, respectively.
RECLASSIFICATIONS
Certain amounts reflected in the 1994 consolidated financial statements
have been reclassified to conform to the 1995 presentation.
3. INVENTORY:
Inventories consists of the following at June 30:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw materials $ 3,008,167 $ 2,693,238
Work-in-process 885,976 485,809
Finished goods 164,150 36,891
------------ -------------
$ 4,058,293 $ 3,215,938
============ =============
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<S> <C>
Land $ 73,000
Buildings and improvements 332,440
Machinery and equipment 7,559,667
Leasehold improvements 207,152
Furniture and fixtures 118,309
Transportation equipment 369,030
Computer equipment 181,103
Master tapes 4,000
-----------
8,844,701
Less accumulated depreciation (3,605,137)
-----------
Net property, plant and equipment $ 5,239,564
===========
</TABLE>
F-36
<PAGE> 60
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. PROPERTY, PLANT AND EQUIPMENT, CONTINUED:
Depreciation expense was $1,189,449 and $1,031,767 for the years ended
June 30, 1995 and 1994, respectively.
5. RELATED PARTY TRANSACTIONS:
LOANS RECEIVABLE
These amounts represent advances to an affiliated company ($433,105 at
June 30, 1995) and S.O.I. ($168,631 at June 30, 1995). They are due on
demand. Advances, except for advances to S.O.I., are interest bearing.
MANAGEMENT FEES
The Company paid S.O.I. $340,800 and $102,000 for administrative
services for the years ended June 30, 1995 and 1994, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company participates in S.O.I.'s Employee Stock Ownership Plan
(ESOP). This Plan provides retirement benefits to substantially all
employees. The ESOP is a qualified employee benefits plan exempt from
taxation under the Internal Revenue Code of 1986, as amended. There are
800,000 common shares of the S.O.I. in the ESOP.
NOTE PAYABLE
The Company is the guarantor of a note payable by S.O.I. in the amount
of $547,000.
6. REVOLVING LINES OF CREDIT:
The Company has a revolving line of credit agreement for aggregate
borrowings of up to $5,400,000. Interest is payable on all outstanding
cash advances at the bank's prime lending rate plus 1/4% (9.25% at June
30, 1995). Any unpaid principal and accrued interest is due on demand,
but no later than January 1996. The line of credit is collateralized by
accounts receivable, inventory, and equipment. The terms of the
agreement require, among other provisions, that the Company comply with
requirements for maintaining certain cash flow and other financial
ratios. The Company failed to meet the cash flow coverage ratio
required under this agreement.
Average short-term borrowings under this revolving credit agreement were
$3,428,135, at an average interest rate of 8.9%.
The Company also guaranteed a $900,000 line of credit for S.O.I. as well
as for an affiliate. As of June 30, 1995, $550,000 has been drawn upon
the affiliate's line of credit and $3,840,000 on the Company's line of
credit.
F-37
<PAGE> 61
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. LONG-TERM DEBT:
Long-term debt as of June 30, 1995 consists of the following:
<TABLE>
<S> <C>
Loan payable to a bank in monthly installments of $3,198
including interest at 8.75%, maturing April 2007; collateralized
by real estate. $ 283,585
Vehicle loans payable to a bank in monthly installments of
$548 including interest at 8.66% . These notes mature in
March 1996, and are collateralized by the corresponding
company vehicles. 4,761
Loan payable to a bank in monthly principal installments of
$7,440 plus interest at prime plus 1% (10.00% at June 30, 1995),
maturing June 1997; collateralized by accounts receivable,
inventory, and equipment. The terms of the agreement require,
among other provisions, that the Company comply with
requirements for maintaining certain cash flow and other
financial ratios. 394,351
Loans payable to a bank in monthly installments of $18,868
plus interest at prime plus 1/4% (9.25% at June 30,
1995), maturing through June 2000; collateralized by the
accounts receivables, inventory and equipment. The terms of
the agreement require, among other provisions, that the Company
comply with requirements for maintaining certain cash flow and
other financial ratios. 1,053,416
Loan payable to a bank in monthly installments of $29,000 plus
interest at prime plus 1/4% (9.25% at June 30, 1995), maturing
December 1998; collateralized by accounts receivables, inventory,
and equipment. The terms of the agreement require, among other
provisions, that the Company comply with requirements for
maintaining certain cash flow and other financial ratios. 1,224,125
Loan payable to a bank in monthly installments of $6,149
including interest at 7.63%, maturing January 2003;
collateralized by machinery and equipment; guaranteed by S.O.I. 419,324
------------
3,379,562
Less current portion (2,735,418)
------------
$ 644,144
============
</TABLE>
F-38
<PAGE> 62
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. LONG-TERM DEBT, CONTINUED:
The Company failed to meet the cash flow coverage ratio required under
the above agreements at June 30, 1995. Therefore, all amounts due under
these agreements have been reclassified to a current liabilities.
The contractual maturities on long-term debt assuming repayment terms
were not accelerated are as follows:
<TABLE>
<CAPTION>
Years ending June 30,
---------------------
<S> <C>
1996 $ 727,228
1997 942,565
1998 822,269
1999 304,649
2000 220,322
Thereafter 362,529
------------
$ 3,379,562
============
</TABLE>
8. COMMITMENTS:
The Company leases its office facilities under operating leases expiring
through May 1999. The leases provide for increases based on real estate
taxes and operating expenses. The Company also leases facilities and
equipment on a month-to-month basis.
Aggregate future minimum rental payments under the above leases are as
follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1996 $ 393,335
1997 306,127
1998 297,852
1999 273,031
-----------
$ 1,270,345
===========
</TABLE>
Rent expense under the above leases for the years ended June 30, 1995
and 1994 was $412,568 and $283,636, respectively.
9. SALES TO MAJOR CUSTOMERS:
During the year ended June 30, 1995, two customers accounted for
approximately 28% of the Company's sales. During the year ended June 30,
1994, two customers accounted for 29% of the Company's sales.
F-39
<PAGE> 63
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTION PLAN:
On January 22, 1990, the Board of Directors adopted the MagneTech
Corporation 1990 Employees' Stock Option Plan. As of June 30, 1995,
there were 219,125 shares reserved for future issuance at exercise
prices which range from $1.00 to $3.44 per share.
There was no compensation expense as of June 30, 1995 and compensation
expense for June 30, 1994 was $122,400.
<TABLE>
<CAPTION>
SHARES OPTION PRICE
<S> <C> <C>
Outstanding June 30, 1993 211,875 $1.00 - $1.50
Granted 40,000 $1.00
Exercised (7,500) $1.50
-------- -------------
Outstanding June 30, 1994 244,375 $1.00 - $1.50
Granted 35,000 $2.25 - $3.44
Exercised (141,250) $1.00 - $1.50
-------- -------------
Canceled (15,000) $1.50
Outstanding June 30, 1995 123,125 $1.00 - $3.44
======== =============
</TABLE>
11. INCOME TAXES:
Effective July 1, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes". The cumulative effect of the change amounted to $26,285
which amount is reflected as a charge to income in the consolidated
statement of operations for 1994.
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Current:
Federal $ 294,762 $ 446,619
State 76,724 56,374
----------- -----------
371,486 502,993
----------- -----------
Deferred:
Federal (70,077) 20,082
State (18,242) 2,297
----------- -----------
(88,319) 22,379
----------- -----------
$ 283,167 $ 525,372
=========== ===========
</TABLE>
F-40
<PAGE> 64
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES, CONTINUED:
Reconciliations of the differences between income taxes computed at
federal statutory tax rates and consolidated provisions for income taxes
are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Tax at federal statutory rate 34.0 % 34.0 %
State income tax - net of federal benefit 8.8 % 2.8 %
Other (4.9) % 0
---- ----
37.9 % 36.8 %
==== ====
</TABLE>
The tax effects of temporary differences which comprise the deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1995
<S> <C>
Assets:
Allowance for doubtful accounts $ 408,061
Investments - unrealized holding losses 263,094
-----------
671,155
Liabilities:
Property and equipment - depreciation (416,453)
-----------
Net asset 254,702
Less: Valuation allowance (263,094)
-----------
Deferred tax liability $ (8,392)
===========
</TABLE>
12. EMPLOYMENT AGREEMENTS:
The Company 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. The minimum annual salaries (excluding bonus
arrangements) for the years ending June 30, are as follows:
<TABLE>
<S> <C>
1996 $ 160,000
1997 160,000
-----------
$ 320,000
===========
</TABLE>
F-41
<PAGE> 65
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially expose the Company to a
concentration of credit risk consist principally of cash and trade
receivables. The Company places substantially all its cash with major
financial institutions, and by policy, limits the amount of credit
exposure to any one financial institution. The balances, at times, may
exceed federally insured limits. At June 30, 1995, the Company exceeded
the insured limit by approximately $67,000. Approximately 40% of the
Company's accounts receivable, before allowances, were due from three
customers at June 30, 1995.
14. DISCONTINUED OPERATIONS:
In December 1993, the Company sold its subsidiary, Video Plus, Inc. The
results of operations of Video Plus, Inc. have been reported separately
as a discontinued operation in the Consolidated Statements of Operations
for the year ended June 30, 1994.
In June 1995, the Company discontinued the operations of Tapes
Unlimited, Inc. ("Tapes"). The results of operations of Tapes have been
reported separately as a discontinued operation in the Consolidated
Statements of Operations. Prior years consolidated financial statements
have been reclassified to conform with the current year presentation.
Summarized results of operations of the discontinued operations of tapes
for 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net sales $ 2,658,516 $ 1,368,863
=========== ============
Operating income (loss) $ 37,926 $ (117,519)
=========== ============
Loss before income taxes $ (561,924) $ (128,429)
Income tax benefit (240,784) (47,259)
----------- ------------
Loss from discontinued operation $ (321,140) $ (81,170)
=========== ============
</TABLE>
F-42
<PAGE> 66
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. DISCONTINUED OPERATIONS, CONTINUED:
In connection with the shutdown of operations of Tapes, the Company
recorded a charge of $443,400, net of tax of $87,237, to write-off the
goodwill recorded in connection with the acquisition of tapes. The net
income for the sale of Video Plus, Inc. for the year ended June 30, 1994
amounted to $66,735, net of tax of $38,854, which when netted against
the loss from the discontinued operation of Tapes of $81,170 amounts to
$14,475 which amount is shown in the accompanying statements of
operations under the caption loss from discontinued operations, net of
tax. The entire loss on disposal of discontinued operations of $162,164
net of tax of $94,416 relates to Video Plus, Inc.
Certain reclassifications were made to the 1994 amounts to reflect the
effects of the discontinued operation in the prior year on a basis
comparable with 1995.
The assets and liabilities of Tapes, which have not been reclassified on
the consolidated balance sheets, are as follows:
<TABLE>
<CAPTION>
1995
<S> <C>
Current assets, principally cash, accounts receivable and
inventories $ 133,790
Plant and equipment 3,839
-----------
Total assets $ 137,629
===========
Accounts payable and accrued liabilities, net of amounts
due to Digital of $40,700 $ 423,114
-----------
Total liabilities $ 423,114
===========
</TABLE>
15. RESTATEMENT:
The balance of net unrealized holding losses on securities at June 30,
1994 reflected in the Consolidated Statements of Stockholders' Equity
has been restated to reflect a valuation allowance that should have been
recorded in 1994 against deferred tax assets which were recorded to
reflect the tax benefit of unrealized capital losses on marketable
securities.
In addition, the investment in S.O.I. Industries, Inc. at June 30, 1994
in the Consolidated Statements of Stockholders' Equity has been adjusted
to reflect the investment at book value. A corresponding adjustment was
made to additional paid-in-capital.
F-43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf of the undersigned, thereunto duly authorized.
S.O.I. INDUSTRIES, INC.
By: /s/ Kevin B. Halter
----------------------------- November 13, 1995
Kevin B. Halter, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 703,410
<SECURITIES> 923,212
<RECEIVABLES> 3,666,972
<ALLOWANCES> 1,087,262
<INVENTORY> 3,152,456
<CURRENT-ASSETS> 0
<PP&E> 3,810,014
<DEPRECIATION> (972,905)
<TOTAL-ASSETS> 17,583,519
<CURRENT-LIABILITIES> 10,165,398
<BONDS> 1,750,415
<COMMON> 319
0
0
<OTHER-SE> 5,406,939
<TOTAL-LIABILITY-AND-EQUITY> 17,583,519
<SALES> 23,279,817
<TOTAL-REVENUES> 23,279,817
<CGS> 21,106,605
<TOTAL-COSTS> 21,106,605
<OTHER-EXPENSES> 5,966,334
<LOSS-PROVISION> 588,404
<INTEREST-EXPENSE> 689,880
<INCOME-PRETAX> (3,209,971)
<INCOME-TAX> 562,320
<INCOME-CONTINUING> (2,647,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,647,651)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
