UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934 For the quarterly period ended December 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For
- ---
the transition period from __________ to __________
Commission file number: 1-12572
MILLENNIA, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 59-2158586
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
16910 Dallas Parkway, Suite 100, Dallas, TX 75248
(Address of principal executive offices)
(972) 248-1922
(Issuer's telephone number)
S.O.I. INDUSTRIES, INC.
-------------------------------------------------------------------------------
(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 Exchange Act during the past 12 months (or 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 No
The number of shares outstanding of the common stock of the small business
issuer on January 31, 1997, the latest practicable date, was 2,272,949.
Transitional Small Business Disclosure Format (Check one): Yes No X
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<PAGE>
TABLE OF CONTENTS
Item Numbered
Number Page
- ------ --------
Part I
1 Financial Statements . . . . . . . . . . . . . 1
2 Management's Discussion and
Analysis or Plan of Operation . . . . . . . . . 9
Part II
1 Legal Proceedings . . . . . . . . . . . . . . . N/A
2 Changes in Securities . . . . . . . . . . . . . N/A
3 Defaults Upon Senior Securities . . . . . . . . N/A
4 Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . .. . . . . . . . 14
5 Other Information . . . . . . . . . . . . . . . N/A
6 Exhibits and Reports on Form 8-K . . . . . . . . 15
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1996 June 30,
(Unaudited) 1996
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 101,569 $ 36,628
Marketable securities 125,095 -
Accounts receivable, less allowance for doubtful accounts
of $28,000 at December 31, 1996 and $15,500 at June 30, 1996 77,792 71,867
Other accounts receivable 127,761 699
Inventories 97,341 105,760
Prepaid expenses and other 14,765 582,562
Deferred tax asset 11,665 617,142
Net current assets of discontinued operations - 5,072,860
Total current assets ------------ ------------
555,988 6,487,518
Property, plant and equipment, net of
accumulated depreciation and depletion 1,846,216 15,956
Investment in Digital Communications Technology Corporation 1,237,493 1,388,078
Deferred tax asset 67,169 77,214
Other assets 5,779 5,779
Net other assets of discontinued operations - 4,181,953
------------ ------------
Total assets $ 3,712,645 $ 12,156,498
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 107,145 $ 83,102
Accounts payable - officer / stockholder 171,000 16,000
Accrued liabilities and other 144,060 30,949
Current portion of note payable 16,398 -
Net current liabilities of discontinued operations - 9,018,638
------------ ------------
Total current liabilities 438,603 9,148,689
------------ ------------
Note payable - Magnum Hunter Production, Inc. 1,599,291 -
Net other liabilities of discontinued operations - 1,811,870
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.00001; 10,000,000 shares
authorized, none issued and outstanding - -
Common stock, par value $0.0002; 50,000,000 shares
authorized, 2,272,949 and 2,152,949 shares outstanding at
December 31, 1996 and June 30, 1996, respectively 440 431
Additional paid-in capital 6,697,098 6,717,093
Less shares deemed treasury stock; 74,884 and 70,401 shares
at December 31, 1996 and June 30, 1996, respectively (54,857) (39,425)
Accumulated deficit (4,888,009) (5,482,160)
Net unrealized holding loss on investment securities (79,921) -
----------- ------------
Total stockholders' equity 1,674,751 1,195,939
----------- ------------
Total liabilities and stockholders' equity $ 3,712,645 $ 12,156,498
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements
1
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the three months ended For the six months ended
December 31, December 31,
1996 1995 1996 1995
---------------------------- -----------------------------
Operating revenues:
Net sales $ 140,509 $ 225,810 $ 270,674 $ 440,548
Oil and gas sales 176,712 - 176,712 -
------------ ------------ ------------ ------------
317,221 225,810 447,386 440,548
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of sales 104,619 82,054 201,451 176,317
Oil and gas production 121,437 - 121,437 -
Selling expenses 16,126 14,796 27,795 26,668
General and administrative expenses 206,351 305,278 457,819 642,655
Depreciation and depletion 23,942 1,213 25,154 2,426
------------- ------------ ------------ ------------
Total operating expenses 472,475 403,341 833,656 848,066
------------- ------------ ------------ ------------
Loss from operations (155,254) (177,531) (386,270) (407,518)
------------- ------------ ------------ ------------
Other income (expense):
Gains (losses) on sales of securities 16,566 (797,196) 27,785 (743,050)
Interest and other income 6,346 68,993 36,015 169,396
------------- ------------ ------------ ------------
22,912 (728,203) 63,800 (573,654)
------------- ------------ ------------ ------------
Loss from continuing operations before income taxes (132,342) (905,734) (322,470) (981,172)
Provision for income taxes 103,383 - 101,954 -
------------- ------------ ------------ ------------
Loss from continuing operations (235,725) (905,734) (424,424) (981,172)
------------- ------------ ------------ ------------
Discontinued operations, net of income taxes
Loss from discontinued operations of American Quality
Manufacturing Corporation, net of income tax benefit of
$217,000 for the periods ended December 31, 1996 and
1995, respectively - (453,768) (566,991) (980,506)
Loss from discontinued operations of Tempo Lighting,
Inc., net of income taxes of $1,600 - (219,840) - (197,795)
Gain on disposition of American Quality Manufacturing
Corporation, net of income tax provision of $539,000 - - 1,585,566 -
------------- ------------ ------------ ------------
(Loss) income from discontinued operations - (673,608) 1,018,575 (1,178,301)
------------- ------------ ------------ ------------
Net (loss) income $ (235,725) $ (1,579,342) $ 594,151 $ (2,159,473)
============= ============ ============ ============
Weighted average shares of common
stock outstanding 2,101,597 1,706,079 2,092,769 1,666,300
============= ============ ============ ============
Loss per share from continuing operations $ (0.11) $ (0.53) $ (0.20) $ (0.59)
(Loss) income per share from discontinued operations - (0.40) 0.48 (0.71)
------------- ------------ ------------ ------------
Net (loss) income per share $ (0.11) $ (0.93) $ 0.28 $ (1.30)
============= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the six months ended
December 31,
1996 1995
---------------------------
Cash flows from operating activities:
Net income (loss) $ 594,151 $ (2,159,473)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, amortization and depletion 25,154 2,426
Provision for doubtful accounts 12,500 -
(Gain) loss on sales of marketable securities (17,332) 148,644
Gain on equity investment in Digital Communications
Technology Corporation (46,654) (90,265)
(Gain) loss on sales of securities of Digital
Communications Technology Corporation (10,453) 659,978
Discontinued operations (1,575,695) 117,773
(Increase) decrease in accounts receivable (18,425) 3,771
Decrease in inventories 8,419 10,278
Decrease in prepaid expenses and other 456,424 -
Decrease in net deferred income tax benefit 615,522 216,391
Increase (decrease) in accounts payable 24,043 (54,918)
Increase (decrease) in accrued liabilities 113,111 (4,369)
---------- -----------
Net cash provided by (used in) operating activities 180,765 (1,149,764)
---------- -----------
Cash flows from investing activities:
Proceeds from sale of securities of Digital Communications
Technology Corporation 22,273 71,007
Acquisition of oil and gas properties and capital expenditures (105,414) -
Proceeds from sales of marketable securities 375,163 2,137,730
Purchases of marketable securities (562,846) (1,029,083)
---------- -----------
Net cash (used in) provided by investing activities (270,824) 1,179,654
---------- -----------
Cash flows from financing activities:
Repayment of advances from officer (16,000) -
Advances from stockholder 171,000 -
Net short-term repayments - (60,872)
Net payments from ESOP - 60,872
---------- -----------
Net cash used in financing activities 155,000 0
---------- -----------
Increase (decrease) in cash and cash equivalents 64,941 29,890
Cash and cash equivalents at beginning of period 36,628 97,505
---------- -----------
Cash and cash equivalents at end of period $ 101,569 $ 127,395
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements :
3
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the six months ended
December 31,
1996 1995
-------------- --------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (non-capitalized) $ 1,523 $ 11,404
============= =============
Income taxes $ 0 $ 0
============= =============
</TABLE>
Supplemental schedule of noncash investing and financing activities:
The Company acquired certain interests in oil and gas properties on
November 20, 1996. The purchase price consisted of $100,000 in cash, a
$1,615,689 promissory note and 120,000 shares of the Company's common
stock, valued at $150,000.
The Company's investment in Digital Communications Technology
Corporation was reduced by $185,419 during the six months ended
December 31, 1996 due to the dilutive effects of the issuance, by
Digital Communications Technology Corporation, of approximately 858,000
shares of common stock.
The accompanying notes are an integral part of the financial statements
4
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-------------
1. Summary of Significant Accounting Policies:
------------------------------------------
The accompanying consolidated financial statements include the accounts of
Millennia, Inc. and all majority-owned subsidiaries (collectively referred to as
the "Company"). The subsidiaries include Omni Doors, Inc. ("Omni") and Doblique
Energy Corporation ("Doblique"). Significant intercompany accounts and
transactions have been eliminated.
The Company also holds a 15.33% ownership interest in Digital Communications
Technology Corporation ("DCT") as of December 31, 1996. At June 30, 1996, this
ownership interest was 17.55%. The Company accounts for its investment in DCT
using the equity method. (The reduction in ownership percentage is due to the
dilutive effect of the issuance of additional common stock by DCT.)
Effective February 29, 1996, the Company sold 100% of the common stock of Tempo
Lighting, Inc. ("Tempo"). The operations of Tempo are therefore segregated and
presented as discontinued operations on the Consolidated Statements of
Operations.
Effective August 31, 1996, the Company sold 100% of its ownership interest in
American Quality Manufacturing Corporation ("AQM") for the assumption of all
liabilities of AQM. The results of operations of AQM are therefore presented as
a component of discontinued operations in the Consolidated Statements of
Operations.
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to conform with generally accepted accounting principles. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
2. Marketable Securities:
---------------------
Marketable securities consist of equity securities which had an aggregate cost
of approximately $205,016 at December 31, 1996. The marketable securities
portfolio contains net unrealized losses of $79,921, resulting in a carrying
amount of $125,095 at December 31, 1996. The unrealized losses are reported as a
separate component of stockholders' equity. The Company's marketable securities
are classified as available for sale securities.
5
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
-------------
3. Inventories:
-----------
The inventories are valued at the lower of cost (first-in, first-out method) or
market and consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
December 31, June 30,
1996 1996
--------------- --------------
Finished goods and purchased product $ 92,941 $ 100,934
Raw materials and supplies 4,400 4,826
=============== ==============
$ 97,341 $ 105,760
=============== ==============
</TABLE>
4. Property, Plant and Equipment:
-----------------------------
Property, plant and equipment and related accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, June 30,
1996 1996
--------------- --------------
Vehicle $ 19,635 $ 19,635
Machinery and equipment 13,034 13,034
Leasehold improvements 4,193 4,193
Oil and gas properties 1,855,414 -
--------------- --------------
1,892,276 36,862
Less: accumulated depreciation and depletion (46,060) (20,906)
=============== ==============
$ 1,846,216 $ 15,956
=============== ==============
</TABLE>
5. Equity Investment in DCT:
------------------------
Summarized financial statement information for DCT is presented below
(unaudited):
<TABLE>
<CAPTION>
<S> <C>
For the six For the six
months ended months ended
December 31, December 31,
1996 1995
------------------ ------------------
Net sales $ 15,814,416 $ 13,281,982
Operating profit $ 614,292 $ 805,001
Income from continuing operations $ 301,940 $ 318,122
Net income $ 297,255 $ 413,482
Earnings per share $ 0.05 $ 0.08
</TABLE>
6
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
-------------
5. Equity Investment in DCT, continued:
-----------------------------------
<TABLE>
<CAPTION>
<S> <C>
As of As of
December 31, June 30,
1996 1996
------------------ ------------------
Current assets $ 11,374,511 $ 9,711,473
Total assets $ 17,648,933 $ 15,675,489
Current liabilities $ 7,169,396 $ 5,955,208
Total liabilities $ 9,574,146 $ 7,778,487
Total stockholders' equity $ 8,074,787 $ 7,897,002
</TABLE>
6. Discontinued Operations:
-----------------------
Effective February 29, 1996, the Company sold 100% of the common stock of Tempo
for a net cash purchase price of $453,436. The results of operations of Tempo
have been reported separately as a discontinued operation in the Consolidated
Statement of Operations.
Effective August 31, 1996, the Company sold 100% of its ownership interest in
AQM for the assumption of all liabilities of AQM. In addition, the AQM sale
included the release of the Company's guarantees of certain debt (1) with AQM's
primary lending institution; (2) with certain key vendors; and (3) related to
the payment and performance under AQM's lease of its operating facility in
Conway, Arkansas. The sale agreement contains a total guaranty release cap of
$5.5 million. Additionally, the Company retained its contingent guarantee of a
$400,000 note between AQM and DCT. The results of operations of AQM are
therefore presented as a component of discontinued operations in the
Consolidated Statements of Operations.
Summarized results of operations of the discontinued operations of Tempo for the
six months ended December 31, 1995 are as follows:
December 31,
1995
---------------
Net sales $ 1,887,267
Operating loss $ (165,149)
Net loss from discontinued operation $ (196,195)
Summarized results of operations of the discontinued operations of AQM for the
period from July 1, 1996 to the disposition date and for the six months ended
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
July 1,1996 to December 31,
Disposition 1995
----------------- ----------------
Net sales $ 2,682,751 $ 8,881,104
Operating loss $ (983,604) $ (599,230)
Net loss from discontinued operation $ (566,991) $ (980,506)
</TABLE>
7
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
-------------
7. Oil and Gas Operations:
----------------------
On November 4, 1996, Doblique acquired certain oil and gas properties. The
purchase price consisted of $100,000, a $1,615,689 promissory note and 120,000
shares of the Company's common stock. The terms of the promissory note require
monthly interest payments at an annual rate of 12%. The monthly payments are to
be paid from 100% of the net proceeds generated by the oil and gas properties.
Any remaining unpaid principal balance is due on November 1, 1999. The
promissory note is secured by the interests in the oil and gas properties, and
is further secured by 750,000 shares of common stock of Digital Communications
Technology Corporation.
The asset purchase and sale agreement stipulated an effective date for
transferring the seller's interests in the oil and gas properties to be October
1, 1996. Consequently, the operations of the acquired interests in the oil and
gas properties are reflected in the consolidated statements of operations from
the effective date. The Company accounted for the acquisition using the purchase
method of accounting.
The Company follows the full-cost method of accounting for oil and gas
properties, as prescribed by the Securities and Exchange Commission.
Accordingly, all costs associated with acquisition, exploration and development
of oil and gas reserves, including directly related overhead costs, are
capitalized.
All capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves, are amortized on the unit-of-production method
using estimates of proved reserves. Costs directly associated with the
acquisition and evaluation of unproved properties are excluded from the
amortization base until the related properties are evaluated. Such unproved
properties are assessed periodically, and any provision for impairment is
transferred to the full-cost amortization base. Sales of oil and gas properties
are credited to the full-cost pool unless the sale would have a significant
effect on the amortization rate. Abandonments of properties are accounted for as
adjustments to capitalized costs with no loss recognized. The Company's does not
currently own any unproved properties.
The net capitalized costs are subject to a "ceiling test," which limits such
costs to the aggregate of the estimated present value of future net revenues
from proved reserves discounted at ten percent based on current economic
conditions.
Information regarding the Company's oil and gas reserves has been filed as a
part of the Company's Form 8-K/A on December 30, 1996.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Overview
Effective August 31, 1996, the Company sold all the issued and
outstanding stock of AQM. Since, at the time of the sale, AQM had liabilities in
excess of its assets, the sale of AQM relieved the Company of the net
liabilities of AQM upon consolidation and resulted in a gain from the
disposition of AQM of approximately $1,586,000. AQM generated losses from
operations from July 1, 1996 to the effective sale date of approximately
$567,000 which resulted in a net gain from the discontinued operations and sale
of AQM of approximately $1,019,000. The gain on disposition of AQM and the
losses generated from AQM's operations are segregated under discontinued
operations on the Company's consolidated statements of operations.
The net gain from discontinued operations offset the Company's loss
from continuing operations before income taxes of approximately $322,000 for the
six months ended December 31, 1996, resulting in net income of approximately
$594,000 for the same period. For both the three month and six month periods
ended December 31, 1996, the Company generated smaller losses from continuing
operations before income taxes than in the corresponding periods of the prior
year. This difference is due primarily to significant losses incurred in the
prior year upon the disposition of approximately 1,622,000 shares of the
Company's investment in DCT. The transfer of DCT stock in the prior year was
effected in order to repay a stockholder of the Company. The stockholder had
previously transferred approximately 1,659,000 of the Company's common stock to
creditors of AQM.
During the quarter ended December 31, 1996, an income tax provision
resulted from a reevaluation of an estimate of the income tax refund to be
received by the Company. Upon collection of the refund and based on the results
of an Internal Revenue Service examination, it was determined that approximately
$103,000 of the balance recorded as an income tax receivable would not be
collected. Consequently, the asset was reduced and a corresponding tax provision
was expensed in the current period. This non cash item did not impact the
Company's liquidity.
Interest and other income for the three and six months ended December
31, 1996 are lower than the results for the comparative periods. The difference
is due to the reduction of the Company's ownership percentage in DCT since the
corresponding periods of the prior year. The Company's average ownership in DCT
for the six month period ended December 31, 1996 was 16% as compared to 32% for
the six months ended December 31, 1995, resulting in the lower equity interest
in DCT's net income. The current period reduction in the Company's ownership
percentage in DCT is due to the dilutive effect of the issuance of additional
common stock by DCT during the six month period ended December 31, 1996.
As in the quarter ended September 30, 1996, the Company's general and
administrative expenses were the most significant operating expense item for the
three and six month periods ended December 31, 1996. The decline from the
corresponding periods of the prior year was primarily the result of a reduction
of corporate overhead payroll costs due to the lower level of activity during
these periods caused by the disposition of AQM and Tempo. Overhead payroll costs
declined approximately 61% and 66% for the three and six month periods ended
December 31, 1996 as compared to the same periods ended December 31, 1995.
However, legal and professional fees increased 73% to approximately $152,000 for
the six months ended December 31, 1996 over the same period ended December 31,
1995. These legal fees were associated with the shareholder derivative action,
as discussed in the Company's prior reports. The Company's net sales revenues
for the three and six month periods ended December 31, 1996 are
9
<PAGE>
approximately 38% lower than those of the corresponding periods of the prior
year. The decline is due to the discontinuance of management fees which were
charged to DCT during the periods ended December 31, 1995. Management fees
charged to DCT ceased in December 1995, coinciding with the Company's reduced
ownership interest in DCT. Services previously provided by the Company were
assumed by DCT employees.
Door Distribution Segment
Net sales from this segment approximated $141,000 and $271,000 for the
three and six months ended December 31, 1996 as compared to approximately
$105,000 and $230,000 for the three and six months ended December 31, 1995. The
highly competitive market in which Omni operates will often produce fluctuations
in sales depending on various external factors. The increase in sales,
therefore, does not necessarily represent a trend of continued sales increases,
but is instead a function of the volatility of the marketplace. This segment is
however, enjoying repeat business as it continues to establish a reputation in
the marketplace. Therefore, some of the sales increases can be attributable to
customer satisfaction with the products and services provided.
For the three and six month periods ended December 31, 1996, this
segment generated operating income of approximately $5,300 and $2,400 as
compared to operating losses of approximately $7,700 and $6,200 for the
comparable periods of the prior year. The primary reason for the operating
income in the current periods is the increased sales, especially during the
three months ended December 31, 1996. Also, a decline in cost of goods sold as a
percentage of sales from approximately 78% for the three and six month periods
ended December 31, 1995 to approximately 75% during the three and six months
ended December 31, 1996 contributed to the operating income. Increased sales of
wood doors, for which the segment earns slightly higher margins, contributed to
the decline in cost of goods sold.
Oil and Gas Segment
During the quarter ended December 31, 1996, the Company's Doblique
subsidiary acquired certain interests in oil and gas properties located in
Texas, Oklahoma and New Mexico. Revenues and production expenses related to
these activities are included as separate line items on the Company's
consolidated statements of operations. Included in the oil and gas production
costs is approximately $23,000 of depletion expense, with the remaining balance
comprised primarily of lease operating expenses related to the associated oil
and gas properties. Prior to interest expense of approximately $32,000, this
segment generated approximately $20,000 in operating income during the three
months ended December 31, 1996.
Capital Resources
The Company does not currently have any material commitments for capital
expenditures. However, the Company is actively seeking acquisition candidates to
include within the consolidated group. Such business acquisitions are expected
to be financed through a combination of debt (seller-financing) and new stock
issuances.
Liquidity
During the six month period ended December 31, 1996, the Company's
operating activities provided cash flows of approximately $181,000. This is
compared with net cash used in operating activities of approximately $1,150,000
for the six month period ended December 31, 1995. The primary reason for the
positive operating cash flows in the six months ended December 31, 1996 was the
receipt of the Company's income tax refund and related interest totaling
approximately $494,000. The Company was able to utilize its net operating losses
experienced during the 1995 fiscal year and carry them back to prior years when
the Company generated taxable income and paid income taxes. The income tax
refund offset the operating cash requirements of the six months
10
<PAGE>
ended December 31, 1996, and the excess cash was utilized to establish the
Company's marketable securities portfolio which had previously been liquidated
prior to June 30, 1996.
In addition to the establishment of the Company's marketable securities
portfolio, approximately $105,000 was used to acquire interests in oil and gas
properties through the Company's Doblique subsidiary. When combining the
activities of the marketable securities portfolio and the investment in oil and
gas properties, approximately $271,000 in cash was used in investing activities
during the six months ended December 31, 1996.
In order to fund current operations, approximately $155,000 was
advanced to the Company by a stockholder during the six months ended December
31, 1996. These temporary advances are anticipated to be repaid within the
subsequent six months from proceeds from the marketable securities portfolio
and/or from the Company's operations.
The primary sources of funding for the operations of the Company in
fiscal year 1997 will be proceeds from the marketable securities portfolio. The
Company may also sell part of its investment securities in DCT to provide cash
as needed. Furthermore, the Company plans to seek out additional business
acquisition candidates and/or start-up opportunities which will provide
supplemental operating cash necessary to fund the Company's overhead
requirements.
Significant Unconsolidated Subsidiary--Digital Communications Technology
Corporation
DCT files a separate Form 10-QSB with the Securities and Exchange
Commission. Excerpts from DCT's management discussion and analysis section of
its Form 10-QSB is included below. The reader is encouraged to read DCT's entire
Form 10-QSB for more complete information.
Overview
DCT continued to enjoy significant sales growth for the quarter and six
month periods ended December 31, 1996. Net sales for the three months ended
December 31, 1996 increased approximately 11% to an all-time quarterly record.
Net sales for the six month period ended December 31, 1996 increased
approximately 19% and were also the highest six months' sales in DCT's history.
DCT, however, experienced a decline in operating profits, both in real terms and
as a percentage of net sales. Increases in cost of goods sold and general and
administrative expenses, particularly legal fees associated with the shareholder
derivative lawsuit (approximately $100,000), contributed to the lower operating
profits.
Liquidity
DCT utilized approximately $1,034,000 and $570,000 in cash from
operating activities for the six months ended December 31, 1996 and 1995,
respectively. DCT's operating cash position is due primarily to the large
increase in accounts receivable which was partially offset by an increase in
accounts payable and a decrease in the level of inventory.
Accounts receivable increased approximately $3,288,000 from the balance
at June 30, 1996. The increase is due to the corresponding increase in net sales
for the current six month period. DCT's accounts receivable collection period
(measuring how quickly, on average, DCT collects its accounts receivable)
increased from approximately 61 days at June 30, 1996 to approximately 86 days
at December, 1996. The increase is due to the significant amount of billings
that occurred during the last quarter. These billings negatively affected the
average days in collection by increasing the balance of accounts receivable at
the end of the period. DCT continues to receive competitive pressures from its
customers to grant longer payment terms. Management will continue to
11
<PAGE>
focus on this area to improve credit and collections efforts.
Accounts payable increased approximately $445,000 for the six months
ended December 31, 1996 as compared to a decrease of approximately $577,000 for
the same period ended December 31, 1995. The increase in accounts payable in the
current period is due primarily to the growth in sales volume that has dictated
additional purchases. In addition, efforts to maintain a low outstanding balance
on the revolving line of credit have contributed to the increase.
Overall inventory levels declined by $511,000 from June 30, 1996 to
December 31, 1996. The reduction is primarily due to the decrease in the amount
of raw materials on hand. Management has been successful in its efforts to
ensure that the least amount of operating cash is invested in inventory by
insisting that shipments of raw materials are made on a just-in-time basis and
by minimizing the amount of raw materials purchased. Inventory levels,
particularly in the work-in-process and finished goods categories, will
fluctuate somewhat depending on the size and number of video tape duplicating
orders processed at any given time. Typically, DCT does not stock significant
quantities of finished products, shipping orders immediately upon completion.
Approximately $11,000 in net cash was used in investing activities for
the six month period ended December 31, 1996 as compared to approximately
$684,000 in cash provided by investing activities for the corresponding period
of the prior year. The primary reason for this change in position is the
increase in capital expenditures in the current period (see Capital Resources
below).
DCT utilized its line of credit to provide approximately $1,084,000 for
working capital needs during the six months ended December 31, 1996 and repaid
approximately $189,000 in long-term debt. Management intends to selectively
utilize its line of credit to fund working capital requirements when needed, and
expects to reduce the amount outstanding on the line of credit as collections on
accounts receivable are received.
During the six month period ended December 31, 1996, DCT's cash needs
were met primarily through operations. Long-term liquidity needs are anticipated
to be met through sales growth and separate financing arrangements. Management
anticipates that it will continue to meet most obligations as they come due, and
no vendor/supplier problems are expected.
Capital Resources
DCT invested approximately $945,000 in equipment and leasehold
improvements for the six month period ended December 31, 1996. These larger
capital expenditures related primarily to expenditures for duplication, loading,
packaging, and leasehold improvements at both DCT's Indianapolis and Ft.
Lauderdale facilities. DCT plans to continue to expand current operating
facilities in order to fully meet the high volume demands of the
retail-sell-through market. DCT intends to finance these expenditures through
operations and through separate financing arrangements.
Results of Operations
Overall growth in DCT's target markets led to continued sales growth of
approximately 19% in the current fiscal year to date. Net sales for the three
months ended December 31, 1996 increased approximately 11% to an all-time
quarterly record of $8,794,000, up from $7,896,000 for the same period ended
December 31, 1995. Net sales of $15,814,000 for the six month period ended
December 31, 1996 were also the highest in DCT's history, compared with
$13,282,000 for the same period last year. Significant sales increases were
experienced in the last quarter as orders were filled to meet the holiday buying
season demands. As in the prior fiscal year, management's focus on the
retail-sell-through market resulted in this sales surge. This market centers on
sales
12
<PAGE>
of pre-recorded video tapes which are sold at the retail level. DCT's customer
base has become increasingly dominated by the companies which distribute these
pre-recorded videos to the retail sell-through market, and management has
positioned DCT to capitalize on this portion of the video industry.
Operating profit did not match the increased sales, declining from
approximately $514,000 (6.5% of net sales) to $446,000 (5.1% of net sales) for
the three months ended December 31, 1995 and 1996, respectively. A similar
decline was experienced for the six months ended December 31, 1996. Operating
profit for this period declined from approximately $805,000 (6.1% of net sales)
to $614,000 (3.9% of net sales). The decline in operating profit is due to
increases in cost of goods sold and general and administrative expenses,
particularly legal fees associated with the shareholder derivative lawsuit
(approximately $100,000).
Cost of goods sold, as a percentage of sales, increased to 80% for the
six months ended December 31, 1996 as compared to 79% for the six months ended
December 31, 1996. The increased cost of goods sold is directly attributable to
increased usage of temporary labor and the cost of offloading excess production
volumes to other duplicators. Use of these outside sources was unavoidable in
order to complete customer orders that exceeded existing capacity at both
facilities. The lack of sufficient capacity was due to unexpected delays in the
installation of new capacity. Management has already taken the steps necessary
to provide for the increase in sales volume by providing for new duplication and
packaging equipment. In addition, increased consultant fees were incurred in the
current period as hands-on outside experts were utilized to accelerate the
implementation of expanded capacity and new management methods in the
Indianapolis facility. Management recognizes that cost containment through
efficiency gains and productivity improvements is essential to DCT's continued
profitable growth and will continue to analyze and monitor DCT's performance in
this area.
Selling expenses increased in relative proportion to the increase in
net sales for the three months ended December 31, 1996. As a percentage of net
sales, selling expenses remained relatively consistent, decreasing from 4.2% to
4.1% for the six months ended December 31, 1995 and 1996, respectively.
General and administrative expenses increased for the six months ended
December 31, 1996 to approximately $1,188,000 (7.5% of net sales) as compared to
approximately $844,000 (6.4%) for the corresponding period of the prior year.
The increase in the percentage of net sales is attributable to salary increases
and additional legal fees incurred in connection with the shareholder derivative
lawsuit.
DCT realized income from securities transactions of approximately
$92,000 for the six months ended December 31, 1996 as compared to approximately
$72,000 for the corresponding period of the prior year. The gains were from
investment transactions associated with DCT's marketable securities portfolio.
DCT invests funds in equity securities, mainly listed on the New York and
American Stock Exchanges, and by policy, limits the amount of exposure in any
one equity investment. Such investments are continually monitored to reduce the
risk of any adverse stock market volatility. Cash not invested in securities is
placed on account with brokerage firms, which is swept daily into a federally
insured money market account, or placed on account with a federally insured
national bank.
Interest expense decreased sharply from approximately $380,000 to
$212,000 for the six months ended December 31, 1995 and 1996, respectively and
from approximately $204,000 to $103,000 for the three months ended December 31,
1995 and 1996, respectively. This decrease is due to decreased borrowings on
DCT's line of credit.
13
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of stockholders of the Company was held on December
10, 1996 at the Company's corporate offices in Dallas, Texas.
A proposal to elect Kevin B. Halter to hold office as director until the next
annual election of directors by stockholders was approved as follows:
1,347,703 shares, or 97.90% of the outstanding shares represented at
the meeting voted in favor of the proposal. 4,666 shares, or 0.34% of
the outstanding shares represented at the meeting voted against the
proposal. 24,179 shares, or 1.76% of the outstanding shares represented
at the meeting abstained from voting.
A proposal to elect Kevin B. Halter, Jr. to hold office as director until the
next annual election of directors by stockholders was approved as follows:
1,347,015 shares, or 97.85% of the outstanding shares represented at
the meeting voted in favor of the proposal. 5,354 shares, or 0.39% of
the outstanding shares represented at the meeting voted against the
proposal. 24,179 shares, or 1.76% of the outstanding shares represented
at the meeting abstained from voting.
A proposal to elect Don R. Benton to hold office as director until the next
annual election of directors by stockholders was approved as follows:
1,347,454 shares, or 97.87% of the outstanding shares represented at
the meeting voted in favor of the proposal. 5,215 shares, or 0.37% of
the outstanding shares represented at the meeting voted against the
proposal. 24,179 shares, or 1.76% of the outstanding shares represented
at the meeting abstained from voting.
A proposal to elect James Smith to hold office as director until the next annual
election of directors by stockholders was approved as follows:
1,348,279 shares, or 97.95% of the outstanding shares represented at
the meeting voted in favor of the proposal. 4,090 shares, or 0.29% of
the outstanding shares represented at the meeting voted against the
proposal. 24,179 shares, or 1.76% of the outstanding shares represented
at the meeting abstained from voting.
A proposal to ratify appointment of S.W. Hatfield + Associates as independent
auditors was approved as follows:
1,359,751 shares, or 98.78% of the outstanding shares represented at
the meeting voted in favor of the proposal. 9,832 shares, or 0.71% of
the outstanding shares represented at the meeting voted against the
proposal. 24,179 shares, or 0.51% of the outstanding shares represented
at the meeting abstained from voting.
14
<PAGE>
A proposal to change the name of the Company was approved as follows:
1,349,238 shares, or 98.02% of the outstanding shares represented at
the meeting voted in favor of the proposal. 19,891 shares, or 1.45% of
the outstanding shares represented at the meeting voted against the
proposal. 7,169 shares, or 0.53% of the outstanding shares represented
at the meeting abstained from voting.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a current report on Form 8-K with the Commission on
November 19, 1996 reporting the acquisition of certain interests in oil and gas
properties from Magnum Hunter Production, Inc.
The Company filed a current report on Form 8-K on December 19, 1996
announcing the approval of a proposal at the Company's annual meeting of
stockholders to change the name of the Company from S.O.I.
Industries, Inc. to Millennia, Inc.
The Company filed a current report on Form 8-K/A on December 30, 1996
as an amendment to the From 8-K filed on November 19, 1996. This Form 8-K/A
included the required financial statements of the acquired oil and gas
properties and pro forma financial information.
15
<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.
MILLENNIA, INC.
/s/ Kevin B. Halter
By: ________________________________ Date: February 14, 1997
Kevin B. Halter, President
/s/ Tim C. Hafer
By: ________________________________ Date: February 14, 1997
Tim C. Hafer, Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 101,569
<SECURITIES> 125,095
<RECEIVABLES> 233,553
<ALLOWANCES> 28,000
<INVENTORY> 97,341
<CURRENT-ASSETS> 555,988
<PP&E> 1,892,276
<DEPRECIATION> 46,060
<TOTAL-ASSETS> 3,712,645
<CURRENT-LIABILITIES> 438,603
<BONDS> 1,599,291
0
0
<COMMON> 440
<OTHER-SE> 1,674,311
<TOTAL-LIABILITY-AND-EQUITY> 3,712,645
<SALES> 447,386
<TOTAL-REVENUES> 447,386
<CGS> 833,656
<TOTAL-COSTS> 833,656
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,500
<INTEREST-EXPENSE> 34,675
<INCOME-PRETAX> (322,470)
<INCOME-TAX> 101,954
<INCOME-CONTINUING> (424,424)
<DISCONTINUED> 1,018,575
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 594,151
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
