UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-KSB
(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, 1997
[ ] 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
MILLENNIA, 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)
(972) 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 25, 1997 was approximately $7,561,909 (based
on the closing price of the registrant's Common Stock on such date). Revenues
for the fiscal year ended June 30, 1997 were $1,093,311.
As of September 25, 1997, the registrant had issued and outstanding
2,275,635 shares of Common Stock, par value $0.0002 per share.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Item Number Page
Part I
1. Description of Business 1
2. Description of Property 8
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holders 14
Part II
5. Market for the Company's Common Stock and Related Stockholder Matters 14
6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
7. Index to Financial Statements 18
8. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 19
Part III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 19
10. Executive Compensation 21
11. Security Ownership of Certain Beneficial Owners and Management 23
12. Certain Relationships and Related Transactions 24
13. Exhibits and Reports on Form 8-K 24
Signatures 26
</TABLE>
<PAGE>
Caution Regarding Forward-Looking Information:
This annual report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company or
management as well as assumptions made by and information currently available to
the Company or management. When used in this document, the words "anticipate,"
"believe," "estimate," "expect" and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company regarding future events and are subject to certain risks, uncertainties
and assumptions, including the risks and uncertainties noted. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected or intended. In each instance,
forward-looking information should be considered in light of the accompanying
meaningful cautionary statements herein.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company is a diversified management company engaged, through its
affiliate and subsidiaries, in videotape duplication, industrial metal door
assembly and sales, investment in ownership interests in various oil and natural
gas properties and brokerage of sales of video tape programming. The affiliate
and subsidiaries of the Company are Digital Communications Technology
Corporation ("DCT"), a Delaware corporation doing business as DCT Video
Services, Omni Doors, Inc. ("Omni"), a Florida corporation, Doblique Energy
Corporation ("Doblique"), a Texas Corporation, and Millennia Entertainment, Inc.
("MEI") a Texas Corporation, respectively. The Company's primary business is a
holding company, to acquire and operate business operations and provide
management expertise to the subsidiaries.
On September 10, 1996, with an effective date for accounting purposes of
August 31, 1996, the Company sold all of the common stock of American Quality
Manufacturing Corporation ("AQM"), a Delaware corporation doing business as
American Cabinet, Inc. The sale agreement relieved the Company of the net
liabilities of AQM from the consolidated group, and consequently, resulted in a
gain on the disposition of AQM in the first quarter ending September 30, 1996.
The Company was incorporated in the State of Florida in 1982 and changed
its state of incorporation by means of a merger with a Delaware corporation to
the State of Delaware in 1987. The address of the Company's principal executive
office is 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248 and its telephone
number is (972) 248-1922.
Omni Doors, Inc.
The Company owns all of the issued and outstanding common stock of Omni.
Products. Omni distributes and assembles industrial doors in the South
Florida region of the United States. Omni offers its services and products to
building contractors who construct such projects as hotels and motels, self
storage facilities and other construction projects requiring industrial doors.
Once assembled, the doors are either delivered to the construction site or
picked up by the contractor at Omni's office/warehouse facility.
<PAGE>
Customers. No single customer accounts for over 10% of Omni's sales.
However, two customers were responsible for approximately 39.0% of Omni=s
accounts receivable at June 30, 1997.
Raw materials. Omni is an authorized distributor for Republic Builders
Products ("Republic"), and consequently purchases the majority of its
unassembled industrial doors from Republic. These unassembled doors along with
other materials are readily available from Omni's suppliers. While Omni's
management does not anticipate, and has not experienced, any disruption in its
relationship with its primary vendor, any interruption may have a material
effect on the financial stability of Omni. Omni's assembly operation does not
require specialized equipment. This equipment is readily available from multiple
locations and sources.
Properties. Omni assembles and distributes its industrial doors at its
office/warehouse facility located in Pembroke Park, Florida. The facility is
leased under an operating lease agreement which expires in 1999. The facility
covers approximately 4,800 square feet.
Competition. Omni's industry is highly competitive. There are other
industrial door distributors which compete with Omni and have greater financial
resources and sales volume than Omni. Omni depends on its ability to provide
quality service at competitive prices to customers in order to be competitive.
Employees. As of June 30, 1997, Omni had a total of three employees, all of
whom are full-time employees. None of the employees are represented by a labor
union. The Company believes that Omni has good relations with its employees.
Doblique Energy Corporation
The Company owns all of the issued and outstanding common stock of
Doblique.
Oil and Natural Gas Properties. Doblique owns working interests and
overriding royalty interests in certain producing oil and natural gas properties
located in Texas, Oklahoma and New Mexico.
Operations. Doblique pays a monthly management fee to Magnum Hunter
Resources, Inc. ("Magnum") (AMEX:MHR) to manage all of its oil and gas
properties. Magnum provides drilling, completion and other well-site services;
advice regarding certain regulatory compliance regulations; receipt and
disbursement functions and provides other managerial, operational and consulting
services as needed for the operation of Doblique's oil and gas properties. As
such, Doblique assumes a relatively passive role in the day-to-day operations of
the properties, relying on the expertise provided by Magnum.
Competition. The oil and gas industry is highly competitive. Competitors of
Doblique include major oil and gas companies, other independent oil and natural
gas concerns, and individual producers and operators, many of which have
substantially greater financial resources and larger staffs and facilities than
those of Doblique and the Company. The principal means of competition with
respect to the sale of oil and natural gas production are product availability
and price. The price at which Doblique's natural gas may be sold will continue
to be affected by a number of factors, including the price of alternative fuels
such as oil and coal and competition among various natural gas producers and
marketers.
Customers. No single customer accounts for over 10% of Doblique's sales.
<PAGE>
Regulation.
Environmental Regulation
Doblique's development and production of oil and natural gas operations are
subject to various federal, state and local environmental laws and regulations.
Such laws and regulations can increase the costs of planning, designing,
installing and operating oil and natural gas wells. For example, Doblique's
domestic activities are potentially subject to the regulations promulgated by
the Environmental Protection Agency ("EPA") under the Oil Pollution Act of 1990
("OPA"), the Clean Water Act ("CWA"), the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"),the Resource Conservation and Recovery
Act ("RCRA"), and the Clean Air Act ("CAA"), as well as state regulations
promulgated under comparable state statutes.
CERCLA and comparable state statutes, also known as "Superfund" laws,
impose joint and several liability, without regard to fault or the legality of
the original conduct, on certain classes of persons for the release of a
"hazardous substance" into the environment. These persons include the owner or
operator of a site, and companies that transport, dispose of or arrange for the
disposal of, the hazardous substances found at the site. CERCLA also authorizes
the EPA, and in some cases, third parties to take actions in response to threats
to the public health or the environment and to seek to recover from the classes
of responsible persons the costs they incur. Although CERCLA, as amended,
currently exempts crude oil, natural gas and natural gas liquids from the
definition of hazardous substance, Doblique's operations may involve the use or
handling of other materials that may be classified as non-exempt hazardous
substances or hazardous wastes under CERCLA. Furthermore, there can be no
assurance that the exemption will be preserved in future amendments of the act,
if any, or that more stringent laws and regulations protecting the environment
will not be adopted.
RCRA and its comparable state and local requirements impose standards for
the transportation, treatment and disposal of both hazardous and nonhazardous
solid wastes. The EPA is currently considering the adoption of stricter disposal
standards for nonhazardous waste. Further, legislation has been proposed in
Congress from time to time that would reclassify certain oil and gas wastes,
including wastes generated during pipeline, drilling and production operations,
as "hazardous wastes" under RCRA which would make such solid wastes subject to
much more stringent handling, transportation, storage, disposal and clean-up
requirements. This development could have a significant impact on Doblique's
operating costs. State initiatives to further regulate oil and natural gas
wastes could have a similar impact.
Doblique's operations may also be subject to the Clean Air Act ("CAA") and
comparable state and local requirements. Amendments to the CAA were adopted in
1990 and contain provisions that may require certain oil and natural gas related
installations to obtain federally enforceable operating permits and may require
the monitoring of emissions.
Pursuant to Doblique's production and maintenance services contract, Magnum
is required to maintain insurance coverages covering various exposures related
to ownership of Doblique's oil and gas properties. These coverages include
workers' compensation and occupational disease insurance and other worker
related coverages. In addition, broad form commercial insurance is maintained
covering, among other things, pollution, contractual liability and broad form
property damage.
<PAGE>
It is not anticipated that Doblique will be required in the near future to
expend amounts that are material in relation to its total capital expenditures
program by reason of environmental laws and regulations, but inasmuch as such
laws and regulations are frequently changed, Doblique is unable to predict the
ultimate cost of compliance. Doblique is not an operator of the wells in which
it has ownership interests and is not able to control directly the operations
its wells. Notwithstanding Doblique's lack of control over wells operated by
others, the failure of the operator to comply with applicable environmental
regulations may, in certain circumstances, be attributable to Doblique.
State Regulation
State statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. The Railroad Commission of the
State of Texas regulates the production of oil and natural gas produced by
Doblique in Texas. Similar regulations are in effect in all states in which
Doblique produces oil and natural gas. Most states in which Doblique owns and
operates properties have statutes, rules or regulations governing conservation
matters, including the unitization or pooling of oil and natural gas properties,
establishing of maximum rates or production from oil and natural gas wells and
the spacing of such wells. Many states also restrict production to the market
demand for oil and natural gas. Such statutes and regulations may limit the rate
at which oil and natural gas could otherwise be produced from Doblique's
properties. Some states have enacted statutes prescribing ceiling prices for
natural gas sold within their state.
Doblique owns a saltwater disposal well which is subject to state
regulations. This disposal well is a commercial well located in Shackelford
County, Texas and is permitted to accept only non-hazardous produced waters.
This well is subject to regulatory oversight by the Railroad Commission of
Texas. To Doblique's knowledge, its wells are in compliance with all applicable
regulations.
Several states have also adopted regulations on the handling,
transportation, storage, and disposal of naturally occurring radioactive
materials that are found in oil and natural gas operations.
Employees. As of June 30, 1997, Doblique had no full-time employees solely
dedicated to the operations of Doblique. As this subsidiary's daily operational
functions are outsourced to Magnum, administerial and other management services
are provided to Doblique by officers of the Company.
Millennia Entertainment, Inc.
The Company owns all of the issued and outstanding common stock of MEI.
Products. MEI is a start-up operation which commenced operations in
February of 1997. The primary business of MEI is to seek out wholesale buyers of
video tape programming, obtain the rights to duplicate the programming and
outsource the duplication of the video tape programming and printing. By
securing the buyer of the duplicated video tape programming before purchasing
any inventory, MEI holds little to no inventory, keeping capital requirements to
a minimum.
Customers. MEI has not had significant sales, and as such no dependence on
one particular customer or group of customers has been established.
Raw materials. MEI purchases its duplication services and video cassettes
from an affiliated company, DCT. All purchases are at arms length and sold at
the same terms as DCT provides to its best customers. The raw materials used by
DCT are readily available on the open market.
Properties. The operations of MEI require no warehouse or other storage
space, and administrative and sales space is shared with the Company at the
Company's administrative offices.
<PAGE>
Employees. MEI has no full time employees devoted solely to the operations
of MEI. Officers of the Company perform all sales and administrative functions
of MEI.
Affiliated Company:
Digital Communications Technology Corporation
The Company owns approximately 13% of the issued and outstanding capital
stock of DCT, a publicly-held company whose common stock is listed on the
American Stock Exchange.
Products The Company is an integrated video communications company which
offers video tape duplication and satellite communications services. The video
tape duplication market is defined by (i) the use or application of the product
and (ii) the method by which the product is distributed.
Once solely confined to entertainment uses, video tapes are finding a
broader range of uses as communication devices. These uses include direct
marketing, product instruction, education and employee/stockholder
communications.
Method of distribution further defines the home video business as one
market. While the video rental business buys tapes from duplicators.
ASell-through," the business of selling, rather than or in addition to renting
videos, is another market. Sell-through is generally used for products expected
to be used more than once. Many of the tape uses noted above are distributed via
sell-through. Further definition of markets by distribution are as follows:
"Catalog" which refers to special interest programming of which
expected low volumes cannot support more costly methods of
distribution.
AAdvertising and Direct Mail" in which tapes are used as sales tools,
similar to written materials.
"Direct Response" in which tapes are used for instruction or
motivation in the use of equipment. Exercise equipment is a well-known
example.
"Corporate" in which tapes are used for employee communication, sales
training, and other functional purposes.
The Company offers its reproduction services to entertainment companies and
a wide range of industrial customers, including advertising agencies, direct
selling organizations and educational groups throughout the United States,
Canada and Latin America.
The Company's satellite operation consists of one mobile KU band unit which
is capable of transmitting live or pre-recorded programming from any location to
commercial satellites. The Company's satellite customers include local, national
and international broadcast network and/or cable television outlets, with signal
origination points located principally in the Southeastern United States.
Customers During the year ended June 30, 1997, two customers, Madacy
Entertainment Group and National Syndications, accounted for approximately 36%
of the Company=s sales. During the year ended June 30, 1996, one customer,
Madacy Entertainment Group, accounted for approximately 17.6% of the Company's
sale.
<PAGE>
Raw Materials and Manufacturing The Company purchases bulk quantities of
videotape ("pancake") and empty video cassettes (" shells") for its reproduction
business from several manufacturers at market prices in the United States and
the Pacific Rim. The videotape and video cassettes are readily available on the
open market. The majority of the Company's video duplication equipment is
manufactured by several major manufacturers in Japan and purchased from domestic
distributors. The equipment utilized in the Company's satellite broadcasting
business includes one KU band broadcasting truck, cameras, generators,
telephonic equipment and transmitters.
The Company purchases its materials and equipment from several major
manufacturers and believes that the loss of any of its suppliers or
manufacturers would not have an adverse material effect on the Company's
business, financial condition and results of operations.
Properties During 1997 and 1996, the Company had two videotape duplication
facilities located in Ft. Lauderdale, Florida and Indianapolis, Indiana. The Ft.
Lauderdale facility was composed of two adjacent buildings and covered a total
of approximately 22,000 square feet. This facility was a real-time duplication
facility with the capacity to duplicate an average of approximately 15,000
videos per day. The Indianapolis facility covers approximately 172,000 square
feet and is a new, automated, state of the art, high-speed duplication facility
with the capacity to duplicate 120,000 videos per day. The layout of the
Indianapolis facility is designed to optimize process flow, to reduce product
handling and to minimize the total cycle time of productions from order entry to
delivery.
In September 1997, as reported on Form 8-K, the DCT announced the closing
and related sale of its Ft. Lauderdale production facility.
Competition The Company's industry is highly competitive. There are other
commercial video duplicating and satellite broadcasting companies which compete
with the Company and have greater financial resources and sales volume than the
Company. The Company depends upon its ability to provide quality services at
competitive prices to its customers in order to be competitive.
Employees As of June 30, 1997, the Company had a total of approximately 80
employees. None of the employees are represented by a labor union, and the
Company believes that it has good relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTY
Set forth below is certain information with respect to the Company's
principal properties. The Company believes that all of these properties are
adequately insured, in good condition and suitable for the uses described below:
<TABLE>
<S> <C> <C> <C> <C> <C>
Location Primary Use Approximate Size Owned/Leased Lease Expiration
(Square Feet) Date
-------- ----------- ---------------- ------------ -----
Dallas, Texas Corporate 10,328 * Leased June 2000
Office
Pembroke Park, Assembly, 4,800 Leased February 1999
Florida Office
</TABLE>
* Shared facilities with three other entities
<PAGE>
Oil & Gas Properties Doblique's oil and gas assets consist of a total of 53
properties, of which 31 are located in Oklahoma, 20 in Texas and 2 in
Southeastern New Mexico. Five of the properties are multi-well units which were
created for secondary (waterflood) operations.
The reserves are approximately 62% oil and 38% gas on a volume basis and
are classified as approximately 57% proved developed producing and approximately
43% proved undeveloped.
The largest single value property is the Northwest Cement Permian Sand Unit
in Caddo County, Oklahoma. This property consists of 28 wells and is a candidate
for waterflood operations.
Oil and Gas Operations
Magnum Hunter Resources, Inc. (AMagnum@) (AMEX:MHR) manages all the
Company's oil and gas operations and markets the oil and gas produced under
month-to-month contracts with a variety of purchasers.
The following table provides summary operating data with respect to
production, sales prices, costs and the resulting gross margin for the year
ended June 30, 1997:
Production
Oil (Bbl) 18,770
Gas (Mcf) 90,980
Mcfe 203,600
Oil (per Bbl) $ 19.64
Gas (per Mcf) $ 2.00
Mcfe $ 2.68
Average operating cost per Mcfe $ 1.89
Gross margin per Mcfe $ .79
The market for oil and natural gas produced by the Company depends on
factors beyond its control, including the extent of domestic productions and
imports of oil and natural gas, the proximity and capacity of natural gas
pipelines and other transportation facilities, weather, demand for oil and
natural gas, the marketing of competitive fuel and the effects of state and
federal regulation. The oil and natural gas industry also competes with other
industries in supplying the energy and fuel requirements of industrial,
commercial and individual customers.
Oil and Natural Gas Reserves
All information set forth herein regarding estimated proved reserves,
related estimated future net revenues and present value of Doblique's oil and
gas interests is taken from reports prepared by Anthony J. Beilman, P.E.,
independent petroleum engineer of Dallas, Texas. These estimates have been
prepared with respect to Doblique's interests as of June 30, 1997. The estimates
of this independent petroleum engineer were based upon his review of production
histories and other geological, economic, ownership and engineering data
provided by Doblique, Magnum (Doblique's management agent) and other independent
sources.
<PAGE>
In accordance with SEC guidelines, the estimates of future net revenues
from proved reserves and the present value of proved reserves are made using oil
and natural gas sales prices in effect as of the dates of such estimates and are
held constant throughout the life of the properties. Doblique's proved reserves
at June 30, 1997 were estimated based upon weighted average prices (before
deduction of production taxes) of $1.95 per Mcf of natural gas and $19.00 per
Bbl of oil. Operating costs and development costs and certain production-related
taxes were deducted in arriving at the estimated future net revenues. No
provision was made for income taxes. The estimates of future net revenues and
their present value differ in this respect from the standardized measure of
discounted future net cash flows set forth in the Notes to the Consolidated
Financial Statements of the Company, which is calculated after provision for
future income taxes. There can be no assurance that these estimates are accurate
predictions of future net revenues from oil and gas reserves or their present
value. Also, prices for natural gas and oil have changed since June 30, 1997,
and any declines in these prices would have a significant effect on the proved
discounted value of reserves.
Proved reserves are estimates of hydrocarbons to be recovered in the
future. Reservoir engineering is a subjective process of estimating the sizes of
underground accumulations of oil and natural gas that cannot be measured in an
exact way. The accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgement.
Reserve reports of other engineers might differ from the reports contained
herein. Results of drilling, testing, and production subsequent to the date of
the estimate may justify revision of such estimate. Future prices received for
the sale of oil and natural gas may be different from those used in preparing
these reports. The amounts and timing of future operating and development costs
may also differ from those used. Accordingly, reserve estimates are often
different from the quantities of oil and natural gas that are ultimately
recovered.
<PAGE>
The following tables set forth the estimated proved reserves of oil and
natural gas of Doblique and the present value thereof as of June 30, 1997:
<TABLE>
<S> <C> <C>
Estimated Proved Oil and Natural Gas Reserves (1)
June 30,
1997
---------
Net natural gas reserves (Mmcf):
Proved developed producing 1,307,610
Proved undeveloped 344,584
---------
Total proved natural gas reserves 1,652,194
=========
Estimated Proved Oil and Natural Gas Reserves (1), continued
June 30,
1997
---------
Net oil reserves (Bbl):
Proved developed produci 135,348
Proved undeveloped 321,664
---------
Total proved oil reserves 457,012
Total proved reserves (Mcfe) (2) 4,394,266
=========
</TABLE>
<PAGE>
Estimated Present Value of Proved Reserves (1)
<TABLE>
<S> <C>
June 30,
1997
---------
Estimated Present Value:
Proved developed producing $ 1,179,802
Proved undeveloped 890,113
---------
Total proved reserves $ 2,069,915
==============
</TABLE>
(1) Based upon reserve reports at July 1, 1997, prepared by independent
petroleum consultant Anthony J. Beilman of Dallas, Texas.
(2) Mcfe is the Mcf equivalent of oil and gas and is computed as follows:
Bbls of oil times six (6) plus Mcf of natural gas.
Oil and Natural Gas Wells
The following table sets forth the number of oil and gas wells in which Doblique
had a working interest at June 30, 1997. All of these wells are located in the
United States.
<TABLE>
<S> <C> <C> <C> <C> <C>
Productive Wells as of June 30, 1997
Gross (1) Net (2)
------------------------------ --------------------------------
Location Oil Gas Total Oil Gas Total
-------- ----- ----- ------- ------ ------ -----
Texas 64 5 69 15.77 0.15 15.92
Oklahoma 228 9 237 38.07 0.55 38.62
New Mexico 0 2 2 0 0.50 0.50
----- ----- ------ ------ ------
Total 292 16 308 53.84 1.20 55.04
===== ===== ====== ====== ====== =====
</TABLE>
(1) A gross well is a well in which a working interest is owned. The
number of gross wells is the total number of wells in which a
working interest is owned.
(2) A net well is deemed to exist when the sum of fractional
ownership working interests in gross wells equals one. The number
of net wells is the sum of fractional working interests owned in
gross wells expressed as whole numbers and fractions thereof.
<PAGE>
Oil and Natural Gas Acreage
The following table summarizes Doblique's developed leasehold acreage at June
30, 1997. All of Doblique's properties are developed properties, with no
undeveloped properties.
<TABLE>
<S> <C> <C> <C>
Developed Leasehold Acreage
Gross (1) Net (2)
----------- ---------
Texas 5,978 1,067
Oklahoma 29,028 2,002
New Mexico 160 40
----------- ---------
Totals 35,166 3,109
=========== =========
</TABLE>
(1) A gross acre is an acre in which a working interest is owned. The
number of gross acres is the total number of acres in which a
working interest is owned.
(2) A net acre is deemed to exist when the sum of fractional
ownership working interests in gross acres equals one. The number
of net acres is the sum of fractional working interests owned in
gross acres expressed as whole numbers and fractions thereof.
As is customary in the industry, Doblique generally acquires oil and
natural gas acreage without any warranty of title except as to claims made by,
through or under the transferor. Although Doblique has title examined prior to
acquisition of developed acreage in those cases in which the economic
significance of the acreage justifies the cost, there can be no assurance that
losses will not result from title defects or from defects in the assignment of
leasehold rights. In many instances, title opinions may not be obtained if in
Doblique's judgement, it would be uneconomical or impractical to do so.
ITEM 3. LEGAL PROCEEDINGS
The Company may from time to time be party to various legal actions arising
in the ordinary course of its business. In addition, the Company is currently
involved in the following litigation:
Shareholder Derivative Lawsuit
On March 4,1996, Adrian Jacoby, allegedly on behalf of the Company, and
Richard Abrons, allegedly on behalf of an affiliate company, DCT, brought a
purported shareholder derivative lawsuit against the Company's board of
directors - Kevin B. Halter, Kevin B. Halter, Jr., Gary C. Evans and James Smith
- - as well as Halter Capital Corporation ("HCC") and Securities Transfer
Corporation. In addition, the Company and DCT have been joined as "nominal
defendants." In the lawsuit, the plaintiffs have alleged breaches of fiduciary
duty, fraud, and violations of state securities laws. The plaintiffs seek
unspecified actual and exemplary damages, a constructive trust against the
assets of the defendants and an accounting of the affairs of the defendants with
respect to their dealings with the Company and DCT. In addition, the plaintiffs
have requested a temporary injunction and the appointment of a receiver for the
Company and DCT.
In 1995, HCC, in which Kevin B. Halter and Kevin B. Halter, Jr. (the
"Halters") are principals, negotiated the satisfaction of $1,217,000 in debt
owed to creditors by the Company's subsidiary, American Quality Manufacturing
Corporation ("AQM," since sold). The Halters are also officers and directors of
the Company. HCC satisfied these debts by transferring, in the aggregate,
<PAGE>
1,659,000 shares of the Company's common stock HCC owned to the creditors. To
repay HCC for the AQM indebtedness HCC paid, the Company transferred to HCC
1,622,000 shares of DCT Common Stock it held as an investment. With the payment
of DCT Common Stock to HCC and the salaries or other compensation received from
the Company by the Halters, Mr. Evans and Mr. Smith, plaintiffs assert that each
breached their duties of loyalty, usurped corporate opportunities and committed
gross mismanagement by wrongfully using the Company and DCT as instruments for
their own and HCC's pecuniary gain to the detriment of the Company, DCT and
their shareholders. If any damages are ultimately awarded to the plaintiffs,
those damages will be on behalf of, and for the benefit of, the Company and all
of its shareholders. If they are successful, the plaintiffs may recover certain
attorney's fees and costs. This case is entitled Richard Abrons et al v. Kevin
B. Halter et al, Cause No. 96-02169-G, in the 134th Judicial District, Dallas
County, Texas. Even though the Company is a nominal defendant in the lawsuit,
the Plaintiffs have not sought to recover any damages against the Company. In
this type of lawsuit, the Company is joined as a procedural matter to make it a
party to the lawsuit.
All of the defendants have answered and denied the allegations
contained in the plaintiffs' Petition. A certain amount of discovery has been
conducted by both plaintiffs and defendants. All of the defendants deny all of
the material allegations and claims in the Petition, dispute the plaintiffs'
contention that it is a proper shareholder derivative action, deny that the
plaintiffs have the right to pursue this lawsuit on behalf of the Company and
Millennia and are vigorously defending the lawsuit. In addition, the defendants
have filed counterclaims against the plaintiffs and third party actions against
Blake Beckham, Attorney at Law, Beckham & Thomas, L.L.P., Sanford Whitman, the
former CFO of the Company and Jack D. Brown Jr., the former President of DCT,
seeking damages in excess of $50 million. In its counterclaim, the defendants
have asserted that the filing of this lawsuit and the temporary restraining
order the plaintiffs caused to be issued in the case resulted in damages to the
Company. However, the Company does not believe that the lawsuit will have any
further material impact on the operations or financial condition of the Company.
Discovery is continuing and the matter has not been set for trial.
Vendor Claim
In connection with the disposition of AQM, the Company was released from
its guarantees of trade debts of AQM with certain key vendors. Nonetheless, one
of these vendors has brought an action against the Company asserting its alleged
rights under one of these guaranty agreements. Plaintiff's current demand is
approximately $247,500. The matter is styled as Columbia Forest Products Corp.
v. American Quality Manufacturing, Inc., et al and is before the Circuit Court
for Multnomah County, Oregon, Case No. 9612-09247. This case has not been set
for trial, and the Company has pending a motion for summary judgement. Discovery
and settlement negotiations have occurred and are continuing. The Company has
recorded a contingent liability of $175,000 in connection with this lawsuit as
of June 30, 1997.
The Company does not believe that it is currently involved in any pending
actions that will have a material adverse effect on its business, financial
condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter of
the fiscal year ended June 30, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company has been listed on the American Stock
Exchange (AMEX) since November 19, 1993 under the symbol "IA." The following
table sets forth the high and low sales prices of the Common Stock on the AMEX
for the periods indicated, adjusted for a 1 for 8 reverse stock split which
occurred on December 15, 1995.
High Low
---- ---
Fiscal 1996:
First Quarter $11.19 $5.50
Second Quarter $7.00 $1.38
Third Quarter $2.69 $1.38
Fourth Quarter $2.13 $0.75
Fiscal 1997:
First Quarter $2.00 $1.00
Second Quarter $2.75 $1.50
Third Quarter $2.00 $1.06
Fourth Quarter $3.00 $1.00
On September 25, 1997, the closing price of the Common Stock was $4.125 per
share. On September 25, 1997, there were 442 stockholders of record of the
Common Stock. Additionally, the Company believes there are in excess of 1,500
additional beneficial holders of the Company's Common Stock held in brokerage
accounts.
The Company currently intends to retain all earnings to finance the
development and expansion of its operations. The Company does not anticipate
paying cash dividends on its shares of Common Stock in the foreseeable future.
The Company's future dividend policy will be determined by its Board of
Directors on the basis of various factors, including but not limited to the
Company's results of operations, financial condition, business opportunities and
capital requirements. The payment of dividends will also be subject to the
requirements of Delaware law.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes associated with
them as contained elsewhere in this report. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment of management of the Company.
<PAGE>
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. This sale resulted in a gain, net of income taxes, of
approximately $1,586,000. In addition, the AQM sale included the release of the
Company's guarantees of certain debt of AQM with AQM's primary lending
institution and certain key vendors. The sale agreement contains a total
guaranty release cap of $5.5 million. The losses attributable to the operation
of AQM have been segregated under discontinued operations on the statements of
operations.
In November of 1996 with an effective date of October 1, 1996, the
Company's Doblique subsidiary acquired certain ownership interests in various
domestic oil and natural gas properties. The purchase price was $1,925,689,
consisting of 120,000 shares of the Company's common stock and a $1,715,689
promissory note.
Door Distribution Segment
The Door Distribution segment consists of the operations of the Company's
Omni subsidiary, which was incorporated in July 1985 under the laws of the State
of Florida. Omni is a distributor and assembler of industrial doors and frames
in the South Florida region of the United States.
Net sales from this segment approximated $536,000 as compared to
approximately $468,000 for the years ended June 30, 1997 and 1996, respectively.
In September of 1996, a Metropolitan Dade County Product Control Notice of
Acceptance was received which permitted Omni to sell an approved exterior door
in Dade County Florida. Due to stringent new building codes enacted in Dade
County Florida after Hurricane Andrew, certain building materials are required
to be approved by the County officials before being utilized. The acceptance of
one of Omni's products allowed sales within Dade County Florida and, along with
the overall strong commercial building in the South Florida area, led to the
approximately 15% increase in this segment's sales.
This segment generated an operating loss of approximately $760 for the year
ended June 30, 1997. The segment was able to pass more direct labor costs on to
its customers than in prior years which led to a reduction in the cost of goods
sold as a percentage of sales from 80.3% to 79.6% for the years ended June 30,
1996 and 1997, respectively. Selling and general and administrative expenses for
this segment were relatively consistent as a percentage of sales with the prior
year.
Oil and Natural Gas Segment
The operations of the Oil and Natural Gas Segment consist of the operations
of the Company's Doblique subsidiary. The operations of this segment commenced
upon the acquisition of Doblique's ownership interests in its oil and natural
gas properties, effective October 1, 1996. The acquisition of these properties
was accounted for using the purchase method of accounting. The operations of the
acquired properties were consolidated with the operations of the Company
beginning in October 1996.
This segment reported an operating loss of approximately $138,000 for the
year ended June 30, 1997. Approximately $127,000 of the operating loss was due
to interest expense which was accrued and paid on the $1,598,000 note payable.
<PAGE>
Total revenues from Doblique's operations totaled approximately $554,000
while total lease operating expenses and other direct operating expenses,
including depletion of $154,000, totaled approximately $539,000. Management fees
of $18,000 and other general and administrative expenses of $8,300 comprised the
remaining $26,300 of operating expenses.
Quantities of oil and gas produced during the year ended June 30, 1997
totaled 18,770 barrels of oil at a weighted average price of approximately $20
per barrel and 90,980 mcf of gas at a weighted average price of approximately $2
per mcf.
Other Operations
General and administrative expenses decreased from approximately $1,372,000
for the year ended June 30, 1996 to approximately $758,000 for the year ended
June 30, 1997. Primarily a reduction in corporate overhead payroll reflecting
the reduced activity in Millennia as compared to the prior fiscal year led to
the decline in general and administrative expenses. Legal and professional fees,
however continued to comprise a significant portion of the Company's general and
administrative costs. These fees increased slightly over the prior year to
approximately $204,000 for the year ended June 30, 1997. These legal fees were
primarily associated with the shareholder derivative action, as discussed
elsewhere in this report.
Interest expense increased in the year ended June 30, 1997 due to interest
paid on the note payable related to the Doblique properties, as discussed above.
Interest income of approximately $24,000 was earned primarily through income tax
refunds to the Company. A charge of approximately $494,000 is reflected in other
expense reflecting the Company's equity method ownership percentage in the
losses incurred at DCT. The effect of the losses of DCT increased the Company's
other expense despite an overall decrease in the ownership percentage of DCT
from 17.55% at June 30, 1996 to 13.22% at June 30, 1997. The decline in the
ownership percentage of DCT is due to new issuances of common stock by DCT which
diluted the Company's ownership in DCT and due to open market sales by the
Company of DCT common stock. These sales of DCT common stock resulted in losses
of approximately $5,000 for the year ended June 30, 1997 as compared to a loss
of approximately $511,000 for the year ended June 30, 1996. The proceeds from
the sales of the DCT common stock were used to fund operations of the Company.
The Company incurred losses of approximately $168,000 on sales from its
marketable securities portfolio for the year ended June 30, 1997. This is
compared to losses of approximately $144,000 during the year ended June 30,
1996. The funds generated from the sales of securities were utilized to fund the
operations of the Company and its subsidiaries during both years.
The portion of the Company's net revenues for the year ended June 30, 1996
which were not attributable to Omni were generated through management fees
collected from DCT through December 1995, and totaled approximately $180,000
($156,000 net of elimination of intercompany profit). No such fees were charged
to DCT subsequent to that date. All other management fees charged either to Omni
or to the discontinued operations have been eliminated upon consolidation.
During the year ended June 30, 1997, a charge to operations for an income
tax provision resulted primarily from the reevaluations of (1) an estimate of
the income tax refund to be received by the Company and (2) the valuation
allowance recorded at June 30, 1996. Upon collection of the refund and based on
the results of an Internal Revenue Service examination, it was determined that
approximately $102,000 of the balance recorded as an income tax receivable in
the prior year would not be collected. Consequently, the asset was reduced and a
corresponding tax provision was expensed. Additionally, the Company reviewed its
<PAGE>
estimate of the deferred tax valuation allowance during the year ended June 30,
1997 based on the projected gain from the AQM disposition which resulted in
deferred tax expense of approximately $616,000 being recorded to offset part of
the gain on disposition. Both of these revisions were non cash items and did not
impact the Company's liquidity. In addition, management determined that a
valuation allowance against the Company's remaining deferred tax assets was
appropriate and elected to record an additional tax provision of approximately
$85,000 during the year ended June 30, 1997.
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 and new stock issuances.
Liquidity
During the year ended June 30, 1997, the Company's cash flows from
operating activities resulted in a net use of cash of approximately $38,000.
This is compared with net cash used in operating activities of approximately
$1,963,000 for the year ended June 30, 1996. The net loss of approximately
$824,000 for the year ended June 30, 1997 and the gain from the disposition of
AQM contributed significantly to the overall net use of cash.
Several items offset the net loss and the loss on disposition of AQM during
the year ended June 30, 1997. The combined tax effects of the losses generated
by AQM and the gain recognized on the disposition provided the largest
offsetting effect. Other offsetting items included an increase in accounts
payable and other accruals of approximately $132,000 and $55,000, respectively.
Non cash expenses of depletion and depreciation of approximately $159,000 also
reduced the overall net cash used in operating activities.
Also affecting the cash flow from operating activities are approximately
$168,000 in losses recognized on sales of the Company's marketable securities
portfolio and sales of the Company's investment securities in DCT. These losses
are added back to net income in calculating cash flows from operations, and
therefore decrease the cash used in operating activities as presented on the
consolidated statements of cash flows.
Approximately $70,000 in cash was used in investing activities during the
year ended June 30, 1997 as compared to approximately $1,780,000 in cash
provided by investing activities during the year ended June 30, 1996. The
overall change is due the reduced size of the Company's marketable securities
portfolio. This reduction commenced during the year ended June 30, 1996,
reducing the portfolio to zero at June 30, 1996. During the year ended June 30,
1997, the income tax refund received by the Company was invested in the
Company's portfolio. These funds led to the proceeds and purchases during the
year ended June 30, 1997, as noted on the Company's consolidated statements of
cash flows. By June 30, 1997, the marketable securities portfolio was once again
reduced to zero, and the proceeds used to fund operations.
During the year ended June 30, 1997, a portion of the Company's cash needs
were met primarily through sales of marketable equity securities and sales of
the Company's investment securities in DCT. In addition, approximately $243,000
was provided by a significant shareholder of the Company to fund operations of
the Company and its subsidiaries. These funds were provided as temporary loans
and are repayable upon demand, although no current intent to require repayment
has been indicated. Management expects that the Company will continue to meet
all obligations as they come due, and no vendor/supplier problems are expected.
<PAGE>
The primary sources of funding for the operations of the Company in fiscal
year 1998 will be proceeds from its investment securities in DCT to provide cash
as needed. Additionally, the Company plans to seek out additional business
acquisition candidates which will provide supplemental operating cash necessary
to fund the Company's overhead requirements.
Other Comments
The Company's Door Distribution segment's sales levels generally follow the
commercial construction markets in South Florida. This segment is therefore
subject to economic and other influences affecting the southeastern portion of
the United States.
The Company's activities have not been, and in the near term are not
expected to be, materially affected by inflation or changing prices in general.
However, the results of operations and cash flow of the Company's oil and
natural gas segment have been and will continue to be affected to a certain
extent by the volatility in oil and natural gas prices. Should this segment
experience a significant increase in oil and natural gas prices that is
sustained over a prolonged period, it would expect that there would also be a
corresponding increase in oil and natural gas operating expenses.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
<TABLE>
<S> <C> <C>
Consolidated Financial Statements of the Company (Audited) F-1
Independent Auditors' Reports F-3
Balance Sheet as of June 30, 1997 F-4
Statements of Operations for the Years Ended June 30, 1997 and 1996 F-5
Statements of Stockholders' Equity for the Years Ended June 30, 1997 and 1996 F-7
Statements of Cash Flows for the Years Ended June 30, 1997 and 1996 F-9
</TABLE>
Notes to Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The accounting firm of Coopers & Lybrand L.L.P., the independent auditors
of the Company, was dismissed effective as of August 14, 1996. During the fiscal
years ended June 30, 1995 and 1996 and the interim period subsequent to June 30,
1996, there have been no disagreements with Coopers & Lybrand L.L.P. on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure or any reportable events. Coopers & Lybrand L.L.P.'s
report on the financial statements for the fiscal year ended June 30, 1995
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
The Company engaged the accounting firm of S. W. Hatfield + Associates as
independent auditors for the Company, effective as of August 14, 1996. The
engagement of S. W. Hatfield + Associates was approved by the Company's board of
directors. During the fiscal years ended June 30, 1995 and 1996 and the interim
period subsequent to June 30, 1996 and prior to August 14, 1996, there were no
consultations with S. W. Hatfield + Associates on any matter of accounting
principles to a specific transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements.
<PAGE>
The accounting firm of S. W. Hatfield + Associates, the independent
auditors of the Company, was dismissed effective as of November 1, 1996. During
the fiscal years ended June 30, 1996 and the interim period subsequent to June
30, 1996, there have been no disagreements with S. W. Hatfield + Associates on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure or any reportable events. S. W. Hatfield +
Associates' report on the financial statements for the fiscal year ended June
30, 1996 contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
The Company engaged the accounting firm of Hein + Associates LLP as
independent auditors for the Company, effective as of November 1, 1996. The
engagement of Hein + Associates LLP was approved by the Company's board of
directors. During the fiscal years ended June 30, 1996 and the interim period
subsequent to June 30, 1996 and prior to November 1, 1996, there were no
consultations with Hein + Associates LLP on any matter of accounting principles
to a specific transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (A) OF THE EXCHANGE ACT
The following table sets forth certain information about the executive officers
and director of the Company.
<TABLE>
<S> <C> <C> <C> <C>
Name Age Position
---- --- --------
Kevin B. Halter 61 President, Chief Executive Officer and
Chairman of the Board
Kevin B. Halter, Jr 36 Vice President, Secretary and Director
James Smith 60 Director
Don R. Benton 66 Director
</TABLE>
Set forth below is a description of the backgrounds of the executive officers
and directors of the Company.
Kevin B. Halter has served as President, Chief Executive Officer and
Chairman of the Board of the Company since June 28, 1994. Mr. Halter also served
as Vice Chairman of the Board of the Company from January 1994 to June 28, 1994.
Mr. Halter has served as Chairman of the Board of DCT since June 28, 1994 and as
Vice Chairman of the Board of DCT from February 1994 to June 1994. Mr. Halter
also served as Chief Executive Officer of DCT from June 1994 to May 1996. Mr.
Halter served as Chairman of the Board of Directors of AQM until September 1996.
In addition, Mr. Halter has served as Chairman of the Board and Chief Executive
Officer of Halter Capital Corporation ("HCC"), a privately-held investment and
consulting company, since 1987. From 1987 until October 1992, Mr. Halter was a
director and officer of Halter Venture Corporation, a publicly-held company then
based in Dallas, Texas. Mr. Halter is the father of Kevin B. Halter, Jr.
<PAGE>
Kevin B. Halter, Jr. has served as Vice President, Secretary and director
of the Company and DCT since January 1994. Mr. Halter has also served as
Secretary and director of AQM from February 1994 to September 1996. He is also
the President of Securities Transfer Corporation, a registered stock transfer
company, a position he has held since 1987. Mr. Halter is also Vice President
and Secretary of HCC. Kevin B. Halter, Jr. is the son of Kevin B. Halter.
James Smith has served as a director of the Company since March 1995. Mr.
Smith has served as President of Pension Analysis Bureau, Inc., a consulting
firm specializing in the administration of company retirement and profit sharing
plans, since 1993. Mr. Smith also served as Vice President of Pension Analysis
Bureau, Inc. from 1988 to 1992.
Don R. Benton has served as a director of the Company since October 1996.
Dr. Benton has served as a director and President of the Dallas, Texas based The
Kindness Foundation since 1995. Dr. Benton also has served as a director and
President of Arrowhead Ranch Corporation since 1978 and, since 1975, as a
director of American Diversified Industries and Fagin Resources, Inc.
All directors of the Company hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified.
Executive officers are elected by the Company's Board of Directors to hold
office until their respective successors are elected and qualified.
The Company's Bylaws provide that directors may be paid their expenses, if
any, and may be paid a fixed sum for attendance of each Board of Directors
meeting.
The Company is currently involved in litigation with a former officer and
director of the Company and AQM. See Item 3, "Legal Proceedings."
Committees of the Board of Directors
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee, each composed of at least two independent directors. The
Audit Committee, composed of Kevin B. Halter, Don R. Benton and James Smith,
recommends the annual appointment of the Company's auditors, with whom the Audit
Committee will review the scope of audit and non-audit assignments and related
fees, accounting principals used by the Company in financial reporting, internal
auditing procedures and the adequacy of the Company's internal control
procedures. The Compensation Committee, composed of Kevin B. Halter, Don R.
Benton and James Smith, will administer the Company's 1988 Employee Stock Option
Plan and make recommendations to the Board of Directors regarding compensation
for the Company's executive officers.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely on the review of Form's 3, 4 and 5 and amendments thereto provided
to the Company pursuant to Rule 16a-3(e), the following individuals failed to
file on a timely basis reports required by Section 16(a) of the 1934 Act during
the period from the date that the Company's Common Stock was registered under
Section 12 of the Securities Exchange Act of 1934, as amended to June 30, 1997:
Kevin B. Halter - Delinquent filing of Form 4. Kevin B. Halter failed
to timely report the purchase of the Company's Common Stock.
KevinB. Halter, Jr. - Delinquent filing of Form 4. Kevin B. Halter,
Jr. failed to timely report the purchase of the Company's Common
Stock.
Don R. Benton - Delinquent filing of Form 3. Don R. Benton failed to
timely report his election to the Board of Directors, thereby becoming
a "reporting person."
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid by
the Company to its President and Vice President and Secretary for the fiscal
years ended June 30, 1997 and 1996. None of the Company's other executive
officers and directors received cash or non-cash compensation in excess of
$100,000 for the fiscal year ended June 30, 1997.
<TABLE>
<S> <C> <C> <C> <C> <C>
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
---------------------------------- ------------------------ --------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Annual Restricted Underlying All Other
Name and Principal Fiscal Compen- Stock Options/ LTIP Compen-
Position Year Salary($) Bonus($) sation ($) Awards ($) SARs(#) Payouts ($) sation($)
- ----------------------------------------------------------------------------------------------------------------------
Kevin B. Halter 1997 $100,000 - - - - - -
President and 1996 $194,792 - - - - - -
Chairman 1995 $122,750 - - - - - -
Kevin B. Halter, Jr. 1997 $ 80,000 - - - - - -
Vice President, 1996 $ 164,500 - - - - - -
Secretary and 1995 $ 86,000 - - - - - -
Director
</TABLE>
Employment Agreements
The Company has employment agreements with Kevin B. Halter and Kevin B.
Halter, Jr.
The agreement with Kevin B. Halter is for a term of three years through
December 31, 1998. The terms of the agreement provide for an annual base salary
of $100,000. In addition, Mr. Halter receives the same benefits as other
employees of the Company and reimbursement for expenses incurred on behalf of
the Company. The employment agreement also contains, among other things,
covenants by Mr. Halter that in the event of termination and at the end of the
term of the agreement, he will not associate with a business that competes with
the Company for a period of one year. The agreement also provides for a bonus,
the amount of which, if any, to be determined at the sole discretion of the
Company's board of directors.
<PAGE>
The agreement with Kevin B. Halter, Jr. is for a term of three years
through December 31, 1998. The terms of the agreement provide for an annual base
salary of $80,000. In addition, Mr. Halter receives the same benefits as other
employees of the Company and reimbursement for expenses incurred on behalf of
the Company. The employment agreement also contains, among other things,
covenants by Mr. Halter that in the event of termination and at the end of the
term of the agreement, he will not associate with a business that competes with
the Company for a period of one year. The agreement also provides for a bonus,
the amount of which, if any, to be determined at the sole discretion of the
Company's board of directors.
Employee Stock Ownership Plan ("ESOP")
The Company's ESOP provided retirement benefits to substantially all
employees. The ESOP was a qualified employee benefit plan under the Internal
Revenue Code of 1986, as amended. There were 90,291 shares of Common Stock
available for the ESOP. Effective July 1, 1996, the Board of Directors voted to
terminate the ESOP. All eligible employees have been notified of the
availability of their allocable distributions, and distributions have been made
to all individuals who have responded.
<PAGE>
1988 Employee Stock Option Plan
On March 19, 1988, the Company's Board of Directors adopted the S.O.I.
Industries, Inc. 1988 Employee Stock Option Plan (the "Plan"). The Plan was
approved by a vote of the stockholders on July 3, 1989.
The administration of the Plan rests with the Compensation Committee (the
"Committee"). Subject to the express provisions of the Plan and the Board of
Directors, the Committee shall have complete authority in its discretion to
determine those employees to whom, and the price at which options shall be
granted, the option periods and the number of shares of Common Stock to be
subject to each option. The Committee shall also have the authority in its
discretion to prescribe the time or times at which the options may be exercised
and limitations upon the exercise of options (including limitations effective
upon the death or termination of employment of the optionee), and the
restrictions, if any, to be imposed upon the transferability of shares acquired
upon exercise of options. In making such determinations, the Committee may take
into account the nature of the services rendered by respective employees, their
present and potential contributions to the success of the Company or its
subsidiaries, and such other factors as the Committee in its discretion shall
deem relevant.
An option may be granted under the Plan only to an employee of the Company
or its subsidiaries. The Plan made available for option 250,000 shares of the
Company's Common Stock.
The term of each option granted under the Plan will be for such period not
exceeding five years as the Committee shall determine. Each option granted under
the Plan will be exercisable on such date or dates and during such period and
for such number of shares as shall be determined pursuant to the provisions of
the option agreement evidencing such option. Subject to the express provisions
of the Plan, the Committee shall have complete authority, in its discretion, to
determine the extent, if any, and the conditions under which an option may be
exercised in the event of the death of the optionee or in the event the optionee
leaves the employ of the Company or has his employment terminated by the
Company. The purchase price for shares of Common Stock under each option shall
be determined by the Committee at the time of the option's issuance and may be
less than the fair market value of such shares on the date on which the options
are granted. The agreements evidencing the grant of options may contain other
terms and conditions, consistent with the Plan, that the Committee may approve.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 25, 1997
with regard to the beneficial ownership of the Common Stock by (i) each person
known to the Company to be the beneficial owner of 5% or more of its outstanding
Common Stock, (ii) by the officers, directors and key employees of the Company
individually and (iii) by the officers and directors as a group.
<PAGE>
<TABLE>
<S> <C>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Owner Percent
------------------------------------ ---------------- -------
Halter Capital Corporation 309,940 14%
16910 Dallas Parkway, Suite 100
Dallas, TX 75248
Digital Communications Technology Corporation 646,627 (1) 28%
3941 SW 47th Avenue
Ft. Lauderdale, FL 33314
Kevin B. Halter 438,209 (2) 19%
Kevin B. Halter, Jr. 309,940 (2) 14%
Don R. Benton 2,718 (3) *
James Smith 1,518 *
All directors and officers as a group (5 persons) 442,445 19%
</TABLE>
* Less than 1%
(1) The Company owns approximately 13% of the issued and outstanding
common stock of DCT.
(2) Kevin B. Halter and Kevin B. Halter, Jr. serve as directors and
officers of HCC and as a result may each be deemed to be the
beneficial owner of the 309,940 shares of Common Stock beneficially
owned by HCC. However, pursuant to Rule 16a-3 promulgated under the
Exchange Act, they expressly disclaim that they are the beneficial
owner, for purposes of Section 16 of the Exchange Act, of any such
stock, other than those shares in which they have an economic
interest.
(3) Dr. Benton is President of Arrowhead Ranch Corporation ("ARC"), of
which Dr. Benton's wife is the sole stockholder. As a result, Dr.
Benton may be deemed to be the beneficial owner of 2,000 shares of
Common Stock beneficially owned by ARC. However, pursuant to Rule
16a-3 promulgated under the Exchange Act, he expressly disclaims that
he is the beneficial owner, for purposes of Section 16 of the Exchange
Act, of any such stock, other than those shares in which he has an
economic interest.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
During fiscal year 1997 and prior years, an entity that is a stockholder and is
controlled by the Company=s officers made advances to and has made various
payments on the Company=s behalf. These advances are unsecured, bear interest at
10% and are repayable upon demand. The balance due at June 30, 1997 is $258,800.
This entity has pledged its continued financial support of the Company, as
needed, for the year ended June 30, 1998.
<PAGE>
Millennia received approximately $180,000 in management fees from DCT in fiscal
year 1996. No management fees were received from DCT in fiscal year 1997. The
Company paid approximately $10,500 and $29,000 for the year ended June 30, 1997
and 1996, respectively to an entity controlled by the Company=s officers for
corporate office facilities rent.
The Company paid consulting fees of $9,400 to an entity owned by a director for
assistance in terminating the ESOP during the year ended June 30, 1997.
Additionally, the Company paid a former director $10,000 during the year ended
June 30, 1997 for assistance rendered related to the disposition of AQM.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Stock Exchange Agreement dated November 30, 1993 by and between
American Quality Manufacturing Corporation and the Company (3)
2.2 Agreement for Purchase and Sale of Stock between the Company and T.I.
Inc., dated as of March 1, 1996. (4)
2.3 Stock Purchase Agreement dated September 10, 1996 by and between
Olympus Sales Co. and the Company (5)
2.4 Asset Purchase and Sale Agreement between Doblique Energy Corporation,
the Company and Magnum Hunter Production, Inc., dated November 4, 1996
(8)
3.1 Certificate of Incorporation and Bylaws of the Company (1)
3.2 Certificate of Amendment to the Certificate of Incorporation of the
Company, dated April 15, 1988(2)
3.3 Certificate of Amendment to Certificate of Incorporation of the
Company dated November 28,1995(7)
3.4 Certificate of Amendment to Certificate of Incorporation of the
Company dated December 10, 1996
10.1 Employment agreement between the Company and Kevin B. Halter (7)
10.2 Employment agreement between the Company and Kevin B. Halter, Jr. (7)
16.1 Letter from Coopers & Lybrand L.L.P. addressed to the Commission
regarding the cessation of the auditor client relationship and
agreement with statements made by the Company in Item 4 of Form 8-K/A,
dated August 14, 1996. (6)
16.2 Letter from S. W. Hatfield + Associates regarding the cessation of the
auditor client relationship and agreement with statements made by the
Company in Item 4 of Form 8-K dated November 1,1996 (9)
<PAGE>
21.0 List of Subsidiaries
27.0 Financial Data Schedule (10)
(1) These exhibits were previously filed by the Company with the
Commission as Exhibits to its Registration Statement No. 33-1
4668-A and are respectively incorporated herein by specific
reference thereto.
(2) These exhibits were previously filed by the Company with the
Commission as Exhibits to its Amendment No. 2 to its Registration
Statement No. 33-14668-A and are respectively incorporated herein
by specific reference thereto.
(3) This exhibit was previously filed by the Company with the
Commission as an Exhibit to its Form 8-K dated February 14, 1994
and is incorporated by reference herein by specific reference
thereto.
(4) This exhibit was previously filed by the Company with the
Commission as an Exhibit to its Form 8-K dated March 22, 1996 and
is incorporated by reference herein by specific reference
thereto.
(5) This exhibit was previously filed by the Company with the
Commission as an Exhibit to its Form 8-K dated September 10, 1996
and is incorporated by reference herein by specific reference
thereto.
(6) This exhibit was previously filed by the Company with the
Commission as an Exhibit to its Form 8-K/A dated August 14, 1996
and is incorporated by reference herein by specific reference
thereto. (7) This exhibit was previously filed by the Company
with the Commission as an Exhibit to its Form 10-KSB for the
fiscal year ended June 30, 1996 and is incorporated by reference
herein by specific reference thereto. (8) This exhibit was
previously filed by the Company with the Commission as an Exhibit
to its Form 8-K dated November 4, 1996 and is incorporated by
reference herein by specific reference thereto. (9) This exhibit
was previously filed by the Company with the Commission as an
Exhibit to its Form 8-K dated November 1, 1996 and is
incorporated by reference herein by specific reference thereto.
(10) Filed as part of electronic (EDGAR) filing only.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the last quarter of the
period covered by this report on Form 10-KSB:
None
<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.
MILLENNIA, INC.
By: /s/ Kevin B. Halter September 29, 1997
--------------------------
Kevin B. Halter, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the date indicated.
By: /s/ Kevin B. Halter September 29, 1997
---------------------------
Kevin B. Halter, President
(Principal Executive, Financial and Accounting Officer)
and Director
By: /s/ Kevin B. Halter, Jr. September 29, 1997
----------------------------
Kevin B. Halter, Jr.
Vice President, Secretary and Director
By: /s/ Don R. Benton September 29, 1997
-----------------------------
Don R. Benton, Director
By: /s/ James Smith September 29, 1997
-----------------------------
James Smith, Director
<PAGE>
EXHIBIT 3.4
<PAGE>
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
OF S.O.I. INDUSTRIES, INC.
In accordance with Sections 242 and 103 of the Delaware General Corporation
Law, as amended, S.O.I. Industries, Inc., a Delaware corporation, does hereby
adopt the following amendments to its Certificate of Incorporation:
FIRST: That Article I of the Company's Certificate of Incorporation is
hereby amended to read as follows: "Article I. The name of the corporation is
Millennia, Inc."
SECOND: The foregoing amendment was adopted by the Board of Directors. The
amendment was recommended to the stockholders by the Board of Directors. An
annual meeting of the stockholders was held on December 10, 1996. The
stockholders approved the amendment in accordance with Section 242 of the
Delaware General Corporation Law.
EXECUTED as of the 10th day of December, 1996
S.O.I. INDUSTRIES, INC.
By: /s/ Kevin B. Halter
----------------------------
Kevin B. Halter, President
<PAGE>
EXHIBIT 21.0
<PAGE>
Millennia, Inc.
List of Subsidiaries
Exhibit 21.0
Omni Doors, Inc., a Florida Corporation
Doblique Energy Corporation, a Texas Corporation
Millennia Entertainment, Inc., a Texas Corporation
Millennia Development Corporation, a Texas Corporation *
Millennia Films, Inc., a Texas Corporation *
* Incorporated February 3, 1997, with no operations as of the filing date of
this Form 10-KSB.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Millennia, Inc.
Dallas, Texas
We have audited the accompanying balance sheet of Millennia, Inc. (formerly
S.O.I. Industries, Inc.) and Subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Millennia, Inc. and
Subsidiaries as of June 30, 1997, and the results of their operations and cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
HEIN + ASSOCIATES LLP
Dallas, Texas
August 8, 1997
F-1
<PAGE>
S. W. HATFIELD + ASSOCIATES
certified public accountants
Members: American Institute of Certified Public Accountants
SEC Practice Section
Information Technology Section
Texas Society of Certified Public Accountants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
Millennia, Inc.
We have audited the accompanying consolidated statement of operations,
consolidated statement of changes in stockholder's equity and consolidated
statement of cash flows of Millennia, Inc. (a Delaware corporation) for the year
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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 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 consolidated results of operations of
Millennia, Inc. and its consolidated cash flows for the year ended June 30,
1996, in conformity with generally accepted accounting principles.
/s/ S.W. Hatfield + Associates
-------------------------------
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
September 19, 1996
Use our past to assist your future sm
P. O. Box 820392 $ Dallas, Texas 75382-0392 $ 214-342-9635
9236 Church Road, Suite 1040 $ Dallas, Texas 75231 $ 800-244-0639
214-342-9601 (fax) $ [email protected] (e-mail)
F-2
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 54,048
Trade accounts receivable net of allowance for doubtful accounts of $25,000 70,021
Accrued oil and gas sales 115,894
Income taxes recoverable 10,659
Inventory 106,440
Prepaid expenses and other 583
----------
Total current assets 357,645
OIL AND GAS PROPERTIES, net of accumulated depletion of $154,449 1,774,243
OTHER ASSETS:
Investment in affiliated company 614,281
Other property and equipment 26,223
Other 6,107
----------
Total other assets 646,611
Total assets $2,778,499
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,930
Trade accounts payable 215,162
Due to stockholder 258,800
Litigation contingency - current 175,000
Other accrued liabilities 85,509
-----------
Total current liabilities 738,401
LONG-TERM DEBT 1,594,308
COMMITMENTS AND CONTINGENCIES (Notes 7 and 14)
STOCKHOLDERS' EQUITY:
Preferred stock - $0.00001 par value, 10,000,000 shares authorized, none
issued and outstanding --
Common stock - $0.0002 par value, 50,000,000 shares authorized, 2,274,385
shares issued and outstanding 454
Additional paid-in capital 6,786,614
Shares deemed to be treasury stock (84,318 shares) (35,049)
Accumulated deficit (6,306,229)
-----------
Total stockholders' equity 445,790
Total liabilities and stockholders' equity $ 2,778,499
===========
</TABLE>
See accompanying notes to these financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
YEARS ENDED JUNE 30,
--------------------
1997 1996
------ ------
REVENUES:
Oil and gas sales $ 553,737 $ --
Door and other sales 539,574 467,649
Management fee income from affiliated company -- 156,329
----------- -----------
Total revenues 1,093,311 623,978
COSTS AND EXPENSES:
Lease operating costs 384,488 --
Costs of door and other sales 429,889 374,740
Selling expenses 57,278 49,667
General and administrative expenses 758,113 1,372,254
Depletion and depreciation 159,420 5,211
----------- -----------
Total costs and expenses 1,789,188 1,801,872
----------- -----------
LOSS FROM OPERATIONS (695,877) (1,177,894)
OTHER INCOME (EXPENSE):
Interest expense (142,670) (12,964)
Interest income 24,100 550
Loss on sales of marketable securities (167,824) (143,524)
Loss on sales of securities of affiliated company (4,592) (511,426)
Equity in earnings (loss) of affiliated company (494,410) 160,255
----------- -----------
Total other income (expense) (785,396) (507,109)
----------- -----------
LOSS FROM CONTINUING OPERATIONS, before income taxes (1,481,273) (1,685,003)
INCOME TAX (EXPENSE) BENEFIT (186,755) 756,608
----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,668,028) (928,395)
DISCONTINUED OPERATIONS, net of income taxes
Loss from discontinued operations of Tempo Lighting, Inc. -- (263,832)
Loss from discontinued operations of American Quality
Manufacturing Corp. (AQM), net of income tax benefit of $0 and
$11,769, respectively (566,991) (3,314,642)
Loss on disposition of Tempo Lighting, Inc. -- (900,000)
Gain on disposition of AQM, net of income tax expense of
$616,758 1,410,950 --
----------- -----------
Gain (loss) from discontinued operations 843,959 (4,478,474)
----------- -----------
NET LOSS $ (824,069) $(5,406,869)
=========== ===========
LOSS PER SHARE:
Continuing operations $ (0.77) $ (0.54)
=========== ===========
Net loss $ (0.38) $ (3.14)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,162,418 1,719,924
=========== ===========
</TABLE>
See accompanying notes to these financial statements
F-4
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATEDSTATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Unrealized
Additional Deemed Due Loss on
Common Stock Paid-In Accumulated Treasury from Marketable
Shares Amount Capital Deficit Stock ESOP Securities Total
----------- ----------- ----------- ----------- --------- ----------- -----------
BALANCES, July 1, 1995 1,791,520 $ 358 $ 6,769,521 $ (75,291) $ (598,162) $ (355,089) $(334,079) $ 5,407,258
Shares issued for payment of
trade accounts payable 358,304 72 380,699 -- -- -- -- 380,771
Shares issued for services 3,125 1 3,718 -- -- -- -- 3,719
Adjustment to shares deemed
to be treasury stock -- -- (558,737) -- 558,737 -- -- --
Reduction of amount due
from ESOP -- -- -- -- -- 355,089 -- 355,089
Affiliate issuance of equity
securities in excess of
book value -- -- 163,494 -- -- -- -- 163,494
Change in unrealized holding
losses on marketable
equity securities held by
affiliate -- -- (41,602) -- -- -- -- (41,602)
Change in unrealized holding
losses on marketable
equity securities -- -- -- -- -- -- 334,079 334,079
Net loss for the year -- -- -- (5,406,869) -- -- -- (5,406,869)
----------- ----------- ----------- --------- -----------
BALANCES, June 30, 1996 2,152,949 431 6,717,093 (5,482,160) (39,425) -- -- 1,195,939
</TABLE>
Continued
See accompanying notes to these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY, continued YEARS ENDED JUNE
30, 1997 AND 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Unrealized
Additional Deemed Due Loss on
Common Stock Paid-In Accumulated Treasury from Marketable
Shares Amount Capital Deficit Stock ESOP Securities Total
----------- -------- ----------- ---------- --------- -------- ---------- ---------
Shares issued in connection
with acquisition of oil and
gas properties 120,000 23 209,977 -- -- -- -- 210,000
Shares issued for directors'
fees 1,436 -- 2,000 -- -- -- -- 2,000
Affiliate issuance of equity
securities at less than
book value -- -- (216,925) -- -- -- -- (216,925)
Adjustment to shares deemed
treasury stock -- -- (4,376) -- 4,376 -- -- --
Change in unrealized losses
on marketable securities
held by affiliate -- -- 76,910 -- -- -- -- 76,910
Other -- -- 1,935 -- -- -- -- 1,935
Net loss for year -- -- -- (824,069) -- -- -- (824,069)
------------- --------- --------- --------- -----------
BALANCES, June 30, 1997 2,274,385 $ 454 $ 6,786,614 $ (6,306,229) $ (35,049) $ -- $ -- $ 445,790
=========== ======== =========== ============= ========= ========= ========= ===========
</TABLE>
See accompanying notes to these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C> <C>
YEARS ENDED JUNE 30,
-----------------------
1997 1996
------- ------
CASH FLOWS FROM OPERATING EXPENSES:
Net loss for the year $ (824,069) $(5,406,869)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depletion and depreciation 159,420 5,211
Common stock issued for services 2,000 3,719
Loss on sale of marketable equity securities 167,824 143,524
Loss on sale of securities of affiliated company 4,592 511,426
Loss on equity investment in discontinued operations -- 3,578,474
(Gain) loss on disposition of subsidiaries (1,410,950) 900,000
Gain (loss) on equity investment in affiliated company 494,410 (160,255)
Management fees paid in cash by affiliated company and
discontinued operations -- 112,478
Change in net assets and liabilities of discontinued operations -- (743,184)
Other 30,593 774
(Increase) decrease in:
Accounts receivable (113,349) (29,291)
Inventories (680) 18,886
Income taxes recoverable 571,010 (581,669)
Prepaid and other assets (18) 2,827
Deferred tax assets - current and non-current 694,356 (265,260)
Increase (decrease) in:
Accounts payable 132,060 (64,091)
Other accrued liabilities 54,560 21,572
Deferred tax liability, non-current -- (11,233)
----------- -----------
cash used by operating activities (38,241) (1,962,961)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable equity securities 605,002 2,908,307
Purchase of marketable equity securities (777,476) (1,794,540)
Proceeds from sales of investment in affiliated company 136,715 212,976
Purchase of other property and equipment (15,237) --
Additions to oil and gas property (18,692) --
Proceeds from sale of subsidiary -- 453,436
----------- -----------
Net cash provided (used) by investing activities (69,688) 1,780,179
</TABLE>
Continued
See accompanying notes to these financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
MILLENNIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
<S> <C> <C>
YEARS ENDED JUNE 30,
----------------------
1997 1996
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal retirement of long-term debt (117,451) (355,089)
Proceeds from advances from stockholder 242,800 16,000
Payment from ESOP -- 355,089
----------- -----------
Net cash provided by financing activities 125,349 16,000
----------- -----------
NET INCREASE (DECREASE) IN CASH 17,420 (166,782)
CASH AND CASH EQUIVALENTS, beginning of year 36,628 203,410
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 54,048 $ 36,628
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments (recoveries) for:
Interest $ 129,146 $ 11,640
=========== ===========
Income taxes $ (469,698) $ (9,703)
=========== ===========
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Common stock of Millennia, Inc. issued to retire accounts
payable of subsidiary $ -- $ 380,771
=========== ===========
Acquisition of oil and gas properties for common stock and
note payable $ 1,910,000 $ --
=========== ===========
</TABLE>
See accompanying notes to these financial statements.
F-8
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLENNIA, INC. AND SUBSIDIARIES
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Millennia, Inc. (Millennia) (formerly S.O.I. Industries, Inc.)
is a Delaware corporation, which owns subsidiaries involved in a variety of
businesses, as described below.
Doblique Energy Corporation is a wholly owned subsidiary involved in
production of oil and gas properties located in Texas, Oklahoma and New
Mexico.
Millennia Entertainment, Inc. (MEI) is a wholly-owned subsidiary with
operations located in Florida, which is primarily a distributor of general
entertainment video tapes on a contract basis. MEI has not had a material
level of operations through June 30, 1997.
Omni Doors, Inc. (Omni), is a wholly-owned subsidiary that assembles and
distributes industrial doors in the South Florida region of the United
States.
Tempo Lighting, Inc. (Tempo) was a wholly-owned subsidiary involved in the
manufacture and sale of medium-priced residential and commercial lamps and
lighting fixtures through a variety of retail stores and wholesale
distributors. Millennia sold 100% of its interest in Tempo effective
February 29, 1996.
American Quality Manufacturing Corporation (AQM) was a wholly-owned
subsidiary involved in the manufacture and sale of kitchen and bathroom
cabinets to the home construction and remodeling industry principally
through home centers and independently owned retailers. Millennia sold 100%
of its interest in AQM in September 1996.
Additionally, Millennia owns, as of June 30, 1997 and 1996, respectively,
approximately 13.2% and 17.6% of the issued and outstanding stock of
Digital Communications Technology Corporation (DCT), a publicly owned
Delaware corporation. DCT and its subsidiaries are involved in the business
of video and audio tape production and duplication and the provision of
remote video satellite uplink services for commercial television broadcast
networks and station affiliates. The presence of common executive
management and boards of directors, at Millennia and DCT, provides
Millennia with the ability to exercise influence over operating and
financial policies of DCT even though Millennia holds less than 20% of the
voting common stock of DCT. Therefore, Millennia accounts for this
investment using the equity method of accounting and records its share of
DCT income or losses in the statement of operations and as an adjustment to
the carrying value of the investment . Issuances of common stock by DCT
that cause changes in Millennia's ownership percentage are accounted for as
adjustments to paid-in capital. Additionally, the proportionate changes in
DCT's unrealized gains or losses in marketable equity securities, that
impact Millennia's carrying value of the investment are also recognized as
an adjustment to paid-in capital.
DCT also owns approximately 28% of Millennia. Millennia uses the treasury
stock method of accounting for the reciprocal ownership. The shares deemed
treasury stock represent the ownership interest Millennia has in itself
through its investment in DCT. These shares represent approximately 3.27%
of the issued and outstanding common stock of Millennia.
During fiscal 1996, Millennia, with stockholder approval, effected a one
for eight reverse stock split. All issued and outstanding shares in the
accompanying consolidated financial statements have been adjusted to
reflect the effect of the reverse split as of the beginning of the first
period presented.
F-9
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Millennia and its wholly-owned subsidiaries (collectively "the Company").
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates and Certain Significant Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual
results could differ from those estimates. Significant assumptions are
required in the valuation of proved oil and gas reserves which as
described below, may affect the amount at which oil and gas properties are
recorded. It is at least reasonably possible those estimates could be
revised in the near term and those revisions could be material.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, including
certificates of deposit and other highly-liquid investments with
maturities of three months or less, when purchased, to be cash and cash
equivalents.
Revenue Recognition
Revenue for door sales is recognized at the time doors are shipped to the
Company's customers. Revenue for oil and gas sales is recognized when the
oil or gas is produced and sold.
Marketable Securities
Marketable securities consist of equity securities and money market funds.
Gains or losses on dispositions of marketable securities are based on the
difference between the proceeds received and the adjusted carrying amount
of the securities sold, using the specific identification method and are
reflected in the accompanying statement of operations.
Inventory
Inventory consists of purchased doors, related door parts and other
supplies and raw materials necessary to assemble commercial doors for
resale. These items are carried at the lower of cost or market using the
first-in, first-out method.
Oil and Gas Properties
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. Cost
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. The Company had no material unproved
properties at June 30, 1997. 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.
F-10
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net capitalized costs are subject to a "ceiling test," which generally
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 and operating conditions.
Other Property and Equipment
Other property and equipment are recorded at historical cost. These costs
are depreciated over the estimated useful lives, generally five to seven
years, of the individual assets using the straight-line method.
Expenditures for repairs and maintenance are charged to expense as
incurred. Renewals and betterments which extend the economic life of the
respective asset are capitalized. Gains and losses from disposition of
property and equipment are recognized as incurred and are included in
operations.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Deferred tax asset and liability accounts represent the
effect of differences in the recognition of assets and liabilities for tax
and financial reporting purposes, primarily the allowance for doubtful
accounts, accumulated depletion and depreciation and certain liability
items. A valuation allowance was provided against deferred tax assets,
where applicable.
Earnings (Loss) Per Share
Earnings (loss) per share are computed by dividing net income (loss) by
the weighted-average number of shares issued and outstanding during the
reporting period, excluding shares deemed to be treasury stock. Shares
owned by the Company's Employee Stock Ownership Plan (Plan) and either
allocated to employees or held in trust for future allocation are treated
as issued and outstanding for this computation.
Reclassifications
Certain amounts have been reclassified in the June 30, 1996 financial
statements to conform to the current year presentation.
Stock-Based Compensation
In July 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation", which
requires recognition of the value of stock options and warrants granted
based on an option pricing model. However, as permitted by SFAS No. 123,
the Company continues to account for stock options and warrants granted to
directors and employees pursuant to APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations. See Note 10.
2. DISCONTINUED OPERATIONS
In March 1996, effective as of February 29, 1996, the Company sold 100% of
the issued and outstanding stock of Tempo for cash of approximately
$453,000. The results of operations of Tempo for the period through
February 29, 1996 are presented separately as a component of discontinued
operations in the accompanying statements of operations. Additionally, the
loss incurred on the sale of Tempo is also presented separately as a
component of discontinued operations.
In September 1996, the Company sold 100% of the issued and outstanding
stock of AQM to an unrelated third party for the assumption of all
liabilities of AQM. In addition, the AQM sale included the release of the
Company's guarantees of certain debt of AQM with their primary lending
institution and certain key
F-11
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
vendors. The sale agreement contains a total guaranty release cap of $5.5
million. The results of operations of AQM for the years ended June 30, 1996
and the period through the disposition in September 1996, are presented as
a component of discontinued operations in the statements of operations.
The gain on the sale of AQM resulted from the Company's release from net
liabilities of $4,349,041 offset by the write off of the Company's
receivable from AQM of $2,321,333 and the tax effect of $616,758.
Summarized results of operations of Tempo for fiscal year 1996 (prior to
its sale) are as follows:
Net sales $ 2,443,017
=============
Operating loss $ (281,121)
=============
Summarized results of operations for AQM for fiscal year 1997 (prior to its
sale) and 1996 are as follows:
<TABLE>
<S> <C> <C>
1997 1996
------ -----
Net sales $ 2,682,751 $ 21,918,899
============== ============
Operating loss, including management fees $ (983,604) $ (2,497,711)
============== ============
</TABLE>
3. INVENTORY
Inventory consists of the following as of June 30, 1997:
Finished goods and purchased product $ 99,777
Raw materials and supplies 6,663
----------------
$ 106,440
================
4. INVESTMENT IN DCT
The summarized financial information of DCT is as follows:
AS OF JUNE 30, 1997
Total assets $ 12,345,302
==================
Total liabilities $ 7,699,408
===================
Stockholders' equity $ 4,645,894
===================
YEAR ENDED JUNE 30,
-------------------------
1997 1996
------- ------
Total revenues $ 22,553,457 $ 24,807,244
============== =============
Net income (loss) $ (3,447,389) $ 223,044
=============== =============
As of June 30, 1997, the market value of Millennia's holdings in DCT was
approximately $667,000.
F-12
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NOTE PAYABLE AND ACQUISITION OF OIL AND GAS PROPERTIES
The Company acquired producing oil and gas properties from a company
affiliated with a former director in November 1996 for a promissory note
of $1,715,689 and convertible preferred stock described in Note 6. The
note payable bears interest at 12% and is payable solely out of 100% of
the net proceeds from the oil and gas properties until November 1, 1999,
at which time the balance is due in full. The note is collateralized by
750,000 shares of the Company's DCT common stock and the oil and gas
properties. The balance of the note at June 30, 1997 was $1,598,238.
The following unaudited pro forma information has been prepared as if the
properties had been acquired at the beginning of the respective periods:
YEAR ENDED JUNE 30,
----------------------------
1997 1996
------ ------
Total revenues $ 1,231,745 $ 1,199,205
=============== =============
Net loss $ (577,972) $ (5,695,133)
=============== =============
Net loss per share $ (0.27) $ (3.31)
=============== =============
6. STOCKHOLDERS' EQUITY
In connection with the acquisition of oil and gas properties described in
Note 5, the Company issued 120,000 shares of convertible preferred stock.
These shares were subsequently converted to 120,000 shares of common
stock. Each issuance of shares was recorded at the quoted value of the
common shares at the date of the acquisition of the properties.
The Company is authorized to issue up to 10,000,000 shares of preferred
stock with rights and preferences as designated by the board of directors.
As of June 30, 1997, no shares of preferred stock were outstanding.
In May and June 1996, Millennia issued an aggregate of approximately
358,300 shares of common stock to various creditors of AQM in partial
settlement of open trade accounts payable. These shares were subsequently
sold by the various creditors and the proceeds were credited against
amounts owed them by AQM. The Company recorded these shares at the market
price received that was reported by the respective creditors.
7. COMMITMENTS
Leases
Omni leases office and warehouse facilities under an operating lease
agreement. The lease expires in 1999 and contains an annual lease payment
escalation clause whereby the base monthly rental increases by the greater
of 6.0% per year or the actual increase in the published consumer price
index. Rent expense under this lease agreement for the years ended June
30, 1997 and 1996 was $33,530 and $31,632, respectively.
F-13
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate future non-cancelable rental payments under this agreement are
as follows:
Year Ending June 30, Amount
--------------------- -----------
1998 35,500
1999 24,600
-----------
Total $ 60,100
===========
Employment Agreements
The Company entered into two agreements with officers on January 15, 1996.
The agreements are for three years each and expire on December 31, 1998.
The minimum annual salaries (excluding bonus arrangements) for future
years ending June 30 are as follows:
Year Ending June 30, Amount
--------------------- -----------
1998 $ 180,000
1999 $ 90,000
-----------
Totals $ 270,000
===========
8. EMPLOYEE STOCK OWNERSHIP PLAN
The Company's Employee Stock Ownership Plan (ESOP) provided retirement
benefits to substantially all employees of Millennia and its subsidiaries.
The ESOP, which was terminated effective July 1, 1996, was a qualified
benefit plan exempt from taxation under the Internal Revenue Code of 1986,
as amended. Payments by the Company to the ESOP for fiscal year 1996 were
$375,240, including interest.
The Company notified all participants of the ESOP termination and began
distribution of the shares during fiscal year 1997.
9. RELATED PARTY TRANSACTIONS
During fiscal year 1997 and prior years, an entity that is a stockholder
and is controlled by the Company's officers made advances to and has made
various payments on the Company's behalf. These advances are unsecured,
bear interest at 10% and are repayable upon demand. The balance due at
June 30, 1997 is $258,800. This entity has pledged its continued financial
support of the Company, as needed, for the year ended June 30, 1998.
Millennia received approximately $180,000 in management fees from DCT in
fiscal year 1996. No management fees were received from DCT in fiscal year
1997. The Company paid approximately $10,500 and $29,000 for the year
ended June 30, 1997 and 1996, respectively to an entity controlled by the
Company's officers for corporate office facilities rent.
F-14
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company paid consulting fees of $9,400 to an entity owned by a
director for assistance in terminating the ESOP during the year ended June
30, 1997. Additionally, the Company paid a former director $10,000 during
the year ended June 30, 1997 for assistance rendered related to the
disposition of AQM.
10. STOCK BASED COMPENSATION
Stock Option Plans
The Company has a stock option plan, under which key directors, officers
and employees may be granted options to purchase the Company's common
stock at prices approximately equal to market value at the date of grant.
The options may be exercised any time within five years of grant.
The following is a summary of activity under this stock option plan for
the years ended June 30, 1997 and 1996:
JUNE 30, 1997 JUNE 30, 1996
-------------- --------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
-------- -------- --------- --------
Outstanding, beginning of year 1,250 2.00 1,250 2.00
Canceled or expired -- -- -- --
Granted 60,000 1.50 -- --
Exercised -- -- -- --
------- ------- --------- -----
Outstanding, end of year 61,250 1.51 1,250 2.00
======= ======= ========= =====
If not previously exercised, options outstanding at June 30, 1997 will expire as
follows:
Weighted
Average
Number Exercise
of Shares Price
------------ ----------
1997 1,250 2.00
2002 60,000 1.50
------------ ----------
Total 61,250 1.51
============ ==========
Presented below is a comparison of the weighted average exercise prices and
market prices of the Company's common stock on the measurement date for the
stock options granted during fiscal year 1997. There were no options granted
during fiscal year 1996.
F-15
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997
----------------------------------------
Number Exercise Market
of Shares Price Price
----------- ---------- -------
Exercise price
greater than
market price 60,000 1.50 1.25
Pro Forma Stock-Based Compensation Disclosures
As discussed in Note 1, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for grants of options to employees since
the exercise prices were not lower than the market prices of the Company's
common stock on the measurement date. Had compensation been determined based on
the estimated fair value at the measurement dates for awards under those plans
consistent with the method prescribed by SFAS No. 123, the Company's June 30,
1997 net loss and loss per share would have been changed to the pro forma
amounts indicated below. There was no pro forma effect for June 30, 1996.
Net loss:
As reported $ (718,384)
Pro forma $ (790,964)
Net loss per common share:
As reported $ (0.33)
Pro forma $ (0.37)
The estimated fair value of each employee option and warrant granted
during fiscal year 1997 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
Expected volatility 188%
Risk-free interest rate 7.5%
Expected dividends -
Expected terms (in years) 5
11. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The Company's financial instruments are cash, amounts receivable and
payable and long-term debt. Management believes the fair values of these
instruments, with the exception of the long-term debt, approximate the
carrying values, due to the short-term nature of the instruments.
Management believes the fair value of long-term debt also reasonably
approximates its carrying value, based on expected cash flows and interest
rates.
The financial instruments that subject the Company to credit risk are
trade accounts receivable and accrued oil and gas sales. In the normal
course of business, Omni extends unsecured credit to virtually all of its
customers, which are located principally in the South Florida region of
the United States. As Omni's products are used principally in real
property construction, the Company has the right to file materialman's
liens against its customers and/or the respective project to collateralize
its accounts receivable where the Company's materials are installed under
the pertinent provisions of the Uniform Commercial Code and
F-16
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
under the State of Florida laws. Because of the credit risk involved,
management has provided an allowance for doubtful accounts which reflects
its opinion of amounts which will eventually become uncollectable. Based
on the historical experience of the oil and gas industry, the Company
believes it does not have significant exposure to loss on accrued oil and
gas sales. At June 30, 1997, the Company did not have a significant
concentration with any one customer of Omni or oil and gas purchaser.
12. SEGMENT INFORMATION
The Company's continuing operations as of June 30, 1997 are from door
assembly and distribution and oil and gas production. Financial
information with respect to these two segments is set forth below.
Information reflected in the accompanying 1996 financial statements for
continuing operations reflect principally the operations of Omni,
excluding the marketable securities portfolio, the investment in DCT and
the operating effects therefrom.
<TABLE>
<S> <C> <C> <C>
1997 1996
---------------------------- -----------
Door Door
Oil and Gas Distribution Distribution
------------- ------------- -------------
Net sales $ 553,736 $ 536,311 $ 467,600
Oil and gas production costs/cost of sales $ (384,487) $ 416,012 $ 374,740
Operating income (loss) $ (138,356) $ 9,876 $ (11,200)
Income (loss) before income taxes $ (138,356) $ 8,870 $ (12,800)
Income tax benefit (expense) -- (9,630) 2,400
----------- ----------- -----------
Loss from continuing operations $ (138,356) $ (760) $ (10,400)
=========== =========== ===========
Identifiable assets $ 1,892,367 $ 234,410 $ 240,200
=========== =========== ===========
Depreciation and amortization $ 154,449 $ 4,526 $ 4,900
=========== =========== ===========
Capital expenditures $ 1,928,692 $ 15,237 $ --
=========== =========== ===========
13. INCOME TAXES
The Company's deferred tax asset and liability accounts at June 30, 1997
consist of the following:
Deferred tax assets:
Deferred expenses for tax purposes $ 59,500
Allowances for bad debts and inventory obsolescence 10,500
Basis difference for investment in DCT 1,991,000
Less valuation allowance (2,061,000)
Deferred tax liabilities: -
Net deferred taxes $ -
============
</TABLE>
The net change in the valuation allowance for the years ended June 30, 1997
and 1996 was an increase of $358,000 and $1,024,000, respectively.
F-17
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of income tax benefit (expense) for the years ended June 30,
1997 and 1996, respectively, are as follows:
1997 1996
------ -----
Federal:
Current $ - $ 245,124
Deferred (186,755) 453,299
--------------- ------------
(186,755) 698,423
State:
Current - 9,248
Deferred - 48,937
---------------- ------------
- 58,185
---------------- ------------
Total $(186,755) $ 756,608
================ ============
The Company's income tax benefit (expense)
applicable to continuing operations for the years ended June 30, 1997 and
1996, respectively, differed from the statutory federal rate of 34 percent
as follows:
1997 1996
------ ------
Statutory rate applied to loss before income taxes 34.0 % 34.0%
Increase (decrease) resulting from:
State income taxes -- 3.4%
Change in estimate of income tax recoverable and
valuation allowance (52.2)% 2.8%
Other, inclusive of utilization of net operating losses of
discontinued operations (4.6)% 4.7%
------ ------
Income tax (expense) benefit (13.6)% 44.9%
====== ======
The Company's net operating loss carryforward at June 30, 1997 was
approximately $417,000. It will expire, if unused, primarily in the year
2002.
14. LITIGATION
On March 4, 1996, Adrian Jacoby, allegedly on behalf of the Millennia
shareholders, and Richard Abrons, allegedly on behalf of the DCT
shareholders, brought a purported shareholder derivative lawsuit against
the Board of Directors - Kevin B. Halter, Kevin B. Halter, Jr., Gary C.
Evans and James Smith, Halter Capital Corporation and Securities Transfer
Corporation. In addition, Millennia and DCT have been joined as "nominal
defendants". In the lawsuit, the Plaintiffs have alleged breaches of
fiduciary duty, fraud, and violations of state securities laws. The
Plaintiffs seek unspecified actual and exemplary damages, a constructive
trust against the assets of the Defendants and an accounting of the affairs
of the Defendants with respect to their dealings with Millennia and DCT. In
addition, the Plaintiffs have requested a temporary injunction and the
appointment of a receiver for Millennia and DCT. The Plaintiffs have
brought this lawsuit allegedly to vindicate the wrongs that the Plaintiffs
claim were done to Millennia and DCT by the individual defendants and their
affiliated companies, and, if any damages are ultimately awarded to the
Plaintiffs, those damages will be awarded on behalf of, and for the benefit
of, Millennia and all of its shareholders. If they are successful, the
Plaintiffs may also recover certain attorneys fees and costs. The case is
entitled Adrian S. Jacoby et al v. Kevin B. Halter et al, cause No.
96-02169-G, and is pending in the 134th Judicial District for the District
Court of Dallas County, Texas. Even though Millennia is a nominal defendant
in the lawsuit, the Plaintiffs have not sought to recover any damages
against Millennia. In this type of lawsuit, Millennia is joined as a
procedural matter to make it a party to the lawsuit.
F-18
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All of the Defendants have answered and denied the allegations contained in
the Plaintiffs' Petition. A certain amount of discovery has been conducted
by both Plaintiffs and Defendants. All of the Defendants deny all the
material allegations and claims in the Petition, dispute the Plaintiffs'
contention that this is a proper shareholder derivative action, deny that
the Plaintiffs have the right to pursue this lawsuit on behalf of Millennia
and DCT and are vigorously defending the lawsuit. In addition, the
Defendants have filed counterclaims against the Plaintiffs and third party
actions against Blake Beckham, Attorney at Law, Beckham & Thomas, LLP,
Sanford Whitman, the former CFO of Millennia and Jack Brown, the former
president of DCT, seeking damages in excess of $50 million. In its
counterclaim, Millennia asserted that the filing of this lawsuit and
temporary restraining order caused the Company damages. However, Millennia
does not believe that the lawsuit will have any further material impact on
the operations or financial condition of Millennia.
Although the Company sold AQM in September 1996, one of the vendors of AQM
has brought an action against the Company asserting its alleged rights
under a guarantee agreement between the Company and the vendor. This case
has not been set for trial and the Company has pending a motion for summary
judgment. Discovery and settlement negotiations have occurred and are
continuing. In connection with this lawsuit, the Company has recorded a
contingent liability in the amount of $175,000 as of June 30, 1997.
15. SUPPLEMENTARY DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
Costs Incurred in Oil and Gas Producing Activities
Costs in oil and gas property acquisition and development activities are
summarized below. All the acquisition costs related to proved reserves, and
no significant exploration costs were incurred for the year ended June 30,
1997.
Property acquisition costs $ 1,910,000
Development costs $ 18,692
-----------------
Total costs incurred $ 1,928,692
=================
Oil and Gas Reserves Quantities
The reserve information presented below is based upon a report prepared by
an independent petroleum engineer. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new discoveries
and proved undeveloped reserves are more imprecise than those of producing
oil and gas properties. Accordingly, these estimates are expected to change
as future information becomes available. Proved oil and gas reserves are
the estimated quantities of crude oil, natural gas and natural gas liquids
which geological and engineering data demonstrate with reasonable certainty
to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed oil and gas reserves
are those expected to be recovered through existing wells with existing
equipment and operating methods. Proved reserves, all of which are in the
United States, are estimated as follows:
Oil (bbls) Gas (mcf)
--------------- --------------
Proved reserves, July 1, 1996 - -
Purchase of minerals in place 475,781 1,743,178
Production (18,769) (90,984)
--------------- ---------------
Proved reserves, June 30, 1997 457,012 1,652,194
=============== ===============
F-19
<PAGE>
MILLENNIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated quantities of proved developed oil and gas reserves of the
Company were as follows at June 30, 1997:
Oil (bbls) Gas (mcf)
--------------- -------------
Proved developed reserves 135,348 1,307,610
=============== =============
Standardized Measure of Future Net Cash Flows Relating to Proved Reserves
Statement of Financial Accounting Standards No. 69 prescribes guidelines
for computing a standardized measure of future net cash flows and changes
therein relating to estimated proved reserves. The Company has followed
these guidelines, which are briefly discussed below. Future cash inflows
and future production and development costs are determined by applying
year-end prices and costs to the estimated quantities of oil and gas to be
produced. Estimated future income taxes are computed using current
statutory income tax rates, including consideration for estimated future
statutory depletion and deferred income taxes. The resulting future net
cash flows are reduced to present value amounts by applying a 10% annual
discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such, do not
necessarily reflect the Company's expectations of actual revenues to be
derived from those reserves or their present worth. The limitations
inherent in the reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized measure computations
since these estimates are the basis for the valuation process.
Presented below is the standardized measure of discounted future net cash
flows relating to proved reserves as of June 30, 1997:
<TABLE>
<S> <C> <C>
Future cash inflows $ 11,946,210
Less future production and development costs (7,475,122)
Less future income tax expense (68,416)
-----------------
Total future net cash inflows 4,402,672
Less effect of a 10% discount factor (2,364,235)
-----------------
Standardized measure of discounted future net cash flows $ 2,038,437
=================
The principal sources of change in the standardized measure of discounted
future net cash flows are as follows:
Balance, July 1, 1996 -
Sales of oil and gas produced, net of production costs (162,050)
Purchases of minerals in place 2,231,965
Net change in income taxes (31,478)
-----------------
Balance, June 30, 1997 $ 2,038,437
=================
</TABLE>
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000814920
<NAME> MILLENIA, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 54048
<SECURITIES> 0
<RECEIVABLES> 95021
<ALLOWANCES> 25000
<INVENTORY> 106440
<CURRENT-ASSETS> 357645
<PP&E> 1928692
<DEPRECIATION> 154449
<TOTAL-ASSETS> 2778499
<CURRENT-LIABILITIES> 738401
<BONDS> 0
0
0
<COMMON> 454
<OTHER-SE> 445336
<TOTAL-LIABILITY-AND-EQUITY> 2778499
<SALES> 1093311
<TOTAL-REVENUES> 1093311
<CGS> 814377
<TOTAL-COSTS> 1789188
<OTHER-EXPENSES> 785396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142670
<INCOME-PRETAX> (1481273)
<INCOME-TAX> 186755
<INCOME-CONTINUING> (1668028)
<DISCONTINUED> 843959
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (824069)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
