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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A2
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
[ ] Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1994
Commission File No. 0-17068
Excal Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 59-2855398
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 North Tampa Street, Suite 3575 Tampa, Florida 33602
(Address of principal executive offices)
(813) 224-0228
Registrant's telephone number, including area code
Assix International, Inc.
(Former Name, former address and former fiscal year, if changed since last year)
Check whether the issuer (1) filed all reports required to be filed by Section 12, 13 or 15 (d) of the
Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest
practicable date.
Common Stock $0.001 par value 4,666,866
Class Outstanding at November 18, 1994
ASSIX INTERNATIONAL, INC.
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet--September 30, 1994 3-4
Consolidated Statement of Income--Three Months Ended
September 30, 1994 and 1993 5
Consolidated Statement of Cash Flows--Three Months Ended
September 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
ASSIX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1994
(Unaudited)
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Current assets
Cash and cash equivalents $ 1,513,843
Marketable equitable securities 3,964,191
Notes and accounts receivables
Accounts receivable - trade $ 171,397
Accounts receivable - related parties 21,299
Notes receivable - former officer 111,088
Officer, former officer & employee advances 117,625
Less allowance for doubtful accounts (140,599) 280,810
Prepaid expenses & deposits 112,456
Inventories - at the lower of cost (determined by
the first-in, first-out method) or market 468,851
Total current assets $ 6,340,151
Property & Equipment
Land - at cost 1,740,000
Licensed Dealer Programs - at cost 2,647,152
Building - at cost 4,710,000
Other Property and equipment, net 709,777
8,066,929
Less accumulated depreciation and amortization 1,329,667 6,737,262
Licensed dealer demonstration programs 39,000
Construction in process of Licensed dealer programs 100,757
Total property and equipment 8,617,019
Other Assets
Intangible Assets
Manufacturing technology, less accumulated amortization of $50,894 177,063
Patents, less no accumulated amortization 67,267
Deferred charges, less accumulated amortization of $53,760 26,857
Organization costs, less accumulated amortization of $65,066 864
Other, less accumulated amortization of $131,817 108,159
Total other assets 380,210
Total Assets $15,337,380
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See accompanying notes to the consolidated financial statements
ASSIX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET (continued)
SEPTEMBER 30, 1994
(Unaudited)
Liabilities and Stockholders' Equity
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Current liabilities
Accounts payable - trade $ 282,042
Accounts payable - related parties 1,395,249
Sales and payroll taxes payable 13,209
Other accrued liabilities 212,732
Current maturities on long-term debt 55,487
Deferred revenue 69,891
Income tax payable 44,524
Total current liabilities $ 2,073,134
Long-term debt 61,960
Deferred income taxes 2,627,000
Stockholders' equity
Preferred stock - authorized, 7,500,000 of shares of $.01 par
value, non-cumulative; no shares issued and outstanding --
Common stock - authorized, 7,500,000 shares of $.001 par
value, shares issued, 4,713,866, shares outstanding 4,666,866 4,713
Common stock warrants --
Additional paid-in capital 5,820,533
Retained earnings 4,956,164
Less common stock held in treasury, 47,000 shares at cost ( 206,124)
Total stockholders' equity 10,575,286
Total Liabilities and Stockholders' Equity $15,337,380
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See accompanying notes to the consolidated financial statements
ASSIX INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1994 1993
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Licensed dealer program revenues $ 281,702 $ 1,702,191
Dividend & interest income 55,176 -
Realized gain on sale of trading securities 250,597 -
Other income 796 7,150
588,271 1,709,341
Costs and expenses:
Service 94,736 416,201
General and administrative 1,073,671 656,366
Depreciation and amortization 183,857 706,002
Interest 727 299,164
Loss (gain) on asset write-down 4,235 ( 23)
Loss (gain) on sale of assets 4,032 4,032
Total Expenses 1,361,258 2,081,742
Loss before income taxes & extra-ordinary item ( 772,987) ( 372,401)
Provision for income taxes - -
Loss before extraordinary item ( 772,987) ( 372,401)
Extraordinary item, net of taxes - 6,312,500
Net income (loss) $( 772,987) $ 5,940,099
Earnings (loss) per common and
common equivalent share
Income from continuing operations $( .17) $( .08)
Extraordinary item - 1.35
Net income (loss) $( .17) $ 1.27
Weighted average common and common
equivalent shares used in calculation: 4,666,866 4,666,866
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See accompanying notes to the consolidated financial statements
ASSIX INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
1994 1993
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Cash flows provided by operating activities:
Net income $( 772,987) $ 5,940,099
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 187,889 706,002
Provision for uncollectable accounts receivable (23,980) -
Loss on sale of property and equipment 4,032 4,032
Deferred revenue 33,709 1,887
Loss on asset write-downs 4,235 ( 23)
Realized gain on trading securities ( 250,597) -
Proceeds from sale of trading securities 8,130,437 -
Purchase of trading securities (1,335,530) -
Gain on debt restructuring - (6,312,500)
Changes in operating assets and liabilities:
Accounts and notes receivable, (increase) ( 3,613) ( 536,332)
Prepaid expenses and advances, decrease 95,021 64,278
Other assets, (increase) ( 849) -
Accounts payable, accrued interest and
accrued liabilities, increase 54,470 73,293
Accrued liabilities - related parties, (decrease) ( 285,102) -
Accrued interest, increase - 292,326
Assets removed and placed in WIP, (increase) - ( 53,185)
Sales and payroll taxes payable, (decrease) ( 16,691) ( 12,387)
Net cash provided by operating activities 5,820,444 167,490
Cash flows used in investing activities:
Purchase of held to maturity securities (3,917,996) -
Capital expenditures ( 875,143) ( 143,557)
Net cash used in investing activities (4,793,139) ( 143,557)
Cash flows provided by (used in) financing activities:
Proceeds from debt 70,534 -
Principal payments on debt ( 8,904) ( 350,101)
Accounts receivable - related parties - ( 75,805)
Net cash provided (used) by financing activities 61,630 ( 425,906)
Increase (decrease) in cash and cash equivalents 1,088,935 ( 401,973)
Cash and cash equivalents, beginning of period 424,908 582,009
Cash and cash equivalents, end of period $ 1,513,843 $ 180,036
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See accompanying notes to the consolidated financial statements
ASSIX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The Company's interim financial statements are unaudited and should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended June 30, 1994. The results
of operations for the interim periods shown in this report are not necessarily indicative of results to
be expected for the fiscal year. The balance sheet has been reclassified from an unclassified balance
sheet to a classified balance sheet.
In the opinion of management, the accompanying consolidated financial statements contain all
adjustments necessary to make the results of operations for the interim periods a fair statement of
such operations. All such adjustments are of a normal, recurring nature. Due to the small dollar
amount associated with marketing expenses, these amounts have been reported in the general and
administrative category for the periods ended September 30, 1994 and 1993.
NOTE 2 - MARKETABLE EQUITY SECURITIES.
During the three month period ended September 30, 1994, the Company adopted Statement 115 of
the Financial Accounting Standards Board "Accounting for Certain Investments in Debt and Equity
Securities." Under this new pronouncement, securities that have readily determinable fair value
should be classified into trading, held to maturity, and available for sale. Equity securities are
recorded at their fair value, and gross unrealized holding gains and losses are disclosed. For the
purpose of determining the gain or loss on a sale, the cost of securities sold is based on the average cost
of all shares of each such security held at the date of sale. During the three month period ending
September 30,1994, the Company sold all of its trading securities and invested the proceeds into
Treasury Bills and notes that are to be held to maturity. Those sales of marketable equity securities
resulted in a net realized gain of $250,597 during the three month period ending September 30,
1994.
At September 30, 1994, the aggregate cost of the current marketable equity securities held for
maturity was $3,917,996, while their market value was $3,899,616. As of September 30, 1994,
the Company had $3,917,996 invested in Treasury bills and notes. The Treasury Bills and Treasury
Notes have maturity periods ranging from 30 days to one year with rates of return of 4.345% to
5.78%.
NOTE 3 - PROPERTY AND EQUIPMENT
Under Financial Accounting Standards Board Statement No. 67, the Company capitalized certain
costs incurred to rent real estate. These capitalized costs equaled $128,556. The Company realized
$161,361 in salvage sales from the personal property removed from the property. These costs were
offset against each other with the net balance of $32,805 included in deferred revenue and will be
offset against future costs of preparing the real estate for rental operations.
NOTE 4 - OTHER ASSETS
The Company capitalized $53,226 of costs associated with the improvement of the T7000 Combi-
Matcher under Financial Accounting Standards Statements Board No. 2 and No. 86.
NOTE 5 - EXTRA-ORDINARY GAIN
As of September 30, 1993, the Company generated a $6,312,500 extraordinary gain from
settling its debt with its subordinated lenders. The gain was determined by taking the outstanding debt
and accrued interest at the time of the settlements ($5,000,000 principal and $1,562,500 of accrued
interest) less the $250,000 aggregate payments that were made to the subordinated lenders.
Accordingly, the extra-ordinary gain was $6,312,500. The $2,438,000 of deferred taxes for the
Mass Mutual settlement were not recorded until the third quarter of the year ended June 30, 1994.
NOTE 6 - ACCOUNTS PAYABLE - RELATED PARTIES
The Company has $1,395,249 of accrued liabilities for related parties, including $836,747 of
expenses previously recorded for the Sears settlement. That settlement resulted in the accrual of
$2,542,961 in commissions and bonuses relating to the Sears settlement. Alexander & Alexander
Consulting Group, Inc. ("Alexander & Alexander"), an independent third party compensation consultant,
and H.R. Management, Inc., a second independent compensation consultant have recommended to John L.
Caskey, the sole member of the Special Compensation Committee of the Board of Directors, and Mr.
Caskey has concluded that the bonuses pertaining to current and former officers and board members are
fair and reasonable. For more details regarding the Sears settlement see the Company's Annual Report
on Form 10-KSB for the period ended June 30, 1994. The $1,395,249 of accrued liabilities have
been reduced, for financial statement purposes, by $199,732 that was advanced as a loan to R. Park
Newton, III and $300,000 that was advanced as a loan to Kerry F. Marler in anticipation of a
determination that amounts in excess of $300,000 will be determined to be fairly payable to each
under their respective employment or consulting agreements.
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following:
September 30, 1994
(Unaudited)
Automobile notes $ 39,311
Equipment notes 35,195
Capitalized equipment leases 42,941
117,447
Current maturities on long-term debt 55,487
Total long-term debt $ 61,960
The following are the aggregate maturities of the Company's existing long-term debt for years
subsequent to June 30, 1995:
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1996 33,679
1997 9,890
1998 8,103
1999 8,264
Thereafter 2,024
$ 61,960
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NOTE 8 - EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share for the three months ended September 30, 1994 and 1993 has
been computed based upon the weighted average number of common shares outstanding during the
period. Common stock warrants and options are not considered in the computation because they are
anti-dilutive in the aggregate.
NOTE 9 - INCOME TAXES
During the year ended June 30, 1994, the Company adopted Statement No. 109 of the Financial
Accounting Standards Board, "Accounting for Income Taxes." This new pronouncement requires that
deferred tax assets and liabilities be recognized for the estimated future consequences attributable to
differences between the financial statements carrying amounts of existing assets and liabilities and
their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized during the period that includes the enactment date.
NOTE 10 - LITIGATION
Other than the litigation described below, the Company is aware of no other material legal
proceedings, pending or threatened, to which the Company is a party or its property subject. The
Company is engaged in other litigation incidental to its business operations which it believes will have
no material effect on operations. Below is a summary of the material litigation the Company is
currently engaged in. See "PART II - OTHER INFORMATION - Item 1. - Legal Proceedings" for further
details.
A. Securities and Exchange Commission Proceeding
Prior to May 28, 1993, the United States Securities and Exchange Commission ("the
Commission") began a preliminary investigation into the Company after being contacted by a
disgruntled former chief financial officer of the Company who, in the view of senior management, left
his employment with the Company after unsuccessfully soliciting certain of the Company's board
members and the Company's principal institutional creditor to take action to effect certain changes in
the corporations operations and policy.
On May 28, 1993, the Commission entered an Order Directing Private Investigation and
Designating Officers to Take Testimony in the Matter of Assix International, Inc. ("the Order"). Such
Order stated that it was based upon reports from Commission staff personnel, prepared as a result of
their conduct of a preliminary informal investigation, apparently initiated in June 1992, of certain of
the Company's prior activities.
The Company and the Commission had tentatively reached a settlement agreement pursuant to which
the Company, while neither admitting or denying violations of federal securities laws, would have
consented to the entry of a permanent injunction enjoining the Company from future violations of
federal securities laws. Under that settlement, which was itself contingent upon the Company and the
Commission reaching an agreement on the form of the complaint to be filed by the Commission in U.S.
District Court and the form of the consent decree, no monetary penalty would have been assessed
against the Company. However, in September 1994 the staff of the Commission's enforcement division
withdrew its recommendation that the Commission enter into the referenced consent decree in
settlement of its enforcement action pending the review of certain additional issues.
The officers and directors of the Company referenced above are also attempting to reach settlement
terms with the Commission. There can be no assurance, however, that such settlement terms will be
reached.
B. Pennsylvania District Court Action - ASX Investment Corp.
On April 25, 1994, ASX Investment filed a Complaint in the United States District Court for the
Eastern District of Pennsylvania (the "Pennsylvania Action") against R. Park Newton, III, Frederick
Schadt, Arlene Schadt and the Company under, among other common law and statutory theories of
recovery, Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder. Frederick Schadt and Arlene Schadt are the direct or beneficial owners of
approximately 5.5% of the Company's issued and outstanding common capital stock.
After the Company and the other defendants filed a motion to dismiss the Pennsylvania Action ASX
Investment, now joined by Mr. Steve Rosner (allegedly an ASX Investment shareholder) as a co-
plaintiff filed an amended complaint in which it abandoned its Rule 10b-5 securities fraud claim and
substituted a new federal securities claim alleging that all of the defendants committed proxy fraud
under section 14(a) of the Securities Exchange Act of 1934, as amended, and SEC Rules 14a-3 and
14a-9 promulgated thereunder. In the amended complaint, the plaintiffs allege that the Company's
1994 Proxy Statement contained numerous misrepresentations, on the basis of which, plaintiffs claim,
the Company's Board of Directors was elected. The amended complaint also alleges breach of fiduciary
duty, fraud, mismanagement and waste of corporate assets.
On September 13, 1994, the Pennsylvania court entered an Order granting the Company's (and
other defendants') motion to transfer the action to the United States District court for the Middle
District of Florida. In a Memorandum accompanying the Order, the Pennsylvania court held that
pending motions to dismiss, for summary judgment, for discovery sanctions, and for leave to seek
discovery from the Schadts "will be preserved for decision by the transferee court." The action has
been transferred to Florida and remains pending.
The Company and each of the individual defendants have denied all of the foregoing allegations and
each has indicated an intention to vigorously defend the actions brought against them. It is possible that
R. Park Newton, III may have one or more interests materially adverse to the interests of the Company
in this litigation.
C. Kerry F. Marler
Kerry F. Marler is a former officer and director of the Company. Mr. Marler resigned on May 20,
1994 when R. Park Newton, III, the Company's Chairman, President and Chief Executive Officer,
accepted Mr. Marler's previously undated letter of resignation based upon the Company's belief that Mr.
Marler disseminated material, inside information to ASX Investment Corp. ("ASX Investment"), a
shareholder which has filed two lawsuits against the Company and its directors based upon information
furnished to it by Mr. Marler. Please refer to the discussion above with respect to the ASX Investment
litigation. Before voluntarily dismissing its suit filed in Delaware, ASX Investment answered
interrogatories propounded by the Company. In such answers, ASX Investment stated that the
information forming the basis for its action was furnished by Mr. Marler. The lawsuits resulting from
the foregoing activities of Mr. Marler have proven enormously costly to the Company both in legal fees
and expenses and in diverting the efforts of Company management to the defense of such lawsuits. On
June 10, 1994, the Company filed a complaint against Mr. Marler, in the Circuit Court of the
Thirteenth Judicial Circuit in and for Hillsborough County, Florida. The Company later amended the
Complaint to join two of his related entities (KFM Venture, Inc. & Amazing Systems, Inc.) in the
Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida alleging that
Mr. Marler breached his fiduciary duties as an officer and director of the Company and seeking
recovery of monetary damages. Mr. Marler has filed an answer in this proceeding generally denying
the Company's allegations against him. Mr. Marler has filed an answer in this proceeding generally
denying the Company's allegations and has filed a motion to dismiss this suit. Marler's motion to
dismiss the lawsuit has been denied. KFM Venture, Inc. has filed a separate lawsuit alleging that the
Company breached its contractual obligations to him and seeking recovery of monetary damages. The
Company has moved to consolidate the two cases inasmuch as they concern the same subject matter and
are pending in front of the same judge. The Company intends to deny and fully defend against Mr.
Marler's threatened counterclaim(s).
D. Harvey Moore
Harvey Moore previously served as a consultant to the Company under a letter agreement dated
July 20, 1993. The Company's consulting agreement with Harvey Moore provided, in exchange for Mr.
Moore's rendition of negotiating services and advice to the Company, for the payment of certain
expenses, regardless of whether any settlement was reached with Sears, plus a commission, contingent
upon settlement with Sears, calculated at 1/2% of the first $12,000,000 of gross proceeds arising
from settlement of the Sears' relationship, 1% of gross proceeds of settlements in excess of
$12,000,000 but less than $20,000,000, 2% of gross proceeds in excess of $20,000,000 but less
than $30,000,000, and 3% of such gross proceeds in excess of $30,000,000. For purposes of Mr.
Moore's consulting agreement with the Company, gross proceeds did not include amounts attributable to
debt relief or tax benefits. Mr. Moore has instituted a lawsuit in the Circuit Court in and for the
Thirteenth Judicial Circuit of Hillsborough County, Florida seeking damages in excess of $500,000 for
such services, plus his attorney's fees and costs for instituting and maintaining such a lawsuit. Mr.
Moore's initial complaint was dismissed for failure to state a legal cause of action, although the court
allowed Mr. Moore to amend his complaint. Mr. Moore's Amended Complaint seeks recovery of damages
based upon an incorrect and/or improper calculation of the economic benefits obtained by Assix as a
result of the settlement with Sears. The Company has filed a responsive pleading denying in general the
allegations of Mr. Moore's amended complaint and asserting a counterclaim against Mr. Moore which
alleges that Mr. Moore breached certain fiduciary duties owed to the Company and seeks to recover
monetary damages suffered by the Company as a result of those breaches.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
A. SENIOR MANAGEMENT CHANGE AND BUSINESS PLAN DEVELOPMENT
During the Company's fiscal year ended June 30, 1994, the Company and Sears Roebuck &
Company ("Sears") entered into a settlement agreement terminating their business relationship.
Sears was the Company's largest automotive retail servicing agent and had represented approximately
75% of the Company's revenues over its two most recent fiscal years. During the past fiscal year, the
Company also reached settlement agreements with its senior and subordinated lenders, which left the
Company with substantial assets consisting of cash, real estate, operating assets associated with the
Company's substantially reduced automotive operations and virtually no debt, except for certain long-
term lease obligations.
In order to maximize future investor returns on the Company's improved financial position and
substantial net asset value, the Board of Directors appointed a new President/CEO, during the
Company's fiscal quarter ended September 30, 1994, and assigned him the responsibility of
redirecting the Company's investments and business operations. The new President/CEO was directed
to assemble a new senior management team capable of developing the Company into a multi-faceted
operating entity. Management currently is in the process of formalizing a business plan for the
Company's future businesses and operations. All operational areas of the Company's businesses are
being reviewed until such time as management completes its analysis of the operations and finalizes
the Company's comprehensive business plan.
Currently, the Company's management is concentrating its planning and review of business
operations in three major operational areas:
(1) The maximization of the asset value of the Company's Jacksonville, Florida real estate holdings
which consists of warehouse space formerly known as the Sears Jacksonville Catalog Merchandise
Distribution Center (the "Property"), and the realization of that value either through a sale of
the Property or incurring debt on the Property. The proceeds would then be re-invested
according to the Company's long term business plan.
(2) The future of the Company's automotive division (which has been the sole source of the Company's
revenue for its past business operations) and its proprietary improved wheel balancing service
which was developed by the Company. Upon completion of management's review, a decision will
be made to keep the automotive division as a key unit of the Company's comprehensive business
plan or to reduce it to a lesser role in future operations. If management decides to substantially
expand the automotive division's operations, this expansion is expected to require future
investments of the Company's resources.
(3) Potential expansion into one or more additional core business areas in which the Company can
invest it's resources. At this time, management is considering the feasibility of its real estate
operation and it's automotive operation being areas in its core business operations.
B. AUTOMOTIVE DIVISION OVERVIEW:
The principal ride-related service the Company's automotive division presently markets to the
general public through its licensed agents is the AccuBalance ("AccuBalance") complete wheel
balancing program using its Corvi marketing program and Combi System TM7000 (the "Combi-
Matcher"). The Company's automotive operation has historically derived substantially all of its
revenues from income generated from service agreements entered into with licensed agents which
utilized the TM6000 machine and their existing stand-alone wheel balancer.
The Company's automotive operation currently receives its revenues from 4 Day Tire, Wheel
Works, Howard Tire, Michel Tire, Big 10 Tires, Big 10 Tire Franchisee, DeKalb Tire, and Gordy Tire.
Management of the Company intends to increase the automotive operation's network of licensed agents
by marketing the AccuBalance/Corvi service program, which utilizes the Company's Corvi/Combi
technology, to local and regional tire dealer retail service outlets. This expansion effort will
concentrate in the geographic areas within which the Company currently operates (California, Texas,
Ohio, Indiana, Kentucky, Tennessee, Florida, Georgia and Alabama).
Management believes that normal growth of the tire dealers, comprising the Company's current
licensed agent network, will increase the number of licensed agent locations utilizing the Corvi/Combi
technology. If the number of licensed agents utilizing the Corvi/Combi technology at their retail
locations does in fact increase or if expenses are lowered, management believes the automotive
operation will reduce it's operational loss. Net profit from automotive operations will be realized only
if sufficient economies of scale are achieved through the expansion of the Company's licensed agent
network.
Any additional expansion of the Company's network of regional tire retail dealers is anticipated to
be financed through operating cash flows provided by the Company's automotive services operations
(which includes the money received from the Sears settlement). To assist the automotive operation in
reaching sufficient size, the Company has spent approximately $150,000 during the three month
period ended September 30, 1994 to build and expand its current automotive operations. Management
also has spent approximately $53,000 (during the three month period ended September 30, 1994)
for the redesign of the Combi System TM7000, which should increase the effectiveness and total cost of
the machine.
C. New Real Estate Subsidiary - Jacksonville, Center, Inc.
The Company's real estate operations contain its largest single asset (which is a 1.7 million square
foot, class A building in Jacksonville, Florida - formerly known as the Sears Jacksonville Catalog
Merchandise Distribution Center) and is the vehicle for the Company's future growth. The Company
plans to maximize the economic value of the Property (within certain practical limits) by disposing of
the property or incurring debt on the Property with the proceeds being invested by the Company in its
current or future strategic core businesses.
The Property has usable office space of approximately 160,000 square feet, first floor warehouse
space of approximately 775,000 square feet and second floor warehouse space of approximately
775,000 square feet. The Company has retained Phoenix Realty Group, Inc. as a local leasing agent for
the Property. The Company has obtained an appraisal by a certified appraiser, who is a Member of the
Appraisal Institute, for the property showing an "as is" value (which was vacant at the time) of
$6,000,000.
Management feels the Property's economic value can be greatly improved by leasing the first floor
warehouse space and the office space to independent third parties. A portion of the remaining square
feet of second floor contiguous warehouse space is anticipated to be utilized by a public warehouse
company that is to be formed by the Company and one or more existing public warehouse operators now
serving the Jacksonville market.
The Company entered into two non-binding letters of intent on November 3, 1994 to lease a
portion of the Property's warehouse space. The first letter of intent is for approximately 600,000
square feet of the first floor space. The second letter of intent is for approximately 200,000 square
feet of the second floor. Both letters of intent contemplate leases for 13 months commencing December
1, 1994, with an option to extend the lease period for 3 months. If these letters of intent are
consummated by fully executed leases, the Company could generate in the form of base rent pre-tax
revenues of approximately $1.46 million over the 13 month lease term. The tenant will pay its pro-
rated share of agreed upon operating expenses (which includes taxes, insurance and maintenance). The
tenant will pay directly for any utility expenses. Pursuant to the second letter of intent, the tenant
will be granted the option to lease an additional 300,000 square feet of second floor space as overflow
space in consideration of its payment of all operating expenses attributable to that space. The tenant
will not pay any additional base rent on the overflow space. The Company will pay its local leasing
agent a 4% fee on base rent generated by the Property. The Company expects to execute the leases
within 30 days. However, there can be no assurance that the leases will in fact be executed or that such
revenues will be received by the Company.
D. RESULTS OF OPERATIONS:
For the Three Months Ended September 30, 1994
Revenues and other income for the three months ended September 30, 1994 ("July - Sept.
1994") decreased $1,121,070 (66%) to $588,271 from $1,709,341 for the three months ended
September 30, 1993 ("July - Sept. 1993"). The primary reason for this decrease is due to the fact
that the Company and Sears (who generated approximately $1.5 million in revenue for the Company in
the July - Sept. 1993 period) terminated their relationship in February 1994. Additional revenue
from the installation of new programs and realized gain from trading securities partially offset the
decrease in Sears revenues. A program is an installed machine capable of performing the Company's
proprietary AccuBalance/Corvi wheel-balancing service. As of September 30, 1994, the Company had
167 revenue producing programs utilizing the Combi-Matcher, compared with 1281 programs
utilizing the Tire-Matcher (all of which were with Sears) and 82 programs utilizing the Combi-
Matcher at September 30, 1993.
Service expenses for July - Sept. 1994 decreased $321,465 (77%) to $94,736 from $416,201
for July - Sept. 1993. Service expenses for July - Sept. 1994, as a percentage of revenue, decreased
to 16% from 24% during the July - Sept. 1993 period due to the decrease in expenses that resulted
from the two layoffs implemented since September 30, 1993 which, when combined with natural
attrition, has reduced the number of personnel to 25 employees (of which 7 were employed by the real
estate subsidiary) as of September 30, 1994 compared to 56 employees as of September 30, 1993.
General and administrative expenses for July - Sept. 1994 increased $417,305 (64%) to
$1,073,671 from $656,366 for July - Sept. 1993. General and administrative expenses as a
percentage of revenue increased to 183% from 38%. The reasons for the increase in general and
administrative expenses include, among other things, 1) professional fees of approximately $406,000
arising from various litigation and accounting matters and 2) the payment of incentive compensation to
the new management team.
Depreciation and amortization expense for July - Sept. 1994 decreased $522,145 (74%) to
$183,857 from $706,002 for July - Sept. 1993. This decrease is a result of the discontinuance of
depreciation for Dealer Licensed machines previously installed at Sears (such machines were sold to
Sears on February 24, 1994) and the discontinuance of amortization of deferred borrowing costs
(which were written off in September 1993), which decrease has been partially offset by depreciation
expense for the warehouse facility located at the Jacksonville property.
Interest expense for July - Sept. 1994 decreased to $727 from $299,164 for July - Sept. 1993,
reflecting the Company's payment of the remaining amount of its debt to PNC Bank of Kentucky, Inc.
("PNC") in February 1994 and all of its Mass Mutual Life Insurance Company ("Mass Mutual") debt in
September 1993.
For the three months ended September 30, 1994 the Company reported a loss before income taxes
and extra-ordinary gain of $772,987 versus a loss of $372,401 during the same period of the prior
fiscal year. The Company generated a net loss, after taxes, of $772,987 for the July - Sept. 1994
period as compared to net income of $5,940,099 for the comparable July - Sept. 1993 period. The
reason for the reduction in net income is due to the non-recurrence of the extra-ordinary item, the
reduction in revenues and an increase in certain expenses.
E. Liquidity and Capital Resources:
The Company's consolidated balance sheet is presented on a classified basis. As of September 30,
1994, the Company's primary sources of liquidity were $1,513,843 in cash, $3,964,191 in
marketable securities and certificates of deposit, and $171,397 of trade accounts receivable. The
Company also hopes its liquidity will be supported by potential increased revenues from Licensed
Agents in process, which may generate cash within 12 months. As of September 30, 1994, the
aggregate amount of the Company's total current liabilities were $2,073,134. The net liquidity of the
Company as of September 30, 1994 was $3,576,297.
Management believes these net sources of liquidity and cash flow, when enhanced by the additional
revenues that could be received from the letters of intent, will be adequate to meet present obligations
maturing in the fiscal year ending June 30, 1995.
As of September 30, 1994, the Company had $3,917,996 invested in Treasury bills and notes,
$1,275,426 in money market accounts and $46,195 invested in certificates of deposit. During the
three month period ended September 30, 1994 ("July - Sept. 1994") investments in marketable
securities generated $55,176 in dividend/interest income and $250,597 in realized gains from the
sale of such securities. Overall, the Company generated positive investment income of approximately
$61,000 during the 8 month period from March 1994 to September 1994 in which the Company had
funds invested in stocks of various companies. In September 1994, the Company sold all of these stocks
and reinvested the proceeds into Treasury Bills and Treasury Notes. The Treasury Bills and Treasury
Notes have maturity periods ranging from 30 days to one year with rates of return of 4.345% to
5.78%.
Due to the classification of certain investments as trading securities, see footnote 2, the
$8,130,437 of proceeds from the sale of such securities (which had been purchased with the proceeds
from the Sears settlement) fall into cash provided by operating activities. Because of that
classification, the Company generated cash provided by operating activities during the July - Sept.
1994 period of $5,820,444 compared with net cash provided by operating activities of $167,490 for
the July - Sept. 1993 period. Absent the sale of those securities, the Company would not have had a
positive cash flow from operating activities, rather it would have used $974,463 of cash in operating
activities for the July - Sept. 1994 period.
Due to the restructuring last year, the Company's automotive division's expenses have been
reduced to a lesser (and more appropriate) percentage of the revenues generated within that division.
The Company purchased a 35,000 square foot office/warehouse facility for use by its automotive
division for a total purchase price of $450,000 on July 8, 1994 and spent an additional $40,000 for
improvements. The Company owns this property free and clear of liens and encumbrances. The
Company's principal executive offices will remain located in downtown Tampa.
Net cash used in investing activities in the July - Sept. 1994 period was $4,793,139, as compared
with $143,557 for the July - Sept. 1993 period. Of the $4,793,139 amount, $3,917,896 was used
to purchase securities held to maturity. Of the $875,143 used for capital expenditures, $69,713 was
used by Jacksonville Center, Inc. to purchase equipment and $490,000 was used by the automotive
operations to acquire and improve the office/warehouse facility mentioned above. The remaining
$315,430 used in investing activities represents the purchase of additional inventory, the
capitalization of costs for the improvement of the TM7000, and the purchase of other items that are
used in the business. The increased net cash used in investing activities was partially offset by a
reduction in the number of Combi-Matchers produced during the year as compared with the previous
period.
Net cash provided by financing activities in the July - Sept. 1994 period was $61,630, as
compared to net cash used by financing activities of $425,906 for the July - Sept. 1993 period. This
change is primarily due to the settlement and payment of all of the Company's outstanding debt, except
for certain long-term lease obligations, and the financing of certain automobile and equipment loans.
Although the Company has not identified any other or different business opportunities of specific
interest, management does anticipate creating another distinct operation if and when a new business has
been identified as feasible and either acquired or created by the Company. Any new business operation
will likely involve a substantial commitment of Company resources.
Due to the on-going investigation by the Securities and Exchange Commission, the Company has
estimated and accrued approximately $455,000 (as of June 30, 1994) which amount remains unpaid
as of September 30, 1994 for legal and settlement costs associated with these matters. The Company
may have to spend additional funds defending itself against litigation brought by ASX Investment and any
future lawsuits that may result from Kerry Marler's (a former officer and director) involvement with
that same investment group. Hopefully, the Company will be able to recover any costs that it incurs
relative to these lawsuits from ASX Investment and Kerry F. Marler but there is no assurance such
costs can be recovered from those parties. The Company also anticipates that additional expenses will
be spent in formulating and executing a new business plan.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings - No material events have occurred in the Company's ongoing
litigation matters. For the prior history of such litigation, please refer to the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1994.
Item 2. - Changes in Securities - None.
Item 3. - Defaults Upon Senior Securities - None.
Item 4. - Submission of Matters to a Vote of Security Holders - None
Item 5. - Other Information - None.
Item 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
During its most recent quarter ended September 30, 1994, no current Reports on Form 8-K were filed by
the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
Assix International, Inc.
Registrant
Dated November 14, 1995 /s/ W. CAREY WEBB
W. Carey Webb
Chief Executive Officer and President
Dated November 14, 1995 /s/ TIMOTHY R. BARNES
Timothy R. Barnes
Vice President and Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-QSB/A2
FOR THE QUARTER ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1994
<CASH> 1,513,843
<SECURITIES> 3,964,191
<RECEIVABLES> 421,409
<ALLOWANCES> ( 140,599)
<INVENTORY> 468,851
<CURRENT-ASSETS> 6,340,151
<PP&E> 8,206,686
<DEPRECIATION> ( 1,329,667)
<TOTAL-ASSETS> 15,337,380
<CURRENT-LIABILITIES> 2,073,134
<BONDS> 61,960
<COMMON> 4,713
0
0
<OTHER-SE> 10,570,573
<TOTAL-LIABILITY-AND-EQUITY> 15,337,380
<SALES> 588,271
<TOTAL-REVENUES> 588,271
<CGS> 0
<TOTAL-COSTS> 1,352,264
<OTHER-EXPENSES> 8,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 727
<INCOME-PRETAX> ( 772,987)
<INCOME-TAX> 0
<INCOME-CONTINUING> ( 772,987)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 772,987)
<EPS-PRIMARY> ( .17)
<EPS-DILUTED> ( .17)
</TABLE>
