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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MAY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-2108-2
BUILDERS WAREHOUSE ASSOCIATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 84-1090968
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2800 28TH STREET, SUITE 100
SANTA MONICA, CALIFORNIA 90405
(Address of Registrant's principal executive offices)
(310) 453-4371
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, Par Value $0.008 Nasdaq
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
---- -----
Indicate by check mark if 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 Registrant's revenues for its most recent fiscal year were $16,402,276.
The aggregate market value of voting stock based upon the closing market price
held by non-affiliates of the Registrant on July 12, 1996 was $ 20,616,039.
The number of shares of the Registrant's Common Stock, $0.008 par value,
outstanding on July 12, 1996 was 3,983,237.
DOCUMENTS INCORPORATED BY REFERENCE : None
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TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Acquired Businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Uni Precision Industrial Limited . . . . . . . . . . . . . . . . . . . . . . . . 2
Sciteq Electronics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Pacific Data Products, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Relialogic Technology Corporation . . . . . . . . . . . . . . . . . . . . . . . . 3
Discontinued Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Key Products for the Local Area Network Market . . . . . . . . . . . . . . . . . . . . . . 4
Key Products Utilizing Radio Frequency Synthesis . . . . . . . . . . . . . . . . . . . . . 5
Other Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Intellectual Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Manufacturing and Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Pending Litigation and Potential Claims . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . 9
PART II
Item 5. Market for Company's Common Equity and Related Matters . . . . . . . . . . . . . . . . . . . . 10
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Results of Operations: Comparison of Year Ended May 31, 1996
and July 1, 1994 (inception) to May 31, 1995 . . . . . . . . . . . . . . . . . . 11
Results of Operations: Analysis of Period July 1, 1994 (inception)
to May 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7. Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<TABLE>
<S> <C> <C>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART III
Item 9. Directors and Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 16
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . 17
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Long-Term Incentive Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Option Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 11. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . 19
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 21
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . 22
</TABLE>
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PART I
ITEM 1. BUSINESS.
COMPANY OVERVIEW
Builders Warehouse Association, Inc., (the "Company") through its subsidiaries
designs, manufactures and markets networking, connectivity and add-on products
for Local Area Networking markets. The Company's products include network
adapters, hubs, Ethernet switches, video cards, shared printer network servers
and adapters, printer enhancement products and products utilizing Phase-Locked
Loop, direct analog, and direct digital radio frequency ("RF") synthesis.
The Company's products are sold worldwide to original equipment manufacturers
and through distributors.
On June 18, 1996, the Company agreed to merge with Osicom Technologies, Inc.
("Osicom"), a leader in Local Area and Wide Area Networking and broad band
communications markets. Specific goals of the merger, from the perspective of
the Company, include access to Osicom's design capabilities and product
research and development, utilization of the Company's ISO-9001-certified plant
to manufacture products from Osicom's product line; and access to Osicom's
traditional customers and sales channels, which include the original equipment
manufacturers, state and federal governments, and the telephone and cable
providers. It is therefore anticipated that the merger will yield to the
Company expanded market opportunities, increased utilization of manufacturing
capacity, and, as a result, improved margins through reductions in cost.
Management intends to continue its strategy of acquiring companies that control
proprietary technologies, have significant market share in products which fit
into the Company's product lines, give the Company access to new sales
channels, or offer enhanced manufacturing capabilities.
HISTORY
Builders Warehouse Association, Inc., is a Colorado corporation originally
incorporated under the name of Ceetac Corp. on June 30, 1988, and subsequently
doing business as Omni Corporation. The primary purpose of the Company was to
evaluate acquisition candidates and complete acquisitions of, or mergers with
those candidates. The Company was therefore accounted for as a "development
stage company" and, until September 20, 1991, conducted no business activities.
On May 31, 1995, the Company acquired 100% of the outstanding common stock of
Relialogic Technology Corporation ("RTC"), a designer and manufacturer of
add-on products for the multimedia computer marketplace as well as a
distributor of computer products manufactured by others. At the time of this
acquisition, the shareholders of RTC gained voting control of the Company and
therefore became the acquiring entity. As a result, RTC is the accounting
survivor and reporting successor. The acquisition of RTC by the Company was
recorded as a reverse acquisition. The predecessor company balance sheets
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were adjusted to reflect the recapitalization of RTC pursuant to the
acquisition. The historical stockholders' equity of RTC was adjusted to
reflect the cost basis of the RTC shareholders in the net assets of RTC. As a
result of the acquisition of RTC by the Company, RTC changed its accounting
year end to May 31.
ACQUIRED BUSINESSES
A primary goal of the Company in 1996 has been to expand its networking
business through the acquisition of companies both in the United States and
abroad.
UNI PRECISION INDUSTRIAL LIMITED
On April 1, 1996, the Company acquired 100% of the common stock of Uni
Precision Industrial, Ltd. ("Uni"), a Hong Kong corporation, for a purchase
price of $6 million in cash and debt assumed, $500,000 paid at the closing of
the transaction, an additional $5.5 million paid upon completion of audited
financial statements in May, 1996. An additional $4.0 million payment will be
made April 1, 1997 subject to pro rata adjustment based upon Uni achieving net
income after tax of $2.5 million during the 12-month period ending March 31,
1997. The Company incurred additional costs in connection with the purchase of
Uni of $813,000, of which $809,000 was paid through the issuance of restricted
common shares.
Uni has as its corporate headquarters a 14,000 square foot facility in Hong
Kong, and it operates one of the few ISO-9001-certified manufacturing
facilities in China (ISO-9001 being the most stringent of the ISO 9000 series
of standards). UNI has a combined workforce of approximately 1,200 at its
258,000 square foot plant in China and its offices in Hong Kong. Uni derives
revenues from the design, manufacture and sale of networking products. Uni
also designs and manufactures many other products, including joysticks and
cable TV set-top descramblers. Uni also has majority and minority interests
in several technology companies that produce such products as advanced
hand-held point of sale systems and miniature digital foreign language
translators.
SCITEQ ELECTRONICS, INC.
On May 31, 1996, through a merger with a newly-formed corporation, Sciteq
Communications, Inc. ("Sciteq"), the Company acquired 100% of Sciteq
Electronics, Inc., for $600,000 in cash, plus stock and below-market stock
options of the Company valued at $2.4 million. A final payment in stock of the
Company valued at $2 million will be made 12 months from closing. The final
payment is subject to pro rata adjustment based upon Sciteq achieving pretax
net income of $750,000 in the twelve months ending December 31, 1996. The
Company incurred additional costs in connection with this acquisition of
$579,000, of which $532,000 was paid or will be paid through the issuance of
common shares.
Sciteq designs, manufactures and markets products utilizing Phase-Locked Loop,
direct analog, and direct digital RF synthesis, the principal technologies
employed in a wide array of emerging electronic systems including wireless,
fiber optic cable and satellite communications. Sciteq has 18 employees at its
San Diego, California facility.
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PACIFIC DATA PRODUCTS, INC.
On May 24, 1996, the Company, through its newly-created, wholly-owned
subsidiary PDP Acquisition Corp. ("PDPA"), acquired substantially all of the
assets of Pacific Data Products, Inc. ("PDP"). The Company paid $273,000 in
cash and assumed PDP's bank indebtedness of approximately $2.4 million in
return for all of PDP's assets, including cash, accounts receivable, inventory,
fixed assets and intangibles including patents, trademarks, copyrights and
certain specified business agreements. The Company incurred additional costs
in connection with the purchase of PDP's assets of $123,000, of which $121,000
was paid through the issuance of common shares.
PDP Acquisition Corp. entered into an agreement with Coast Business Credit
("Coast") for a $5 million credit facility secured by all of PDP Acquisition
Corp.'s newly-acquired assets. The Company provided for a $500,000 infusion of
working capital to PDP Acquisition Corp., as well as a limited guarantee of
$750,000 to effectuate the Coast credit facility.
PDP is a designer and manufacturer of shared printer network adapters, servers
and other products including font cartridges and memory modules.
RELIALOGIC TECHNOLOGY CORPORATION
As mentioned above, on May 31, 1995, the Company acquired 100% of the
outstanding stock of Relialogic Technology Corporation. RTC is a designer and
manufacturer of add-on products for the multimedia computer marketplace, as
well as a distributor of computer products manufactured by others. RTC is also
a provider of video graphics cards in the United States. Sales by RTC are made
primarily through national and regional distributors. RTC subcontracts all of
its manufacturing. Research and development is conducted in-house, as well as
by developers engaged on a project-by-project basis.
DISCONTINUED BUSINESSES
As of May 31, 1995, the Company disposed of its loss-generating, wholly-owned
subsidiary, BWA, Inc., which owned two Arkansas-incorporated operating
subsidiaries, Builders Warehouse Association, Inc., and American Plywood Sales,
Inc., both of which were engaged in the building supply industry. Such
operations incurred an operating loss of approximately $2.4 million during the
year ended May 31, 1995 and had a consolidated negative book value at
disposition of $1,143,042. Under the terms of the disposition agreement the
Company transferred its shares in BWA, Inc., plus 125,000 restricted shares of
its common stock to Krypton Management, Inc., with an approximate market value
of $437,500 at May 31, 1995. In addition, the Buyer assumed future costs and
potential losses from any litigation and claims related to BWA, Inc. and its
activities prior to the disposition.
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BUSINESS STRATEGY
During the fiscal year just completed, and continuing into the immediate
future, the Company's overall strategy has been and will be to position itself
for significant growth in the burgeoning computer interconnectivity/networking
area. As a player in this market, the Company believes that its greatest
potential for growth in sales and earnings is to offer products with large
market appeal and to offer those products at prices low enough that the Company
will be able to garner significant amounts of new market share. The Company
has therefore chosen to acquire technology (through the acquisition of
companies like Sciteq, Uni Precision and PDP, which have already developed
promising technologies) rather than rely solely on the expensive and uncertain
process of internal research and development. Similarly, the Company has
created corporate alliances in order to exploit very low-cost manufacturing
capacity (as in the case of Uni Precision) and to expand into new sales and
distribution channels (as in the case of RTC). The centerpiece of this
strategy is the Company's broad and growing product line of more than 100
products. The products themselves generally fall into one of two categories:
Products which serve the growing Local Area Network market, and products for
the similarly emergent wireless, satellite and fiber optic communications
markets which depend upon Radio Frequency synthesis technology for a high level
of performance.
KEY PRODUCTS FOR THE LOCAL AREA NETWORK MARKET
R-NET 800 SERIES SERVER HUB
The 800 Series Server Hubs are fully-managed 10Base-T hub cards for small- to
medium-size networks or departmental workgroups within an enterprise network.
The 800 Series hubs are easy to use and install, and are a cost-effective
solution for Ethernet 10Base-T environments. Features include 12 or 24
10Base-T ports per card, an Integrated network management chip for low server
overhead, connectivity to any 10Base-T server network adapter, Novell HUBCON
and HUBSNMP utilities, optional Client Redirector software for NetWare client
installation, and an optional SNMP agent for Windows NT Advanced Server
installation.
Each hub card supports either 12 or 24 ports per card. As many as 8 cards can
be connected to form up to a 192 node network segment. Multiple segments can
also be configured by installing individual hub cards within one host PC. Once
the hub cards are installed in the PC, the hub software automatically detects
the number of cards and the configuration of each card, and runs diagnostics
to make sure that every port is working properly. The hub also automatically
partitions a port that generates too many errors.
R-NET 8000 SERIES NETWORK ADAPTER CARDS
The 8000 Series is a complete line of 10 Mbps and 10/100 Mbps Ethernet Network
Adapter Cards. Both 32-bit PCI and 16-bit ISA products, with either BNC, UTP
or both are available on various products. The 8000 Series also includes a
PCMCIA LAN adapter card, as well as 8- and 16-port 10Base-T standalone Ethernet
hubs.
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POCKET ETHERNET PRINT SERVERS
Pacific DirectNet PEPS3 is a family of Pocket Ethernet Print Servers for
Novell, TCP/IP and AppleTalk networks. PEPS3 servers support any printer or
plotter with a parallel port, and enable the user to connect a printer anywhere
on a network for maximum convenience and cost efficiency.
The PEPS3 product family is designed to meet the needs of complex networks
and as such fully supports the IPX/SPX protocol for Novell networks.
PEPS3-IPX/XL includes NDS support and is upgradeable to multiprotocol
capabilities, while PEPS3-IPX can only be used as an IPX/SPX server. PEPS3-TCP
dramatically improves printer speed and performance on UNIX-TCP/IP networks.
PEPS3-TCP can only be used in TCP/IP environments. PEPS3-MPS is designed to
support a wide range of protocols (IPX/SPX, TCP/IP, AppleTalk, Windows 95/NT
with DHCP*), while offering complete NDS support. It delivers maximum
flexibility in networks with multiple operating systems.
The PEPS3 servers are the smallest pocket servers on the market, measuring only
1" x 2.5" x 3". Each includes an SNMP agent, thereby allowing network
management software to recognize and manage printers like any other network
device, providing real-time printer status information. They are fully
updateable via Flash memory.
OPTIFORM
The OptiForm Flash SIMM and Management Software package transforms an existing
HP LaserJet into a high-speed, on-demand electronic forms printer for nearly
any computing environment. It replaces costly paper forms with dynamic
electronic forms instantly and at the same time prints faster, cuts network
traffic, improves forms management, and enhances data security.
OptiForm is a solution for applications demanding heavy forms printing
capabilities such as insurance, banking, healthcare, and manufacturing. It is
intended to provide cost effective, high quality, flexible solutions for all
corporate stationery needs including invoices, letterhead, fax sheets, checks
and other general business forms. It improves network performance by reducing
graphic data transmitted over the network to shared printers, increasing the
effective network bandwidth. Network access and control are provided for
either centralized or remote management of forms and fonts. OptiForm's
SIMMLock feature ensures complete control of company forms and fonts,
preventing unauthorized use of sensitive forms such as checks and signatures.
KEY PRODUCTS UTILIZING RADIO FREQUENCY SYNTHESIS
Sciteq offers products based on radio frequency synthesis ("RF") technology.
The requirement for RF derives from a growing market need for multiple
frequencies that are accurate, stable and free of noise and distortion. A
single channel radio for instance, is best tuned with a quartz crystal to
achieve these characteristics. However, when multiple channels are required, a
single generator is used to create or "synthesize" all of the desired
frequencies. Thus, a frequency synthesizer is a single generator which is
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numerically locked to a reference frequency (the crystal or other source) in
order to preserve the accuracy, spectral purity and stability characteristics
of the reference.
Synthesizers are used broadly in the electronics industry as accurate tuning
devices. Synthesizers provide the world of communications, data transmission
and instrumentation with otherwise unattainable channel density, clarity and
bandwidth (speed). Among Sciteq's various products, all three technologies, as
well as combinations thereof (hybrids) are employed to deliver performance that
best fits the cost-performance criteria of the customer.
DIRECT ANALOG ("DA")
This is the most costly end of the product spectrum, but it sometimes provides
features that are mandatory. DA employs electronic circuitry to mix, multiply
and divide the signal to achieve the desired output frequency. This technique
has the advantages of fast switching and excellent phase noise properties.
However it is inherently a costly approach because of the amount of circuitry
required to generate the many references for the mix/filter/divide process.
Sciteq's use of this technology emphasizes cost-effective combinations that
pair it with other technologies to achieve a desired result.
DIRECT DIGITAL SYNTHESIS ("DDS")
This process utilizes logic and memory to construct a digital representation of
the desired wave form, which is then converted to the desired analog signal by
a data conversion device. Accuracy is achieved by clocking the digital process
with a crystal frequency reference. This technique has most of the advantages
of DA, but is much less costly for a given level of performance. The Direct
Digital Synthesizer provides fine steps, sub-microsecond switching speed,
digital wave form manipulation (modulation), all in a small package with
digital reliability. Sciteq products operate up to 300 MHz and that upper
limit has steadily increased over time. Since this technology can be easily
and reliably reproduced, many DDS products have now been brought into the
mainstream of the electronics industry as off-the-shelf components. Sciteq,
however, remains at the forefront of new technology development in this area.
PHASE LOCK LOOP ("PLL")
PLL or "Indirect" synthesizers employ feedback loops to continually compare the
output from an oscillator to the reference frequency and correct any errors
through the use of correction signals which restore the oscillator to the
desired output. PLL techniques can cover virtually any frequency range and
have low distortion and excellent stability, all at reasonable cost. Because
of these characteristics, this is the most broadly used synthesizer in the
market.
An important Sciteq innovation within this family is the Arithmetically Locked
Loop ("ALL"). The ALL is a PLL-derivative that achieves a given phase noise
performance with fewer parts, lower power consumption, and greatly reduced cost
over PLL's.
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OTHER PRODUCTS
CABLE CONVERTERS, DESCRAMBLERS AND CONVERTER/DESCRAMBLERS
The Company's Uni subsidiary is a producer of set-top equipment necessary for
home cable television reception. Converters transpose channel signals
emanating from the cable company into a single channel (usually 3) at the
user's television. Descramblers restore the picture and sound of "premium"
cable channels and must be used in conjunction with a converter.
Converter/Descramblers combine both functions in a single unit.
INTELLECTUAL PROPERTIES
PATENTS
The Company holds patents but does not consider its business to be dependent
upon patent protection. Nevertheless, the Company could be subject to the risk
of adverse claims and litigation alleging infringement of the proprietary
rights of others. Although the Company has not been threatened and is not
involved in any such patent infringement litigation, and while the Company
believes that it is not infringing on the valid patents of others, there can be
no assurances that third parties will not assert infringement claims in the
future or that such claims would not have a material impact on the Company's
business. Following is a list of patents held by the Company and including
those in process:
<TABLE>
<CAPTION>
PATENT PATENT NUMBER
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<S> <C>
Digital Frequency Synthesizer 4,752,902
Device for Fixing the Phase of 4,868,510
Frequency Synthesizer Outputs
Digital Frequency Synthesizer 4,958,310
Having Multiple Processing Paths
Programming Fractional-N 5,224,132
Frequency Synthesizer
A Source of Quantized Samples 3518 PA 04
for Synthesizing Sine Waves
</TABLE>
RESEARCH AND DEVELOPMENT IN PROCESS
Sciteq is developing a number of proprietary techniques--which may at a later
date take form as proprietary products--for improving the "digitization" of
data for transmission, reception, analysis and manipulation by computers.
These include:
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- Ultra fast signal generators for system agility and
multiplexing;
- Broad Band Digital Wave Form Generators designed to generate
sound, image, cellular information, etc., at clock speeds
above 1000 Mhz;
- Next-generation Antennae Control, Downconverters and Phase
Shifters for Digital Cellular Communication;
- "Deglitchers" for use in concert with Digital to Analog
Converters;
- Digital Signal Processing (DSP) noise-shaping techniques,
including All-Digital Fractional Synthesis, for use in the
Phase Locked Loop synthesizer;
- Ultra Wide Band FM Discriminators.
MANUFACTURING AND QUALITY
Uni operates a registered ISO 9001 manufacturing plant. The Company's ultimate
goal is to have all its products carry the ISO 9001 Seal of Approval for
commercial markets. Since ISO 9001 is the most stringent of the ISO 9000
series, the Company perceives this to be a competitive advantage in global
markets.
Sciteq has adopted total quality management (TQM) and currently has a program
underway involving each of its employees. This program may qualify for funding
from the State of California. Its quality program is compliant with MIL-Q-9858
and MIL-STD-2000.
ITEM 2. PROPERTIES
The Company leases a total of approximately 322,000 square feet of office,
manufacturing and distribution space: 43,300 square feet in the United States,
and 279,000 square feet in Hong Kong and China. The lease term for a 6,000
square foot office and warehouse space in Fremont, California expired on July
31, 1996. Until operations can be relocated to an existing facility in San
Diego, California, the Fremont space is being occupied on a month-to-month
basis. The Company occupies 37,000 square feet in San Diego with a lease
expiring on September 1, 1997, and an additional 32,000 square feet leased on
a month-to-month basis. The corporate offices of the Company occupy 1,000
square feet leased on a month-to-month basis. The Company leased 21,000
square feet of office and warehouse space in Hong Kong, which lease expired
May 31, 1996. Subsequently, the Company relocated to a 14,000 square foot
facility which is owned by the Company. The Company leases space totaling
258,000 square feet in China used primarily for manufacturing, warehousing,
distribution and administrative offices, due to expire on May 31, 1999.
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ITEM 3. LEGAL PROCEEDINGS
PENDING LITIGATION AND POTENTIAL CLAIMS
Charles H. Fargo, On behalf of himself and all others similarly situated v.
Joseph McCartney, Robert L. Ott, DeWayne Davis, David Sowell, David Spivey, Tom
Watson and Builders Warehouse Association, Inc., United States District Court,
Eastern Division of Arkansas, Western Division. This complaint was filed on
May 9, 1994 by a shareholder of the Company and such shareholder also purports
to represent all persons who purchased stock of the Company between March 3,
1993 through April 17, 1994. The Plaintiff seeks a declaration that his action
be determined a class action under Federal Rules, and for compensatory damages,
costs and attorney fees.
The Plaintiff alleges that the Company violated certain securities laws as well
as committing common law fraud and deceit through the issuance of positive
public statements. The Company believes that the matter is without merit as to
it and as to the directors and officers. The matter is currently in discovery
and the Company believes it is premature to attempt to evaluate the likelihood
of an unfavorable outcome or the extent of such outcome, if any. The Company
has been indemnified against any loss which may result by the purchaser of BWA,
Inc.
Columbia Forest Products Corp. d.b.a. Panel Products Division, a Virginia
Corporation v. Builders Warehouse Association., State of Oregon Circuit Court,
Multnomah County, No. 9506-04186. This action was brought by a supplier of
disposed subsidiary for payment of outstanding invoices totaling approximately
$158,000 plus interest. A default judgment was entered against the Company
without proper service. The Company has filed a notice of appeal and it has
been indemnified for any loss resulting from this litigation.
Lee Roy Jordan Redwood Lumber Co. v. Builders Warehouse Association, Inc.,
Arkansas Circuit Court, Faulkner County, No. CIV 95-365. This action was
brought by a supplier of the disposed of subsidiary for payment of invoices
totaling approximately $10,000 plus costs. No discovery has occurred and the
Company has been indemnified against any loss resulting from this litigation.
The Company has been notified that other suppliers may file suit to collect
amounts owed by the disposed subsidiary. See "Management's Discussion and
Analysis" at page 6.
The costs and expenses of the outstanding legal proceedings and any corporate
liabilities resulting thereof are the responsibility of the purchaser of the
disposed businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has traded on the Nasdaq Small Cap Market under the
symbol BWAI since May 3, 1993.
The following table sets forth the high and low closing bid prices for the
Company's Common Stock in the over-the-counter market from June 1, 1994 to May
31, 1996, based upon information obtained from Nasdaq and taking into account
the 1-for-6 reverse split on April 10, 1995, and the 1-for-2 reverse split on
June 30, 1995. Quotations represent inter-dealer prices; they do not include
retail markups, markdowns, or commissions; and, they may not represent actual
transactions.
<TABLE>
<CAPTION>
Fiscal 1994-1995 High Low
---------------- ---- ---
<S> <C> <C>
Quarter from June 1, 1994 $31.50 $10.50
to August 31, 1994
Quarter from September 1, 1994 $33.00 $11.25
to November 30, 1994
Quarter from December 1, 1994 $15.00 $4.50
to February 29, 1995
Quarter from March 1, 1995 $6.38 $2.50
to May 31, 1995
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995-1996 High Low
---------------- ---- ---
<S> <C> <C>
Quarter from June 1, 1995
to August 31, 1995 $6.50 $1.75
Quarter from September 1, 1995
to November 30, 1995 $10.00 $4.75
Quarter from December 1, 1995
to February 28, 1996 $11.125 $5.375
Quarter from March 1, 1996
to May 31, 1996 $19.00 $8.625
</TABLE>
On July 12, 1996, the average bid quotation for the Company's Common Stock was
$11.50 per share. However, there is no assurance that a market in the
Company's securities will continue.
As of July 12, 1996, the latest practicable date, there were 851 shareholders
of record, including brokerage firms and nominees, of the Company's Common
Stock.
10
<PAGE> 14
The Company has never paid any cash dividends on its Common or Preferred Stock.
The present policy of the Board of Directors is to retain all available funds
to finance the development of the Company's existing and proposed products and
the expansion of its business. In light of the anticipated cash needs of the
Company's business, it is not anticipated that any cash dividends will be paid
to the holders of the Common or Preferred Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The results of operations reflect the activities of the Company and its RTC
subsidiary from its inception on July 1, 1994; the Company's newly-formed
subsidiary, R-Net International, Inc. from its inception in November, 1995;
Uni from April 1, 1996 (61 days); PDP Acquisition Corp. from its inception on
May 24, 1996 (7 days); and the activities of Sciteq from May 31, 1996 (1 day).
RESULTS OF OPERATIONS: COMPARISON OF THE YEAR ENDED MAY 31, 1996 AND JULY 1,
1994 (INCEPTION) TO MAY 31, 1995
Net sales and gross profits of the Company for the year ended May 31, 1996 were
$16.4 million and $2.4 million, respectively, up from $6.7 million and $804,000
for the period July 1, 1994 (inception) through May 31, 1995. Gross margin
improved to 14.4% for the current year, up from 12.0% for the period ended May
31, 1995, reflecting the impact of Uni's higher gross margin as well as an
improved gross margin for RTC of 13.4%.
The 61 days of Uni's operations reflected in the consolidated results
contributed $10.2 million to net sales and $1.4 in gross profits, prior to
elimination of intercompany transactions. It is Management's opinion that the
Company's future gross margins will experience significant positive influence
from Uni, but can give no assurance that such performance will be realized in
the future.
RTC achieved an increase in units sold for the year ended May 31, 1996, over the
prior period ended May 31, 1995, while net sales dollars declined 5.7% from the
prior period. This decline was due to declining sales prices for various of
RTC's products as well as greater use by customers of early payment discounts.
RTC's gross margin increased to 13.4% for the current period from 12% in the
prior period.
This year's selling, general and administrative costs were impacted by the
Company's aggressive acquisition program and included $2.4 million of purchased
research and development costs, $427,000 of acquisition related expenses, and
$76,000 of amortization of excess cost over net book value of assets acquired
for a total of $2.9 million as compared to a total of $57,000 for the period
ended May 31, 1995.
The Company's net income from operations would have been $544,000 but for
acquisition related expenses and amortization of $2.9 million. After these
expenses the company experienced a net loss from operations of $2.4 million for
the year ended May 31, 1996.
11
<PAGE> 15
Selling, general and administrative expenses exclusive of the acquisition
impacted items totaled $1,819,000 or 11.1% of net sales as compared to 13.3% of
net sales for the prior period. For the two months ended May 31, 1996, Uni's
selling, general and administrative expenses were 6.3% of its net sales.
Salaries, wages and related payroll costs increased 144% to $753,00; rents
increased 259% to $97,000; travel, promotion and advertising increased 235% to
$348,000; professional and consulting fees increased 1634% to $213,000;
depreciation increased 1102% to $36,000; and other expenses increased 826% to
$372,000.
These increases reflect the results of Uni's operations for the two months
ended May 31, 1996 as well as increases primarily resulting from auditing and
accounting fees, transfer agent fees, business consultants, investor relation
costs and other expenses which were not required during the period ended May
31, 1995 as such costs were partially encompassed by the management fee with
the former owners of RTC (see Note 10 to the financial statements) which was
terminated as of May 31, 1995. The increase in travel, promotion and
advertising was due to RTC's co-operative pricing program whereby customers
are allowed credits towards purchases for a portion of advertising featuring
Relialogic TM products as well as overall increases in promotional activities.
Other non-operating income and expenses for the year ended May 31, 1996
included investment income of $21,000 (an increase of 469%), net foreign
currency exchange gains of $15,000, income tax expense of $40,000 and interest
expense of $165,000 (an increase of 11536%) for a total net charge of $169,000.
The increase in interest income reflects the capital-raising activities of the
Company as well as increases in interest-bearing cash deposits at both RTC and
Uni. Interest expense increased as the result of Uni's operations for the two
months ended May 31, 1996.
Exclusive of acquisition-related items and amortization expense, the Company
would have had net income of $375,000. After these expenses, the Company
experienced a net loss for the year ended May 31, 1996 of $2.5 million or $1.31
per common share as compared to $81,000 or $.27 per common shares for the
period July 1, 1994 (inception) to May 31, 1995.
The Company has a carryforward of federal net operating losses which may be
potentially available to reduce future taxable income in the United States.
However, due to potential adjustments to the net operating loss carryforwards
as provided by the Internal Revenue Code with respect to future ownership
changes, future availability of these tax benefits is not assured.
12
<PAGE> 16
RESULTS OF OPERATIONS: ANALYSIS OF THE PERIOD JULY 1, 1994 (INCEPTION) TO MAY
31, 1995
The results of operations reflect the activities of RTC from its inception on
July 1, 1994 through May 31, 1995.
Net sales were $6.7 million and gross profit was $804,000 or 12% of net sales.
As discussed above RTC's gross margin increased to 13.4% in the following year.
Selling, general and administrative expenses were $887,000 or 13.3% of net
sales including salaries, wages and related costs of $309,000, management fee
of $335,000, rents of $27,000, travel, promotion and advertising of $104,000,
professional and consulting fees of $12,000, amortization and depreciation of
$60,000 and other expenses of $40,000. The management fee pursuant to an
agreement with the former shareholder of RTC was 5% of net sales and was
terminated by mutual consent of the parties on May 31, 1995. Exclusive of the
management fee selling, general and administrative expenses were $553,000 or
8.3% of net sales.
Net loss from operations was ($83,000). The results of operations before the
management fee reflected income of $251,000 or 3.8% of net sales.
Interest income and expense were not material.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996, the Company had net worth of $3 million, with total assets of
$30.8 million. Of these assets, current assets totaled $18 million including
$4.4 million cash and cash equivalents, $5.3 million accounts receivable and
$6.9 million inventory.
The working capital deficit at May 31, 1996 of $1.2 million reflected the
dividends payable to the former shareholders of Uni declared prior to the
acquisition of Uni by the Company ($1.3 million) and accrued liabilites which
will be satisfied through the issuance of common shares ($175,000). Unused
credit lines available to the Company and its subsidiaries totaled $7.8 million
as of year end.
The Company completed a private placement of its 8% callable, convertible
debentures which resulted in net proceeds of $6.6 million through May 31, 1996
and additional net proceeds of $3.0 million subsequent to year end. If not
called by the Company prior to conversion by the holders, the debentures
convert into the Company's common stock at the then common stock market price
or, depending upon certain conditions, at other prices including premiums to
market. See Note 6 to the consolidated financial statements.
The Company called $1,375,000 face value of bonds prior to their conversion by
the holders on March 25, 1996 utilizing a temporary loan from a director and
officer to effectuate the call.
13
<PAGE> 17
Additionally, the Company completed a private placement of its common stock
resulting in proceeds of $260,000 to the Company during the third quarter.
Subsequent to year end the Company completed a placement of its of its new
class of callable, convertible preferred stock with warrants attached, and
received approximately $8.1 million as net proceeds. These shares carry a
dividend rate of 8% (beginning October 1, 1996), and include call and
conversion provisions at market or various conditions thereto. Warrants to
purchase 145,310 shares of common stock at $18.50 per share were also issued
in this placement. See Note 14 to the financial statements.
The Company's customers remit payments within the terms of sale. The Company
is able to meet its obligations as they become due. Management believes that
the Company has sufficient working capital to meet its planned level of
operations. The Company plans to grow both internally as well as through
acquisitions. The capital needed to accomplish this will have to be raised.
The Company cannot give any assurances of the continued availability of working
capital or its ability to obtain funds.
OTHER MATTERS
The Company and certain former officers and directors are defendants in
litigation filed in May 1994 seeking unspecified damages for allegedly
violating sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
making a series of positive public statements to the securities marketplace.
Management believes the claims to be without merit and has retained legal
counsel and intends to vigorously defend itself against the claim. Management
and counsel believe the claims to be without merit. Nevertheless, the ultimate
outcome of the litigation cannot presently be determined and no provision for
any loss that may result upon resolution of this matter has been reflected in
the financial statements. The buyer of the Company's BWA, Inc., subsidiary has
indemnified the Company against any loss that may result. See Note 1 to the
consolidated financial statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 7 is set forth in Item 13 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On June 20, 1996 the Company terminated its relationship with its former
accountant Jay J. Shapiro C.P.A., a Professional Corporation ("Shapiro"), and
engaged Weinbaum & Yalamanchi to audit the Company's consolidated financial
statements for the year ended May 31, 1996.
Shapiro served as the independent auditor of the Company's financial
statements for the year ended May 31, 1995. During the year ended May 31,
1995, the Company acquired its only operating
14
<PAGE> 18
company, RTC, and contributed the assets and liabilities of its original
operation to a wholly-owned subsidiary, BWA, Inc. which was disposed as of May
31, 1995. During the year ended May 31, 1995 and prior to Shapiro's
replacement, the Company had no disagreements with Shapiro on matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of Shapiro, would
have caused Shapiro to make reference to such matters in its reports. The
Company authorized Shapiro to respond fully to the successor auditor during
their audit of the Company's financial statements.
On June 18, 1996, the Company agreed to merge with Osicom Technologies, Inc.,
and Weinbaum & Yalamanchi have served as the auditors for Osicom for two years.
15
<PAGE> 19
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
On July 12, 1996, the Company's Directors, executive officers, and other
significant employees were:
<TABLE>
<CAPTION>
Name Age Position
----- ---- --------
<S> <C> <C>
Par Chadha 41 Director, Chairman of the Board,
Secretary, Chief Accounting Officer
Barry Witz 55 Director, Chief Executive Officer, Chief
Financial Officer
Kelvin Y. O. Li 37 President, RTC; CEO, Uni Precision Ltd.
John S. Hwang 35 Vice President, RTC; CEO PDP
Acquisition Corp.
Fred Schlaffer 50 President, PDP Acquisition Corp.
Anthony P. Mauro 55 COO, Sciteq Communications, Inc.
Bar-Giora Goldberg 50 Chief Technology Officer, Sciteq
Communications, Inc.
</TABLE>
All Directors serve until the next Annual Meeting of Stockholders and
thereafter until their successors have been elected and qualified. All
directors and officers of the Company and its subsidiaries will spend such time
as is necessary in order to carry out the business of the Company.
Par Chadha, age 41, was appointed director of the Company on March 30, 1995.
Mr. Chadha also serves as Chairman of Osicom Technologies, Inc., a Nasdaq
traded company in the broadband communications sector. From January 28, 1995
to July, 1995 Mr. Chadha served as a director of Saratoga Brands, Inc., a
Nasdaq company. From September 1993 to November 1993, Mr. Chadha served as
Chairman of the Board and as a Director of Phoenix Laser Systems, Inc., an
American Stock Exchange company. Since February 1994, Mr. Chadha has served as
President, CEO and Chairman of the Board of Oxford Acquisitions Group, Inc., a
publicly held company engaged in seeking potential business acquisitions. Mr.
Chadha has served as a director of Rand Research Corporation , RII Partners,
Inc., and RT Investments, Inc., private holding companies with investments in
several private and publicly held companies including the Company.
Barry Witz, age 55 was appointed director of the Company on March 30, 1995.
Mr. Witz also serves as Chairman of the Board of Saratoga Brands, Inc., a
Nasdaq company. Mr. Witz is focused on turn-around situations, in which he can
bring his financial and legal expertise to assist in financial restructuring,
recapitalizations, mergers and acquisitions. Since 1994, he has been Chairman
of the Board, Director and President of Brite Lite Industries, Inc., a
privately held company with investments in several private and publicly-held
companies, including the Company. Mr. Witz has acted as an attorney for the
United States Securities and Exchange Commission, he has been an officer of the
New York Stock Exchange, and was a Senior Partner in the law firms of Arney,
Hodes, Costello, Berman, and Wood, Lucksinger and Epstein.
16
<PAGE> 20
Kelvin Y. O. Li, age 37, has been President of RTC since its formation in June
1994. Mr. Li also serves as the Chief Executive Officer of Uni Precision
Industry Ltd. Mr. Li was a founder of Relialogic Corporation and served as
its president until its dissolution in May 1994. Mr. Li was a director of
Co-Time Computer and Uni Precision Industrial in Hong Kong since 1990 and
worked as a sales engineering manager for Hong Kong Ryosan during 1984 through
1989.
John S. Hwang, age 35, has been Vice President of sales and marketing since its
formation in June 1994. Mr. Hwang also serves as the Chief Executive Officer
of PDP Acquisition Corp. Mr. Hwang served as a consultant to Relialogic
Corporation, from 1991 to 1993 when he became its Vice President of sales and
marketing; he served in this position until its dissolution in May 1994. Mr.
Hwang was employed by Samsung America, Inc. during 1984 through 1991; initially
as a manager and from 1989 through 1991 as a Vice President of sales and
marketing for the computer and monitor department.
Fred Schlaffer, age 50, was appointed President of PDP Acquisition Corp. on May
24, 1996. He served as Senior Vice President of sales and marketing for Pacific
Data Products since July 1994. Mr. Schlaffer served as Senior Vice President
of sales and marketing for Digital Products, Inc. from November 1991 to July
1994 and as Senior Vice President and Chief Operating Officer of Connectivite
Corporation from January to October 1991. Mr. Schlaffer has more than 20
years experience in the network communications and software industry.
Anthony P. Mauro, age 55, has served as Chief Operating Officer of Sciteq
since 1993. From 1990 to 1993, Mr. Mauro served as Executive Vice President
for Hixon Metal Finishing. Concurrent with these positions, Mr. Mauro has been
Owner and President of Two Mauro Enterprises and MFG. Service Company. Mr.
Mauro received a Bachelor of Science degree from Fordham University and
Bachelor and Master of Science degrees in Electrical Engineering from
California State University, Pomona. Mr. Mauro also has a Master of Arts degree
in Vocational Education from California State University, San Bernadino. Mr.
Mauro has over 30 years experience in multi-facility international operations,
high tech electronics, and telecommunications.
Bar-Giora Goldberg, age 50, was a co-founder of Sciteq Electronics in 1984 and
has since served as its Chief Technical Officer. He received Bachelor of
Science and Master of Science degrees in electrical engineering from the
Technion in Israel where he served in the air force as a technical officer.
Mr. Goldberg has a strong background in radar, communications and signal
analysis.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Securities Exchange Act of 1934 requires the Company's directors and
executive officers and persons who own more than ten percent of a registered
class of the Company's equity securities to file reports of beneficial
ownership and changes in beneficial ownership with the Securities and Exchange
Commission. To the knowledge of the Company, all filing requirements under
Section 16(a) in respect of the Company were complied within the year ended May
31, 1996.
17
<PAGE> 21
ITEM 10. EXECUTIVE COMPENSATION.
Both the officers and directors may receive remuneration from the Company, and
reimbursements may also be made for any expenses incurred on behalf of the
Company. The Company's Bylaws provide that directors may be paid their
expenses, if any, and may be paid a fixed sum for attendance at a Board of
Directors meeting.
At this time the Company does not offer any retirement benefits, Company-wide
stock option plans, profit sharing or other similar remuneration plans or
programs.
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation awarded to, earned by, or paid
to (i) all individuals who served or functioned as the Company's Chief
Executive Officer ("CEO") during the fiscal year ended May 31, 1996 and (ii)
the Company's four most highly compensated executive officers who were serving
at the end of the fiscal year ended May 31, 1996 (all of the foregoing
individuals being hereinafter referred to collectively as the "Named Executive
Officers"), for services rendered in all capacities to the Company and its
subsidiaries for the Company's last fiscal year, ended May 31, 1996. There
were two officers of the Company's wholly-owned subsidiaries RTC and PDP
Acquisition Corp. who were compensated in the amount of $120,000 each.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- - --------------------------------------------------------------------------------------------------------------------------
All Other
Name and Principal Year Annual Compensation Long-Term Compensation Compensation
Position ----------------------------------------------------------------- ($) (1)
Salary Bonus Other Restricted Securities Long-
($) ($) Annual Stock Under- Term
Compen- Award(s) lying Incen-
sation ($) Options tive
($) (#) Plan
Payouts
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Par Chadha, Chairman 1996 0 0 0 0 0 0 0
Secretary, Chief
Accounting Officer
- - --------------------------------------------------------------------------------------------------------------------------
Barry Witz, Director 1996 0 0 0 0 0 0 0
Chief Executive Officer
Chief Financial Officer
- - --------------------------------------------------------------------------------------------------------------------------
Kelvin Y.O. Li 1996 120,000 0 0 0 0 0 $499,562
President of RTC, CEO,
Uni
- - --------------------------------------------------------------------------------------------------------------------------
John S. Hwang 1996 120,000 0 0 0 0 0 $499,562
Vice President of RTC,
CEO, PDP Acquisition
Corp
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "All Other Compensation" for Mr. Li and Mr. Hwang consists of, for each
executive: personal use of Company leased vehicle, $2,562; and non-cash
compensation earned in connection with the Company's acquisition of Uni of
$497,000
18
<PAGE> 22
LONG-TERM INCENTIVE PLANS
The Company has no long-term incentive plans.
OPTION GRANTS
The Company granted stock options to certain officers and directors during the
fiscal year ended May 31, 1995, as described in Note 9 to the financial
statements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 12, 1996,
regarding the ownership of the Common Stock and Class A Preferred Stock by (i)
each Director of the Company; (ii) each of the executive officers named in the
Summary Compensation Table, above; (iii) each person known to the Company to
beneficially own 5% or more of Common Stock; and (iv) all Directors and
executive officers of the Company as a group. Except as indicated, all persons
named as beneficial owners of Common Stock have sole voting and investment
power with respect to the shares indicated as beneficially owned by them.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Common Stock
---------------------------------------
Percentage of
Name of Beneficial Owner (A) Number of Shares Outstanding (F)
------------------------------------------------------------------------------------
<S> <C> <C>
Par Chadha
15332 Antioch Street 1,220,007 (B) 27.28%
Pacific Palisades, Ca 90272
------------------------------------------------------------------------------------
RII Partners, Inc.
2250 East Tropicana Ave., Suite 19-246 1,220,007 (B) 27.28%
Las Vegas, Nevada 89119
------------------------------------------------------------------------------------
RT Investments, Inc.
2250 East Tropicana Ave., Suite 19-246 1,220,007 (B) 27.28%
Las Vegas, Nevada 89119
------------------------------------------------------------------------------------
Barry Witz
505 S. Beverly Drive, Suite 1066 1,220,007 (C) 27.28%
Beverly Hills, Ca 90212
------------------------------------------------------------------------------------
Brite Lite Industries, Inc.
505 S. Beverly Drive, Suite 1066 1,220,007 (C) 27.28%
Beverly Hills, Ca 90212
------------------------------------------------------------------------------------
John S. Hwang
48006 Freemont Blvd. 172,291 (D) 4.15%
Freemont, Ca 94538
------------------------------------------------------------------------------------
Kelvin Li
48006 Freemont Blvd. 172,291 (E) 4.15%
Freemont, Ca 94538
------------------------------------------------------------------------------------
All Directors and executive officers as
a group 2,784,596 62.86%
------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 23
A) All information with respect to beneficial ownership of the shares
is based upon filings made by the respective beneficial owners
with the Securities and Exchange Commission or information
provided by such beneficial owners to the Company.
B) Includes shares held in the name of R II Partners, Inc., and RT
Investments, Inc. Mr. Chadha owns, directly and indirectly, 100%
of the outstanding capital stock of R II Partners, Inc., and RT
Investments, Inc. Mr. Chadha holds options to purchase 125,000
shares of common stock for which the exercise price of $3.50 per
share was equal to the market price on the date granted, August 7,
1995. R II Partners, Inc., holds warrants to purchase 297,029
shares of common stock at the exercise price of $5.30.
Mr. Chadha also has options to purchase: 125,000 shares of common
stock which are to be vested and exercisable upon the last day of
the Company's 1997 fiscal year; and, 125,000 shares of common
stock which are to be vested and exercisable upon the last day of
the Company's 1997 fiscal year. The exercise price of these
options is $3.50 per share which was equal to the market price as
of the August 7, 1995 grant date.
C) Includes shares held in the name of Brite Lite Industries, Inc.
Mr. Witz owns, directly and indirectly, 100% of the outstanding
capital stock of Brite Lite Industries, Inc. Mr. Witz holds
options to purchase: 125,000 shares of common stock for which the
exercise price of $3.50 per share was equal to the market price on
the date granted, August 7, 1995. Brite Lite Industries, Inc.,
holds warrants to purchase 297,029 shares of common stock at the
exercise price of $5.30.
Mr. Witz also has options to purchase: 125,000 shares of common
stock which are to be vested and exercisable upon the last day of
the Company's 1997 fiscal year; and, 125,000 shares of common
stock which are to be vested and exercisable upon the last day of
the Company's 1998 fiscal year. The exercise price of these
options is $3.50 per share which was equal to the market price as
of the August 7, 1995 grant date.
D) Mr. Hwang has options to purchase 75,000 shares of common stock, of
which 37,500 shares are to be vested and exercisable upon the last
day of the Company's 1997 fiscal year, and 37,500 shares are to
be vested and exercisable upon the last day of the Company's
1998 fiscal year. The exercise price of these options is $5.00 per
share, which was equal to the market price on the date granted,
October 17, 1995.
Mr. Hwang options to purchase 26,291 shares of common stock. The
exercise price of such options is $3.18 per share, which was equal
to the market price on the date granted.
E) Mr. Li has options to purchase 75,000 shares of common stock of
which 37,500 shares are to be vested and exercisable upon the last
day of the Company's 1997 fiscal year and 37,500 shares are to
be vested and exercisable upon the last day of the Company's
1998 fiscal year. The exercise price of these options is $5.00 per
share, which was equal to the market price on the date granted,
October 17, 1995.
20
<PAGE> 24
Mr. Li has options to purchase 26,291 shares of common stock. The
exercise price of such options is $3.18 per share, which was equal
to the market price on the date granted.
F) For each beneficial owner, the "Percentage of Outstanding"
equals each owner's actual holdings of shares plus shares
represented by unexercised options and warrants held, divided by
total shares outstanding of the Company at July 12, 1996, of
3,983,237, plus the above-referenced unexercised options and
warrants of the referenced holder only. In other words,
individual percentages of the listed holders will not add to the
group total because the calculations are made separately for each
holder.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On May 12, 1995 the Company sold 175,824 shares of its Common Stock to R II
Partners, Inc. and Brite Lite Industries, Inc. for marketable securities valued
at $400,000. Such marketable securities are presently held by the Company. Par
Chadha, director and Chairman of the Board, owns directly and indirectly 100%
of the outstanding capital stock of R II Partners, Inc. Barry Witz, director,
owns directly and indirectly 100% of the outstanding capital stock of Brite
Lite Industries, Inc. The directors of the Company had an equity interest in
RTC which was acquired by the Company as of May 31, 1995 for stock and
warrants.
21
<PAGE> 25
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) Exhibits and Consolidated Financial Statement Schedules
1. Financial Statements: (see index to financial
statements at page 24)
Independent Auditors' Reports
Consolidated Balance Sheets at May 31, 1996 and 1995
Consolidated Statements of Operations for June 1, 1995
to May 31, 1996 and July 1, 1994 (inception) to
May 31, 1995
Consolidated Statement of Stockholders' Equity for
June 1, 1995 to May 31, 1996 and July 1, 1994
(inception) to May 31, 1995
Consolidated Statements of Cash Flows June 1, 1995 to
May 31, 1996 and July 1, 1994 (inception) to
May 31, 1995
Notes to Consolidated Financial Statements
2. Exhibits:
2.3 Stock Purchase Agreement dated May 31, 1995,
between and Jardine Cho, Ltd. and the
Registrant related to the acquisition of
Relialogic Technology Corporation
(Incorporated by reference to Form 8-K filed
with the Securities and Exchange Commission
on June 16, 1995)
2.4 Amended and Restated Agreement as of May 31,
1995, related to the disposition of BWA, Inc.
and its wholly owned subsidiaries, Builders
Warehouse Association, Inc. (Arkansas) and
American Plywood, Inc. (Arkansas)
(Incorporated by reference to Form 8-K filed
with the Securities and Exchange Commission
on September 11, 1995)
2.5 Stock Purchase Agreement dated November 7,
1995 to acquire shares of XNET Technology,
Inc. (Incorporated by reference to Form 8-K
filed with the Securities and Exchange
Commission on November 17, 1995)
2.6 Stock Purchase Agreement dated April 3, 1996
regarding the acquisition of Uni Precision
Industrial Limited (Incorporated by reference
to Form 8-K filed with the Securities and
Exchange Commission on April 17, 1996)
22
<PAGE> 26
2.7 Stock Purchase Agreement dated May 31, 1996
regarding the acquisition of Sciteq
(Incorporated by reference to Form 8-K filed
with the Securities and Exchange Commission
on June 16, 1995)
2.8 Agreement dated May 24, 1996 regarding the
acquisition of the assets of Pacific Data
Products, Inc. from Coast Business Credit and
establishment of credit facility
(Incorporated by reference to Form 8-K filed
with the Securities and Exchange Commission
on June 12, 1996)
3.0 Articles of incorporation (Incorporated by
reference to Form S-18 of the Company, number
33-24544, effective March 29, 1989)
16.1 Letter on change in Company's certifying
accountant (Incorporated by reference to Form
8-K filed with the Securities and Exchange
Commission on September 12, 1995)
16.2 Letter on change in Company's certifying
accountant (Incorporated by reference to Form
8-K filed with the Securities and Exchange
Commission on July 24, 1996)
21 Subsidiaries of the Registrant:
- Sciteq Communications, Inc. a Nevada
corporation
- PDP Acquisition Corp., a California
corporation , (doing business as
Pacific Data Products)
- Relialogic Technology Corporation, a
California corporation
- Uni Precision Industrial Limited,
incorporated in Hong Kong
- R-Net International, Inc., a Nevada
corporation
(b) Reports on Form 8-K filed during the quarter ended May 31, 1996
April 17, 1996 Acquisition of Uni Precision Industrial
Limited
23
<PAGE> 27
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------------
<S> <C>
Independent Auditors Reports F-1 to F-4
Consolidated Balance Sheets as of May 31, 1996 and May 31, 1995 F-5 to F-6
Consolidated Statement of Operations for the year ended May 31, 1996
and July 1, 1994 (inception) to May 31, 1995 F-7
Consolidated Statement of Shareholders' Equity for the year ended
May 31, 1996 and July 1, 1994 (inception) to May 31, 1995 F-8 to F-9
Consolidated Statements of Cash Flows for the year ended May 31, 1996
and July 1, 1994 (inception) to May 31, 1995 F-10
Notes to Consolidated Financial Statements F-11 to F-26
</TABLE>
24
<PAGE> 28
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders of
Builders Warehouse Association, Inc.
We audited the accompanying consolidated balance sheet of Builders
Warehouse Association, Inc. ("BW") as of May 31, 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of BW's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. We
did not audit the financial statements of Uni Precision Industrial Limited,
a wholly-owned subsidiary, which statements reflect total assets of
$21,913,000 as of May 31, 1996 and total revenues of $9,927,000 for two
months then ended. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for Uni Precision Industrial Limited, is based solely
on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 our audit and the
report of the other auditors provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BW and
subsidiaries as of May 31, 1996 and the results of their operations and
their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ Weinbaum & Yalamanchi
---------------------------
WEINBAUM & YALAMANCHI
Canoga Park, California
August 5, 1996
F-1
<PAGE> 29
ARTHUR
ANDERSEN
----------------------------
Arthur Andersen & Co.
Certified Public Accountants
----------------------------
25/F., Wing On Centre
111 Connaught Road Central
Hong Kong
852 2852 0222
852 2815 0548 Fax
AUDITORS' REPORT TO THE SHAREHOLDERS OF
UNI PRECISION INDUSTRIAL LIMITED
(Incorporated in Hong Kong with limited liability)
We have audited the financial statements on pages 3 to 22 which have been
prepared in accordance with accounting principles generally accepted in the
United States of America.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's directors are responsible to prepare financial statements which
give a true and fair view. In preparing financial statements which give true
and fair view it is fundamental that appropriate accounting policies are
selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on
those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgments made by the directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the circumstances of
the Company, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis
for our opinion.
F-2
<PAGE> 30
ARTHUR
ANDERSEN
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company as of May 31, 1996 and of the profit and cash flows
of the Company for the period from April 1, 1996 to May 31, 1996 and have been
properly prepared in accordance with generally accepted accounting principles
in the United States of America and the SEC Regulation S-X disclosure
requirements.
/s/ Arthur Andersen
- - -------------------
ARTHUR ANDERSEN
Hong Kong,
July 12, 1996
F-3
<PAGE> 31
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Builders Warehouse Association, Inc.:
I have audited the accompanying consolidated balance sheet of Builders
Warehouse Association, Inc. and subsidiary (the "Company") as of May 31, 1995
and related consolidated statements of operations, changes in shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of May 31, 1995,
and the results of its operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
The financial statements reflect a reverse acquisition transaction and as of
May 31, 1995 the disposition of all the Company's previous operations (Notes 1,
7 and 12).
In addition, as discussed in Note 10, the Company is a defendant in litigation
relating to alleged security law violations. The ultimate outcome of this
uncertainty can not presently be determined. Accordingly, the financial
statements do not include any adjustment that might result upon resolution of
this matter.
/s/ Jay J. Shapiro
- - ------------------
JAY J. SHAPIRO, C.P.A., a Professional Corporation
Encino, California
September 16, 1995
F-4
<PAGE> 32
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==========================================================================================================
MAY 31, 1996 MAY 31, 1995
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 4,372,287 $ 85,608
Receivables, net of reserve for doubtful accounts $400,743
and $33,000 at May 31, 1996 and 1995, respectively 5,321,195 799,932
Inventory (Notes 2 and 4) 6,900,304 230,000
Marketable securities, less allowance for unrealized losses
(Note 11) 149,091 327,274
Other receivables (Notes 11 and 18) 795,503 0
Prepaid expenses and other current assets 450,488 43,210
- - ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 17,988,868 1,486,024
- - ----------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET (Note 3) 8,153,823 28,509
- - ----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Excess of cost over net assets acquired, less accumulated
amortization (Notes 1 and 2) 2,869,232 342,857
Other investments (Note 2) 1,623,380 0
Other assets 211,138 7,198
- - ----------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 4,703,750 350,055
- - ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 30,846,441 $ 1,864,588
==========================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 33
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==========================================================================================================
MAY 31, 1996 MAY 31, 1995
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 9,354,241 $ 588,397
Short-term debt (Note 4) 5,834,394 133,444
Accrued liabilities (Note 11) 2,109,939 55,704
Dividends payable (Note 11) 1,255,751 0
Current maturities of long term debt (Note 5) 350,010 0
Other current liabilities 252,274 0
- - ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 19,156,609 777,545
- - ----------------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations (Note 5) 3,350,689 0
Debentures payable (Notes 6 and 13) 2,978,237 0
Liability for cash put - common shares (Note 1) 1,993,578 0
Deferred income taxes (Note 12) 248,127 0
Other liabilities 131,250 0
- - ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 27,858,490 777,545
- - ----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Notes 9 and 10)
Preferred stock, $.01 par value; 10,000,000 shares authorized,
none issued and outstanding
Preferred stock, Series A stock $.008 par value; 6% cumulative
dividend; convertible into 285.75 shares common stock;
10,000,000 shares authorized; 0 shares and 4,000 shares
issued and outstanding at May 31, 1996 and 1995, respectively 0 32
Common stock, $.008 par value; 25,000,000 shares authorized;
3,872,938 shares issued and 3,869,978 shares outstanding
at May 31, 1996; 772,045 shares issued and 769,084 shares
outstanding at May 31, 1995 29,630 6,176
Common stock to be issued; 0 shares and 220,600 shares
at May 31,1996 and 1995, respectively 0 772,100
Additional paid-in capital 5,752,572 567,248
Accumulated deficit (2,616,758) (81,020)
Treasury stock, 2,961 shares at May 31, 1996 and 1995, at cost (177,493) (177,493)
- - ----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,987,951 1,087,043
- - ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,846,441 $ 1,864,588
==========================================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 34
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
===============================================================================================================================
YEAR JULY 1, 1994
ENDED (INCEPTION) TO
MAY 31, 1996 MAY 31, 1995
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Net sales $ 16,402,276 $ 6,693,731
COST OF GOODS SOLD
Net purchases and direct costs 14,038,851 5,890,071
- - -------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 2,363,425 803,660
- - -------------------------------------------------------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Salaries, wages, benefits and related payroll taxes 752,923 309,049
Management fee (Note 10) 0 334,600
Rents (Note 7) 97,221 27,090
Travel and promotion 166,068 64,181
Advertising 182,309 39,670
Professional and consulting fees 213,493 12,315
Depreciation 35,526 2,955
Other 371,798 40,135
Purchased research and development (Note 1) 2,408,059 0
Acquisition related costs (Note 1) 427,067 0
Amortization of excess cost over net book value of assets acquired (Note 2) 76,114 57,143
- - -------------------------------------------------------------------------------------------------------------------------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,730,578 887,138
- - -------------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (2,367,153) (83,478)
- - -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (CHARGES)
Investment income (Note 11) 21,068 3,876
Net foreign currency exchange gains 14,810 0
Income taxes (Note 12) (39,898) 0
Interest expense (Note 11) (164,997) (1,418)
- - -------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (CHARGES) (169,017) 2,458
- - -------------------------------------------------------------------------------------------------------------------------------
NET LOSS AND LOSS APPLICABLE TO COMMON STOCK $ (2,536,170) $ (81,020)
===============================================================================================================================
LOSS PER COMMON SHARE (Note 2) ($1.31) ($0.27)
===============================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(RESTATED) (Note 10) 1,933,764 305,285
===============================================================================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE> 35
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
For the Year Ended May 31, 1996
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
===============================================================================================================
COMMON STOCK PREFERRED STOCK ADDITIONAL
Shares Amount Shares Amount PAID IN CAPITAL
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1995 772,045 $ 6,176 4,000 $ 32 $ 567,248
Conversion of preferred shares 1,143,000 9,144 (4,000) (32) (9,112)
Issuance of shares for
management fee (Note 10) 95,600 765 333,835
Whole shares issued for fractional
shares in one-for-two stock split 222 2 (2)
Private placement of common
stock for cash (Note 10) 65,000 520 259,480
Expenses attributed to stock
issuances (268,750)
Expenses paid with stock issuances 2,768 23 26,978
Disposition of BWAI (Note 1) 125,000 1,000 436,500
Additional shares and costs for
acquisition of RTC 800,083 6,401 (23,067)
Payment of liabilities of
investment with stock 33,944 271 70,347
Exercises of stock options 121,763 974 (974)
Conversion of debentures
(Note 6) 323,100 2,585 2,649,647
Issuance of shares for
acquisitions (Note 2) 388,846 3,111 3,683,929
Common shares subject to cash
put by holders (Note 2) (1,354) (1,992,224)
Issuance of shares for
other assets (Note 10) 1,567 12 18,737
Foreign currency gain
Net loss
- - -------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1996 3,872,938 $ 29,630 0 $ 0 $ 5,752,572
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===========================================================================================================
ACCUMULATED TREASURY STOCK STOCK TO BE ISSUED
DEFICIT Shares Amount Shares Amount
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1995 $ (81,020) 2,961 $(177,493) 220,600 $ 772,100
Conversion of preferred shares
Issuance of shares for
management fee (Note 10) (95,600) (334,600)
Whole shares issued for fractional
shares in one-for-two stock split
Private placement of common
stock for cash (Note 10)
Expenses attributed to stock
issuances
Expenses paid with stock issuances
Disposition of BWAI (Note 1) (125,000) (437,500)
Additional shares and costs for
acquisition of RTC
Payment of liabilities of
investment with stock
Exercises of stock options
Conversion of debentures
(Note 6)
Issuance of shares for
acquisitions (Note 2)
Common shares subject to cash
put by holders (Note 2)
Issuance of shares for
other assets (Note 10)
Foreign currency gain 432
Net loss (2,536,170)
- - ------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1996 $(2,616,758) 2,961 $(177,493) 0 $ 0
============================================================================================================
</TABLE>
See accompanying notes.
F-8
<PAGE> 36
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
July 1, 1994 (inception) to May 31, 1995
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
==================================================================================================================================
ADDITIONAL ACCU-
COMMON STOCK PREFERRED STOCK PAID IN MULATED TREASURY STOCK STOCK TO BE ISSUED
Shares Amount Shares Amount CAPITAL DEFICIT Shares Amount Shares Amount
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1994 1,000 $ 6,189 0 $ 0 $400,000 $ 0 $ 0 0 $ 0
Contribution of note payable
to additional paid in capital
(Note 10) 100,000
Conversion of accrued
management fee into
95,600 shares of
common stock (Note 10) 95,600 334,600
Reverse acquisition of BWA
(Notes 1 and 10)
Exchange of BWA stock
for RTC stock 1,544,090 12,353 4,000 32 54,882 5,921 (177,493)
Elimination of RTC
common stock (1,000) (6,189) 6,189
One-for-two stock split (772,045) (6,177) 6,177 (2,960)
(Note 10)
Disposition of BWAI
(Notes 1 and 10) 125,000 437,500
Net loss (81,020)
- - ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1995 772,045 $ 6,176 4,000 $32 $567,248 $(81,020) 2,961 $(177,493) 220,600 $772,100
==================================================================================================================================
</TABLE>
See accompanying notes.
F-9
<PAGE> 37
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
===============================================================================================================================
YEAR JULY 1, 1994
ENDED (INCEPTION) TO
MAY 31, 1996 MAY 31, 1995
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,536,170) $ (81,020)
- - -------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Purchased research and development (Note 1) 1,890,194 0
Depreciation and amortization 111,640 63,143
Expenses paid through issuances of securities 97,619 334,600
Unrealized losses on marketable securities (Note 11) 178,183 0
Equity in earnings of unconsolidated subsidiary (Note 2) (39,708) 0
Changes in assets and liabilities net of effects of business entity
acquisitions and divestiture:
Increase in accounts receivable (1,021,561) (799,932)
Increase in inventories (1,027,610) (230,000)
(Increase) decrease in other current assets 30,639 (50,408)
Increase (decrease) in accounts payable (262,693) 588,397
Increase in accrued expenses 381,324 55,704
- - -------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (2,198,143) (119,516)
- - -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (1,900,276) (34,509)
Other receivables (241,256) 0
Cash outlays for acquired companies in excess of cash acquired (630,613) 0
Purchase of investment securities (Note 2) (72,726) 0
- - -------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,844,871) (34,509)
- - -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES (Notes 6 and 10):
Notes payable issued net of payments 2,181,967 133,444
Proceeds from capital contribution (Note 10) 0 100,000
Common stock issued including conversions 2,546,105 6,189
Debentures issued net of conversion 2,978,237 0
Long-term debt issued net of repayments 1,623,384 0
- - -------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,329,693 239,633
- - -------------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 4,286,679 85,608
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 85,608 0
- - -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 4,372,287 $ 85,608
===============================================================================================================================
</TABLE>
See accompanying notes.
F-10
<PAGE> 38
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
Builders Warehouse Association, Inc. (the "Company" or "BW") through its
subsidiaries designs, manufactures and markets networking, connectivity and
add-on products for Local Area Networking markets. The Company's products
include network adapters, hubs, video cards, shared printer network servers and
adapters and printer enhancement products and products using Phase-Locked Loop,
direct analog, and direct digital radio frequency ("RF") synthesis. The
Company's products are sold worldwide to original equipment manufacturers and
through distributors.
The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates that affect the reported amounts of assets, liabilities, revenues and
expenses, and the disclosure of contingent assets and liabilities. Actual
results could differ from these estimates.
1. DESCRIPTION OF BUSINESS, ACQUISITIONS, AND DISCONTINUED OPERATIONS
Builders Warehouse Association, Inc. is a Colorado corporation
originally incorporated under the name of Ceetac Corp. on June 30, 1988, and
subsequently doing business as Omni Corporation. The primary purpose of BW was
to evaluate acquisition candidates and complete acquisitions of, or mergers
with those candidates. The Company was therefore accounted for as a
"development stage company" and until September 20, 1991, conducted no business
activities.
Effective May 31, 1995, the Company acquired 100% of the outstanding
common stock of Relialogic Technology Corporation ("RTC"), a designer and
manufacturer of add-on products for the multimedia computer marketplace as well
as a distributor of computer products manufactured by others. At the time of
this acquisition, the shareholders of RTC gained voting control of the Company
and therefore RTC became the acquiring entity. As a result, RTC is the
accounting survivor and reporting successor. The acquisition of RTC by the
Company was recorded as a reverse acquisition. The predecessor company's
balance sheets were adjusted to reflect the recapitalization of RTC pursuant to
the acquisition. The historical stockholders' equity of RTC was adjusted to
reflect the cost basis of the RTC shareholders in the net assets of RTC. As a
result of the acquisition of RTC by the Company, RTC changed its accounting
year end to May 31.
The Company recorded the following summarized balances effective May
31, 1995 to reflect the reverse acquisition of BW:
<TABLE>
<S> <C>
Current assets $ 1,788,908
Inventories 1,743,431
Property and equipment (net) 966,790
Other assets 5,537
Current liabilities (5,220,390)
Notes payable (100,044)
-----------
Stockholders' equity (net) $ (815,768)
===========
</TABLE>
F-11
<PAGE> 39
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
Summarized below are pro forma consolidated results of operations of
the Company as though the reverse acquisition had occurred at the beginning of
the earliest period presented:
<TABLE>
<S> <C>
Revenues $ 6,693,731
Loss from continuing operations (81,020)
Loss from discontinued operations (2,433,000)
Net loss (2,514,020)
Loss per common share $ (8.23)
</TABLE>
ACQUISITION OF UNI PRECISION INDUSTRIAL LIMITED - On April 1, 1996,
the Company acquired 100% of the common stock of Uni Precision Industrial
Limited ("Uni"), a Hong Kong corporation, for a purchase price of approximately
$6 million in cash and debt assumed: $500,000 was paid at the closing of the
transaction and an additional $5.5 million was paid upon the provision to the
Company of audited financial statements as of the acquisition date. An
additional $4.0 million payment will be made on April 1, 1997 subject to pro
rata adjustment based upon Uni having net income after tax of $2.5 million
during the 12-month period ending March 31, 1997. The Company incurred
additional costs in connection with the purchase of Uni of $813,000, of which
$809,000 was paid through the issuance of restricted common shares.
ACQUISITION OF SCITEQ ELECTRONICS, INC. - On May 31, 1996, through a
merger with a newly-formed corporation, Sciteq Communications, Inc. ("Sciteq"),
the Company acquired 100% of Sciteq Electronics, Inc., for $600,000 in cash,
plus stock and below-market stock options of the Company valued at $2.4
million. An additional $2.0 million payment in stock of the Company will be
made 12 months from closing subject to pro rata adjustment based upon Sciteq
achieving pre-tax net income of $750,000 during the 12 month period ending
December 31, 1996. The Company incurred additional costs in connection with
the purchase of Sciteq of $579,000, of which $532,000 was paid or will be paid
through the issuance of common shares.
The former shareholders of Sciteq have the right to put their shares
to the Company for cash during the 12 days beginning May 31, 1996. The value
of the shares issued at closing of $1,993,578 has been reclassified as long
term debt in the accompanying financial statements.
As a result of the Sciteq acquisition the Company recorded a one-time
charge to earnings for purchased research and development of $1,890,194. The
Company analyzed, during and after the close of the acquisition, both the
projected net cash flows from Sciteq's existing technology base and the status
of its ongoing research and development program and concluded that the carrying
value of the assets acquired exceeded the estimated net realizable values
recorded in the purchase.
ACQUISITION OF PACIFIC DATA PRODUCTS, INC. - On May 24, 1996, the
Company, through its newly-created, wholly owned subsidiary PDP Acquisition
Corp. ("PDPA"), acquired substantially all of the assets of Pacific Data
Products, Inc. ("PDP"). The Company paid $273,000 in cash and assumed PDP's
bank indebtedness of approximately $2.4 million in return for substantially all
of PDP's assets, including cash, accounts receivable, inventory, fixed assets
and intangibles including patents, trademarks, copyrights, in-process software
development and certain specified agreements. The Company incurred additional
costs in connection with the purchase of PDP's assets of $123,000 of which
$121,000 was paid through the issuance of common shares.
PDPA entered into an agreement with Coast Business Credit ("Coast")
for a $5.0 million credit facility secured by all of PDPA's newly- acquired
assets. The Company provided a $500,000 infusion of working capital to
F-12
<PAGE> 40
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
PDPA, as well as a limited guarantee of $750,000 to effectuate the Coast credit
facility.
As a result of the asset acquisition by PDPA the Company recorded a
one-time charge to earnings for purchased in-process software development costs
of $517,865. The Company analyzed, during and after the close of the
acquisition, both the projected net cash flows from PDPA's existing technology
base and the status of its ongoing software development program and concluded
that the carrying value of the assets acquired exceeded the estimated net
realizable values recorded in the purchase.
DISCONTINUED OPERATIONS - As of May 31, 1995, the Company disposed its
loss-generating, wholly-owned subsidiary, BWA, Inc., which owned two
Arkansas-incorporated operating subsidiaries, Builders Warehouse Association,
Inc. and American Plywood Sales, Inc., both of which were engaged in the
building supply industry. Such operations incurred an operating loss of
approximately $2.4 million during the year ended May 31, 1995 and had a
consolidated negative book value at that date of $1,143,042. Accordingly, the
Company delivered 125,000 post reverse split shares of its common stock with an
approximate market value of $437,500 at May 31, 1995 to the purchaser of BWA,
Inc. In addition the buyer assumed certain future costs and potential losses
as more fully described in Note 13.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements as of May 31, 1996 include the accounts of BW and RTC from July 1,
1994 (inception) through May 31, 1996, R-Net International, Inc. ("Rnet") from
November, 1995 (formation), Sciteq from May 31, 1996, Uni from April 1, 1996
and PDPA, from May 24, 1996. (See Note 1). Immaterial subsidiaries of Uni
have been accounted for on the equity method. All significant intercompany
transactions and balances have been eliminated in consolidation. The
consolidated group is referred to individually or collectively as the
"Company". For purposes of financial reporting, RTC was treated as purchaser
in a reverse acquisition of BW and its subsidiary, BWA, Inc.
CASH AND CASH EQUIVALENTS - All cash on hand and in banks,
certificates of deposit and other highly-liquid investments with maturities of
three months or less, when purchased.
ACCOUNTS AND NOTES RECEIVABLE - In the normal course of business, the
Company extends unsecured credit to its customers related to the sales of
various products. Typically credit terms require payment on the tenth day of
the month following sales. The Company evaluates and monitors the
creditworthiness of each customer on a case-by-case basis.
INVENTORY - Inventory consists of goods held for sale valued at the
lower of cost or market. Inventories at May 31, 1996 consist of:
<TABLE>
<S> <C>
Raw materials $ 4,399,778
Work in process 2,398,294
Finished goods 1,122,802
------------
7,920,874
Less: Reserve for obsolescence (1,020,570)
------------
$ 6,900,304
============
</TABLE>
F-13
<PAGE> 41
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
PROPERTY AND EQUIPMENT - Property and equipment are recorded at
historical cost. Depreciation and amortization are provided over the estimated
useful lives of the individual assets or the terms of the leases if shorter
using accelerated and straight-line methods. Useful lives for property and
equipment range from 5 to 15 years.
Capitalized leases (Uni) are initially recorded at the present value
of the minimum payments at the inception of the contracts, with an equivalent
liability categorized as appropriate under current or non-current liabilities.
Such assets are depreciated on the same basis as described above. Interest
expense, which represents the difference between the minimum payments and the
present value of the minimum payments at the inception of the lease, is
allocated to accounting periods using a constant rate of interest over the
lease.
OTHER INVESTMENTS - Other investments include insignificant
subsidiaries of Uni accounted for on the equity method, non-marketable
securities held in other companies and an investment in a joint venture net of
an allowance for permanent impairment of value.
EXCESS OF COST OVER NET ASSETS ACQUIRED - Excess of cost over net
assets acquired is being amortized over 5 to 15 years and represents the excess
of the purchase price over the fair value of net assets acquired. Accumulated
amortization was $133,257 and $57,143 at May 31, 1996 and 1995, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques as appropriate. Management believes that there are no
material differences between the recorded book values of its financial
instruments and their estimated fair values.
REVENUE RECOGNITION - Revenues are recognized when the products are
shipped to the customers.
INCOME TAXES - The Company has filed consolidated Federal and State
income tax returns as of its fiscal year end since January 1, 1992. At May 31,
1995 there were no deferred taxes or income tax provisions recorded in the
financial statements. At May 31, 1996 the deferred taxes and income tax
provisions recorded in the financial statements relate to Uni's operations in
China. (See Note 9)
ADVERTISING - The Company's expenses advertising expenditures as
incurred. Advertising expenses of the Company consist primarily of allowances
given to customers rather than direct expenditures by the Company.
LOSS PER COMMON SHARE - Loss per common share is computed by dividing
net loss by the weighted average number of common shares outstanding during the
period which was computed based upon the equivalent shares of BW common stock
issued in the reverse acquisition of RTC adjusted retroactively for all stock
splits. Convertible securities outstanding and common stock to be issued are
not included in the computation of earnings per share as they would be
anti-dilutive.
FOREIGN CURRENCY TRANSLATION - Foreign operations of the Company have
been translated into U.S. dollars in accordance with principles prescribed in
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation," (FAS 52). For the fiscal year ended May 31, 1996 the current
rate method was used whereby all assets and liabilities are translated at
year-end exchange rates, and the resultant translation adjustments are included
as a separate component of stockholders' equity. Revenues and expenses are
translated at the average rates of exchange prevailing throughout the year, and
the resultant gains and losses are included in net earnings.
F-14
<PAGE> 42
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of May 31, 1996:
<TABLE>
<S> <C>
Manufacturing, engineering and plant equipment and software $ 7,433,364
Office furniture and fixtures 3,182,281
Autos 172,781
Leasehold improvements 2,175,270
---------------
Total property and equipment 12,963,696
Less: Accumulated depreciation ( 4,809,873)
---------------
Net book value $ 8,153,823
===============
</TABLE>
Leasehold land and buildings of Uni with a cost of $2,173,790 are
pledged to secure Uni's banking facility. See Notes 4 and 5. Cost and
accumulated amortization of assets held under capitalized leases were
$2,174,000 and $37,000.
All the assets of PDPA including its property, plant and equipment are
pledged to secure the credit facility with Coast as more fully described in
Note 4. No net book value was ascribed to these assets in the asset purchase
for financial accounting purposes.
4. SHORT TERM DEBT
Short term debt consisted of the following at May 31, 1996:
<TABLE>
<S> <C>
Floating rate interest loan; a portion of banking facility of
Uni more fully described in Note 5; weighted average
interest rate for the two months ended May 31, 1996 was 9.7% $ 3,648,590
Floating rate interest loan (2% over Coast's prime rate); debt
assumed by PDPA in asset acquisition (see Note 1); interest
rate for week ended May 31, 1996 was 10.25% 2,175,804
Non-interest bearing demand loan 10,000
--------------
Total short term debt $ 5,834,394
==============
</TABLE>
In connection with the acquisition of PDP's assets, PDPA assumed
approximately $2.4 million in debt to Coast, an asset based lender. The debt
is collateralized by inventories, accounts receivable, property, plant and
equipment with a book value of approximately $2.3 million. The loans bear
interest at 2% over the prime rate and for the week ended May 31, 1996 the
interest rate remained constant at 10.25%. The maximum amount outstanding under
PDPA's banking facility during the period was approximately $2.4 million and
the average amount outstanding was approximately $2.3 million. At the end of
the six month period beginning with the acquisition any unpaid balance of the
loans assumed in the asset purchase will be converted into a term loan over an
estimated three years.
In addition to the debt assumed in the acquisition of PDP, PDPA and
entered into an agreement with the Lender for a $5 million credit facility
secured by all of PDPA's acquired assets. BW provided an injection of $500,000
working capital to PDPA, as well as a limited guarantee of $750,000. After
using approximately $2.2
F-15
<PAGE> 43
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
million outstanding as of May 31, 1996 for the purchase of PDP, $2.8 million is
available for internal growth and for acquisitions.
At May 31, 1995 short term debt consisted of a $133,444 non-interest
bearing loan from the former shareholder of RTC due on demand.
5. LONG TERM DEBT
Long term debt consisted of the following as of May 31, 1996:
<TABLE>
<S> <C>
Floating rate interest loan; a portion of banking facility of
Uni more fully described below; weighted average interest
rate for the two months ended May 31, 1996 was 9.7% $ 1,651,649
Obligations under finance leases (Uni) 811,550
5% demand loan from an officer and director; refinanced by
the placement of preferred stock shortly after year end
(see Notes 8 and 14) 1,237,500
--------------
3,700,699
Less: Current portion ( 350,010)
--------------
Total long term debt $ 3,350,689
==============
</TABLE>
As of May 31, 1996, Uni had aggregate loan facilities of approximately
$12.5 million from various banks for overdrafts, loans and trade financing.
Unused facilities as of the same date were approximately $5.0 million including
bank overdrafts of $1.1 million and loan and trade financing of $3.9 million.
These facilities are secured by a priority lien on Uni's leasehold land and
buildings (Note 3), a pledge of Uni's bank deposits of approximately $3.5
million, liens on Uni's inventories released under trust receipt loans and
guarantees by former directors of Uni and a corporation controlled by former
directors of Uni as well as the directors themselves. The bank loans require
Uni to maintain a tangible net worth of not less than $3.75 million. The
maximum amount and average amount outstanding including current maturities
during the period ended May 31, 1996 was approximately $9.4 million and $7.6
million, respectively.
Long term debt including capitalized leases at May 31, 1996 is payable
by year as follows:
<TABLE>
<S> <C>
1997 $ 1,705,165
1998 486,702
1999 443,924
2000 443,924
2001 264,353
2002 and later 893,422
--------------
4,237,490
Less: Interest portion ( 536,791)
--------------
$ 3,700,699
==============
</TABLE>
F-16
<PAGE> 44
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
6. DEBENTURES PAYABLE
During the year ended May 31, 1996 the Company began a private
placement of convertible debentures that was subsequently completed after year
end. The Company has the right to call the debentures prior to conversion at
90% of face value. The debentures bear interest at 8.0% beginning after date of
issue and if converted the interest is payable in common shares. The debentures
were sold at a 27.5% discount from face value and the Company raised net
proceeds of $6,580,000 during the period and approximately $3 million after year
end. Such debentures converted or can convert into common shares at a maximum
of $18.00 per share or at market or conditions thereof. $1,375,000 in face
value of debentures with conversion prices ranging from $6.00 to $9.00 were
called by the Company prior to conversion with the proceeds of a loan from an
officer and director (see Note 10). The debentures were ultimately exchanged
for convertible preferred stock (see Note 14).
Debentures with a face value of $3,680,000 plus accrued interest were
converted during the year into 323,100 shares of the Company's common stock.
After year end additional debentures with a face value of $2,085,000 plus
accrued interest were converted into 191,141 shares of the Company's common
stock. The Company has been notified by the agent for the remaining debenture
holders that all the outstanding debentures will be converted into common
shares.
7. LEASES AND OTHER COMMITMENTS
The Company occupies 322,000 square feet of office, manufacturing and
distribution space; 44,300 square feet in the United States and 279,000 square
feet in Hong Kong and China. The lease term for the 6,000 square foot
office and warehouse space for RTC, in Fremont, California expired on
July 31, 1996 and RTC is remaining at that location on a month to month basis
until the business relocates to San Diego, California to an existing facility.
The Company occupies 37,000 square feet in San Diego with the lease expiring
for 14,000 square feet occupied by Sciteq, on September 1, 1997 and 23,200
square feet occupied by PDPA on a month to month basis. The corporate offices
of the Company occupy 1,000 square feet which is leased on a month to month
basis. The Company's lease of a 21,000 square foot office/warehouse in Hong
Kong expired May 31, 1996. Subsequently, the Company relocated to a
14,000 square foot facility which is owned by the Company. Finally the Company
leases 258,000 square feet in China which is used for primarily manufacturing,
warehouse and distribution, and administrative offices.
Future minimum operating lease payments for the Company and its
subsidiaries at May 31, 1996 are as follows, by year:
<TABLE>
<S> <C>
1997 $ 364,062
1998 211,244
1999 64,112
------------
$ 639,418
============
</TABLE>
As of May 31, 1996, the Company's Hong Kong subsidiary, Uni, had
significant commitments and contingent liabilities for open letters of credit,
discounted bills and shipping guarantees executed in favor of various banks
totaling approximately $2,427,000.
Two officers of Sciteq have three-year employment contracts under
which Sciteq is obligated to make payments of $220,000 per year in total. The
Company has the right to terminate these contracts for cause.
F-17
<PAGE> 45
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
8. STOCKHOLDERS' EQUITY
The Company is authorized to issue the following shares of stock:
25,000,000 shares of Common Stock ($.008 par value)
10,000,000 shares of Preferred Stock ($.01 par value)
10,000,000 shares of Preferred Stock, Series A ($.008 par value)
Series A Preferred Stock has a $.008 par value and a $1,000
liquidation value. Holders of Series A Preferred Stock are not entitled to
vote. The Series A Preferred Stock bears a cumulative 6% annual dividend
payable annually on July 31 of each year. Such dividend is payable at the
Company's option in either cash or common stock at the immediately preceding
business day's closing price as reported by NASDAQ. Each share of Series A
Preferred Stock is convertible into 285.75 shares of Common Stock on a
post-reverse split basis. These shares were issued in connection with the
reverse acquisition (See Note 1) and were fully converted into common stock
prior to May 31, 1996.
9. STOCK OPTIONS AND STOCK AWARD PLAN
The Company has two stock option plans, the 1994 Stock Option Plan
("94 SOP") and the 1995 Stock Option Plan ("95 SOP") and a Stock Award Plan
("SAP"). The purpose of these plans is to attract, retain, motivate and reward
officers, directors, employees and consultants of the Company to maximize their
contributions towards the Company's success.
In addition to the activity indicated below, the Company granted
options for 650,000 shares of common stock under the 95 SOP. Of such options
granted under the 95 SOP, 325,000 are not exercisable until after May 31, 1997
and 325,000 until after May 31, 1998. The Company will register the 95 SOP
options on Form S-8 with the Securities and Exchange Commission. All
options were granted at not less than fair market value at the date of the
grant.
During the year ended May 31, 1996, the following activity occurred:
<TABLE>
<CAPTION>
Exercise
Stock Options Price Range Options
------------- ----------- -------
<S> <C> <C>
Options outstanding at May 31, 1995 0
Options registered January 17, 1996 - 94 SOP $3.18 to $8.58 1,000,000
Options granted under 94 SOP $3.18 to $8.58 (577,487)
-----------
94 SOP options registered and available for grant 422,513
===========
Options granted under 94 SOP $3.18 to $8.58 577,487
Options exercised under 94 SOP $3.18 to $8.58 (150,033)
-----------
Options outstanding under 94 SOP 427,454
===========
Stock Award Plan Shares
---------------- ------
Grants outstanding at May 31, 1995 0
Shares registered under the SAP 500,000
Shares granted and issued under the SAP (359,444)
-----------
Options outstanding under SAP 140,556
===========
</TABLE>
F-18
<PAGE> 46
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
10. CAPITAL STOCK TRANSACTIONS AND BUSINESS ACQUISITIONS
REVERSE STOCK SPLITS - In March 1995, approval was granted for a
one-for-six reverse stock split effective April 10, 1995. In June 1995, approval
was granted for a one-for-two reverse split effective June 30, 1995. The effect
of these changes was reflected in the financial statements retroactively as if
the reverse splits occurred at the beginning of the reported period.
PRIVATE PLACEMENT - The Company issued 175,824 post-reverse split
Common shares to certain stockholders in exchange for marketable securities of
a company controlled by them (See Note 11).
RTC ACQUISITION - Pursuant to an Amended and Restated Stock Purchase
Agreement dated May 31, 1995 (the "Agreement") the Company acquired all the
outstanding shares of RTC, a California corporation, which began business on
July 1, 1994 and in which certain shareholders and directors of the Company had
an ownership interest. The Agreement provided that the Company issue 1,085,798
post reverse-split Common shares and 4,000 Class A Preferred shares
(convertible into 1,143,000 common shares). Acquisition costs to the Company in
this transaction were $250,000. The acquisition was recorded as a "reverse
merger" (See Note 1).
CONTRIBUTION TO CAPITAL - RTC had a non-interest bearing demand loan
of $100,000 from Jardine Cho, the former owner of RTC, which was contributed to
the capital of the Company as of May 31, 1995. No shares were issued in this
transaction.
MANAGEMENT FEE - RTC had an agreement through January 1, 1996 with
Jardine Cho which provided compensation of $300,000 per annum or 5% RTC sales,
whichever is greater, for management services. Jardine Cho and its
shareholders had control of the Company immediately following the reverse
merger. As of May 31, 1995 Jardine Cho terminated its agreement with RTC and
accepted payment of its $334,600 obligation in common stock issued by the
Company. During the year ended May 31, 1996 the Company issued 95,600 shares
of common stock in full satisfaction of this liability.
PRIVATE PLACEMENT - The Company issued 65,000 post-reverse split
Common shares during the third quarter of fiscal 1996 for $260,000 cash.
SCITEQ ACQUISITION - As described in Note 1, the Company issued
229,646 shares of common stock to the holders of Sciteq's outstanding common
stock and in payment of costs incurred in connection with the transaction. In
addition the Company issued options to acquire an additional 60,205 shares of
common stock at $5.02 per share. The additional payment contingent upon the
net income of Sciteq for the year ended December 31, 1996 will be made in
common shares at the then market price.
COVENANT NOT TO COMPETE - In connection with the acquisition of
Sciteq, a former shareholder and officer of Sciteq executed a covenant not to
compete with the Company and any of its subsidiaries for a period of five
years. Shares with a value at issue of $200,000 will be issued in quarterly
installments over two years. The initial payment resulted in the issuance of
1,567 shares of common stock.
UNI ACQUISITION - In connection with the Company's acquisition of Uni
on March 31, 1996 the Company issued 142,000 shares of its common stock valued
at $809,400 in payment of costs incurred in connection with the transaction to
two officers of RTC (See Note 1).
F-19
<PAGE> 47
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
PDP ACQUISITION - In connection with the Company's acquisition of the
assets of PDP on May 24, 1996 the Company issued 17,200 shares of its common
stock valued at $120,600 in payment of costs incurred in connection with the
transaction (See Note 1).
11. OTHER RELATED PARTY TRANSACTIONS
Summarized below are all material related party transactions entered
into by the Company and its subsidiaries during the year ended May 31, 1996 and
the period July 1, 1994 (inception) to May 31, 1995 not otherwise disclosed in
these notes.
In May 1995 the Company issued 175,824 post reverse split shares of
common stock to certain shareholders and directors (see Note 10) in exchange
for marketable securities in a company controlled by them. Such securities had
a market value of $149,091 as of May 31 1996. These shareholders have agreed
to indemnify the Company against any decline in value of the marketable
securities. As of May 31, 1996 the liability to the Company for this
indemnification was $178,183 and it is included in other receivables (see Note
18).
On February 29, 1996 the Company made a 8% demand loan in the amount
of $100,000 to an officer of RTC. Accrued and unpaid interest at May 31, 1996
totaled $2,016.
On April 12, 1996 the Company made a 8% demand loan in the amount of
$100,000 to an entity controlled by one of its directors. Accrued and unpaid
interest at May 31, 1996 totaled $1,074.
On March 25, 1996 an entity controlled by an officer and director of
the Company made a 5% demand loan to the Company in the amount of $1,237,500.
Accrued and unpaid interest at May 31, 1996 totaled $12,494 (See Note 5).
Accrued dividends payable are due a former shareholder and current
officer of Uni and were declared prior to the acquisition of Uni by the
Company.
Uni, as a founding shareholder, holds 35% of the outstanding shares
of Spectra Electronics Systems, Ltd. ("Spectra"), a Hong Kong private company,
which sells point of sale equipment such as credit card readers for merchants
in the Asian market. Spectra had sales (unaudited) of $445,000 and net income
after tax of $163,000 (unaudited) for the two months ended May 31, 1996.
In the ordinary course of business, Uni made sales of $263,000 and
paid marketing research service fees of $129,000 to companies controlled by a
former director and present officer of Uni.
12. INCOME TAXES
At May 31, 1996 the Company has accumulated federal net operating
losses which may be potentially available to reduce future taxable income.
However, among potential adjustments which may reduce available loss
carryforwards, the Internal Revenue Code of 1986, as amended, (IRC), reduces
the extent to which net operating loss carryforwards may be utilized in the
event there has been an "ownership change" of a company as defined by
applicable IRC provisions. The Company believes that the issuances of its
equity securities and transfers of ownership of outstanding equity securities
may have resulted in one or more such ownership changes and intends
F-20
<PAGE> 48
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
to analyze the impact of such transfers on the continued availability, for tax
purposes, of the Company's net operating losses incurred through 1996. Further
ownership changes in the future, as defined by the IRC, may reduce the extent
to which any net operating losses may be utilized. The income tax provision
for the year ended May 31, 1996 is comprised as follows:
<TABLE>
<CAPTION>
United States Non-U.S. Total
------------- -------- -----
<S> <C> <C> <C>
Income taxes:
Current $ 2,000 $ 38,000 $ 40,000
Deferred 0 0 0
--------- --------- ----------
Total income tax provision $ 2,000 $ 38,000 $ 40,000
========= ========= ==========
</TABLE>
The reconciliation between income tax expense and a theoretical United
States tax computed by applying a rate of 35% for the fiscal periods ended May
31, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
July 1, 1994
Year Ended (inception)
May 31, 1996 May 31, 1995
------------ ------------
<S> <C> <C>
Earnings before U.S. and non-U.S. income taxes:
United States $ (3,147,000) $ ( 81,000)
Foreign 651,000 0
------------- -------------
Total $ (2,496,000) $ ( 81,000)
============= =============
Theoretical benefit at 35% $ 874,000 $ 28,000
U.S. loss for which no benefit was recorded as there is
no assurance of realization (1,101,000) ( 28,000)
Adjustment for non-U.S. taxes in excess of theoretical
U.S. tax rate 120,000 0
Foreign permanent differences 56,000 0
Other 11,000 0
------------- -------------
Total $ (40,000) $ 0
============= =============
</TABLE>
13. LITIGATION
The Company and certain former officers and directors are defendants
in litigation filed in May 1994 seeking unspecified damages for allegedly
violating sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
making a series of positive public statements to the securities market place.
Management believes the claims to be without merit. Nevertheless, the ultimate
outcome of the litigation cannot presently be determined. No provisions for any
loss that may result upon resolution of this matter has been made in the
financial statements. In addition, the Company is indemnified against any loss
that may result by the buyer of BWA, Inc.
The Company and its subsidiaries are involved in various other legal
proceedings and claims incident to the normal conduct of its business.
Although it is impossible to predict the outcome of any outstanding legal
proceedings, the Company believes that such legal proceedings and claims,
individually and in the aggregate, are not likely to have a material effect on
its financial position or results of operations.
F-21
<PAGE> 49
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
14. SUBSEQUENT EVENTS
MERGER - On June 18, 1996, the Company and Osicom Technologies, Inc.
("Osicom") entered into a definitive agreement whereby Osicom will acquire
substantially all of the assets of BW. Under the terms of the agreement,
shares of Osicom common stock will be issued to BW for substantially all of
BW's assets. The Osicom common stock issued to BW will then be distributed to
BW's shareholders in a complete liquidation. BW will receive 0.94 share of
Osicom common stock for each common share of BW currently outstanding, which
exchange ratio represents a 10 percent premium to the market value of BW stock
based on the June 17, 1996 closing prices of $15 and $17.50 for BW and Osicom
shares, respectively.
Osicom is a Santa Monica, California-based company engaged in design
and manufacture of digital video switches and routers for the
telecommunications industry and, with its January 31, 1996, acquisition of RNS
(formerly Rockwell Network Systems), is now an industry leader in providing
high-speed Local Area Network solutions and connections for the high-growth
Fast Ethernet, FDDI, and ISDN networking markets.
Following the close of the transaction, Barry Witz, a director and
chief executive officer of BW, will join Osicom's board of directors which will
be expanded to five members. Sharon Chadha, the current CEO and Chairman of
Osicom, Par Chadha and Dr. Xin Cheng will remain on the Board of Osicom. The
remaining director position will be filled by Leonard N. Hecht, president of
Chrysalis Capital Group, an investment banking company specializing in mergers
and acquisitions. Mr. Hecht has served on the board of directors of many
public and private companies and was a founding principal of Xerox Development
Corporation, a wholly-owned subsidiary of the Xerox Corporation.
The acquisition will qualify as a tax-free reorganization and will be
completed as soon as practical subject to regulatory clearance and approval by
the shareholders of both companies.
DEBENTURE CONVERSIONS - Subsequent to May 31, 1996 debentures with a
face value of $2,085,000 were converted into 191,141 shares of the Company's
common stock.
DEBENTURE PLACEMENTS - Subsequent to May 31, 1996 the Company
completed its placement of convertible debentures and received net proceeds of
approximately $3.0 million.
PRIVATE PLACEMENT OF SECURITIES - On July 2, 1996, the Company
completed a placement of $10.7 million face value of a new class of preferred
stock ("Class B") which has a cumulative dividend of 8%, redeemable by the
Company and is convertible into shares of the Company's common stock if not
previously called. Dividend payments are scheduled to begin October 1, 1996.
Holders can convert these preferred shares at a price of $18.50 or under
certain conditions at market price. Holders of the preferred shares were also
issued warrants to purchase 145,310 shares of the Company's common stock at
$18.50 per share. Net proceeds received by the Company totaled approximately
$8.1 million
15. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade receivables. As regards the former, the Company places its temporary
cash investments with high credit quality financial institutions and limits, by
policy, the amount of credit exposure to any one institution. The Company's
foreign subsidiary, Uni, has one bank account which, at
F-22
<PAGE> 50
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
May 31, 1996 exceeded five percent of current assets: a $1,294,000 account at
the Bank of China. As the Bank of China is a large, stable bank, the Company
does not perceive significant credit exposure regarding this account.
Concentrations of credit risk with respect to trade receivables are
limited because there is a large number of customers in the Company's customer
base spread across many industries and geographic areas. One customer
accounted for 35.1% of net sales for the year ended May 31, 1996 and no
customer accounted for more than 10% of sales during the period ended May 31,
1995. The largest single customer receivable at May 31, 1996 was $832,000. At
May 31, 1995 no single receivable exceeded 10% of net receivables.
16. SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest expense and taxes paid approximated the related expenses for
the year ended May 31, 1996 and the period ended May 31, 1995.
The stock issued to effect, in part, the Uni, Sciteq and PDP
acquisitions during the year ended May 31, 1996 neither provided nor used cash.
Accordingly, the stock has been excluded from the statement of cash flows.
17. SEGMENT INFORMATION
Information in the table below is presented on the same basis utilized
by the Company to manage its business. Export sales and certain income and
expense items are reported in the geographic area where the final sale to
customers is made, rather than where the transaction originates.
<TABLE>
<CAPTION>
July 1, 1994
Year Ended (inception) to
May 31, 1996 May 31, 1995
------------ ------------
<S> <C> <C>
Net sales:
United States $14,144,000 $6,694,000
Asia 2,429,000 0
Other 116,000 0
Inter-area eliminations (286,000) 0
----------- ----------
Total net sales $16,403,000 $6,694,000
=========== ==========
Net income (loss):
United States $(2,688,000) $ (81,000)
Asia 146,000 0
Other 7,000 0
Inter-area eliminations (1,000) 0
----------- ----------
Net income (loss) $(2,536,000) $ (81,000)
=========== ==========
Total assets:
United States $13,810,000 $1,865,000
Asia 21,704,000 0
Inter-area eliminations (4,668,000) 0
----------- ----------
Total assets $30,846,000 $1,865,000
=========== ==========
</TABLE>
F-23
<PAGE> 51
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
18. OTHER RECEIVABLES
Other receivables at May 31, 1996 consisted of the following:
<TABLE>
<S> <C>
8% demand loan due from entity controlled by director including
accrued interest (see Note 11) $ 101,074
8% demand loan due from an officer of RTC including accrued
interest (see Note 11) 102,016
Due to Company under indemnification against loss in value of
marketable securities received in private placement of shares
due from directors (see Note 11) 178,183
Due to Company under indemnification of costs related to BWA, Inc.
(see Notes 1 and 13) 62,893
8% demand loan due from non-affiliate including accrued interest 244,041
Other miscellaneous trade and non-trade receivables 107,296
-------------
Total other receivables $ 795,503
=============
</TABLE>
19. VALUATION AND QUALIFYING ACCOUNTS
Changes in the inventory obsolescence reserve were as follows:
<TABLE>
<S> <C>
Balance at July 1, 1994 (inception) $ 0
Additions charged to costs and expenses 4,656
Amounts used during year 0
-------------
Balance at June 1, 1995 4,656
Additions charged to costs and expenses solely from
acquisitions (see Note 1) 1,019,542
Amounts used (recovered) during year (3,628)
-------------
Balance at May 31, 1996 $ 1,020,570
=============
</TABLE>
Changes in the accounts receivable reserve for doubtful accounts were
as follows:
<TABLE>
<S> <C>
Balance at July 1, 1994 (inception) $ 0
Additions charged to costs and expenses 33,000
Amounts used during year 0
-------------
Balance at June 1, 1995 33,000
Additions charged to costs and expenses solely from 380,743
acquisitions (see Note 1)
Amounts used (recovered) during year (13,000)
Balance at May 31, 1996 $
-------------
400,570
=============
</TABLE>
F-24
<PAGE> 52
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
20. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the acquisitions of Uni and Sciteq
had occurred at the beginning of each period presented. This pro forma
presentation does not necessarily reflect the results as they would have been
had the acquisitions actually occurred at the beginning of the periods
presented.
July 1, 1994 (inception) to May 31, 1995
<TABLE>
<CAPTION>
Company Pro Forma Pro Forma
consolidated Uni SCITEQ Adjustments Ref Consolidated
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $6,694,000 $46,315,000 $3,420,000 $1,311,000 (i) $55,118,000
Cost of Sales 5,890,000 41,676,000 1,994,000 (1,201,000) (i) 48,359,000
--------------------------------------------------------------------------------------------
Gross Profit 804,000 4,639,000 1,426,000 110,000 6,759,000
Operating Expenses 887,000 4,328,000 2,009,000 22,000 (ii)
107,000 (iii)
164,000 (iv) 7,517,000
--------------------------------------------------------------------------------------------
Operating Income (Loss) (83,000) 311,000 (583,000) (403,000) (758,000)
Other Income (Charges) 2,000 (605,000) (v)
(61,000) (vi) (664,000)
--------------------------------------------------------------------------------------------
Income Before Taxation (81,000) 311,000 (583,000) (1,069,000) (1,422,000)
Provision for Taxation
--------------------------------------------------------------------------------------------
Net Operating Income $ (81,000) $311,000 $(583,000) $(1,069,000) $(1,422,000)
============================================================================================
Weighted Average Shares Outstanding 305,285 369,556 (vii) 674,841
Loss Per Share, Primary and Fully
Diluted $ (0.27) $ (2.11)
</TABLE>
June 1, 1995 to May 31, 1996
<TABLE>
<CAPTION>
Company Pro Forma Pro Forma
consolidated Uni SCITEQ Adjustments Ref Consolidated
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $16,402,000 $47,293,000 $4,213,000 $515,000 (i) $67,393,000
Cost of Sales 14,039,000 40,085,000 2,227,000 (526,000) (i) 55,825,000
--------------------------------------------------------------------------------------------
Gross Profit 2,363,000 7,208,000 1,986,000 (11,000) 11,568,000
Operating Expenses 4,730,000 4,814,000 1,575,000 20,000 (ii)
97,000 (iii)
179,000 (iv) 11,415,000
--------------------------------------------------------------------------------------------
Operating Income (Loss) (2,367,000) 2,394,000 411,000 (285,000) 153,000
Other Income (Charges) (129,000) (550,000) (v)
(66,000) (vi) (745,000)
--------------------------------------------------------------------------------------------
Income Before Taxation (2,496,000) 2,394,000 411,000 (901,000) (592,000)
Provision for Taxation (40,000) (40,000)
--------------------------------------------------------------------------------------------
Net Operating Income $ (2,536,000) $2,394,000 $411,000 $(901,000) $ (632,000)
=============================================================================================
Weighted Average Shares Outstanding 1,933,764 369,556 (viii) 2,303,320
Loss Per Share, Primary and Fully
Diluted $ (1.31) $ (0.27)
</TABLE>
F-25
<PAGE> 53
BUILDERS WAREHOUSE ASSOCIATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
References for pro forma financial information:
(i) To eliminate sales to RTC by Uni and purchases from Uni by RTC in the
periods presented.
(ii) To amortize the increased valuation of fixed assets of $365,000
recognized in the Uni acquisition, using an estimated 15 year useful
life.
(iii) To amortize the excess cost over net assets of $1,743,000 arising from
the Uni acquisition, using an estimated 15 year useful life.
(iv) To amortize the excess cost over net assets of $895,000 arising from
the Sciteq acquisition, using an estimated 5 year useful life.
(v) To recognize interest expense which results from the assumption that
the Company borrowed $6,000,000 at 11% per annum interest to
effectuate the Uni acquisition.
(vi) To recognize interest expense which results from the assumption that
the Company borrowed $600,000 at 11% per annum interest to effectuate
the Sciteq acquisition.
(vii) To recognize shares issued in connection with the acquisitions of Uni
and Sciteq.
(viii) To adjust weighted average shares outstanding as if shares issued in
connection with the acquisitions of Uni and Sciteq had occurred at the
beginning of the periods presented.
F-26
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BUILDERS WAREHOUSE ASSOCIATION, INC.
By: /s/ Par Chadha Date: August 7, 1996
--------------------------
Par Chadha
Chairman and Director
Secretary
Chief Accounting Officer
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 Company
and in the capacities and on the dates indicated.
By: /s/ Barry Witz Date: August 7, 1996
--------------------------
Barry Witz
Director
Chief Executive Officer
Chief Financial Officer
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENTS OF OPERATIONS, CASH FLOWS
AND CHANGES IN STOCKHOLDERS EQUITY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 4,372,287
<SECURITIES> 149,091
<RECEIVABLES> 5,721,938
<ALLOWANCES> 400,743
<INVENTORY> 6,900,304
<CURRENT-ASSETS> 17,988,868
<PP&E> 12,963,696
<DEPRECIATION> 4,809,873
<TOTAL-ASSETS> 30,846,441
<CURRENT-LIABILITIES> 19,156,609
<BONDS> 2,978,237
0
0
<COMMON> 29,630
<OTHER-SE> 2,958,321
<TOTAL-LIABILITY-AND-EQUITY> 30,846,441
<SALES> 16,402,276
<TOTAL-REVENUES> 16,402,276
<CGS> 14,038,851
<TOTAL-COSTS> 14,038,851
<OTHER-EXPENSES> 4,766,456
<LOSS-PROVISION> 13,000
<INTEREST-EXPENSE> 164,997
<INCOME-PRETAX> (2,496,272)
<INCOME-TAX> 39,898
<INCOME-CONTINUING> (2,536,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,536,170)
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> 0
</TABLE>
