FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
--------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-18344
SOONER HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1275261
- -------------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2680 W. I-40, Oklahoma City, OK 73108
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (405) 236-8332
--------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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
--------- ----------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
YES NO
--------- ----------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 6,412,528 shares of
common stock as of November 12, 1996.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOONER HOLDINGS, INC.
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
Sept. 30,
1996
-----------
<S> <C>
ASSETS
Current assets:
Cash $ 5,179
Accounts receivable 2,598
Inventories, net 43,208
Prepaid expenses and deposits 750
-----------
Total current assets 51,735
Land held by trust 505,260
Other receivables (Note 6) 58,000
Property and equipment, net (Note 2) 2,465,188
Other assets, net 31,891
-----------
$ 3,112,074
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable (Note 3) $ 61,780
Real estate taxes payable (Note 3) 51,125
Real estate taxes payable recourse to land held by trust 158,924
Accrued liabilities 24,345
Notes payable (Note 3) 246,511
Net current liabilities of discontinued operations 9,299
-----------
Total current liabilities 551,984
-----------
Long-term debt (Note 4) 2,165,729
Road trust improvements payable 350,000
Commitments, contingencies and subsequent events (Note 7) -
-----------
Stockholders' equity:
Preferred stock; undesignated, authorized 10,000,000 shares, no shares
issued and outstanding -
Common stock; $.001 par value, authorized 100,000,000 shares,
6,412,528 shares issued and outstanding 6,413
Additional paid-in-capital 5,456,612
Accumulated deficit (5,418,664)
-----------
Total stockholders' equity 44,361
-----------
$ 3,112,074
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
2
<PAGE>
SOONER HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the quarter ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 170,620 $ 72,461 $ 631,337 $ 232,244
----------- ----------- ----------- -----------
Expenses:
Cost of products sold 1,391 1,936 3,039 7,121
General and administrative 72,926 64,924 229,544 181,755
Marketing and advertising - 234 500 300
Depreciation and amortization 24,321 20,762 62,879 62,287
Interest expense 57,300 59,361 171,700 176,170
----------- ----------- ----------- -----------
Total expenses 155,938 147,217 467,662 427,633
----------- ----------- ----------- -----------
Income (loss) from continuing operations
14,682 (74,756) 163,675 (195,389)
Loss on land held in trust (17,370) - (17,370) -
Loss from discontinued operations (9,038) (15,641) (9,038) (60,588)
----------- ----------- ----------- -----------
Net income (loss) $ (11,726) $ (90,397) $ 137,267 $ (255,977)
=========== =========== =========== ===========
Net income (loss) per common share:
Income (loss) from continuing operations * (.02) .02 (.04)
Loss on land held in trust (*) - (*) -
Loss from discontinued operations (*) (*) (*) (.01)
----------- ----------- ----------- -----------
Net income (loss) per common share
$ (*) $ (.02) $ .02 $ (.05)
=========== =========== =========== ===========
Weighted average number of shares
outstanding 6,412,528 4,999,083 6,412,528 4,999,083
=========== =========== =========== ===========
</TABLE>
* less than $.01
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
SOONER HOLDINGS, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 137,267 $(255,977)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 62,879 62,287
Loss on repossession of land 17,370 -
Changes in assets and liabilities:
Accounts receivable (151) (1,774)
Inventories 1,429 7,632
Prepaid expenses and deposits 1,127 (378)
Bank overdraft (5,500) -
Accounts payable 39,764 32,040
Real estate taxes payable 11,251 -
Real estate taxes payable recourse to land 13,157 11,088
Accrued liabilities to related parties 117,660 37,895
Accrued liabilities 716 968
Net liabilities of discontinued operations 8,880 78,970
--------- ---------
Total adjustments 268,582 228,728
--------- ---------
Net cash used in operating activities 405,849 (27,249)
--------- ---------
Cash flows from investing activities:
Advances to Dynamicorp (30,000) -
Purchases of property and equipment (60,502) -
--------- ---------
Net cash used in investing activities (90,502) -
--------- ---------
Cash flows from financing activities:
Repayments of notes payable (334,157) (33,030)
Borrowings on notes payable - 3,482
Borrowings on notes payable to related parties 20,499 61,009
--------- ---------
Net cash provided by financing activities (313,658) 31,461
--------- ---------
Net increase (decrease) in cash 1,689 4,212
Cash at beginning of year 3,490 1,729
--------- ---------
Cash at end of period $ 5,179 $ 5,941
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 140,967 $ 153,229
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
SOONER HOLDINGS, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
September 30, 1996
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and operations
- ---------------------------
Sooner Holdings, Inc., an Oklahoma corporation (the "Company"),
operates through subsidiaries which conduct business in several industries.
Charlie O Beverages, Inc. (Beverages) is engaged in the manufacture and
distribution of an in-home soda fountain appliance and supplies for the
preparation of carbonated beverages. Charlie O Business Park Incorporated
(Business Park) is engaged in the ownership and rental of a business park in
Oklahoma City, Oklahoma. SD Properties, Inc. (SDPI) holds an interest in a trust
that owns land for resale in Coconino County, Arizona, and solicits and manages
construction activities. During 1995, the Company formed Dynamicorp
Restructuring Corp. (DRC) which acquired an ownership interest in Dynamicorp,
Inc. (see Note 6). On TV Incorporated (ONTV) was engaged in the business of
marketing consumer products until its operations were discontinued during 1995.
Basis of presentation
- ---------------------
The unaudited consolidated financial statements presented herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations for interim financial information and the instructions to Form
10-QSB and Regulation S-B. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. These unaudited
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995 (the "1995 Form
10-KSB"). In the opinion of management, the unaudited consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals
only) which are necessary to present fairly the consolidated financial position,
results of operations, and changes in cash flow of the Company. Operating
results for interim periods are not necessarily indicative of the results which
may be expected for the entire year.
Principles of consolidation
- ---------------------------
The Company's consolidated financial statements have been prepared on
the basis of generally accepted accounting principles and include the accounts
of Sooner Holdings, Inc. and its subsidiaries. All significant intercompany
transactions have been eliminated. All of the Company's consolidated
subsidiaries are wholly owned, except for ONTV. The minority shareholders'
interest in the accounts of ONTV have not been presented in the accompanying
consolidated financial statements as the amounts are not material.
5
<PAGE>
Liquidity
- ---------
For the fiscal year ending December 31, 1995, the independent auditor's
report included an explanatory paragraph calling attention to a going concern
issue. The accompanying consolidated financial statements have been prepared
contemplating continuation of the Company as a "going concern." Although the
Company was profitable for the nine months ended September 30, 1996, current
liabilities still exceed current assets by approximately $500,249. In view of
these matters, realization of a major portion of the assets is dependent upon
continued operations of the Company, which in turn is dependent upon the
Company's ability to meet its financing requirements and the success of its
future operations. Management believes that actions presently being taken to
revise the Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern. However, there can
be no assurance management will be successful in this endeavor.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1996 is comprised of the
following:
Land $ 1,191,400
Buildings and improvements 1,464,464
Machinery 375,677
Furniture and fixtures 13,787
Tooling 172,820
--------------
3,218,148
Less accumulated depreciation (752,960)
--------------
Property and equipment, net $ 2,465,188
==============
A total of $1,694,832 in liabilities are secured by first, second and
third liens against the Company's property.
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable at September 30, 1996 are as follows:
<S> <C>
Note payable to bank, payable in monthly installments of $500, interest at
prime plus 1% per annum, due June 1997. Secured by inventory. $ 17,511
Note payable to bank, payments of interest only due quarterly, interest at
prime plus .5% per annum, guaranteed by a shareholder, officer and
director, due June 1996. Unsecured. 94,000
Note payable to individual, no stated interest rate, due on demand.
Secured by real estate. 135,000
--------------
Notes payable $ 246,511
==============
</TABLE>
6
<PAGE>
The Company refinanced the remaining balance on the note due bank in
the amount of $94,000 into a new note with interest at 8.75% per annum, interest
only payments due monthly, and the principal due in full on June 1, 1997.
Subsequent to the quarter end, the Company borrowed $100,537 from
American Bank & Trust of Edmond, Oklahoma under a note bearing interest at 8.75%
per annum due on June 1, 1997. Proceeds of the borrowing were used to pay
accounts payable and to cure the default on the real estate taxes payable on the
Business Park. Accordingly, the OIFA loan, which was in default due to the
delinquent real estate taxes, is now recorded as long-term debt at September 30,
1996 (see Note 4). In addition, the OIFA has waived principal payments on the
note for one year.
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt as of September 30, 1996 consists of the following:
<S> <C>
Installment note payable to bank, interest at prime plus 3% per annum, due
June 20, 1997, personally guaranteed by a shareholder, officer and director.
Secured by real estate. $ 938,945
Installment note payable to bank, interest at prime plus 3% per annum, due
June 20, 1997, personally guaranteed by a shareholder, officer and director.
Secured by real estate. 188,069
Oklahoma Industrial Finance Authority (OIFA) loan, variable interest and
payments, maturing August 1, 2004, interest at 3% over the Oklahoma
Industrial Finance Authority's cost of capital, not to fall below 10% or
exceed 14%, guaranteed by a shareholder, officer and director. Secured by
real estate and equipment. 432,818
Notes payable to related parties, interest ranging from 10% to 15% per
annum, due January 1, 1998. 605,897
---------------
Long-term debt $ 2,165,729
===============
</TABLE>
During the quarter, accrued liabilities, trade payables and demand
notes payable due to related parties, including interest thereon, were converted
into long-term notes payable due January 1, 1998, and accordingly, are shown as
long-term debt at September 30, 1996.
NOTE 5 - RELATED PARTIES
Related parties are described in the 1995 Form 10-KSB except for the
following related party:
7
<PAGE>
Vinculum Incorporated ("VINC") is a Phoenix, Arizona-based holding
company. VINC is a subsidiary of ShareData and the parent company of JT Dealer
Sales & Services Corp. (JT). Messrs. Lang and Williams are officers and
directors of VINC.
The following table reflects the approximate amounts of related party
obligations, which are due and payable by the Company to officers, directors,
shareholders and/or management consultants, included in their respective
captions on the balance sheet at September 30, 1996:
L.T. Accounts
Debt Payable
---- -------
Cunningham $ 218,003 $ -
Bulldog 280,201 3,522
ShareData 3,135 -
WOB 53,483 1,422
PFRG 14,000 -
VINC 37,075 -
Talbot - 6,485
------------- ------------
Total related party liabilities $ 605,897 $ 11,429
============= ============
In addition, Cunningham has personally guaranteed $1,559,832 of the
long-term debt and $94,000 of notes payable.
NOTE 6 - INVESTMENT IN DYNAMICORP, INC.
The Company's investment in Dynamicorp, Inc. (Dyna) is described in the
1995 10-KSB and in the Company's Form 10-QSB for the quarter ended June 30,
1996. There have been no substantive new developments related to Dyna for the
quarter ended September 30, 1996.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company was a defendant in a lawsuit filed in fiscal 1990 by a
vendor seeking to enforce payment of amounts due plus reasonable costs. In April
1991, a judgment was entered against the Company requiring it to pay the vendor
$57,945, plus accrued interest and costs. In June 1994, Bulldog acquired this
judgment directly from the vendor and the Company is now obligated to pay
Bulldog. The judgment continues to accrue interest as stipulated in the judgment
and the amount due Bulldog, which is recorded as long-term debt in the
accompanying consolidated financial statements was $91,135 and $86,248 as of
September 30, 1996 and 1995, respectively.
In July 1996, the Company was sued for $90,000 under an indemnification
agreement related to certain sales which took place in 1990. The Company
believes it has no liability under this claim due to various defenses which it
intends to vigorously assert. However, such defense will likely cost the Company
legal fees and expenses which it may be unable to recover from the plaintiff.
8
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Introduction
The following discussion should be read in conjunction with the
Company's financial statements and notes thereto included elsewhere in this Form
10-QSB report. In addition, the discussion of the Company's expected Plan of
Operation, included in the 1995 Form 10-KSB, is incorporated herein in its
entirety as the discussion of the Plan of Operation as required by Item 303(a)
of Regulation S-B.
Liquidity and Capital Resources - September 30, 1996 compared to September 30,
1995
The Company has had severe liquidity problems for the last several
years. The Company's liquidity is reflected in the table below, which shows
comparative working capital deficit.
<TABLE>
<CAPTION>
September 30, Dec. 31,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Working capital (deficit) $(500,249) $(781,509) $(724,211)
============= ============= =============
</TABLE>
Although the Company's working capital is negative, the Company's
ability to meet its obligations has remained stable due to the financial support
from certain of the Company's related parties. The Company's current working
capital continues to be provided by Mr. R.C. Cunningham II, the Company's
Chairman of the Board and President ("Cunningham"), or by Bulldog Investment
Company, L.L.C., a Phoenix, Arizona-based merchant banking and private
investment company ("Bulldog") or by Bulldog's other affiliated companies.
Future Working capital requirements
- -----------------------------------
Beverages has sufficient inventory to allow it to increase its sales
with a minimum of additional cash.
The only cash requirements that are not expected to be funded by
revenues are the real estate taxes payable, both current and those in arrears,
on SDPI's lots and some interest expense related to Business Park. These cash
requirements for the next 12 months are estimated to be less than $200,000.
Exclusive of funds required by debt repayment, the Company believes that it can
borrow these funds from Bulldog or Cunningham, although there can be no
assurance that such funds will be available when needed. In the event that the
Company cannot refinance, or obtain forbearance on its current liabilities or on
its long-term liabilities as they come due, the Company will undoubtedly face
further severe liquidity problems which may lead to litigation, the inability to
transact business, and/or foreclosure actions being initiated against a majority
of the Company's assets.
In November 1995, DRC, a newly formed subsidiary of the Company,
acquired an approximate 43% equity interest in Dyna and sought to obtain
permanent control of this
9
<PAGE>
company. As of September 30, 1996, the Company had advanced $58,000 to Dyna. DRC
expects to file a Reorganization Plan for Dyna before December 1, 1996, which
Plan should improve the collectibility of the Company's receivable from Dyna.
However, there can be no assurance the Plan will be approved by the Court. The
Company does not expect to provide any further funding to Dyna and the amount
advanced to Dyna remains outstanding as of September 30, 1996.
Results of Operations - The quarter and nine months ended September 30, 1996
compared to the quarter and nine months ended September 30, 1995
Revenues increased by $98,159 (135%) and $399,093 (172%) for the
quarter and nine months ended September 30, 1996 compared to the same quarter
and nine month periods in 1995. The majority of this increase was due to an
increase of SDPI revenues in the first nine months of 1996. SDPI entered into a
new business in late 1995 whereby it acts as marketing representative for
construction contractors to develop business opportunities for these contractors
for a fee. During the quarter ended September 30, 1996, SDPI completed its major
project and was paid in full. The Company is evaluating methods of continuing
the SDPI business. Business Park had an increase in revenues for the quarter and
nine months ended September 30, 1996 of $13,625 (19%) and $20,497 (9%),
respectively, over the 1995 comparable periods. This increase is due to the
increased occupancy at the Business Park. Beverages continues to have very
modest revenues and is seeking new strategic partners to increase its revenues.
If the Company is unable to obtain a strategic partner, it will likely exit the
beverage business.
Total expenses for the quarter and nine months ended September 30, 1996
were $155,938 and $467,662, respectively, as compared to total expenses for the
comparable 1995 periods of $147,217 and $427,633, respectively. The increase in
the 1996 expenses for the quarter and nine months ending September 30 was due
primarily to an increase in general and administrative ("G&A") expenses. Such
G&A expenses consist primarily of professional and management fees. G&A expenses
increased in the 1996 periods due to the recognition of fees due Bulldog and
Cunningham relating to their incentive based compensation agreements.
The Company recorded net income from continuing operations for the
quarter and nine month periods of 1996 of $14,682 and $163,675, respectively, as
compared to net losses of $(74,756) and $(195,389) for the comparable 1995
periods, respectively. The net income from continuing operations in 1996 was due
to the increase in revenues primarily from the SDPI subsidiary, as discussed
above. The Company is currently evaluating additional investments to maintain
and potentially expand the SDPI business. Without such additional investments,
the likelihood of continued expanded revenue, further revenue growth and
continued profitability are uncertain.
Loss on land held in trust for the quarter ending September 30, 1996
relates to the loss of certain of SDPI's lots due to tax sale foreclosures.
10
<PAGE>
Capital Expenditures and Commitments
During the third quarter ending September 30, 1996, the Company had
$24,000 in capital expenditures primarily for leasehold improvements at the
Business Park. The Company has no future commitments for material capital
expenditures. If the Company is to grow it will have to invest additional money
in marketing and advertising expenses if such cash can be obtained from vendors,
related parties or the sale of debt or equity securities.
Factors that may affect future results
A number of uncertainties exist that may affect the Company's future
operating results. These include the uncertain general economic conditions,
uncertain market acceptance of the Company's products, the Company's ability to
manage its expenses at a very minimum level, the ongoing support of Bulldog and
Cunningham, the ability of the Company to refinance its long-term liabilities on
satisfactory terms, if at all, and the Company's ability to acquire sufficient
funding to sustain its operations and develop new businesses.
The Company is actively seeking to sell its interest in ONTV. In the
event the Company exits the beverage business and sells the inventory, equipment
and tooling relating to this business, it is uncertain whether the Company will
be able to realize the value of these assets shown on the books.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In July 1996, the Company was sued for $90,000 under an indemnification
agreement related to certain sales which took place in 1990. The Company
believes it has no liability under this claim due to various defenses which it
intends to vigorously assert. However, such defense will likely cost the Company
legal fees and expenses which it may be unable to recover from the plaintiff.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company submitted matters to a vote of its security holders at its
1995 Annual meeting of Shareholders held on Wednesday, October 16, 1996. A total
of 5,501,596 votes were cast, which represent 86% of the common shares held of
record on September 4, 1996. At this annual meeting, the shareholders voted in
favor of each of the matters submitted to the
11
<PAGE>
shareholders for ratification. These matters were the election of three
directors to serve for the ensuing year and the approval of the selection of
Arthur Andersen LLP as the Company's independent accountants. The matters were
ratified by the following votes:
Favor Against Abstain
Election of Directors:
R.C. Cunningham II 5,501,594 0 2
David B. Talbot, Jr. 5,501,595 0 1
Michael S. Williams 5,501,595 0 1
Approve the selection of Arthur
Andersen LLP as the Company's
independent accountants 5,501,546 0 50
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SOONER HOLDINGS, INC.
---------------------------
(Registrant)
Dated: November 12, 1996
By: /s/ R.C. Cunningham
--------------------------------------
R. C. Cunningham, Chairman and
President
By: /s/ Lanny R. Lang
--------------------------------------
Lanny R. Lang, Treasurer
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 5,179
<SECURITIES> 0
<RECEIVABLES> 2,598
<ALLOWANCES> 0
<INVENTORY> 43,208
<CURRENT-ASSETS> 51,735
<PP&E> 3,218,148
<DEPRECIATION> 752,960
<TOTAL-ASSETS> 3,112,074
<CURRENT-LIABILITIES> 551,984
<BONDS> 0
0
0
<COMMON> 5,463,025
<OTHER-SE> (5,418,664)
<TOTAL-LIABILITY-AND-EQUITY> 3,112,074
<SALES> 631,337
<TOTAL-REVENUES> 631,337
<CGS> 3,039
<TOTAL-COSTS> 295,962
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,700
<INCOME-PRETAX> 137,267
<INCOME-TAX> 0
<INCOME-CONTINUING> 163,675
<DISCONTINUED> 9,038
<EXTRAORDINARY> 17,370
<CHANGES> 0
<NET-INCOME> 137,267
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
