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 June 30, 2000_
[ ] 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.)
2534 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: 16,888,016 shares
of common stock as of June 30, 2000.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOONER HOLDINGS, INC.
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
June 30, 2000
-------------
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 284,363
Restricted cash 10,045
Accounts receivable 174,611
Other current assets 19,433
------------
Total current assets 488,452
Property and equipment, net 3,076,218
Intangible assets, net of amortization of $405,743 1,743,101
Other assets, net 481,403
------------
$ 5,789,174
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current notes payable $ 152,356
Accounts payable 98,227
Accrued liabilities to related parties 160,618
Accrued liabilities 69,145
Current portion of notes and royalty payable 1,760,550
Deferred revenue 20,335
------------
Total current liabilities 2,261,231
------------
Notes payable, less current portion and net of
discount of $132,860 3,483,324
Royalty payable, less current portion and net of
discount of $787,803 424,000
Redeemable common stock, $0.001 par value, 500,000 shares
issued and 446,000
Stockholders' deficit:
Preferred stock; undesignated, authorized 10,000,000
shares, no shares issued and outstanding -
Common stock; $.001 par value, authorized 100,000,000
shares, 16,888,016 shares issued and outstanding, less
500,000 shares subject to repurchase 16,388
Additional paid-in-capital 5,999,990
Accumulated deficit (6,529,759)
Related party receivables from stock purchase (312,000)
------------
$ 5,789,174
============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
SOONER HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the quarter ended For the six months ended
June 30, June 30,
2000 1999 2000 1999
---------- --------- --------- ---------
Revenues:
<S> <C> <C> <C> <C>
Service revenues $ 428,091 $ 417,590 $ 769,474 $ 806,927
Rental revenues 101,703 82,422 205,541 160,203
--------- --------- --------- ---------
Total revenues 529,794 500,012 975,015 967,130
--------- --------- --------- ---------
Operating expenses:
Cost of Service 217,265 190,110 418,592 392,762
General and administrative 242,534 212,059 390,867 300,373
Depreciation and
amortization 79,552 72,518 156,369 143,474
--------- --------- --------- ---------
Total operating expenses 539,351 474,687 965,828 836,609
--------- --------- --------- ---------
Income (loss) from operations (9,557) 25,325 9,187 130,521
Interest expense (168,492) (144,707) (318,216) (285,681)
Other income (expense) 3,549 15,000 5,430 15,000
--------- --------- --------- ---------
Net loss from continuing
operations (174,500) (104,382) (303,599) (140,160)
Loss from discontinued
operations - - - (17,301)
--------- --------- --------- ---------
Net loss $(174,500) $(104,382) $(303,599) $(157,461)
========= ========= ========= =========
Net loss per common share $ (.01) $ (.01) $ (.03) $ (.02)
========= ========= ========= =========
Weighted average common
shares outstanding 14,205,782 8,471,350 11,386,620 8,471,350
========== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
SOONER HOLDINGS, INC.
Consolidated Statements of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Common Stock Common Stock Related Party Total Accumulated
Shares Amount Paid-In Capital Receivables Deficit
------------ ------------ --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 8,471,350 $ 8,471 $ 5,532,907 $ (6,226,160)
Issuance of stock April 29, 2000 6,250,000 6,250 368,750 $ (312,000) -
Issuance of stock in partial satisfaction 1,666,666 1,667 98,333 -
Issuance of redeemable common stock 500,000 - - -
Net loss for Period - - - (303,599)
--------------------------------------------------------------------------------
Balance, June 30, 2000 16,888,016 $16,388 $ 5,999,990 $ (312,000) $ (6,529,759)
================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
SOONER HOLDINGS, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
2000 1999
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (303,599) $ (157,461)
---------- ----------
Adjustments to reconcile net loss to net cash
used in
Loss from discontinued operations - 17,301
Accretion of interest 82,388 100,880
Common stock issued for compensation 93,000 -
Depreciation and amortization 156,369 143,474
Changes in assets and liabilities:
Accounts receivable (39,948) (55,700)
Other current assets and other assets 4,871 19,453
Accounts payable (50,936) (58,111)
Accrued liabilities to related parties 45,564 27,422
Accrued liabilities (27,419) (45,403)
Deferred revenue (15,771) 125
---------- ----------
Net cash used in operating activities (55,481) (8,020)
---------- ----------
Cash flows from investing activities:
Change in restricted cash 26,364 -
Purchases of property and equipment (146,717) (218,574)
---------- ----------
Net cash used in investing activities (120,353) (218,574)
---------- ----------
Cash flows from financing activities:
Repayments of notes payable (24,985) (1,982,539)
Royalty payments (2,717) (36,000)
Borrowings from related parties 200,000 -
Borrowings on notes payable 110,000 2,510,000
Repayments of notes payable to related parties - (113,988)
---------- ----------
Net cash provided by financing activities 282,298 377,473
---------- ----------
Net increase in cash 106,464 150,879
Cash at beginning of year 177,899 76,792
---------- ----------
Cash at end of period $ 284,363 $ 227,671
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 174,115 $ 128,456
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
SOONER HOLDINGS, INC.
Consolidated Statements of Cash Flows
(unaudited)
Non-cash transactions:
In connection with settlement of the lawsuit discussed in Note 7,
$71,910 was transferred from accrued liabilities to notes payable for
the six month period ended June 30, 2000.
In connection with non-cash issuance of stock during the six month
period ended June 30, 2000, the Company recorded:
1. In exchange for 500,000 shares of stock: Intangible assets of
$396,000, property of $20,000, compensation of $30,000, and
Redeemable common stock of $446,000
2. In exchange for 5,200,000 shares of stock: Notes receivable
of $312,000.
3. In exchange for 1,666,666 shares of stock: A reduction in
stockholder debt of $100,000.
4. In exchange for 1,050,000 shares of stock: Compensation
expense of $63,000.
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
SOONER HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2000
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and operations
---------------------------
Sooner Holdings, Inc., an Oklahoma corporation (the "Company"), operates
primarily through three of its subsidiaries. New Directions Acquisition Corp.
(NDAC) owns and operates a minimum-security correctional facility in Oklahoma
City, Oklahoma. Charlie O Business Park Incorporated (Business Park) is engaged
in the ownership and rental of a business park in Oklahoma City, Oklahoma.
Sooner Communications, Inc., formed on April 24, 2000, is in engaged in
providing enhanced services to the telecommunications industry.
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 principals 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, 1999 (the "1999 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.
Management plans
----------------
For the fiscal year ending December 31, 1999, 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. The Company has
suffered recurring losses from operations, has a shareholders' deficit and a
working capital deficiency of $ 1,772,779 at June 30, 2000. In view of these
matters, realization of a major portion of the Company's assets is dependent
upon the Company's ability to meet its financing requirements and the success of
its future operations. Management believes that its plans to revise the
Company's operating and financial requirements, as described more fully in the
1999 Form 10-KSB, provide the Company the opportunity to continue as a going
concern. However, there can be no assurance that these plans will be successful.
Principles of consolidation
---------------------------
The accompanying consolidated financial statements have been prepared on
the basis of generally accepted accounting principles and include the accounts
of Sooner Holdings, Inc. and all majority owned subsidiaries. All significant
intercompany transactions have been eliminated.
Reclassifications
-----------------
Certain reclassifications have been made to the interim 1999 financial
statements to conform to the interim 2000 presentation.
7
<PAGE>
NOTE 2 - Property and Equipment
<TABLE>
Property and equipment as of June 30, 2000 is comprised
of the following:
<S> <C>
Land $ 1,311,400
Buildings and improvements 2,165,974
Machinery and equipment 158,729
Vehicles 80,968
-----------
3,717,071
Less accumulated depreciation 640,853
-----------
Property and equipment, net $ 3,076,218
===========
NOTE 3 - OTHER ASSETS
Other assets at June 30, 2000 is comprised of
the following:
Rent Deposit $ 1,190
Receivable from New Direction Centers of America, LLC 102,315
Loan commitment fee, less amortization of $4,208 110,898
Certificates of deposit 267,000
-----------
Other assets, net $ 481,403
===========
</TABLE>
NOTE 4 - NOTES PAYABLE
Notes payable as of June 30, 2000 consists of the following:
<TABLE>
Installment note payable, interest at 8.8%, due
<S> <C>
August 1, 2009; collateralized by first mortgage on
real estate $ 2,487,570
Notes payable to president and CEO, interest at 10%,
due after June 30, 2001. Subordinate to first mortgage
on correctional facility. 714,944
Note payable to stockholder, interest at 10%.
Payable at $5,000 per month, including principal and
interest. Not collateralized. Final payment due
January 28, 2001. 32,357
Notes payable to stockholders, interest at 10%, due
concurrently with balloon promissory note discussed
below. Not collateralized. 300,000
Revolving line of credit from Bank, interest at prime
plus 3.25%, currently 11.5%, matures May 5, 2005,
collateralized by accounts receivable. 35,000
Balloon promissory note payable to related party (see
note 6), 10% stated interest per annum, 15% effective
interest rate, principal and interest due June 1, 2001;
collateralized by a second mortgage on land and facility
owned by the Company, net of discount of $132,860. 1,198,140
</TABLE>
8
<PAGE>
<TABLE>
Note payable to bank, interest at 10%, due July 13, 2000.
<S> <C>
Secured by personal guarantee of major shareholder. 85,000
Note payable to bank, interest at New York prime plus 2%,
due April 20, 2000, collateralized by a first mortgage on
land and facility owned by the Company. Renewed April 20,
2000 until April, 2001. 537,023
----------
5,390,034
Less current portion and current notes 1,906,710
----------
Notes payable - Long Term $3,483,324
==========
</TABLE>
In June 1999, the Company refinanced several notes payable that were due
to mature. A single note payable to a bank bearing an 8.8% interest rate and
maturing in June 2009 replaced these notes.
NOTE 5 - ROYALTY PAYABLE
As part of a business acquisition, the Company assumed a royalty payable
to an individual. The agreement calls for monthly payments of the greater of
$6,000 or 6% of the total gross monthly income of NDAC. The agreement expires on
April 30, 2017. Future minimum payments under this agreement total $1,218,000.
Unamortized discount related to this agreement is $ 787,803 at June 30, 2000.
Current portion of the royalty payable is $6,196.
NOTE 6 - RELATED PARTIES
The Company's related parties are more fully described in the 1999 Form
10-KSB. The following table reflects amounts owed to related parties at June 30,
2000:
<TABLE>
<CAPTION>
Notes Accrued
Payable Liabilities
---------- -----------
<S> <C> <C>
President and Chairman $ 714,944 $ 140,686
Other Significant Stockholders 332,357 19,932
New Direction Centers of America, LLC 1,198,140 -
---------- -----------
Total related party liabilities $2,245,441 $ 160,618
========== ===========
</TABLE>
In addition, the president and chairman has personally guaranteed
$629,108 of the Company's notes payable.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Legal Matters
-------------
In February 1998, a lawsuit was filed by a business associate against
the Company related to the purchase of NDLLC. On January 18, 2000, a settlement
was reached. The terms of the settlement include a payment of $76,000 by NDAC.
Part of the terms of the settlement included a lump sum payment of $20,000 and
an installment note for $56,000 payable at $5,000 per month at 10%, which is
included in notes payable at June 30, 2000. The balance due as of the balance
sheet date is $32,357.
9
<PAGE>
The Company is involved in certain other administrative proceedings
arising in the normal course of business. In the opinion of management, such
matters, including the lawsuit described above, will be resolved without
material effect on the Company's results of operations or financial condition.
NOTE 8 - INCOME TAXES
Due to ongoing losses, the Company's current tax liability is zero. The
tax benefit resulting from losses in these financial statements is reduced due
to increases in the valuation allowance.
NOTE 9 - STOCKHOLDERS' DEFICIT
Redeemable Common Stock and Stock Repurchase Agreement
------------------------------------------------------
Effective April 29, 2000, the Company entered into an agreement to
acquire certain software, hardware, and services in exchange for 500,000 shares
of the Company's restricted common stock. As of that date, the Company believed
the value of the stock to be $0.06 per share, or $30,000, and the value of the
put feature to be $416,000.
Part of the agreement constitutes a put feature whereby, if the
Company's stock does not trade at or above $1.00 per share during the twelfth
month after the date of the contract, the stockholders have the option of
requiring the Company to repurchase the stock at $1.00 per share.
The stock has been recorded as redeemable common stock and excluded from
stockholders' equity. If, in fact, the stock does trade within the contract
range during the measurement period, the redeemable common stock will be
reclassified as capital.
Employee Stock Option Plan
--------------------------
The Company has a stock option plan ("2000 Plan") for directors,
officers, key employees, and consultants covering 2,000,000 shares of Company
common stock. Options granted under the 2000 Plan may be either "incentive stock
options", as defined in Section 422A of the Internal Revenue Code, or
"nonqualified stock options", subject to Section 83 of the Internal Revenue
Code, at the discretion of the Board of Directors and as reflected in the terms
of the written option agreement. The option price shall not be less than 100% of
the fair market value of the optioned common stock on the date the options are
granted. Options become exercisable based on the discretion of the Board of
Directors but must be exercised within ten years of the date of grant.
At a special meeting of the Board of Directors on June 21, 2000, the
Company's President was awarded 600,000 options exercisable within three years
at $0.333 per share, the market price on June 21, 2000.
NOTE 10 - SEGMENT INFORMATION
The Company operates in the following three segments: commercial
leasing, correctional facility operation, and the communications industry.
Information concerning the Company's business segments is as follows for the six
and three months ended June 30, respectively:
10
<PAGE>
<TABLE>
<CAPTION>
Six Months Quarter Six Months Quarter
June 30, June 30, June 30, June 30,
2000 2000 1999 1999
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues Commercial $ 205,541 $ 101,703 $ 160,203 $ 82,422
Communications 0 0 0 0
Correctional 769,474 428,091 806,927 417,590
---------- --------- --------- ---------
Total $ 975,015 $ 529,794 $ 967,130 $ 500,012
========== ========= ========= =========
Segment operations
profit (loss) Commercial $ 25,669 $ 4,052 $(118,997) $ (64,981)
Communications (83,635) (83,635) 0 0
Correctional (100,323) (25,668) 6,419 (19,236)
Corporate (145,310) (69,249) (27,582) (20,165)
---------- --------- --------- ----------
Total $ (303,599) $(174,500) $(140,160) $ (104,382)
========== ========= ========= ==========
Identifiable assets Commercial $2,596,665 $2,502,440
Communications 497,394 0
Correctional 2,495,365 2,585,444
Corporate 199,750 139,638
---------- ----------
Total $5,789,174 $5,227,522
========== ==========
</TABLE>
Identifiable assets are those assets used in the Company's operations in
each area. Corporate income includes general and administrative costs and
corporate assets consist primarily of cash, receivables, and other current
assets.
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 1999 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.
Plan of Operation
Effective June 1, 1998, NDAC completed the acquisition of the assets and
certain liabilities of New Directions related to the operation of a community
correction business. NDAC runs a community correction center, commonly known as
a halfway house, that currently has approximately 190 beds available but is
licensed to provide up to 300 beds. NDAC operates under a contract with the
Oklahoma Department of Corrections, which provides clients to NDAC.
Effective April 24, 2000, the Company formed Sooner Communications, Inc.
(Communications), a wholly owned subsidiary. Subsequent to the formation, the
Company acquired the rights to CADEUM, which will provide a unified messaging
solution to integrated communication providers.
11
<PAGE>
The Community Correction Business
The facility operated by NDAC is a non-secure residential facility for
adult male and female offenders transitioning from institutional to independent
living. Offenders are eligible for these programs based upon the type of offense
committed and behavior while incarcerated in prison. Offenders generally spend
the last six months of their sentence in a community corrections program. The
goal and mission of NDAC's community corrections business is to reduce the
likelihood of an inmate committing an offense after release by assisting in the
reunification process with family and the community. Offenders must be employed,
participate in substance abuse programs, submit to frequent random drug testing,
and pay a predetermined percentage of their earnings to the government to offset
the cost of the program. The Company supervises these activities and also
provides life skills training, case management, home confinement supervision and
family reunification programs at its facilities.
NDAC's facility has received accreditation from the American
Correctional Association (the ACA), the governing body for accreditation. The
ACA has 25 mandatory standards and 263 non-mandatory standards regarding staff
working conditions and correctional facility living conditions. A community
correction facility that is ACA accredited can take private clients as well as
Federal clients.
The Real Estate Business
Charlie O Business Park operates a multi-unit rental property for
business and industrial tenants located in Oklahoma City, Oklahoma. Charlie O
Business Park became an operating subsidiary upon its formation in November 1987
and is 100% owned by the Company.
The Communications Business
On May 2, 2000, the Sooner Communications subsidiary purchased all the
rights to, and will continue developing a product designated as "Cadeum." Two
Oklahoma City engineers developed this platform. Cadeum combines computer-based
hardware and software, developed specifically for telecommunications carriers.
For instance, a customer of a telecommunications provider that offers Cadeum to
its customers can access his e-mail by telephone and have it read to him by a
synthetic voice. Cadeum will host other unified messaging products.
Business Strategy
The Company's business strategy is multi-faceted. Each facet is
discussed below.
Community Corrections Business
The Company's business strategy is to become a leading developer and a
manager of quality privatized community correction facilities, initially in
Oklahoma and then expanding interstate. Management intends on seeking a larger
community corrections business by expanding into other zoned facilities, either
internally and through acquisitions. The Company intends on obtaining and
maintains ACA accreditation for all of its facilities.
The Company will operate each facility under its management. The Company
will also either directly or through subcontractors, provide health care and
food service. In the future, the facilities may offer special rehabilitation and
educational programs, such as academic or vocational education, job and life
skills training, counseling and work and recreational programs.
12
<PAGE>
Communications Business
The strategy of Sooner Communications is to market Cadeum to
telecommunication providers who will then market it to their existing customer
base as well as new customers. The first phase of installation is to integrate
Cadeum - which hosts Class 5 enhanced features - into a legacy, Class 4
switching environment.
The Cadeum product is being Beta tested now within the network of a
20-year-old, regional, integrated telecommunications service provider.
According to Ovum and Dataquest, the unified messaging segment of the
telecommunications industry as a whole is expected to grow from approximately
$272 million in 1999 to over $12.5 billion by 2004. The deregulation of the
telecommunications industry has spawned a host of competitors vying for the
public's telephone service. A regional telecommunications provider needs to
distinguish itself from the competition by offering enhanced services. The
Company believes that its Cadeum product, with its integration of telephony
products, will provide this distinction.
Real Estate Business
Charlie O Business Park will continue to operate as a real estate lessor
and property manager. As of June 30, 2000, the Park leased to 23 non-related
lessees. Charlie O Business Park's property includes five separate buildings,
covering approximately 126,500 square feet, located at the intersection of I-40
and Agnew Street in Oklahoma City, Oklahoma. Sooner Holdings and its Sooner
Communications subsidiary currently operate out of approximately 2,200 square
feet in the business park. Charlie O Business Park competes with other
commercial lessors in the Oklahoma City market. Its occupancy, excluding that
leased to Sooner Holdings and Sooner Communications, has averaged over 90%
during both 1999 and 1998.
Liquidity and Capital Resources - June 30, 2000 (unaudited) compared to June 30,
1999 (unaudited)
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 deficiencies in working capital.
<TABLE>
<CAPTION>
June 30, Dec. 31, 1999
2000 1999 (audited)
---- ---- ---------
<S> <C> <C> <C>
Deficiency in working capital $(1,772,779) $ (32,350) $ (344,852)
=========== ========= ==========
</TABLE>
Although the Company's working capital is negative, the Company has been
able to meet its obligations as a result of the financial support received from
certain of the Company's related parties. The Company's current working capital,
which has been provided in the form of notes payable, has been primarily
supplied by either the Company's chairman and president, or by Aztore Holdings,
Inc. ("Aztore"). As of December 31, 1999, Aztore agreed to restructure a
majority of its liabilities as part of the NDAC acquisition.
The extreme decrease in working capital in the current quarter resulted
from the contractual terms of certain notes payable. The Company would show a
almost no change in working capital if not for the following items:
13
<PAGE>
1. The note due to New Direction Centers of America, LLC is due
on June 1, 2001. In prior reporting, this note had been (and remains) a
long-term debt. However, by its terms, it is due within one year of the
date of this balance sheet. The amount in these statements is
$1,198,140. This note is not in default.
2. The mortgage payable on the correctional facility is intended
by all parties to be a long-term obligation. However, by its terms, it
is a one-year renewable note payable monthly. The most current due date
is April 20, 2001. The amount in these statements is $537,023. This note
is paid current and is not in default.
Exclusive of funds required for debt repayment, the Company believes
that it can borrow any additional funds from its related parties to maintain its
operations, 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 June 1999, the Company refinanced the debt on CO Park. The debt was
replaced by a single note in the amount of $2,500,000 payable to a bank with
interest at 8.8% that matures in June 2009.
The Company believes the operations of the community corrections
business will be cash flow positive and be profitable and that the cash flow
from the new business will be sufficient to service the debt payments under the
note and the mortgage payment on the facility. The Company also intends to
continue the rehabilitation of the facility in order to bring the inmate
occupancy up to 300 beds. In the event that cash flow is insufficient to satisfy
the Company's needs, management believes that it can borrow any additional funds
from its related parties to maintain its operations.
Results of Operations - The quarter and six months ended June 30, 2000
(unaudited) compared to the quarter and six months ended June 30, 1999
(unaudited)
The following table illustrates the Company's revenue mix:
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Business Park revenue $ 101,703 $ 82,422 $ 205,541 $ 160,203
NDAC revenue 428,091 417,590 769,474 806,927
Other revenue - - - -
--------- --------- --------- ---------
Total revenue $ 529,794 $ 500,012 $ 975,015 $ 967,130
========= ========= ========= =========
</TABLE>
Total revenues for the quarter and six months ended June 30, 2000
increased by $31,812 (6%) and $7,885 (1%), respectively over the comparable
periods in 1999.
14
<PAGE>
Business Park's revenues increased $19,281 (23%) and $45,338 (28%) for
the quarter and six months ended June 30, 2000, compared to the same quarter and
six month periods in 1999. This increase is attributable aggressive marketing of
the park and significantly more favorable leases. At June 30, 2000 the Business
Park was 90% occupied. Losses of tenants in the future could affect future
operations and financial position due to the cost of new leasehold improvements
to attract new tenants, increased leasing fees or lower rent revenue due to
vacancy.
Total operating expenses increased $57,630 (14%) and $116,324 (17%) for
the quarter and six months ended June 30, 2000, compared to the same quarter and
six-month periods in 1999. This increase is primarily $93,000 non-cash expense
related issuance of stock as compensation during the current quarter.
Depreciation increased slightly during the periods, primarily due to asset
acquisitions.
Interest expense increased by $23,785 (16%) and $32,535 (11%) for the
quarter and six months ended June 30, 2000 as compared to the comparable periods
in 1999, primarily due to the NDAC subsidiary and interest rates on debt.
Loss from discontinued operations relates to the spin-off of the
Company's subsidiary, Beverages.
The Company recorded net loss for the quarter of $174,500 as compared to
a net loss of $104,382 for the comparable 1999 period. This increase in net loss
in 2000 is due primarily to the $93,000 non-cash compensation realized on the
issuance of stock.
Capital Expenditures and Commitments
During the six months ending June 30, 2000 and 1999, the Company
acquired fixed assets of approximately $166,000 and $218,000 on capital
expenditures. For the six months ended June 30, 2000, approximately $91,000 of
these expenditures relate to the purchase of hardware for the communications
subsidiary. NDAC spent $30,000 on the purchase of vans necessary for inmate
transportation, and $11,000 on finishing out additional rooms to accommodate the
increasing inmate population. CO Park spent approximately $25,000 on the tenant
build out and other park improvements.
The communications subsidiary acquired rights to certain software during
the quarter. This software is capitalized at $396,000.
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, the
ongoing support of the related parties, the ability of the Company to refinance
its notes payable on satisfactory terms, and the Company's ability to acquire
sufficient funding to sustain its operations and develop new businesses. A
majority of these issues directly or indirectly relate to the Company's ability
to sell additional equity or debt. The Company and all its subsidiaries have had
unsuccessful operating histories and have been consistently unprofitable and if
this trend continues the Company, or any subsidiary, may have to seek formal
court protection from creditors.
Forward-looking statements
This Form 10-QSB, including all documents incorporated by reference,
includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. All statements other than
statements of historical facts included in this Form 10-QSB (and in documents
incorporated by reference), including without limitation, statements under
"Management's Discussion and Analysis or Plan of Operation" regarding the
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Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In February 1998, a lawsuit was filed by one of the owners of New
Direction Centers of America, L.L.C. against the Company relating to the
purchase of the community correctional business. On January 18, 2000, a
settlement was reached which includes a payment of $76,000.
The Company is involved in certain other administrative proceedings
arising in the normal course of business. In the opinion of management, such
matters, including the lawsuit described above, will be resolved without
material effect on the Company's results of operations or financial condition.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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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: August 14, 2000
/s/R. C. Cunningham, II
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By: R. C. Cunningham, II, Chairman and
President
/s/M. T. Buxton, III
---------------------------------------
By: M. T. Buxton, III, Chief Financial
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