SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-KSB
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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Commission File No. 0-18344
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SOONER HOLDINGS, INC.
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(Name of small business issuer in its charter)
Oklahoma 73-1275261
- -------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2680 W. I-40 Oklahoma City, Oklahoma 73108
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (405) 236-8332
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Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g)
of the Exchange Act: Common stock, no par
--------------------
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 [ ] No [X]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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 l0-KSB. [ ]
Revenues for the year ending December 31, 1998 were $1,039,444.
The aggregate market value of the voting stock held by non-affiliates
of the Company on March 15, 2000 was approximately $320,000. As of March 15,
2000 the Company had 8,471,350 shares of common stock issued and outstanding.
Transitional Small Business Issuer Disclosure Format Yes [ ] No [X]
This document consists of 14 pages. The exhibit index is on page 13.
1
<PAGE>
SOONER HOLDINGS, INC.
Form 10-KSB
for the fiscal year ended December 31, 1998
Table of Contents
PART I Page
Item 1. Description of Business 3
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of
Security Holders 5
Part II
Item 5. Market for Common Equity and Related
Stockholder Matters 5
Item 6. Management's Discussion and Analysis
or Plan of Operation 6
Item 7. Financial Statements 8
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosures 9
Part III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act 9
Item 10. Executive Compensation 10
Item 11. Security Ownership of Certain Beneficial
Owners and Management 11
Item 12. Certain Relationships and Related
Transactions 12
Part IV
Item 13. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
PART I
ITEM 1. Description of Business
Summary and Development of the Company
Sooner Holdings, Inc., an Oklahoma corporation (hereinafter referred to
as the "Company") was formed in 1986 to enter the in-home soda fountain
business. Subsequently, the Company evolved into a multi-subsidiary holding
company in diverse businesses. From 1993 when the Company was restructured until
June 1998 the Company was seeking acquisitions. In June 1998 the Company
acquired, through its subsidiary New Directions Acquisition Corp., the assets
and certain liabilities of New Direction Centers of America, L.L.C. and entered
the minimum security correctional business.
The Company currently operates primarily through two of its
subsidiaries, New Directions Acquisition Corp. ("NDAC") and Charlie O Business
Park Incorporated ("CO Park"). These subsidiaries and a brief summary of their
businesses follows:
NDAC
- ----
NDAC owns and operates a minimum security correctional facility (the
"Correctional Business") for women located in Oklahoma City, Oklahoma. NDAC was
formed in 1997 as a wholly owned subsidiary of the Company and began operations
upon its acquisition in June 1998 of the assets and certain liabilities of New
Direction Centers of America, L.L.C. ("NDLLC"), an Oklahoma-based private
correctional business.
CO Park
- -------
CO Park operates a multi-unit rental property (the "Business Park") for
business and industrial tenants located in Oklahoma City, Oklahoma. CO Park
became an operating subsidiary upon its formation in March 1991 and is 100%
owned by the Company.
The Company also owns 100% of SD Properties, Inc. ("SDPI") and 100% of
Charlie O Beverages, Inc. ("CO Beverages"). During fiscal 1997 and early 1998
the Company discontinued the two substantially inactive businesses operated by
these two subsidiaries.
Business Description
The Correctional Business
- -------------------------
NDAC entered the minimum-security correctional business in June 1998 by
acquiring the assets and certain liabilities of NDLLC. NDAC owns and operates a
minimum-security correctional facility, which currently houses 140 inmates in
Oklahoma City, Oklahoma. A non-secure residential facility, known as a halfway
house, provides residential correctional services for offenders in need of less
supervision and monitoring than are provided in a secure environment. Offenders
in minimum-security correctional facilities are typically allowed to leave the
facility to work in the immediate community and/or participate in community
based educational and vocational training programs during daytime hours.
Generally, persons in community correctional facilities are serving the last six
months of their sentence.
In addition to providing the fundamental residential services relating
to the security of facilities and the detention and care of inmates, NDAC has
developed a broad range of in-facility rehabilitative and educational programs.
These programs include substance abuse treatment and counseling, vocational
training, life skills training, and behavioral modification counseling. NDAC
believes that its strategy of offering a wide variety of programs and services
will increase its marketing opportunities.
As of March 15, 2000, NDAC operates one correctional facility with an
aggregate design capacity of 180 beds.
The Real Estate Business
- ------------------------
CO Park operates as a real estate lessor and property manager and as of
March 15, 2000 leases to 23 non-related lessees. CO 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. The
Company and its CO Beverages subsidiary currently operate out of approximately
9,000 square feet in this business park. CO Park competes with other commercial
lessors in the Oklahoma City market. Its occupancy, excluding that leased to the
Company and its subsidiaries, has averaged over 80% during both 1998 and 1997.
3
<PAGE>
The Discontinued Businesses
- ---------------------------
SDPI, until April 1997, held an interest in a beneficial trust that
owned real estate lots in an Arizona subdivision. SDPI's net book value in the
beneficial trust was negative due to offsetting liabilities related to the trust
and the underlying lots. In April 1997, SDPI sold the interest in the beneficial
trust to a related party for $1.00 and the assumption of all liabilities plus an
agreement to share future profits, if any, with the Company. During 1995 to 1997
SDPI commenced a business that markets and services construction contracts. This
business did not develop after the initial contracts and was terminated in early
1998.
CO Beverages operates the original in-home soda fountain business. The
Company has been trying to sell CO Beverages as a going concern or liquidate the
assets of this business. Therefore, the remaining assets of CO Beverages
consisting of inventory and equipment have been written down to their estimated
realizable value. The Company hopes to sell CO Beverages as a going concern and
therefore, realize additional value for the extensive tooling and other assets
related to CO Beverages business. These latter assets were written off in their
entirety during 1996.
General
Seasonality. Due to its sale or planned sale of assets or entities, the
Company will not be subject to significant seasonality.
Government Regulation. The Company's Correctional Business is subject
to federal, state and local regulations which are administered by a variety of
regulatory authorities. Generally, providers of correctional services must
comply with a variety of applicable federal, state and local regulations,
including education, healthcare and safety regulations. Management contracts
frequently include extensive reporting requirements. In addition, many federal,
state and local governments are required to follow competitive bidding
procedures before awarding a contract. Certain jurisdictions may also require
the successful bidder to award subcontracts on a competitive bid basis and to
subcontract to varying degrees with businesses owed by women or minorities.
Correctional contracts are generally renewed on a year to year basis.
NDAC's failure to comply with any applicable laws, rules or regulations
or the loss of any required license could have a material adverse effect on the
Company's financial condition, results of operations and liquidity. Further, the
current and future operations of the Company may be subject to additional
regulations as a result of new statutes and regulations and changes in the
manner in which existing statutes and regulations are or may be interpreted or
applied. Any such additional regulations could have a material adverse effect on
the Company's financial condition, results of operations and li quidity.
Warranties. Due to its planned sale of assets in CO Beverages, the
Company will not be subject to significant warranty exposure. The Company
maintains product liability insurance coverage.
Marketing. NDAC views governmental agencies responsible for state
correctional facilities in the United States as its primary potential customers.
Employees. As of March 15, 2000, the Company has only one full-time
employee, Mr. R.C. Cunningham II, the Company's President and Chairman of the
Board ("Cunningham"), and no part-time employees. The other officers of the
Company do not spend full time on the Company's or its subsidiaries' businesses
and are not compensated directly for their services.
NDAC has 29 full-time and 6 part-time employees at March 15, 2000. NDAC
employs management, administrative, clerical, security, educational services,
and general maintenance personnel. NDAC through subcontractors also provides
health care and food service. All jurisdictions require correction officers to
complete a specified amount of training prior to employment.
When the need exists, the Company and/or its subsidiaries use temporary
employees or subcontractors to perform administrative services.
Competition. The Correctional Business is highly competitive, with few
barriers to entry. To the Company's knowledge, there are at least 17 companies
engaged in the management and operation of privatized correctional and detention
facilities. NDAC's competitors include local companies with significant local
relationships and knowledge of local conditions, as well as companies that
manage and operate facilities in many states and abroad with financial resources
substantially greater than NDAC's.
NDAC will have to compete on the basis of the cost, quality and range
of services offered, its experience in managing facilities, the reputation of
its personnel, and its ability to design, finance and construct new facilities.
NDAC also attempts to achieve a competitive advantage by seeking additional
contracts from governmental agencies with which it has existing contractual
relationships and by identifying and marketing its services to correctional
agencies that have no previous experience with privatization services.
4
<PAGE>
ITEM 2. Description of Property
NDAC's correctional facility consists of three buildings totaling
approximately 44,000 square feet on 2.745 acres of real estate. This property is
located at 3115 N. Lincoln Boulevard in Oklahoma City, Oklahoma. The facility
has a 180-bed capacity, and as of March 15, 2000, the facility is 70% occupied.
This property is subject to a first mortgage.
CO Park's industrial business park property consists of five buildings
totaling approximately 126,900 square feet on five acres of real estate. This
property is located at the Company's address at the intersection of I-40 and
Agnew Street in Oklahoma City, Oklahoma. The Company and its subsidiaries occupy
approximately 9,000 square feet and the remainder of the industrial park is
leased to 19 unrelated lessees. The lessees generally use the property for
retail, manufacturing and light industrial operations. CO Park's leases are
generally for three to five years. As of March 15, 2000, excluding the square
footage leased to the Company and its affiliates, the facility is 92% occupied.
This property is subject to a first mortgage.
SDPI has no remaining real property, directly or indirectly, after the
sale of the trust interest in April 1997. CO Beverages has no real property.
ITEM 3. Legal Proceedings
There are no pending or threatened legal proceedings, to which the
Company or any of its subsidiaries is a party or of which any of their property
is the subject, except as follows:
On February 7, 1998 a lawsuit was filed by David Talbot, one of the
owners of NDLLC, against NDAC related to the purchase of the assets and certain
liabilities of NDLLC. On January 18, 2000, a settlement was reached. The terms
of the settlement include a payment of $76,000 by NDAC to Talbot.
NDAC's management of minimum security correctional facilities will
expose it to potential third-party claims or litigation by inmates or other
persons for personal injury or other damages, including damages arising from a
disturbance or riot at a Company-managed facility. In addition, NDAC's
management contracts generally require it to indemnify the governmental agency
against any damages to which the governmental agency may be subject in
connection with such claims or litigation.
The Company's Business Park operation occasionally has disputes with
tenants regarding its lease agreements. In the opinion of management, such
matters will be resolved without material effect on the Company's results of
operations or financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
In fiscal 1998, there were no matters submitted to a vote of security
holders through the solicitation of proxies or otherwise. The Company's last
meeting of shareholders was in 1996.
PART II
ITEM 5. Market for Common Equity and
Related Stockholder Matters
Market information
The Company's common stock trades on the OTC Bulletin Board under the
symbol "SOONE". The following table sets forth the range of the high and low bid
price for the shares of the Company's common stock as reported by the OTC
Bulletin Board.
Low High
Fiscal 1998:
First quarter ................................. .250 .875
Second quarter ................................ .375 .375
Third quarter ................................. .375 .375
Fourth quarter ................................ .031 .062
Fiscal 1999:
First quarter ................................. .031 .062
Second quarter ................................ .031 .062
Third quarter ................................. .062 .062
Fourth quarter ................................ .062 .080
Fiscal 2000:
First quarter (to March 15, 2000) ............ .062 .080
5
<PAGE>
Shareholders
As of March 15, 2000, the Company had 531 shareholders of record. This
does not include the holders whose shares are held in a depository trust in
"street" name. As of March 15, 2000, 1,108,827 shares (or approximately 13%) of
the issued and outstanding stock was held by Depository Trust Company in
"street" name.
Dividend information
The Company has not paid or declared any dividends upon its common
stock since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not anticipate paying any dividends in
the foreseeable future.
ITEM 6. Management's Discussion and Analysis
or Plan of Operation
Background and Introduction
Sooner Holdings, Inc., an Oklahoma corporation (hereinafter referred to
as the "Company") was formed in 1986 to enter the in-home soda fountain
business. Subsequently, the Company evolved into a multi-subsidiary holding
company in diverse businesses (see Item 1. "Description of Business" for further
discussion). During 1996 and early 1997 the Company narrowed its focus to
Oklahoma real estate while seeking new business opportunities. In June 1998 the
Company acquired, through its subsidiary New Directions Acquisition Corp.
("NDAC"), the assets and certain liabilities of New Direction Centers of
America, L.L.C. and entered the minimum security correctional business.
Liquidity and Capital Resources - December 31, 1998 compared to December 31,
1997
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 at December 31:
1998 1997
---- ----
Deficiency in working capital $(344,852) $(863,925)
======== =======
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 short and long-term debt, has
been primarily supplied either by Mr. R. C. Cunningham II, the Company's
Chairman of the Board and President ("Cunningham"), or by Aztore Holdings, Inc.,
a Phoenix, Arizona-based investment company ("Aztore"). Aztore holds various
notes and liabilities against the Company and has agreed to forebear and
restructure a majority of these liabilities as part of the acquisition by NDAC.
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 December 1998, the Company borrowed $35,000 from First Enterprise
Bank under a note bearing interest at prime plus 3% per annum due on May 20,
1999. Proceeds of the borrowing were used to cure the default on the real estate
taxes payable on the Business Park. Accordingly, the Oklahoma Industrial Finance
Authority ("OIFA") loan, which was in default due to the delinquent real estate
taxes, is now no longer in default and is recorded as notes payable.
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.
Results of Operations - The year ended December 31, 1998 compared to the year
ended December 31, 1997
6
<PAGE>
The following table illustrates the Company's revenue mix. Other
revenues represent revenues from the discontinued businesses (see discussion
under Item 1. "Description of Business"):
1998 1997
Amount % Amount %
------ - ------ -
CO Park revenues $ 291,329 28 $ 325,328 75
NDAC revenues 743,957 72 -0-
Other revenues 4,158 * 107,121 25
---------- --------
Total revenues $ 1,039,444 $ 432,449
========== ========
*less than 1%
Total revenues increased by $606,995 or 140% in fiscal 1998. All of the
Company's revenue increase was related to the Company's NDAC subsidiary. In June
1998 the Company, acquired through NDAC a minimum security correctional
facility. For the seven months from June 1998 to December 1998 the Correctional
Business generated $743,957 of total revenues.
Business Park revenues decreased $33,999 or 10% due to the loss of one
tenant in November 1997 that accounted for 21% of total revenues for Business
Park. However, the lost revenues from the one tenant was offset by revenues
generated from the renegotiated leases during 1997 from one year to three to
five year leases at an average increase of $.39 per square foot. At December 31,
1998, the Business Park was 80% occupied and the Company had a signed lease on
an additional 19,000 square feet or 15% of the total square footage. Losses of
tenants in the future could affect future operations and financial position
because of the cost of new leasehold improvements and lower revenues due to any
prolonged vacancy. There is no assurance the Company will return to its
historically high occupancy rate.
Other revenues in fiscal 1997 came from SDPI's recognition of
approximately $100,000 of deferred revenue related to the expiration of warranty
service provided by SDPI for one year from completion of its 1996 contracts.
SDPI, a marketing representative for construction contractors, ceased doing
business in early 1998.
Total operating expenses for the year ended December 31, 1998 were
$1,035,374 as compared to total expenses for the comparable 1997 period of
$243,433. This represents an increase of $791,941 in total operating expenses
for fiscal 1998 of which the NDAC subsidiary accounted for $748,072 or 93% of
the increase. The amortization of the NDAC intangible asset resulted in an
increase in depreciation and amortization expense in 1998 of $113,000 over the
1997 period. In addition, general and administrative (G&A) expenses, consisting
primarily of professional and management fees, also increased due to the
acquisition of the Correctional Business in June 1998.
Other income in 1997 primarily represents the sale of certain
securities held by the Company in payment of $39,000 in fees to Aztore. The
Company's basis in these shares was nominal.
Going Concern and Management Plans
The Company has suffered recurring losses from operations, has a
shareholders' deficit of $558,867, and has a working capital deficiency of
$344,852. These factors raise substantial doubt about the Company's ability to
continue as a going concern. 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.
The Company acquired a minimum security correctional facility in June
1998 and has implemented plans to improve its liquidity and performance. These
measures, among other items, include refinancing of long-term debt and reduction
of operating and administrative expenses. Management seeks to expand its
correctional service operations and believes that this segment will ultimately
result in future growth and profitability of the Company.
In 1997, Business Park initiated a program of bringing its lease rates
up to the prevailing market rates. As part of this activity, it generally
extended its lease terms from one year to three to five years. Business Park
closed eleven of these new leases (32% of the total square footage) at an
average increase of $.39 per square foot. New leases were increased to
approximately $3.22 per square foot to reflect demand in the market as well as
improvements included in the leases. Business Park is actively seeking to rent
its vacant space at these higher rates.
Management believes that these plans will be effective in improving the
Company's profitability and working capital position and will provide the
Company the opportunity to continue as a going concern. However, there can be no
assurance that these plans will be successful.
7
<PAGE>
Capital Expenditures and Commitments
During the year ended December 31, 1998, the Company spent
approximately $180,000 on capital expenditures primarily related to leasehold
improvements primarily at its correctional facility operations. The Company
expects to spend approximately $200,000 for capital expenditures, primarily for
leasehold improvements, on its Business Park operations in the next 12 months.
In addition, the Company believes it needs additional capital to develop and
expand into new businesses. Although the amount of such additional capital
required is uncertain, it is no doubt beyond that which would be expected to be
generated from its current operations. There can be no assurance that the
Company will be able to obtain any such additional capital on satisfactory terms
if at all. In such case, the Company's expansion will be limited and
Cunningham's and Aztore's interest in continuing to lend money to the Company
would likely cease. This lack of support could lead to foreclosure or
bankruptcy.
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 Aztore and Cunningham, the ability of the Company to
refinance its short and long-term liabilities 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 obtain additional debt at
reasonable prices or rates, if at all. The Company and all its subsidiaries have
had unsuccessful operating histories and have been consistently unprofitable.
The Company's competition would almost uniformly have more resources and capital
in general than the Company. If the Company expands, it will have to attract
satisfactory operating personnel. If the Company or any subsidiary experiences
any substantial reversal, including but not limited to the areas discussed
above, such entity may have to seek formal court protection from creditors.
Forward-Looking Statements
Certain statements and information contained in this Report under the
headings "Description of Business" and "Management's Discussion and Analysis or
Plan of Operation" concerning future, proposed, and anticipated activities of
the Company, certain trends with respect to the Company's revenue, operating
results, capital resources, and liquidity or with respect to the markets in
which the Company competes and other statements contained in this Report
regarding matters that are not historical facts are forward-looking statements,
as such term is defined in the Securities Act. Forward-looking statements, by
their very nature, include risks and uncertainties, many of which are beyond the
Company's control. Accordingly, actual results may differ, perhaps materially,
from those expressed in or implied by such forward-looking statements.
ITEM 7. Financial Statements
The following financial statements listed in the table below have been
prepared in accordance with the requirements of Item 310(a) of Regulation SB.
Page
----
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheet at December 31, 1998 F-2
Consolidated Statements of Operations for the fiscal
years ended December 31, 1998 and December 31, 1997 F-3
Consolidated Statements of Shareholders' Deficit
for the fiscal years ended December 31, 1998 and
December 31, 1997 F-4
Consolidated Statements of Cash Flows for the
fiscal years ended December 31, 1998 and
December 31, 1997 F-5
Notes to Consolidated Financial Statements F-6
8
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Sooner Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Sooner Holdings,
Inc. and Subsidiaries, as of December 31, 1998, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sooner Holdings,
Inc. and Subsidiaries, as of December 31, 1998, and the consolidated results of
their operations and their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles.
As shown in the financial statements, the Company incurred a net loss of
$465,278 during the year ended December 31, 1998 and, as of that date, the
Company's current liabilities exceeded its current assets by $344,852 and its
total liabilities exceeded its total assets by $558,867. These factors, among
others, as discussed in Note A to the consolidated financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note A. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
December 18, 1999 (except for the first paragraph of Note L, as to which the
date is January 18, 2000)
F-1
<PAGE>
Sooner Holdings, Inc.
CONSOLIDATED BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................... $ 76,792
Accounts receivable, net of allowance of $2,362 .............. 137,139
Other current assets ......................................... 41,244
----------
Total current assets ............................. 255,175
PROPERTY AND EQUIPMENT, net .................................... 2,828,342
INTANGIBLE ASSETS, net of accumulated
amortization of $113,607 ..................................... 1,639,186
OTHER ASSETS ................................................... 254,941
----------
$ 4,977,644
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable ............................................. $ 142,821
Accrued liabilities .......................................... 364,340
Deferred revenue ............................................. 33,882
Current portion of notes and royalty payable ................. 58,984
----------
Total current liabilities ........................ 600,027
NOTES PAYABLE, less current portion and
net of discount of $425,667 .................................. 4,470,379
ROYALTY PAYABLE, less current portion and
net of discount of $888,130 .................................. 432,915
OTHER LIABILITIES .............................................. 33,190
COMMITMENTS AND CONTINGENCIES .................................. --
STOCKHOLDERS' DEFICIT
Preferred stock - undesignated; authorized,
10,000,000 shares;issued and outstanding, none ............. --
Common stock - $.001 par value; authorized,
100,000,000 shares;issued and outstanding,
8,471,350 shares ........................................... 8,471
Additional paid-in capital ................................... 5,532,907
Accumulated deficit .......................................... (6,100,245)
----------
(558,867)
----------
$ 4,977,644
==========
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
Sooner Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1998 1997
---------- ----------
Revenues
Rental revenues ............................ $ 291,329 $ 432,449
Service revenues ........................... 748,115 --
---------- ----------
Total revenues .................. 1,039,444 432,449
Expenses
Cost of services ........................... 517,292 1,460
General and administrative ................. 318,757 181,945
Depreciation and amortization .............. 199,325 60,028
---------- ----------
Total operating expenses ........ 1,035,374 243,433
---------- ----------
Income from operations .......... 4,070 189,016
Other (income) expense ....................... 57,972 (43,800)
Interest expense ............................. 411,376 224,734
---------- ----------
469,348 180,934
---------- ----------
NET (LOSS) INCOME ............... $ (465,278) $ 8,082
========== ==========
Basic and diluted loss per common share
Basic .................................... $ (.06) $ --
========== ==========
Diluted .................................. $ (.06) $ --
========== ==========
Weighted average common
shares outstanding ..................... 8,054,333 7,471,350
========== ==========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Sooner Holdings, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Years ended December 31, 1998 and 1997
Commmon stock Additional Common Total
------------------------ paid-in stock to be Accumulated stockholders'
Shares Amount capitol issued deficit deficit
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 ...... 6,412,528 $ 6,413 $ 5,456,612 $ 42,353 $(5,643,049) $ (137,671)
Net income ...................... -- -- -- -- 8,082 8,082
Issuance of common stock ........ 1,058,822 1,058 41,295 (42,353) -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 .... 7,471,350 7,471 5,497,907 -- (5,634,967) (129,589)
Net loss ........................ -- -- -- -- (465,278) (465,278)
Issuance of common stock (note K) 1,000,000 1,000 35,000 -- -- 36,000
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 .... 8,471,350 $ 8,471 $ 5,532,907 $ -- $(6,100,245) $ (558,867)
========== ========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Sooner Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1998 1997
---------- ----------
<S> <C> <C>
Increase in Cash
Cash flows from operating activities
Net (loss) income ................................................. $ (465,278) $ 8,082
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities
Depreciation and amortization ................................ 199,325 60,028
Allowance for doubtful accounts .............................. -- 2,362
Changes in assets and liabilities
Accounts receivable ........................................ (50,526) (1,293)
Other current assets ....................................... (34,998) (211)
Accounts payable ........................................... (78,618) (4,035)
Accrued liabilities and other liabilities .................. 341,512 84,567
Deferred revenue ........................................... 31,049 (96,997)
---------- ----------
Net cash (used in) provided by operating activities ...... (57,534) 52,503
Cash flows used in investing activities
Purchase of property and equipment ................................ (179,172) (8,875)
Cash flows from financing activities
Borrowings on notes payable ....................................... 817,783 13,500
Repayments of notes payable ....................................... (466,767) (55,295)
Royalty payments .................................................. (42,000) --
---------- ----------
Net cash provided by (used in) financing activities ...... 309,016 (41,795)
---------- ----------
NET INCREASE IN CASH ..................................... 72,310 1,833
Cash at beginning of year ........................................... 4,482 2,649
---------- ----------
Cash at end of year ................................................. $ 76,792 $ 4,482
========== ==========
Cash paid for interest .............................................. $ 272,814 $ 182,885
========== ==========
Supplemental Disclosure of Noncash Investing and Financing Activities
Sale of land for assumption of real estate liabilities and road trust
improvements ..................................................... $ -- $ 4,800
========== ==========
Conversion of accrued liabilities to notes payable .................. $ 71,344 $ 54,179
========== ==========
Exchange of investments for reduction in notes payable .............. $ -- $ 39,000
========== ==========
During the year ended December 31, 1998, the Company purchased a
business with the following liabilities assumed:
Assets acquired ................................................. $ 2,517,082
Stock issued .................................................... 36,000
----------
Liabilities assumed ............................... $ 2,481,082
==========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
F-5
<PAGE>
Sooner Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - ORGANIZATION AND OPERATIONS
Sooner Holdings, Inc. ("Sooner" or the "Company"), an Oklahoma corporation,
through its subsidiaries, conducts business in two primary industries.
Charlie O Business Park Incorporated ("Business Park") is engaged in the
ownership and rental of a business park in Oklahoma City, Oklahoma. New
Directions Acquisition Corp. ("NDAC") is a newly formed subsidiary of the
Company (see Note K) which operates a minimum security correctional
facility. During the current year, management discontinued the operations of
SD Properties, Inc. ("SDPI") and Charlie O Beverages, Inc. ("Beverage"), the
effect of which was not material to consolidated operations. SDPI acted as a
marketing representative for construction contractors to develop business
opportunities for those contractors for a fee, which sometimes included a
warranty coverage for mechanical contracting services. Beverage was engaged
in the distribution of an in-home soda fountain appliance which prepared
carbonated beverages.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations, has a stockholders' deficit of
$558,867, and has a working capital deficiency of $344,852 as of December
31, 1998. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans with regard to these
matters are described below. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Management Plans
----------------
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. The Company acquired a minimum security correctional
facility effective June 1, 1998 and has implemented plans to improve its
liquidity and performance. These measures, among other items, include
refinancing of long-term debt and reduction of operating and administrative
expenses. Management seeks to expand its correctional service operations and
believes that this segment will ultimately result in future growth and
profitability of the Company; however, there is no assurance that these
objectives can be achieved.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Sooner
Holdings, Inc. and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
2. Revenue Recognition
-------------------
The Company records rental revenue on a straight-line basis over the term of
the underlying leases.
Correctional service revenues are recognized as services are provided.
Revenues are earned based upon the number of offenders per day times the
contract rate.
In instances where the Company provides warranty services, the Company
records revenue on these contracts under the full deferral method, whereby
all revenues are deferred and recognized on a straight-line basis over the
contract term. Costs associated with performance under these contracts are
charged to expense as incurred.
3. Cash and Cash Equivalents
-------------------------
The Company considers money market accounts and all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
F-6
<PAGE>
4. Accounts Receivable
-------------------
The Company considers accounts receivable from service revenues of $133,286
to be fully collectible; accordingly, no allowance for doubtful accounts is
required. If amounts become uncollectible, they will be charged to
operations when that determination is made. An allowance of $2,362 is
provided for other accounts receivable.
5. Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of five to forty years.
Maintenance, repairs, and renewals, which do not materially add to the value
of an asset or appreciably prolong its life, are charged to expense as
incurred.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amounts of an asset may
not be recoverable. In the opinion of management, no such events or changes
in circumstances have occurred.
6. Intangible Assets
-----------------
Intangible assets consist of contract rights which resulted from the
business acquisition (see Note K). These rights are being amortized by the
straight-line method over nine years. Amortization expense for the year
ended December 31, 1998 was $113,607 ($0 for 1997).
7. Other Assets
------------
Other assets consist of unamortized loan commitment fees and investments in
certificates of deposit ("CDs"), carried at cost, which approximates market
value. The loan commitment fees are amortized using the straight-line method
over the life of the loan, which does not differ materially from the
effective interest method. The investment in CDs is pledged as collateral on
the mortgage payable and is unavailable for current operations.
8. Discount on Notes and Royalty Payable
-------------------------------------
Discounts on notes and royalty payables resulting from the business
acquisition (see Note K) are being amortized by the effective interest
method over the term of the underlying obligation.
9. Income Taxes
------------
The Company provides for deferred income taxes on carryforwards and
temporary differences between the bases of assets and liabilities for
financial statement and tax reporting purposes. Additionally, the Company
provides a valuation allowance on deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
10. Fair Value of Financial Instruments
-----------------------------------
The Company estimates the fair value of its monetary assets and liabilities
based upon existing interest rates related to such assets and liabilities
compared to current rates of interest for instruments with a similar nature
and degree of risk. All of the Company's financial instruments are held for
purposes other than trading. The Company believes that the carrying value of
all of its monetary assets and liabilities approximates fair value as of
December 31, 1998.
11. Loss Per Common Share
---------------------
Basic loss per share has been computed on the basis of weighted average
common shares outstanding during each period. Diluted loss per share is
the same as basic loss per share as the Company has no outstanding
dilutive potential common shares.
12. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures;
accordingly, actual results could differ from those estimates.
F-7
<PAGE>
13. Reclassifications
-----------------
Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 presentation.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 is comprised of the
following:
Useful life
Land ................................... -- $1,311,400
Buildings and improvements ............. 12-40 1,897,988
Machinery and equipment ................ 5-12 95,192
Vehicles ............................... 5 42,531
---------
3,347,111
Less accumulated depreciation ............ 518,769
---------
$2,828,342
=========
Depreciation expense totaled $84,289 and $58,528 for the years ended
December 31, 1998 and 1997, respectively.
NOTE D - OTHER ASSETS
Other assets as of December 31, 1998 are comprised of the following:
Loan commitment fee ................................ $ 27,941
Certificates of deposit ............................ 227,000
-------
$254,941
=======
Amortization expense totaled $1,500 for the years ended December 31, 1998
and 1997.
NOTE E - NOTES PAYABLE
Notes payable as of December 31, 1998 consist of the following:
Installment note payable to bank, interest at bank's
prime (7.75%) plus 3% per annum, principal due
September 20, 2000, guaranteed by a stockholder,
officer, and director; collateralized by real estate;
paid off during 1999 as part of debt refinancing $ 922,556
Notes payable to related parties, interest ranging
from 10% to 15% per annum, payable on demand after
January 1, 2000 (see Note I); uncollateralized 1,074,042
Oklahoma Industrial Finance Authority ("OIFA") loan,
variable interest and payments due monthly, maturing
August 1, 2004, with interest at 3% per annum over
OIFA's cost of capital, not to fall below 10% or
exceed 14% (cost of capital was 10% on December 31,
1998), guaranteed by a stockholder, officer, and
director; collateralized by real estate and
equipment; paid off during 1999 as part of debt
refinancing 399,176
Installment note payable to bank, interest at bank's
prime (7.75%) plus 3% per annum, due May 20, 1999,
guaranteed by a stockholder, officer, and director;
collateralized by real estate; paid off during 1999
as part of debt refinancing 264,343
Note payable to individuals, no stated interest rate,
due on demand; collateralized by real estate; paid
off during 1999 as part of debt refinancing 139,090
Note payable to bank, payments of interest only due
monthly, interest at bank's prime (7.75%) plus .5%,
guaranteed by a stockholder, officer, and director,
due September 1, 1999; uncollateralized; paid off
during 1999 as part of debt refinancing 98,800
F-8
<PAGE>
Note payable to bank, payments of interest only due
quarterly, interest at bank's prime (7.75%),
guaranteed by a stockholder, officer, and director,
due September 1, 1999; uncollateralized; paid off
during 1999 as part of debt refinancing 40,233
Note payable to bank, payable in monthly installments
of $500, interest at bank's prime (7.75%) plus 1% per
annum, due June 24, 1999; collateralized by
inventory; paid off during 1999 as part of debt
refinancing 7,294
Balloon promissory note payable to related party (see
Note I), 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
$425,667 905,333
Note payable to bank, interest at New York prime plus
2%, due April 20, 1999; collateralized by a first
mortgage on land and facility owned by the Company;
refinanced during 1999, new maturity April 20, 2000 584,170
Other notes payable to banks, interest rates ranging
from 9.5% to 9.75%, principal and interest due in
January 1999; collateralized by vehicle 54,029
Revolving line of credit with Bank One, interest
payable monthly at 3.25% over bank's prime rate,
principal payable May 2005; uncollateralized 35,342
---------
4,524,408
Less current portion 54,029
---------
$4,470,379
=========
The Company is in violation of certain of its covenants under
its debt agreement to OIFA. This violation is an event of
default as defined in the loan agreement with OIFA, which made
the debt callable at the option of OIFA. During 1999, the
Company refinanced the loan to OIFA and several of the above
notes payable that were due to mature during 1999. These notes
were replaced by a single note payable to a bank (8.8% interest
rate) that matures in June 2009. Accordingly, these amounts
have been classified as noncurrent.
Aggregate future maturities of debt at December 31, 1998, after giving
consideration to the 1999 refinancing, are as follows:
Year ending December 31
1999 $ 54,029
2000 2,595,442
2001 1,347,471
2002 18,002
2003 55,017
Thereafter 880,114
---------
4,950,075
Less amount representing discount on debt 425,667
---------
$4,524,408
=========
NOTE F - ROYALTY PAYABLE
As a part of the business acquisition (see Note K), 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.
This agreement expires on April 30, 2017. Future minimum payments under this
agreement total $1,326,000. A discount of $934,260 was imputed at the date
of purchase by management using a 15% interest rate. Interest expense for
the year ended December 31, 1998 was $28,130.
F-9
<PAGE>
Aggregate future principal maturities of royalty payable at December 31,
1998 are as follows:
Year ending December 31
1999 $ 4,955
2000 5,752
2001 6,677
2002 7,750
2003 8,996
Thereafter 403,740
-------
437,870
Less current portion 4,955
--------
$ 432,915
========
NOTE G - STOCKHOLDERS' DEFICIT
Preferred Stock
---------------
The Company's authorized capital includes 10,000,000 shares of
preferred stock, undesignated as to par value. The Board of Directors
of the Company, in its sole discretion, may establish par value, divide
the shares of preferred stock into series, and fix and determine the
dividend rate, designations, preferences, privileges, and ratify the
powers, if any, and determine the restrictions and qualifications of
each series of preferred stock as established. No shares of preferred
stock have been issued by the Company as of December 31, 1998.
Employee Stock Option Plan
--------------------------
The Company has a stock option plan ("1995 Plan") for directors, officers,
key employees, and consultants covering 2,000,000 shares of Company common
stock. Options granted under the 1995 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% (110% if the option is granted to a stockholder who at the time
the option is granted owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company) 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. No
options have been granted under the 1995 Plan as of December 31, 1998.
NOTE H - INCOME TAXES
Due to net losses, no provision for income taxes was necessary for the years
ended December 31, 1998 or 1997.
The Company's effective income tax rate differed from the federal statutory
rate of 34% as follows:
1998 1997
----------- ----------
Income taxes at federal statutory rate $ (158,194) $ 2,748
Change in valuation allowance 200,011 -
Nondeductible expenses 970 30
State income taxes at statutory rate (26,055) 453
Other (16,732) (3,231)
---------- ----------
Total tax expense $ - $ -
========== ==========
F-10
<PAGE>
Components of deferred taxes are as follows at December 31, 1998:
Assets
Property and equipment $ 59,482
Inventories 37,626
Intangible assets 160,126
Tax loss carryforward 1,661,588
Valuation allowance (1,813,775)
----------
105,047
Liabilities
Royalty payable and accrued liabilities (105,047)
----------
Total $ -
==========
The valuation allowance increased $200,011 for the year ended December 31,
1998.
A valuation allowance for deferred tax assets is required when it is more
likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of this deferred tax asset depends on
the Company's ability to generate sufficient taxable income in the future.
Management believes it is more likely than not that the deferred tax asset
will not be realized by future operating results.
At December 31, 1998, the Company has net operating loss carryforwards for
tax purposes of approximately $4,403,236 which will expire between 2003 and
2018.
NOTE I - RELATED PARTY TRANSACTIONS
Aztore Holdings, Inc. and Affiliates
------------------------------------
The Company has an advisory agreement with Aztore Holdings, Inc. and
affiliates ("Aztore") wherein Aztore acts as the Company's financial
advisor. Aztore receives an annual fee equal to 5% of the Company's
gross revenues, as defined in the advisory agreement. This agreement
was terminated on January 1, 1999. Total fees of $52,267 and $21,763
have been recorded pursuant to this agreement for the years ended
December 31, 1998 and 1997, respectively. Aztore owns approximately 12%
of the Company's common stock.
In August 1997, Aztore accepted certain securities held by the Company in
payment of $39,000 in fees. The Company's basis in these shares was nominal
and the gain for such transaction was recognized as other income.
In April 1997, SDPI consummated a lot sale agreement and sold its interest
in a land trust to Aztore for $1 and the assumption of all liabilities
related to the land (road improvement and real estate tax liabilities). The
Company receives 10% of net cash flows, as defined in the lot sale
agreement, from any future lot sales.
Talbot Investment Co.
---------------------
Talbot Investment Co. ("Talbot") is an Oklahoma City, Oklahoma-based
commercial real estate brokerage firm. David B. Talbot, Jr. is the principal
agent for Talbot. Talbot was the secretary and a director of the Company and
Business Park until July 1997. Talbot handled all the property management
services for Business Park and received normal and customary commissions and
fees for providing these services. Expenses of $27,103 related to services
provided by Talbot have been recorded in the accompanying consolidated
financial statements for the year ended December 31, 1997. This service
arrangement terminated at the end of 1997. Talbot owns approximately 3% of
the Company's common stock.
Employment Contract
-------------------
The Company has an incentive compensation agreement with its president
and chairman. Under the agreement, he earns a cash fee of 5% of the
Company's gross revenues, payable on a quarterly basis. Total
compensation of $52,267 and $21,763 have been recorded pursuant to this
agreement for the years ended December 31, 1998 and 1997, respectively,
in the accompanying consolidated financial statements. This agreement
was terminated on January 1, 1999.
F-11
<PAGE>
New Directions Centers of America LLC
- -------------------------------------
As a part of the business acquisition (see Note K), the Company issued a
note payable to New Directions Centers of America LLC ("NDLLC") which is
owned partially (24%) by the Company's president and chairman.
Management Agreement
--------------------
The management of the operation of its acquired facility is subcontracted to
C&R Investments LLC ("CRI"). The owner of CRI owns approximately 3% of the
Company's common stock. Fees paid to CRI under this management agreement
totaled $35,000 for the year ended December 31, 1998.
Related Party Obligations
-------------------------
The following table reflects amounts owed to related parties as of
December 31, 1998:
Accounts payable
Notes payable, and accrued
net liabilities
President and chairman $ 730,042 $ 46,862
Aztore 314,217 110,719
CRI 29,783 -
NDLLC 905,333 58,333
Talbot - 83,452
---------- --------
Total related party
liabilities $ 1,979,375 $299,366
========== =======
In addition, the president and chairman has personally guaranteed $1,725,108
of the Company's notes payable (see Note E).
NOTE J - LEASES
The Company's subsidiary, Business Park, leases commercial business
sites to several different entities. Minimum future rentals on
noncancelable leases are as follows at December 31, 1998:
1999 $ 408,588
2000 381,480
2001 363,480
2002 232,560
2003 138,000
---------
$1,524,108
=========
NOTE K - BUSINESS COMBINATIONS
The Company acquired all of the assets and assumed certain specific
liabilities of NDLLC and Horizon Lodges of America, Inc. ("Horizon")
effective June 1, 1998. NDLLC and Horizon owned and operated a minimum
security correctional facility for women. The acquisition included the
issuance of 1,000,000 shares of Company common stock, the issuance of a note
payable, and assumption of certain liabilities.
This business combination has been accounted for using the purchase method
of accounting and the accompanying consolidated financial statements include
the operations of this business subsequent to the date of acquisition.
A summary of the purchase price at June 1, 1998 is as follows:
Issuance of 1,000,000 share of common
stock valued at $.036 per share $ 36,000
Issuance of balloon note payable (see Note E),
net of discount of $456,000 875,000
Assumption of notes payable and other liabilities 1,154,342
Assumption of royalty payable, net of
discount of $934,260 451,740
---------
Total purchase price $2,517,082
=========
F-12
<PAGE>
This purchase price was allocated to the tangible and intangible net assets
based on their fair values. Approximately $1,750,000 was allocated to
contract rights acquired; approximately $450,000 was allocated to facility
land, building, and equipment; approximately $227,000 was allocated to
certificates of deposit; and the remaining amount of approximately $90,000
was allocated to accounts receivable and other assets. The contract rights
relate to an annually renewable contract with the Oklahoma Department of
Corrections. This intangible asset is being amortized over a nine-year
Period which is management's estimate of the expected life of the contract.
The following summarized pro forma unaudited information assumes the
acquisition had occurred on January 1, 1997:
Year ended December 31,
---------------------------
1998 1997
--------- ---------
Revenues $1,286,572 $1,363,445
========= =========
Net loss $ (649,102) $ (475,255)
========= =========
Loss per common share $ (.08) $ (.06)
========= =========
The above amounts are based upon certain assumptions which the Company
believes are reasonable. The pro forma results do not necessarily represent
results which would have occurred if the business combination had taken
place at the date and on the basis assumed above.
NOTE L - COMMITMENTS AND CONTINGENCIES
During 1998, a lawsuit was filed by Talbot (see Note I) against the Company
related to the purchase of NDLLC and Horizon. On January 18, 2000, a
tentative settlement was reached. The terms of the settlement include a
payment of $76,000 by the Company to Talbot during 2000 as
consideration for dropping all claims against the Company. This amount
is included in accrued liabilities at December 31, 1998.
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 M - SEGMENT INFORMATION
The Company operates in the following two segments: commercial leasing and
correctional facility operation. During the year ended December 31, 1997,
the Company also had two additional segments: an in-home soda fountain
distribution division (Beverage) and a division that acted as a marketing
representative for construction contractors (SDPI). During 1998, these two
divisions no longer meet the criteria to be defined as a separate segment.
Information concerning the Company's business segments as of and for the
years ended December 31 is as follows:
1998 1997
----------- -----------
Revenues
Commercial leasing ........ $ 291,329 $ 325,328
Correctional facility ..... 748,115 --
Beverage .................. -- 2,124
SDPI ...................... -- 104,997
---------- ----------
Total .......... $ 1,039,444 $ 432,449
========== ==========
Net (loss) income
Commercial leasing ........ $ (26,398) $ 7,865
Correctional facility ..... (240,810) --
Beverage .................. -- (23,775)
SDPI ...................... -- 98,746
Corporate ................. (198,070) (74,754)
---------- ----------
Total .......... $ (465,278) $ 8,082
========== ==========
F-13
<PAGE>
Identifiable assets
Commercial leasing ........ $ 2,309,596 $ 2,282,726
Correctional facility ..... 2,662,992 --
Beverage .................. -- 39,629
SDPI ...................... -- 597
Corporate ................. 448,845 --
Eliminations .............. (443,789) --
---------- ----------
Total .......... $ 4,977,644 $ 2,322,952
========== ==========
Depreciation and amortization
Commercial leasing ........ $ 48,454 $ 43,361
Correctional facility ..... 134,204 --
Beverage .................. 16,667 16,667
SDPI ...................... -- --
Corporate ................. -- --
---------- ----------
Total .......... $ 199,325 $ 60,028
========== ==========
Capital expenditures
Commercial leasing ........ $ 112,427 $ 8,875
Correctional facility ..... 66,745 --
Beverage .................. -- --
SDPI ...................... -- --
Corporate ................. -- --
---------- ----------
Total .......... $ 179,172 $ 8,875
========== ==========
Interest expense
Commercial leasing ........ $ 187,103 $ 177,195
Correctional facility ..... 176,683 --
Beverage .................. 51 --
SDPI ...................... -- --
Corporate ................. 47,539 47,539
---------- ----------
Total .......... $ 411,376 $ 224,734
========== ==========
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 and other current assets.
NOTE N - SIGNIFICANT CUSTOMERS
Business Park generates revenue from tenants, all of which occupy space in
the same commercial complex in Oklahoma City, Oklahoma. As of December 31,
1998, there were fifteen tenants. Rental revenue recorded from one tenant in
Business Park represented 16% of the Company's total revenues for the year
ended December 31, 1997.
The Company contracts with various governmental agencies to provide
correctional services. The contracts generally specify for the Company to
provide correctional services, including complete residential services. As
of December 31, 1998, the Company had one significant contract with the
Oklahoma Department of Corrections. Compensation paid to the Company is
based on a per-person, per-day basis. Revenues generated from this contract
during 1998 comprised 72% of total Company revenues. This contract is
renewable annually.
F-14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act
Directors of Sooner Holdings, Inc.
The current directors of the Company and their principal occupation are
listed below. R.C. Cunningham III is the son of R.C. Cunningham II, the
president and chairman. The following has been furnished to the Company by the
respective nominees for director. The ownership amount and percent represents
shares of the Company's common stock beneficially owned by each of them as of
March 15, 2000:
Ownership (1)
-------------
Director Principal Amount Percent
Name Age Since occupation
---- --- ----- ---------- ------ -------
R. C. Cunningham II 73 6/1/89 Chairman and
President,
Sooner
Holdings, Inc. 4,717,413 55.69%
Ron Alexander, Sr. 58 Vice President,
New Directions
Acquisition Corp.
R.C. Cunningham III 35 7/3/97 Mortgage broker 72,129 *
* less than 1%
(1) The amount and percent of ownership is based on the total shares of common
stock outstanding of 8,471,350 shares as of March 15, 2000.
Directors of the Subsidiaries
Principal Director
Name Age occupation Subsidiary Since
---- --- ---------- ---------- -----
R. C. Cunningham II 73 Chairman and
President, Sooner
Holdings, Inc. CO Park 6/1/89
SDPI 12/31/97
CO Beverages 6/1/89
NDAC 9/4/97
R. C. Cunningham III 35 Mortgage broker,
American Mortgage
Bankers, Inc. CO Park 7/3/97
SDPI 12/31/97
CO Beverages 12/31/97
NDAC 9/4/97
Resumes of Directors
R. C. Cunningham II. Mr. Cunningham has been the Chairman of the Board
and President of the Company since June 1988 and of two of its subsidiaries:
Charlie O Beverages, Inc. and Charlie O Business Park Incorporated since their
respective inceptions. Mr. Cunningham has also been the Vice President of the
Company's subsidiary, SD Properties, Inc. ("SDPI"), since February 1996 and the
President since December, 1997. From 1965 to 1986, Mr. Cunningham was in the
construction business as CEO and owner of Rayco Construction Company. Mr.
Cunningham continues to serve as President of Midwest Property Management and
Service Co., Inc., a company involved in real estate property management.
R. C. Cunningham III. Mr. Cunningham has been the Secretary and a
director of the Company since July 1997 and the Treasurer since March 1998. Mr.
Cunningham has also been the Secretary of two of its subsidiaries: Charlie O
Beverages, Inc. and Charlie O Business Park Incorporated since July 1997 and the
Secretary and Treasurer of SDPI since December 1997 and of NDAC since September
1997. From May 1988 to present, Mr. Cunningham has been continuously employed in
the mortgage business as a loan officer with various mortgage companies. Mr.
Cunningham has a BA Degree from the University of Oklahoma.
Ronnie M. Alexander, 57, became a director of the Company in 1999 and
has been President and Director of Operations of NDAC since 1996. His employment
background includes various sales positions, commercial real estate broker,and
retail management positions. Mr. Alexander holds a degree from the University of
Oklahoma.
9
<PAGE>
Executive Officers, Promoters and Control Persons
The current executive officers of the Company as of March 15, 2000,
and/or its subsidiaries and their positions held in the Company and/or its
subsidiaries are listed in the table below. Officers are appointed by the Board.
R. C. Cunningham III is the son of R. C. Cunningham II, the president and
chairman of the Company.
Name Age Title Officer since
---- --- ----- -------------
R. C. Cunningham II 73 CEO and President,
Sooner Holdings, Inc. 6/1/88 *
CEO and President,
Charlie O Beverages, Inc. 6/16/89 *
CEO and President,
Charlie O Business
Park Incorporated 3/15/91 *
President, SD Properties, Inc. 2/1/96
CEO and President, New
Directions Acquisition Corp. 9/4/97 *
Ron Alexander, Sr. 58 Vice President, New
Directions Acquisition Corp. 6/1/98
R. C. Cunningham III 35 Secretary, Sooner Holdings, Inc. 7/3/97
Treasurer, Sooner Holdings, Inc. 3/31/98
Secretary and Treasurer,
Charlie O Beverages, Inc. 7/3/97
Secretary and Treasurer,
Charlie O Business
Park Incorporated 7/3/97
Secretary and Treasurer,
SD Properties, Inc. 12/31/97
Secretary and Treasurer, New
Directions Acquisition Corp. 9/4/97 *
- --------------------------
* Date of inception of the respective companies.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file certain reports regarding ownership of, and
transactions in, the Company's securities with the Securities and Exchange
Commission (the "SEC"). Such officers, directors and 10% stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms that they file.
Based solely on a review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during fiscal 1998 all the reporting persons complied with Section 16(a)
filing requirements.
ITEM 10. Executive Compensation
The following table sets forth all cash compensation paid by the
Company to each of the executive officers of the Company whose aggregate cash
compensation exceeds $60,000 and to all executive officers as a group for
services rendered during the fiscal year ended December 31, 1998:
Name Primary capacity in which served* Compensation (1)
---- --------------------------------- ----------------
R. C. Cunningham II (2) Chairman of the Board and
President; Sooner Holdings, Inc. $ -0-
R. C. Cunningham III Secretary; Sooner Holdings, Inc. $ -0-
Ron Alexander, Sr. Vice President, New Directions
Acquisition Corp. $ -0-
All Executive Officers as a Group (3 persons) $ -0-
* The executive officers may serve in other capacities with the Company
and/or its subsidiaries (see Item 9. Executive Officers, Promoters and
Control Persons)
(1) None of the executive officers of the Company received cash
compensation in excess of $60,000. All cash is currently being used to
permit the Company to operate as a going concern. The Board is
authorized to reimburse officers and directors for actual expenses
incurred and set compensation for officers as funds for such purpose
become available.
10
<PAGE>
(2) In December 1993, Mr. Cunningham entered into a new Incentive
Compensation Agreement, which provides remuneration to Mr. Cunningham
based only on the Company's revenue performance. Mr. Cunningham
receives no base compensation and will receive a cash incentive fee of
5% of the Company's gross revenues, payable on a quarterly basis (see
further discussion under "Relationship with R. C. Cunningham" under
Item 12. Certain Relationships and Related Transactions).
Stock Option Plan
Executive officers, employees and non-employee directors of the Company
and its subsidiaries may be awarded additional compensation pursuant to the 1995
Stock Option Plan (the "Plan"). Pursuant to the Plan, 2,000,000 shares of the
Company's common stock are reserved for issuance. Options granted under the Plan
are to be at amounts that are equal to or greater than the fair market value of
the Company's common stock at date of grant. Each outstanding option has a
maximum term of ten years and, unless otherwise provided, is exercisable
immediately upon issuance. As of March 15, 2000, no options were granted or
outstanding.
Bonuses and Deferred Compensation
No cash bonuses were paid by the Company to any executive officer
during the year ended December 31, 1998. The Company did not have any deferred
compensation plan or arrangement pursuant to which benefits, remuneration,
value, or compensation was or is to be granted, awarded, entered, set aside, or
accrued for the benefit of any executive officer of the Company as of December
31, 1998.
Compensation Pursuant to Plans Including Pension, Stock Option, and Stock
Appreciation Rights Plans
As of March 15, 2000, other than the Company's 1995 Stock Option Plan,
the Company does not have any stock appreciation rights plans, phantom stock
plans, or any other incentive or compensation plan or arrangement pursuant to
which benefits, remuneration, value, or compensation was or is to be granted,
awarded, entered, set aside, or accrued for the benefit of any executive officer
of the Company.
Termination of Employment and Change of Control Arrangement
During the year ended December 31, 1998, no officer, director, or
principal shareholder of the Company either received or is to receive any
remuneration as a result of either the termination of such person's employment
whether by resignation, retirement, or otherwise; or a change of control of the
Company or a change in such individual's responsibilities following a change in
control of the Company.
ITEM 11. Security Ownership of Certain
Beneficial Owners and Management
The table below sets forth certain information regarding the beneficial
ownership of the common stock of the Company as of March 15, 2000 by each
shareholder who is known by the Company to be the beneficial owner of more than
5% of the Company's voting securities, by each director and by each executive
officer and by all directors and officers as a group.
Number of
Name and Address of common Percent
Beneficial Owners shares (1) of Class
----------------- --------- --------
R. C. Cunningham II (5)
2680 W. Interstate 40
Oklahoma City, OK 73108 4,717,413 55.69%
Sheldon L. Miller (2)
3000 Town Center, Ste. 1700
Southfield, MI 48075 502,718 5.93%
Michael S. Williams (3) (6)
3710 E. Kent Drive
Phoenix, AZ 85044 1,006,256 11.88%
Lanny R. Lang (4)
3536 E. Saltsage Drive
Phoenix, AZ 85044 729,183 8.61%
R. C. Cunningham III (5)
6408 Boulevard View
Alexandria, VA 22307 72,129 *
11
<PAGE>
Ron Alexander, Sr. (7)(8)
2901 McGee Street
Norman, OK 73072 242,000 2.86%
All officers and directors as
a group (4 persons) 5,553,798 70.43%
* less than 1%
Unless otherwise indicated, to the Company's knowledge, each person or
group possesses sole voting and sole investment power with respect to the shares
shown opposite the name of such person or group. Shares not outstanding, but
deemed beneficially owned by virtue of the right of a person or member of a
group to acquire them within 60 days, are treated as outstanding only when
determining the amount and percent owned by such person or group.
(1) The number of shares and percent are based on the current number of
shares of common stock outstanding of 8,471,350 shares.
(2) Mr. Miller owns approximately 30% of Aztore, which he received under
that company's bankruptcy plan, but has waived dispositive control of
shares owned by Aztore and, therefore, such shares are not included.
(3) Includes 384,809 shares owned by Aztore of which Mr. Williams is
President and CEO (see further discussion under "Relationship with
Aztore Holdings, Inc." under Item 12. Certain Relationships and Related
Transactions).
(4) Includes 15,661 shares of common stock owned by Lang Financial
Services, Inc. of which Mr. Lang is the President and sole owner.
Includes 384,809 shares owned by Aztore of which Mr. Lang is Secretary
and Treasurer (see further discussion under "Relationship with Aztore
Holdings, Inc." under Item 12. Certain Relationships and Related
Transactions).
(5) An officer and director of the Company.
(6) A director of the Company.
(7) An officer of a subsidiary.
(8) Includes 242,000 shares of common stock owned by C&R Investments of
which Mr. Alexander is the President and sole owner.
ITEM 12. Certain Relationships and Related Transactions
The Company has adopted a policy that any transactions with directors,
officers or entities of which they are also officers or directors or in which
they have a financial interest, will only be on terms consistent with industry
standards and approved by a majority of the disinterested directors of the Board
and based upon a determination that these transactions are on terms no less
favorable to the Company than those which could be obtained by unaffiliated
third parties. This policy could be terminated in the future. In addition,
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board or a committee thereof which approves such a transaction.
The following are transactions considered by the Company to be
significant of disclosure pursuant to Regulation 228.404 of Regulation S-B. Any
references to Notes refer to the Notes to the Consolidated Financial Statements
included in Item 7 of this Form 10-KSB (the "1998 10-KSB").
Relationship with Aztore Holdings, Inc. (formerly ShareData Inc.)
In December 1993, the Company acquired SDPI in exchange for shares of
common stock. ShareData was the majority shareholder of SDPI and received
887,753 shares or approximately 17% of the Company after the transaction.
ShareData emerged from Chapter 11 Bankruptcy on December 5, 1995 and was
required to distribute the common stock it owns of the Company to its creditors.
All shares were distributed accordingly except for 85,987 shares which could not
be delivered to ShareData's creditors and became the property of ShareData.
Aztore became the successor to ShareData. The Company has an Advisory Agreement
with Aztore to act as the Company's financial advisor. Aztore receives an annual
fee equal to 5% of the Company's gross revenues, as defined in the Advisory
Agreement.
In December 1996, Aztore accepted 358,822 shares of common stock in
settlement of a $14,000 note payable plus accrued interest, or $.04 per share.
During 1997, Aztore agreed to accept 260,000 shares of common stock of
AuctionTelevision Network, Inc. ("ATVN") owned by the Company as consideration
for payment of a $39,000 note payable, or $.15 per ATVN share.
12
<PAGE>
Relationship with R.C. Cunningham II
In December 1993, the Company entered into an Incentive Compensation
Agreement with Cunningham. This agreement provides remuneration to Cunningham
based only on the Company's revenue performance. Cunningham receives no base
compensation, but will receive a cash incentive fee of 5% of the Company's gross
revenues payable on a quarterly basis. Also, Cunningham has personally
guaranteed $1,690,778 of the Company's notes payable.
Relationship with C&R Investments
C&R Investments L.L.C. ("CRI"), is an Oklahoma City,
Oklahoma-investment firm. Mr. Ron Alexander, Sr. is the President and a director
of New Directions Acquisition Corp. (the "Correction Business"), a subsidiary,
since June 1998 and is the managing director for CRI. The management of the
operation of NDAC is subcontracted to CRI. Fees paid to CRI under this
management agreement totaled $35,000 for the year ended December 31, 1998. CRI
owns approximately 3% of the Company's common stock.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Page no.
Item No. Description (footnote)
-------- ----------- ----------
3.1 thru 3.3 Articles of Incorporation, By-Laws
and Amendments thereto (1)
10.1 thru 10.11 Material contracts (1)
10.12 Option Agreement by and between Sooner
Holdings, Inc., New Directions
Acquisition Corp., New Direction
Centers of America, L.L.C., and Horizon
Lodges of America, Inc. dated
September 9, 1997 (2)
10.13 Purchase and Sale Agreement
dated May 7, 1998 (2)
16.1 Letter re: change in certifying accountant (1)
16.2 Letter re: change in certifying accountant (3)
16.3 Letter re: change in certifying accountant (4)
19.1 thru 19.6 Other agreements (1)
22.1 Subsidiaries of the registrant Ex-1
Footnotes:
(1) Incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 1995 (file no. 0-18344).
(2) Filed as an Exhibit to the Company's Form 8-K, filed June 23, 1999
(file no. 0-18344).
(3) Filed as an Exhibit to the Company's Form 8-K/A, filed May 11, 1999
(file no. 0-18344).
(4) Filed as an Exhibit to the Company's Form 8-K, filed June 16, 1999
(file no. 0-18344).
Reports on Form 8-K
The Company has filed no reports on Form 8-K during the fourth quarter
of 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 15, 2000
SOONER HOLDINGS, INC.
---------------------
(Registrant)
By: R. C. Cunningham II
---------------------------------------------------------
R.C. Cunningham II
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
Signature Title Date
--------- ----- ----
Chairman of the Board, Chief
R. C. Cunningham II Executive Officer and President 1/31/00
- -------------------------- -------------
R. C. Cunningham II
R. C. Cunningham III Secretary, Treasurer and Director 1/31/00
- -------------------------- -------------
R. C. Cunningham III
Ben Alexander, Sr. Director 1/31/00
- -------------------------- -------------
Ron Alexander, Sr.
SUBSIDIARIES OF THE REGISTRANT
NAME OF SUBSIDIARY state of incorporation
------------------ ----------------------
Charlie O Business Park Incorporated Oklahoma
New Directions Acquisition Corp. Oklahoma
14
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