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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-49854-A
INTILE DESIGNS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3625325
(State of Incorporation) (I.R.S. Employer Identification No.)
9716 OLD KATY ROAD, SUITE 110 77055
HOUSTON, TEXAS
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 468-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Check whether the registrant (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
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not 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 10-KSB [ ].
Registrant's revenues for its most recent fiscal year: $18,892,947
The aggregate market value of voting stock held by nonaffiliates of the
registrant at June 15, 1996 was approximately $1,740,236 (based upon average
high and low bid prices for last quarter of fiscal 1996.
These prices do not necessarily reflect actual trading prices or market value of
the stock.).
Shares of common stock, par value $.0001 per share, outstanding as of March 31,
1996 was 5,599,342.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated parts of this report: None.
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TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE
Part I
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 6
4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . . . . 6
Part II
5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . 7
6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . 7-8
7. Financial Statements. . . . . . . . . . . . . . . . . . . . 9
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . . . . 9
Part III
9. Directors and Executive Officers of Registrant. . . . . . . 10-11
10. Executive Compensation. . . . . . . . . . . . . . . . . . . 12
11. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . 12-13
12. Certain Relationships and Related Transactions. . . . . . . 13
21. List of Subsidiaries. . . . . . . . . . . . . . . . . . . . 14
2
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INTILE DESIGNS, INC. AND SUBSIDIARIES
PART 1
ITEM 1. BUSINESS
GENERAL
Intile Designs, Inc. (Company or Intile), a Delaware company, is an
importer of foreign ceramic tile and marble and a distributor of these same
products as well as domestic ceramic tile, marble and other home
design/building products. The Company's products are distributed to a wide
and varied retail and wholesale customer base through thirteen (13)
showroom/warehouse facilities and three (3) retail showrooms in seven states.
The Company markets its products to at least five general customer bases:
pool contractors, residential and commercial remodeling contractors, new home
builders, architects and designers, and do-it-yourself consumers. Much of the
marketing to the contractor trade is done through retail sales to the ultimate
consumer through the retail showrooms. Sales are conducted through the showroom
facilities by trained, experienced tile sales personnel.
The method by which merchandise is distributed varies depending upon the
warehouse support structure for a particular sales location. Where a warehouse
is attached to a showroom, the customer may obtain products immediately, but
where the showroom is independent, the customer may wait as long as two weeks to
pick up the merchandise. In cases of special orders, or where a particular
location and warehouse are out of stock, the delivery time may exceed two weeks.
The vast majority of the Company's products are picked up by the customers or
his contractor at one of the Company's warehouse facilities or showrooms. The
Company delivers directly or ships to a customer only a small portion of the
orders.
There are other companies and firms selling tile and related products which
have greater financial and managerial resources than the Company. The Company
competes with these other businesses on the basis of product quality and
selection, price and service.
The Company is supplied by a diversified group of both domestic and
international companies. In general, purchases can be broken out by country as
follows: 40% Italy, 15% Japan, 30% United States and 15% from a variety of
other countries. No single foreign or domestic source provides over 10% of all
the Company's purchases. The major U.S. suppliers are Mutual Materials,
Interstate Brick, P&M Tile and Laufen International. No single customer
accounts for 10% or more of the Company's revenues. The Company is not
dependent on one or a few major customers.
There are 91 employees in the Company, all of which are full time
employees.
3
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In May 1995, the Company effected a two-for-one stock split in its issued
and outstanding common stock. All share amounts and values included herein have
been adjusted to give effect to the stock split.
HISTORY
The Company, then known as IV Ventures Ltd., was formed in July 1991 for
the purpose of conducting a public offering and seeking out an operating entity
to acquire. In July 1993, the Company successfully completed the public
offering and sold 200,000 shares of Common Stock for proceeds of $550,000. The
Company then acquired the original Intile Designs, Inc. (IDI), a Texas
corporation, in a merger in November 1993. In this merger, the Company issued
3,560,000 shares of its restricted Common Stock, par value $.0001, to the former
owners of IDI. Immediately following the merger, the Company changed its name
to Intile Designs, Inc.
IDI was formed in 1976 as a division of Texas Building Centers, Inc. and
was subsequently spun off in May 1980 by Mr. C. William Cox, president of the
Company. At the time, IDI was primarily an importer and distributor of ceramic
tile, marble and related products. Swimming pool tile and brick-coping were
added as product lines in 1983 and 1985, respectively, and wall coverings were
added to selected showrooms in 1988. In 1993, a division was formed for
producing swimming pool depth marker tiles.
The Company has expanded since the merger in 1993, primarily through
acquisitions of similar retail/wholesale ceramic tile distributors as well as
internally through the opening of new retail operations. The Company's
significant acquisitions since April 1, 1994 are:
INTERNATIONAL TILE & SUPPLY CORP.: Effective November 2, 1994, the
Company acquired substantially all of the assets of International Tile &
Supply Corp. (International), a closely-held California corporation, which
was a debtor in possession in a bankruptcy filing in the Central District
of California since January 1994. Intile, through its wholly-owned
subsidiary, Intile Designs of Los Angeles, Inc., purchased the assets of
International by payment of cash at closing of $1,050,000 and assumption
of certain debts approximating $317,473 (net of approximately $155,000 in
either cash paid to creditors or transferred to Intile at closing).
Additionally, Intile agreed to pay the allowed general unsecured creditors
of International an amount equal to 10% of the "Net Operating Profits," as
defined, generated from the operations of the business acquired for a
period of four (4) years after the closing, with maximum payments in the
aggregate totalling $100,000.
The funding of the cash paid at closing was accomplished through a private
placement of debt totalling $1,000,000. Intile issued a $650,000
Convertible Subordinated Note due in 1997, a $350,000 short-term Bridge
Note, and a warrant to purchase 230,000 shares of Common Stock at an
exercise price of $3.25 per share, to RAMCO Limited Partnership.
This acquisition added three (3) retail showrooms locations in the Los
Angeles area to the Company's retail network.
TCM HOLDINGS CORP: Effective February 21, 1995, the Company acquired
100% of the stock of TCM Holdings Corporation (Tile City), a Massachusetts
corporation which had been a debtor in possession in a bankruptcy filing in
Massachusetts since February 1994. Intile acquired the stock of Tile City
from Retail Associates Management Company, Inc., in exchange for up to
844,276 shares of Intile Common stock. The final number of shares will be
determined subject to settlement of certain claims in the bankruptcy
proceedings at a later time pursuant to the Price Adjustment and Escrow
Agreement dated February 21, 1995. This agreement provides for 240,000 of
the shares to be placed in escrow for subsequent distribution after the
final price adjustment is determined in accordance with the provisions of
the agreement. The Company currently estimates that all 240,000 escrowed
shares will be returned to the Company.
4
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Due to recurring losses at TCM, TCM's management closed the retail
operations effective August 3, 1995. The Company recorded a charge
against income from the closure of TCM of approximately $1,865,000 in the
quarter ended June 30, 1995.
Prior to the Company's acquisition of TCM stock, TCM had confirmed a
Chapter 11 Plan of Reorganization in December 1994. Pursuant to the terms
of the plan, all property of TCM was to vest in the reorganized entity
emerging from bankruptcy. The bankruptcy estate of TCM remains in
existence until the case is closed. In October 1995, the U.S. Trustee
petitioned the bankruptcy court to convert TCM's Chapter 11 to a Chapter 7
case of the U.S. Bankruptcy Code. On November 7, 1995, the U.S. Bankruptcy
Court, District of Massachusetts, Eastern Division ruled in favor of the
motion finding that there had been a material default by TCM with respect
to the confirmed Plan of Reorganization and converted the case
(#94-10762-WCH). A Chapter 7 Trustee was appointed by the U.S. Trustee.
The Company believes that the liquidation value of the assets of TCM, as
the reorganized entity, will be less than the value of the recorded liens
against such assets, of which the Company is the primary lienholder.
Accordingly, the Company anticipates that the unsecured creditors under the
confirmed plan, or otherwise, will not receive any proceeds from the
Chapter 7 liquidation. Management believes that, as a result of the
liquidation, the Company will recover some previously recognized losses
since certain liabilities which have been previously recorded are not
anticipated to be paid by TCM's bankruptcy estate. No amount of the
anticipated recovery has been included in the Company's fiscal 1996
financial statements.
INTILE DESIGNS OF ORLANDO, INC.: Effective February 21, 1995, the
Company acquired substantially all of the assets of the Orlando showroom of
P&M Tile, Inc. d/b/a Mannington Ceramic Tile - Orlando (Orlando). Intile
acquired Orlando by payment of $140,114 at closing and issuance of a
noninterest-bearing note to P&M Tile, Inc. for $257,518.
Internal expansion by the Company during fiscal 1996 included the
opening of new showroom/warehouses in The Woodlands, Texas (Houston) and
Denver, Colorado.
OPERATIONS
The Company operates its business on a wagon wheel concept with a large
warehouse in a hub city and facilities located along the spokes that are either
showrooms with small warehouses or stand-alone showrooms. The Company has
established an outlet store in Houston to sell its closeouts and odd-lots.
As a prototype of a hub facility, Intile's 100,000 square foot Houston
warehouse maintains a large inventory. The warehouse does not sell to the
public, but markets to the wholesale trade only and provides material and
services to the other showroom facilities. The showroom/warehouse sells to both
the wholesale and the retail markets, while the stand-alone showroom sells
primarily to the retail customers and remodeling contractor.
With further growth and expansion of the wagon wheel structure, the Company
intends to develop other hub operations to support expansion activities.
5
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ITEM 2. PROPERTIES
The Company has operations in seven states with the retail showroom
locations in Houston (2), Dallas, Austin, The Woodlands, Webster, and Corpus
Christi, Texas; Atlanta, Georgia; Orlando, Florida; Boston, Massachusetts;
Phoenix, Arizona; Anaheim, Northridge and Los Angeles (2), California and
Denver, Colorado.
The following table displays the ranges in size and lease costs of the
showrooms. This chart indicates that a typical showroom/warehouse operation
is about 12,000 square feet with an annual cost of around $50,000, while a
typical retail showroom only is about 4,000 square feet with an annual cost
of a similar amount ($50,000).
Size Annual
Range (S.F.) Rate/s.f.
-------------- ---------------
Showroom/warehouse 5,620 - 18,000 $3.50 - $ 9.00
Showroom only 1,400 - 5,980 $8.00 - $ 32.76
Lease terms range from tenant at will (month-to-month) to five-year
leases with expiration terms through 2001.
ITEM 3. LEGAL PROCEEDINGS
With the exception of the TCM Holdings Corp. bankruptcy (discussed in
Item 1.), the Company is involved in only routine litigation incidental to
its business which, in the opinion of management, are not material within the
meaning of Item 103 of Regulation 5-B.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1996, no matter was submitted to a
vote of security holders, either through the solicitation of proxies or
otherwise.
6
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In May 1995, the Company effected a two-for-one stock split in its
issued and outstanding common stock. All share amounts and values included
herein have been adjusted to give effect to the stock split.
The Company's Common Stock is traded in the over-the-counter market on
the OTC Electronic Bulletin Board under the trading symbol IDES. The
following tables set forth the range of high and low bid information for the
Company's Common stock by quarter for the fiscal years 1995 and 1996. The
quotations below were obtained from the National Quotation Bureau, Inc. The
following quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
OTC Electronic
Fiscal Year Ended March 31, Bulletin Board
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High Low
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1995
First Quarter 4-3/4 4-1/2
Second Quarter 4-1/2 3
Third Quarter 4-1/2 3-1/2
Fourth Quarter 4-1/2 3-1/2
1996
First Quarter 5-1/2 5-1/2
Second Quarter 6-1/2 5
Third Quarter 1 1/2
Fourth Quarter 3/4 1/2
At June 15, 1996, there were 78 record holders of the Company's Common
Stock.
The Company has paid no dividends on its Common Stock during the last
two years. The terms of the Company's bank loan agreements contain
provisions which presently prohibit the payment of cash dividends by the
Company on its Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion which follows summarizes the Company's financial position
as of March 31, 1996 and the results of its operations for the twelve month
period then ended, and should be read in conjunction with the Company's
Audited Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-KSB.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a revolving bank credit line which, subject to certain
limitations as to advance rates on collateral values, provides for borrowings
up to $6,000,000. During fiscal year 1995, the Company negotiated a new
credit agreement which provided for the additional borrowing capacity of
$2,500,000 (up from $3,500,000) while removing certain ceiling limitations
from inventory collateral values. At March 31, 1996, the outstanding balance
under this arrangement was $5,820,000 or $180,000 less than the maximum,
however, due to non compliance with certain covenants of the loan agreement,
the bank will not advance any of the unused capacity.
7
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In February 1994, the Company initiated an effort to raise capital
through the private placement of its Common Stock in an offering exempt from
federal and state securities laws. The Company placed 42,000 shares of stock
at a price of $3.25 per share ($136,500 total). Also out of this effort, the
Company secured additional financing of $1,000,000 from RAMCO Ltd.
Partnership in the form of a $650,000 Subordinated Convertible Debenture and
a $350,000 Bridge Note. The Subordinated Debenture was converted in February
1995 into 200,000 shares of Intile Common Stock and the Bridge Note was
repaid in December 1994. The $1,000,000 proceeds were utilized to acquire the
assets of International Tile & Supply Corp. in November 1994. These
additions to capital have been recorded net of the associated costs of
raising such capital.
The Company also raised capital in the fiscal years ended 1996 and 1995,
when outstanding stock options for 70,478 and 112,640 shares, respectively,
were exercised. The Company may raise capital during fiscal 1997 by virtue
of the exercise of 176,080 stock options. The Company does not know how many
of these options will be exercised.
At March 31, 1996, the Company's working capital has decreased to
$819,211 from $8,402,279 at March 1995, principally due to the bank revolving
credit facility being classified as short-term this year due to noncompliance
with certain covenants which make the principal payable upon demand, and
increased borrowings to support the acquisition of current operating assets
(primarily inventory) while using the funds generated from the net reduction
of these operating assets (inventory and receivables) to finance the losses
generated at TCM. Similarly, trade payables increased in an effort to use
working capital to fund the TCM losses instead of reduce trade payables.
Borrowing levels increased to $5,953,907 at March 31, 1996 from
$5,020,957 at March 31, 1995. This increase in borrowings occurred due to
financing of operating assets during the period that losses were incurred by
TCM. Cash used by operations during the fiscal year ended March 31, 1996 was
$822,535. The cash used by operations, down from $1,621,670 in the fiscal
year ended March 31, 1995, was used to fund the loss incurred this year.
Cash used in investing activities decreased from $1,168,755 in fiscal year
end March 31, 1995 to $286,795 for the fiscal year end March 31, 1996
because no acquisitions were made in fiscal 1996 as compared to the three
acquisitions (International, Orlando and TCM Holdings) in fiscal 1995. Cash
provided by financing activities also decreased from $2,819,417 for fiscal
year ended March 31, 1995 to $954,676 in fiscal year ended March 31, 1996 due
to the decreased borrowings of debt which in fiscal 1995 were primarily
used to fund the previously noted acquisitions.
The stockholders' equity of the Company decreased by $4,225,111 (73.9%)
to $1,488,374 at March 31, 1996 from $5,713,485 at March 31, 1995. This
decrease is due to the losses incurred during the year, principally at TCM.
The Company's management is attempting to locate private sources of
capital and alternative financing sources in an endeavor to alleviate the
doubt as to its ability to continue as a going concern. A number of potential
investors have been identified. Discussions continue with several of these
sophisticated investors as to the opportunity that exists with Intile. The
financing alternative would be enhanced significantly if the Company could
obtain additional capital and thereby reduce the level of financing required
to refinance the existing bank credit line. To date no new equity has been
raised, and management, although optimistic, cannot guarantee success.
8
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RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 1996, COMPARED WITH
THE TWELVE MONTHS ENDED MARCH 31, 1995
Sales increased $1,047,288 (5.9%) to $18,892,947 and cost of sales
increased by $1,044,642 (9.9%) to $11,617,811 for the twelve months ended
March 31, 1996 compared to the same period ended March 31, 1995, resulting in
an increase of $2,646 in gross profit for the fiscal year 1996. The increase
in sales and cost of sales is principally due to inclusion of International
Tile and Orlando for the entire year as compared to a partial year during
fiscal 1995 (International - 5 months and Orlando - 5 weeks). The reduction
in gross margin percentage from 40.7% for the twelve months ended March 31,
1995, to 38.5% for the same period ended March 31, 1996, is due in part to
the effect of the Orlando operation performing at below the Company norm (31%
vs. 40.7%) accounting for .7% of the decrease and general competitive market
pressures, particularly in the West Region, causing the remaining decrease.
Selling and administrative expenses rose $1,097,855 (15.9%) to
$8,009,968 for the twelve months ended March 31, 1996 from $6,912,113 for the
same period ended March 31, 1995. The increase resulted from inclusion of
International and Orlando for the full twelve months and expanded staff to
support the growth in the location network.
Income (loss) from operations decreased by $1,095,209 from the twelve
months ended March 31, 1995, compared to the same period ended March 31,
1996. This is the cumulative result of reduced margins combined with extended
operations (increased selling and administration expenses).
The loss for the twelve months ended March 31, 1996 was $(4,246,837) as
compared to a net income of $35,291 for the prior twelve-month period ended
March 31, 1995. The loss is primarily due to the large loss incurred at TCM
coupled with increased general and administrative costs to support the
expanded network and the increased interest costs resulting from greater
borrowings due to the losses.
Individual operations which enjoyed pre-tax profits this year were
Austin-$96,763, Dallas-$121,396, Orlando-$17,592, Atlanta-$22,739 and Corpus
Christi-$22,145.
The Company has recorded a 100% valuation allowance on the
deferred tax asset since it could not be determined if the asset was more
likely than not to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No.
121). SFAS No. 121 requires, among other things, that impairment losses on
assets to be held, and gains or losses from assets that are expected to be
disposed of, be included as a component of income from continuing operations.
The Company will adopt SFAS No. 121 in fiscal year ending March 31, 1997 and
its implementation is not expected to have a material effect on the
consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." (SFAS No. 123). SFAS No. 123 encourages entities
to adopt the fair value method in place of the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25), for all arrangements under which employees receive shares of
stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of its stock. The
Company does not anticipate adopting the fair value method encouraged by SFAS
No. 123 and will continue to account for such transactions in accordance with
APB No. 25. However, the Company will be required to provide additional
disclosures beginning in fiscal year ending March 31, 1997 providing pro
forma effects as if the Company had elected to adopt SFAS No. 123.
ITEM 7. FINANCIAL STATEMENTS
See Index to Financial Statements on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On February 23, 1996, Intile Designs, Inc. dismissed Price Waterhouse
LLP as its independent accountants. The reports of Price Waterhouse LLP on
the financial statements for the past two fiscal years contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle. The Company's Board of
Directors participated in and approved the decision to change independent
accountants. In connection with its audits for the two most recent fiscal
years and through February 23, 1996, there have been no disagreements with
Price Waterhouse LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to the satisfaction of Price Waterhouse LLP
would have caused them to make reference thereto in their report on the
financial statements for such years. Price Waterhouse LLP furnished the
Company with a letter addressed to the SEC stating that it agreed with the
above statements, and a copy of such letter, dated March 1, 1996, was filed
as Exhibit 16 to the Form 8-K filed February 28, 1996. The Company engaged
BDO Seidman, LLP as its new independent accountants on March 15, 1996.
During the two most recent fiscal years and through March 15, 1996, the
Company has not consulted with BDO Seidman, LLP on items which (1) were or
should have been subject to SAS 50; or (2) concerned the subject matter of a
disagreement or reportable event with the former auditor (as described in
Regulation S-K Item 304(a)(2).
9
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
EXECUTIVE OFFICERS/SIGNIFICANT EMPLOYEES OF THE REGISTRANT
The following is a list of the executive officers and directors of the
Company as of March 31, 1996:
<TABLE>
<CAPTION>
Held a Position
Continuously
Name Position Age Since
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<S> <C> <C> <C>
C. William Cox President and Chairman of the 60 1993
Board and Chief Executive Officer
Barbara Cernan Vice President-Retail Training 58 1993
and Secretary
Donald J. Geiger Vice President-Marketing 55 1993
Milton C. Standifer Vice President-Western Region 52 1994
James C. Hazlewood Chief Financial Officer 48 1994
Ehud D. Laska Director (1) 46 1993
George C. Siller, Jr. Vice President-General Manager 45 1995
and Director
Edward K. Paul, Jr. Director 58 1995
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</TABLE>
______________
(1) Member of Audit Committee
MR. COX has been the President and Chief Executive Officer and a
director of the Company since November 1993. Prior to such time, Mr. Cox was
the President, Chief Executive Officer, Chairman of the Board and Director of
Intile Designs, Inc., a Texas corporation. Effective November 12, 1993,
Intile Designs, Inc. the Texas Corporation, was merged into a wholly-owned
subsidiary of the Company.
MS. CERNAN has been a Vice President and Secretary of the Company since
1993. Ms. Cernan was one of the original employees of Intile Designs, Inc.,
a Texas corporation that was merged into the Company's wholly-owned
subsidiary in November 1993. Ms. Cernan had served continuously since 1979
as Vice President and Secretary of Intile Designs, Inc. Ms. Cernan's
responsibilities include direct supervision of the Houston showrooms. She is
also responsible for training new personnel for the Company showrooms and the
testing and addition of new products.
10
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MR. GEIGER has been a Vice President and Director of the Company since
1993. Since 1990, Mr. Geiger has been an officer and director of Intile
Designs, Inc., a Texas corporation that was merged into the Company's
wholly-owned subsidiary in November 1993. Prior to that, between 1981 and
1989, he operated his own investment banking firm, Geneva Financial Corp. and
its predecessor, First Western Capital. Geneva was active in mergers and
acquisitions, private placements and real estate development and management.
Mr. Geiger was previously with Shearson Lehman and he began his career with
over thirteen years with IBM Corporation in various management and marketing
positions. He is a graduate of Gannon University, Erie, Pennsylvania, in
Industrial Management and Finance.
MR. STANDIFER joined Intile in 1992 as the manager of the Anaheim
operation. He was elected as Vice President and Western Region Manager in
1994. Prior to jointing Intile, he served as President of Mediterranean
Tiles, Inc. from 1978 to 1992.
MR. HAZLEWOOD joined Intile as CFO in September 1994. Prior to 1994, he
was President of Gulf Environmental Corp. a wholly-owned start-up
environmental consulting subsidiary of Gulf USA (then a NYSE company). From
1989 to 1993, he was a Vice President with BankOne Management and Consulting
Corp. He served in various financial capacities with other distribution
companies and financial institutions from 1976 to 1989. He began his career
with Arthur Andersen & Co., where he was in the Audit Division from 1971 to
1976.
MR. LASKA joined Interbank/Birchall, Inc. a merchant banking firm in
February 1996, as Managing Director. At Interbank/Birchall, he specializes
in private placements of equity and general corporate finance advisory work,
including mergers and acquisitions. Mr. Laska also serves as Chairman of the
Board of Coleman and Company Securities, Inc., a NYSE Stock Exchange member.
Since August 1993, Mr. Laska has served as director of AFGL International,
Inc., a publicly-held company that provides executive search, marketing,
advertising and consulting services to the financial services industry. From
1994, until joining Interbank/Birchall, he was Managing Director of Continuum
Capital, Inc., an investment banking firm. From 1992 through 1994, he was the
Managing director of Tallwood Associates, an investment banking firm. From
July 1991 to May 1992, Mr. Laska headed investment banking at Laidlaw
International, Inc. and was also responsible for its principal transaction
group. For two years prior to July 1991, Mr. Laska held the position of
Senior Investment Banker at Paine Webber, Inc. and from January 1987 to May
1989, held the same position with Drexel Burnham Lambert, Inc.
MR. SILLER joined Intile in May 1995 as Vice President and General
Manager and became a Director in July 1995. Prior to joining Intile, he was
CFO of Air Dreco, a fluid power distribution division of Sun Distributors (a
Master Limited Partnership, traded on the NYSE). From 1988 through 1990 he
was Group Controller for American Desk, a manufacturer of school furniture
and stadium and theater seating. He was a Manufacturing Engineer and Manager
of Production Planning and Senior Auditor for Texas Instruments from 1983 to
1988. Prior to Texas Instruments, Mr. Siller served in the United States
Marine Corps for two years where he rose to the rank of Captain.
MR. PAUL joined Intile in July 1995 as General Manager of Global Tile
Distributors and as a Director. From 1989 until joining Intile, he was a
management consultant in numerous ventures and turnaround efforts. From 1978
through 1989, Mr. Paul was President and CEO of Intercontinental Ceramics
Corporation, a subsidiary of Laufen, a Swiss tile manufacturer. From 1975 to
1978, he was President of Look Sports USA, a French owned sporting goods
products distributor. Prior to 1978, Mr. Paul was V.P. and Director of
Marketing for AMF Marine Products Group beginning in 1972. From 1968 to 1972
he was with Continental Can Company in various sales and marketing positions.
11
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following summarizes the compensation for C. William Cox, the
President, Chairman and Chief Executive Officer of the Company. No other
executive officer received compensation during fiscal 1996 in excess of
$100,000.
CASH COMPENSATION OF EXECUTIVE OFFICERS
Long-Term Compensation
----------------------
Name and Restricted Number
Principal Fiscal Amount of Amount of Stock of
Position Year End Salary Bonus Awards Options
--------- -------- --------- --------- ---------- -------
C. William Cox 1996 $165,022 $ - - -
Chief Executive Officer 1995 173,807 - - -
1994 171,000 - - 83,360
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END OPTION VALUE
<TABLE>
Number Number of Value of Unexercised
of Shares Total Unexercised Options In-the-Money Options
Acquired on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. William Cox, - - - - - -
Chief Executive
Officer
</TABLE>
There were no stock option grants to C. William Cox during the fiscal
year ended March 31, 1996.
COMPENSATION OF DIRECTORS
The Company currently pays its outside directors $400 per each Board
meeting attended by such director plus expenses incurred in attending the
meeting.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1996, the aggregate number
of shares of Common Stock of the Company owned of record or beneficially by each
person who owned of record, or is known by the Company to own beneficially, more
than 5% of the Company's Common Stock, and the name and shareholdings of each
officer and director and all officers and directors as a group:
12
<PAGE>
Amount and
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership (1) of Class
- ------------------------------------ ------------- --------
C. WILLIAM COX 1,989,290 35.5%
9716 Old Katy Road, Suite 110
Houston, Texas 77005
DAMASUS INTERNATIONAL ESTABLISHMENT 396,962 7.1%
C/O TMF Services S.A.
16 rue de Hesse
P.O. Box 5342/1211
Geneva 11 Switzerland
RETAIL ASSOCIATES MANAGEMENT CO., INC. 644,276(2) 11.5%
125 Hartwell Ave.
Lexington, MA 02173
All officers and directors as a group 2,354,984 42.0%
________________
(1) All Shares are held beneficially and of record.
(2) Does not include 240,000 shares held in escrow pending final determination
of the value of TCM Holdings Corp. nor another 200,000 shares issued to
RAMCO Limited Partnership, a related party to Retail Associates Management
Co., Inc.
ITEM 12. CERTAIN RELATIONSHIPS WITH RELATED TRANSACTIONS
CONTINUUM CAPITAL, INC./TALLWOOD ASSOCIATES, INC.
In connection with the Company's search for additional capital, it entered
into a consulting agreement with Tallwood Associates, Inc. (Tallwood) and
subsequently Continuum Capital, Inc. (Continuum). Ehud D. Laska, a director of
the Company, was the Managing Director of Continuum and was the Managing
Director of Tallwood. The Company also issued warrants to Continuum of up to
76,922 shares of $3.25 per share. In 1995, the Company paid Tallwood a fee of
$62,000 in connection with issuing 200,000 shares to RAMCO Limited Partnership.
The Company issued warrants to Tallwood with an exercise price at $.90 per
share.
AFFILIATE TRANSACTIONS
The Company leases certain equipment from entities owned by C. William Cox.
Rental payments under the leases were in the aggregate amounts of $17,136 and
$19,386 for the fiscal years ended March 31, 1996 and 1995, respectively.
Effective January 1995, Mr. Cox has provided his limited personal guarantee
on the Company's bank line of credit up to $1,000,000. Prior to new credit
arrangements, he had guaranteed the complete line of credit, in consideration of
this guarantee, the Company paid fees to Mr. Cox in the amounts of $12,000 and
$36,539 during the fiscal years ended March 31, 1996 and 1995, respectively.
Such fees were charged to interest expense.
In February 1995, the Company acquired 100% of the outstanding stock of TCM
Holdings Corp. (TCM) in exchange for 644,276 shares of the Company's common
stock and 240,000 shares of the Company's Common
13
<PAGE>
Stock were placed in escrow pending final determination of the value to be
paid for the TCM Stock. The Company has recorded total shares issued as of
March 31, 1996 of 797,698 based on the current balance sheet of TCM. TCM was
acquired from Retail Associates Management Company, Inc. (RAMCO).
The Company entered into a loan agreement with RAMCO Limited Partnership in
which the Company agreed to borrow $150,000 payable by December 31, 1995, with
interest at prime plus 3%. The outstanding balance at March 31, 1996, was
$100,000 with interest paid current. Due to continuing discussions relating to
the Company's request for RAMCO to indemnify it against the losses incurred in
connection with the TCM acquisition and RAMCO's denial of any such obligation,
the principal has not been paid as of March 31, 1996.
21. LIST OF SUBSIDIARIES AS OF MARCH 31, 1996
Intile Designs of Arizona, Inc.
Intile Graphics, Inc.
Tile Boutique, Inc.
Intile Designs of Dallas, Inc.
Austin Tile Designs, Inc.
Intile Designs of California, Inc.
Intile Designs of Los Angeles, Inc.
TCM Holdings Corp.
Intile Designs of Orlando, Inc.
Intile Designs of Woodlands, Inc.
Intile Designs of Denver, Inc.
Global Tile Distributors, Inc.
14
<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.
Intile Designs, Inc.
July 5, 1996 By: /s/ C. William Cox
-----------------------------------
C. William Cox, President
Chairman of the Board of
Directors, and Chief
Executive Officer
July 5, 1996 By: /s/ James C. Hazlewood
-----------------------------------
James C. Hazlewood
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
July 5, 1996 By: /s/ C. William Cox
-----------------------------------
C. William Cox, President
and Chairman of the Board
of Directors, and Chief
Executive Officer
July 5, 1996 By: /s/ George C. Siller, Jr.
-----------------------------------
George C. Siller, Jr.
Vice President and General
Manager
July 5, 1996 By: /s/ Ehud D. Laska
-----------------------------------
Ehud D. Laska, Director
July 5, 1996 By: /s/ Edward K. Paul, Jr.
-----------------------------------
Edward K. Paul, Jr.
Director
July 5, 1996 By: /s/ James C. Hazlewood
-----------------------------------
James C. Hazlewood
Chief Financial Officer
15
<PAGE>
INTILE DESIGNS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants. . . . . . . F-2
Report of Independent Accountants. . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as of March 31, 1996 and 1995 . . . F-4
Consolidated Statements of Income (Loss) for the years
ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1996 and 1995 . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the years ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . F-8 to F-18
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Intile Designs, Inc.
We have audited the consolidated balance sheet of Intile Designs, Inc. at
March 31, 1996 and the consolidated statements of loss, stockholders' equity
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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Intile
Designs, Inc. at March 31, 1996 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has incurred a significant
loss in the current year and has violated certain covenants of a loan agreement,
as a result of which the lender may demand repayment of the entire outstanding
balance. Accordingly, there is substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 5 to the consolidated financial statements, effective
April 1, 1995, the Company changed its method of accounting for an investment
in a subsidiary.
BDO Seidman, LLP
Houston, Texas
June 4, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Intile Designs, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income (loss), stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Intile
Designs, Inc. and its subsidiaries at March 31, 1995, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expression above.
PRICE WATERHOUSE LLP
Houston, Texas
June 27, 1995
F-3
<PAGE>
INTILE DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
----------- ----------
ASSETS
<S> <C> <C>
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,778 $ 224,432
Accounts receivable, less allowance
for doubtful accounts of $134,602 and $128,605. . . . . . 1,564,174 1,956,023
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 8,447,237 9,925,653
Prepaid expenses and other. . . . . . . . . . . . . . . . . 137,471 309,013
Deferred tax asset. . . . . . . . . . . . . . . . . . . . . - 66,000
----------- -----------
Total Current Assets. . . . . . . . . . . . . . . . . . 10,218,660 12,481,121
----------- -----------
Property and equipment, net of accumulated depreciation
and amortization. . . . . . . . . . . . . . . . . . . . . . 556,665 754,361
----------- -----------
Other Assets:
Organization costs, net of accumulated
amortization of $56,371 and $72,542 . . . . . . . . . . . 24,755 39,043
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . - 695,204
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . 137,415 295,771
Deferred tax asset. . . . . . . . . . . . . . . . . . . . . - 479,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,086 33,939
----------- -----------
216,256 1,542,957
----------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . $10,991,581 $14,778,439
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable. . . . . . . . . . . . . . $ 5,953,907 $ 295,769
Accounts payable. . . . . . . . . . . . . . . . . . . . . . 3,163,884 2,768,700
Accrued expenses and other liabilities . . . . . . . . . . 281,658 982,000
Income taxes payable. . . . . . . . . . . . . . . . . . . . - 32,373
----------- -----------
Total Current Liabilities . . . . . . . . . . . . . . . 9,399,449 4,078,842
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . 103,758 260,924
Noncurrent portion of notes payable . . . . . . . . . . . . . - 4,725,188
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . . . 9,503,207 9,064,954
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.0001 par value;
10,000,000 shares authorized . . . . . . . . . . . . . . 560 549
Additional paid-in capital. . . . . . . . . . . . . . . . . 4,717,420 4,695,705
Retained earnings (deficit) . . . . . . . . . . . . . . . . (3,229,606) 1,017,231
----------- -----------
Total Stockholders' Equity. . . . . . . . . . . . . . . 1,488,374 5,713,485
----------- -----------
$10,991,581 $14,778,439
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INTILE DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
FOR THE YEARS
ENDED MARCH 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales................................................... $18,892,947 $17,845,659
Cost of sales............................................... 11,617,811 10,573,169
----------- -----------
Gross profit................................................ 7,275,136 7,272,490
Selling and administrative expenses......................... 8,009,968 6,912,113
----------- -----------
Income (loss) from operations............................... (734,832) 360,377
----------- -----------
Other Income (Expense)
Equity in losses of investee,
net of deferred tax expense of $468,000.................. (3,169,419) -
Interest expense........................................... (452,993) (292,232)
Other income............................................... 5,407 9,146
----------- -----------
Total other expense......................................... (3,617,005) (283,086)
----------- -----------
Income (loss) before income taxes........................... (4,351,837) 77,291
Provision for income taxes (benefit)........................ (105,000) 42,000
----------- -----------
Net income (loss)........................................... $(4,246,837) $ 35,291
----------- -----------
----------- -----------
Net income (loss) per share................................. $ (.76) $ .01
----------- -----------
----------- -----------
Weighted average number of common shares outstanding........ 5,557,722 4,752,953
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTILE DESIGNS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
Common Stock Additional Retained
------------------ Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, at March 31, 1994........ 4,364,000 $436 $2,619,151 $ 981,940 $3,601,527
Cancellation of subscribed
stock........................... (24,080) (2) 2 - -
Issuance of common stock to
acquire TCM Holdings and
to cancel subordinated
debt net of issuance
costs of $156,607............... 997,698 100 1,838,689 - 1,838,789
Exercise of stock options......... 112,640 11 101,367 - 101,378
Issuance of common stock.......... 42,000 4 136,496 - 136,500
Net income........................ - - - 35,291 35,291
--------- ---- ---------- ----------- -----------
Balance, at March 31, 1995........ 5,492,258 549 4,695,705 1,017,231 5,713,485
Additional issuance costs
relating to issuance of
common stock to acquire
TCM Holdings.................... - - (68,644) - (68,644)
Exercise of stock options......... 70,478 7 56,685 - 56,692
Issuance of common stock.......... 36,606 4 33,674 - 33,678
Net loss.......................... - - - (4,246,837) (4,246,837)
--------- ---- ---------- ----------- -----------
Balance, at March 31, 1996........ 5,599,342 $560 $4,717,420 $(3,229,606) $ 1,488,374
--------- ---- ---------- ----------- -----------
--------- ---- ---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INTILE DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
FOR THE YEARS
ENDED MARCH 31,
-------------------------
1996 1995
----------- ------------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . $(4,246,837) $ 35,291
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization. . . . . . . . 150,720 127,445
Equity in net loss of subsidiary . . . . . . 3,169,419 -
Loss on abandonment of leasehold
improvements. . . . . . . . . . . . . . . . 7,236 -
Bad debt expense . . . . . . . . . . . . . . 93,597 46,332
Deferred taxes . . . . . . . . . . . . . . . 77,000 (21,000)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . 227,200 (431,774)
Inventories . . . . . . . . . . . . . . . . 549,235 (1,097,841)
Prepaid expenses and other assets . . . . . 160,533 (160,598)
Accounts payable and accrued expenses . . . (978,265) (116,758)
Income taxes payable. . . . . . . . . . . . (32,373) (2,767)
----------- ------------
Net cash used in operating activities. . . . . . (822,535) (1,621,670)
----------- ------------
Cash flows from investing activities:
Purchase of equipment . . . . . . . . . . . . . (311,795) (22,915)
Proceeds from disposition of assets . . . . . . 25,000 -
Cash paid in acquisition of International
Tile . . . . . . . . . . . . . . . . . . . . . - (1,046,579)
Cash received in acquisition of TCM . . . . . . - 40,852
Cash paid in acquisition of Orlando . . . . . . - (140,113)
----------- ------------
Net cash used in investing activities. . . . . . (286,795) (1,168,755)
----------- ------------
Cash flows from financing activities:
Proceeds from debt issuance . . . . . . . . . . 168,000 1,000,000
Payments of debt . . . . . . . . . . . . . . . (355,050) (965,731)
Borrowings under line of credit . . . . . . . . 1,225,000 2,547,000
Payments on line of credit. . . . . . . . . . . (105,000) -
Proceeds from issuance of common stock. . . . . 33,6781 36,500
Exercise of stock options . . . . . . . . . . . 56,692 101,378
Issuance costs on acquisition of TCM . . . . . (68,644) -
----------- ------------
Net cash provided by financing activities. . . . 954,676 2,819,147
----------- ------------
Net increase (decrease) in cash . . . . . . . . (154,654) 28,722
Cash, beginning of year. . . . . . . . . . . . . 224,432 195,710
----------- ------------
Cash, end of year. . . . . . . . . . . . . . . . $ 69,778 $ 224,432
----------- ------------
----------- ------------
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The Company is a direct importer and distributor of ceramic tile, marble
and related home design products. The Company also retails these items
through its various divisions and subsidiaries located primarily in the
southern region of the United States.
The consolidated financial statements include the accounts of Intile
Designs, Inc. and its wholly-owned subsidiaries except those where control is
deemed to be temporary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE, ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Revenue is recognized upon the sale of ceramic tile, marble and related
home design products and is recorded net of discounts and returns. The
Company grants credit to its customers under normal credit terms. The
Company uses the reserve method of accounting for uncollectible accounts.
INVENTORIES
Inventory consisting of ceramic tile, marble and related home design
products is stated at the lower of cost (first-in, first-out) or market.
Inventory costs include freight and certain warehouse handling costs.
PROPERTY AND EQUIPMENT, NET
Property and equipment is stated at cost. Depreciation on equipment is
provided using the straight-line method over the estimated useful lives of
the assets. For income tax purposes, depreciation on certain assets is
calculated using accelerated methods. Leasehold improvements are amortized
over the terms of the lease, not in excess of their estimated useful lives.
ORGANIZATION COSTS
Organization costs are amortized on a straight-line basis over five
years.
GOODWILL
At March 31, 1995, Goodwill included the excess of acquisition costs
over the fair value of net assets acquired in the purchase of TCM Holdings
Corporation (TCM) which was to be amortized on the straight-line method over
a ten-year period. During August 1995, management ceased operations of TCM.
During the year ended March 31, 1996, all remaining goodwill was written-off
and included in equity in losses of investee in the accompanying statement of
loss (see Notes 3 and 5).
INVESTMENT IN TCM
As discussed in Note 3, during the year ended March 31, 1996, TCM
entered into Chapter 7 bankruptcy under the U.S. Bankruptcy Code. In light
of this filing, the Company's control over TCM was deemed to be temporary in
nature. Generally Accepted Accounting Principles do not permit the use of
consolidation accounting in circumstances where the investor has only
temporary control over an investee. Accordingly, effective April 1, 1995, the
F-8
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's investment in TCM is accounted for using the equity method;
whereby, the investment is carried at cost and adjusted for the Company's
proportionate share of profit or losses.
NOTES PAYABLE
The Company's notes bear interest at a floating rate of interest based upon
the lending institution's prime lending rate. Accordingly, the fair value
approximates their reported carrying amounts at March 31, 1996 and 1995.
INCOME TAXES
For federal income tax purposes, the Company files a consolidated tax
return which includes the operations of its divisions and subsidiaries.
The Company recognizes income tax expense using the liability method of
accounting for deferred income taxes. A deferred tax asset or liability is
recorded based upon the tax effect of temporary differences between the tax
basis of assets and liabilities and their carrying value for financial
reporting purposes. The primary temporary differences between the financial
statement basis and tax basis of the Company's assets and liabilities relate
to the depreciation of property and equipment, the capitalization of indirect
costs to inventories, allowance for doubtful accounts and accrued
liabilities. Deferred tax expense or benefit is the result of changes in the
deferred tax assets and liabilities during the year. The Company adjusts the
deferred tax asset valuation allowance based upon judgments as to future
realization of the deferred tax benefits supported by demonstrated trends in
the Company's operating results.
STOCK OPTIONS
Compensation expense is measured for stock option awards as the
difference between the option exercise price and the fair value of the stock
at the option award date. Compensation expense is recognized over the stock
option vesting period.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is calculated using the weighted average
number of outstanding shares of common and common equivalent shares
outstanding, including stock options which have a dilutive effect.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No.
121). SFAS No. 121 requires, among other things, that impairment losses on
assets to be held, and gains or losses from assets that are expected to be
disposed of, be included as a component of income from
F-9
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continuing operations. The Company will adopt SFAS No. 121 in the year
ending March 31, 1997 and its implementation is not expected to have a
material effect on the consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." (SFAS No. 123). SFAS No. 123 encourages entities
to adopt the fair value method in place of the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25), for all arrangements under which employees receive shares of
stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of its stock. The
Company does not anticipate adopting the fair value method encouraged by SFAS
No. 123 and will continue to account for such transactions in accordance with
APB No. 25. However, the Company will be required to provide additional
disclosures beginning in the year ending March 31, 1997 providing pro forma
effects as if the Company had elected to adopt SFAS No. 123.
NOTE 2 - GOING CONCERN UNCERTAINTY
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered a significant loss during the current year primarily attributable to
the financial problems encountered by its TCM subsidiary (see Notes 3 and 5).
In addition, the Company is in violation of certain loan covenants of its
credit facility with a bank. The bank may demand repayment of the entire
outstanding balance of the note, which is secured by the Company's inventory
and accounts receivable. Accordingly, there is substantial doubt about the
Company's ability to continue as a going concern. Management believes that
it has adequately accrued for all remaining losses due to the closure of TCM.
In addition, management is seeking to refinance its existing credit facility
and obtain an additional equity infusion. There can be no assurance,
however, that the Company will be successful in refinancing its credit
facility or obtaining an equity infusion. The consolidated financial
statements do not reflect any adjustments that might result from the outcome
of these uncertainties.
NOTE 3 - BUSINESS COMBINATIONS
Effective November 2, 1994, the Company acquired substantially all of
the assets of International Tile & Supply Corp. (International). The
Company, through its wholly-owned subsidiary, Intile Designs of Los Angeles,
Inc., purchased the assets of International by payment of cash at closing of
$1,050,000. The assets acquired consisted of:
Amount
----------
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 160,028
Accounts receivable. . . . . . . . . . . . . . . . 305,809
Inventory. . . . . . . . . . . . . . . . . . . . . 997,438
Property and equipment . . . . . . . . . . . . . . 143,420
Other assets . . . . . . . . . . . . . . . . . . . 52,570
----------
1,659,265
----------
The liabilities assumed consisted of:
Current liabilities. . . . . . . . . . . . . . . . 305,507
Other liabilities. . . . . . . . . . . . . . . . . 303,758
----------
609,265
----------
Cash paid. . . . . . . . . . . . . . . . . . . . . $1,050,000
----------
----------
F-10
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, the Company agreed to pay to the allowed general unsecured
creditors of International an amount equal to 10% of the net operating
profits generated from the operations of the business acquired for a period
of four years after the closing, with maximum payments in the aggregate
totalling $100,000. There were no amounts paid in accordance with this
arrangement for the years ended March 31, 1996 and 1995. The funding of the
cash at closing was accomplished through a private placement of debt
totalling $1,000,000. The Company issued a $650,000 convertible subordinated
note and a $350,000 short-term bridge note to Retail Associates Management
Company, L.P. (RAMCO). The transaction has been accounted for by the Company
as a purchase and, accordingly, results of International have been included
in the accompanying statement of income since November 2, 1994.
Effective February 21, 1995, the Company acquired 100% of the common
stock of TCM Holdings Corporation (TCM). The Company acquired the stock of
TCM from Retail Associates Management Company, Inc. in exchange for 644,276
shares of the Company's common stock. The agreement provides for 240,000
shares to be placed in escrow for subsequent distribution after the final
price adjustment is determined in accordance with the provisions of the
agreement. The Company currently estimates that all 240,000 escrowed shares
will be returned to the Company. The assets acquired consisted of:
Amount
-------
Cash . . . . . . . . . . . . . . . . . . . . . $ 40,852
Accounts receivable. . . . . . . . . . . . . . 39,399
Deferred tax asset . . . . . . . . . . . . . . 468,000
Inventory. . . . . . . . . . . . . . . . . . . 923,777
Property and equipment . . . . . . . . . . . . 342,813
Goodwill . . . . . . . . . . . . . . . . . . . 630,204
Other assets . . . . . . . . . . . . . . . . . 192,199
----------
2,637,244
----------
The liabilities assumed consisted of:
Accounts payable and accrued liabilities . . . 796,848
Debt . . . . . . . . . . . . . . . . . . . . . 495,000
----------
1,291,848
----------
Net assets acquired. . . . . . . . . . . . . . $1,345,396
----------
----------
In conjunction with the acquisition of TCM, RAMCO converted its $650,000
convertible subordinated note payable into 200,000 shares of the Company's
common stock. The transaction has been accounted for by the Company as a
purchase and, accordingly, operating results of TCM have been included in the
accompanying statement of income since February 21, 1995.
Due to recurring losses, the management of TCM elected in August 1995,
to cease operations and to abandon all facilities other than the central
warehouse. Prior to the Company's acquisition of the TCM stock, TCM had
confirmed a Chapter 11 Plan or Reorganization in December 1994. Pursuant to
the terms of the plan, all property of TCM was to vest in the reorganized
entity emerging from bankruptcy. In October 1995, the U.S. Trustee
petitioned the bankruptcy court to convert TCM's Chapter 11 to a Chapter 7
filing under the U.S. Bankruptcy Code. On November 7, 1995, the U.S.
Bankruptcy Court, District of Massachusetts, Eastern Division ruled in favor
of the motion finding that there had been a material default by TCM with
respect to the confirmed
F-11
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plan of Reorganization and converted the case into Chapter 7. A Chapter 7
Trustee was appointed by the U.S. Trustee prior to this determination. The
Company entered into a consignee agreement with TCM and Nationsbank to
provide an orderly liquidation of the bank's collateral through the sales
efforts of Global Tile Distributors, Inc. (Global), a wholly-owned subsidiary
of the Company. Global has sold approximately $61,500 of collateral (at
TCM's cost) as of March 31, 1996. The Company's management believes that the
liquidation will be accomplished with no significant additional losses
accruing to the Company. Management believes that as a result of the
liquidation, the Company will recover some previously recognized losses since
certain liabilities which have been recorded are not anticipated to be paid
by TCM's bankruptcy estate.
The Companies believe that the liquidation value of the assets of TCM,
as the reorganized entity, will be less than the value of the recorded liens
against such assets, of which the Company is the primary lienholder.
Accordingly, the Company anticipates that the unsecured creditors under the
confirmed plan, or otherwise, will not receive any proceeds from the Chapter
7 liquidation.
During the year ended March 31, 1996, as a result of the bankruptcy
filing, TCM wrote down certain assets to their net realizable values. The
amounts of the writedowns are as follows:
Amount
----------
Inventories. . . . . . . . . . . . . . . . . . $ 565,000
Prepaid expenses and other . . . . . . . . . . 19,768
Leasehold improvements . . . . . . . . . . . . 343,146
Goodwill . . . . . . . . . . . . . . . . . . . 695,204
Deposits . . . . . . . . . . . . . . . . . . . 145,741
Deferred taxes . . . . . . . . . . . . . . . . 468,000
Other. . . . . . . . . . . . . . . . . . . . . 43,932
----------
$2,280,791
----------
----------
In addition, the Company accrued $150,000 to cover additional costs
related to the closure of TCM.
Effective February 21, 1995, the Company acquired substantially all of
the assets of the Orlando showroom (Orlando) of P&M Tile, Inc. (P&M). The
Company acquired Orlando by a cash payment of $140,113 at closing and the
issuance of a noninterest-bearing note to P&M for $257,517, which was paid in
full during the year ended March 31, 1996. The assets acquired consisted of:
Amount
--------
Accounts receivable. . . . . . . . . . . . . . . $119,633
Inventory. . . . . . . . . . . . . . . . . . . . 257,518
Property and equipment . . . . . . . . . . . . . 30,044
Other assets . . . . . . . . . . . . . . . . . . 11,480
--------
418,675
The liabilities assumed consisted of:
Accounts payable . . . . . . . . . . . . . . . . 21,044
--------
$397,631
--------
--------
The transaction has been accounted for by the Company as a purchase and,
accordingly, operating results of Orlando have been included in the
accompanying statement of income since February 21, 1995.
F-12
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma combined results of operations (as if the
acquisition took place on April 1, 1994) of the Company for the year ended
March 31, 1995, after giving effect to the acquisitions described above and
to certain pro forma adjustments are as follows:
Amount
-----------
Sales. . . . . . . . . . . . . . . . . . . . . . $26,587,000
-----------
-----------
Net loss . . . . . . . . . . . . . . . . . . . . $(1,242,000)
-----------
-----------
Loss per share . . . . . . . . . . . . . . . . . $ (.22)
-----------
-----------
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment and their useful lives are summarized as follows:
March 31,
----------------------
Lives 1996 1995
----- ---------- ----------
Leasehold improvements . . . . . 3-5 $ 625,398 $ 510,566
Furniture and fixtures . . . . . 5 397,634 604,897
Warehouse equipment. . . . . . . 5 327,447 345,855
Tractor, trucks, trailers and
automobiles . . . . . . . . . . 3 156,446 156,443
Turnstiles . . . . . . . . . . . 3-5 46,940 36,028
---------- ----------
1,553,865 1,653,789
Less, accumulated depreciation
and amortization. . . . . . . . (997,200) (899,428)
---------- ----------
$ 556,665 $ 754,361
---------- ----------
---------- ----------
Depreciation and amortization expense totalled $134,109 and $83,419
during the years ended March 31, 1996 and 1995, respectively.
NOTE 5 - EQUITY INVESTMENT
Although the Company has a 100% ownership interest in TCM, its control
over TCM is considered to be temporary in nature because of TCM's Chapter 7
bankruptcy proceeding (see Notes 1 and 3). Accordingly, the Company has
accounted for its investment in TCM using the equity method, effective April
1, 1995. The Company's equity in the net loss of TCM for the year ended
March 31, 1996 was $3,169,419. The following is a summary of the financial
position (excluding amounts payable to parent), net sales and loss for TCM
for the year ended March 31, 1996.
Amount
-----------
Current assets. . . . . . . . . . . . . . . . . . . $ 442,225
-----------
Liabilities . . . . . . . . . . . . . . . . . . . . 430,578
Equity. . . . . . . . . . . . . . . . . . . . . . . 11,647
-----------
$ 442,225
-----------
-----------
Sales . . . . . . . . . . . . . . . . . . . . . . . $ 1,643,495
-----------
-----------
Net loss. . . . . . . . . . . . . . . . . . . . . . $(3,169,419)
-----------
-----------
The net loss includes a writedown of assets totalling $2,280,791 to
their net realizable values plus $150,000 to cover additional costs related
to the closure of TCM.
F-13
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE
Notes payable consisted of the following:
March 31,
----------------------
1996 1995
---------- ----------
Bank line of credit of $6,000,000 with interest
at prime plus 0.25% (9.25% at March 31, 1996);
in default; originally due January 20, 1997;
secured by inventory and accounts receivable
and the limited personal guarantee of the
Company's President . . . . . . . . . . . . . $ 5,820,000 $4,700,000
Unsecured note payable to a Company, due in
monthly installments of $25,000 plus interest
at prime plus 3% (11.5% at March 31, 1996)
through July 1996 . . . . . . . . . . . . . . 100,000 -
Note payable to P&M for Orlando acquisition;
paid in full during the year ending March 31,
1996. . . . . . . . . . . . . . . . . . . . . - 257,518
Other installment notes with interest rates of
8% to 12.5%; due at various maturity dates;
secured by transportation equipment . . . . . 33,9076 3,439
----------- ----------
5,953,907 5,020,957
Less current portion. . . . . . . . . . . . . . (5,953,907) (295,769)
----------- ----------
Long-term debt. . . . . . . . . . . . . . . . . $ - $4,725,188
----------- ----------
----------- ----------
The bank line of credit requires the maintenance of certain financial
covenants. At March 31, 1996, the Company was not in compliance with the
required current, quick, leverage, tangible net worth, current maturities and
interest coverage ratios. In addition, the Company did not achieve the
prescribed level of income. As of June 4, 1996, the bank has not waived
these covenant violations, and accordingly, the entire balance of the note is
callable by the bank and has been included in current liabilities.
In addition, the Company is required to pay certain fees based on the
average outstanding and unused balances and amounts outstanding under letters
of credit. Amounts available under the line of credit are reduced for
outstanding letters of credit which totalled $730,034 at March 31, 1995.
There are no outstanding letters of credit available at March 31, 1996, as
the Company is in violation of its loan covenants.
NOTE 7 - COMMITMENTS
Future minimum lease payments under noncancelable operating leases for
automobiles, office space and office equipment for years ending March 31, are
as follows:
Amount
----------
1997 . . . . . . . . . . . . . . . . . . . . . . . $1,040,329
1998 . . . . . . . . . . . . . . . . . . . . . . . 823,966
1999 . . . . . . . . . . . . . . . . . . . . . . . 650,742
2000 . . . . . . . . . . . . . . . . . . . . . . . 568,427
2001 . . . . . . . . . . . . . . . . . . . . . . . 214,500
----------
$3,297,964
----------
----------
Lease payments charged to operations for all operating leases during the
years ended March 31, 1996 and 1995, were approximately $1,645,000 and
$860,000, respectively.
F-14
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The provision for income taxes is summarized as follows:
March 31,
---------------------
1996 1995
--------- ---------
Current provision (benefit):
Federal income tax . . . . . . . . . . . . . . . $(182,000) $ 50,000
State income tax . . . . . . . . . . . . . . . . - 13,000
--------- ---------
(182,000) 63,000
Deferred federal income tax expense (benefit). . . 77,000 (21,000)
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . $(105,000) $ 42,000
--------- ---------
--------- ---------
The tax effects of the principal temporary differences between financial
reporting and income tax reporting are as follows:
March 31,
----------------------
1996 1995
----------- ----------
Current deferred tax asset:
Capitalized inventory costs. . . . . . . . . . . $ 34,000 $ 28,000
Accrued liabilities. . . . . . . . . . . . . . . - 11,000
Receivable allowance . . . . . . . . . . . . . . 50,000 27,000
----------- ----------
84,000 66,000
Less: valuation allowance. . . . . . . . . . . . . (84,000) -
----------- ----------
Net current deferred tax asset . . . . . . . . . . $ - $ 66,000
----------- ----------
----------- ----------
Long-term deferred tax asset:
Book/tax depreciation differences. . . . . . . . 11,000 11,000
Investment in subsidiary . . . . . . . . . . . . 270,000 -
Net operating loss carryforwards . . . . . . . . 840,000 468,000
----------- ----------
1,121,000 479,000
Less: valuation allowance (1,121,000) -
----------- ----------
Net long-term deferred tax asset . . . . . . . . . $ - $ 479,000
----------- ----------
----------- ----------
The Company has recorded a 100% valuation allowance on the deferred tax
asset since it could not be determined if the asset was more likely than not
to be realized.
During the year ended March 31, 1995, the Company acquired a net operating
loss of $1,378,000 to be carryforwarded in connection with its acquisition of
TCM which is limited by Section 382 of the Internal Revenue Code. Due to
management's decision to cease operations of TCM, the Company will be unable to
carryforward this net operating loss.
The Company has available net operating loss carryforwards of $2,467,000
that will expire during 2011.
For the year ended March 31, 1996, the Company was able to carryback
$513,559 of its net operating losses, which resulted in a receivable of
$150,000.
F-15
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes differs from the amount of income tax
determined by applying the statutory federal income tax rate to income before
income taxes as a result of the following:
March 31,
-----------------------
1996 1995
----------- --------
Federal income tax statutory rate . . . . . . . $(1,320,000) $26,000
Change in valuation allowance . . . . . . . . . 1,205,000 -
State income tax, net of federal benefit. . . . - 9,000
Other . . . . . . . . . . . . . . . . . . . . . 10,000 7,000
----------- --------
$ (105,000) $42,000
----------- --------
----------- --------
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company has extended certain notes receivable to its affiliates and
employees in the aggregate amount of $46,900 and $46,504 at March 31, 1996
and 1995, respectively.
In connection with the acquisition of TCM, the Company incurred
investment advisory and fairness opinion fees during the year ended March 31,
1995, of $62,000 paid to an affiliate of a director.
During the years ended March 31, 1996 and 1995, guarantee fees of
$12,000 and $36,539 were incurred to compensate the Company's President and
majority stockholder for his guarantee of the Company's bank line of credit.
Such fees were charged to interest expense.
NOTE 10 - STOCK OPTION PLAN
The Company has non-qualified stock option plans whereby selected
employees and consultants are eligible for non-qualified stock options. In
accordance with the plans, 185,840 shares of the Company's common stock have
been reserved for grant in future periods. The options become fully vested
and exercisable on the expiration date. The following table summarizes
option activity:
Number of Exercise
Shares Price
----------- ---------
Outstanding March 31, 1994. . . . . . . . . . . 505,840 $.35-1.50
Granted. . . . . . . . . . . . . . . . . . . 7,118 .91
Expired. . . . . . . . . . . . . . . . . . . (112,640) .90
-------- ---------
Outstanding March 31, 1995. . . . . . . . . . . 400,318 .35-1.50
Granted. . . . . . . . . . . . . . . . . . . 139,080 .64
Expired. . . . . . . . . . . . . . . . . . . (153,840) -
Exercised. . . . . . . . . . . . . . . . . . (70,478) .91-1.50
-------- ---------
Outstanding March 31, 1996. . . . . . . . . . . 315,080 $.35-1.50
-------- ---------
-------- ---------
All outstanding stock options expire during the year ending March 31,
1997.
The Company recognized no compensation expense in association with the
stock option plans for the years ended March 31, 1996 and 1995.
F-16
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMON STOCK
On May 1, 1995, the Company authorized a 2 for 1 stock split which has been
effected in the form of a 100% stock dividend. All share information has been
retroactively restated to reflect this transaction.
During 1995, the Company issued 42,000 unregistered common shares at $3.25
per share through a private placement.
The Company has issued various common stock warrants agreements entitling
the holders to acquire an ownership interest in the Company's common stock. All
warrants were exercisable at March 31, 1996. The following table summarizes
outstanding warrants at March 31, 1996:
Expiration during the Number of Exercise
year ending March 31, Shares Price
--------------------- --------- ---------
1998 . . . . . . . . . . . . . . . . . . 20,000 $3.30
1999 . . . . . . . . . . . . . . . . . . 110,000 .90
2000 . . . . . . . . . . . . . . . . . . 76,924 3.25
2002 . . . . . . . . . . . . . . . . . . 230,000 3.25
-------
436,924
-------
-------
The Company recognized no compensation expense in association with warrants
for the years ended March 31, 1996 and 1995.
NOTE 12 - CONTINGENCIES
The Company is a defendant in various lawsuits resulting from disputes
arising in the day-to-day operations wherein insignificant amounts are
claimed and the outcomes are presently uncertain. Based upon information
currently available, in the opinion of management, these claims should not
result in judgments or settlements which, in the aggregate, would have a
material adverse effect on the Company's financial condition.
A subsidiary of the Company (TCM) has filed for Chapter 7 Bankruptcy
during August 1995. As discussed in Note 1, TCM's commitments and
obligations are not included in the accompanying financial statements as of
March 31, 1996. Management believes that the Company will not be responsible
for TCM's commitments or any potential outstanding liabilities that may arise.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the years
ended March 31,
-------------------
1996 1995
-------- --------
Interest paid . . . . . . . . . . . . . . . $452,993 $292,232
-------- --------
Federal income taxes paid . . . . . . . . . $ - $ 44,627
-------- --------
F-17
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended March 31, 1995, non-cash financial and investing
activities were as follows:
Non cash assets and liabilities acquired
through business combination of TCM. . . . . . . . $1,304,544
Conversion of subordinated debt to
common stock . . . . . . . . . . . . . . . . . . . $ 650,000
F-18
