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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended December 31, 1999
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from______________to____________
Commission file number 0-22375
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American Stone Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 13-3704099
- ------------------------------------------ --------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) (Identification No.)
8705 Quarry Road, Amherst, Ohio 44001
- ------------------------------------------ --------------------------
(Address of Principal Executive Offices) (Zip Code)
(440) 986-4501
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
N/A N/A
--------------------------------- -----------------------------
--------------------------------- -----------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value per share
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(Title of Class)
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 past 90 days.
Yes X No
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Check if there is no 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. [ ]
Issuer's revenues for its most recent fiscal year: $3,439,798
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant as of March 1, 2000 was approximately $4,874,082, computed on
the basis of the last reported sale price per share ($6.00) of such stock on the
Nasdaq Bulletin Board. For purposes of this information, shares of Common Stock
that were owned beneficially by executive officers, Directors and persons who
may be deemed to own 10% or more of the outstanding Common Stock were deemed to
be held by affiliates. This determination of affiliate status is not necessarily
a conclusive determination for other purposes.
The number of shares of the Registrant's Common Stock outstanding as of
March 1, 2000 was 1,736,364.
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-KSB Reference Documents
- --------------------- ---------
Part III (Items 9, 10, 11 and 12) Portions of the Registrant's
Definitive Proxy Statement
to be used in connection
with its Annual Meeting of
Stockholders to be held on
April 19, 2000.
Except as otherwise stated, the information contained in this Form
10-KSB is as of December 31, 1999.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General.
American Stone Industries, Inc. ("ASI" or the "Company") is a
holding company that conducts its business through its wholly-owned subsidiary,
American Stone Corporation ("ASC"). The Company quarries, purchases and sells
stone for use in the building construction industry. The Company produces two
types of natural stone: (1) dimensional stone, which is natural stone that is
cut to size as specified in architectural designs and is primarily used as
architectural accents to buildings, although dimensional stone is also used for
funeral monuments, landscape and ornamental objects; and (2) construction stone,
which is natural stone primarily used for road base, back fill and erosion
control.
The Company was incorporated in the State of Delaware on
November 11, 1992 as Viva Designs U.S.A., Inc. The Company at that time was a
distributor of a line of jewelry and fragrances. Beginning in 1994 and until a
business combination in August 1995, ASI was a distributor of medical equipment
in the United States. In conjunction with the 1995 business combination, the
medical equipment distributorship business was transferred to a related party.
On August 9, 1995, the Company changed its name to American Stone Industries,
Inc. Concurrent with the 1995 business combination, ASI became a holding company
that conducts business through ASC.
The Company acquired the operating assets of Cleveland
Quarries, L.P. in February 1996, and thereafter began operating the 145-year old
quarry situated near Amherst, Ohio known as the "Cleveland Sandstone Quarries"
(the "Cleveland Quarries"). Consisting of an estimated 300,000,000 cubic feet of
reserve deposits located on over 1,000 acres of property, management of the
Company ("Management") believes, based upon various industry reports and surveys
since the initial discovery in 1853, that the Cleveland Quarries are among the
World's largest sandstone quarries.
The Business.
The Company quarries, purchases and markets sandstone and
manages the operation of the Cleveland Quarries. The Cleveland Quarries produce
sandstone, which is known in the industry as "Berea Sandstone." For more than
100 years, sandstone from the Cleveland Quarries has been utilized throughout
Ohio, the United States and Canada in such products as the following:
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Facility/ Location Date
Building ---------- ------
----------
The John Hancock Building Boston, Mass. (U.S.A.) 1948
U.S. Post Office Cleveland, Ohio (U.S.A.) 1934
Parliament Building Ottawa, Ontario (Canada) 1865
(rebuilt 1917)
City Hall Buffalo, New York (U.S.A.) 1930
U.S. Bankruptcy Court Little Rock, Ark. (U.S.A.) 1918
Oberlin College Campus Oberlin, Ohio (U.S.A.) 1885-1943
Osgoode Hall -- Law courts of Toronto, Ontario (Canada) 1857
Upper Canada
NHL Hockey Hall of Fame Toronto, Ontario (Canada) 1885
County Courthouse Savannah, Ga. (U.S.A.) 1889
St. James Cathedral Toronto, Ontario (Canada) 1853
University of Pennsylvania Philadelphia, Penn. (U.S.A.) 1874-1910
Berea Sandstone has been used in the construction of numerous
additional facilities over the past 100 years, including government buildings,
banks, churches and prestigious private residential dwellings throughout the
United States and Canada. One of the most current personal residences of note is
that of Mr. William Gates in Seattle, Washington.
Industry Structure.
All natural stone products go through several stages prior to
final consumption. The various stages can be defined as follows: (1) Quarrying,
which is the extraction of large blocks of stone; (2) Primary Processing, which
involves sawing the large blocks into smaller blocks or large slabs; (3)
Secondary Processing, which is the conversion of smaller blocks or slabs into
finished product; and (4) Installation, which involves assembling and installing
finished product. The Company owns and operates its own quarries. The Company is
also a primary processor, as it owns and operates its own slabbing mills. In
addition, the Company has its own secondary processing mill. All three processes
are performed at the Company's South Amherst location in Ohio.
BLOCKS ARE TURNED BLOCKS ARE TURNED INTO
INTO SLABS TO MAKE SMALLER BLOCKS TO MAKE
------------------ ----------------------
Table Tops Coping
Tile Cut Stone
Patio Stone Grindstones
Garden Stone Curbing
Sills Building Stone
Step Treads Breakwater
House Ashlar Laboratory Samples
Landscape Pieces
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Companies operate in diverse ways within the natural stone
industry. They are usually involved in more than one of these disciplines.
Companies operating at the ends of the process, (i.e., the quarrying and
installation) tend to locate geographically. Quarry operations locate where the
raw material is found and installers operate in the area in which the finished
product is to be installed. Primary processors often locate at or near the
quarries. For this reason, the same company is often involved in both the quarry
and primary processing segment. Similarly, secondary processors locate at or
near the installers' premises. Therefore, companies that do installation are
also usually capable of secondary processing. Management believes that few
companies operate in all segments of the industry.
The primary and secondary processing segments are the most
mechanized and therefore the most capital intensive. The machinery can be very
sophisticated and very expensive. There have been major advancements in quarry
technology, and these operations are also becoming very capital intensive. These
expenses have been a barrier to entry into these segments of the industry for
many and, for those that have failed to keep up, it has been a factor creating
adverse consequences.
This change is evidenced by a new phenomenon in the industry.
Raw blocks of stone are being shipped from North America to processing centers
located in Italy, and the final product is returned to North America for
installation. Transportation is strictly limited to water and road, but the
portion of the final product cost attributable to transportation has steadily
fallen as the cost of processing has risen. The rising cost of processing has
only been offset by the efficiencies of modern machinery. Management believes
that the processing centers can compete internationally, if they are as
sophisticated as those in Italy, and benefit from some of the other cost saving
elements available to the industry today.
Even though a large portion of the labor component of the
processing has been eliminated, labor continues to be a problem in Italy. The
processing segment can benefit even further in an inexpensive labor pool
location; however, most third-world or underdeveloped countries offering
inexpensive labor pools also lack the sophisticated labor pool that is necessary
to maintain and operate the equipment. This is one of the reasons processing
centers still locate in countries like Italy, Germany and Japan.
Another important element in the cost of processing with
modern machinery has been access to a continuous source of fresh water. This
element will become increasingly more important as water jet technology emerges.
Through its various on-site wells, Management believes that the Company has
adequate access to a continuous source of fresh water.
Marketing Structure.
The market for dimensional stone products is served by many
more companies than those involved in production and installation. They include
government agencies, distributors, marketing agencies, architectural and
engineering firms and designers. The company that has the closest contact with
the final consumer is often most responsible for the sale of stone products.
These other companies are often more important to the stone producer than the
stone itself. The illustration below indicates how many layers are potentially
between the end-user and the companies involved in the four levels of the stone
industry. The additional layers between end-user and producer require a
sophisticated marketing department capable of dealing with these companies. The
marketing department may use in-house employees for estimating and drafting
functions or form strategic alliances with outside companies that perform these
functions.
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QUARRY TO END-USER
|------------- Quarry -------------|
| -------- |
V V
Secondary Processor Primary Processor
--------------------- -------------------
| |
|------------} Installer {-----------|
-----------
|-------- General Contractor --------|
| -------------------- |
V V
Architect Distributor
----------- -------------
| |
|------------} Designer {------------|
----------
|
V
Purchasing Agent
------------------
|
V
End-User
----------
For the period from 1996 to 1999, the Company's annual
production of natural stone was as follows:
Raw stone:
----------
(tons)
1996 8,460
1997 9,566
1998 10,696
1999 13,662
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Management currently intends to target the following segments
after expanding the sales of its Berea Sandstone:
Building Stone:
---------------
- Slabs Ashlar Landscaping
- Sills Patio Stone Tile
- Steps Wallstone Cutstone Restoration (Cut Stone)
Specialty Products:
-------------------
- Cores (Oil & Gas Research) Grindstones
- Breakwater Stone Ornamental
Employees.
The Company has approximately 51 full-time employees, of which
about 45 are hourly. The average hourly wage of the quarry personnel is less
than ten dollars per hour. The quarries are situated in geographic regions that
have a large labor pool, and Management does not believe that securing
additional labor will be difficult or expensive. In Management's opinion, the
Company has a positive relationship with its employees.
Competition.
The Company competes in the natural dimensional stone market.
More specifically, the Company competes against limestones and other sandstones.
The Company's two biggest competitors consist of Briar Hill Stone Co. (Glenmont,
OH -- about 50 employees) and Indiana Limestone Company (Bedford, IN -- about 50
employees). As a practical matter, when submitting proposals to provide Berea
Sandstone to larger commercial sites, the Company competes with quarries
throughout the United States and abroad.
The Company intends to compete within this environment
utilizing a strategy that embodies the following:
- Ownership of what Management believes to be one of the
largest sandstone reserves in the world, which provides the
Company with access to the raw material;
- Access to a large supply of fresh water through various
on-site wells, which will assist in the conversion to
diamond technology;
- A strategic geographic location from which the Company can
serve about 66% of the domestic United States market within
a 500 mile radius from the quarries;
- Low cost of raw materials; and
- High quality, attributed to the skilled labor pool, and the
higher level of capital investment in equipment.
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Marketing.
The marketing of the Company's products from Ohio is primarily
done through an in-house salaried sales staff. In addition, the Company is
represented by 32 distributors in 14 States and Provinces who deal directly with
the end-user by purchasing products from the Company at discounted rates and
selling them to the end-user at a markup.
The Company's historical market has been the United States and
Canada. Within the United States, the Midwest and Northeast regions have
traditionally accounted for more than 80% of the sales in the United States. In
Canada, sales have occurred almost exclusively in the Provinces of Ontario,
Quebec and British Columbia. The Company's objective is to develop a world-wide
market with primary emphasis upon the warmer weather sections of the United
States. Costs of transportation become more relevant when the construction site
is more than 500 miles from the quarries.
Business Strategy.
The Company intends to expand its current market and financial
base through a business strategy that focuses on:
- Dedication to its core business, i.e., the Cleveland
Quarries;
- Development of ancillary assets, i.e., the sale, lease or
joint venture of surplus or nonessential lands; and
- Selective acquisition of compatible assets or businesses.
Backlog.
As of December 31, 1999, the Company's backlog of orders was
$432,000, as compared to a backlog of $1,029,022 for the period ending December
31, 1998. The Company is careful not to generate too large of a backlog of
orders to assure that commitments can be fulfilled and to avoid supply problems.
In order to reduce the backlog of orders, the Company
purchased a second Gaspari Menotti gang saw and two computerized Zambon bridge
saws, which became operational in the second quarter of 1999.
In the opinion of Management, the decrease in the Company's
backlog in an environment of rising sales is a result of decreased throughput
times, made possible by the investment in new machinery.
Seasonality.
The Company's sales are cyclical in nature. Historically, the
Company's sales have been highest during the second and third quarters, which
usually account for more than 70% of the fiscal year's sales. The first quarter
typically has the lowest sales due to inclement weather in the Northern Ohio
region and the difficulty of operating a quarry in such an environment.
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Intellectual Property/Proprietary Rights.
The Company owns intellectual property and does not license
any such rights to others. The Company copyrights its marketing materials, but
such copyrights are not deemed to have any significant value in the marketplace.
Except as noted above, the Company does not own or license any
proprietary rights.
Regulation.
The Company's operations are subject to a variety of statutes,
rules and regulations, which are applicable to any business operating in the
United States. These statutes, rules and regulations range from record keeping
(e.g., the duty to maintain tax-related records for specific time periods as
required by the Internal Revenue Code of 1986, as amended) to employment (e.g.,
the duty to comply with the Equal Employment Opportunity Act of 1972).
Due to its quarry operations, the Company is also subject to
certain more specific statutes, rules and regulations, the most significant of
which include:
- Mines Safety and Health Act ("MSHA"), which mandates certain
safety rules and regulations governing mining operations.
- Occupational Safety and Health Act of 1970 ("OSHA"), which
generally requires that the Company provide its employees
with a safe workplace.
- Resource Conservation and Recovery Act of 1976 ("RCRA"),
which prohibits the transportation and/or disposal of
"hazardous waste" except pursuant to certain standards.
- The Department of Transportation, which adopts regulations
governing the safe transportation of goods over interstate
highways.
In the opinion of Management, the Company is in compliance
with all applicable regulations. Material changes in these regulations or the
adoption of new regulations could have a material impact on the operations of
the Company.
Research and Development.
In the fiscal years ended December 31, 1999 and 1998, there
were no research and development expenses.
Methods Of Distribution And Costs Of Transportation.
All of the stone is shipped via flatbed truck. The current
trucking rate is approximately $0.15 per mile per load. This allows the Company
to ship to 2/3 of the population of the United States and Canada at an average
of $1.25 per cubic foot. Customers are generally charged for shipping. Customs
duties between Canada and the United States are minimal.
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Material Developments.
The Company acquired ASC in August 1995. As a result of this
transaction, TMT Masonry, Ltd., the former parent of ASC, received shares
representing approximately fifty-five percent (55%) of the Company's outstanding
Common Stock, thereby effecting a change in control of the Company.
In February 1996, ASC purchased all inventories, real estate,
equipment, intangible assets, rights in leases, and all other operational items
of Cleveland Quarries, L.P., in exchange for cash, the assumption of certain
liabilities, and certain other consideration. The total purchase price was
$2,320,259. In negotiating this purchase price, Management took into
consideration, among other things: (1) the benefit to the Company of acquiring
title to the quarries owned by Cleveland Quarries, L.P.; (2) the potential
economic benefits to the Company of securing title to these assets, especially
the land and reserves of stone; and (3) the value of the assets to be acquired.
At the time of the transaction, the General Partner of Cleveland Quarries, L.P.
was Slate and Stone Corporation of America, Ltd., which held a 1.0% interest in
the limited partnership. The two limited partners were Walter Molnar (9.9%) and
ASC (89.1%).
In August 1996, the Company issued 400,000 shares of its
Common Stock, representing 25% of the Company's total voting power, to Roulston
Ventures Limited Partnership. The sale provided the Company with working capital
and access to a Board of Directors of sophisticated business people.
In September 1998, the Company issued 60,000 shares of its
Common Stock to Roulston Ventures Limited Partnership. The proceeds from the
sale of the shares were used to acquire new equipment for the Company.
In September 1999, the Company issued an 8% convertible promissory note
in the principal amount of $150,000 to Roulston Ventures Limited Partnership.
The note is convertible into 27,273 shares of Common Stock at $5.50 per share.
The proceeds of the note were used to provide the Company with additional
working capital.
In November 1999, the Company closed its Toronto-based office that was
operated by its wholly owned subsidiary Tyrrell Stone Design, Ltd. ("Tyrrell").
Tyrrell provided design drawings to architects and stone processing centers
throughout North America and served as the Company's Canadian sales office since
it was acquired in February 1996. Management expects that the closing of the
office will reduce corporate overhead by more than $100,000 annually, and will
not have a material impact on sales.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company owns two separate parcels of land in the Counties
of Lorain and Erie, Ohio. The property contains both dimensional and
construction stone. On the basis of the reserve estimates obtained by the
previous owner of Cleveland Quarries, L.P., Management has reached certain
conclusions regarding the Company's reserves.
From approximately 1960 to 1992 the reserves of Cleveland
Quarries, L.P. were estimated by the then owner (Stancorp), which drilled
samples of Berea Sandstone on the Company-owned properties. The volume of Berea
Sandstone has been estimated on the basis of the length, width and depth of
quarry holes. There are currently more than 600,000 square feet of exposed
quarry face. At this time, the quarry is more than 60 feet deep and 120 feet in
length. In 1996, one section (360' x 120') was prepared for finishing and this
section is expected to last about eight years at current projected sales rates.
Based upon the exposed quarry face and the depth of Berea Sandstone as evidenced
by quarry
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holes, Management estimates that the total reserves are adequate to meet the
needs of the Company for more than 100 years at current projected sales rates.
In summary, Management projects that the property has a total
estimated dimensional stone reserve of 336 million cubic feet. In fiscal 1999,
the Company extracted 190,000 cubic feet of dimensional stone and sold 85,000
cubic feet. In fiscal 1998, the Company extracted 149,601 cubic feet of
dimensional stone and sold 85,655 cubic feet. In fiscal 1997, the Company
extracted 133,797 cubic feet of dimensional stone and sold 67,282 cubic feet.
The parcel in Erie County is in Birmingham Township, and is
strictly a quarry operation (the "Birmingham Quarry"). Dimensional stone reserve
estimates were projected to be 126 million cubic feet based on a deposit of at
least 30 acres indicated by topographic studies. The Birmingham Quarry yields
both Gray and Buff Sandstone with a higher compressive strength than that of the
quarries located in the main parcel. The main parcel is in Amherst Township
(Lorain County) and is the site of numerous quarries, the mills and offices. The
main parcel fronts the Ohio State Turnpike approximately twenty minutes west of
downtown Cleveland. The Company estimates that the property contains 210 million
cubic feet of dimensional stone and 21 million cubic feet of construction stone.
Many of the quarries on this section of land are currently unused and dormant.
The same stone that has been used in thousands of applications around the
country is still available for renovation, restoration and expansion of existing
buildings. All of the properties have permits for use as quarries and all
permits are in good standing. The Birmingham property also contains a supply of
natural gas, which is leased to a local utility.
The following is a list of the main buildings on the property:
MILL # SIZE S.F. YEAR BUILT CURRENT USE FUTURE USE
------ --------- ---------- ----------- ----------
3 18,175 1946 Processing Processing
6 45,000 1923 Storage Processing
8 44,165 1926 Gang Sawing Gang Sawing
Office & 11,305 1900 Office & Office &
Showroom Showroom Showroom
The two parcels in Ohio are subject to a mortgage between the
Company and FirstMerit Bank, N.A. in the principal amount of $1,278,000 to
secure borrowings under a line of credit of up to $750,000 and promissory notes
in the amount of $528,000.
Equipment.
The Company's equipment consists of saws, cranes, trucks, tow
motors, grinders, stone cutting equipment and haul tools. Older equipment is in
the process of being overhauled, upgraded and replaced with new equipment.
ITEM 3. LEGAL PROCEEDINGS.
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*
The executive officers are elected each year and serve at the
pleasure of the Board of Directors. The following is a list of the executive
officers of the Company as of March 1, 2000.
NAME AGE POSITION
---- --- --------
Enzo Costantino 38 Enzo Costantino has served as Treasurer of the
Company and as a Director since 1996. Mr.
Costantino has been Secretary and Treasurer of TMT
since 1994. Prior to joining TMT, Mr. Costantino
was the controller of Daicon Contractors, a
general contractor located in Toronto, Ontario,
from 1989 to 1994, and the cost accounting manager
for Canada Packers, a meat processor located in
Toronto, Ontario, from 1983 to 1989.
Michael J. Meier 45 Michael J. Meier has served as Secretary of the
Company and as a Director since 1996. He has been
Director of Finance, Specialty Resins and
Formulators, of The Geon Company (NYSE: GON) since
May 1999. The Geon Company is a leading polymer
services and technology company with world-wide
operations in vinyl compounds, specialty vinyl
resins and formulations, calendaring and other
value-added products and services, with
headquarters in Avon Lake, Ohio. Mr. Meier was
previously Vice President, Chief Financial
Officer, Secretary and Treasurer of Defiance, Inc.
from 1990 until February 1999, when Defiance, Inc.
was purchased by The General Chemical Group Inc.
(NYSE: GCG). Defiance, Inc. is a supplier of
tooling systems, testing services, specialty
anti-friction bearings and precision-machined
products to the U.S. transportation industry, with
headquarters in Cleveland, Ohio.
James M. Rallo 51 James M. Rallo has served as Interim President and
Chief Executive Officer since August 1999. Since
1993, Mr. Rallo has been the owner of MQS
Engineering, Inc., a firm engaged in light
manufacturing. Mr. Rallo has also been a
manufacturing engineering consultant to several
companies.
* The information under this Item 4A is furnished pursuant to
Instruction 3 to Item 401(b) of Regulation S-K.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently traded in the
over-the-counter market via the "Bulletin Board" maintained through the National
Association of Securities Dealers, Inc. The trading symbol of the Common Stock
is AMST. The following table shows the high and low daily closing prices
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for the Company's Common Stock for each quarter of 1999 and 1998. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
Year Ended December 31, 1998 High Low
- ---------------------------- ---- ---
First Quarter........................ $3.31 $1.75
Second Quarter....................... 4.38 3.00
Third Quarter........................ 4.00 3.00
Fourth Quarter....................... 3.69 1.88
Year Ended December 31, 1999 High Low
- ---------------------------- ---- ---
First Quarter........................ $7.13 $3.69
Second Quarter....................... 7.75 5.75
Third Quarter........................ 9.25 5.25
Fourth Quarter....................... 6.63 5.00
As of March 8, 2000, there were approximately 97 holders of
record of the Common Stock of the Company. The Company has paid no dividends on
the Common Stock and it is the Company's present intention to reinvest earnings
internally to finance the expansion of its business. The Company's ability to
pay dividends is limited by the Company's credit facility and is directly
related to the Company's future profitability and need for capital to support
growth.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Set forth below is a discussion of the principal factors that affected
the Company's results of operations during each of the two most recent fiscal
periods. This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere in
this report.
COMPANY OVERVIEW
- ----------------
Total Revenue
- -------------
Total revenue increased by $218,036, or by 7.0%, from $3,221,762 in
1998 to $3,439,798 in 1999. The increase was due to several new contracts to
supply stone for institutional construction projects and continuing demand from
the high-end residential market.
Gross Profit
- ------------
Gross profit decreased 38%, from $1,097,113 in 1998 to $685,374 in
1999. Gross margin as a percentage of sales decreased from 34% in 1998 to 20% in
1999. The decrease in 1999 was due to inadequate pricing, an unfavorable product
mix, and production inefficiencies caused by a high volume of
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work and problems with new equipment. Gross profit in 1998 benefited from a
nonrecurring gain of $82,907 from a statewide rebate to employers from the Ohio
Bureau of Workers' Compensation.
Loss from Closing Tyrrell Stone Design Ltd.
- -------------------------------------------
The Company incurred a one-time non-cash charge of $140,895 in the
fourth quarter of 1999 to account for the closing of its Canadian subsidiary,
Tyrrell Stone Design Ltd. The charge primarily consisted of the write-off of
goodwill.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses decreased by $37,046 to
$851,853 in 1999 from $888,899 in 1998. As a percentage of total revenue,
selling, general and administrative expenses decreased to 25% in 1999 from 28%
in 1998.
Other Income (Expense)
- ----------------------
Interest expense increased from $88,170 in 1998 to $106,268 in 1999.
Long-term debt increased by $115,407 in 1999 to finance new equipment purchases.
Interest income declined by $1,895.
Income
- ------
The Company had a net loss of $411,334 in 1999, compared with net
income of $124,247 in 1998.
Cash Flow and Liquidity
- -----------------------
The Company's primary source of liquidity is its line of credit under
an agreement between the Company and FirstMerit Bank, N.A. (the "Credit
Agreement"). The Credit Agreement provides for maximum borrowings of $750,000,
with interest payable monthly at a rate equivalent to the prime lending rate
(8.50% and 7.75% at December 31, 1999 and 1998, respectively). Borrowings under
the Credit Agreement are secured by substantially all of the real estate,
inventory and equipment of the Company. The outstanding balances at December 31,
1999 and 1998 were $668,720 and $450,000, respectively.
In September, the Company negotiated a $150,000 loan from Roulston
Ventures Limited Partnership. The loan is in the form of an 8% note convertible
to 27,273 shares of common stock at $5.50 per share, which was the closing price
of the stock on September 23, the day the loan was made.
Cash flow activity for fiscal 1999 and 1998 is presented in the
Consolidated Statements of Cash Flow. During fiscal 1999, cash in the amount of
$71,173 was used in operating activities, primarily for working capital
purposes.
Management believes that the Company does not currently have and is not
expected to have within the next 12 calendar months any cash flow or liquidity
problems. Management believes that the Company is not in default with respect to
any note, loan, lease or other indebtedness or financing agreement. The Company
is not subject to any unsatisfied judgments, liens or settlement obligations.
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FORWARD-LOOKING STATEMENTS
- --------------------------
The Company is making this statement in order to satisfy the "safe
harbor" provisions contained in the Private Securities Litigation Reform Act of
1995. This report includes forward-looking statements relating to the business
of the Company. Forward-looking statements contained herein or in other
statements made by the Company are made based on Management's expectations and
beliefs concerning future events impacting the Company. These events are subject
to uncertainties and factors relating to the Company's operations and business
environment, all of which are difficult to predict and many of which are beyond
the control of the Company. Such unexpected developments could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The Company believes that the following
factors, among others, could affect its future performance and cause actual
results of the Company to differ materially from those expressed in or implied
by forward-looking statements made by or on behalf of the Company: (a) general
economic, business and market conditions; (b) competition; (c) the success of
advertising and promotional efforts; (d) trends within the building construction
industry; (e) the existence or absence of adverse publicity; (f) changes in
relationships with the Company's major customers or in the financial condition
of those customers; and (g) the adequacy of the Company's financial resources
and the availability and terms of any additional capital.
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
The Year 2000 issue - software, hardware or an embedded chip that does
not correctly process date information for years after 1999 - results from the
practice of storing date information with only the last two digits of the year.
The Year 2000 issue affects virtually all companies and organizations, including
government agencies, utilities and other basic service providers, which are
outside the Company's control.
In the fourth quarter of 1999, the Company completed an internal review
of Year 2000 issues, relating to (i) internal information technology ("IT")
systems such as any hardware and software used to process daily operational data
and information; and (ii) non-IT systems or embedded technology such as
micro-controllers.
The Company utilizes standard non-customized hardware and software in
its IT systems. To the extent such hardware or software is not Year 2000
compliant, Management believes that the disruption to the operations of the
Company and the cost of replacement of the hardware or software would be
minimal. In addition, the Company has evaluated the impact of the Year 2000
issue on the Company's non-IT systems and believes the Company's operations will
not be materially adversely impacted by non-compliant non-IT systems.
The Company has also assessed the extent to which it may be impacted by
any third party's failure to remediate their own Year 2000 issues. Management
believes it has an effective program in place to resolve the Year 2000 issue in
a timely manner. Nevertheless, since its is not possible to anticipate all
future outcomes, especially when third parties are involved, there could be
circumstances in which the Company's operations could be interrupted.
Substantial interruption of electrical power supplied to the Company's operating
quarries due to the electrical power supplier's failure to achieve Year 2000
compliance has been identified as having the greatest potential adverse impact.
In such an event, the Company would need to seek alternative sources of
electrical power to meet the demands of the quarry operations. Management
believes that such services may be obtained from other sources with minimal
disruption to the operations of the Company.
13
<PAGE> 16
To date, the Company has spent approximately $5,000 in evaluating the
impact of Year 2000 on the operations of the Company and expects future costs to
be minimal.
The Company has not experienced any significant Year 2000 issues to
date. In addition, the Company is not aware of any Year 2000 related issues with
any of its key customers or service providers that would have a negative impact
on the Company.
ITEM 7. FINANCIAL STATEMENTS.
The following pages contain the Financial Statements and
Supplementary Data as specified by Item 7 of Form 10-KSB.
14
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of American Stone Industries, Inc. and Subsidiaries
Amherst, Ohio
We have audited the consolidated balance sheets of American
Stone Industries, Inc. and Subsidiaries as of December 31, 1999 and 1998, and
the related statements of operations, stockholders' equity, and cash flows for
the years 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of American
Stone Industries, Inc. and Subsidiaries as of December 31, 1999 and 1998, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Hobe & Lucas
Hobe & Lucas
Independence, Ohio
February 4, 2000
F-1
<PAGE> 18
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 50,378 $ 196,942
Accounts receivable, net of allowance for
doubtful accounts of $3,870 - 1999 and
$15,025 - 1998 683,784 820,271
Prepaid expenses 54,876 30,414
Inventory 901,101 812,224
----------- -----------
Total current assets 1,690,139 1,859,851
----------- -----------
Property, Plant and Equipment, Net 3,001,369 2,652,704
----------- -----------
Other Assets
Intangibles, Net of amortization 41,656 188,185
Restricted cash 12,276 11,670
Deposits 1,000 1,000
----------- -----------
54,932 200,855
----------- -----------
$ 4,746,440 $ 4,713,410
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank line of credit $ 668,720 $ 450,000
Current portion of notes payable 413,338 228,813
Accounts payable 303,740 402,344
Accrued and withheld payroll
and payroll taxes 27,281 72,445
Accrued liabilities 163,426 118,446
----------- -----------
Total Current Liabilities 1,576,505 1,272,048
----------- -----------
Long Term Liabilities
Notes payable 527,366 411,959
----------- -----------
Stockholders' equity
Common stock, $.001 par value
20 million shares authorized
1,723,364 - 1999 and 1,716,364 - 1998
shares issued and outstanding 1,723 1,716
Additional paid-in capital 3,874,451 3,849,958
Accumulated deficit (1,233,605) (822,271)
----------- -----------
2,642,569 3,029,403
----------- -----------
$ 4,746,440 $ 4,713,410
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 19
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
1999 1998
----------- -----------
Sales $ 3,439,798 $ 3,221,762
Cost of goods sold 2,754,424 2,124,649
----------- -----------
Gross profit 685,374 1,097,113
----------- -----------
Loss from closing Tyrrell Stone Design, Ltd. 140,895 --
Selling and administrative expenses 851,853 888,899
----------- -----------
992,748 888,899
----------- -----------
(Loss) Income from operations (307,374) 208,214
----------- -----------
Other Income/(Expense)
Interest income 2,308 4,203
Interest expense (106,268) (88,170)
----------- -----------
(103,960) (83,967)
----------- -----------
Income before provision for income taxes (411,334) 124,247
Provision for income taxes - -
----------- -----------
Net income $ (411,334) $ 124,247
=========== ===========
Net (Loss)/Income per Common Share
Basic $ (.24) $ .07
=========== ===========
Diluted $ (.24) $ .07
=========== ===========
See notes to consolidated financial statements
F-3
<PAGE> 20
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional Total
Issued Paid-In Accumulated Stockholders'
Shares Par Value Capital Deficit Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 1,631,364 $ 1,631 $ 3,577,543 $ (946,518) $ 2,632,656
Issuance of common stock 85,000 85 272,415 - 272,500
Net Income - - - 124,247 124,247
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 1,716,364 1,716 3,849,958 (822,271) 3,029,403
Shares issued in stock
option exercise 7,000 7 24,493 - 24,500
Net income - - - (411,334) (411,334)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 1,723,364 $ 1,723 $ 3,874,451 $(1,233,605) $ 2,642,569
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 21
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
1999 1998
--------- ---------
Net Income $(411,334) $ 124,247
--------- ---------
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation, amortization and depletion 278,370 117,604
Loss from closing Tyrrell Stone Design 140,895 --
Gain on sale of equipment (2,858) (77,671)
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 136,487 (357,568)
(Increase) in inventory (88,877) (14,466)
(Increase) Decrease in prepaid expenses (24,462) 6,698
Decrease in payables and accrued liabilities (98,788) (22,190)
Other, net (606) 2,446
--------- ---------
Total Adjustments 340,161 (345,147)
--------- ---------
Net Cash Used in Operating Activities (71,173) (220,900)
--------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of equipment 2,858 203,676
Purchase of property, plant and equipment (621,401) (780,341)
--------- ---------
Net Cash Used in Investing Activities (618,543) (576,665)
--------- ---------
Cash Flows from Financing Activities:
Net borrowings under line of credit arrangements 218,720 100,000
Proceeds from long term debt 554,658 531,924
Repayment of long term debt (254,726) (54,360)
Proceeds from issuance of common stock 24,500 272,500
--------- ---------
Net Cash Provided by Financing Activities 543,152 850,064
--------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents (146,564) 52,499
Cash and Cash Equivalents at Beginning of Year 196,942 144,443
--------- ---------
Cash and Cash Equivalents at End of Year $ 50,378 $ 196,942
========= =========
Supplemental Disclosure of Cash Flows
Information:
Interest paid $ 107,000 $ 88,000
Taxes paid $ - $ -
See notes to consolidated financial statements
F-5
<PAGE> 22
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
This summary of significant accounting policies of American Stone
Industries, Inc. and Subsidiaries, (hereinafter "ASI" or the "Company") is
presented to assist in understanding the financial statements. The financial
statements and notes are representations of the Company's management, which is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Use of Estimates
- ----------------
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 period.
Actual results could differ from those estimates.
Business Activity
- -----------------
American Stone Industries, Inc. (a Delaware corporation) is a
publicly-held company whose stock is traded on the OTC Bulletin Board. American
Stone Industries, Inc. ("ASI") is a holding company that mines and sells stone
predominantly for the building stone market through its wholly owned
subsidiaries, American Stone Corporation ("ASC") and Tyrrell Stone Design, Ltd.
("Tyrrell"). ASC owns and operated the Cleveland Quarries in Amherst, Ohio.
Tyrrell provides design drawings to architects and acts as the Company's
Canadian sales office.
During 1999, the Company closed its Tyrrell subsidiary. All assets were
either sold or transferred to the Company and the investment in subsidiary
written-off. The loss from closing this subsidiary, consisting primarily of
goodwill, amounted to $140,895.
Property, Plant and Equipment - At Cost
- ---------------------------------------
Property, plant and equipment at December 31, 1999 and 1998 consisted of:
1999 1998
---------- ----------
Land $ 445,371 $ 446,869
Buildings and improvements 843,789 814,029
Equipment 2,204,884 1,347,126
Computers 27,716 33,370
Vehicle 11,000 11,000
Construction in progress -- 279,263
---------- ----------
3,532,760 2,931,657
Less: Accumulated depreciation 531,391 278,953
---------- ----------
Net property, plant and equipment $3,001,369 $2,652,704
========== ==========
F-6
<PAGE> 23
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------------
Depletion is being calculated based on management's estimate of sandstone
reserves. There is no engineer's estimate available for such reserves. Depletion
amounted to $1,498 and $1,268 for the year ended December 31, 1999 and 1998,
respectively.
The cost of depreciable property is being depreciated over the estimated
useful lives of the assets using the straight-line method for financial
reporting. Depreciation expense was $256,206 and $164,668 for the year ended
December 31, 1999 and 1998, respectively.
Construction in progress for 1998 represents costs incurred to date for
the purchase and installation of a gang saw. The saw was placed in service in
May 1999.
Routine maintenance and repairs are charged to operations when incurred.
Expenditures which materially increase value or extend lives are capitalized.
Principles of Consolidation
- ---------------------------
The accompanying financial statements include the accounts of American Stone
Industries, Inc. and its wholly-owned subsidiaries American Stone Corporation
and Tyrrell Stone Design, Ltd. for the years ended December 31, 1999 and 1998.
Cash and Cash Equivalents
- -------------------------
For purposes of financial reporting, the Company considers all
highly-liquid debt instruments purchased with an original maturity date of three
months or less to be cash equivalents.
Intangibles
- -----------
Goodwill is being amortized on the straight-line method over a twenty and
thirty year period. Other intangible assets, including trademarks are amortized
over their economic lives. Amortization expense for the years ended December 31,
1999 and 1998 were $8,142 and $8,149, respectively. At December 31, 1999 and
1998, intangibles are net of accumulated amortization of $26,344 and $23,368,
respectively.
F-7
<PAGE> 24
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------------
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to
concentration of credit risk, principally consist of accounts receivable. The
Company's policies do not require collateral to support customer accounts
receivables.
The Company conducts a major portion of its business with a certain
customer which accounted for more than ten percent of total revenues in 1999.
Sales to this customer was approximately $436,000 for the year ended December
31, 1999. The accounts receivable from this customer was $119,397 as of December
31, 1999.
Income Per Common Share
- -----------------------
Income per common share is based on the weighted average number of shares
outstanding which was 1,716,652 and 1,661,364 for the years ended December 31,
1999 and 1998, respectively.
The exercise of outstanding stock options would not result in material
dilution.
Inventory
- ---------
The inventories which consist of sandstone are stated at the lower of
first-in, first-out (FIFO) cost or market.
Restricted Cash
- ---------------
The Company's certificate of deposit is assigned to the Ohio Department
of Natural Resources Division of Reclamation.
NOTE 2 - STOCKHOLDERS' EQUITY
- -----------------------------
Suncrest Management Services, S.A. ("Suncrest") had an option to purchase
25,000 shares of the Company's common stock at $2.50 per share. Suncrest
exercised its option on August 4, 1998. The options were issued in 1995 as part
of a debt cancellation agreement.
F-8
<PAGE> 25
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 2 - STOCKHOLDERS' EQUITY (Continued)
- -----------------------------------------
On September 30, 1998, the Company issued 60,000 shares of Common Stock
to Roulston Ventures Limited Partnership in a private placement transaction for
an aggregate purchase price of $210,000, or $3.50 per share.
At December 31, 1998, the Company had outstanding stock options to an
officer totaling 25,000 shares at $5.00 per share which were awarded in
February, 1997 at the then fair market value of the shares. These options are
not part of the options plans adopted June 24, 1998 (Note 3). These options
expire in February, 2000. None of these options were exercised during 1999 or
1998.
On October 1, 1999, the Company signed an interest-only note with Roulston
Ventures Limited Partnership (RVLP) for $150,000. Repayment of principal to be
made on October 1, 2000. At any time up to the maturity date, RVLP has the right
to convert the debt into shares of common stock at $5.50 per share.
NOTE 3 - STOCK OPTION PLANS
- ---------------------------
Effective June 24, 1998, the Company adopted the 1998 Management Stock
Option Plan (management plan). Options granted under the management plan may be
either incentive stock options or non-statutory stock options. The options
expire on the fifth anniversary of the date of grant with remaining terms to be
determined by the sole discretion of a committee of members of the Company's
Board of Directors. The management plan provides that the Company may grant
options (generally at fair market value at the date of grant) for not more than
300,000 shares of common stock to management employees. Options granted are
generally exercisable one year after the date of grant. At December 31, 1999,
23,000 of the 30,000 options, issued in 1998 at $3.50, remained outstanding. In
1999, 7,000 shares were exercised in 1999 by a former officer of the Company. An
additional 13,000 shares were exercised in January, 2000 by the same option
holder. In 1999, an additional 10,000 options were granted at $5.50 per share.
These options were not exercisable at December 31, 1999.
Additionally, effective June 24, 1998, the company adopted the 1998
Non-Employee Director Stock Option Plan (director plan). The director plan
provides for the granting of stock options to members of the Board of Directors
who are not employees of the Company. There are 300,000 shares available for
grants under the plan. Each option is exercisable one year after the date of
grant and expires five years after the date of grant. Each eligible directors
receives an option to purchase 1,500 shares (3,000 shares for the Board's
Chairman) of common stock on the date of the annual meeting and 150 shares (300
shares for the Board's Chairman) of common stock for each Director or Committee
meeting attended. Each option shall be at fair market value on the date of the
grant. At December 31, 1999, 74,850 shares with exercise price ranging from
$2.37 to $8.75 ($4.58 weighted average) were outstanding, 17,100 of which were
exercisable. At December 31, 1998, 17,100 shares with exercise price ranging
from $2.37 to $3.75 ($3.50 weighted average) were outstanding, none of which
were exercisable.
F-9
<PAGE> 26
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 3 - STOCK OPTION PLANS (Continued)
- ---------------------------------------
A summary of option activity under the plans follows:
Number of Weighted
Shares Under Average Option
Option Price
------------ --------------
Outstanding at January 1, 1998 - $ -
Granted 47,100 $ 3.50
Exercised - $ -
Canceled - $ -
------
Outstanding at December 31, 1998 47,100 $ 3.50
Granted 34,750 $ 5.82
Exercised (7,000) $ 3.50
Canceled - $ -
------
Outstanding at December 31, 1999 74,850 $ 4.58
====== ======
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APBO No. 25), and related
interpretations, in accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), requires use of highly subjective assumptions in
option valuation models. Under APBO No. 25, because the exercise price of the
Company's stock options granted is not less than fair market price of the shares
at the date of grant, no compensation is recognized in the financial statements.
Pro forma information regarding net income and earnings per share,
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS No. 123, is required by that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for all options granted: a
risk free interest rate of 5.19% and 4.52% for 1999 and 1998, respectively, an
expected life of the options of five years, no expected dividend yield and a
volatility factor of 10%.
F-10
<PAGE> 27
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 3 - STOCK OPTION PLANS (Continued)
- ---------------------------------------
Had compensation cost been determined on the basis of fair value pursuant
to SFAS No. 123, net income and earnings per share for 1999 and 1998 would have
been as follows:
1999 1998
---------- ---------
Net Income
As reported $ (411,334) $ 124,247
========== =========
Pro forma (473,466) $ 103,739
========== =========
Basic earnings per share:
As reported $ (.24) $ .07
========== =========
Pro forma $ (.28) $ .06
========== =========
Diluted earnings per share:
As reported $ (.24) $ .07
========== =========
Pro forma $ (.28) $ .06
========== =========
NOTE 4 - LINE OF CREDIT
- -----------------------
The Company has a line of credit with maximum borrowings of $750,000. The
note provides for borrowing with interest payable monthly at a rate equivalent
to the bank's prime lending rate (8.5% and 7.75% at December 31, 1999 and 1998,
respectively). The debt agreement contains certain restrictive terms and
covenants. The Company was in compliance with its covenants at December 31, 1999
and 1998. The debt is secured by substantially all real estate, inventory, and
equipment of the Company. The outstanding balance at December 31, 1999 and 1998
was $668,720 and $450,000, respectively.
NOTE 5 - LONG TERM DEBT
- -----------------------
1999 1998
-------- ---------
9%, note payable to bank with
interest only until March,
1998 then payable in monthly
installments of $10,407
including interest, final
payment due October, 2002,
secured by substantially all
real estate, inventory and
equipment of the Company. $315,741 $406,982
F-11
<PAGE> 28
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 5 - LONG TERM DEBT (Continued)
- -----------------------------------
1999 1998
-------- --------
6.29%, note secured by equipment payable
in 24 monthly installments of $1,067
Final payment due December, 2001. $ 26,658 $ --
Unsecured note payable to Roulston Ventures
L.P. Interest only payable quarterly at 8%
Balance due October 1, 2000. Convertible to
common stock at note holders option on or
before due date. Convertible at $5.50 per
share. 150,000 --
Note payable to bank payable in monthly
installments of $3,143 including interest
at prime plus 0.75% ( prime was 8.50% and
7.75% at December 31, 1999 and December 31,
1998, respectively), final payment due
March, 2004, secured by substantially all
real estate, inventory and equipment of the
Company. 132,478 147,251
7.76%, note payable to bank with maximum
borrowings of $378,000. Advances as of
December 31, 1998 of $45,418. Final payment
due May, 2002, secured by substantially all
real estate, inventory and equipment of the
Company. 315,827 45,418
8.31%, secured by equipment, payable in
monthly installments of $4,675 including
interest, final payment due September, 1999 - 41,121
-------- --------
940,704 640,772
Less: Current Portion 413,338 228,813
-------- --------
$527,366 $411,959
======== ========
F-12
<PAGE> 29
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 5 - LONG TERM DEBT (Continued)
- -----------------------------------
Following is a summary of future maturities of long term debt as of
December 31, 1999:
2000 $413,338
2001 282,753
2002 202,248
2003 35,497
2004 6,868
---- --------
$940,704
========
NOTE 6- FAIR VALUE OF FINANCIAL STATEMENTS
- ------------------------------------------
The carrying amounts of cash, accounts receivable, accounts payable, and
long-term debt approximate the fair value reported in the balance sheet. The
fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities.
NOTE 7 - FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY
- --------------------------------------------------------
The Company and its subsidiaries operated predominantly in one industry,
the design, quarrying and cutting of sandstone primarily used in the
construction industry.
Following is the information regarding the Company's continuing
operations by geographic location. Transfers between geographic areas are
accounted for on a cost plus profit margin basis.
1999 1998
----------- -----------
Net sales, including geographic transfers
United States $ 2,530,123 $ 2,556,634
Canada 936,002 845,643
Geographic transfers (26,327) (180,515)
----------- -----------
$ 3,439,798 $ 3,221,762
=========== ===========
Income (Loss) from operations:
United States $ (72,442) $ 209,212
Canada (234,932) (998)
----------- -----------
(Loss) Income from operations (307,374) 208,214
Interest expense (106,268) (88,170)
Interest income 2,308 4,203
----------- -----------
Income from operations before income taxes $ (411,334) $ 124,247
=========== ===========
Identifiable assets:
United States $ 4,736,800 $ 4,595,411
Canada - 117,999
----------- -----------
$ 4,736,800 $ 4,713,410
=========== ===========
F-13
<PAGE> 30
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 8 - LEASES
- ---------------
In March 1999, the Company entered into an operating lease agreement for
a lift truck for a period of 60 months at $1,710 per month. Lease payments in
1999 amounted to $17,100. Total lease payments are $102,600 over the life of the
lease.
Below is a five year scheduled of minimum lease payments.
2000 $20,520
2001 20,520
2002 20,520
2003 20,520
2004 $ 3,420
NOTE 9- INCOME TAXES
- --------------------
Income taxes on continuing operations include the following:
1999 1998
------ ------
Currently payable $ - $ -
Deferred - -
----- -----
Total $ - $ -
===== =====
A reconciliation of the effective tax rate with the statutory U.S. income
tax rate is as follows:
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
% of % of
Pretax Pretax
Income Amount Income Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income taxes per
statement of income $ -0- 0% $ -0- 0%
Tax rate differences resulting from:
Income taxes applicable to
Canadian income at rate
different from U.S. rate - -% - -%
Income (loss) for financial reporting
purpose without tax expense or
benefit. Utilization of loss carry-
forward (unavailable for carryback
against prior income taxes paid) 42,244 34% (139,854) (34)%
-------- -- --------- ---
Income taxes at statutory rate $ 42,244 34% $(139,854) (34)%
======== == ========= ===
</TABLE>
F-14
<PAGE> 31
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
NOTE 9 - INCOME TAXES (continued)
- ---------------------------------
For United States tax purposes, the Company has available at December 31,
1999, unused operating loss carryforwards that may be applied against future
taxable income and that expire as follows:
Amount of Unused Operating Expiration During Year Ended
Loss Carryforwards December 31,
-------------------------- ----------------------------
$ 48,000 2007
1,553,000 2008
480,000 2009
773,000 2010
131,000 2012
650,000 2019
----------
$3,635,000
==========
Future United States taxes may also be reduced by a capital loss
carryforwards of approximately $59,000 which expire in 2000. Utilization of the
net operating loss and capital loss carryforwards is contingent upon the Company
having sufficient taxable income and capital gains, in the future.
The Company's deferred tax assets and liabilities at December 31, 1999
and 1998 consist of:
1999 1998
----------- -----------
Deferred tax asset $ 1,256,000 $ 1,035,000
Valuation allowance (1,083,000) (923,000)
Deferred tax liability (173,000) (112,000)
----------- -----------
$ - $ -
=========== ===========
Deferred taxes are provided for temporary differences in deducting
expenses for financial statement and tax purposes. The principal source for
deferred tax assets are different methods for recovering depreciation and net
operating loss and capital loss carryforwards. No deferred taxes are reflected
in the balance sheet at December 31, 1999 and 1998 due to a valuation allowance.
As of December 31, 1999 and 1998, the Company recognized a $160,000 increase and
$35,000 decrease in the valuation allowance.
NOTE 10 - PROFIT SHARING PLAN
- -----------------------------
Effective January 1, 1999, American Stone Corporation adopted a 401(k)
profit-sharing plan (the Plan) offered to employees with more than one year of
service. Contributions under the Plan are discretionary and are determined
annually by the Company's Board of Directors. In addition, the Plan provides for
a match of 50% of employee contributions to the Plan up to 6% of employee wages.
Company contributions to the plan in 1999 were $7,800.
F-15
<PAGE> 32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item 9 as to the Directors of
the Company is incorporated herein by reference to the information set forth
under the caption "Election of Directors" in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on April 19, 2000,
since such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the Company's fiscal year
pursuant to Regulation 14A. Information required by this Item 9 as to the
executive officers of the Company is included as Item 4A of Part I of this
Annual Report on Form 10-KSB as permitted by Instruction 3 to Item 401(b) of
Regulation S-K. Information required by Item 405 of Regulation S-B is
incorporated by reference to the information set forth under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
April 19, 2000.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item 10 is incorporated by
reference to the information set forth under the caption "Executive
Compensation" in the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on April 19, 2000, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 11 is incorporated by
reference to the information set forth under the caption "Common Stock
Ownership" in the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on April 19, 2000, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 12 is incorporated by
reference to the information set forth under the caption "Certain Relationships
and Related Party Transactions" in the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on April 19, 2000, since such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits
Reference is made to the Exhibit Index set forth
herein beginning at page E-1.
15
<PAGE> 33
(b) Reports on Form 8-K.
None.
16
<PAGE> 34
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN STONE INDUSTRIES, INC.
By: /s/ James M. Rallo
----------------------------------------------
James M. Rallo, Interim President and
Chief Executive Officer
Date: March 30, 2000
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
By: /s/ James M. Rallo By: /s/ Jacquita K. Hauserman
---------------------------------------------- -----------------------------------------------
James M. Rallo, Interim President and Jacquita K. Hauserman, Director
Chief Executive Officer (Principal Date: March 30, 2000
Executive Officer)
Date: March 30, 2000
By: /s/ Enzo Costantino By: /s/ Michael J. Meier
---------------------------------------------- -----------------------------------------------
Enzo Costantino, Treasurer and Director Michael J. Meier, Secretary and Director
(Principal Accounting Officer and Date: March 30, 2000
Principal Financial Officer)
Date: March 30, 2000
By: /s/ Thomas H. Roulston II By: /s/ Timothy I. Panzica
---------------------------------------------- -----------------------------------------------
Thomas H. Roulston II, Chairman Timothy I. Panzica, Director
of the Board Date: March 30, 2000
Date: March 30, 2000
By: /s/ Glen Gasparini By: /s/ Louis Stokes
---------------------------------------------- -----------------------------------------------
Glen Gasparini, Director Louis Stokes, Director
Date: March 30, 2000 Date: March 30, 2000
</TABLE>
17
<PAGE> 35
EXHIBIT INDEX
Exhibit Number Description of Document
- -------------- -----------------------
3.1 Certificate of Incorporation of the Company, dated
November 13, 1992 (A)
3.2 Certificate of Amendment of the Certificate of
Incorporation of the Company, dated March 9, 1993 (A)
3.3 Certificate of Amendment of the Certificate of
Incorporation of the Company, dated December 14,
1993 (A)
3.4 Certificate for Renewal and Revival of Charter,
dated May 31, 1994 (A)
3.5 Certificate of Amendment of the Certificate of
Incorporation of the Company, dated August, 1995 (A)
3.6 Certificate of Amendment of the Certificate of
Incorporation of American Stone Industries, Inc.,
dated June 24, 1998 (B)
3.7 By-laws of the Company (A)
10.1 Business Loan Agreement between American Stone
Corporation and First National Bank of Ohio, dated
September 13, 1996 (A)
10.2 Amendment to Loan Agreement between American Stone
Corporation and First National Bank of Ohio, dated
February 26, 1997 (A)
10.3 Asset Purchase Agreement between American Stone
Corporation and Cleveland Quarries L.P., dated
February 1, 1996 (A)
10.4 Amendment to and Restatement of Asset Purchase
Agreement of February, 1996, between American
Stone Corporation and Cleveland Quarries L.P.,
dated December 20, 1996 (A)
*10.5 Share Purchase Agreement between David Tyrrell and
the Company, dated May 22, 1996 (A)
10.6 Stock Purchase Agreement between Roulston Ventures
Limited Partnership and the Company, dated August
27, 1996 (A)
10.7 Indemnification Agreement between Cleveland
Quarries, L.P., Slate and Stone Corporation of
America, and American Stone Corporation, dated
December 20, 1996 (A)
10.8 Share Purchase Option Agreement between TMT
Masonry, Ltd., Roulston Ventures Limited
Partnership and the Company (A)
18
<PAGE> 36
Exhibit Number Description of Document
- -------------- -----------------------
10.9 Share Purchase Option Agreement between TMT
Masonry, Ltd., Roulston Ventures Limited
Partnership and the Company, dated November 22,
1996 (C)
10.10 Business Loan Agreement between American Stone
Corporation and FirstMerit Bank, N.A. dated
November 10, 1997 (D)
10.11 Modification of Mortgage between American Stone
Corporation and FirstMerit Bank, N.A., dated
November 10, 1997 (D)
10.12 Modification of Mortgage between American Stone
Corporation and FirstMerit Bank, N.A., dated
November 10, 1997 (D)
10.13 Commercial Security Agreement between American
Stone Corporation and FirstMerit Bank, N.A., dated
November 10, 1997 (D)
10.14 8.00% Convertible Subordinated Note Due October 1,
2002, issued by the Company to Roulston Ventures
Limited Partnership.
10.15 Amendment to Business Loan Agreement, dated
November 23, 1999, between American Stone
Corporation and FirstMerit Bank, N. A.
*10.16 American Stone Industries, Inc. 1998 Management
Stock Option Plan (B)
*10.17 American Stone Industries, Inc. 1998 Non-Employee
Director Stock Option Plan (B)
10.18 FirstMerit Bank, N.A., Defined Contribution Master
Plan and Trust Agreement (E)
21.1 Subsidiaries of the Company
23.1 Consent of Hobe & Lucas
27.1 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
(A) Incorporated herein by reference to the appropriate exhibit to the
Company's registration statement on Form 10-SB filed on April 11, 1997.
(B) Incorporated herein by reference to the appropriate exhibit to the
Company's quarterly report on Form 10-QSB for the period ended
September 30, 1998.
(C) Incorporated herein by reference to the appropriate exhibit to the
amendment filed on July 30, 1997 to Company's registration statement on
From 10-SB filed on April 11, 1997.
19
<PAGE> 37
(D) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-KSB for the period ended December
31, 1997.
(E) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-KSB for the period ended December
31, 1998.
20
<PAGE> 1
EXHIBIT 10.14
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (II)
THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE
ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH
TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL
BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. THIS NOTE IS SUBJECT
TO FURTHER RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
THIS CONVERTIBLE SUBORDINATED NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY, AND
THE EXERCISE OF RIGHTS AND REMEDIES HEREUNDER, ARE SUBORDINATE IN THE MANNER AND
TO THE EXTENT SET FORTH IN THIS NOTE.
AMERICAN STONE INDUSTRIES, INC.
8.00% CONVERTIBLE SUBORDINATED NOTE
DUE OCTOBER 1, 2002
DATE OF ISSUANCE: SEPTEMBER 23, 1999 $150,000
AMERICAN STONE INDUSTRIES, INC., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to ROULSTON VENTURES
LIMITED PARTNERSHIP (the "Payee") on October 1, 2002 (the "Maturity Date") at
the principal office of the Company, 8705 Quarry Road, Amherst, Ohio 44001, the
principal amount of One-Hundred and Fifty Thousand Dollars ($150,000), which
shall be payable in cash or by check on the terms set forth herein. Simple
interest on the principal amount of this Note shall be paid at the rate of eight
percent (8.00%) per annum accrued through the Maturity Date, and payable in cash
or by check quarterly in arrears commencing October 1, 1999 and each January 1,
April 1, July 1 and October 1 thereafter. The principal amount of this Note and
all interest accrued hereon shall be payable on the Maturity Date.
The Payee hereby irrevocably subscribes for and agrees to purchase this
Note and agrees to transfer on the date hereof to an account specified by the
Company immediately available funds in the principal amount of this Note.
1. CONVERSION INTO SHARES OF COMMON STOCK. The Payee shall be entitled,
at his option, at any time on or before the close of business on the Maturity
Date to convert this Note (or any portion of the principal amount hereof that is
$1,000 or an integral multiple thereof), at the principal amount hereof, or of
such portion, into fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock, par value $.001
per share (the "Common Stock") of the Company at a conversion price equal to
$5.50 principal amount for each share of Common Stock (or at the current
adjusted conversion price if an adjustment has been made as provided in the
following paragraph) (the "Conversion Price") by surrender of this Note, duly
endorsed or assigned to the Company or in blank, to the Company at its office,
accompanied by written notice to the Company in the form provided in
<PAGE> 2
this Note (or such other notice as is acceptable to the Company) that the Payee
elects to convert this Note, or if less than the entire principal amount hereof
is to be converted, the portion hereof to be converted. No fractional shares of
Common Stock will be issued on conversion, but instead of any fractional share,
the Company shall pay a cash adjustment in an amount equal to the Conversion
Price.
2. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be
equitably adjusted upon the occurrence on or before the Maturity Date of (i) the
issuance of additional shares of Common Stock as a stock dividend or other
distribution on outstanding shares of Common Stock, (ii) a subdivision of
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or (iii) a combination or reverse stock split of outstanding shares of
Common Stock into a smaller number of shares of Common Stock. The Conversion
Price as so adjusted, shall be readjusted in the same manner upon the happening
of any successive stock dividend, stock split or similar event on or before the
Maturity Date.
3. CHANGE IN CONTROL. Upon any Change in Control (as hereinafter
defined) that occurs before the Maturity Date, the Company, or any different
entity which is the surviving entity in any transaction that constitutes a
Change in Control, shall repay to the Payee (the "Contingent Repayment") the
entire principal amount of this Note, together with interest due thereon through
and including the effective date of such Change in Control (the "Change in
Control Date"). The Company (or such entity) shall make the Contingent Repayment
to the Payee in immediately available funds on the Change in Control Date, and
the Payee shall transmit and surrender the original of this Note to the Company
thereupon for cancellation. Notwithstanding the foregoing, upon a Change in
Control, the Payee shall have the right, at its option, to convert this Note
pursuant to the terms of Paragraph 1 above, in lieu of its right to receive the
Contingent Repayment.
For the purposes of this Note, a "Change in Control" shall mean the
occurrence at any time before the Maturity Date of any of the following events:
(a) The Company is merged or consolidated or reorganized
into or with another corporation or other legal person or entity (other than the
Payee or any affiliate of the Payee), and as a result of such merger,
consolidation or reorganization, less than a majority of the combined voting
power of the then-outstanding securities of such corporation, person or entity
immediately after such transaction are held in the aggregate by the holders of
the then-outstanding securities entitled to vote generally in the election of
the Company's directors ("Voting Stock") immediately prior to such transaction;
(b) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person
or entity (other than the Payee or any affiliate of the Payee), and less than a
majority of the combined voting power of the then-outstanding securities of such
acquiring corporation, person or entity immediately after such sale or transfer
is held in the aggregate by the holders of Voting Stock immediately prior to
such sale or transfer; or
(c) Any person (as the term "person" is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than (i) the Payee,
E-2
<PAGE> 3
(ii) any affiliate of the Payee, (iii) any group including the Payee, or (iv)
any acquiror of Voting Stock from the Payee or any affiliate of the Payee, has
become the beneficial owner (as the term "beneficial owner" is defined under
Rule l3d-3 or any successor rule or regulation promulgated under the Exchange
Act) of securities representing 50% or more of the total votes comprising the
Voting Stock.
Notwithstanding the foregoing, a Change of Control shall not
be deemed to occur as a result of any transaction actively promoted or supported
by the Payee or any affiliate of the Payee.
4. POSITIVE COVENANTS OF THE COMPANY. The Company covenants and agrees
that, on or before the Maturity Date it shall:
(a) Promptly pay and discharge all material and lawful taxes,
assessments, and governmental charges or levies imposed upon the Company or upon
its income and profits, or upon any of its property, before the same shall
become in default, as well as all material and lawful claims for labor,
materials and supplies that, if unpaid, might become a lien or charge upon such
properties or any part thereof, except where the failure to comply would not
have a material adverse effect on the Company and except that the Company shall
not be required to pay and discharge any such tax, assessment, charge, levy or
claim so long as the validity thereof shall be contested in good faith by the
Company;
(b) Do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises and comply with all material laws applicable to the Company, except
where the failure to comply would not have a material adverse effect on the
Company;
(c) At all times reasonably maintain, preserve, protect and
keep its material property used or useful in the conduct of its business in good
repair, working order and condition, and from time to time make all needful and
proper repairs, renewals, replacements and improvements thereto as shall be
reasonably required in the conduct of its business, except where the failure to
comply would not have a material adverse effect on the Company;
(d) To the extent necessary for the operation of its business,
keep adequately insured by financially sound reputable insurers, all material
property of a character usually insured by similar corporations and carry such
other insurance as is usually carried by similar corporations, except where the
failure to obtain insurance would not have a material adverse effect on the
Company;
(e) Prior to the issuance of any Common Stock hereunder,
reserve for issuance a sufficient number of authorized but unissued shares of
Common Stock to allow for their issuance hereunder upon conversion of this Note;
and
(f) At all times keep true and correct books, records and
accounts.
E-3
<PAGE> 4
5. REPRESENTATIONS AND WARRANTIES OF THE PAYEE.
--------------------------------------------
(a) GENERAL. The Payee understands and acknowledges that the
Note and the securities into which it is convertible are being offered and sold
under one or more of the exemptions from registration provided for in Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") and any
applicable state securities laws. The Payee is purchasing the Note without being
offered or furnished any formal offering literature or prospectus. The Payee
understands that this transaction has not been reviewed or approved by the
Securities and Exchange Commission or by any state regulatory authority charged
with the administration of the securities laws of any state. All documents,
records and books pertaining to this investment, as well as management of the
Company, have been made available to the Payee and the representatives of the
Payee, and the books and records of the Company will be available upon
reasonable notice for inspection by the Payee during reasonable business hours
at its principal offices set forth above.
(b) SUITABILITY. The Payee confirms that the Payee understands
and has fully considered for purposes of this investment the risks of this
investment and understands that (i) this investment is suitable only for an
investor who is able to bear the economic consequences of losing his or her
entire investment, (ii) the purchase of the Note and the Common Stock is a
speculative investment that involves a high degree of risk, and (iii) there are
substantial restrictions on the transferability of, and there will be no
immediate public market for, the Note, and accordingly, it may not be possible
for the Payee to liquidate the Payee's investment in case of emergency.
(c) LACK OF LIQUIDITY. The Payee confirms that the Payee is
able (i) to bear the economic risk of this investment, and (ii) to hold the Note
and the Common Stock for an indefinite period of time. The Payee has sufficient
liquid assets so that the illiquidity associated with this investment will not
cause any undue financial difficulties or affect the Payee's ability to provide
for the Payee's current needs and possible financial contingencies, and that the
Payee's commitment to all speculative investments is reasonable in relation to
the Payee's net worth and annual income.
(d) KNOWLEDGE AND EXPERIENCE. The Payee has such knowledge and
experience in financial and business matters that the Payee is capable of
evaluating the merits and risks of this speculative investment and of making an
informed investment decision.
(e) ACCREDITED INVESTOR. The Payee is an "accredited investor"
as defined in Rule 501 of Regulation D under the Securities Act.
(f) ACCESS TO MANAGEMENT. The Payee confirms that, in making
the decision to purchase the Note and the Common Stock, the Payee has relied
solely upon independent investigations made by the Payee, and that the Payee has
been given the opportunity to ask questions of, and to receive answers from,
management and other persons acting on behalf of the Company concerning the
Company.
E-4
<PAGE> 5
(g) INVESTMENT INTENT. The Note and the Common Stock are being
acquired by the Payee solely for the personal account of the Payee, for
investment purposes only, and not with a view to, or in connection with, any
resale or distribution thereof. The Payee has no contract, undertaking,
understanding, agreement or arrangement, formal or informal, with any person to
sell, transfer or pledge to any person the Note or the Common Stock, or any part
thereof, or any interest therein or any rights thereto. The Payee has no present
plans to enter into any such contract, undertaking, agreement or arrangement.
The Payee must bear the economic risk of the investment for an indefinite period
of time because the Note and the Common Stock have not been registered under the
Securities Act and applicable state securities laws and, therefore, cannot be
sold unless it is subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is available.
(h) RESTRICTIVE LEGEND. The Payee consents to the placement of
a restrictive legend on the certificate(s) representing the Common Stock issued
upon conversion hereof to reflect the restrictions on transfer provided under
applicable securities laws.
(i) BROKERS. The Payee has not incurred on its own account, or
on account of the Company, any obligation to pay any broker's fee or commission
in connection with this investment.
(j) INVESTMENT COMMITMENT NOT DISPROPORTIONATE TO NET WORTH.
The Payee's overall commitment to investments that are not readily marketable is
not disproportionate to the Payee's net worth and the Payee's investment in the
Company will not cause such overall commitment to become excessive.
(k) SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
ACKNOWLEDGMENTS. The representations and warranties of the Payee contained in
this Section F are true and accurate as of the date hereof and shall be true and
accurate as of the date of issuance of the Common Stock.
6. WITHHOLDING. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Note any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable law at the time of such payments.
7. OBLIGATIONS ABSOLUTE. No provision of this Note shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place and rate,
and in the security, coin or currency, herein prescribed. This Note is a direct
obligation of the Company.
8. NO RECOURSE AGAINST INDIVIDUALS. No recourse shall be had for the
payment of the principal of, or the interest on, this Note, or for any claim
based hereon, or otherwise in respect hereof, against any incorporator,
stockholder, officer, employee or director, as such, past, present or future, of
the Company or any successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, as part of the consideration for the issue
hereof, expressly waived. The obligation of the Company on this Note is primary
and exclusive.
E-5
<PAGE> 6
9. COMPLIANCE WITH SECURITIES LAWS. The Payee agrees that this Note is
being acquired for investment and that the Payee shall not offer, sell,
transfer, assign, exchange or otherwise dispose of this Note or the shares of
Common Stock issuable upon conversion hereof except under circumstances that
will not result in a violation of the Securities Act or any applicable state
Blue Sky law or similar laws relating to the sale or transfer of securities.
10. DEFAULT CONDITIONS. This Note shall become and be due and payable
upon written demand made by the Payee if one or more of the following events,
herein called events of default, shall happen and be continuing:
(a) Default in the due observance or performance of any
material covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the terms hereof and such default shall
continue uncured for 30 days after written notice thereof, specifying such
default, shall have been given to the Company by the Payee;
(b) Application for, or consent to, the appointment of a
receiver, trustee or liquidator of the Company or of its property;
(c) Admission in writing of the Company's inability to pay its
debts as they mature;
(d) General assignment by the Company for the benefit of
creditors;
(e) Filing by the Company of a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization, or an arrangement
with creditors;
(f) Entering against the Company of a court order approving a
petition filed against it under the federal or state bankruptcy laws, which
order shall not have been vacated or set aside or otherwise terminated within 60
days; or
(g) a Change of Control.
11. NOTICE OF DEFAULT. The Company agrees that notice of the occurrence
of any event of default shall be promptly given to the Payee.
12. ENFORCEMENT OF RIGHTS. In case any one or more of the events of
default specified above shall happen and be continuing, the Payee may proceed to
protect and enforce his rights by suit in the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note or may proceed to enforce the payment of this Note or
to enforce any other legal or equitable rights as such Payee.
13. PAYMENTS. Whenever any payment to be made shall be due on a
Saturday, Sunday or a public holiday under the laws of the Commonwealth of
Delaware, such payment may be made on the next succeeding business day, and such
extension of time shall in such case be included in the computation of payment
of interest due.
E-6
<PAGE> 7
14. NO TRANSFER OR EXCHANGE OF NOTES. The Company agrees not to
transfer or assign this Note, or any interest herein, by operation of law or
otherwise, without the prior written consent of the Payee. The Payee agrees not
to transfer, assign, negotiate or exchange this Note, or any interest herein, by
operation of law or otherwise, without the prior written consent of the Company.
15. REPLACEMENT OF NOTE. Upon receipt from the Payee of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Note and, if requested by the Company in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond or other agreement or security
reasonably satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of the Note, the Company shall issue a
substitute Note to the Payee, of like tenor and amount and dated the date
hereof, in lieu of such lost, stolen, destroyed or mutilated Note.
16. AUTHORIZATION. This Note has been issued by the Company pursuant to
authorization of the Board of Directors of the Company.
17. PRESENTATION FOR PAYMENT. Payment of principal and interest,
whether in cash or by check, shall be made to the Payee as set forth herein upon
presentation and surrender of this Note upon or after maturity.
18. WAIVER; AMENDMENT. No provision of this Note may be waived,
amended, modified, superseded, canceled, terminated, renewed or extended except
in a written instrument signed by the party against whom any of the foregoing
action is asserted. Any waiver shall be limited to the particular instance and
for the particular purpose when and for which it is given.
19. SEVERABILITY; REFORM. The invalidity, illegality or
unenforceability of any provision of this Note shall in no way effect the
validity, legality or enforceability of any other provision of this Note and
this Note shall be construed and reformed by any court of competent jurisdiction
to give full effect to the essential purposes of this Note.
20. NOTICES. All notices provided for in this Note shall be given in
writing and shall be effective when given by personal delivery or by electronic
facsimile transmission (with receipt thereof electronically confirmed), or the
next business day after delivery to an nationally recognized express overnight
courier service, or three business days after being sent by first class mail,
postage prepaid, addressed to the parties at their respective addresses herein
set forth, or to such other address or addresses as either party may later
specify by written notice to the other.
21. COUNTERPARTS. This Note may be executed in duplicate counterparts,
which, when taken together, shall constitute one instrument, but only the
original counterpart executed by a duly authorized representative of the Company
shall be deemed to be an original instrument for purposes of enforcing this Note
against the Company.
22. DISPUTE RESOLUTION. Any dispute, controversy or claim arising out
of, in connection with, or in relation to this Note or the breach of any of the
provisions hereof shall be
E-7
<PAGE> 8
settled by arbitration in Cleveland, Ohio, pursuant to the rules then obtaining
of the American Arbitration Association. Any award shall be final, binding and
conclusive upon the parties and a judgment rendered thereon may be entered in
any court having competent jurisdiction thereof.
23. GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware, without regard to the conflict of laws principles
thereof.
24. ENTIRE AGREEMENT. This Note constitutes the entire agreement
between the Company and the Payee relative to the subject matter hereof, and
supersedes all proposals or agreements, written or oral, and all other
communications between the parties relating to the subject matter of this Note.
IN WITNESS WHEREOF, the Company and the Payee have caused this Note to
be executed, as of the date first set forth above, by their duly authorized
representatives.
ROULSTON VENTURES LIMITED PARTNERSHIP
(the "Payee")
BY: /s/ THOMAS H. ROULSTON II
----------------------------------
NAME: THOMAS H. ROULSTON II
TITLE: GENERAL PARTNER
PRINCIPAL BUSINESS ADDRESS OF PAYEE:
4000 Chester Avenue
Cleveland, Ohio 44103
AMERICAN STONE INDUSTRIES, INC.
(the "Company")
BY: /s/ JAMES M. RALLO
----------------------------------
NAME: JAMES M. RALLO
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
E-8
<PAGE> 1
EXHIBIT 10.15
AMENDMENT TO BUSINESS LOAN AGREEMENT
DATE: 11/23/99
FirstMerit Bank, N.A., is the holder of several Business Loan Agreements between
AMERICAN STONE CORPORATION and FIRSTMERIT BANK, N.A.
FOR VALUE RECEIVED, the undersigned and FirstMerit Bank, N.A. hereby acknowledge
and consent to amend said Loan Agreement as follows:
1. UNDER THE SECTION ENTITLED "NEGATIVE COVENANTS"; SUBSECTION
ENTITLED "CONTINUITY OF OPERATIONS", ADD THE FOLLOWING
PROVISIONS:
Notwithstanding the foregoing, Borrower may (i) pay quarterly
dividends to American Stone Industries, Inc. ("Parent") equal
to the interest accrued under an 8.00% Convertible
Subordinated Note, dated September 23, 1999, issued by Parent
and payable to Roulston Ventures Limited Partnership (the
"Subordinated Note") and (ii) pay a dividend or dividends to
Parent in an amount equal to the outstanding principal amount
of the Subordinated Note upon and after maturity of the
Subordinated Note, but in any case, only so long as no Event
of Default has occurred and is continuing or would result from
the payment of any such dividends. Any payments in excess of
the accrued interest payable under the Subordinated Note prior
to its maturity are prohibited.
It is expressly agreed by the parties hereto that this Amendment to the Loan
Agreement does not change any other terms or conditions of said Loan Agreement
not specifically amended herein, and that all such terms and conditions not
amended shall remain in full force and effect and are expressly applicable to
the terms of this Amendment to Loan Agreement.
The makers, sureties, guarantors and endorsers hereby authorize and empower any
Attorney-at-Law in the State of Ohio, in our names and behalf, or in the name
and behalf of any of us to appear before any court in the State of Ohio having
statutory jurisdiction to render a cognovit judgment against any of the makers
or endorsers at any time after this obligation becomes due, and waive process
and service thereof, and, without notice, confess judgment against us, or any of
us, in favor of us, in favor of the Bank, for the amount that may appear to be
due hereon for principal, interest, damages, and cost of suit, releasing all
errors in judgment so confessed and waiving all right and benefit of appeal, and
any and all proceedings to set aside, vacate, open, suspend, or reverse such
judgment or any execution issued for the collection thereof.
FIRSTMERIT BANK, N.A. AMERICAN STONE CORPORATION
By: /s/ Lawrence P. Allen By: /s/ James M. Rallo
----------------------------------- ------------------------------
Lawrence P. Allen James M. Rallo
Title: Assistant Vice President Title: President
---------------------------------- ---------------------------
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
As of March 1, 2000, the following entities were subsidiaries of
American Stone Industries, Inc.:
1. American Stone Corporation, a Delaware corporation, which does business
as "American Stone Corporation" and "Cleveland Quarries."
2. Tyrrell Stone Design, Ltd., an Ontario, Canada corporation.
<PAGE> 1
EXHIBIT 23.1
[Hobe & Lucas Letterhead]
March 28, 2000
Mr. James Rallo
President and Chief Executive Officer
American Stone Industries, Inc.
8705 Quarry Road
P.O. Box 261
Amherst, OH 44001
RE: Consent to Incorporation of
Independent Auditors' Report
Dear Mr. Rallo:
This firm was the independent auditor for American Stone Industries, Inc.
(the "Company") for the fiscal year ended December 31, 1999. In this context, we
understand that the Company is filing a Form 10-KSB with the Securities &
Exchange Commission and has filed a Form S-8 with the Securities & Exchange
Commission (registration number 333-74899).
Pursuant to Rule 601(b)(23), this letter will serve as our consent for the
Company to file with the Form 10-KSB and incorporate by reference in the Form
S-8 our Independent Auditors' Report dated February 4, 2000 for fiscal year
ended December 31, 1999 and to the reference of Hobe & Lucas, Certified
Public Accountants, Inc. therein.
/s/ Hobe & Lucas
Hobe & Lucas,
Certified Public Accountants, Inc.
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<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 50,378
<SECURITIES> 0
<RECEIVABLES> 687,654
<ALLOWANCES> 3870
<INVENTORY> 901,101
<CURRENT-ASSETS> 1,690,139
<PP&E> 3,532,760
<DEPRECIATION> 531,391
<TOTAL-ASSETS> 4,746,440
<CURRENT-LIABILITIES> 1,576,505
<BONDS> 527,366
0
0
<COMMON> 1,723
<OTHER-SE> 2,640,846
<TOTAL-LIABILITY-AND-EQUITY> 4,746,440
<SALES> 3,439,798
<TOTAL-REVENUES> 3,442,106
<CGS> 2,754,424
<TOTAL-COSTS> 992,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,268
<INCOME-PRETAX> (411,334)
<INCOME-TAX> 0
<INCOME-CONTINUING> (411,334)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (411,334)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
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