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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]
For the fiscal year ended June 30, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from to
Commission File Number: 0-23528
J.A. INDUSTRIES, INC.
(Name of small business issuer in its charter)
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DELAWARE 13-3421337
(State or other jurisdiction (I.R.S. Employer
incorporation or organization Identification No.)
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34A-2755 LOUGHEED HIGHWAY, SUITE 522,
PORT COQUITLAM, B.C. V3B 5W9 CANADA
(Address of principal executive offices)
Issuer's telephone number: 604-941-3413
Securities registered under Section 12(b) of the Exchange Act: NONE
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Not applicable Not applicable
TITLE OF EACH CLASS NAME OF EXCHANGE IN WHICH REGISTERED
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Securities registered under Section 12(g) of the Exchange Act:
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Common Stock par value $.0025
(TITLE OF CLASS)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
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: [X]
State issuer's revenue for its most recent fiscal year: $
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $3,443,826
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933 ("Securities Act"). The list of documents
should be clearly described for identification purposes.
Transitional Small business Disclosure Format (check one): Yes No X
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J.A. INDUSTRIES, INC.
TABLE OF CONTENTS
PART I
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PAGE
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Item 1. Description of Business..................................................................................... 1
Item 2. Description of Property..................................................................................... 2
Item 3. Legal Proceedings........................................................................................... 2
Item 4. Submission of Matters to a Vote of Security Holders......................................................... 2
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PART II
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Item 5. Market for Common Equity and Related Stockholder Matters.................................................... 3
Item 6. Management's Discussion and Analysis or Plan of Operation................................................... 4
Item 7. Financial Statements........................................................................................ 11
Item 8. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure......................... 28
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PART III
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Item 9. Directors, Executive Officers, Promoters and Control Persons................................................ 28
Item 10. Executive Compensation...................................................................................... 29
Item 11. Security Ownership of Certain Beneficial Owners and Management.............................................. 31
Item 12. Certain Relationships and Related Transactions.............................................................. 31
Item 13. Exhibits and Reports on Form 8-K............................................................................ 32
Signature Page.............................................................................................. 33
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
J.A. Industries, Inc. (the "Company") is now a holding company owning no
material assets. The Company's Common Stock is traded over the counter (bulletin
board symbol JIND). The Company maintains its principal executive offices at
1580 Kebet Way, Port Coquitlam, British Columbia, Canada; telephone
604-941-3413.
From inception, the Company intended to grow through acquisitions, however,
no acquisitions were successfully complete until the first quarter of 1993 and
therefore the Company effectively had no operations until that time.
On November 2, 1992 the Company changed its name to J.A. Industries, Inc.
The Company was then reorganized as a holding company to grow through the
acquisitions of companies and technology. The primary strategic focus of the
Company is the manufacturing and marketing of electronic and mechanical products
and services for the electrical power, electronic communications, military,
aerospace, and commercial electronic products industries. The Company's strategy
is to develop its capability through the acquisition of companies and technology
that are consistent with its primary focus. The Company believes that the market
for contract manufacturing services is growing at a rate of approximately 15%
per year and that the Company can grow in excess of this rate by successfully
executing it acquisition strategy.
TORIK, INC.
On September 28, 1992, the Company acquired 55% of the stock of Torik, Inc.
("Torik") the acquisition of the remaining 45% of Torik required the repayment
of Torik's outstanding bank indebtedness. Torik is an electrical wire harness
manufacturer for the vehicle, appliance, marine and electronics industry,
located in Graham, North Carolina. In March of 1993, the former management of
Torik initiated a lawsuit against the Company for the return of the 55% it had
sold to the Company, on the grounds that the Company had not repaid Torik's bank
debt. In August of 1995, the courts ruled in favor of the former management of
Torik, Inc. and returned the 55% back to them.
J.A. INDUSTRIES (CANADA) INC.
J.A. Industries (Canada) Inc., a wholly-owned subsidiary of the Company
("J.A. Canada") was sold June 30, 1995 to a non-affiliated British Columbia
Corporation. The agreement called for the buyer to assume all of the outstanding
liabilities of J.A. Canada and to remove the Company from any guarantees.
ETTA ELECTRONIC BALLASTS LICENSE AGREEMENT
On April 14, 1993, the Company acquired a license to manufacture and
distribute electronic ballasts with technology produced and patented in the
United States by ETTA Industries, Inc. of Boulder, CO ("ETTA"). The license was
acquired for $50,000 USD of advanced royalty payments. The licence is currently
inactive. The Company has put ETTA Industries on notice that ETTA Industries is
in default of the original licensing agreement. It is unlikely that the Company
will receive any benefit from this licence and the recovery of its initial costs
is also unlikely.
AGREEMENT WITH IBI INTERBIB INVEST, BUDAPEST, HUNGARY
In February 1993, the Company entered into a five-year manufacturing
agreement with IBI Interbib Invest of Hungary ("IBI"). The agreement calls for
the Company to buy electronic ballasts from IBI for distribution in the U.S. IBI
will manufacture the ETTA ballasts under license to be sold by the Company.
There was no cash or shares exchanged in this agreement. It is unlikely, due to
the status of the ETTA licence that this inactive agreement will produce any
benefits to the Company.
ACQUISITION OF HUTRONIX, INC.
On September 15, 1993, the Company acquired 100% of Hutronix, Inc, an
Arizona corporation ("Hutronix"), by issuing 717,699 shares of common stock and
paying $300,000. Headquartered in Tucson, AZ, Hutronix is a manufacturer of
specialized cable harnesses, printed circuit boards, and electromechanical
assemblies.
In the original purchase agreement of Hutronix, the Company entered into a
put/call agreement with a former shareholder of Hutronix, Baboquivari Cattle
Company ("BCC") whereby BCC had the option to put 262,000 shares to the Company
at $2.25 per share on September 23, 1995. BCC had informed the Company of its
intention to exercise its rights under the put/call agreement. In resolution of
the liabilities to BCC, the Company agreed to return the shares of Hutronix to
BCC for cancellation of all debts to BCC and the return of 262,000 shares to
treasury that were owned by BCC (see Item 4 "Submission of Matters to a Vote of
Security Holders").
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CAPITAL CITY PLASTIC
On December 5, 1993, the Company acquired the assets of 488190 Alberta
Ltd., d/b/a Capital City Plastics ("CCP") for $100,000 and the issuance of
600,000 common shares of the Company. The Company also assumed two leases on the
equipment in the amount of $135,000 CDN (approximately $97,000 USD). Monthly
payments on the lease are approximately $1,692 CDN per month (approximately
$1,220 USD).
Subsequent to the purchase of the equipment the Company has rescinded the
agreement and cancelled the 600,000 shares issued to Capital City Plastic. The
Company believes that it is unlikely to recover the $45,000 USD paid out on
behalf of CCP to creditors.
GRANITE MARKETING CORP.
On March 30, 1994 Granite Marketing Corporation. ("Granite") entered into
an agreement with Queensland Industries, Inc. ("Queensland") whereby Queensland
purchased from Granite an exclusive license to manufacture, promote, market,
sell and distribute the products of J.A. Canada relating to polyurethane
underground junction boxes. Queensland is a wholly owned subsidiary of
Wincanton, Corporation ("Wincanton"), a publicly traded Washington State
Corporation.
Subsequent to this agreement, the Company rescinded the licensing agreement
in exchange for a $50,000 USD payment by Queensland Industries. The Granite is
currently inactive. Subsequent to the year end, Granite was sold to an unrelated
third party in exchange for assumption of Granite's liabilities.
LINK TECHNOLOGY
In May, 1994 the Company entered a letter of intent to acquire all of the
shares of Link Technology, a British Columbia corporation. Link is in the
business of providing high quality contract manufacturing of electronic and
electromechanical printed circuit board assemblies. Subsequent to this letter of
intent, the parties agreed not to proceed.
MINT CORPORATION
On June 28, 1995 the Company signed a letter of intent to merge with
privately held MiNT Corporation ("Mint") through a stock for stock exchange. The
share exchange would have resulted in a change of control of J.A. Industries to
the majority shareholders of Mint. Mint is in the business of providing high
quality contract manufacturing of electronic and electromechanical printed
circuit board assemblies. Subsequent to this agreement, the shareholders of Mint
elected not to proceed with the acquisition.
EMPLOYEES
The parent corporation paid the salary of Robert Knight, the Company's
President as of June 30, 1995 and of Mr. James Burns, President/CEO from
September to June 1995. Subsequent to the year end, Mr. Burns resigned as
Chairman of the Board and as a director of the Company. There is no other staff
for the Company.
None of the Company's employees are covered by a collective bargaining
agreement. The Company considers its relations with employees to be
satisfactory.
There are no environmental issues with any of the Company's products.
The Company is not involved in any Research and Development.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains Corporate offices at 1580 Kebet Way, Port Coquitlam,
Canada. It leases the space from a non-affiliate for $500 USD per month.
ITEM 3. LEGAL PROCEEDINGS.
Except as described above in "Description of Business -- Torik. Inc., and
Hutronix, Inc." the Company is not presently a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Subsequent to the year end, the Company has called a special meeting of
stockholders to be held January 26, 1996. The meeting is to consider and vote
upon a proposal to approve a Settlement Agreement and Release ("Agreement")
among Baboquivari Cattle Company ("BCC"), Karl G. and Marilyn H. Ronstadt
("Ronstadt") and the Company, pursuant to which the Company will deliver to BCC
all outstanding shares of Hutronix, Inc. Hutronix Sales, Inc. (subsequently
changed to deliver only the 49% owned by the Company in exchange for the payment
of $7,600 to BCC), QDS de Mexico and Hutronix de Mexico. In return, BCC shall
transfer to the Company 262,000 shares of the Company's common stock that are
subject to a put/call agreement; BCC and the Ronstadts shall release and
indemnify the Company from all obligations (currently in the
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approximate sum of $765,000) and claims arising from the business dealing
between the parties. At the special meeting, Shareholders approved the
Agreement.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Marketing Information -- (1) The principal U.S. market in which the
Company's common stock is traded is in the over-the-counter market (Bulletin
Board Symbol: JIND). The Company's initial public offering closed June 21, 1988
and there was very minimal and sporadic trading until September 1992. The
following chart sets forth the range of high and low bid prices for the
Company's Common Stock in the over-the-counter market for the previous two
years.
COMMON STOCK
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BID PRICE
PERIOD HIGH
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Quarter ended December 31, 1995............................................................................ 1 1/16
Quarter ended September 30, 1995........................................................................... 1 3/8
Quarter ended June 30, 1995................................................................................ 1 3/8
Quarter ended March 31, 1995............................................................................... 2
Quarter ended December 31, 1994............................................................................ 2 1/8
Quarter ended September 30, 1994........................................................................... 2
Quarter ended June 30, 1994................................................................................ 2
Quarter ended March 31, 1994............................................................................... 2 1/4
Quarter ended December 31, 1993............................................................................ 2 3/8
Quarter ended September 30, 1993........................................................................... 2 1/2
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PERIOD LOW
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Quarter ended December 31, 1995............................................................................ .19
Quarter ended September 30, 1995........................................................................... 2 7/32
Quarter ended June 30, 1995................................................................................ 1
Quarter ended March 31, 1995............................................................................... 1
Quarter ended December 31, 1994............................................................................ 1 9/16
Quarter ended September 30, 1994........................................................................... 1 1/2
Quarter ended June 30, 1994................................................................................ 1 3/4
Quarter ended March 31, 1994............................................................................... 1 5/8
Quarter ended December 31, 1993............................................................................ 1 3/8
Quarter ended September 30, 1993........................................................................... 1 1/2
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Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
(b) Holders -- The approximate number of record holders of the Company's
Common Stock as of June 30, 1994 was 600 inclusive of those brokerage firms
and/or clearing houses holding the Company's common shares for their clientele
(with each such brokerage house and/or clearing house being considered as one
holder). The aggregate number of shares of Common Stock outstanding as of June
30, 1995 was 7,289,967.
(c) Dividends -- The Company has not paid or declared any dividends upon
its Common Stock since its inception and, by reason of its present financial
status and its contemplated financial requirements, does not contemplate or
anticipate paying any dividends upon its Common Stock in the foreseeable future.
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ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OF J.A. INDUSTRIES, INC.
The following discussion of the results of operations and financial
condition should be read in conjunction with the audited financial statements
and related notes appearing subsequently under the caption "Financial
Statements".
OVERVIEW
In July of 1992, the existing management took over the direction of J A.
Industries, Inc. It was the intention of the management to enhance the value of
its shares on behalf of its shareholders by acquiring cash flow entities which
were, firstly, synergistic with existing subsidiaries and secondly were
companies with consistent growth potential.
The first acquisition was Torik, Inc. in September, 1992, which at that
time was just breaking even on its sales of $300,000 per month. Subsequent to
the Torik acquisition, the Company had entered into litigation and lost the case
to the former management of Torik returning all shares back to the Torik
management. The Company was booking that acquisition at the cost of $200 which
has been written off.
The second acquisition of the assets of Pacific Rim Polytech, took place in
February, 1993 by the Company's wholly owned subsidiary J.A. Industries (Canada)
Inc. ("J.A. Canada"). J.A. Canada immediately started the manufacturing of
underground junction boxes and cable tray. In June, 1995 the Company sold J.A.
Canada to a non-affiliate British Columbia Corporation.
The Company also entered into two licensing agreements and manufacturing
agreements for the manufacture and distribution of electronic ballasts of which
both licenses are inactive.
In September of 1993, the Company acquired Hutronix, Inc., of Tucson, Az
("Hutronix"). Subsequent to the year ended, 1996, the Company returned the
shares of Hutronix to Baboquivari Cattle Company ("BCC") to settle outstanding
liabilities with BCC.
In December of 1993, the Company acquired the assets of Capital City
Plastic ("CCP"). CCP had been inactive since May of 1993. As CCP was unable to
deliver the equipment as detailed in the purchase agreement, the Company
cancelled the purchase agreement.
In May, 1994 the Company signed an option agreement to acquire 100% of Link
Technologies (Canada) Ltd. ("Link"). The Company was to pay $500,000 USD plus
issue 500,000 shares of common stock to acquire 100% of Link. The Company was
also to provide $1,500,000 USD in working capital for Link. Subsequent to this
agreement the option has expired and no further agreement has been reached.
On March 30, 1994 Granite Marketing Corporation. ("Granite"), then a wholly
owned subsidiary of the Company, entered into an agreement with Queensland
Industries, Inc. ("Queensland") whereby Queensland purchased from Granite an
exclusive license to manufacture, promote, market, sell and distribute the
products of J.A. Canada relating to polyurethane underground junction boxes.
Queensland is a wholly owned subsidiary of Wincanton, Corporation ("Wincanton"),
a publicly traded Washington State Corporation. Subsequent to this agreement,
the Company rescinded the licensing agreement in exchange for a $50,000 USD
payment by Queensland Industries to Granite. Granite is currently inactive.
Subsequent to the year end, Granite was sold to an unrelated third party in
exchange for assumption of Granite's liabilities.
On June 28, 1995 the Company signed a letter of intent to merge with
privately held MiNT Corporation ("Mint") through a stock for stock exchange. The
share exchange would have resulted in a change of control of J.A. Industries to
the majority shareholders of Mint. Mint is in the business of providing high
quality contract manufacturing of electronic and electromechanical printed
circuit board assemblies. Subsequent to this letter of intent and subsequent to
the year ended June 30, 1995, the shareholders of Mint elected not to proceed
with the acquisition.
Subsequent to the year ended June 30, 1995, the Company entered into an
Agreement and Plan of Merger with Kenmar of Raleigh, NC. Kenmar founded in 1984,
is a provider of high quality electronic manufacturing services. It is located
in the Research Triangle area of North Carolina. Kenmar has a broad array of
technical capabilities to bring products to the market from concept to final
production. Kenmar's manufacturing team has experience in producing electronic
and electro-mechanical subassemblies and products for use in the
telecommunication, industrial control, computer, medical and instrumentation
industries. Kenmar has both Surface Mount Technology and Pin Thru-Hole
capabilities as well as cable, harnesses and interconnect assembly lines.
Pursuant to the terms of the agreement, current shareholders of Kenmar will
receive common stock of J.A. Industries such that Kenmar shareholders will own
approximately 50% of the outstanding shares of J.A. Industries, Inc. on closing.
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Upon completion of the Merger, current management of Kenmar would assume
management of the Company. The merger is subject to shareholder's approval of
both companies. Another condition of the Merger is the settlement of a dispute
with a former stockholder, Karl Ronstadt and Hutronix, Inc. Subsequent to the
year ended June 30, 1995, the Company did resolve its outstanding dispute with
Baboquivari Cattle Company as described above (see "Hutronix").
Prior to the Merger, the Company must reduce its liabilities and contingent
liabilities to zero and have working capital of a minimum of two hundred
thousand ($200,000) dollars. To this end, the Company has disposed of, settled
or is in the process of settling all outstanding liabilities. The Company has
reached agreements and has signed releases for potential contingent liability
claims arising or potentially arising from several of the Company's former
agreements.
The Company intends to fund its capital requirements through a private
placement to meet the terms of the agreement. To date the funds necessary to
complete the Merger are being held in escrow pending shareholder approval of the
merger and will be released to the Company upon such approval. If Shareholder's
approval is not obtained to complete the Merger, then the funds in escrow would
not be released to the Company.
Management believes that the trend towards outsourcing in the electronic
manufacturing industry is expanding. To this end, management still believes that
its strategy to acquire synergistic businesses in the contract manufacturing
industry is a sound plan. The planned Merger between the Company and Kenmar is
the first step in trying to re-establish that plan.
Seasonal factors do not influence the Company's sales.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1994 the Company principally provided for its cash needs
through equity financing from a Regulation D Rule 504 offering. Most
acquisitions were completed with a combination of shares and cash. The
day-to-day operations were funded from cash flow provided by the operating
entities and an infusion of working capital from the parent Company. The
subsidiary J.A. Industries (Canada) Inc. lost money in 1995, and it was sold to
a non-affiliate in June, 1995. The agreement called for the buyer to assume all
of the liabilities of J.A. Canada. Hutronix, Inc. also lost money for the year
ending June 30, 1995. Subsequent to the year end, Hutronix was returned to
Baboquivari Cattle Company (former shareholder of Hutronix, "BCC") for release
of all liabilities owed by the Company to BCC and BCC's assumption of all
liabilities associated with Hutronix.
Subsequent to the year ended June 30, 1995, the Company had disposed of all
of its operating assets and there is currently not an adequacy of cash flow from
operations to cover capital resources and liquidity requirements. In the year
ending June 30, 1994 the Company had revenues of $4,042,940 to allow the Company
to manage its day to day operations. The Company's financial results were
prepared assuming it would continue as a going concern. However, the report of
its auditor raised substantial doubts about the Company's ability to continue as
a going concern. For the year ending June 30, 1995, the Company's audited report
reflected the subsequent disposition of all operations. Revenue of $4,330,211
from operations for the period ended June 30, 1995, though, was used to fund the
day to day operations of the subsidiaries. Currently, the Company has no cash
flow and its ability to maintain operations is severely impaired. If the Company
cannot raise additional capital it is unlikely the Company would be able to
operate and it may be forced to seek protection under Chapter 11 of the
Bankruptcy Act.
During the period commencing September, 1992 and ending June 30, 1995, the
Company raised $1,185,000 through two Regulation D Rule 504 offerings and
$496,250 through private placements of the Company's common stock. It is the
Company's goal in the fiscal year ending June 30, 1996 to find a suitable
acquisition candidate. Management anticipates that the Company will do further
equity financing. Management believes that from these sources the Company will
adequately fund the operations of the Company and allow it to maintain its
aggressive acquisition strategy. To date, no commitments for such capital have
been received and the likelihood of such financing cannot be guaranteed.
To address the accountant's report of a "going concern" uncertainty, it is
anticipated that the Company will continue to look for new opportunities in the
contract manufacturing area. On March 1, 1996 the Company entered into an
agreement to merge with Kenmar to fulfill the Company's business strategy. As
part of the Merger, the Company must eliminate all outstanding liabilities and
have working capital of $200,000. At the date of this report, the Company has
approximately $133,000 in liabilities it must satisfy to complete the Merger. As
of May 15, 1996, the Company has raised the required funds to complete the
Merger through a private placement of its common stock. The funds are in escrow
with the Company's legal counsel and will be released to the Company upon it
shareholder's approval of the Merger. In the event the Company does not receive
shareholder approval, the funds would not be released from escrow and the
Company would not be able to meet its financial requirements pursuant to the
Merger Agreement.
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In the event that the conditions of the Merger are satisfied and the Merger
is completed it is anticipated that cash flow from ongoing operations will
satisfy the day to day needs of the Company. Furthermore, as of February 29,
1996, Kenmar had approximately $744,500 in cash or cash equivalents (unaudited).
It is anticipated that the merged company will use these funds to maintain and
grow the existing business that it has. It is also the Company's goal to try and
arrange an equity financing in the amount of $3 million dollars to expand its
business. No commitment for such financing has been arranged and the likelihood
of its completion cannot be guaranteed. In the event the merged company could
not raise any additional capital, it is anticipated that current rates of growth
of the merged company would satisfy its working capital requirements.
Future cash needs of the merged entity would include funds to implement the
Company's acquisition strategy and to sustain the Company through a period of
restructuring and growth.
NOTES PAYABLE AND LONG TERM DEBT
Hutronix, Inc. a former subsidiary has a note payable to Bank One executed
through the Industrial Development Authority of the City of Douglas due in
quarterly instalments of $12,821, plus interest at 65% of prime (7.25% as of
June 30, 1994), due may 2005; secured by a deed of trust on the real estate held
for sale and an irrevocable letter of credit from a bank in the amount of the
outstanding note payable balance guaranteed by the Company. At June 30, 1995 the
amount outstanding was $546,125. The subsequent agreement between BCC and the
Company calls for BCC and Hutronix to indemnify the Company against any
liability under this bond. As the solvency of Hutronix, Inc. is uncertain, the
ability for Hutronix, Inc. to indemnify the Company is unlikely. Furthermore, on
November 21, 1995 an agreement was reached between Baboquivari Cattle Company,
Karl and Marilyn Ronstadt, Hutronix, Inc. and the Company whereby the parties
exchanged mutual releases relieving the Company of any liabilities that it had
or might have in the future with the parties. On March 4, 1996 the liability
under the guarantee to Bank One was satisfied.
On closing of the Merger between Kenmar and the Company, the Company is
obligated to pay a former minority shareholder of Hutronix, Inc. $10,000 and
issue 50,000 shares of restricted common stock in exchange for a release from
all future obligations the minority shareholder may be entitled to. Also, on
closing, the Company is obligated to pay the former landlord of Hutronix, Inc. a
fee for releasing the Company from a Corporate guarantee on the lease of the
building located at 1150 E. Palmdale, Tucson, AZ. The funds for these
transactions are part of the funding needed for the closing of the Merger
agreement. If the Merger is not completed, these liabilities would still be
outstanding.
On June 30, 1995 the Company sold its wholly owned subsidiary, J.A.
Industries (Canada) Inc. to an unrelated third party. The sale relieved the
Company of any long term debt associated with the subsidiary. Furthermore, the
Company obtained releases for all corporate guarantees that it had provided for
the subsidiary subject to certain cash payments as follows. The Company settled
with one creditor by issuing shares of restricted stock in the amount of 136,000
shares to satisfy approximately $34,000 USD of debt. On completion of the Merger
between Kenmar and the Company, the Company will incurred a cost of $5,000 USD
to settle with one creditor that comes from a corporate guarantee of the
Company. The funds for settling this amount will come from the funds necessary
to close the Merger transaction. If the Merger is not completed, then this
liability would still be outstanding with the creditor.
In March, 1996, the Company came to a final agreement with the former
owners of Capital City Plastics whereby Capital City Plastic and John Szaniszlo
will provide the Company with a release from all liabilities and deliver to the
Company 600,000 shares of common stock issued to Capital City Plastics in
exchange for the Company's release from liabilities, $10,000 and the issuance of
50,000 restricted common stock of the Company.
The funds necessary to complete this transaction are part of the funding
needs of the Merger. If the necessary funds were not raised or the Merger was
not completed, the Company's position would be that there are no liabilities
outstanding with Capital City Plastic or John Szaniszlo as they had breached the
original agreement between the parties.
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On completion of the Merger, for which there can be no guarantee, the
Company will be assuming the following liabilities based on the Kenmar audited
financial statements for the period ending August 31, 1995 and unaudited
financial statements for the six month period ending February 29, 1996:
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Line of credit/loans.................................................................... $ 0
Current maturities of long term debt.................................................... $ 4,317
Current obligations under capital lease................................................. $ 35,203
Accounts payable -- trade............................................................... $ 621,852
Income tax payable...................................................................... $ 0
Other accrued liabilities............................................................... $ 94,833
Total Current Liabilities............................................................. $ 756,205
Long Term Debt, less current maturities................................................. $ 541,236
Long term obligations under capital lease............................................... $ 57,750
Total Liabilities as of February 29, 1996............................................. $1,021,386
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(See also "Preferred Stock of Kenmar", Page 35)
LINE OF CREDIT: In March, 1994, Kenmar negotiated a $4 million revolving
line of credit with a commercial lender which allowed it to borrow up to 80% of
eligible receivables and was secured by a first lien on all the Company's
receivables and inventory. Borrowing under this line bears interest at prime
plus 2.5% (minimum 7.5%) in addition to an annual facility fee and other costs.
Kenmar paid off the line of credit in the fourth quarter of its fiscal year
ended August 31, 1995. Kenmar has not requested a renewal of the line of credit.
LONG-TERM DEBT: Long term debt of Kenmar consists of the following:
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1995 1994
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Subordinated promissory notes payable monthly instalments of $9,009 including
interest at 8% through October 2002......................................... $524,855 $646,674
Bank debt collateralized by a first lien on all the Company's plant,
equipment, furniture and fixtures payable in monthly instalments of $7,950,
including interest at prime +1%. this loan was paid off prior to August 31,
1995........................................................................ -- $217,932
Uncollateralized note payable to stockholder repayable with interest at 8% in
59 monthly installments of 4610 and a balloon payment of $30,083 on October
15, 1997.................................................................... $ 39,482 $ 43,468
Notes payable secured by equipment repayable in monthly installments of $2,435
including interest at 16.85% through April 1996. (Subsequently, this note
was satisfied).............................................................. $ 18,403 $ 42,202
Note payable to stockholder in monthly installments of $2,535 including
interest at 8% through April, 1994, collateralized by certain equipment..... -- --
$582,380 $950,276
Less current maturities....................................................... $ 22,359 $293,242
$560,021 $657,034
</TABLE>
Principal maturities of debt Kenmar at August 31, 1995 are as follows:
<TABLE>
<S> <C>
YEAR ENDING AUGUST 31
1996.............................................................. $ 22,359
1997.............................................................. $ 73,269
1998.............................................................. $104,776
1999.............................................................. $ 80,451
2000.............................................................. $ 87,130
Thereafter........................................................ $214,395
Total Long-term debt............................................ $582,380
</TABLE>
-7-
<PAGE>
OBLIGATIONS UNDER CAPITAL LEASES OF KENMAR:
Kenmar leases equipment under capital leases which expire on various dates
through 1998.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Machinery and equipment............................... $200,066 $200,066
Vehicles.............................................. -- $ 27,871
Total............................................... $200,006 $227,937
</TABLE>
The following is a schedule by years of future minimum lease payments under
capital leases as of august 31, 1995 for Kenmar
<TABLE>
<S> <C>
YEAR ENDING AUGUST 31
1996.............................................................. $ 48,272
1997.............................................................. $ 49,701
1998.............................................................. $ 29,431
Total minimum lease payment..................................... $127,404
</TABLE>
FURTHER KENMAR COMMITMENTS:
Kenmar leases certain office and production space, machinery and equipment
under noncancellable operating leases expiring at various dates through 1998.
During the years ended August 31, 1995, 1994 and 1993, Kenmar incurred rental
expenses of $214,505, $271,488 and $230,175 respectively under these leases.
Future minimum lease payments under the terms of the above leases are as
follows:
<TABLE>
<S> <C>
1996............................................................... $38,422
1997............................................................... $ 2,952
1998............................................................... $ 2,460
</TABLE>
PREFERRED STOCK OF KENMAR:
The aggregate number of authorized shares of preferred stock is 100,000. Of
the 100,000 shares of preferred stock 30,000 shares have been designated as
Class A cumulative preferred stock. The designation of the remaining 70,000
shares will be determined by the Board of Directors of Kenmar.
Kenmar issued 1,150 shares of $50 par value Class A cumulative preferred
stock ("Class A Preferred") in 1994. During 1993, the Company issued 716 shares
of Class A Preferred including upon receipt of the issue price, 200 shares
subscribed at August 31, 1992. Each share of Class A Preferred may be called or
put at any time after five years from the date of issuance at a rate of one and
one-half times the issue price. Redemption requirements of Class A Preferred
stock at August 31, 1995 were as follows:
<TABLE>
<S> <C>
1997.............................................................. $150,000
1998.............................................................. $447,000
1999.............................................................. $ 68,700
2000.............................................................. $ 86,250
Total........................................................... $751,950
</TABLE>
The Class A Preferred is entitled to a 10% cumulative dividend payable
quarterly, subject to the provisions of North Carolina law. Cumulative unpaid
dividends are $73,008, $23,378, and $7,643 as of August 31, 1995, 1994, and 1993
respectively.
Upon liquidation, the Class A shares have preference over holders of common
stock in an amount equal to the issue price plus cumulative dividends in
arrears. Cash dividends of $0, $32,910 and $40,031 were paid in 1995, 1994, and
1993, respectively.
RESULTS OF OPERATIONS
The following information is derived from the attached financial statements
and sets forth, for the periods indicated, the relative percentage that certain
income and expense items bear to net sales.
-8-
<PAGE>
FISCAL PERIOD YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL PERIOD YEAR ENDED
JUNE 30, 1994. The auditors report for the period ending June 30, 1995 states
that as a result of the discontinuation of operations of the Company there is
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
In June, 1995 the Company disposed of one of its wholly owned operating
subsidiaries J.A. Industries (Canada) Inc. Subsequent to the year end the
Company disposed of an inactive subsidiary, Granite Marketing Corporation. In
early March 1995, the Company entered into negotiations with Karl G. Ronstadt
and Baboquivari Cattle Company, former shareholders of Hutronix, Inc. to settle
outstanding issues and potential liabilities. The Company and the former
shareholders could not come to any resolution. On September 23, 1995, the former
shareholder of Hutronix, Inc. exercised his right under a put/call agreement
dated September 23, 1993 and attached to the original purchase agreement of
Hutronix, Inc. dated September 15, 1993. The put option allowed the former
shareholder to put 262,000 shares of the Company to the Company at a price of
$2.25 creating a liability of $589,500. The Company did not have the resources
to pay the liability. On November 21, 1995, subsequent to the year end, the
Company entered into an agreement to reverse the acquisition of Hutronix, Inc.
the only remaining operating subsidiary of the Company to satisfy all
outstanding liabilities between the former shareholder of Hutronix and the
Company. The condition that effected the decision to enter into the agreement to
reverse the Hutronix acquisition occurred prior to the Company's year end.
Although the assets and operations of Hutronix were included in the Company's
June 30, 1995 financial statement, they were subsequently disposed of and it was
so reported in the Company's December 31, 1995 financial statement.
As of June 30, 1995, the Company had revenue of $4,330,211 which was a 7.8%
increase over the comparable period ended June 30, 1994. Cost of sales were
$3,618,347 for the period ended June 30, 1995 as compared cost of sales of
$3,674,688 for the corresponding period ending June 30, 1994. The maintaining of
cost of sales at the same level as 1994 but an increase in revenue by 7.8%
generated a gross margin of $711,864 or 16.9% of Sales for the period ended June
30, 1995 compared to gross margin of $368,252 or 9.1% for the period ended June
30, 1994. General and administrative expenses for June 30, 1995 were $1,623,487
which was a 22.8% increase compared to the corresponding period for June 30,
1994 of $1,256,765. The increase is partly reflected by the increase in
management expenses to increase the revenue for the period. Part of the General
and Administrative expenses for 1995 were paid of non-cash items whereby the
Company issued restricted common shares for services rendered or settlement of
debt in the amount of $51,982 compared to the issuance of no shares for the
corresponding period ending June 30, 1994 for similar reasons. The Company had a
total loss for the year of $1,714,526 or ($0.25)/shares as compared to a total
loss of $1,497,305 or ($0.28)/share for the period ending June 30, 1994.
Subsequent to the year ending June 30, 1995 the Company entered into a
Merger with Kenmar. A condition of the Merger is that the Company is to have no
liabilities and working capital of $200,000. To this end, though the Company has
an inactive status, there are substantial one time charges to eliminate all
liabilities and to settle contract obligations.
For the first quarter period ending September 30, 1995 the Company had
revenue of $532,310. compared to sales of $1,179,629 for the corresponding
period in 1994. The decrease in sales can be attributed to the disposition of
J.A. Industries (Canada) Inc. prior to year end June 30, 1995 as Hutronix, Inc.,
the only remaining operating subsidiary, had an increase in sales of 18% over
the corresponding period ended September 30, 1994. Cost of sales for the 3 month
period ended September 30, 1995 were $455,030 generating a gross profit margin
of $77,280 or 14.5% of sales compared to a cost of sales of $1,013,768
generating a gross profit of $165,861 or 14% of sales for the 3 month period
ended September 30, 1994. Again, the decrease in cost of sales can be attributed
to the disposition of J.A. Industries (Canada) Inc. prior to the year ended June
30, 1995. For the three month period ending September 30, 1995 G&A was $781,384
compared to $239,620 for the corresponding period in 1994. Increased legal and
accounting expenses accounted for approximately $75,000 of the expense. As well,
a large portion of the expense was a one time charge to pay outstanding
liabilities and the termination of outstanding contracts. The preceding items,
except for accounting fees, were mostly settled with the issuance of restricted
common stock of the Company. On September 23, 1995, Baboquivari Cattle Company
exercise its put option under a put/call agreement dated September 23, 1993. The
option obligated the Company to purchase 262,000 shares of the Company's stock
from Baboquivari at a price of $2.25 creating an unfunded liability of $589,500.
Subsequent to the first quarter ended September 30, 1995, the Company entered
into an agreement with Baboquivari Cattle Company to reverse its September 15,
1993 acquisition agreement of Hutronix, Inc. in exchange for the release of all
liabilities from Hutronix, Inc and Baboquivari Cattle Company.
On November 21, 1995 the Company entered into an agreement with Baboquivari
Cattle Company to transfer all title of Hutronix, Inc. to Baboquivari Cattle
Company in exchange for a release of all liabilities. Due to this disposition of
the last operating subsidiary of the Company, the Company had no revenue for the
three month period ending December 31, 1995
-9-
<PAGE>
compared to of $1,237,956 for the three month period and $2,417,585 for the six
month period ending December 31, 1994. General and administrative expenses for
the period three month period ended December 31, 1995 were $81,921 compared to
the corresponding three month period in 1994 of $239,877. The Company
experienced a net loss of $83,316 for the three month period ending December 31,
1995 compared to a loss of $86,107 for the corresponding period in 1994. The net
loss from operations for the six month period ending December 31, 1995 was
$746,960 compared to $190,989 for the corresponding period in 1994. The loss in
1995 is attributed to the reorganization and elimination of ongoing contracts
and liabilities the Company needed to satisfy to proceed with its Merger with
Kenmar. The Company had a shareholder's deficit of $282,683 for the period ended
December 31, 1995 compared to net equity of $595,265 for the corresponding
period in 1994. Accounts payable at December 31, 1995 were $138,167 compared to
$928,358 for the corresponding period 1994. Due to the discontinuation of
operations, the Company's payables were reduced dramatically. Most of the
expense is attributed to legal and accounting costs due to the restructuring of
the Company. Subsequent to the disposition of Hutronix, the Company was relieved
of its obligation to guarantee the mortgage on the facilities occupied by
Hutronix in Douglas, Arizona. Therefore, long term debt was reduced to zero from
$561,842 in the corresponding prior year period.
For the three month period ending March 31, 1996 the Company had no
operations and therefore no revenue compared to sales of $1,035,397 for the
three month period ended March 31, 1995 and sales of $3,452,982 for the nine
month period ended March 31, 1995. General and Administrative expenses for the
three month period ended March 31, 1996 were $298,405 compared to $262,027 for
the corresponding period in 1995. G&A for the nine month period ended March 31,
1996 was $1,043,970 compared to $741,524 for the corresponding period in 1995.
The G&A costs can be attributed to the restructuring and reorganization the
Company experienced from the disposition and discontinuation of operations and
the Merger agreement the Company entered into with Kenmar Business Groups, Inc.
The Company had a net loss from operations of $1,118,561 for nine month period
ended March 31, 1996 compared to $300,884 for the corresponding nine month
period in 1995. The Company had a Shareholder's deficit of $203,695 at March 31,
1996 compared to Net Equity of $670,141 for the same period 1995. Current
liabilities were significantly reduce due to cessation of operations to 220,276e
for the period ended March 31, 1996 compared to Current Liabilities of $964,465
for the corresponding period ended March 31, 1995.
-10-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of J.A.
Industries, Inc. and Subsidiaries as of June 30, 1995 and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of J.A.
Industries, Inc. and Subsidiaries as of June 30, 1995, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
financial statements, the Company incurred a net loss of $1,714,526, and a cash
flow deficit from operations of $133,297 during the year ended June 30, 1995,
and as of that date had a working capital deficiency of $566,587, and a net
capital deficiency of $40,503. Additionally, as of the date of the auditors'
report, the Company has sold subsidiaries which accounted for all of the
operating activities of the consolidated corporation. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Semple & Cooper, P.L.C.
Certified Public Accountants
Phoenix, Arizona
November 20, 1995
(except for Note 18 as to which
the date is May 12, 1996).
-11-
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)............................................................ $ 45,274 $ 6,679
Accounts receivable (Notes 1 and 9)
-- trade.................................................................................. 246,180 485,943
-- other.................................................................................. 73 18,363
Inventory (Notes 1, 4 and 9).................................................................. 170,261 454,982
Prepaid expenses.............................................................................. 14,805 27,338
Total Current Assets..................................................................... 476,593 993,305
Real Estate Held for Sale (Notes 6 and 9)....................................................... 488,750 875,000
Property and Equipment, Net
(Notes 1, 5 and 9)............................................................................ 53,330 598,533
Investments (Note 7)............................................................................ -- 22,075
Intangible Assets, Net (Notes 1 and 8).......................................................... 2,050 127,532
544,130 1,623,140
$ 1,020,723 $ 2,616,445
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable -- current portion (Note 9)..................................................... $ 590,986 $ 922,436
Loans payable -- related parties (Note 10).................................................... 35,766 --
Accounts payable.............................................................................. 165,625 776,474
Accrued expenses.............................................................................. 250,753 --
Income taxes payable (Notes 1 and 12)......................................................... 50 50
Total Current Liabilities.................................................................. 1,043,180 1,698,960
Notes Payable -- Long-Term Portion (Note 9)..................................................... 18,046 117,563
Loans Payable -- Related Parties (Note 10)...................................................... -- 132,364
18,046 249,927
Commitments and Contingencies: (Note 11)........................................................ -- --
Stockholders' Equity (Deficit):
Common stock (Note 14)........................................................................ 18,879 16,234
Additional paid-in capital.................................................................... 4,993,915 3,849,152
Accumulated deficit........................................................................... (4,904,793) (3,190,267)
108,001 675,119
Stock subscriptions receivable................................................................ (144,000) --
Cumulative translation adjustment (Note 1).................................................... (4,504) (7,561)
(40,503) 667,558
$ 1,020,723 $ 2,616,445
</TABLE>
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements
-12-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Sales........................................................................................... $ 4,330,211 $ 4,042,940
Cost of Sales................................................................................... 3,618,347 3,674,688
Gross Profit.................................................................................... 711,864 368,252
Selling and Marketing Expense................................................................... -- 134,163
General and Administrative Expense.............................................................. 1,593,838 1,256,765
Impairment of real estate held for sale (Note 6)................................................ 386,250 444,941
Impairment of goodwill (Note 8)................................................................. 115,890 --
2,095,978 1,835,869
Loss from Operations............................................................................ (1,384,114) (1,467,617)
Other Income (Expense):
Interest income............................................................................... 952 373
Interest expense.............................................................................. (72,868) (93,989)
Gain on foreign exchange translation.......................................................... -- 7,960
Loss on sale of assets (Note 5)............................................................... (59,726) --
Loss on sale of subsidiary (Note 3)........................................................... (198,770) --
(330,412) (85,656)
Loss before Income Taxes........................................................................ (1,714,526) (1,553,273)
Income Tax Benefit.............................................................................. -- 65,973
(1,714,526) (1,487,300)
Pre-acquisition Earnings of Hutronix, Inc....................................................... -- (10,005)
Net Loss........................................................................................ $(1,714,526) $(1,497,305)
Net Loss per Share.............................................................................. $ (.25) $ (.28)
Weighted Average Shares Outstanding............................................................. 6,724,440 5,389,500
</TABLE>
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements
-13-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
ADDITIONAL FROM FOREIGN STOCK
COMMON STOCK PAID-IN ACCUMULATED CURRENCY SUBSCRIPTION
SHARES AMOUNT CAPITAL DEFICIT TRANSLATION RECEIVABLE
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993..................... 4,107,129 $10,268 $1,800,027 $(1,692,962) $ -- $ --
Issued for cash............................ 993,950 2,485 1,005,578 -- -- --
Issued for equipment....................... 600,000 1,500 52,148 -- -- --
Issued for shares of Hutronix, Inc......... 717,699 1,794 895,330 -- -- --
Issued for legal services.................. 25,000 62 7,944 -- -- --
Issued to repay debt....................... 50,000 125 88,125 -- -- --
Aggregate adjustment resulting from
translation of financial statement into
U.S. dollars............................. -- -- -- -- (7,561) --
Net loss for the year ended June 30,
1994..................................... -- -- -- (1,497,305) -- --
Balance, June 30, 1994..................... 6,493,778 16,234 3,849,152 (3,190,267) (7,561) --
Issued for cash............................ 631,383 1,578 494,672 -- -- --
Issued for consulting fees................. 1,032,292 2,581 637,517 -- -- (144,000)
Issued to repay debt....................... 50,000 125 51,982 -- -- --
Issued as compensation..................... 12,600 32 12,569 -- -- --
Reverse equipment purchase................. (600,000) (1,500) (52,148) -- -- --
Shares cancelled........................... (68,450) (171) 171 -- -- --
Aggregate adjustment resulting from
translation of financial statements into
U.S. dollars............................. -- -- -- -- 3,057 --
Net loss for the year ended June 30,
1995..................................... -- -- -- (1,714,526) -- --
7,551,603 $18,879 $4,993,915 $(4,904,793) $ (4,504) $ (144,000)
</TABLE>
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements
-14-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash Used by Operating Activities:
Net loss...................................................................................... $(1,714,526) $(1,497,305)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization.............................................................. 110,623 113,549
Loss on sale of fixed assets............................................................... 59,726 --
Issuance of stock for services and debt repayment.......................................... 514,759 --
Impairment on real estate held for sale.................................................... 386,250 444,941
Impairment of goodwill..................................................................... 115,890 --
Loss on sale of subsidiary................................................................. 198,770 --
Changes in Assets and Liabilities:
Accounts receivable
-- trade................................................................................ 239,763 (350,711)
-- other................................................................................ 18,290 --
Inventory.................................................................................. 284,721 (324,732)
Prepaid expenses........................................................................... 12,533 (10,147)
Accounts payable........................................................................... (610,849) 662,081
Accrued expenses........................................................................... 250,753 --
Income taxes payable....................................................................... -- 50
Equipment loans............................................................................ -- 119,048
Purchase agreement......................................................................... -- (133,287)
Cash used by operations.................................................................... (133,297) (976,513)
Investing Activities:
Proceeds from sale of fixed assets......................................................... 244 --
Purchase of property and equipment......................................................... (4,578) (1,713,705)
Disposal of license agreement.............................................................. -- 50,000
Acquisition of intangible assets........................................................... -- (140,409)
Disposal (acquisition) of investment....................................................... 21,875 (21,875)
Cash provided (used) by investing activities............................................... 17,541 (1,825,989)
Financing Activities:
Issuance of common stock................................................................... 496,250 2,055,091
Loans from related parties................................................................. 35,766 13,065
Proceeds from debt......................................................................... 72,288 753,722
Repayment of debt.......................................................................... (423,079) --
Repayment of debt from related parties..................................................... (22,370) --
Cash provided by financing activities...................................................... 158,855 2,821,878
Effect of exchange rate changes on cash and cash equivalents.................................... (4,504) (7,561)
Net Change in Cash and Cash Equivalents......................................................... 38,595 11,815
Cash and Cash Equivalents at Beginning of Year.................................................. 6,679 (5,136)
Cash and Cash Equivalents at End of Year........................................................ $ 45,274 $ 6,679
</TABLE>
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements
-15-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF CORPORATION:
J.A. Industries, Inc. is a Corporation organized under the laws of the
State of Delaware. The principal purpose of the Corporation is to act as the
holding company of its subsidiaries. Subsequent to the balance sheet date, the
Company disposed of its only remaining operating subsidiary through a reversal
of the acquisition (Note 3).
PERVASIVENESS 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
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of:
J.A. Industries, Inc., a Delaware corporation, and the following
wholly-owned subsidiaries:
J.A. Industries (Canada) Inc., a Canadian corporation
Granite Marketing Corp., a Cayman Island corporation
Hutronix, Inc., an Arizona corporation
QDS, deMexico, S.A. de C.V., a Mexican corporation and the 96%
owned subsidiary Hutronix de Mexico, S.A. de C.V., (a
subsidiary of Hutronix, Inc., which has been inactive since
August 17, 1982)
All significant intercompany balances and transactions have been eliminated
in consolidation.
As further described in Note 3, J.A. Industries (Canada) Inc. was sold
during the year ended June 30, 1995, and Hutronix, Inc. and QDS, de Mexico, S.A.
de C.V. were disposed of subsequent to the balance sheet date through a reversal
of the acquisition (Note 3).
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents are considered to be all highly liquid
investments with an initial maturity of three (3) months or less.
ACCOUNTS RECEIVABLE:
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance is provided for based upon a review of the
individual accounts outstanding and the prior history of uncollectable accounts
receivable. At June 30, 1994, an allowance has been provided for potentially
uncollectible accounts receivable in the amount of $30,803. At June 30, 1995, no
allowance has been provided for as management believes all accounts receivable
to be collectible.
INVENTORY:
Raw materials are valued at the lower of cost or replacement cost. Work in
process and finished goods are valued at the lower of cost or net realizable
value. Cost for all inventory is determined on the first-in, first-out method
which, for work in process and finished goods, includes the cost of material,
direct labor and applied manufacturing overhead.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is provided for
on the straight-line method over the estimated useful lives of the assets,
ranging from five to seven years. Maintenance and repairs that neither
materially add to the value of the property nor appreciably prolong its life are
charged to expense as incurred. Betterments or renewals are capitalized when
incurred.
-16-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- Continued
LONG-LIVED AND INTANGIBLE ASSETS:
Long-lived assets include office and manufacturing equipment and real
estate. Intangible assets include goodwill, incorporation costs, and patent
development costs, and are being amortized on the straight-line method over
their estimated useful lives as disclosed in Note 8. Goodwill represents the
excess of the cost of acquiring Hutronix, Inc. over the fair value of the net
assets at the date of acquisition. The carrying value of the assets will be
periodically reviewed by the Company and impairments, if any, will be recognized
when expected future operating cash flows derived from the assets are less than
their carrying value.
INCOME TAXES:
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis, in addition to the use of net operating losses. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
TRANSLATION OF FOREIGN CURRENCIES:
Account balances and transactions denominated in foreign currencies and the
accounts of the Corporation's foreign operations have been translated into
United States funds, as follows:
Assets and liabilities at the rates of exchange prevailing at the
balance sheet date;
Revenue and expenses at average exchange rates for the period in which
the transaction occurred;
Exchange gains and losses arising from foreign currency transactions
are included in the determination of net earnings for the period;
Exchange gains and losses arising from the translation of the
Corporation's foreign operations are deferred and included as a separate
component of stockholders' equity.
LOSS PER SHARE:
The loss per share calculation is based on the weighted average number of
shares outstanding during the year. Fully diluted loss per share has not been
presented because the effect of exercising the options outstanding would be
anti-dilutive.
2. BUSINESS COMBINATIONS:
In 1994, the Company purchased all of the outstanding shares of Hutronix,
Inc. for common share consideration. The acquisition was accounted for by the
purchase method. The results of operations are included in the accounts from the
effective date of acquisition, September 15, 1993.
Details of the purchase are as follows:
<TABLE>
<S> <C>
Fair market value of assets acquired:
Working capital deficiency............................................................ $ (42,739)
Fixed assets.......................................................................... 1,462,099
Other liabilities..................................................................... (69,814)
Long-term debt........................................................................ (581,189)
Goodwill.............................................................................. 128,767
$ 897,124
Consideration given:
Common shares issued.................................................................. $ 897,124
</TABLE>
As further described in Note 3, the acquisition of Hutronix, Inc. and QDS,
de Mexico, S.A. de C.V. was reversed subsequent to the year ended June 30, 1995.
-17-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SALE OF SUBSIDIARIES:
During the year ended June 30, 1995 and subsequent to year end, the Company
disposed of one operating subsidiary and entered into a plan to reverse the
purchase of another operating subsidiary. These two subsidiaries comprised
principally all of the operating activity of the consolidated entity. The
disposals are as follows:
J.A. INDUSTRIES (CANADA) INC.:
On June 30, 1995, the Company sold all of the common stock of J.A.
Industries (Canada) Inc. for $73. The transaction resulted in a loss of
$198,770, which has been included in loss on sale of subsidiary for the year
ended June 30, 1995.
HUTRONIX, INC.:
On November 21, 1995, the Company entered into an agreement to reverse the
acquisition of Hutronix, Inc. and its Mexican manufacturing subsidiary, QDS, de
Mexico, S.A. de C.V. The Company returned all of the common shares of Hutronix,
Inc. in exchange for cancellation of a buy/sell agreement for 262,500 common
shares of J.A. Industries, Inc. with the former principal stockholder of
Hutronix, Inc. The Company realized a loss on the subsequent disposition of
Hutronix, Inc. of approximately $70,000, which has not been included in the
accompanying consolidated statement of operations for the year ended June 30,
1995.
4. INVENTORY:
As of June 30, 1995 and 1994, inventory consists of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw materials............................................................... $ 352,223 $ 532,435
Less: reserve for obsolescence.............................................. (210,000) (190,000)
142,223 342,435
Work in process............................................................. 25,170 91,962
Finished goods.............................................................. 2,868 20,585
$ 170,261 $ 454,982
</TABLE>
5. PROPERTY AND EQUIPMENT:
As of June 30, 1995 and 1994, property and equipment consist of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Forklift................................................................... $ -- $ 10,049
Vehicles................................................................... 13,121 14,046
Office equipment........................................................... 46,382 53,834
Computers.................................................................. 152,361 147,778
Manufacturing equipment.................................................... 277,230 576,051
Assets not-in-service...................................................... -- 232,520
489,094 1,034,278
Less: accumulated depreciation............................................. (435,764) (435,745)
$ 53,330 $ 598,533
</TABLE>
Assets not-in-service represents manufacturing equipment and production
molds purchased but not yet on location or in use.
-18-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT: -- Continued
These assets were purchased by way of an agreement with 488190 Alberta Ltd.
dated December 3, 1993. Consideration given in exchange for the equipment was:
600,000 shares of J.A. Industries, Inc.;
$100,000 relocation fee payable upon relocation; and
$ 78,872 assumption of debt and chattel mortgage against the equipment.
This transaction has been recorded as follows:
<TABLE>
<S> <C>
Shares issued......................................... $ 53,648
Debt assumed.......................................... 78,872
Relocation fee........................................ 100,000
Fair market value of the equipment.................... $232,520
</TABLE>
Subsequent to June 30, 1995, the Company entered into an agreement to
reverse the equipment purchase agreement. The equipment was returned to 488190
Alberta Ltd., which returned the 600,000 common shares of J.A. Industries, Inc.
A loss on disposal of fixed assets of $59,823 was recorded, which is made up of
payments made by J.A. Industries, Inc. against the chattel mortgage and expenses
incurred in moving the equipment.
6. REAL ESTATE HELD FOR SALE:
In January, 1994, Hutronix, Inc. ceased all manufacturing operations at its
Douglas, Arizona facility. As of June 30, 1995 and 1994, the Company recorded
real estate held for sale in the amounts of $488,750 and $875,000, respectively.
The Company recognized impairment losses for June 30, 1995 and 1994 in the
amounts of $386,250 and $444,941, respectively. The losses represented
management's best estimate of the net realizable value of the property.
7. INVESTMENTS:
On March 30, 1994, Granite Marketing Corp. entered into a licensing
agreement with Queensland Industries, Inc. Under the agreement, Queensland
Industries, Inc. was granted a license of certain patents to manufacture,
promote, market, sell and distribute industrial electrical products. The license
provides for an exclusive territory, including Asia, Japan, Australia, Zimbabwe,
Nambia, South Africa, and all nations who are currently members of the European
Economic Community. The purchase price for the license was $10,000,000, with
$2,500,000 payable upon signing of the agreement and four (4) equal payments of
$1,875,000 due 120, 210, 300 and 390 days from signing.
Wincanton Corporation, 100% stockholder of Queensland Industries, Inc., has
agreed to guarantee the payment obligations of Queensland Industries, Inc.
At June 30, 1994, the sale of this license was recorded at a nominal
$50,000. At June 30, 1994, the investment was recorded at $22,075. The first two
(2) installments were paid in the form of 875,000 shares of Wincanton
Corporation, which have been recorded at $0.0249 each, which represents the net
asset value per share of Wincanton Corporation at June 30, 1994.
During 1995, Wincanton Corporation paid Granite Marketing Corp. $50,000 to
cancel the licensing agreement. In addition, Granite Marketing Corp. returned
the 875,000 shares of Wincanton Corporation.
-19-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INTANGIBLE ASSETS:
Intangible assets at June 30, 1995 and 1994 are comprised of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Goodwill amortized over ten years (Note 2)...................................... $ -- $128,767
Incorporation costs amortized over five years................................... 3,000 3,000
Patent pending amortized over five years from final patent...................... -- 8,642
3,000 140,409
Amortization.................................................................... (950) (12,877)
$2,050 $127,532
</TABLE>
During the year ended June 30, 1995, the Company recognized an impairment
of the valuation of goodwill in the amount of $115,890.
9. NOTES PAYABLE:
As of June 30, 1995 and 1994, notes payable consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Note payable to a bank executed through the Industrial Development Authority of the City of
Douglas, Arizona, due in quarterly installments of $12,821, plus interest at 65% of prime (7.25%
as of June 30, 1994), due May, 2005; secured by a deed of trust on the real estate held for sale,
an irrevocable letter of credit from a bank in the amount of the outstanding note payable balance
and the assignment of a life insurance policy owned by a related party, on the president of
Hutronix, Inc. At June 30, 1994, the Company was not in compliance with certain restrictive
covenants contained in this note................................................................. $ 546,125 $ 576,908
Note payable to a vendor, due in monthly installments of $594, plus interest at 8.5%, due
September, 1994; secured by equipment............................................................ -- 1,883
Note payable to a supplier, due in quarterly installments of $8,361 plus interest at 6%; unsecured,
due March 15, 1995............................................................................... -- 25,084
Note payable to an employee in monthly installments of $2,500, plus interest at 7%, due July, 1994;
secured by the common stock of QDS, de Mexico, S.A. de C.V....................................... -- 5,000
Unsecured promissory note payable to a lender. The principal of $36,155 (CDN $50,000) plus accrued
interest at 24% per annum is payable on demand. The lender has stated that it is not her
intention to demand repayment of the note before June 30, 1995................................... -- 47,636
Unsecured note payable to the Province of British Columbia, Canada, due in monthly payments of
$1,808 (CDN $2,500) plus interest at 6% per annum. The principal balance is due July 1, 1995..... -- 91,619
Revolving line of credit for $250,000 with a bank. Credit line is payable at $5,000 per month until
October, 1994 when all principal and accrued interest is due in full. The credit line accrues
interest at prime plus two percent; collateralized by accounts receivable, inventory, property,
plant and equipment, and 2,025 shares of common stock............................................ -- 172,821
Equipment loan for the "assets not-in-service" described in Note 5. Note was due on demand with no
stated interest rate............................................................................. -- 119,048
8% note payable to ITT Cannon, monthly installments of $1,500, including principal and interest,
due June, 1997; unsecured........................................................................ 33,907 --
8% note payable to Molloy, Jones & Donahue, P.C., monthly installments of $1,381, including
principal and interest, due February, 1996; unsecured............................................ 10,725 --
10% note payable to KPMG Peat Marwick, L.L.P., due on demand; unsecured............................ 18,275 --
609,032 1,039,999
Less: current portion.............................................................................. (590,986) (922,436)
$ 18,046 $ 117,563
</TABLE>
-20-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. NOTES PAYABLE: -- Continued
A schedule of future minimum principal payments due on the notes payable,
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, AMOUNT
<S> <C>
1996 $590,986
1997 18,046
$609,032
</TABLE>
10. RELATED PARTY TRANSACTIONS:
LOANS PAYABLE -- RELATED PARTIES:
As of June 30, 1995 and 1994, loans payable -- related parties consist of
the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Loan payable to Alexander Michie, balance due on demand with no stated interest rate.................. $ 15,000 $ --
Loan payable to 391566 B.C., Ltd., balance due on demand with no stated interest rate................. 20,766 --
Loan payable to Alexander Michie. The loan is unsecured and has no terms of repayment. The loan has a
stated interest rate of prime plus 2%............................................................... -- 132,364
35,766 132,364
Less: current portion................................................................................. (35,766) --
$ -- $132,364
</TABLE>
OTHER TRANSACTIONS:
The Company paid $25,200 in 1994 to a related party to maintain a life
insurance policy on the life of the president of Hutronix, Inc. Included in
accounts payable at June 30, 1994 is $10,346 due to the related party.
The Company also paid a combined $46,800 to its president (a former
stockholder) under a salary and management fee commitment in the year ended June
30, 1994. The commitment requires the Company to pay $6,000 per month and
expires December 31, 1995.
Repayment of the mortgage from the Province of British Columbia has been
guaranteed by A. Michie, a stockholder.
11. COMMITMENTS AND CONTINGENCIES:
Under the terms of various agreements, the Company has guaranteed payment
of $18,275 in accounting fees and the $546,125 mortgage on the Douglas, Arizona
plant owned by Hutronix, Inc. The reversal of the Hutronix, Inc. purchase in
November, 1995 included an indemnification on the above guarantees. Should the
other party fail to perform, additional obligations could be asserted against
the Company. The Company has been unable to estimate any liability for potential
payments as a guarantor on the debt.
12. INCOME TAXES:
As of June 30, 1995, the components of the deferred income tax asset, are
as follows:
<TABLE>
<S> <C>
Deferred Tax Asset
Net operating loss carryforwards........................................... $ 498,000
Less: valuation allowance.................................................. (498,000)
Net deferred tax asset....................................................... $ --
</TABLE>
The valuation allowance for the deferred tax asset as of June 30, 1994 is
$368,371. The net change in the total valuation allowance for the year ended
June 30, 1995 was an increase of $129,629.
-21-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES: -- Continued
At June 30, 1995, the Company has net operating loss carryforwards for
federal purposes, as follows:
<TABLE>
<CAPTION>
EXPIRING JUNE 30, AMOUNT
<S> <C>
2009 $ 540,000
2010 2,780,000
$3,320,000
</TABLE>
For the years ended June 30, 1995 and 1994, the Company reported provisions
for income taxes in the amount of $50. The provisions relate to state income
taxes.
13. SIGNIFICANT CUSTOMERS AND VENDORS:
Four (4) customers comprised approximately 91.1% of total sales for the
year ended June 30, 1995, and 54% of total accounts receivable at June 30, 1995.
Three (3) customers comprised approximately 68% of total sales for the year
ended June 30, 1994, and 70% of total accounts receivable at June 30, 1994.
Five (5) vendors provided approximately 44% of total raw materials
purchased during the year ended June 30, 1995.
Four (4) vendors provided approximately 52% of total raw materials
purchased during the year ended June 30, 1994.
14. COMMON STOCK:
Common stock is comprised of $.0025 par value, 20,000,000 shares
authorized, 7,551,603 and 6,493,778 shares issued and outstanding as of June 30,
1995 and 1994, respectively.
15. MANAGEMENT'S PLAN TO ADDRESS GOING CONCERN CONSIDERATIONS:
The management of the Company is in the process of attempting to secure
additional capital sources to acquire additional companies to fit their
corporate mission.
16. STOCK OPTION PLAN:
Under its employee stock option plan, which authorizes the issuance of up
to 1,000,000 common shares with a par value of $0.0025 each, the Company has
issued and outstanding options to purchase 98,600 shares at $2.00 each, and
520,000 shares at $1.10 each. These options expire on December 31, 1999.
17. STATEMENT OF CASH FLOWS:
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended June 30, 1995, the Company recognized investing and
financing activities that affected assets, liabilities and equity, but did not
result in cash receipts or payments. These non-cash activities are as follows:
The Company reversed an equipment purchase agreement with C.C.
Plastics. The Company recognized a loss of $59,823 on the transaction due
to payments on the debt obligation, which were subsequently voided for
return of the equipment.
The Company issued 1,032,292 shares, with an average price of $.62 per
share, for payment of consulting services. Additionally, the Company issued
12,600 shares, valued at $1 per share, to employees for performance
bonuses.
The Company issued 50,000 shares at $1.04 per share, for payment of a
debt obligation.
-22-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. STATEMENT OF CASH FLOWS: -- Continued
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended June 30, 1994, the Company recognized investing and
financing activities that affected assets, liabilities and equity, but did not
result in cash receipts or payments. These non-cash activities are as follows:
The Company issued 600,000 shares to C.C. Plastic to purchase equipment.
The Company issued 717,699 shares to acquire all of the outstanding common
stock of Hutronix, Inc.
The Company issued 25,000 shares as payment for legal fees.
The Company issued 50,000 shares for payment of a debt obligation.
Cash paid for interest for the year ended June 30, 1994 was $155. For the
year ended June 30, 1995, the Company did not pay any income taxes.
18. RESTATEMENT OF THE CONSOLIDATED FINANCIAL STATEMENTS:
The previously issued financial statements gave retroactive effect to the
disposal of Hutronix, Inc., which was formally disposed of under contract in
November, 1995. These financial statements do not provide retroactive treatment
for the disposal of the subsidiary.
In addition, management had proposed a prior period adjustment for
approximately $65,000 of expenses paid by a third party on the Company's behalf,
which were expenses for the year ended June 30, 1994. Management was unable to
obtain the prior accountant's concurrence with the adjustment, and determined
that, due to immateriality, they would forego the prior period adjustment.
As a consequence of restoring the balance sheet of Hutronix, Inc. as of
June 30, 1995, the Company recorded an impairment allowance for one hundred
percent of the remaining goodwill of approximately $128,000. In addition, the
original financial statements reported a misallocation on the net loss on
disposal of J.A. Industries (Canada), Inc. and Hutronix, Inc. Both companies
were disposed of at losses of approximately $200,000 and $70,000, respectively.
A summary of the changes and their effects, is as follows:
<TABLE>
<S> <C>
Net loss, as originally reported........................................... $(1,590,820)
----------
Deferral of loss on disposition of Hutronix, Inc........................... 69,946
Impairment of goodwill of Hutronix, Inc.................................... (128,000)
Reversal of prior period adjustment........................................ (65,652)
----------
Net effect (.02 per share)................................................. (123,706)
----------
Restated net loss.......................................................... $(1,714,526)
----------
</TABLE>
19. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements give effect to the reverse acquisition by J.A. Industries, Inc. of
Kenmar Business Group, Inc., pursuant to the Agreement and Plan of Merger
between the parties, and is based on the estimates and assumptions set forth
herein and in the notes to such statements. This pro forma information has been
prepared utilizing the historical financial statements and notes thereto, which
are incorporated by reference herein. The pro forma financial data does not
purport to be indicative of the results which actually would have been obtained
had the purchase been effected on the dates indicated or of the results which
may be obtained in the future.
The pro forma financial information is based on the purchase method of
accounting for the merger of Kenmar Business Group, Inc.. The pro forma entries
are described in the accompanying notes to the unaudited pro forma condensed
consolidated financial statements. The pro forma unaudited condensed
consolidated balance sheet assumes the merger took place on the date of the
balance sheet. The pro forma unaudited condensed consolidated statements of
operations assume the acquisition took place on the first day of the period
presented.
-23-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Unaudited pro forma adjustments are based upon historical information,
preliminary estimates and certain assumptions that management deems appropriate.
The unaudited pro forma combined financial data presented herein are not
necessarily indicative of the results the Company would have obtained had such
events occurred at the beginning of the period, as assumed, or of the future
results of the Company. The pro forma combined financial statements should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus.
MERGER:
On March 1, 1996, J.A. Industries, Inc. entered into an Agreement and Plan
of Merger with Kenmar Business Group, Inc. Under the Agreement, J.A. Industries,
Inc. will issue a private placement of stock, the proceeds of which will be used
to pay outstanding liabilities of J.A. Industries, Inc., provide at least
$200,000 of cash, and a book value of $200,000. J.A. Industries, Inc. will then
perform a 1 for 4 reverse stock split, and issue common stock of an amount equal
to the post-split number of shares outstanding to provide Kenmar Business Group,
Inc. a fifty percent ownership interest.
-24-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 1996
The following represents the unaudited pro forma condensed consolidated
balance sheet for February 29, 1996, assuming the following transactions were
consummated on February 29, 1996:
(1) Issuance of stock through private placements to meet capital
conditions of the Agreement, and to terminate consulting agreements
(2) Reverse merger of Kenmar Business Group, Inc. for issuance of
approximately 2,700,000 shares of common stock of J.A. Industries, Inc.
<TABLE>
<CAPTION>
J.A.
INDUSTRIES, KENMAR
INC. AND BUSINESS
SUBSIDIARIES GROUP, INC. PRO FORMA PRO FORMA
DECEMBER 31, FEBRUARY 29, MERGER CONSOLIDATED
1995 1996 ADJUSTMENTS AMOUNTS
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents...................................... $ -- $ 744,533(1) $ 560,000 $ 1,304,533
Other current assets........................................... -- 974,959 974,959
Total Current Assets...................................... -- 1,719,492 2,279,492
Property and Equipment, Net...................................... -- 496,337 496,337
Other Assets..................................................... -- 160,748 160,748
$ -- $2,376,577 $ 2,936,577
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.............................. $ 68 $ 39,520 39,588
Accounts payable............................................... 138,167 621,852(1) (50,000) 710,019
Share subscription deposits.................................... 123,383 --(1) (123,383) --
Accrued expenses............................................... -- 94,833 94,833
Total Current Liabilities................................... 261,618 756,205 844,440
Long-term debt................................................. 21,064 598,986 620,050
Preferred stock................................................ -- 759,129 759,129
21,064 1,358,115 1,379,179
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock................................................... 19,792 64,714(1) 7,666 11,797
(2) (80,375)
Additional paid-in capital..................................... 5,129,253 213,941(1) 807,466 717,559
(2) (5,433,101)
Accumulated deficit............................................ (5,427,223) (16,398)(1) (81,749) (16,398)
(2) (5,508,972)
Cumulative translation adjustment.............................. (4,504) (2) 4,504 --
(282,682) 262,257 712,958
Total Liabilities and Stockholders' Equity.................. $ -- $2,376,577 $ 2,936,577
</TABLE>
J.A. Industries, Inc.'s balance sheet was prepared using the Company's
December 31, 1995 balance sheet. Kenmar Business Group, Inc.'s balance sheet was
prepared using their February 29, 1996 balance sheet. J.A. Industries, Inc. did
not enter into any significant transactions subsequent to December 31, 1996 that
would materially distort the financial position of the pro forma combined
company as of February 29, 1996.
-25-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED OPERATING STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1995
The following represents the unaudited pro forma condensed consolidated
operating statement for the year ended August 31, 1995, assuming the following
transactions were consummated on August 31, 1994:
(1) Record disposal of Hutronix, Inc. and J.A. (Canada), Inc.
(2) Issuance of stock through private placements to meet conditions of
the Agreement.
<TABLE>
<CAPTION>
J.A.
INDUSTRIES,
INC.,
J.A. AS KENMAR
INDUSTRIES RECORD ADJUSTED, BUSINESS
INC. DISPOSAL OF FOR THE GROUP, INC.
FOR THE HUTRONIX, INC. YEAR FOR THE
YEAR ENDED AND J.A. ENDED YEAR ENDED PRO FORMA PRO FORMA
JUNE 30, (CANADA) JUNE 30, AUGUST 31, MERGER CONSOLIDATED
1995 (A) INC. (1) 1995 1995 (A) ADJUSTMENTS AMOUNTS
<S> <C> <C> <C> <C> <C> <C>
Revenue.................................. $ 4,330,211 $ (4,330,211) $ -- $15,565,662 $ 15,565,662
Cost of Sales............................ 3,618,347 (3,618,347) -- 13,883,090 13,883,090
Gross Profit........................... 711,864 -- 1,682,572 1,682,572
General, Selling and Administrative...... 2,095,978 (1,328,210) 767,768 1,233,587 2,001,355
Operating Income (Loss)................ (1,384,114) (767,768) 448,985 (318,783)
Other Income (Expense)................... (330,412) 270,928 (59,484) (267,487) (326,971)
Income (Loss) before Income Taxes........ (1,714,526) (827,252) 181,498 (645,754)
Income Taxes............................. -- -- -- --
Net Income (Loss)........................ (1,714,526) (827,252) 181,498 (645,754)
Accretion of Preferred Stock............. -- -- (54,006) (54,006)
Undeclared Dividends on Preferred
Stock.................................. -- -- (49,630) (49,630)
Net Income (Loss) Applicable to Common
Shareholders........................... $(1,714,526) $ (827,252) $ 77,862 $ (749,390)
Net Income (Loss) per Share.............. $ (.25) $ (.12) $ 1.26 $ (.16)
Weighted Average Shares
Outstanding............................ 6,724,440 6,724,440 61,999 4,715,473
</TABLE>
(a) J.A. Industries, Inc.'s income statement was prepared using the
Company's June 30, 1995 year end. Kenmar Business Group, Inc.'s income statement
was prepared using their August 31, 1995 year end. J.A. Industries, Inc. did not
enter into any significant transactions subsequent to their June 30, 1995 fiscal
year end that would materially distort the operating results of the pro forma
combined company for the year ended August 31, 1995, except for the disposition
of the Hutronix division in November, 1995.
-26-
<PAGE>
<PAGE>
J.A. INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED OPERATING STATEMENT
FOR THE SIX MONTH PERIOD ENDING FEBRUARY 29, 1996
The following represents the unaudited pro forma condensed consolidated
operating statement for February 29, 1996, assuming the following transactions
were consummated on August 31, 1995:
(1) Record disposal of Hutronix, Inc. as of November 23, 1995.
(2) Issuance of stock through private placements to meet conditions of
the Agreement and to terminate consulting agreements.
<TABLE>
<CAPTION>
J.A.
INDUSTRIES KENMAR
INC. AND BUSINESS
SUBSIDIARIES GROUP, INC.
FOR THE FOR THE
SIX MONTH RECORD J.A. SIX MONTH
PERIOD ENDED DISPOSAL INDUSTRIES, PERIOD ENDED PRO FORMA PRO FORMA
DECEMBER 31, OF HUTRONIX, INC., FEBRUARY 29, MERGER CONSOLIDATED
1995(A) INC. (1) AS ADJUSTED 1996 (A) ADJUSTMENTS AMOUNTS
<S> <C> <C> <C> <C> <C> <C>
Revenue................................ $ 709,747 $ (709,747) $ -- $1,354,383 $ 1,354,383
Cost of Sales.......................... 606,707 (606,707) -- 1,373,793 1,373,793
Gross Profit (Loss).................. 103,040 -- (19,410) (19,410)
General, Selling and Administrative.... 550,879 (157,231) 393,648 397,350 790,998
Operating Loss....................... (447,839) (393,648) (416,760) (810,408)
Other Expense.......................... (74,591) (73,110) (1,481) (17,071) (18,552)
Loss before Income Taxes............... (522,430) (395,129) (433,831) (828,960)
Income Taxes........................... -- -- -- --
Net Income from Continuing
Operations........................... (522,430) (395,129) (433,831) (828,960)
Accretion of Preferred Stock........... -- -- (29,285) (29,285)
Undeclared Dividends on Preferred
Stock................................ -- -- (12,408) (12,408)
Net Loss from Continuing Operations
Applicable to Common
Shareholders......................... $ (522,430) $ (395,129) $ (475,524) $ (870,653)
Net Loss per Share from Continuing
Operations........................... $ (0.07) $ (.05) $ (7.35) $ (.17)
Weighted Average Shares Outstanding.... 7,696,310 7,696,310 64,714 5,225,009
</TABLE>
(a) J.A. Industries, Inc.'s operating statement was prepared using the
Company's December 31, 1995 six month operating statement. Kenmar Business
Group, Inc.'s operating statement was prepared using their February 29, 1996 six
month operating statement. J.A. Industries, Inc. did not enter into any
significant transactions subsequent to December 31, 1995 that would materially
distort the operating results of the pro forma combined company for the six
month period ended February 29, 1996.
-27-
<PAGE>
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) The former accountant, MacKay and Partners were dismissed on March 30,
1995 by shareholders at the Company's annual meeting. The accountants report on
the financial statement for fiscal year June 30, 1994 contained an adverse
opinion by qualifying the statements with a "going concern" opinion. The
decision to change the accountants was approved by the Board of Directors of the
Company.
There were no disagreements with the former accountants.
The accounting firm of Semple and Cooper were engaged on July 17, 1995 to
conduct the audit for the fiscal year end June 30, 1995. There were no previous
discussions with the new accountants with regards to any accounting policy or
opinions.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON; COMPLIANCE
WITH SECTION 16(A)
OF THE EXCHANGE ACT.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert W. Knight 38 President
Secretary/Treasury
Director
Karl Gelbard 73 Director
James Burns 65 Chairman of the Board
</TABLE>
JAMES BURNS was President from September 1, 1994 to June 17, 1995 and
Director and Chairman of the Board of the Company since September 1, 1994.
Subsequent to the year end, Mr. Burns resigned as Chairman of the board. From
1992 to present Mr. Burns is co-founder and Chairman of Anagram Associates a
software products company in involved in quality control. From 1971 to 1992 Mr.
Burns was employed by Burr-Brown Corp. He held the position of President and
C.E.O. from 1983 to 1992. Mr. Burns is on the board of Regents of the Milwaukee
School of Engineering; he is a director and on the National Advisory Board for
the University of Arizona, College of Business and Public Administration; he is
a member of the advisory board of the Arizona State Hospital; founder and former
president of Tucson Community Foundation; Former president, Director and
Treasure of the Junior Achievement of Tucson; member and former director and
Treasurer of the Tucson Airport Authority; Former director treasurer and
executive committee of the American Electronic Association.
ROBERT W. KNIGHT has been Secretary-Treasurer and a director of the Company
since July 15, 1992 and was President from July 1992 August 31, 1994. Subsequent
to the year end, he was reappointed President of the Company on July 5, 1995.
From 1991 to July, 1992, he was an independent financial consultant. From 1989
to 1991, Mr. Knight was the President and Director of three companies,
Bellwether Resources, Silver Spur Resources and First Star Capital Corp. Mr.
Knight has 10 years of experience in the public company arena and corporate
finance.
KARL GELBARD has been a director of the Company since October 29, 1993. Mr.
Gelbard has been retired since 1987. Previous to his retirement, Mr. Gelbard was
a senior V.P. with Merril Lynch International setting up and running their far
eastern operations.
-28-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid or to be paid by
the Company or any of its subsidiaries, as well as certain other compensation
paid or accrued, during the fiscal years indicated, to the Chief Executive
Officer for such period in all capacities in which he served. No other Executive
received total annual salary and bonus in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS PAYOUTS
ANNUAL COMPENSATION (E) (F) (H)
OTHER RESTRICTED ALL OTHER
(C) ANNUAL STOCK (G) LTIP
(A) (B) BONUS/ (D) COMPEN- AWARD OPTIONS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR SALARY ($) SATION($) ($) SARS ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Knight 1995 $36,000 0 0 0
President 1994 $36,000 0 10,000
1993 $36,000
Alexander Michie 1995 $10,000 0 0 0
former director 1994 $36,000 0 10,000
1993 $36,000
Karl Ronstadt 1995 $36,000 0 0 0
former director 1994 $36,000 0 10,000
1993 $36,000
James Burns 1995 $55,000 0 0 0
Chairman of the Board 1994 0
1993 0
<CAPTION>
(A) (I)
NAME AND PRINCIPAL POSITION COMPENSATION (I)
<S> <C>
Robert Knight 0
President
Alexander Michie 0
former director
Karl Ronstadt 0
former director
James Burns 0
Chairman of the Board
</TABLE>
The following table sets forth information with respect to the Chief
Executive Officer concerning exercise of options during the last fiscal year and
unexercised options and SARs held as of the end of the fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(C)
PERCENT OF TOTAL
(B) OPTIONS/SARS
OPTIONS/ GRANTED TO (D) (E)
(A) SARS EMPLOYEE EXERCISE OR BASE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE ($/SH) DATE
<S> <C> <C> <C> <C>
Robert W. Knight 0 0 N/A N/A
</TABLE>
-29-
<PAGE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR
<TABLE>
<CAPTION>
(E)
(D) VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SAR OPTIONS/SAR
(B) (C) AT FY-END (#) AT FY-END (#)
(A) SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Robert W. Knight 0 N/A 10,000 0
</TABLE>
The following table sets forth information with respect to the Chief
Executive officer concerning the grants of options and Stock Appreciation Rights
("SAR") during the past fiscal year:
ESTIMATED FUTURE PAYOUT UNDER NON-STOCK
PRICE BASED PLANS
<TABLE>
<CAPTION>
(C)
(B) PERFORMANCE
NUMBER OF OR OTHER (F)
SHARES, UNITS PERIOD UNTIL (D) (E) MAXIMUM
(A) OR OTHER MATURATION OR THRESHOLD TARGET ($ OR
NAME RIGHTS (#) PAYOUT ($ OR #) ($ OR #) #)
<S> <C> <C> <C> <C> <C>
Robert W. Knight 0 0 N/A N/A N/A
</TABLE>
-30-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1995 information with
respect to (1) any person known by the Company to own beneficially more than
five percent (5%) of the Company's Common Stock, (2) the shares of Common Stock
beneficially owned by each officer and director of the Company, and (3) the
total of the Company's Common Stock beneficially owned by the Company's officers
and directors as a group.
<TABLE>
<CAPTION>
SHARES PERCENT OF
STOCKHOLDER BENEFICIALLY OWNED CLASS (1)
<S> <C> <C>
Karl Ronstadt (2)
2400 S. 34th Place
Tucson, AZ 85726................................................................. 563,600 8.4 %
Karl Gelbard (3)
4001 South Ocean Drive
Hollywood, FL 33019.............................................................. 20,000 >1.0 %
Robert W. Knight (4)
4025 Sunset Boulevard
North Vancouver, B.C.
Canada........................................................................... 321,000 4.8 %
James J. Burns (5)
5991 E. Placita De Las Luce
Tucson, AZ 85715................................................................. 0 0 %
All directors and officers as a group
(3 persons)...................................................................... 341,000 4.9 %
</TABLE>
(1) Calculation based on 6,724,440 shares outstanding (including shares that
have been paid for in full, but not issued) as of June 30, 1995. Information
derived from the transfer agent, security holders and/or Company records.
(2) Includes 262,000 shares owned by Baboquivari Cattle Company, which is wholly
owned by Mr. Ronstadt, and 77,600 shares owned by CER Trust, a family trust
over which Mr. Ronstadt has beneficial control. Subsequent to the year end,
the shares owned by Baboquivari Cattle Company were returned to treasury as
part of an agreement between the Company and Baboquivari (see Item 4.
"Submission of Matters to a vote of Security Holders").
(3) Includes an option to purchase up to 10,000 shares of the Company's Common
Stock at $2.00 per share expiring on January 1, 1999.
(4) Includes an option to purchase 10,000 shares of Common Stock of the Company
at $2.00 per share, expiring on January 1, 1999. The 311,000 shares are
owned by a private corporation controlled by Robert Knight. Subsequent to
the year end, Robert Knight disposed of 250,000 shares in a private
transaction.
(5) Subsequent to the year end, Mr. Burns was granted stock options in the
amount of 400,000 shares exercisable at $1.10 per share. Such options have
now expired with the resignation of Mr. Burns.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE COMPANY
Hutronix paid monthly management fees to Baboquivari until February, 1995,
which is 100% owned by Karl G. Ronstadt, a former director. Management fee
expense, included in selling expenses, totalled $62,000, $108,000, $97,001 and
$82,630 in 1995, 1994, 1993, and 1992 respectively. The terms of these
transactions are as favorable as those which might have been obtained from
unaffiliated parties.
Hutronix's revolving line of credit with a bank is secured by the
guarantees of the Company, Mr. Ronstadt and Baboquivari.
Hutronix paid $25,200, $25,200, and $23,100 in 1995, 1994 and 1993,
respectively, to maintain a life insurance policy on its former President, Karl
G. Ronstadt, a former Company Director. Bank One of Arizona is the beneficiary
of the life insurance policy due to the guarantees provided by Mr. Ronstadt and
Baboquivari.
Hutronix's note payable to a bank bearing interest at 65% of prime is
secured by an irrevocable letter of credit guaranteed by Mr. Ronstadt and
Baboquivari and the Company. Further, the note payable is secured by the above
discussed life insurance policy.
-31-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBITS
<C> <S>
3.a Certificate of Incorporation*
3.b Amendments to Certificate of Incorporation*
3.c Bylaws*
10.a Polytech Acquisition Agreement*
10.b Polyurethane Junction Box Patent*
10.c ETTA License Agreement*
10.d IBI Agreement*
10.e Hutronix Acquisition Agreement*
10.f CCP Asset Acquisition Agreement*
10.g Torik Acquisition Agreement*
10.h Port Coquitlam Lease*
10.i Granite License Agreement*
10.j Option to Acquire Link Technologies (Canada) Inc.
10.k Letter of Intent with MiNT Corporation
10.l Agreement for Sale of J.A. Industries (Canada) Inc.*
10.m Settlement Agreement between BCC, Ronstadts and Company
13.a Quarterly Reports*
16.a Letter on change in certifying accountants*
21. Subsidiaries of the Registrant
23.a Consent of experts and counsel*
</TABLE>
* Incorporated by reference
-32-
<PAGE>
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.
J.A. INDUSTRIES, INC.
By:
PRESIDENT
Date: January 31, 1996
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>
SIGNATURE TITLE DATE
<S> <C> <C>
By: Chairman of the Board January 31, 1996
By: Director January 31, 1996
</TABLE>
-33-
<PAGE>
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.
J.A. INDUSTRIES, INC.
By: per:/s/ ROBERT KNIGHT
ROBERT KNIGHT
PRESIDENT
Date: July 3, 1996
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>
SIGNATURE TITLE DATE
<S> <C> <C>
By: per:/s/ ROBERT KNIGHT Chairman of the Board July 3, 1996
ROBERT KNIGHT
</TABLE>
-34-
