<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File
Number 0-4979
SQUARE INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
New York 13-2610905
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
921 Bergen Avenue, Jersey City, N.J. 07306
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (201) 798-0090
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of Registrant's common stock, as of December 31,
1995: 1,166,356
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of Registrant
(deemed by Registrant for this purpose to be those persons, along with members
of their families, known to Registrant to beneficially own, exclusive of shares
subject to outstanding options, less than 5% of the outstanding shares of
Registrant's Common Stock) computed by reference to the closing sales price as
reported on the National Market System on March 19, 1996: $4,078,550.
Documents incorporated by reference: None
<PAGE>
PART I
ITEM 1. BUSINESS
General. Square Industries, Inc., a New York corporation (the
"Registrant", which term also includes the activities and operations of its
subsidiaries), has been engaged since its organization in 1968 in the parking
industry, principally in the operation and management of parking lots and
garages, and, since May 1980, in the operation of a self-service gasoline
station in New York.
In connection with its parking operations, the Registrant from time to
time acquires, holds, develops, operates and sells real properties which were
originally acquired or leased with the view to conducting a parking operation
thereon or therein. Rentals derived from, and expenses incurred with respect to,
such real properties have been and are included, respectively, in parking
service revenues and cost of parking services in the Consolidated Statements of
Operations of the Registrant.
In January 1995, the Board of Directors of Registrant authorized a
change in the Company's fiscal year from the period ending the last day of
February to the period ending December 31, such change effective initially with
respect to the ten months ended December 31, 1994 (the "1994 Ten-Month Period").
Parking and Service Station Operations. As of December 31, 1995,
Registrant operated or managed 116 locations with an aggregate parking capacity
of approximately 57,700 cars--a net increase of approximately 2,400 cars from
the capacity at December 31, 1994.
During the year ended December 31, 1995 (the "1995 Year"), Registrant
commenced parking operations at eleven locations and ceased operations at seven,
and commenced operations in Indiana and Georgia. Accordingly, as of December 31,
1995 it was conducting parking operations in New York, New Jersey, Pennsylvania,
Maryland, Massachusetts, Delaware, Indiana, Georgia and the Province of Ontario,
with more than 60% of the 116 facilities being operated through ownership or
lease, and the balance being operated under management agreements. See Item 2
for information as to the Registrant's ownership of, and leasehold interests in,
these locations. Also, see Note 12 of the Notes to Consolidated Financial
Statements for information as to the operating loss and the identifiable assets
of the Canadian operation.
For the period from December 31, 1995 through March 15, 1996, Registrant
commenced operations at one location, but terminated operations at three
locations, resulting in a net reduction of two locations, but a net increase in
parking capacity of approximately 2,800 spaces.
Registrant's management agreements generally provide for the
Registrant to manage the location for a specified term at a specified fee plus,
in many instances, incentives based on revenues and/or profits.
<PAGE>
Registrant expanded its operations in June 1995, into Indianapolis
through a long term lease of an approximately 1,000 car capacity underground
garage in which lease it holds a 50% beneficial interest, and a related long
term management agreement.
Registrant operates under a lease, which commenced during the year ended
February 28, 1993, a park and shuttle surface facility in a low-cost area on the
fringe of the midtown commercial and theater districts on the west side of New
York City. The location of the property permits the offering of lower rates than
if located in the heart of the midtown area. Registrant also offers a shuttle
service at its Sky/Park location at Newark Airport.
The parking fees charged by Registrant vary depending primarily upon the
location of the parking lot or garage, ranging, as of March 15, 1996, from $5.00
per day at a New Jersey location to $28.75 per day at certain locations in New
York City. Both hourly and monthly rates are offered at most locations.
Registrant maintains a policy of stimulating patronage through sales promotions
such as special rates and discounts.
Registrant also provides consulting services to architects, owners and
other operators of parking facilities. Fees derived from this activity have not
been significant.
The gasoline station, which is a self-service volume gas station, was
built in May 1980 on a portion of one of Registrant's parking lots; the balance
of the lot contains parking facilities for approximately 70 cars. The station
has 10 gasoline pumps with 30 dispensers and offers the gasoline and oil
products of a major oil company pursuant to a long-term agreement entered into
October 1993.
Related Real Estate Operations. During the 1995 Year, Registrant
purchased a parking location in Pittsburgh it had been operating under a lease
and resold the property subject to the lease shortly thereafter for a gain of
approximately $26,000. No acquisitions of properties were effected during the
1994 Ten-Month Period.
Registrant's principal real property which does not constitute a garage
or parking lot is a building and adjoining parcels in Newark, New Jersey. The
acquisition and development costs of the eight-story brick building, built in
the 1920's and containing more than 200,000 square feet, and the approximately
one-acre tract on which the building is located amounted to approximately
$710,000. Registrant acquired the property with a view to the possible expansion
of Registrant's parking lot across the street. Since the early 1990's Registrant
has been considering improving the building which, at the time of acquisition,
was, and has since remained, vacant, into a building with retail and office
space.
Two garages and two surface facilities are operated by Registrant under
leases which also cover retail establishments located in or adjacent to the
related structure or operation. The retail establishments have been sublet to
non-affiliated persons and produced sublet income of approximately $589,500 for
the 1994 Ten-Month Period and $816,500 for the 1995 Year.
Competition. There are many parking operators engaged in the operation
of garages and parking lots in the areas in which Registrant operates, including
companies which are affiliated with officers or directors of Registrant. See
"Item 13. Certain Relationships and Related Transactions." Registrant believes
that the principal competitive factors in the industry in its areas of
operations are location, rates and quality of service.
<PAGE>
There are also many entities and individuals engaged in the ownership
and development for commercial purposes of real properties in the cities in
which Registrant currently holds or is developing properties for such purposes,
including, in some areas, persons affiliated with Registrant. Many of the
competitors have greater resources and staffs than does the Registrant.
Significant Parking Facilities. Approximately 32.0% of Registrant's
parking service revenues for the 1995 Year were derived in the aggregate from
seven locations, each of which accounted for not less than 3.5% of the parking
service revenues for the period. Operations at one location terminated in
January 1996, and Registrant is contesting the purported termination as a result
of the failure of the lessor to recognize an extension by Registrant of the term
of a lease covering a majority of the area of another location. Revenues from
the two locations represented in the aggregate approximately 8.6% of the total
revenues for the 1995 Year. Of the other locations, three are held under
non-cancelable long-term leases and two are held under a long-term leases,
cancelable on short notice under certain circumstances. Cancellation of either
cancelable lease by the lessor may have a materially adverse effect upon
Registrant's results of operations in the event the Registrant fails to obtain
another or other materially profitable locations.
Regulation. The establishment and operations of parking lots and garages
and the construction and development of such properties are affected by federal
air quality laws and state and local air quality and zoning laws. The Registrant
is also subject to local licensing laws, which generally provide for the
maintenance of certain standards, including in some instances the posting and
registering of all parking rates.
The regulations are intended, for the most part, to achieve improved air
quality conditions and to permit neighborhood conservation and may have the
effect of reducing traffic flow in central business districts, restricting the
establishment of parking facilities in such districts and/or limiting their
operation and increasing the cost of construction or improvement.
The New York City Planning Commission, as a means of regulating land-use
and pollution, requires, with certain exceptions, that parking operators obtain
permits for new facilities.
The New Jersey Casino Control Commission requires service industries
doing business with casinos to obtain service industry licenses. The Registrant
has three licenses, the later of which was granted during the year ended
February 29, 1992, in connection with its operations in Atlantic City, New
Jersey.
In the operation of real properties, Registrant had been, and may in the
future be, subject to substantial regulation, particularly in municipalities
such as New York.
The Registrant believes that its operations are in substantial
compliance with existing laws and regulations.
<PAGE>
Employees. As of March 10, 1996, Registrant employed 1,167 persons
(including 54 management, clerical and office support personnel and 16
supervisors), of which 206 persons are part-time. Of the Registrant's full-time
employees, 627 are covered by collective bargaining agreements. A multi-employer
agreement which covers 188 employees in the New York Metropolitan Area replacing
an agreement which expired in 1992 was approved and ratified in March 1995, but
is subject to court approval of a settlement of certain claims related to the
expired agreement. A collective bargaining agreement replacing one which expired
in October 1991 with a local in Philadelphia was approved in February 1995. A
third collective bargaining agreement covering 220 employees, replacing an
agreement which expired prior to February 29, 1992 and had been extended by the
Registrant pending conclusion of the related negotiations, was approved in June
1995. The three agreements do not, in the aggregate, provide for a material
increase in labor costs. A fourth agreement covering approximately 115 employees
expired prior to February 28, 1992 but has been extended by Registrant pending
conclusion of the related negotiations. No assurance can be given that a new
agreement will be concluded without a work stoppage or that when concluded it
will not provide for a material increase in labor costs.
Seasonal Business. Registrant does not consider its business to be
seasonal, although parking revenues are usually higher during the second and
fourth quarters of the calendar year, barring snow, than during the remainder of
the year. The snowy weather during December 1995 had an adverse effect on
revenues for the three months ended December 31, 1995. The snow storms suffered
in the Registrant's areas of operation in December 1993 and January and February
1994 had a materially adverse effect on the Registrant's revenues and operating
results for the year ended February 28, 1994.
Industry Segments and Lines of Business. Contributions to revenues and
operating income by the parking and gasoline service station operations and the
related amounts of identifiable assets for the 1995 Year, the 1994 Ten-Month
Period and the year ended February 28, 1994 are set forth in Note 13 of the
Notes to the Consolidated Financial Statements. See Items 7 and 8.
ITEM 2. PROPERTIES
Of the 116 parking facilities either operated by or for which the
Registrant provided management services as of December 31, 1995, Registrant
owned 11 (all of which are subject to outstanding mortgages), leased 63
locations and operated 42 under management agreements. See "Item 1--Related Real
Estate Operations" for a description of a non-parking property owned by
Registrant.
Of the owned parking facilities, three with an aggregate area of
approximately 151,600 square feet are in New York City; three with an aggregate
area of approximately 306,750 square feet are in New Jersey; and five with an
aggregate area of approximately 64,000 square feet are in Pennsylvania. (See
Note 2 of the Notes to the Consolidated Financial Statements.) Registrant also
owns a tract and a partially-improved parcel, both vacant, in New Jersey, having
an aggregate area of approximately 51,500 square feet. The tract and parcel are
adjacent to an existing parking facility owned by Registrant. They may be
developed as an expansion of the adjacent facility.
<PAGE>
The Registrant's lease agreements provide for terms ranging from
month-to-month to an expiration date in 2034 and vary as to rental obligations,
with some providing for percentage rentals, some providing for fixed rentals,
and some providing for a combination of the two. Several leases allow
termination by the lessors upon written notice, with some of the related
agreements requiring notice to be in conjunction with the commencement of
construction and/or payback of certain unamortized improvement costs. Certain
agreements require that the affected premises may not be utilized for parking
operations for specified periods after termination.
Registrant's approximately 7,000 square feet of executive and
administrative offices at 921 Bergen Avenue, Jersey City, New Jersey, are
occupied under a month-to-month tenancy.
ITEM 3. PENDING LEGAL PROCEEDINGS
Registrant, as of March 15, 1996, was not a party to any proceeding
which involved a claim against it for damages in excess of 10% of its
consolidated current assets (except actions for negligence for which Registrant
believes the ultimate liabilities, if any, will be adequately covered by
insurance or as to which Registrant has adequate defenses) or which it otherwise
deems material; nor was it aware of any material proceedings commenced by
Registrant or contemplated against Registrant by any governmental authority,
other than various proceedings with respect to the assessments aggregating
approximately $480,000 of local taxes for the periods of June 1, 1981 through
May 31, 1987 plus interest. The Supreme Court of the State of New York in one
proceeding upheld in February 1996 assessments of $207,000 for commercial rent
tax by the Finance Department of the City of New York for the period of June 1,
1981 through May 31, 1984. No determination of the amount of the interest
payable on the claim, other than it will materially exceed, possibility to the
extent of being a multiple of the principal amount, has been made. While
Registrant believes that it has made adequate provisions with respect to the
assessments and the related interest, no representation can be made at this time
that such provisions will prove adequate.
On March 29, 1996, the United States District Court for the Eastern
District of Pennsylvania approved a net cash settlement of $1,700,000 plus
interest payable to the Registrant as one of several plaintiffs in a class
action brought against the owner, manager and tenant of a building in midtown
Philadelphia which suffered a fire in February 1991, causing substantial
disruption of the operations of the plaintiffs.
Registrant instituted an action in 1996 in the Supreme Court of the
State of New York against the sublessor of a sublease which relates to the
majority of the area of an approximate 500 car facility and retail stores
adjoining the facility in New York City to require the term of the sublease to
be extended as a result of the valid exercise by Registrant of the renewal
option. See "Item 1 - Significant Parking Facilities".
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the three months ended December 31,
1995 to a vote of security holders.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) The Registrant's Common Stock has been quoted under the symbol SQAI
since May 10, 1982 on NASDAQ and has traded on the National Market System
("NMS") since November 19, 1985. The following is a list of the low and high bid
quotations by fiscal quarters for the first three quarterly periods during the
1994 Ten-Month Period and the month of December 1994 and for the calendar
quarters of the 12-month period ended December 31, 1994 and the 1995 Year as
reported by NASDAQ:
Ten Months Ended 12/31/94 Low High
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Quarter ended May 31, 1994 3-1/8 5
Quarter ended August 31, 1994 2-1/2 3-3/8
Quarter ended November 30, 1994 2-1/2 3
Month ended December 31, 1994 2-3/8 2-3/8
Twelve Months Ended 12/31/94 Low High
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Quarter ended March 31, 1994 4-1/4 6
Quarter ended June 30, 1994 2-3/4 4
Quarter ended September 30, 1994 2-1/2 3-3/8
Quarter ended December 31, 1994 2-3/8 3
Year Ended 12/31/95 Low High
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Quarter ended March 31, 1995 2-5/8 5-1/8
Quarter ended June 30, 1995 5 6 3/4
Quarter ended September 30, 1995 5-1/2 6-3/4
Quarter ended December 31, 1995 5-1/2 8-5/8
(b) There were, as of December 31, 1995, 256 record-holders of the
Registrant's Common Stock.
(c) No dividends were declared by Registrant during either the 1995 Year
or the 1994 Ten-Month Period.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(000's omitted except per share data)
Year Ended February 28 or 29,
----------------------------------------
Year Ten Months
Ended Ended
12/31/95 12/31/94 1994 1993 1992
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Parking service revenue $61,772 $50,936 $59,775 $62,855 $61,800
Service station revenue 4,159 3,494 4,295 4,923 5,382
Costs and expenses 64,227 53,714 65,283 67,278 71,883
Elimination of provision for increased
labor costs (410) -- -- -- --
Earnings (loss) before
extraordinary item 2,114 716 (1,213) 500 (4,701)
Provision (benefit) for income taxes (125) 196 (398) 646 28
Extraordinary item--income
tax benefit from utilization of net
operating loss carry forwards -- -- -- 100 133
Net earnings (loss) 2,239 520 (815) (46) (4,596)
Earnings (loss) per share:
Before extraordinary
item 1.55 .42 (.61) (.12) (3.88)
Extraordinary item -- -- -- .08 .11
Net earnings (loss) 1.55 .42 (.61) (.04) (3.77)
Total assets 37,222 32,789 35,012 34,854 35,824
Long-term debt, including
current portion 19,259 18,268 20,986 22,123 23,347
Cash dividends paid -- -- -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the year ended December 31, 1995 (the "1995 Year"), the ten months
ended December 31, 1994 (the "1994 Ten Month Period") and the year ended
February 28, 1994 (the "1994 Year")
Registrant in January 1995 decided to change its fiscal year to a
calendar year and that the change be effective initially for the period ended
December 31, 1994. Accordingly, its fiscal year for that period is the ten-month
period ended December 31, 1994 (the "1994 Ten-Month Period").
<PAGE>
In the following discussion a contributing material factor to the
differences in results between periods is the difference in the length of the
periods during which revenues were generated and costs incurred (referred to
hereinafter as "Length of Periods Difference").
Registrant's parking service revenues for the 1995 Year were
$10,836,264, or 21.3%, greater than for the 1994 Ten Month Period. In addition
to the Length of Periods Difference, the principal contributing factors to the
increase was an increase in parking capacity and increased patronage, partially
offset by a reduction in revenues for the three months ended December 31, 1995
caused by heavy snows during December in Registrant's areas of operation and
$563,000 of additional rental revenues in the 1994 Ten Month Period received in
settlement of a prior dispute with a tenant. The increase in patronage is
attributable in part to the continued improvement of the general economy of the
regions in which Registrant's parking operations are located and the success of
the Registrant's promotions and discount programs.
Registrant's parking service revenues for the 1994 Ten-Month Period were
substantially the same (only $22,775 more) as those for the ten months ended
December 31, 1993 (the "1993 Ten-Month Period"). In view of the increased
proportion of the Registrant's car capacity that was operating under management
agreements during the 1994 Ten-Month Period, the revenues for that period
reflect an increase in both patronage and rates over those for the 1993
Ten-Month Period, attributable in part to the increasing success of Registrant's
promotions and discount programs. Registrant's parking service revenues for the
1994 Year were adversely affected by (i) the severe weather and the unusually
heavy snow storms suffered in the northeast and mid-Atlantic area during the
three months ended February 28, 1994, (ii) the reduction in parking revenues
from leased locations due to the expiration of leases for locations with parking
capacities for an aggregate of approximately 2,100 vehicles which was only
partially offset by the increase in management fees under management agreements
for additional locations having parking capacities, in the aggregate, for
approximately 880 vehicles, and (iii) the general adverse economic climate in
the metropolitan areas in which the Company operates which has affected
patronage and the rates charged at certain locations.
The increase for the 1995 Year of $7,347,329 (17.3%) in cost of parking
services over the costs for the 1994 Ten-Month Period is due to the Length of
Periods Difference. On an annualized basis, the cost of parking services for the
1994 Ten-Month Period was $1,013,416 more than the cost for parking services for
the 1995 year. The lower amount for the 1995 Year is the result of (i) the
reversal of a $410,000 provision for possible increased labor costs established
upon the expiration of a collective bargaining agreement during the year ended
February 29, 1992 which was no longer needed in view of the provisions of a new
agreement effected during the latter part of the 1995 Year, (ii) economies in
operations, principally through reductions in staff personnel and overtime
payments, and (iii) the operations on the average of fewer locations during the
1995 Year than those operating on the average through the 1994 Ten-Month Period,
although Registrant was operating four more locations as of December 31, 1995
than it was operating as of December 31, 1994. As a result, operating costs as a
percentage of parking revenues declined from 83.6% to 80.8% between the periods.
The reduction by $9,376,424 (18.1%) in the cost of parking services
between the 1994 Ten-Month Period and the 1994 Year is the result of the Length
of Periods Difference. On an annualized basis, such costs were $1,015,679,
(2.0%) less than those for the 1994 Year; the difference primarily the result of
<PAGE>
five fewer locations and the implementation of operating economies during the
1994 Ten-Month Period. As a result, the operating costs as a percentage of
parking service revenues were, respectively, 83.6% for the 1994 Ten-Month Period
as compared with 86.9% for the 1994 Year.
The fewer number of leased locations operated during the 1994 Ten-Month
Period as compared with those operated during the 1993 Ten-Month Period and, to
a lesser extent, the continued implementation of, and further economies in,
parking operations instituted by Registrant during the 1994 period, in part to
deal with declining demand resulting from the economic downturn and increased
competition in the Registrant's areas of operations, contributed to the material
reduction in costs of parking services of $499,632 (1.2%) for the 1994 Ten-Month
Period as compared with the costs for the 1993 Ten-Month Period. The operating
economies included staff reductions, a more efficient use of staff, volume or
discount purchasing and continued but reasonable deferrals of repairs and
maintenance.
Registrant will continue to attempt to implement current, and institute
additional, economies in its parking service operations.
The results of the Registrant's service station operation for the three
fiscal periods fluctuated and remained marginal in view of continued intense
competition in the industry and the geographical area served by the station.
Service station revenues and service station operating costs for the 1995 Year
were $664,655 (19.0%) and $632,556 (17.9%) greater, respectively, than those for
the 1994 Ten-Month Period. The station suffered operating losses of ($17,061)
for the 1995 Year and ($49,160) for the 1994 Ten-Month Period as compared with
operating income of $34,850 for the 1993 Ten-Month Period and $41,821 for the
1994 Year. The changes in revenues and costs stem, in addition to the Length of
Periods Difference, principally from fluctuations in patronage and wholesale and
retail gas prices.
The increase in general and administrative expenses of $1,560,694
(26.4%) and the increase of such costs as a percentage of parking service
revenues (only comparatively small amounts of such expenses are attributable to
the service station operations) from 11.6% to 12.1% for the 1995 Year as
compared with the 1994 Ten-Month Period were primarily the result of the Length
of Periods Difference and bonuses aggregating $276,868 for the Chairman and
Assistant Chairman for the 1995 Year (as compared with $73,444 for the 1994
Ten-Month Period) pursuant to their employment arrangements (the bonuses are
calculated on pre-tax income in excess of $300,000 before accruals for the
bonuses), partially offset by the continued implementation of economies,
principally in staffing, salaries and professional fees. On an annualized basis,
the general and administrative expenses for the 1995 Year were greater than
those for the 1994 Ten-Month Period by only $378,555 (5.3%). General and
administrative expenses for the 1994 Ten-Month Period were $200,896 (3.5%)
greater than those for the 1993 Ten-Month Period and increased from 11.2% to
11.6% as a percentage of total parking service revenues. The increase is
principally attributable to increased professional fees, higher maintenance
expenses with respect to Company vehicles and the amortization of a lender's fee
paid with respect to an extension of the Registrant's credit facility.
The provision for local rent tax generally reflects Registrant's
estimate of possible interest and additional assessments. Registrant is
contesting the assessments for the period from June 1, 1981 through May 31,
<PAGE>
1987. In February 1996 the Supreme Court of the State of New York upheld
assessments with respect to the period from June 1981 though May 31, 1984
amounting to $207,000. The related interest will be substantially greater.
Registrant believes that the amount of the reserves is adequate and no increase
in the $60,000 annual provision will be required.
The increase of $361,298 in interest expense from the 1994 Ten-Month
Period to the 1995 Year is the result of the Length of Periods Difference and
increases in borrowings and interest rates, partially offset by a $145,000
reduction in interest expense for the two months ended December 31, 1995
authorized by the October 1995 amendment to the credit facility agreement
because Registrant reduced on an annualized basis its operating costs, as
defined, by $500,000 from those for the year earlier period. The increase in
interest rates provided under an amendment to the credit facility agreement
effected in October 1994 and increases in the applicable prime rate of the
lender on which the interest rate is based were the principal reasons for the
increase of $114,068 (8.1%) in interest expense for the 1994 Ten-Month Period as
compared with the 1993 Ten-Month Period.
The asset write-downs of $315,598 for the 1995 Year, $124,168 for the
1994 Ten-Month Period and $477,629 for the 1994 Year consisted of write-offs of:
leasehold improvements costs and deferred expenses with respect to seven
locations during the 1995 Year, lease acquisitions costs and deferred expenses
with respect to four locations during the 1994 Ten-Month Period and lease
acquisition and improvements costs and deferred expenses with respect to three
locations during the 1994 Year. The write-downs were caused by the poor
operating results of the locations (the affected locations produced an aggregate
operating loss of approximately $298,000 for the 1995 Year, $271,000 for the
1994 Ten-Month Period and $457,500 for the 1994 Year), and the estimate of
management, as a result, of no or little reasonable expectation for improvement
of a magnitude to permit recovery of these costs.
Management periodically evaluates the recoverability of long-lived
assets based upon current and forecasted net income. The Registrant has not
determined the impact of the adoption of the recently issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which is
effective for the Registrant's fiscal year beginning January 1, 1996.
During the three fiscal years, the number of locations operated by
Registrant in Canada were reduced from 11 to eight as of March 1, 1994 and to
six as of January 1, 1995 and 1996 with revenues decreasing from $1,202,000 for
the 1994 Year to $215,000 for the 1994 Ten-Month Period and $281,000 for the
1995 Year; net losses from the operation for the three periods were,
respectively, ($252,000), ($285,000) and ($237,000). Commencing on January 16,
1996 Registrant moved one of its operations from a 2,000 car facility at the
Ottawa Civic Center to a 6,600 car facility at the Corel Centre, a new sports
and entertainment complex which serves the complex and surrounding hotels which
are in the area. In view of the materially greater seating capacity and many
more days in which events are scheduled at the Corel Centre than the Civic
Center, the Company anticipates materially increased fees and more favorable
operating results and, accordingly, that the investment relating to this
operation will be recovered.
<PAGE>
As a result of the foregoing, Registrant had earnings from parking and
service station operations of $2,113,692 for the 1995 Year and $716,080 for the
1994 Ten-Month Period as compared with an operating loss of ($1,212,752) for the
1994 Year.
The tax benefit of $125,000 for the 1995 Year despite the substantial
earnings is due to Registrant realizing $1,068,000 of its net deferred tax
assets as of December 31, 1995 in view of the improvement of Registrant's
operating results. Absent this realization, Registrant's net earnings for the
1995 Year would have been $1,170,872, or $.91 per share primary and $.83 per
share fully diluted. Additional realizations of the balance of the net deferred
tax assets at December 31, 1995 will be recorded when, in the opinion of
management, the realization of such is more likely then not.
The provision for income taxes for the 1994 Ten-Month Period of
$196,000, effective rate of 27.4%, is primarily the result of utilization of net
operating loss carryforwards and other items for a benefit totaling $314,000,
partially offset by state and city taxes (including minimum taxes) and losses of
the foreign subsidiary for which no benefit is available totaling $243,000. See
Note 10 of the Notes to the Consolidated Financial Statements. The income tax
benefit of $398,000 for the 1994 Year was primarily the result of the
recognition of refunds of prior year's state taxes which were not previously
recorded in the amount of $249,000.
Liquidity and Capital Resources
Registrant had a working capital deficit of ($2,333,878) as of December
31, 1995 as compared with a working capital deficit of ($4,032,414) as of
December 31, 1994. The deficits were primarily the result of the losses suffered
during prior periods and expenditures for acquisitions of properties, property
and lease improvements and refinancings.
During the three fiscal year periods, Registrant's Credit Agreement with
its principal bank lender has been amended several times to avoid or cure
defaults in the agreement. An amendment on June 14, 1993, as of February 28,
1993 modified financial covenants as to the maintenance of minimum net worth,
total liabilities to net worth and operating cash flow as of and for the period
ended the latter date and through February 28, 1994. A June 13, 1994 amendment,
effective as of February 28, 1994, extended the maturity to June 30, 1995,
increased the interest rate as of July 31, 1994 by an additional 1/2% per annum,
modified the financial covenants retroactive to December 1, 1994 and provided
for the payment to the lender of a $50,000 fee. The retroactive modification of
the covenants permitted the Registrant to be in compliance with the covenants as
of February 28, 1994 and through June 13, 1994. On October 11, 1994, the
Registrant's agreement was further amended to, among other things, extend the
maturity to May 31, 1997, increase the interest rate as of October 11, 1994 to
prime plus 2%, modify certain financial covenants retroactive to August 31,
1994, and provide for the payment of an additional $50,000 fee to the lender.
The covenant modifications permitted the Registrant to comply with the covenants
<PAGE>
as of August 31, 1994 and through May 1995. A further amendment was effected on
October 31, 1995 to provide more favorable terms with respect to principal,
interest payments and the financial covenants. The maturity dates of the
Facility I credit loan principal were extended to June 30, 1998 with respect to
$61,900, September 30, 1998 with respect to $150,000 and December 31, 1998 with
respect to the balance, which as of September 30, 1995, amounted to $11,518,208,
and the quarterly installment payment dates for the Facility II term loan in the
aggregate principal amount of $1,688,100 were deferred to the calendar quarters
ending in the period June 30, 1996 to June 30, 1998. The amendment provides for
prepayment of principal to the extent of 50% of the Company's cash flow above
designated levels. The amendment also provides that commencing November 1, 1995
interest is to be paid at the rate of 4% per annum, with the balance of the
interest rate (the Bank's prime plus 2% per annum) to be accrued but deferred.
The portion deferred will be paid or forgiven depending on the Company achieving
reductions in its operating expenses from those for the year ended December 31,
1994 as follows: if the amount of the reduction as of December 31, 1995 is at
least $500,000, the amounts deferred during November and December 1995 will be
forgiven; if the amount of the reduction as of December 31, 1996 is at least
$600,000 the amounts deferred during 1996 will be forgiven; and if the amount of
the reduction as of December 31, 1997 is at least $700,000, the amounts deferred
during 1997 and 1998 will be forgiven. The failure to achieve the designated
level of reduction for any period will result in the obligation to pay the
amount deferred during the applicable period at the end of such period.
Registrant achieved the targeted reduction as of December 31, 1995 resulting in
forgiveness of interest of $145,000 for the two months ended December 31, 1995.
On June 28, 1995 Registrant borrowed $500,000 in the form of demand
loans from the Chairman and Assistant Chairman of the Registrant. The loans,
which bear interest at the equivalent rate to the Facility loan, were amended at
and as a condition to the execution of Amendment No. 10 to the Credit Agreement,
to provide for deferral of the payment of principal and interest in excess of
3.99% per annum until certain principal and interest payments are made to the
bank lender.
In July 1995 Registrant entered into a one year agreement with another
bank providing for a $1,000,000 line of credit, none of which was borrowed
during the 1995 Year.
The cash provided by operating activities was $698,008 for the 1995
Year, a decrease of $2,004,594 from the amount provided in the 1994 Ten-Month
Period. The 1995 Year benefitted from income of $2,238,692 but was impacted by
increases aggregating $2,871,455 in prepaid expenses and deferred expenses
attributable to negotiations and extensions of a lease and Amendment No. 10 to
the Credit Facility agreement, partially offset by deferred rent of $814,311 as
a result of the FASB No. 13 requirement to record rentals on a straight line
basis, $1,509,845 of depreciation and amortization expenses, increases of
approximately $618,700 in accounts payable due to an extension of payment terms
and $62,000 in accrued local rent taxes, and $315,598 in asset write-offs.
The 1994 Ten-Month Period benefitted from net income of $520,080 and
the shorter period comprising the fiscal year which result+ed in lower
depreciation and amortization accruals, and, with respect to prepaid expenses,
the absence of prepayments of real estate taxes which are due on January 1 and
July 1 of each year. The reduction of $460,086 in trade and other receivables
was the result of the payment of a large receivable from a tax authority
<PAGE>
and more timely payments from owners of the managed locations. Registrant has
had a better than 99% collection experience with its receivables as a result
of security arrangements with customers and the nature of the other accounts.
The $253,224 increase in security deposits is attributable to the large deposit
required under a management agreement secured for an operation at Shea Stadium.
The $248,581 decrease in deferred rental accruals resulted from the FASB No. 13
requirement. The decrease by $287,472 in the refundable income tax account was
due to the receipt of a portion of the large amount recorded as of February 28,
1994.
Cash used in investing activities, consisting of additions to land,
buildings, equipment and improvements, which amounted to $1,382,746 for the 1995
Year, $990,098 for the 1994 Ten-Month Period and $1,351,943 for the 1994 Year,
reflect average monthly expenditures of slightly more than $100,000. A
substantial portion of these expenditures was financed by loans secured by
mortgages on properties and from borrowings under the bank loan facility.
Registrant anticipates a material increase in capital expenditures for the year
ended December 31, 1996.
Principally as a result of the extension of maturities of outstanding
loans arising from modifications of the related loan agreements, financing
activities provided $991,794 of net cash for the 1995 Year. The net cash used in
financing activities amounted to $2,716,625, and $1,136,418 for the 1994
Ten-Month Period and the 1994 Year, respectively. The material increase for the
1994 Ten-Month Period was due to debt repayments exceeding borrowings. The
reduction in borrowings arose from the large cash balance as of February 28,
1994 and the profitable operations during the period.
As a result of the foregoing, there was a net increase in cash of
$307,056 for the 1995 Year as compared with a net decrease in cash of $1,004,121
and a net increase in cash of $195 for the 1994 Ten-Month Period and the 1994
Year, respectively.
As of March 25, 1995, Registrant had borrowed the full amount under its
line of credit with its principal bank lender and had available for borrowing
$800,000 under its $1,000,000 one year line of credit agreement. On March 29,
1996 a net cash settlement of $1,700,000 plus interest payable to the Registrant
of its claims arising from the substantial disruption of its operations due to a
fire in a building in Philadelphia in February 1991 was approved. Registrant
believes that the funds which are available from time to time under its bank
line of credit agreement, the foregoing settlement, additional mortgage loans
with respect to properties acquired or developed and funds generated from its
operations will be sufficient to finance its capital and operational
requirements for the year ending December 31, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14 for the Financial Statements and Supplementary
Data.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth the name of each Director and executive
officer of Registrant, his or her principal occupation and the nature of all
positions and offices with Registrant held by him or her. The Directors of
Registrant will hold office until the next Annual Meeting of Shareholders, which
management presently contemplates will be held in June 1996. All officers serve
for terms at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
First
Became a
Name Age Office--Principal Occupation Director
- ---------------------- --- -------------------------------------- ---------
<S> <C> <C> <C>
Lowell Harwood 66 Chairman of the Board of Directors and
Chief Executive Officer 1968
Sanford Harwood 71 Assistant Chairman, Secretary and
Director 1968
Brett Harwood 47 President, Chief Operating Officer and
Director 1988
Daniel R. Schein 55 Director; Independent consultant 1973
Stephen A. Bansak, Jr. 56 Director; Independent financial advisor/
consultant 1995
Leslie Harwood Ehrlich 37 Director; Managing Director of
Newmark & Company Real Estate Inc. 1995
Leo Silverstein 65 Director; Partner in the law firm of
Brock, Fensterstock, Silverstein,
McAuliffe & Wade, LLC 1993
Dan Jeremitsky 58 Vice President--Design and Consulting
John Hogan 47 Vice President--Institutional and
Management
John Kowal 35 Acting Vice President-Finance and Chief
Financial Officer
Lawrence Gerace 32 Vice President-Operations
</TABLE>
Each executive officer serves at the discretion of the Board of
Directors.
Lowell and Sanford Harwood are brothers and Brett Harwood is the son of
Sanford.
<PAGE>
Messrs. Lowell and Sanford Harwood have been officers and Directors of
the Registrant since its incorporation in 1968--Mr. Lowell Harwood as Chairman
of the Board, and Mr. Sanford Harwood initially as Vice President, then from
1971 until February 28, 1994 as President (he also had been Treasurer from April
1989 to October 1990) and, since March 1, 1994, as Assistant Chairman and
Secretary of Registrant. They are stockholders and Directors of Square Parking
Corp., a family-held corporation, which has been engaged in the parking business
in New Jersey and New York City for more than 35 years. They are also principals
of several other private entities which have been or are engaged in the
ownership of real property and the operation of parking locations (see Item 13).
Along with Messrs. Brett Harwood and Craig Harwood, who resigned as an officer
and employee of the Company at the end of 1994 and is the son of Lowell, they
hold interests in various real estate enterprises. Mr. Lowell Harwood devotes
approximately 75% and Mr. Sanford Harwood devotes substantially all of his time
to the affairs of Registrant. Mr. Lowell Harwood had been a Director of Keystone
Camera Products Corporation, a camera manufacturer, and its subsidiaries from
January 1989 through April 1991, when a receiver was appointed under the United
States Bankruptcy Code over the business and properties of the corporations. See
Item 12 for information as to a voting agreement between Messrs. Lowell and
Sanford Harwood.
Brett Harwood, Esq., a member of the New Jersey Bar, has been associated
with Registrant since 1976 and as an executive officer since 1978--President and
Chief Operating Officer since March 1, 1994, Executive Vice President from
October 1980 through February 28, 1994, and Vice President from 1978 through
September 1980. From April 1989 through December 1993 he was also Secretary of
the Registrant. Mr. Harwood devotes substantially all of his time to the affairs
of the Registrant.
Mr. Schein was Chairman of the Board of Registrant from January 1973
until he resigned in January 1975. Since January 1975 he has been an independent
consultant and has, from time to time, rendered consulting services to
Registrant.
Mr. Bansak has been an independent financial advisor/consultant for more
than five years. He previously held senior management positions at Kidder,
Peabody & Co., Inc., including member of the Board of Directors and Executive
Committee, Co-Director of the Corporate Finance Department, and Vice Chairman of
Kidder, Peabody International. Mr. Bansak is a former Chairman of the Securities
Industry Association's Corporate Finance and Rule 415 Committees.
Mrs. Ehrlich has been a Managing Director since 1993 of Newmark &
Company Real Estate Inc. after having been Vice President of G.W. Michaels,
Inc., with which she was associated from 1984 to 1993; both companies are
engaged in leasing and management of commercial real estate. She is Co-Chairman
of the Economic Development Committee of the Real Estate Board of New York,
Inc.; and former Chairman of the Board of Directors of The Young Men's/Women's
Real Estate Association of New York, Inc.
Mr. Silverstein, has been a partner of Brock, Fensterstock, Silverstein,
McAuliffe & Wade, LLC, since August 1, 1995. He had been until August 1, 1995 a
partner of Carter, Ledyard & Milburn for more than ten years.
<PAGE>
Mr. Jeremitsky has served as Vice President-Design and Consulting since
1979. He has been associated with the Registrant since 1977 as its in-house
architect and designer. Previously, Mr. Jeremitsky held a similar position with
Meyers Parking Systems, Inc. for more than five years.
Mr. Hogan, Vice President-Institutional and Management since October
1980, has also been since 1978 Registrant's contract administrator for
institutions, primarily in the field of hospital parking.
Mr. Kowal, employed by the Company for more than ten years, was
appointed its Acting Vice President-Finance and Chief Financial Officer in
September 1995.
Mr. Gerace, employed by the Company since 1982, has been Vice
President-Operations since December 4, 1994.
During the 1995 Year, the Board of Directors held four meetings
(including those in which matters were adopted by unanimous consent). All of the
meetings were attended by all Directors except one in which one Director was
absent. The Stock Option and Compensation Committee which administers the
Registrant's Key Employee Incentive Stock Option Plan and the 1992 Stock Option
Plan held one meeting during the 1995 Year. The Committee is comprised of Mr.
Bansak (Chairman), Mrs. Ehrlich and Messrs. Schein and Silverstein. The Audit
Committee, which is comprised of Messrs. Schein (Chairman), Bansak and
Silverstein and Mr. Sanford Harwood held two meetings during the year. The Board
does not have any other standing committee.
There is no arrangement or understanding pursuant to which the above
officers were elected.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Registrant during the 1994 Ten-Month Period and written
representations furnished by its officers and directors, none of the officers
and Directors of the Registrant failed to file reports on Forms 3, 4 or 5
required to be filed during the 1995 Year, except Form 4 Reports relating to
receipt of warrants or stock options were filed late by Lowell Harwood, Brett
Harwood, Sanford Harwood, Leslie Harwood Ehrlich, Dan Jeremitsky and John Hogan
and a Form 3 Report was filed late by John Kowal.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth for each of the year ended December 31,
1995, the ten-month period ended December 31, 1994 and, the year ended February
28, 1994, the compensation for services rendered in all capacities to the
Company and subsidiaries by the Chief Executive Officer and the next four most
highly compensated executive officers of the Registrant:
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
- ----------------------------------------------------------------------------------------------------- --------------
Name and Principal Salary (1) Bonus Stock Options
Position Period ($) ($) (# of Shares)
- ------------------------- ------------------------ ---------- ----- --------------
<S> <C> <C> <C> <C>
Lowell Harwood, Year ended 12/31/95 183,420 139,556 --
Chairman of the Board and 10 months ended 12/31/94 151,913 36,722 --
Chief Executive Officer Year ended 2/28/94 161,356 -- --
Sanford Harwood, Year ended 12/31/95 137,312 137,312 --
Assistant Chairman, Secretary 10 months ended 12/31/94 113,687 36,722 --
and Director (2) Year ended 2/28/94 136,500 -- --
Brett Harwood, Year ended 12/31/95 174,912 4,580 50,000
President, Chief Operating 10 months ended 12/31/94 144,681 16,700 --
Officer and Director (3) Year ended 2/28/94 153,504 10,967 --
Dan Jeremitsky, Year ended 12/31/95 132,004 4,053 10,000
Vice President--Design and 10 months ended 12/31/94 104,068 16,943 --
Consulting Year ended 2/28/94 115,440 8,311 --
John Hogan, Year ended 12/31/95 112,245 14,285 10,000
Vice President--Institutional 10 months ended 12/31/94 89,884 12,232 --
and Management Year ended 2/28/94 94,640 16,589 --
- --------------------------------
(1) Includes car allowances, which represent for each of Messrs. Lowell Harwood,
Sanford Harwood, Brett Harwood, Dan Jeremitsky and John Hogan less than 1%
of the salary amount.
(2) He had been President and Chief Operating Officer until March 1, 1994.
(3) He had been Executive Vice President and Secretary until March 1, 1994.
Registrant paid Director's fees at the rate of $20,000 per annum to each
Director who is not an officer or employee of the Registrant. Mr. Schein holds a
stock option granted on August 19, 1992 to him under Registrant's 1992 Stock
Option Plan to purchase 5,000 shares of the Registrant's Common Stock at a price
of $3.5625, which was the market price on the date of grant.
The bonuses paid to Messrs. Lowell Harwood and Sanford Harwood are
pursuant to an arrangement originally authorized by the Board of Directors in
January 1982 and subsequently amended. The bonuses are contingent upon the
achievement by Registrant for the fiscal year of consolidated income of more
than $300,000, before provision for income taxes and accrual of the bonuses for
the year and before giving effect to the additional compensation, with the
amount for Mr. Sanford Harwood to be 7 1/2% of the excess, but not to exceed his
<PAGE>
base salary, and for Mr. Lowell Harwood to be 7 1/2% of the first $1,400,000 of
the excess and 5% of the balance of the excess. The bonuses paid to the other
executive officers were authorized by the Chairman of the Board pursuant to a
bonus program under which he established goals and results to be achieved.
Stock Options. The authority to grant options under Registrant's Key
Employee Incentive Stock Option Plan expired in Fiscal 1992. At the Annual
Meeting of Shareholders held in October 1992, the shareholders approved
Registrant's 1992 Stock Option Plan (the "1992 Plan") authorizing the
reservation of 425,000 shares of Common Stock for the grant of stock options to
key employees, non-employee Directors and independent consultants. The Board in
June 1995 amended the Plan to increase the shares subject to the Plan by
100,000, such increase to be subject to the approval of the shareholders at the
Annual Meeting in 1996. The 1992 Plan authorizes the grants, during the ten-year
period ended August 18, 2002, of options with terms of up to five years. The
Plans are administered by the Board of Directors or Stock Option and
Compensation Committee of the Registrant. The Board or Committee determines the
number of options granted and the option exercise price (but no exercise price
may be less than 100% of the fair market value of the Common Stock on the date
of grant). As of December 31, 1995, there were options outstanding under the
1992 Plan with respect to 393,400 shares.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options to the executive
officers of the Company named in the above table during the 1995 Year. Pursuant
to Securities and Exchange Commission (the "Commission") rules, the table also
shows the value of the options granted at the end of the option terms (five
years) if the stock price were to appreciate annually by 5% and 10%
respectively. There is no assurance that the stock price will appreciate at the
rates shown in the table. The table also indicates that if the stock price does
not appreciate, there will be no increase in the potential realizable value of
the options granted.
</TABLE>
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
- -------------------------------------------------------------------------------------- ------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Percent of
Total
Options
Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year ($/SH) Date 0% 5% 10%
---- ------- ----------- ------ ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Lowell Harwood................. 0 N/A $0.0000 N/A $ 0 $ 0 $ 0
Brett Harwood.................. 50,000 59.5% $6.4625 6/14/2000 $ 0 $51,738 $ 150,962
Sanford Harwood................ 0 N/A $0.0000 N/A $ 0 $ 0 $ 0
Dan Jeremitsky................. 10,000 11.9% $5.875 6/14/2000 $ 0 $16,231 $ 35,867
John Hogan..................... 10,000 11.9% $5.875 6/14/2000 $ 0 $16,231 $ 35,867
</TABLE>
There was no exercise by any of the named executive officers of stock
options during the 1995 Year. The following table provides information as to the
value of the unexercised options held by such officers as of December 31, 1995
measured in terms of the closing sale price of the Company's Common Stock on
such date.
Number of Shares Underlying Value of Unexercised In-
Unexercised Options as of The-Money Options on
12/31/95 12/31/95*
---------------------------- ---------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- -------------- ------------------------- -------------------------
Lowell Harwood 50,000/50,000 $229,062/229,062
Sanford Harwood 50,000/--- $229,062/---
Brett Harwood 39,400/40,600 $141,327/99,282
Dan Jeremitsky 8,000/12,000 $ 34,875/40,750
John Hogan 8,000/12,000 $ 34,875/40,750
- -----------------------------------
* Based on the closing sales price of $8.50 on December 29, 1995, the last date
in December on which shares traded on the Nasdaq National Market System.
<PAGE>
See Item 13 with respect to the issuance in October, 1995 of warrants to
Messrs. Lowell and Sanford Harwood in consideration of financial accommodations
made by them to the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of March 20, 1996, certain information
as to the beneficial ownership of the Registrant's Common Stock by each
Director, each person known by Registrant to own beneficially more than 5% of
the Registrant's outstanding shares of Common Stock and the officers and
Directors as a group.
Name of Amount and Nature of Percentage
Beneficial Owner* Beneficial Ownership of Class
- -------------------------------- ---------------------- ----------
Lowell Harwood 666,009 shares (1) 50.6
Sanford Harwood 641,009 shares (2) 49.6
Brett Harwood 185,720 shares (3) 14.4
Daniel Schein 5,000 shares (4) **
Stephen A. Bansak, Jr. 8,500 shares **
Leslie Harwood Ehrlich 83,879 shares (5) 7.2
Leo Silverstein 242 shares (6) **
Craig Harwood 83,880 shares (7) 7.2
Scott Harwood 92,614 shares (8) 7.9
Directors and officers as a group 1,027,235 shares 66.4
(11 persons) (1)-(5)(9)
- ------------
* The address for each of Lowell, Sanford, Brett, Craig and Scott Harwood and
Leslie Harwood Ehrlich is c/o Square Industries, Inc., 921 Bergen Avenue,
Jersey City, New Jersey.
(1) Includes 226,651 shares beneficially and directly owned by Mr. Sanford
Harwood which are subject to a Voting Agreement between them (the "Voting
Agreement"), 150,000 shares currently issuable upon exercise of an employee
stock option and a Common Stock Purchase Warrant held by Mr. Lowell Harwood
and 18,634 shares owned by his wife, but excludes 67,759 shares directly
owned by his two children, one of whom is a Director of Registrant. Mr.
Harwood disclaims beneficial ownership of the shares owned by his wife. Mr.
Harwood's holdings include an aggregate of 100,000 shares as to which he has
granted options to purchase to his children.
<PAGE>
(2) Includes 289,358 shares beneficially and directly owned by Mr. Lowell
Harwood subject to a Voting Agreement (see note (1)) and 125,000 shares
currently issuable upon exercise of an employee stock option and a Common
Stock Purchase Warrant, but excludes an aggregate of 90,822 shares directly
owned or owned as custodian for their respective minor children by his sons,
Brett Harwood and Scott Harwood, an employee of Registrant. Mr. Harwood's
holdings include an aggregate of 100,000 shares as to which he has granted
options to purchase to his children.
(3) Includes 12 shares owned by his wife, 11,000 shares owned as custodian for
his minor children, 80,000 shares issuable upon exercise of employee stock
options and 50,000 shares issuable upon exercise of an option granted to him
by his father. See note (2). Mr. Harwood disclaims beneficial ownership of
the shares owned by his wife.
(4) Represents shares currently issuable upon exercise of a stock option granted
under the 1992 Plan.
(5) Includes 50,000 shares which she has an option to acquire from her father,
Lowell Harwood. See note (1).
(6) Represents shares owned by his wife.
(7) Includes 50,000 shares subject to an option granted to him by his father.
See note (1).
(8) Includes 7,000 shares owned as custodian for his minor son, 7,500 shares
currently issuable upon exercise of an employee stock option and 50,000
shares issuable upon exercise of an option granted to him by his father. See
note (2).
(9) Includes 381,200 shares issuable upon exercise of employee stock options
and warrants held by officers and Directors within 60 days of March 20,
1996.
In July 1990, Messrs. Lowell and Sanford Harwood agreed that they would
vote all of the shares of Common Stock of the Company which each owns directly
for the election as Directors of the Company of each of them, Brett Harwood,
and, if nominated by the Board of Directors, Craig Harwood. They also agreed
that they would vote such shares only as they mutually determine with respect to
the election of any other persons as Directors of the Company and with respect
to any proposal submitted to shareholders to approve or authorize a merger,
consolidation, sale of substantially all the assets or dissolution of the
Company or to amend the Company's Certificate of Incorporation or, if they
cannot agree, the shares should not be voted. In the event of the death or
incompetence of one of them, the shares are to be voted with respect to the
aforesaid matters in accordance with the determination of the other party to the
agreement. They also agreed that neither shall sell or transfer any of his
shares of Common Stock without the consent of the other except: (i) to members
of his immediate family or a trust or trusts for the benefit of such members or
for which such family members are trustees, provided the transferee or
transferees agree to be bound by the provisions of the agreement; (ii) if the
<PAGE>
disposition qualifies for the exemption from registration under the Securities
Act of 1933 afforded by Rule 144 under the Act (subject to the volume
limitations contained in the Rule other than subparagraph (k) of Rule 144); or
(iii) if the disposition is pursuant to a merger, consolidation or asset sale
approved by the shareholders of the Company. The agreement, which was confirmed
in writing in May 1991, is to terminate on May 1, 2001 unless terminated with
the mutual consent of the parties earlier.
Messrs. Lowell and Sanford Harwood, brothers, may be deemed to be
"parents" of Registrant as defined by the Rules and Regulations under the
Securities Act of 1933.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Lowell and Sanford Harwood, officers and Directors of
Registrant, have diverse real estate interests and/or positions in three other
parking operations in the New York metropolitan area, none of which is within
250 feet of a parking operation of Registrant. An agreement originally entered
into in January 1969 among these officers and Registrant, as amended from time
to time and extended with the agreement of the individual parties through the
year ended December 31, 1996, provides that as long as each of these officers,
or his spouse, beneficially owns Common Stock of Registrant he will not engage
as principal, officer, or employee, or acquire a 5% or greater stock interest in
any garage or parking lot operation within a 250-mile radius of a parking
operation of Registrant, other than operations in which, at the time of the
agreement, he held an equity interest or was a principal, officer or employee,
except in connection with a real estate transaction subject to the conditions
described below.
The agreement further provides that each will not enter into any real
estate transactions at any location or acquire any interest in any property
involving parking operations for his own account unless he has used his best
efforts to secure, on behalf of Registrant, the rights to the parking operations
or the opportunity to conduct the parking operation, if any, located or to be
located thereon on terms comparable to those available to non-affiliated
persons. This prohibition is not limited to the area within a 250-mile radius of
a parking operation of Registrant. The restriction does not apply to the
acquisition of real estate involving parking operations adjacent to or within
250 feet of parking lot operations in which he holds an equity interest or in
the operation of which he is an officer, director, or employee at the time of
the agreement, nor does it apply if the shareholder first offers the opportunity
in writing to Registrant and Registrant either rejects it or fails to act within
20 days after the proposal is presented to it. The agreement does not prohibit
the interested party from voting on the transaction. No offers were made or
opportunities presented to Registrant pursuant to the agreement during either
the 1995 Year or the 1994 Ten-Month Period. Mr. Brett Harwood, a Director and
President of the Registrant, has agreed to be bound by the provisions of the
agreement as if he had been a party thereto.
Messrs. Lowell and Sanford Harwood have owned since prior to the
formation of the Company, either solely or along with members of their
respective families (collectively with Messrs. Lowell and Sanford Harwood, the
"Harwood Families"), including Mr. Brett Harwood, all the outstanding shares of
three corporations, all of which have been engaged in New York or New Jersey, in
the operation of six parking facilities as of December 31, 1995 since the
formation of those companies (three of the operations terminated subsequent to
<PAGE>
December 31, 1995). The Registrant has rendered bookkeeping services to the
three private entities since June 1, 1979 or, if later, the commencement of
their parking operations, at a fee equal initially to 1 1/2% which increased to
2% as of March 1, 1992 of the parking revenues of those entities during the
period the services were furnished. Messrs. Lowell and Sanford Harwood have
agreed that such fees shall amount to no less than the Registrant's related
costs (such determination to be reviewed by Registrant's independent public
accountants) plus $5,000, annually. For the 1995 Year and the 1994 Ten-Month
Period, the fees were $32,640 and $28,486, respectively, which Messrs. Lowell
and Sanford Harwood have represented to be for each of the periods at least
$5,000 in excess of the cost of the Registrant in furnishing such services and
to be at least as favorable to Registrant as available from non-affiliated
companies.
The Registrant has managed a garage in Boston and two lots in
Philadelphia for affiliates of the Harwood Families. The management of each of
these facilities by the Registrant commenced with the operation of the facility
by the affiliate. The garage and lots were acquired by the affiliates as part of
real estate transactions which involved non-parking properties. The management
fees for the 1995 Year and the 1994 Ten-Month Period, were, respectively,
$58,891 and $39,255. The management arrangements are as favorable to the
Registrant as those provided in the Company's comparable management agreements
with non-affiliated owners or lessees.
Messrs. Lowell and Sanford Harwood extended to the Registrant pursuant
to a June 1995 agreement demand loans aggregating $500,000, bearing interest at
a rate equivalent to the rate payable by the Registrant to its bank lender under
its Credit Facility and to be collateralized by a pledge of assets to be
selected by mutual agreement. In October 1995, Messrs. Harwood agreed to
amend their loan agreement to satisfy a condition imposed by the bank lender for
it to agree to Amendment No. 10 to its Credit Agreement with the Registrant
providing, among other things, for an extension of the maturities of principal
payments and deferral and possible excuse of portions of the interest on the
Credit Agreement loans. The amendment provides for payments of principal of, and
interest on, the $500,000 loans to be subordinated and deferred to designated
loan repayments made to the bank lender under the amended Credit Agreement, and
for a surrender of rights to receive collateral. In consideration for their
agreements, Registrant issued on October 30, 1995 to each of Lowell Harwood and
Sanford Harwood five year Common Stock Purchase Warrants to purchase 75,000
shares of the Company's's Common Stock at a price of $6.40 per share, the
average of the closing sales prices of the Common Stock on NASDAQ for June 28,
1995, the date of the original loan agreement and the two immediately preceding
days in which trades were effected in the stock.
Pursuant to an agreement with the Registrant, Mr. Lowell Harwood, in
March 1995, transferred to the Registrant 39,196 shares of Common Stock valued
at $4.50 per share, the market price on March 16, 1995, the date of the
agreement, in satisfaction of the principal installments and interest in the
aggregate amount of $176,381.57 of a promissory note issued by him to the
Registrant in September 1988. The note was issued by him in connection with his
exercise of a Warrant, originally issued in September 1986, to purchase 25,000
shares of Common Stock at a price of $9.50 per share.
Registrant has borne certain Company-related travel expenses incurred by
Messrs. Schein and Bansak during the 1995 Year in the aggregate amount of
approximately $6,900.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
The following is an index of consolidated financial statements of Square
Industries, Inc. and subsidiaries, financial statement schedules and exhibits
included in Part IV, Item 14:
<TABLE>
<CAPTION>
<S> <C> <C>
(a) 1. Financial Statement Page No.
------------------- --------
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1995 and
December 31, 1994 F-2
Consolidated Statements of Operations - Year Ended
December 31, 1995, Ten Months Ended
December 31, 1994 and Year Ended February 28, F-3
1994
Consolidated Statements of Stockholders' Equity - Year
Ended December 31, 1995, Ten Months Ended
December 31, 1994 and Year Ended February 28,
1994 F-4
Consolidated Statements of Cash Flows - Year Ended
December 31, 1995, Ten Months Ended
December 31, 1994 and Year Ended February 28, F-5
1994
Notes to Consolidated Financial Statements F-7
(a) 2. Financial Statement Schedules
------------------------------
None.
All other schedules are omitted because they are not
applicable, not required, or because the information is
included in the financial statements or notes thereto.
(a) 3. Exhibits
--------
3(i) Certificate of Incorporation, as amended(1)
3(ii) By-Laws, as amended(1)
9 Voting Agreement between Messrs. Lowell Harwood and
Sanford Harwood(5)
10(a) Credit Agreement among National Westminster Bank USA, the
Registrant and 808 Square Corp. dated July 5, 1988, as
amended(3)
10(c) 1992 Stock Option Plan(4)
10(d) Common Stock Purchase Warrant issued to Messrs. Lowell and
Sanford Harwood(5)
22 - List of Subsidiaries of the Registrant
</TABLE>
<PAGE>
- --------
(1) Filed as an exhibit, and incorporated by reference, to Registrant's Annual
Report on Form 10-K, for the Ten-Months ended December 31, 1994.
(2) Filed as an exhibit, and incorporated by reference, to Registrant's Annual
Report on Form 10-K for the year ended February 28, 1991.
(3) The Credit Agreement and amendments thereto have been filed as exhibits, and
are incorporated by reference, to exhibits to the following filings of
Reports of the Registrant (Amendment No. 1 merely changed the addresses of
certain subsidiaries and was not filed as an exhibit):
The Credit Agreement dated July 5, 1988--Quarterly Report on Form 10-Q
for the three months ended May 31, 1988;
Amendments Nos. 2 and 3--Annual Report on Form 10-K for the year ended
February 28, 1990;
Amendment Nos. 4 and 5--Annual Report on Form 10-K for the year ended
February 29, 1991;
Amendment No. 6--Annual Report on Form 10-K for the year ended February
29, 1992;
Amendment No. 7--Annual Report on Form 10-K for the year ended February
28, 1993;
Amendment No. 8--Annual Report on Form 10-K for the year ended February
28, 1994;
Amendment No. 9--Quarterly Report on Form 10-K for the three months
ended August 31, 1994; and
Amendment No. 10 --Quarterly Report on Form 10-K for the three months
ended September 30, 1995.
(4) Filed as an Exhibit, and incorporated by reference, to Registrant's
Quarterly Report on Form 10-Q for the three months ended November 30, 1992.
(5) Filed as an Exhibit, and incorporated by reference, to Registrant's
Quarterly Report on Form 10-Q for the three months ended September 30, 1995.
(c) Registrant did not file any Current Reports on Form 8-K during the three
months ended December 31, 1995.
<PAGE>
SQUARE INDUSTRIES, INC. AND
SUBSIDIARIES
Financial Statements as of
December 31, 1995 and 1994 and for the
Year Ended December 31, 1995, the
Ten-Month Period Ended December 31, 1994 and the
Year Ended February 28, 1994, and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Square Industries, Inc.
Jersey City, New Jersey
We have audited the accompanying consolidated balance sheets of Square
Industries, Inc. and subsidiaries as of December 31, 1995 and December 31, 1994,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1995, the ten-month period ended
December 31, 1994 and the year ended February 28, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Square Industries, Inc. and
subsidiaries as of December 31, 1995 and December 31, 1994, and the results of
their operations and their cash flows for the year ended December 31, 1995, the
ten-month period ended December 31, 1994 and the year ended February 28, 1994 in
conformity with generally accepted accounting principles.
March 29, 1996
<PAGE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,532,909 $ 1,225,853
Trade and other receivables 1,346,172 781,365
Prepaid expenses 2,804,090 1,659,645
Other current assets 478,707 554,752
Refundable income taxes 134,841 352,841
----------- -----------
Total current assets 6,296,719 4,574,456
----------- -----------
PROPERTY, EQUIPMENT AND IMPROVEMENTS - Net
(Notes 2 and 5) 24,633,189 25,067,445
----------- -----------
OTHER ASSETS:
Deferred tax asset (Note 10) 1,401,000 325,000
Deferred expenses (net of amortization) 2,571,347 890,105
Security deposits and other assets 2,319,791 1,931,962
----------- -----------
6,292,138 3,147,067
----------- -----------
$37,222,046 $32,788,968
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,448,940 $ 830,218
Accrued expenses (Note 4) 4,346,788 4,399,081
Accrued local rent tax (Note 3) 1,251,508 1,189,429
Current portion of long-term debt (Note 5) 785,409 1,209,769
Deferred tax liability (Note 10) 333,180 499,000
Other liabilities 464,772 479,373
----------- -----------
Total current liabilities 8,630,597 8,606,870
----------- -----------
DEFERRED RENT (Note 6) 3,247,454 2,433,143
----------- -----------
LONG-TERM DEBT, LESS CURRENT PORTION (Note 5) 18,474,052 17,058,611
----------- -----------
SECURITY DEPOSITS - Customers 291,716 256,955
----------- -----------
COMMITMENTS AND CONTIGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 2,000,000 shares;
issued, 1,218,389 and 1,205,689 shares 12,184 12,057
Common stock subscribed, 12,500 shares at December 31, 1994 -- 118,750
Additional paid-in capital 3,278,004 3,158,668
Retained earnings 3,767,521 1,528,829
----------- -----------
7,057,709 4,818,304
Less:
Treasury stock at cost, 52,033 and 12,837 shares 235,757 59,375
Note receivable for common stock subscribed
(Note 8) -- 118,750
Cumulative translation adjustment 243,725 206,790
----------- -----------
6,578,227 4,433,389
----------- -----------
$37,222,046 $32,788,968
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995, TEN-MONTH PERIOD ENDED
DECEMBER 31, 1994 AND YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Ten-Month
Year Ended Period Ended Year Ended
December 31, December 31, February 28,
1995 1994 1994
<S> <C> <C> <C>
PARKING SERVICE REVENUE $ 61,772,058 $ 50,935,794 $ 59,774,933
SERVICE STATION REVENUE 4,158,992 3,494,337 4,295,652
------------ ------------ ------------
Total revenues 65,931,050 54,430,131 64,070,585
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of parking services 49,904,266 42,556,937 51,933,361
Operating costs - service station 4,176,053 3,543,497 4,253,831
General and administrative expenses 7,471,389 5,910,695 6,879,422
Provision for local rent tax (Note 3) 60,000 50,000 60,000
Interest 1,890,052 1,528,754 1,679,094
Write-off of assets (Note 14) 315,598 124,168 477,629
------------ ------------ ------------
Total costs and expenses 63,817,358 53,714,051 65,283,337
------------ ------------ ------------
EARNINGS (LOSS) FROM PARKING AND
SERVICE STATION OPERATIONS 2,113,692 716,080 (1,212,752)
(BENEFIT) PROVISION FOR
INCOME TAXES (Note 10) (125,000) 196,000 (398,000)
------------ ------------ ------------
NET EARNINGS (LOSS) $ 2,238,692 $ 520,080 $ (814,752)
============ ============ ============
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ 1.75 $ 0.43 $ (0.61)
============ ============ ============
Assuming full dilution $ 1.55 $ 0.42 $ (0.61)
============ ============ ============
SHARES USED IN COMPUTING EARNINGS
(LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary 1,281,866 1,205,352 1,325,981
============ ============ ============
Assuming full dilution 1,481,866 1,293,882 1,325,981
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995, THE
TEN-MONTH PERIOD ENDED DECEMBER 31, 1994 AND THE
YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Common Additional
Common Stock Paid-in Retained
Stock Subscribed Capital Earnings
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 28, 1993 $ 11,990 $ 178,125 $ 3,097,935 $ 1,823,501
Issuance of subscribed stock in
exchange for treasury stock (Note 8) 63 (59,375) 59,312 --
Exercise of stock options 2 -- 710 --
Net loss -- -- -- (814,752)
Translation adjustment -- -- -- --
----------- ----------- ----------- -----------
BALANCE, FEBRUARY 28, 1994 12,055 118,750 3,157,957 1,008,749
Exercise of stock options 2 -- 711 --
Net earnings -- -- -- 520,080
Translation adjustment -- -- -- --
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 12,057 118,750 3,158,668 1,528,829
Issuance of subscribed stock in
exchange for treasury stock (Note 8) 125 (118,750) 118,625 --
Exercise of stock options 2 -- 711 --
Net earnings -- -- -- 2,238,692
Translation adjustment -- -- -- --
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 $ 12,184 $ -- $ 3,278,004 $ 3,767,521
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Notes Cumulative
Treasury Receivable Translation
Stock for Stock Adjustment Total
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 28, 1993 $ -- $ (178,125) $ (157,601) $ 4,775,825
Issuance of subscribed stock in
exchange for treasury stock (Note 8) (59,375) 59,375 -- --
Exercise of stock options -- -- -- 712
Net loss -- -- -- (814,752)
Translation adjustment -- -- (32,788) (32,788)
----------- ----------- ----------- -----------
BALANCE, FEBRUARY 28, 1994 (59,375) (118,750) (190,389) 3,928,997
Exercise of stock options -- -- -- 713
Net earnings -- -- -- 520,080
Translation adjustment -- -- (16,401) (16,401)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 (59,375) (118,750) (206,790) 4,433,389
Issuance of subscribed stock in
exchange for treasury stock (Note 8) (176,382) 118,750 -- (57,632)
Exercise of stock options -- -- -- 713
Net earnings -- -- -- 2,238,692
Translation adjustment -- -- (36,935) (36,935)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 $ (235,757) $ -- $ (243,725) $ 6,578,227
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
- 4 -
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995, THE
TEN-MONTH PERIOD ENDED DECEMBER 31, 1994 AND THE
YEAR ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Ten-Month
Year Ended Period Ended Year Ended
December 31, December 31, February 28,
1995 1994 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 2,238,692 $ 520,080 $ (814,752)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization of:
Deferred expenses 38,341 27,984 35,564
Lease acquisition costs 17,399 54,100 142,280
Excess of cost over fair market value of net
assets acquired -- 71,037 213,113
Depreciation and amortization 1,509,845 1,379,844 1,595,281
Deferred tax asset (1,076,000) 509,000 (834,000)
Reversal of accrued expense (410,000) -- --
Write-off of assets 315,598 124,168 477,629
Equity adjustment for foreign currency translation (36,935) (16,401) (32,788)
Increase (decrease) in cash from changes in
assets and liabilities:
Trade and other receivables (564,807) 460,086 (339,389)
Prepaid expenses and other current assets (1,151,872) 356,735 (173,594)
Refundable income taxes 218,000 287,472 (606,471)
Deferred expenses - net (1,719,583) 26,110 (31,026)
Lease acquisition costs - net -- -- (123,097)
Security deposits and other assets (387,829) (253,224) (4,935)
Accounts payable, accrued expenses, accrued
local rent tax, deferred tax liability and
other liabilities 858,087 (615,212) 2,715,386
Deferred rent 814,311 (248,581) 235,295
Security deposits - customers 34,761 19,404 34,060
------------ ------------ ------------
Net cash provided by operating activities 698,008 2,702,602 2,488,556
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, equipment and
improvements (1,382,746) (990,098) (1,351,943)
------------ ------------ ------------
Net cash used in investing activities (1,382,746) (990,098) (1,351,943)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 2,223,000 5,510,000 10,000,000
Payments of long-term debt (1,231,919) (8,227,338) (11,137,130)
Proceeds from exercise of stock options 713 713 712
------------ ------------ ------------
Net cash provided by (used in) financing activities 991,794 (2,716,625) (1,136,418)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 307,056 (1,004,121) 195
CASH, BEGINNING OF PERIOD 1,225,853 2,229,974 2,229,779
------------ ------------ ------------
CASH, END OF PERIOD $ 1,532,909 $ 1,225,853 $ 2,229,974
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,629,761 $ 1,505,995 $ 1,707,572
============ ============ ============
Income taxes-net of refunds received $ 566,236 $ 15,000 $ (280,369)
============ ============ ============
NONCASH FINANCING ACTIVITIES:
See Note 8 for disclosure of supplemental noncash items.
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND FOR THE
YEAR ENDED DECEMBER 31, 1995, THE
TEN-MONTH PERIOD ENDED DECEMBER 31, 1994 AND THE
YEAR ENDED FEBRUARY 28, 1994
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Business Segment Information and Principles of Consolidation -
Square Industries, Inc. and its subsidiaries (collectively, the
"Company") are engaged in the operation and management of parking
lots and garages and, a self-service gasoline station. The
consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to prior years financial statements
to conform to the current year presentation.
b. Basis of Presentation - Effective March 1, 1994, the Company changed
its fiscal year-end from February 28 to December 31. As a result,
the financial statements include the consolidated operations of the
Company for the ten-month period ended December 31, 1994 and year
ended February 28, 1994. Comparative operating results for the year
ended December 31, 1994 and December 31, 1993 is set forth below:
<TABLE>
<CAPTION>
1994 1993
(Unaudited)
<S> <C> <C>
Parking service revenue $ 59,797,708 $ 60,892,585
Service station revenue 4,072,910 4,473,848
------------ ------------
Total revenues 63,870,618 65,366,433
------------ ------------
Costs and expenses:
Cost of parking services 51,433,729 52,242,549
Operating costs - service station 4,115,099 4,438,064
General and administrative expenses 7,080,318 6,819,600
Provision for local rent tax 60,000 60,000
Interest 1,793,162 1,697,757
Write-off of assets 601,797 --
------------ ------------
Total costs and expenses 65,084,105 65,257,970
------------ ------------
Earnings (loss) from parking and service
station operations (1,213,487) 108,463
Provision (benefit) for income taxes 126,000 (278,000)
------------ ------------
Net earnings (loss) before extraordinary item (1,339,487) 386,463
Extraordinary item -- 100,000
------------ ------------
Net earnings (loss) $ (1,339,487) $ 486,463
============ ============
Net earnings (loss) per share $ (1.13) $ 0.38
============ ============
Shares used in computation $ 1,192,820 $ 1,327,014
============ ============
</TABLE>
- 6 -
<PAGE>
c. Allowance for Doubtful Accounts - The Company records provisions for
trade and other receivables when, in the opinion of management, they
are not collectible. Due to the nature of the Company's operations,
no provision for doubtful accounts was required at December 31, 1995
and December 31, 1994.
d. Depreciation and Amortization - Leasehold costs, improvements and
equipment, carried at cost, are amortized or depreciated over the
estimated useful lives of the related assets. The useful lives are
three to seven years for equipment and the life of the lease or ten
years, whichever is less, for leasehold costs and improvements.
Buildings are depreciated over a life of twenty-five years.
Depreciation and amortization expense is computed by the
straight-line method.
e. Deferred Expenses - Deferred expenses represent commissions, legal
fees and lease acquisition costs in connection with the acquisition
of certain parking lot leases and fees paid in connection with the
Company's debt agreements. These expenses are being amortized over
the lives of such leases and debt agreements, respectively.
f. Income Taxes - The Company and its subsidiaries file a consolidated
federal income tax return.
The Company adopted SFAS No. 109, "Accounting for Income Taxes,"
effective March 1, 1993. The Company had previously reported its
income taxes under APB No. 11, "Accounting for Income Taxes." The
change in accounting for income taxes had no effect on the net
deferred income tax asset/liability previously recorded by the
Company at February 28, 1993. In accordance with SFAS No. 109, the
income tax benefit from utilization of net operating loss
carryforwards has been recorded as a component of provision
(benefit) for income taxes for the ten-month period ended
December 31, 1994 and the year ended February 28, 1994.
Under SFAS No. 109, deferred tax assets/liabilities are recorded for
revenue and expense items which are recognized for tax purposes in
years other than those in which they are reported in the
consolidated financial statements. Deferred income taxes are
reflected in the consolidated financial statements for these
temporary differences.
g. Write-Off of Assets - For parking locations which experience poor
operating results and, in the estimate of management, there is no or
little reasonable expectation for improvement of a magnitude to
permit recovery of the related deferred expenses, lease acquisition
costs and fixed assets, these assets are written off.
h. Earnings Per Share - Primary earnings per common and common
equivalent share and earnings per common and common equivalent share
assuming full dilution are computed using the weighted average
number of shares outstanding adjusted for the incremental shares
attributed to outstanding options and warrants to purchase common
stock.
i. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
j. Recently Issued Accounting Standards - During the fourth quarter of
1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Statement No. 123. "Accounting for
Stock-Based Compensation," which is effective for the Company's
fiscal year beginning January 1, 1996. The Company has not
determined the method of adoption or evaluated the impact of
adopting this statement on its financial position and results of
operations.
Management periodically evaluates the recoverability of long-lived
assets based upon current and forecasted net income. The Company has
not determined the impact of the adoption of the recently issued
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which is effective for the
Company's fiscal year beginning January 1, 1996.
- 7 -
<PAGE>
k. Fair Value of Financial Instruments - The Company's financial
instruments consist of trade accounts receivable, other receivables,
note receivable for common stock subscribed, accounts payable, and
long-term debt comprising notes payable, credit facilities, notes
payable to officers and mortgages payable. The Company's financial
instruments are carried in the balance sheet at amounts which
approximate fair value, except for long-term debt disclosed in Note
5 whose fair value at December 31, 1995 is approximately
$19,656,940, based on pertinent information available to the
Company.
2. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Land $17,714,289 $17,071,312
Buildings 5,512,764 6,373,894
Leasehold costs and improvements 6,590,546 7,604,756
Furniture, fixtures and equipment 1,567,324 1,707,074
----------- -----------
31,384,923 32,757,036
Less accumulated depreciation and amortization 6,751,734 7,689,591
----------- -----------
$24,633,189 $25,067,445
=========== ===========
</TABLE>
3. LOCAL RENT TAX
The Company received notices of determination from a municipal local
authority for commercial rent tax which relate to the period June 1, 1978
through May 31, 1987, assessing the Company, net of payments, an aggregate
of $907,005 (including interest and penalties). The Company believes that
the accrued amount of $1,202,160, which covers these assessments, possible
future assessments, and related expenses through December 31, 1995, is
adequate.
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
1995 1994
Sales and parking rates $ 728,389 $ 741,762
Vacation and side pay 408,770 354,236
Payroll and payroll taxes 382,657 754,445
Profit remittance on leases 759,880 617,251
Other 2,067,092 1,931,387
---------- ----------
$4,346,788 $4,399,081
========== ==========
- 8 -
<PAGE>
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
Interest Rate 1995 1994
<S> <C> <C> <C>
Credit Agreement:
Facility I Prime + 2% $11,730,108 $10,480,107
Facility II Prime + 2% 1,688,100 2,138,950
Notes payable 8.5% - 10% 1,162,747 1,456,627
Notes payable to Officers 10.25% 500,000 --
Mortgages payable 7% - 11% 4,178,506 4,192,696
----------- -----------
19,259,461 18,268,380
Less current portion 785,409 1,209,769
----------- -----------
$18,474,052 $17,058,611
=========== ===========
</TABLE>
Facility I provides for a line of credit of $12,800,000, and is subject to
the aggregate face amount of outstanding letters of credit plus unpaid
drawings not exceeding $1,500,000. Borrowings under the letter of credit
facility reduce amounts available for borrowing under the line of credit.
Facility II is a term loan that was payable in consecutive quarterly
payments of $225,425. On October 31, 1995, Amendment No. 10 to the
Company's bank loan agreement was executed. The amendment provides for an
extension of the maturity dates of the Facility I principal to June 30,
1998 with respect to $61,900, to September 30, 1998 with respect to
$150,000 and to December 31, 1998 with respect to $11,518,208 and extends
the quarterly installment payment dates for Facility II to calendar
quarters ending in the period June 30, 1996 to June 30, 1998. The
amendment provides for prepayment of principal to the extent of 50% of the
Company's cash flow above designated levels. The amendment also provides
that commencing November 1, 1995 interest is to be paid at the rate of 4%
per annum with the balance of the interest rate (the Bank's prime plus 2%
per annum) to be accrued and deferred. The portion deferred will be paid
or forgiven depending on the Company achieving reductions in its operating
expenses from those for the year ended December 31, 1994 as follows: if
the amount of the reduction as of December 31, 1995 is at least $500,000,
the amounts deferred following the end of November and December 1995 will
be forgiven; if the amount of the reduction as of December 31, 1995 is at
least $600,000, the amounts deferred during 1996 will be forgiven; and if
the amount of the reduction as of December 31, 1997 is at least $700,000,
the amounts deferred during 1997 and 1998 will be forgiven. The failure to
achieve the designated level of reduction for any period will result in
the obligation to pay the amount deferred during the applicable period.
The Company achieved the operating expense reduction of $500,000 as of
December 31, 1995 and as such the deferred interest has been forgiven.
In July 1995, the Company entered into a one-year agreement with another
bank providing for a $1,000,000 line of credit, none of which was borrowed
during the 1995 year.
On June 28, 1995, two officers loaned the Company $500,000 with interest
payable at the same rate as the Facility I loan. As a condition of
Amendment No. 10, the officers agreed to a revision of their loans,
changing the terms from demand loans to loans to be repaid following the
payment of the credit agreement loans with provisions for prepayment to
the extent of 50% of the principal payments paid to the Bank under the
credit agreement after the Bank has received post October 31, 1995
principal payments of at least $1,000,000 and for the deferral of the
- 9 -
<PAGE>
interest in excess of 3.99% per annum (the loan interest rate to December
31, 1995 is 10.25% and prime plus 2% thereafter) until the Facility loans
have been paid in full. Under their amended loan agreement, the officers
surrendered their rights to collateral which was to be provided under the
original loan agreement and subordinated their loans to the Company's
obligations under the Credit Agreement. In consideration of the original
extension of the loans and the foregoing amendment, the Company issued to
each of the officers a five year, nontransferable Warrant to purchase
75,000 shares of the Company's Common Stock at a price of $6.40 per share,
the average of the closing sales prices of the Common Stock on NASDAQ for
June 28, 1995, and the two immediately prior days in which trades were
effected in the stock.
Certain subsidiaries of the Company periodically acquire land and/or
buildings with a view to their future use in whole or in part, for use as
parking facilities. The properties are generally purchased subject to
long-term mortgages. The mortgages vary in their payment terms and
interest rates, some requiring only the payment of interest during the
first five years.
The mortgages payable are collateralized by the underlying assets which
have a book value of $6,066,800. Facility I and II are collateralized by
first mortgages as to certain properties and by the stock of subsidiaries
of the Company, except those whose stock may not be pledged because of
prohibitions in leases and mortgages.
Debt covenants under the Credit Agreement, as amended, include maximum
indebtedness under mortgage obligations and financial covenants as to
maintenance of minimum net worth, total liabilities to net worth and
operating cash flow ratios. The Company is in compliance with its debt
covenants. The Company believes that the funds available under Facility I,
additional mortgage loans with respect to properties acquired or developed
and funds generated from its operations will be sufficient to finance its
capital and operational requirements through December 31, 1996.
Aggregate maturities of long-term debt are as follows:
Year Ending
December 31, Amount
1996 $ 785,409
1997 915,042
1998 13,429,447
1999 3,837,004
2000 20,051
Thereafter 272,508
-----------
$19,259,461
===========
6. COMMITMENTS AND CONTINGENCIES
Letters of Credit - As of December 31, 1995, the Company had contingent
debt of $1,025,500 under standby letters of credit issued pursuant to
terms of its line of credit.
Leases - The Company has numerous lease agreements, primarily for parking
facilities. Leases with rent escalations are expensed on a straight-line
basis in accordance with Statement of Financial Accounting Standard No. 13
- "Accounting for Leases" ("SFAS 13"). Deferred rent represents the
difference between the straight-line basis and actual rent paid in
accordance with the terms of the lease. Net lease rental expense for each
of the periods in the three fiscal year period ended December 31, 1995 was
$23,155,990, $18,789,244, and $23,227,396 including $2,106,337 as of
- 10 -
<PAGE>
December 31, 1995, $1,788,254 as of December 31, 1994 and $2,091,338 as of
February 28, 1994, paid under clauses which require the payment of
additional rent based on revenue levels at the various facilities. The net
lease rental expense is exclusive of real estate taxes and maintenance and
repairs which are paid by the Company.
Included in the Company's parking revenues are $1,023,300, $799,900 and
$905,800 of sublease rental income for each of the periods in the three
fiscal year periods ended December 31, 1995.
Approximately 32.0% of the Company's parking service revenues for the year
ended December 31, 1995 were derived in the aggregate from seven
locations, each of which accounted for not less than 3.5% of the parking
service revenues for the period. Operations at one location terminated in
January 1996, and the Company is contesting the purported termination as a
result of the failure of the lessor to recognize an extension by the
Company of the term of a lease covering a majority of the area of another
location. Revenues from the two locations represented in the aggregate
approximately 8.6% of the total revenues for the year ended December 31,
1995. Of the other locations, three are held under noncancelable long-term
leases and two are held under long-term leases, cancelable on short notice
under certain circumstances. Cancellation of either cancelable lease by
the lessor may have a materially adverse effect upon the Company's results
of operations in the event the Company fails to obtain another or other
materially profitable locations.
At December 31, 1995, the Company's future minimum net rentals under
operating leases are as follows:
Year Ending
December 31, Amount
1996 $ 20,131,000
1997 19,870,000
1998 19,888,000
1999 17,740,000
2000 16,170,000
Thereafter 116,989,000
------------
$210,788,000
============
Litigation - Various lawsuits against the Company have arisen in the
course of the Company's business, some of which are covered by insurance.
In certain of these matters, large or indeterminate amounts are sought. In
the opinion of the Company, any ultimate liability which could result from
such litigation would not have a material effect on the Company's
financial position or the results of its operations.
- 11 -
<PAGE>
7. INCENTIVE STOCK OPTION PLAN
The Company has an incentive stock option plan (the "1992 Plan") under
which the Company has reserved 425,000 shares of common stock for the
granting of options. Under an earlier plan, there were outstanding options
to purchase 21,600 shares. The Company's Board of Directors, subject to
shareholder approval at the next annual meeting in 1996, amended the Plan
to increase the shares subject to the Plan by 100,000 shares. Options are
granted at prices not less than the fair market value on the date granted.
Options granted become exercisable at various dates dependent upon the
option agreement and expire five years from the date of grant.
Transactions relating to stock options are as follows:
<TABLE>
<CAPTION>
Shares Options Available
Reserved Outstanding for Grant
<S> <C> <C> <C>
Balance, February 28, 1993
($3.5625 to $16.50 per share) 446,600 380,600 66,000
Options returned for granting -- (25,500) 25,500
Options exercised ($3.5625 per share) (200) (200) --
------- ------- --------
Balance, February 28, 1994
($3.5625 to $3.91875 per share) 446,400 354,900 91,500
Options returned for granting/no longer available (21,600) (37,600) 16,000
Options exercised ($3.5625 per share) (200) (200) --
Options granted ($3.00 per share) -- 10,000 (10,000)
------- ------- --------
Balance, December 31, 1994
($3.00 to $3.91875 per share) 424,600 327,100 97,500
Options exercised ($3.5626 per share) (200) (200)
Options returned for granting (17,500) 17,500
Options granted ($5.50 to $6.4625) -- 84,000 (84,000)
Options authorized* 100,000 -- 100,000
------- ------- --------
Balance, December 31, 1995
($3.00 to $6.4625 per share) 524,400 393,400 131,000
======= ------- ========
Exercisable at December 31, 1995 230,600
=======
</TABLE>
* Subject to shareholder approval. See note above.
8. NOTE RECEIVABLE FOR COMMON STOCK SUBSCRIBED
In April 1993, an officer/stockholder satisfied his note receivable to the
Company by transferring 12,837 shares of common stock to the Company. The
market value of the stock at the date of the transfer was $59,375. As a
result of this payment, the Company issued the last installment of 6,250
shares of common stock subscribed.
A note receivable for common stock subscribed was due from another
officer/stockholder issued in connection with the exercise of stock
warrants, with the notes providing for the issuance of shares of common
stock in installments upon payment of the note installments. The note bore
interest at the same rate as the Company's Facility I line of credit. In
March 1995, the officer/stockholder agreed to satisfy the balance of the
note, including accrued interest of $57,632, by transferring as of March
16, 1995, 39,196 shares of common stock to the Company. The market value
- 12 -
<PAGE>
of the stock at the date of the transfer was $176,382. As a result, the
Company issued to the officer/stockholder 12,500 shares of common stock.
Interest income includes approximately $3,000, $9,000 and $8,000 of
interest earned on these notes for the year ended December 31, 1995, the
ten-month period ended December 31, 1994 and the year ended February 28,
1994, respectively. Other current assets include $55,039 at December 31,
1994 due from the officer/shareholder for accrued interest.
9. OTHER RELATED PARTY TRANSACTIONS
The Company provides bookkeeping services to three private entities owned
by officers of the Company. Fees paid to the Company for such services
were $32,640, $28,486 and $25,524 for the year ended December 31, 1995,
the ten-month period ended December 31, 1994 and the year ended February
28, 1994, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Ten-Month
Year Ended Period Ended Year Ended
December 31, December 31, February 28,
1995 1994 1994
<S> <C> <C> <C>
Federal:
Current $ 808,000 $ 130,000 $(491,000)
Deferred (463,000) (122,000) 176,000
--------- --------- ---------
345,000 8,000 (315,000)
--------- --------- ---------
State and City:
Current 309,000 209,000 (207,000)
Deferred 105,000 (21,000) 331,000
--------- --------- ---------
414,000 188,000 124,000
--------- --------- ---------
Change in valuation allowance (884,000) -- (207,000)
--------- --------- ---------
$(125,000) $ 196,000 $(398,000)
========= ========= =========
</TABLE>
- 13 -
<PAGE>
The tax effects of significant items comprising the Company's deferred tax
assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Short-term deferred tax assets (liabilities):
Reserves and write-offs of assets not
currently deductible $ 284,000 $ 332,000
Prepaid expenses (617,000) (756,000)
Investment in limited partnership -- (75,000)
----------- -----------
Total short-term deferred tax asset (liability) $ (333,000) $ (499,000)
=========== ===========
Long-term deferred tax assets (liabilities):
Deferred rent $ 920,000 $ 819,000
Property, equipment and improvements 964,000 412,000
Operating loss carryforwards 659,000 846,000
Tax credit carryforwards 73,000 347,000
----------- -----------
Long-term deferred tax asset (liability) 2,616,000 2,424,000
----------- -----------
Valuation allowance (1,215,000) (2,099,000)
----------- -----------
Total long-term deferred tax asset (liability) $ 1,401,000 $ 325,000
=========== ===========
Net deferred tax asset (liability) $ 1,068,000 $ (174,000)
=========== ===========
</TABLE>
The realization of the deferred tax assets relates directly to the
Company's ability to generate taxable income for Federal, state, and
foreign tax purposes. Management has concluded that partial realization of
these deferred tax assets is more likely than not as a result of the
Company's earnings history for the past two years, and has thus reduced
the valuation accordingly. Additional reductions to the valuation
allowance will be recorded when, in the opinion of management, the
utilization of such is more likely than not.
At December 31, 1995, the Company has available net operating loss
carryforwards of approximately $953,000 to offset future taxable income of
the Canadian subsidiary. The total Canadian loss carryforward consists of
$390,000, $363,000 and $200,000 expiring in the years 2000, 2001 and 2002,
respectively. The Company also has available net operating loss and credit
carryforwards for various states and local governments which expire in
various amounts through 2008.
- 14 -
<PAGE>
Reconciliation of the U.S. statutory rate with the effective tax rates is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended Ten-Month Period Ended Year Ended
December 31, 1995 December 31, 1994 February 28, 1994
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate $ 726,000 34.0% $ 243,000 34.0% $(412,000) (34.0)%
State and city taxes - net of
federal benefit 29,000 1.4 168,000 23.5 61,000 5.0
Utilization of tax credits (187,000) (8.7) (23,000) (3.2) -- --
Loss for which no benefit is
currently available -- -- -- -- 86,000 7.1
Change in valuation allowance (884,000) (41.5) -- -- -- --
Refund of prior years
state taxes -- -- (30,000) (4.2) (249,000) (20.5)
Rate differential on foreign
subsidiary 79,000 3.7 75,000 10.5 --
Expired foreign net operating
loss 91,000 4.3 -- -- -- --
Goodwill -- -- 24,000 3.4 72,000 5.9
Utilization of losses not
previously recognized for
temporary differences -- -- (144,000) (20.0) -- --
Other 21,000 1.0 (117,000) (16.6) 44,000 3.7
--------- ---- ------------ ----- --------- -----
$(125,000) (5.8)% $ 196,000 27.4% $(398,000) (32.8)%
========= ==== ============ ===== ========= =====
</TABLE>
11. PENSION PLANS
The Company contributes to a multiemployer pension plan which covers
employees under collective bargaining agreements. Pension expense for the
year ended December 31, 1995, the ten-month period ended December 31, 1994
and the year ended February 28, 1994 was $290,596, $226,331 and $329,744,
respectively.
Effective July 1, 1993, the Company established a 401(k) plan which covers
all employees who are not members of a union. Under the terms of the Plan,
the Company matches 15% up to $666.67 of employee contributions to a
maximum contribution of $100. Company contributions to this plan were
$14,789 for the year ended December 31, 1995, $11,646 for the ten-month
period ended December 31, 1994 and $12,673 for the year ended February 28,
1994.
12. FOREIGN OPERATIONS
A summary of the Canadian subsidiary's financial information is as
follows:
<TABLE>
<CAPTION>
Ten-Month
Year Ended Period Ended Year Ended
December 31, December 31, February 28,
1995 1994 1994
<S> <C> <C> <C>
Assets $ 769,000 $ 589,000 $ 940,000
Liabilities 1,672,000 1,231,000 1,325,000
Stockholder's deficiency in assets (903,000) (642,000) (385,000)
Revenues 281,000 215,000 1,202,000
Net (loss) (237,000) (285,000) (252,000)
</TABLE>
- 15 -
<PAGE>
13. SEGMENT INFORMATION
The following table sets forth the contributions to revenues, operating
income, identifiable assets, capital expenditures and depreciation expense
by business segment:
<TABLE>
<CAPTION>
Ten-Month
Year Ended Period Ended Year Ended
December 31, December 31, February 28,
1995 1994 1994
<S> <C> <C> <C>
Revenues:
Parking $ 61,772,058 $ 50,935,794 $ 59,774,933
Service station 4,158,992 3,494,337 4,295,652
------------ ------------ ------------
$ 65,931,050 $ 54,430,131 $ 64,070,585
============ ============ ============
Operating (loss) income:
Parking $ 2,130,753 $ 765,240 $ (1,254,573)
Service station (17,061) (49,160) 41,821
------------ ------------ ------------
$ 2,113,692 $ 716,080 $ (1,212,752)
============ ============ ============
Identifiable assets:
Parking $ 35,657,311 $ 31,520,294 $ 32,739,508
Service station 31,826 42,821 42,821
Corporate (cash) 1,532,909 1,225,853 2,229,974
------------ ------------ ------------
$ 37,222,046 $ 32,788,968 $ 35,012,303
============ ============ ============
Capital expenditures:
Parking $ 1,379,682 $ 990,098 $ 1,348,778
Service station 3,064 -- 3,165
------------ ------------ ------------
$ 1,382,746 $ 990,098 $ 1,351,943
============ ============ ============
Depreciation and amortization expense:
Parking $ 1,502,001 $ 1,373,067 $ 1,585,954
Service station 7,844 6,777 9,327
------------ ------------ ------------
$ 1,509,845 $ 1,379,844 $ 1,595,281
============ ============ ============
</TABLE>
14. WRITE-OFF OF ASSETS
During the twelve months ended December 31, 1995, the ten-month period
ended December 31, 1994 and the year ended February 28, 1994, the Company
wrote off assets of $315,598, $124,168 and $477,629, respectively, with
respect to locations in the New York and Philadelphia metropolitan areas
due to poor operating results and management's estimate of no or little
reasonable expectation for improvement of a magnitude to permit recovery
of these costs.
15. SUBSEQUENT EVENT - SETTLEMENT OF CLAIM
On March 29, 1996, the United States District Court for the Eastern
District of Pennsylvania approved a net cash settlement of $1,700,000 plus
interest payable to the Company as one of several plaintiffs in a class
action brought against the owner, manager and tenant of a building in
midtown Philadelphia which suffered a fire in February 1991 causing
substantial disruption of the operations of the plaintiffs. The Company
expects that the proceeds from the settlement will be received during 1996
and they will be recorded in the Company's financial statements upon
receipt.
******
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SQUARE INDUSTRIES, INC.
-----------------------------------------
(Registrant)
s/ Sanford Harwood
-----------------------------------------
Sanford Harwood, Assistant Chairman
Dated: April 1, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
s/ Lowell Sanford Chairman of the Board
- ------------------------- of Directors and Chief
Lowell Harwood Executive Officer April 1, 1996
s/ Brett Harwood President, Chief
- -------------------------- Operating Officer
Brett Harwood and Director April 1, 1996
s/ Sanford Harwood Assistant Chairman,
- -------------------------- Secretary and Director April 1, 1996
Sanford Harwood
s/ John Kowal Acting Vice President-Finance
- -------------------------- and Chief Financial Officer
John Kowal (Principal Accounting Officer) April 1, 1996
s/ Daniel R. Schein Director April 1, 1996
- --------------------------
Daniel R. Schein
s/ Stephen A. Bansak, Jr. Director April 1, 1996
- --------------------------
Stephen A. Bansak, Jr
s/ Leslie Harwood Ehrlich Director April 1, 1996
- --------------------------
Leslie Harwood Ehrlich
s/ Leo Silverstein Director April 1, 1996
- --------------------------
Leo Silverstein
</TABLE>
<PAGE>
SUBSIDIARIES OF SQUARE INDUSTRIES
---------------------------------
NAME OF SUBSIDIARY STATE FID #
------------------ ----- -----
112 W25TH ST SQUARE CORP NY 22-2890112
161 ST PARKING CORP NY 22-2734522
211 W56TH ST GARAGE CORP NY 22-2369107
29 & 6 GARAGE CORP NY 22-2369110
303 W46TH ST CORP NY 22-2734562
306 W44 CORP NY 22-2369105
331 W43RD ST CORP NY 22-3125524
333-335 W43RD ST CORP NY 22-2982184
335 W43RD ST CORP NY 22-3125649
337 W43RD ST CORP NY 22-2982187
400 SQUARE GARAGE CORP NY 22-2369100
403 MANAGEMENT CORP NY 22-3243516
47TH ST PARKING INC NY 22-2734561
6 & 30 GARAGE CORP NY 22-2369108
70 E10TH ST CORP NY 22-2977087
711 WEST END AVE GARAGE CORP NY 22-2761431
802 SQUARE CORP NY 22-2369124
804 SQUARE CORP NY 22-2369127
808 SQUARE CORP NY 22-2369139
82ND & 1ST PARKING CORP NY 22-2369115
8TH AVE PROPERTIES NY 22-2761478
BREWACK REALTY CORP NY 22-2369051
ELZAB DEVELOPMENT CORP NY 22-2369143
GAILGAL HOLDING CORP NY 22-2369053
INSTITUTIONAL PARKING MGMT INC NY 22-2369104
JAMAICA & ARCHER AV GARAGE CORP NY 22-2830690
JAROSE PROPERTIES NY 22-2369117
KING GREEN PARKING CORP NY 22-2369066
LESLIE CRAIG CORP NY 22-2369055
MEDICAL PARKING MGMT INC NY 22-2369114
SQUARE 30TH ST CORP NY 22-2369081
SQUARE 43RD ST CORP NY 22-2369082
SQUARE 505 CORP NY 22-2369086
SQUARE 575 LEX INC NY 22-2971663
SQUARE 804 CORP NY 22-3125651
SQUARE 964 THIRD AVE CORP NY 22-2369084
SQUARE ALPHA CORP NY 22-2734548
SQUARE CADMAN CORP NY 22-2734543
SQUARE CLINTON CORP NY 13-3414385
SQUARE COOPER PARKING CORP NY 22-2882126
SQUARE DEDHAM CORP NY 22-2369077
SQUARE DYCKMAN NY 22-2734559
<PAGE>
NAME OF SUBSIDIARY STATE FID #
------------------ ----- -----
SQUARE FIRST AVE CORP NY 22-2733582
SQUARE HENRY CORP NY 22-2734518
SQUARE HUDSON CORP NY 22-2856001
SQUARE HUDSON PARKING INC NY 13-3542612
SQUARE INDUSTRIES CONSTRUCTION NY 22-2734554
SQUARE ISLAND CORP NY 22-2734523
SQUARE KINGS PLAZA CORP NY 22-3045261
SQUARE LAFAYETTE GARAGE CORP NY 13-3539497
SQUARE LEBANON CORP NY 22-2848969
SQUARE LEX 51ST ST CORP NY 22-3125650
SQUARE METROPOLITAN CORP NY 22-2816155
SQUARE PACIFIC CORP NY 22-2882127
SQUARE PARK SLOPE CORP NY 22-3045263
SQUARE PARKING CANADA NY 22-3045270
SQUARE PENN PLAZA NY 22-2734558
SQUARE PLUS OPERATING CORP NY 22-1846644
SQUARE REGO CORP NY 11-2874556
SQUARE ROCHELLE CORP NY 13-3379069
SQUARE STEWART CORP NY 22-2955261
SQUARE WEST END AVE CORP NY 22-3109851
SQUARE YORK CORP NY 22-2761410
TRUBAN REALTIES NY 22-2369092
125 HALSEY CORP NJ 22-2761548
4 WEST PARK ST CORP NJ 22-3125652
400 CARNEGIE AVE CORP NJ 22-3176452
6 & 8 WEST PARK ST INC NJ 22-3125523
643 BROAD ST CORP NJ 22-2369147
808 SQUARE CORP NJ PENDING
ATLANTIC SQUARE CORP NJ 22-2369154
BROAD NEWARK CORP NJ 22-2761428
MEDICAL PARKING MGMT OF NJ INC NJ 22-2369155
REVENUE CONTROL SERVICE CORP NJ 22-3235215
PARK/FLY INC NJ 22-2848970
SQUARE 532 CORP NJ 22-3045267
SQUARE BACHRACH NJ 22-2977327
SQUARE BRIGHTON CORP NJ 22-2761435
SQUARE BRUNSWICK CORP NJ 22-2977071
SQUARE CENTRAL CORP NJ 22-2369150
SQUARE FREEHOLD CORP NJ 22-3045258
SQUARE HALSEY CORP NJ 22-2369148
SQUARE HARBORSIDE CORP NJ 22-2820071
<PAGE>
NAME OF SUBSIDIARY STATE FID #
------------------ ----- -----
SQUARE KENTUCKY CORP NJ 22-3045259
SQUARE LIBERTY CORP NJ PENDING
SQUARE MALL CORP NJ 22-2867022
SQUARE MORRISTOWN CORP NJ 22-2761506
SQUARE NEWPORT CORP NJ 22-2821788
SQUARE PALISADES CORP NJ 22-2369152
SQUARE PLUS OPERATING OF NJ INC NJ 22-1866056
SQUARE SHORE CORP NJ 22-3125648
SQUARE SOUTH CORP NJ PENDING
SQUARE SUMMIT CORP NJ 22-2369153
SQUARE TRENTON CORP NJ 22-2761434
S.P. PARKING INC NJ 22-2369141
PUBLIC SQUARE PARKING CORP OH 22-2228246
13TH & EUCLID CORP OH 22-2761689
1111 WALNUT CORP PA 22-3371865
11TH & SANSOM CORP PA 22-3125647
12TH & SANSOM PARKING CORP PA 22-2761539
23RD & ARCH PARKING CORP PA 22-2761502
714 SMITHFIELD CORP PA 22-2848964
955 PENN CORP PA 22-2977088
ARCH SQUARE CORP PA 22-3160029
METRO AUTO PARKING CORP PA 22-2999023
PENNSYLVANIA SQUARE CORP PA 22-2761490
REBOY DEVELOPMENT CORP PA 22-2369073
SII CORP PA 22-2761487
SQUARE 100 FORBES CORP PA 22-2882127
SQUARE 224 CORP PA 22-2977080
SQUARE ACADEMY CORP PA 22-2890114
SQUARE ARCH CORP PA 22-2890117
SQUARE ARENA CORP PA 22-3234482
SQUARE BOULEVARD CORP PA 22-2890119
SQUARE BROAD CORP PA 22-2977086
SQUARE CARLTON CORP PA 22-2761688
SQUARE CENTER CITY CORP PA 22-3371866
SQUARE CHESTNUT CORP PA 22-2761494
SQUARE FORT DUQUESNE INC PA 22-3405608
SQUARE FOURTH AVE CORP PA 22-2761402
SQUARE FULTON CORP PA 22-2848971
SQUARE HISTORIC CORP PA 22-3160063
SQUARE JEFFERSON CORP PA 22-3195648
<PAGE>
NAME OF SUBSIDIARY STATE FID #
------------------ ----- -----
SQUARE JUNIPER CORP PA 22-2369157
SQUARE KENNEDY CORP PA 22-2761691
SQUARE LEHIGH CORP PA 22-2977091
SQUARE LIBERTY CORP PA 22-2814482
SQUARE LOCUST CORP PA 22-3160032
SQUARE MARKET CORP PA 22-2761530
SQUARE MDM CORP PA 22-2976824
SQUARE PALACE CORP PA 22-3237868
SQUARE PHILADELPHIA CORP PA 52-1150215
SQUARE PITTSBURGH CORP PA 22-3160311
SQUARE PLAZA CORP PA 22-2761693
SQUARE RODMAN CORP PA 22-2761481
SQUARE SANSOM CORP PA 22-2761497
SQUARE THIRD AND LOMBARD CORP PA 22-3236819
SQUARE THIRD AVE CORP PA 22-2761399
SQUARE WALNUT CORP PA 22-2761407
SQUARE WASH CORP PA 22-2761551
STEEL PARKING CORP PA 22-2882128
WILLOW PARKING CORP PA 22-2848962
SQUARE GREGG, INC PA PENDING
275 WASHINGTON PARKING CORP MASS 22-3160312
GEORGIAN SQUARE CORP MD 06-1070018
SQUARE BOSTON CORP MASS 22-2493860
SQUARE WASHINGTON CORP DC 22-2977085
INDIANA SQUARE CORP IND 35-1960421
SQUARE INDUSTRIES OF ATLANTA, INC. GA 22-3405609
SQUARE PEACH CORP. GA 22-3405611
SQUARE WILMINGTON CORP DEL 22-3011227
SQUARE 88 CORP DEL 22-3405610
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