<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: JUNE 30, 1996 Commission File Number: 0-2707
STRUTHERS INDUSTRIES, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 73-0746455
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 WEST 5TH STREET, SUITE 601, TULSA, OKLAHOMA 74103
-----------------------------------------------------
(Address of principal executive office)
(918) 582-1788
--------------
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
-------- ---------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the close of the period covered by this report.
<TABLE>
<CAPTION>
COMMON STOCK $0.10 PAR VALUE 11,720,967
---------------------------- ----------
<S> <C>
Class Outstanding at
June 30, 1996
</TABLE>
Transitional Small Business Disclosure Format: Yes ; No X
----- -----
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<PAGE> 2
STRUTHERS INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
---
<S> <C>
PART I. Financial Information:
Item 1. Condensed Consolidated Balance Sheets 3
June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations - 4
Three and Six Months Ended June 30, 1996 and 1995
Condensed Consolidated Statement of Stockholders' 5
Equity - Six Months Ended June 30, 1996
Condensed Consolidated Statements of Cash Flows - 6-7
Six Months Ended June 30, 1996 and 1995
Notes to Condensed Consolidated Financial 8-13
Statements - Six Months Ended June 30, 1996
and 1995
Item 2. Management's Discussion and Analysis of 14-19
Financial Condition and Results of Operations
PART II. Other information 20
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
STRUTHERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 582,981 $ 242,569
Equity securities 104,183 85,000
Receivables, net 1,555,029 399,642
Inventories 1,810,403 139,866
Prepaid expenses and other assets 73,880 23,957
Deferred income taxes 76,000 76,000
------------ ------------
4,202,476 967,034
Property and equipment 7,050,315 955,461
Investment securities 525,000 525,000
Goodwill 2,357,825 --
Other assets 309,796 --
Net assets of discontinued operations -- 9,959,568
------------ ------------
$ 14,445,412 $ 12,407,063
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 851,869 $ 427,113
Accrued liabilities 449,599 318,040
Accrued settlement expense 3,250,000 3,500,000
Current maturities of long-term obligations 199,729 397,193
------------ ------------
4,751,197 4,642,346
Long-term obligations 710,276 327,926
Minority interest 241,669 --
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share, authorized
25,000,000 shares; issued and outstanding
11,720,967 at June 30, 1996 and 11,625,967 at
December 31, 1995 1,172,097 1,162,597
Additional paid-in capital 35,971,507 35,789,757
Stock subscriptions receivable (210,000) (921,500)
Foreign currency translation adjustment (36,502)
Accumulated deficit (28,154,832) (28,594,063)
------------ ------------
8,742,270 7,436,791
------------ ------------
$ 14,445,412 $ 12,407,063
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 4
STRUTHERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES AND REVENUES $ 1,939,233 $ 2,070,135 $4,139,790 $ 3,742,384
COST OF SALES 1,550,746 1,588,828 3,295,265 2,965,853
----------- ----------- ---------- -----------
Gross profit (loss) 388,487 481,307 844,525 776,531
OTHER EXPENSE (INCOME)
Selling, general and administrative 544,144 626,812 1,226,426 1,051,329
Interest 64,570 51,097 132,559 107,544
Settlement expense -- 1,900,000 -- 1,900,000
Loss on sale of assets 73,700 -- 73,700 --
Equity in joint venture losses 12,363 -- 71,847 --
Loss (gain) on equity securities -- -- (174,428) 28,391
Interest and other income (33,388) (42,716) (153,479) (86,127)
----------- ----------- ---------- -----------
661,389 2,535,193 1,176,625 3,001,137
Loss before income tax (benefit) and
minority interest (272,902) (2,053,886) (332,100) (2,224,606)
Income tax benefit (767,000) -- (811,000) --
----------- ----------- ---------- -----------
494,098 (2,053,886) 478,900 (2,224,606)
Minority interest (39,669) -- (39,669) --
----------- ----------- ---------- -----------
NET EARNINGS (LOSS) $ 454,429 $(2,053,886) $ 439,231 $(2,224,606)
=========== =========== ========== ===========
NET EARNINGS (LOSS) PER PRIMARY SHARE $ 0.04 $ (0.23) $ 0.04 $ (0.25)
=========== =========== ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 11,720,967 8,935,133 11,683,000 8,935,133
=========== =========== ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
STRUTHERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
COMMON ADDITIONAL STOCK CURRENCY
STOCK PAID-IN SUBSCRIPTION TRANSLATION ACCUMULATED
PAR VALUE CAPITAL RECEIVABLE ADJUSTMENT DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 $1,162,597 $35,789,757 $(921,500) $ -- $(28,594,063) $7,436,791
Stockholder contribution 25,000 25,000
Exercise common stock
warrants 9,500 156,750 (70,000) 96,250
Stock subscription
receivable collections 781,500 781,500
Foreign currency trans-
lation adjustment (36,502) (36,502)
Net earnings 439,231 439,231
---------- ----------- --------- -------- ------------ ----------
Balance June 30, 1996 $1,172,097 $35,971,507 $(210,000) $(36,502) $(28,154,832) $8,742,270
========== =========== ========= ======== ============ ==========
</TABLE>
See notes to condensed consolidated financial statements.
5 of 20
<PAGE> 6
STRUTHERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 439,231 $(2,224,606)
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities:
Depreciation, depletion and amortization 225,081 221,205
Minority interest 39,669 --
Deferred income taxes (811,000) --
Loss (gain) on sale of equity securities (174,428) 28,391
Loss on sale of assets 73,700 --
Gain from lawsuit settlement (51,819) --
Foreign operations 100,847 --
Change in operating assets and liabilities
Receivables (293,014) 56,023
Inventories (385,103) 2,582
Prepaid expenses and other assets (13,593) 41,274
Accounts payable and accrued liabilities 163,771 1,187,856
--------- -----------
(686,658) (687,275)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (180,997) (302,907)
Investment in joint venture -- (181,246)
Proceeds from sale of equity securities 674,276 89,779
Purchase of equity securities (305,683) --
Other loans made (25,000) (200,000)
Acquisition of SPS Alfachem, Inc. (75,000) --
Loans made to World Integrated Network of Companies (89,996) (49,900)
Proceeds from sale of assets 115,000 1,540,223
--------- -----------
112,600 895,949
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan principal payments (233,949) (540,306)
Loan proceeds -- 500,000
Payment of accrued settlement expense (250,000) --
Stockholder contribution 25,000 200,000
Exercise of common stock warrants 96,250 --
Sale of common stock by subsidiary 202,000 --
Collection of stock subscriptions receivable 896,500 --
--------- -----------
735,801 159,694
--------- -----------
Net cash from operations 161,743 368,368
Net cash from discontinued operations (Rose Ltd. at 1/1/96) 178,669 --
--------- -----------
Increase in cash and cash equivalents 340,412 368,368
Cash and cash equivalents, beginning of period 242,569 1,549,969
--------- -----------
Cash and cash equivalents, end of period $ 582,981 $ 1,918,337
========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 7
STRUTHERS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid $43,959 $100,474
======= ========
Income taxes paid $ -- $ --
======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Stock subscription receivable issued as partial
consideration for exercise of common stock warrant $70,000 $ --
Debt reduction realized upon settlement of Liberal
Hull lawsuit 51,819 --
Equipment purchased under capital lease agreements -- 51,377
Inventory exchanged for accounts payable -- 510,538
Common stock exchanged for convertible debentures -- 249,000
Common stock exchanged for stock subscriptions
receivable -- 862,500
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 8
STRUTHERS INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements of Struthers
Industries, Inc. include the accounts of Struthers Industries, Inc.
("Struthers") and its wholly-owned subsidiaries, Peacock Aerospace,
Inc. ("Peacock"), incorporated April 25, 1991, Rose Color, Inc. ("Rose
Color"), acquired March 1, 1993, Kinder Gas Processing Corporation
("Kinder"), acquired on May 1, 1993, Liberal Hull Company ("Liberal
Hull"), incorporated on October 5, 1993, and Rose Color's 80% owned
subsidiary, JBW International, Inc. ("JBW"), acquired July 1, 1994. In
anticipation of the closing of the acquisition of Wincom Inc.,
formerly World Integrated Network of Companies, Inc. ("WINCOM"), on
August 7, 1995, Struthers acquired approximately 94% of Global
Ecosystems, Inc. ("Global"), an inactive company trading on the
National Bulletin Board. Global was renamed Rose International Ltd.
("Rose Ltd") and the stock of Rose Color was transferred to Rose Ltd.
During May 1996, Rose Ltd. acquired 100% of the stock of SPS Alfachem,
Inc., which is expected to provide Rose Ltd. with an entry into the
fine chemicals market through its strong technology base. (Struthers
and its subsidiaries are collectively referred to as the "Company").
During June 1996, it was determined that it would be necessary to
retain the Company's ownership in Rose Ltd. in order to facilitate the
listing application of the Company on the Nasdaq Stock Market.
Accordingly, the financial results presented no longer include Rose
Ltd. and its subsidiaries as discontinued operations of the Company.
The condensed financial statements included in this report have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission for interim reporting and include
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation.
These financial statements have not been audited. The condensed
consolidated balance sheet at December 31, 1995 included in this report
has been derived from the audited consolidated balance sheet.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting
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<PAGE> 9
principles have been condensed or omitted pursuant to such rules and
regulations for interim reporting. The Company believes that the
disclosures contained herein are adequate to make the information
presented not misleading. However, these financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB as amended by
Form 10-KSB/A for the year ended December 31, 1995. The financial data
for the interim periods presented may not necessarily reflect the
results to be anticipated for the complete year. Certain
reclassifications of the amounts presented for the comparative period
have been made to conform to the current presentation.
B. DISCONTINUED OPERATIONS
As more fully discussed below, the Company entered into an asset
purchase agreement with WINCOM which provided for the spin-off of its
majority-owned subsidiary, Rose Ltd. Under this agreement, the
stockholders of the Company would proportionately acquire shares of
stock in Rose Ltd. To facilitate this event the Company entered into an
agreement with a shell corporation, Global, in which Global acquired
Rose Color by issuing 4,500,000 shares of its common stock to the
Company in exchange for the Company's common stock investment in
Rose Color. The Company paid $100,000 and Global issued 225,000 shares
of its restricted common stock to consultants as fees for administering
this transaction. The Company is obligated to register the restricted
common stock. The Company owned 94% of Global, which changed its name
to Rose International Ltd. Accordingly, the following assets and
liabilities of Rose Ltd. were treated as net assets of discontinued
operations in the balance sheet of the Company at December 31, 1995. As
discussed above, with the change in plans to not distribute the
Company's ownership in Rose Ltd. to its shareholders, the assets of
Rose Ltd. and its subsidiaries are consolidated with the Company's
other operations at June 30, 1996.
9 of 20
<PAGE> 10
<TABLE>
<CAPTION>
DECEMBER 31,
1995
<S> <C>
Cash $ 178,670
Marketable securities 213,348
Accounts receivable 862,376
Inventories 1,285,434
Property and equipment 6,259,906
Goodwill 2,349,930
Investment in foreign operations 417,512
Other assets 86,588
Long-term debt and current maturities (446,055)
Current liabilities (417,141)
Deferred income taxes (831,000)
----------
$9,959,568
==========
</TABLE>
C. AGREEMENT WITH WINCOM INC.
As set forth in the Agreement of Merger dated June 14, 1996, which
superseded the earlier Asset Purchase Agreement originally dated May
25, 1995, and amended thereafter, the Company entered into a Merger
Agreement with WINCOM, a privately-held Los Angeles, California based
company. It is the intention of this agreement, if consummated, to
provide for the merger of WINCOM with and into the Company. If
consummated, the management of WINCOM will replace the Company's
current management and the current stockholders of the Company will
retain approximately 8% (6% fully-diluted) of the resulting Company.
The completion of this transaction is subject to the fulfillment of
several conditions including, but not limited to, the obligation of the
Company to settle all pending litigation against the Company, a minimum
cash balance of the Company adjusted for settlement of litigation costs
and the approval of the Company shareholders through proxy solicitation
conforming to SEC rules.
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<PAGE> 11
D. LONG-TERM OBLIGATIONS
During the six months ended June 30, 1996, the Company made payments on
long-term obligations of $233,949 and did not incur any new debt.
In addition, the Company settled its litigation with the predecessor
owners of Liberal Hull, which resulted in a further reduction in
long-term obligations of $27,220, as well as the elimination of the net
accrued interest balance at the time of $24,599. The resulting balance
of $299,800 will be amortized over a five year period.
E. STOCK OPTIONS AND WARRANTS
During 1995, the Company established its 1995-1996 stock option plan
which reserved 2,500,000 common shares for certain employees, directors
and consultants to purchase the Company's common stock. During 1995,
options to acquire 2,335,000 shares were granted and exercised. As of
June 30, 1996 there continues to remain available options to acquire
165,000 shares of the Company's common stock under this plan which have
not been granted.
As of January 1, 1996, there were warrants outstanding to acquire
140,000 shares of the Company's common stock at $1.75 per share.
During the six months ended June 30, 1996, one warrant was exercised
for cash to acquire 15,000 shares and one warrant was exercised to
acquire 80,000 shares. One-half of the $140,000 exercise price was
paid in cash and the remaining balance was paid through execution of
a stock subscription payable to the Company. There remains one
warrant to acquire 45,000 shares of the Company's common stock
outstanding at June 30, 1996.
As of June 30, 1996, there were stock subscription receivables in the
amount of $210,000 which is recorded as a reduction in stockholders'
equity.
F. INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and operating loss and tax credit carryforwards. SFAS No. 109
requires that a valuation allowance be established to reduce deferred
tax assets to the amount that is more likely than not to be realized.
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<PAGE> 12
The income tax benefit recorded by the Company during the six months
ended June 30, 1996 in the amount of $811,000 consists of the expected
amount at the federal statutory rate of $113,000, the state tax
benefit, net of the federal tax benefit of $14,000, less the
non-deductible goodwill amortization of $22,000 and a decrease to the
valuation allowance of $706,000. During the six months ended June 30,
1995, the expected amount at the federal statutory rate of $756,000,
the state benefit, net of the federal tax benefit of $91,000, less the
non-deductible goodwill amortization of $22,000 was eliminated by an
increase of $825,000 to the valuation allowance.
G. COMMITMENTS, CONTINGENCIES AND SETTLEMENTS
During 1994, two actions were filed against the Company and certain of
its current and former directors. The claimants' actions were treated
as class actions and alleged that the Company and the named individuals
violated Sections 10(b), 10(b)-5 and 20(a) of the Securities and
Exchange Act of 1934 and rules and regulations thereunder by
perpetrating a fraud on the market by causing false and misleading
statements concerning the Company to be made to the investing public.
On or about July 15, 1995, the Company and the other parties in these
actions reached an agreement in principle to settle both actions. The
parties executed a memorandum of understanding which incorporates all
the terms of the settlements in the respective lawsuits. On or about
April 16, 1996, the parties slightly modified the terms of the proposed
settlement (but not the total settlement amount) which now call for
total payments by February 15, 1997 of $1.9 million plus interest by
the Company. As of August 1, 1996, the Company had paid a total of
$500,000 into the settlement fund. The total amount of the settlement
could increase to $3.75 million plus interest if the transaction with
WINCOM described above, or a transaction resulting in more than a
thirty percent (30%) change in the ownership of the Company, is
consummated by April 16, 1997. The Company accrued the entire amount
of $3,750,000 as a settlement expense in 1995.
The Company has secured the payment of the balance of $3.25 million
through the issuance of two million shares of authorized but unissued
common stock into trust for the benefit of the class members, which
shares will be registered by the Company in an anticipated public
offering in late 1996 or early 1997. In addition, the Company has
executed two consent judgments to be held by Plaintiffs' counsel
pending the receipt of the full settlement. One judgment in the amount
of $1.4 million may be filed of record and executed upon in the event
that the Company does not enter
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<PAGE> 13
into the transaction with WINCOM by September 1, 1996. The remaining
judgment of $1.85 million may be executed upon if a similar transaction
is not consummated by April 16, 1997 or the Company fails to make the
total amount of the settlement payments due. In any event, the total
sum to be collected on behalf of the plaintiffs shall not exceed the
sum of $3.75 million plus interest. The definitive settlement agreement
incorporating the terms of the memorandum of understanding is in the
process of being prepared and will be subject to the approval of the
United States District Court for the Northern District of Oklahoma.
During March 1996, the Company settled its litigation with the
predecessor owners of Liberal Hull, which resulted in a reduction in
long-term obligations in the amount of $27,220, as well as the
elimination of the net accrued interest balance of $24,599. The
resulting balance of $299,800 will be amortized over a five year
period.
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<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL
The Company had a working capital deficit of $548,721 at June 30, 1996
as compared to a working capital deficit of $3,675,312 at December 31,
1995, an improvement of $3,126,591 during the period. Approximately
$2,275,000 of the reduction in the working capital deficit is a result
of consolidation of Rose Ltd. at June 30, 1996, whereas all net assets
were considered non-current when classified as net assets of
discontinued operations at December 31, 1995. In addition $300,000 of
the reduction in working capital deficit was the result of the
settlement of the Liberal Hull lawsuit and the resulting
reclassification of the associated debt. The remaining improvement is
primarily from collection of stock subscriptions receivable.
The cash position of the Company increased by approximately $161,000
during the six months ended June 30, 1996. The increase is primarily
the result of cash from financing activities of $736,000 and investing
activities of $113,000 less cash used in operating activities of
$687,000. Cash used in operating activities remained the same during
the six months ended June 30, 1996 as compared to the same 1995 period.
Assuming that the Agreement and Plan of Merger between the Company and
WINCOM described in the notes to the consolidated condensed financial
statements is consummated, following the closing of such Agreement, the
proposed new management team currently intends to commence the
implementation of the WINCOM Business Plan, which focuses on the
formation and implementation of commercial enterprises in the
telecommunications industry. The Company's major business activities
Will be focused in the development and deployment of resources in the
following areas: (1) Interactive and direct response television
programming delivered in a "new media" entertainment format; (2)
commercial applications for IVDS systems placed in service pursuant
to IVDS broadcast licenses proposed to be transferred to the Company,
subject to the approval of the FCC; (3) and commercial application of
telecommunications technologies complementary to the Company's
proposed television programming and IVDS systems. The Company also
intends to pursue long-term, growth-oriented strategies to enhance
such activities, particularly through business acquisitions,
strategic alliance, joint ventures and long-term distribution and
licensing agreements. Management will also continue to supervise the
Company's remaining energy-related operations. However, it is
currently contemplated that these operations will be reduced and
ultimately liquidated so that the Company can focus on the
implementation of its Business Plan.
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<PAGE> 15
A portion of the television programming is intended to be financed by
leveraging the fixed assets of the Company following the Closing. In
addition, the Company will be exploring other alternatives for funding
television programming and the other components of its business. The
Company anticipates committing no more than $25 million in total to
television programming and no more than $10 million per project during
this initial phase though the next 12 months.
The Company expects that a significant portion of the proposed
acquisitions and alliances will complement the new media, technology
and IVDS components of its business. The Company believes that through
its current lower leverage approach to accumulating its assets, it has
built a flexible capital structure which will allow it to utilize its
market capitalization and debt capacity as currency for strategic
acquisitions. The Company will continue to review a number of existing
cash flow generating entertainment and distribution companies which
management believe offer strategic fits in the Company's overall
business emphasis of "new media."
The Company anticipates that during the next 12 months it will open
offices in Los Angeles and Washington, D.C. for regulatory matters, and
New York for financial and capital market matters. The Company is
expected to continue to have a presence in Oklahoma to supervise its
energy-related interests, under the direction of Mr. Gordon, the
current Acting President of the Company.
WINCOM has historically utilized a number of contractual services for
strategic staffing functions. Although a significant percentage of
technical expertise will continue to be provided through these
contractual relations, the Company is anticipated to hire approximately
15 to 25 full time staff over the next 12 months. The IVDS operations
of the eight regions in the United States are anticipated to be managed
by a third party contractor. Therefore, staffing will depend on the
speed with which markets come on line. Television production will
primarily involve contract producers, directors, writers and other
creative personnel and should not impact the staffing levels of the
Company. Given the significant federal regulation of the Company's
contemplated new key businesses (IVDS and TV production), the
Washington, D.C. office is anticipated to have initially a staff of
three but may increase as the IVDS business-related revenue increases.
It is anticipated that New York will have five persons on its staff
initially to oversee financial markets, capital markets and shareholder
relations. The Company anticipates building a regional marketing staff
for the IVDS services of from 8 to 24 persons during the twelve months
following the Closing, depending on the timing of IVDS licenses
transfers
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<PAGE> 16
and the Company's ability to profitably increase test market sales for
key IVDS services such as utility meter reading.
The Company does not anticipate any material expenditures for research
and development in the first twelve months after the Closing, other
than approximately $2.4 million in connection with the development of
its order management system.
B. RESULTS OF OPERATIONS
With the sale of Peacock, which was consummated during the first
quarter of 1995, the Company now has two operating segments, the
chemical operations of Rose Ltd. and its subsidiaries and the energy
operations of Struthers, Kinder and Liberal Hull.
REVENUES AND COST OF SALES
The following table summarizes revenues and related cost of sales for
the three and six month periods ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Dye manufacturing $1,566,316 $1,642,974 $3,445,951 $2,934,813
Energy operations 372,917 427,161 693,839 807,571
---------- ---------- ---------- ----------
1,939,233 2,070,135 4,139,790 3,742,384
Cost of sales:
Dye manufacturing 1,194,242 1,192,801 2,554,466 2,201,366
Energy operations 356,504 396,027 740,799 764,487
---------- ---------- ---------- ----------
1,550,746 1,588,828 3,295,265 2,965,853
Gross profit:
Dye manufacturing 372,074 450,173 891,485 733,447
Energy operations 16,413 31,134 (46,960) 43,084
---------- ---------- ---------- ----------
$ 388,487 $ 481,307 $ 844,525 $ 776,531
========== ========== ========== ==========
</TABLE>
Dye manufacturing revenue for the six month period ended June 30, 1996
increased 17% from the comparable 1995 period and decreased 5% during
the three month period ended June 30, 1996 as compared to the same 1995
period. Gross profit margins for all periods presented have
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<PAGE> 17
remained relatively stable. The decline in sales during the three
months ended June 30, 1996 as compared to the same 1995 period is
composed primarily of two items. Rose Color normally makes three
shipments of its Green 70 product to Italy during the first six months
of the year. In 1996, two shipments were made in the first quarter of
1996 and the third was made during the second quarter. During 1995, the
reverse was true. Secondly, sales of intermediates to India were
$72,000 higher during the 1995 second quarter than the 1996 second
quarter. If the impact of these two items is eliminated, sales during
the second quarter would have increased seven percent (7%).
The majority of the increase in sales for the six month period ended
June 30, 1996 is the 54% increase in powder dye sales. During the 1995
period, powder dye sales represented 28% (consisting of 10%
manufactured powder dyes and 18% purchased powder dyes) of total sales,
while, during the 1996 period, powder dye sales represent 37%
(consisting of 20% manufactured powder dyes and 17% purchased powder
dyes) of total sales. The increase in manufactured powder dye sales has
somewhat mitigated the negative impact of continued pricing pressure
from competitors for the Company's liquid red dye which is used for
offroad diesel coloration.
Energy revenues during the three and six month periods ended June 30,
1996 decreased by approximately 13-15% from the 1995 periods. While the
revenue declines have been substantial, the impact on gross profit has
been relatively insignificant as indicated in the table above, except
for the negative gross profit of $77,000 experienced by Kinder for the
six months ended June 30, 1996. Kinder is expected to continue to incur
losses as long as the plant continues to operate. Accordingly,
management is in process of evaluating a plan to shut down the
processing plant and operate the gathering system portion of the
facility. Initial indications are that this will at a minimum eliminate
the continuing losses and could result in generating some profit.
OTHER EXPENSE (INCOME)
Selling, general and administrative expense increased $175,097 (17%)
during the six months ended June 30, 1996 as compared to the same 1995
period. The increase consists of higher audit costs of $56,000, an
increase of $109,000 in shareholder communications costs, an increase
of $30,000 for dues and subscriptions, an increase of $55,000 for legal
fees, an increase of $27,000 for sales commissions and a decrease of
$100,000 in compensation related expenses. The audit cost increased due
to substantially all costs for the 1995 audit being included in
continuing operations of the first quarter of 1996 whereas
approximately
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<PAGE> 18
$42,000 of the 1995 cost was included in discontinued operations. In
addition, costs were higher during the 1996 period due to the
additional costs associated with a change of auditors as discussed in
the Company's Form 10-KSB. Shareholder communications cost increases
are a result of the cost of public relations firms retained for the
WINCOM acquisition. The increase in dues and subscriptions is a
result of the cost of the proxy filing fee paid in late March 1996
when the preliminary proxy was filed with the SEC. The increase in
legal fees is principally related to the WINCOM acquisition and the
increase in sales commissions is primarily due to higher dye sales.
The decline in compensation costs is a result of the Company paying
its former president, R. Michael Still, $100,000 during the second
quarter of 1995 to settle its employment agreement with him.
This payment is also the primary reason for selling general and
administrative costs declining $82,668 (13%) during the three month
period ended June 30, 1996 as compared to the same 1995 period.
Interest costs increased $25,015 (23%) during the six month period
ended June 30, 1996 as compared to the same 1995 period. The net
increase consists of the $84,000 in interest accrued on $1,400,000 of
the settlement, pursuant to the settlement agreement, which is
contingent upon court approval. In addition, the Company retired
$249,000 in convertible debentures during the second quarter of 1995,
which resulted in a reduction in interest expense of $20,000 during
the1996 period than was incurred during the 1995 period. The remaining
decreases are primarily due to the debt reductions at Rose Color.
As discussed in note G to the financial statements, the initial minimum
settlement amount of $1,900,000 was accrued during the second quarter
of 1995.
During the second quarter of 1996, the Company sold all of its
remaining oil and gas producing properties for cash. The sale resulted
in recognition of a loss in the amount of $73,700.
Mafatlal Rose Color Industries Ltd., which is 49% owned by Rose Color,
began initial production during the fourth quarter of 1995. The
Company's share of losses incurred for the six month period ended June
30, 1996 amounted to $71,847.
The Company realized gains from the sale of equity securities in the
amount of $174,428 during the six month period ended June 30, 1996, as
compared to a loss of $28,391 during the corresponding 1995 period.
Interest and other income increased $67,352 (78%) during the six months
ended June 30, 1996, as compared to the same 1995 period. The
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<PAGE> 19
increase consists primarily of the $51,819 gain which Liberal Hull
realized during the 1996 period as a result of the lawsuit settlement
with the predecessor owner and a gain of $33,943 realized by Peacock as
a result of workers compensation insurance refunds, reduced by lower
interest income as a result of lower cash balances during the 1996
period as compared to the 1995 period.
As discussed in the footnotes to the financial statements, the change
in plans by the Company to not distribute its ownership of Rose Ltd.
to its sharehodlers resulted in Rose Ltd. no longer being classified
as a discontinued operation and the assets and liabilities of Rose
Ltd. were consolidated with the Company's other operations at June 30,
1996. The consolidation of Rose Ltd. and its subsidiaries with the
Company's other operations required that a deferred tax asset in the
amount of $762,000 be established on the books of the Company, which
was equal to the deferred tax liability on the books of Rose Ltd. The
establishment of the deferred tax asset constitutes the majority of
the negative income tax expense included in the statement of
operations for the periods ended June 30, 1996.
19 of 20
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in note G to the condensed consolidated financial
statements, the Company and the other parties in all material pending
actions have reached an agreement to settle such actions. The principal
litigation is still subject to court approval.
ITEM 5. OTHER INFORMATION
(a) On June 14, 1996, the Company executed an Agreement of Merger with
WINCOM whereby WINCOM will be merged with and into the Company.
This agreement superseded the Asset Purchase Agreement originally
executed on May 25, 1995 and amended March 15, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None filed during the quarter ended June 30, 1996
SIGNATURE
Pursuant to the requirements 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.
STRUTHERS INDUSTRIES, INC.
Date: August 14, 1996 By: /s/ G. David Gordon
---------------- ------------------------------
G. David Gordon
Secretary and Acting President
Date: August 14, 1996 By: /s/ James R. Ross
---------------- ------------------------------
James R. Ross
Controller
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<PAGE> 21
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from (a)
Financial Statements as of June 30, 1996 and for the six month period then ended
and is qualified in its entirety by reference to such (b) Form 10-QSB for
quarter ended June 10, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 582,981
<SECURITIES> 104,183
<RECEIVABLES> 1,605,029
<ALLOWANCES> 50,00
<INVENTORY> 1,810,403
<CURRENT-ASSETS> 4,202,476
<PP&E> 7,861,532
<DEPRECIATION> 811,217
<TOTAL-ASSETS> 14,445,412
<CURRENT-LIABILITIES> 4,751,197
<BONDS> 0
0
0
<COMMON> 1,172,097
<OTHER-SE> 7,570,173
<TOTAL-LIABILITY-AND-EQUITY> 14,445,412
<SALES> 4,139,790
<TOTAL-REVENUES> 4,139,790
<CGS> 3,295,265
<TOTAL-COSTS> 3,295,265
<OTHER-EXPENSES> 1,226,426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,559
<INCOME-PRETAX> (332,100)
<INCOME-TAX> (811,000)
<INCOME-CONTINUING> 478,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 439,231
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
