UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
--------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _______________________ to ______________________
Commission File Number 0-22541
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ADDISSON industries, Inc.
(FORMERLY MERCRISTO DEVELOPMENTS, INC.)
----------------------------------------------------
(Exact name of Registrant as Specified in Its Charter)
Delaware 98-0166912
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
240 Argyle Avenue, Ottawa, Ontario, Canada K2P 1B9
- ------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 613-230-9803, 800-565-6671
--------------------------
________________________________________________________________________________
Former Name, Former Address and Former Fiscal year, if Changed Since Last Report
Indicate by check 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding for each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.001 par value: 29,060,531 issued and outstanding as of
December 15, 1998
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
================================================================================
ADDISSON INDUSTRIES, INC.
(Formerly Mercristo Developments, Inc.)
(A Delaware Corporation)
Ottawa, Ontario - Canada
TABLE OF CONTENTS
-----------------
Consolidated Balance Sheets at October 31, 1998 (Unaudited)
and January 31, 1998
Consolidated Statements of Operations for the Three Months Ended
October 31, 1998 and 1997 and for the Nine Months Ended
October 31, 1998 and 1997 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months Ended
October 31, 1998 and 1997 (Unaudited)
Notes to the Consolidated Financial Statements (Unaudited)
================================================================================
ADDISSON INDUSTIRES, INC.
(Formerly Mercristo Developments, Inc.)
(A Delaware Corporation)
Ottawa, Ontario - Canada
Consolidated Balance Sheets at
------------------------------
October 31, 1998 (Unaudited) and January 31, 1998
-------------------------------------------------
(All Expressed in Terms of Canadian Dollars)
--------------------------------------------
ASSETS
------
October 31 January 31
1998 1998
----------- -------------
Current Assets
- --------------
Cash and Cash Equivalents $ -- $ 14,612
Accounts Receivable 5,687,144 4,805,590
Inventories 40,000 60,500
----------- -----------
Total Current Assets $ 5,727,144 $ 4,880,702
Due from Partnership 2,707,344 2,717,107
Due from Related Companies --- 210,743
Property and Equipment - Net of
Accumulated Depreciation 1,902,096 1,954,041
----------- -----------
Total Assets $10,336,584 $ 9,762,593
------------ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
- -------------------
Accounts Payable and Accrued Expenses $ 4,180,477 $ 4,018,267
Income Taxes Payable 417,996 73,427
Current Portion of Long Term Debt 77,847 77,847
----------- -----------
Total Current Liabilities $ 4,676,320 $ 4,169,541
Deferred Revenue 98,021 1,646,472
Long Term Debt 716,399 770,409
Due to Related Companies 137,419 ---
Deferred Income Taxes 1,356,123 1,015,600
----------- -----------
Total Liabilities $ 6,984,282 $ 7,602,022
----------------- ----------- -----------
Stockholders' Equity
- --------------------
Common Stock: $.001 Par; 100,000,000 Shares Authorized,
$17,840,519 Shares Issued and Outstanding 17,840 17,840
Additional Paid Capital 1,324,627 1,324,627
Retained Earnings 2,009,835 818,104
----------- ----------
Total Stockholders' Equity $ 3,352,302 $ 2,160,571
-------------------------- ----------- -----------
Total Liabilities and Stockholders' Equity $10,336,584 $ 9,762,593
------------------------------------------ =========== ===========
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
ADDISSON INDUSTIRES, INC.
(Formerly Mercristo Developments, Inc.)
(A Delaware Corporation)
Ottawa, Ontario - Canada
Consolidated Statements of Operations
-------------------------------------
for the Three Months Ended October 31, 1998 and 1997
----------------------------------------------------
and for the Nine Months Ended October 31, 1998 and 1997
-------------------------------------------------------
(All Expressed in Terms of Canadian Dollars)
--------------------------------------------
(Unaudited)
Three Months Nine Months
Ended October 31 Ended October 31
1998 1997 1998 1997
---------- ---------- ---------- -----------
Revenues
- --------
Farm
Limited Partnership $ 523,031 $ 781,349 $1,588,032 $2,267,969
Other 22,000 24,200 66,000 58,419
Horses
Limited Partnership --- --- --- 175,950
Other --- 23,150 1,005,950 266,050
Interest 53,884 46,312 166,978 104,162
Other 5,682 853 15,259 2,674
---------- ---------- ---------- -----------
Total Revenues $ 604,597 $ 875,864 $2,842,219 $2,875,224
---------- ---------- ---------- ----------
Costs and Expenses
- ------------------
Farm $ 144,311 $ 387,636 $ 484,282 $1,183,836
Horses --- 67,550 41,250 972,550
Marketing and Sales 1,645 --- 3,318 64,630
General and Administrative 43,568 84,791 279,835 549,148
Depreciation and Amortization 17,155 18,266 52,751 53,293
Interest Expense 18,158 16,559 74,743 53,176
---------- ---------- ---------- ----------
Total Costs and Expenses $ 224,837 $ 574,802 $ 936,179 $2,876,633
---------- ---------- ---------- ----------
Income (Loss) Before
Provision for Taxes $ 379,760 $ 301,062 $1,906,040 $ (1,409)
Provision for Taxes 185,402 120,425 714,309 (564)
---------- ---------- ---------- ----------
Net Income (Loss) $ 194,358 $ 180,637 $1,191,731 $ (845)
========== ========== ========== ==========
Net Income (Loss) per
Common Share $ .011 $ .001 $ .067 $ ---
========== ========== ========== ==========
Weighted Average Number
of Common Shares Outstanding 17,840,519 16,560,519 17,840,519 16,560,519
========== ========== ========== ==========
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
ADDISSON INDUSTIRES, INC.
(Formerly Mercristo Developments, Inc.)
(A Delaware Corporation)
Ottawa, Ontario - Canada
Consolidated Statements of Cash Flows for the
---------------------------------------------
Nine Months Ended October 31, 1998 and 1997
-------------------------------------------
(All Expressed in Terms of Canadian Dollars)
--------------------------------------------
(Unaudited)
Nine Months
Ended October 31
1998 1997
----------- -----------
Operating Activities
- --------------------
Net Income (Loss) for the Period $ 1,191,731 $ (845)
Non-Cash Adjustments:
Depreciation/Amortization 52,751 53,293
Deferred Revenue (1,548,451) (1,347,982)
Deferred Income Taxes 340,523 (198,017)
Changes:
Accounts Receivable (881,554) 2,524,525
Inventory 20,500 604,850
Prepaid Expenses -- (27,958)
Accounts Payable 162,210 (1,965,410)
Income Taxes Payable 344,569 190,323
----------- -----------
Net Cash Flows from Operating Activities $ (317,721) $ (167,221)
----------- -----------
Investing Activities
- --------------------
Acquisition of Fixed Assets $ (806) $ (660,026)
Due from Partnerships 9,763 3,043
Due from Related Companies 210,743 412,378
----------- -----------
Net Cash Flows from Investing Activities $ 219,700 $ (244,605)
----------- -----------
Financing Activities
- --------------------
Increase in Long-Term Debt $ -- $ 426,613
Decrease in Long-Term Debt (54,010) (39,022)
Due to Related Companies 137,419 --
-----------
Net Cash Flows from Financing Activities $ 83,409 $ 387,591
----------- -----------
Decrease in Cash and Cash Equivalents $ (14,612) $ (24,235)
Cash and Cash Equivalents - Beginning of Period 14,612 53,162
----------- -----------
Cash and Cash Equivalents - End of Period $ -- $ 28,927
=========== ===========
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
ADDISSON INDUSTIRES, INC.
(Formerly Mercristo Developments, Inc.)
(A Delaware Corporation)
Ottawa, Ontario - Canada
Notes to Consolidated Financial Statements
------------------------------------------
(All Expressed in Terms of Canadian Dollars)
(Unaudited)
Note A - Basis of Presentation
- ------------------------------
The condensed consolidated financial statements of Addisson Industries,
Inc. (Formerly Mercristo Developments, Inc.) (the "Company") included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in conjunction with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed financial statements should be read in
conjunction with the annual audited financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the Fiscal Year Ended
January 31, 1998.
The accompanying unaudited interim financial statements reflect all
adjustments of a normal and recurring nature which are, in the opinion of
management, necessary to present fairly the financial position, results of
operations and cash flows of the Company for the interim periods presented. The
results of operations for these periods are not necessarily comparable to, or
indicative of, results of any other interim period or for the fiscal year as a
whole. Factors that affect the comparability of financial data from year to year
and for comparable interim periods include timing of the foaling season, demand
for investment limited partnerships, unusual horse mortality and illness rates
and non-recurring marketing expenses. Certain financial information that is not
required for interim financial reporting purposes has been omitted.
Note B - Receivables
--------------------
Accounts receivable consisted of the following at October 31, 1998 and
January 31, 1998:
October 31, January 31,
1998 1998
----------- -----------
Due from Investors $ 105,900 $ 208,153
Partnerships 4,474,498 3,499,402
Horses 3,814,090 3,815,142
------------ ------------
Total Accounts Receivable $ 8,394,488 $ 7,522,697
Less: Amounts Due Within One Year 5,687,144 4,805,590
- ---- ------------ ------------
Amounts Due After One Year $ 2,707,344 $ 2,717,107
============ ===========
Note B - Receivables - continued
- --------------------------------
The amounts due from the investment partnerships and individual
investors represent secondary financing supplied by Edwards Arabians Inc. to
allow them to prepay board and care for horses in exchange for an installment
obligation. Deferred revenues are amortized monthly as the services are rendered
over a period of one to three years. The loans are collateralized by the horses
purchased and have interest rates ranging from 8.5% to 10.5%. The loans require
interest only payments during their term, with principal repayments due as the
horses are sold. Partnership loans will be collected by the time the assets of
the partnerships are rolled over into corporations. The anticipated wind-up
dates vary among partnerships but are generally one to three years.
The Company performs ongoing credit evaluation of its customers'
financial condition and evaluates the collectibility of all receivables
maintained. Amounts considered uncollectible are written off when such
determination is made and an allowance for accounts doubtful of collection is
maintained based upon the expected collectibility. The Company measures its
estimates of impaired loans in accordance with the provisions of Statement of
Financial Accounting Standards No. 118 - Accounting by Creditors for Impairment
of a Loan - Income, Recognition and Disclosures. Interest income on impaired
loans is recognized only when payment is received. The Company had no impaired
loans.
Note C - Revenue Recognition
- ----------------------------
The Company recognizes revenues from the sale of horses to investment
partnerships, other breeders, and individuals at the time of delivery. The vast
majority of the sales of horses are made for cash under normal credit terms.
Revenues from board and care, breeding, and management of horses are recognized
as the services are rendered. Board and care and management fees are generally
paid in advance. Many of the investment partnerships and individual investors
pay for these services through the use of installment obligations with the
Company, which have interest rates ranging from 8.5% to 10.5%. The installment
obligations require interest only payments during their term, with principal
repayments due as the horses are sold to third parties.
Note D - Net Income Per Common Share
- ------------------------------------
Net income per common share is computed using the weighted average
number of shares of common stock outstanding during each period.
Note E - Contingencies
- ----------------------
The Canadian income tax authorities are presently reviewing the farming
tax status and associated investment losses for some of the individuals in
limited investment partnerships which previously purchased horses from the
company. Denial of some of these losses by the tax authorities might make
investing in the limited partnership less attractive and could adversely impact
the demand for the company's horses. Should an adverse condition result from
this, management would work vigorously to restructure the limited partnerships
in accordance with any revisions to the tax code and/or would seek other sources
for the sale of its horses.
Note F - Subsequent Events
- --------------------------
Corporate Acquisition and Reorganization
- ----------------------------------------
On November 9, 1998, Addisson Industries, Inc. (Formerly Mercisto
Developments, Inc.) (the "Company") entered into an Agreement and Plan of
Reorganization (the "Agreement") with Hungarian Ferroalloys, Inc., a Delaware
Corporation ("HFI") and all of the shareholders of HFI (collectively, the "HFI
Shareholders"), pursuant to which it acquired, on November 20, 1998, all of the
issued and outstanding common stock of HFI. The transaction was structured as a
tax free reorganization under Section 368(a) (1) (B) of the Internal Revenue
Code of 1986, as amended, in which the Company issued 15,867,510 shares of its
common stock, par value $.001 per share (the "Acquisition Shares") to the HFI
Shareholders in exchange for all of the outstanding common stock of HFI in
proportion to their respective interests in HFI. At closing, and after the
surrender to the Company's treasury by Resi Corp. of 4,647,498 shares of the
Company's common stock, HFI became a wholly-owned subsidiary of the Company with
the HFI shareholders owning approximately 55% of the issued and outstanding
shares of common stock of the Company.
-continued-
Note F - Subsequent Events- continued
- -------------------------------------
Corporate Acquisition and Reorganization
----------------------------------------
HFI, through its wholly owned subsidiary, Salgotarjan FerroAlloys Works
Trading, Kft ("SWF") intends, after modernization and upgrading of its plant,
equipment and its furnaces, to begin smelting ferroalloys and specialty alloys.
The SWF plant is located in Salgotarjan, Hungary, approximately 70 miles
northeast of Budapest. Ferroalloys are intermediary raw material products which
are required in and added during the manufacturing of stainless steel, crude
steel and aluminum production. The end-uses of ferroalloys are principally
stainless steel, crude steel and aluminum plants and the principal end-used of
specialty alloys are steel and iron foundries which manufacture such products as
engine blocks, pipe shops and ductile iron producers. Except for a brief period
in early 1996, SWF's production facilities have not been operating.
As a result of the Company's acquisition of HFI and the issuance of the
Acquisition Shares in connection therewith, control of the Company may be deemed
to have passed to the HFI Shareholders who currently own approximately 65% of
Company's Common Stock.
Other
-----
The Company, on November 12, 1998 amended and restated its certificate
of incorporation changing its name to Addisson Industries, Inc. Prior to the
acquisition of HFI, the shareholders of the Company also granted to the
directors of the Company, the right to declare a one (1) share for (6) share
reverse split of the Company's common stock, which, to date, has not been
declared.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Since the inception of the Company's Canadian operations in 1991, the
Company has generated revenue primarily by selling Straight Egyptian Arabian
horses to investment limited partnerships and individual investors and by
operating the breeding and care facilities at its Blue Moon Farms facilities.
The Company has historically increased sales primarily as a result of increased
levels of investing activities promoted by Edwards Securities Inc. which, in
turn, resulted in a greater number of horses being boarded at the Company's Blue
Moon Farms facilities. Sales of horses to limited partnerships have
traditionally accounted for approximately 50% of the Company's sales while the
balance consisted of sales to other farms and individual owners.
During 1997, as a result of Revenue Canada's proposed assessments with
the investors in the investment limited partnerships, the sales of horses was
limited primarily to other breeders and individual investors. As a result, as a
percentage of the Company's overall revenues for the 1997 Operating Year, sales
of horses declined to approximately 43% and management fees for the breeding and
care of the horses increased to approximately 52%. The volume of sales of horses
in the 1998 Operating Year has continue to be negatively impacted pending the
outcome of the Revenue Canada assessments with the individual investors. The
Company expects farm revenues from the board and care to continue to increase
during the remainder of the 1998 Operating Year since the foaling activity and
the limited sales of horses will result in a greater number of horses under the
Company's care.
Revenues from the Company's Blue Moon Farms operations, as those
operations relate to the care and maintenance of the horses boarded there, are
generated almost entirely (97%) from services rendered to the various limited
partnerships that purchased Straight Egyptian Arabian horses from the Company.
The Company continues to believe that the markets outside of Canada
represent significant opportunities for the Company. Management recognizes the
need to expand sales channels and establish marketing alliances in non-Canadian
and international markets and continues to apply technology in a manner that
will increase its operating margins. In furtherance of those goals, the Company
expects to allocate a greater percentage of its overall revenues to research and
development and sales and marketing activities over the next several years.
In recognition of the fact that sales of horses to investment limited
partnerships have ceased as a result of the actions by Revenue Canada, the
Company has decided to diversify its base of operations by expanding into
unrelated and totally distinct consumer sector businesses. The Company's
management has identified several possible acquisition candidates and is
evaluating the merits of pursuing those candidates.
Results of Operations
The following table sets forth for the periods indicated the
percentages which the selected items in the Company's Consolidated Statements of
Operations bear to total revenues:
Three Months Nine Months
Ended October 31 Ended October 31
1998 1997 1998 1997
---------- --------- --------------- --------------
Revenues
Farms 1 90.1% 92.0% 58.2% 80.9%
Horses 2 0.0% 2.6% 35.4% 15.4%
Interest and Other 9.9% 5.4% 6.4% 3.7%
-------- -------- -------- --------
Total Revenues 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Costs and Expenses
Farm 1 23.9% 44.2% 17.0% 41.2%
Horses 2 0.0% 7.7% 1.5% 33.8%
Marketing and Sales .3% 0.0% .1% 2.2%
General and Administrative 7.2% 9.7% 9.8% 19.1%
Depreciation and Amortization 2.8% 2.1% 1.9% 1.9%
Interest Expense 3.0% 1.9% 2.6% 1.8%
-------- -------- -------- --------
Total Costs and Expenses 37.2% 65.6% 32.9% 100.0%
------- ------- ------- ------
Income Before Taxes 62.8% 34.4% 67.1% 0.0%
Provision for Income Taxes 30.7% 13.7% 25.1% 0.0%
------- ------- ------- --------
Net Income 32.1% 20.7% 42.0% 0.0%
======= ======= ======= =======
- ----------------
1 - Farm revenues and costs and expenses relate to the Company's breeding
operations and care of the horses. enues and costs and expenses relate to the
Company's sale of horses.
- continued -
Results of Operations - continued
The following table sets forth for the periods indicated the number of
horses in the Company's inventory and the changes in that inventory. Horses
enter life as weanling fillies or colts, and fillies are allowed to grow up to
mare status at age three. At this time, mares will begin to breed. Management of
the Company expects that a mare will have an economic reproductive life of at
least 15 years, although actual experience has shown that some mares have been
bred and have foaled out beyond the 15 year reproductive life span. Horses have
been sold to investors within a broad range of age groupings, from weanling
fillies up to mature mares. The Company does not sell colts to investors. As the
inventory of horses maintained by the Company constantly changes, the ages of
the horses in that inventory varies depending on the ages of the horses sold and
purchased by the Company. Beginning in 1998, the Company began to utilize semen
from its own stallions for breeding mares under its care. The Company had
previously purchased semen from other senior stallions that are owned by other
independent North American breeders of Straight Egyptian Arabian horses. The
number of horses in the Company's inventory is significantly less than the
number of horses under the Company's care and supervision.
Three Months Nine Months
Ended October 31 Ended October 31
1998 1997 1998 1997
---------- ---------- ---------- ----------
Number of Horses
Beginning Inventory 2 16 4 12
Horses Acquired --- 25 2 48
Horses Sold or Exchanged --- (31) (4) (50)
---- --- --- ---
Ending Inventory 2 10 2 10
=== === === ==
The range of sales and purchase prices and the average sale and
purchase price of horses for all periods were as follows:
Range Average
------------------ --------
Mares $ 70,000 -$ 95,000 $ 92,000
Fillies $ 50,000 -$ 60,000 $ 55,000
Colts:
Purchase $ 10,000
Sale $ 500 or less
- continued -
Results of Operations - continued
The limited partnerships to which the Company frequently sells fillies
and mares generally have a one to three year life until, for tax reasons, they
are rolled over into corporations. Prior to the occurrence of these roll-overs,
the Company will evaluate the holdings of a given partnership, focusing on the
number of horses and the mix of colts to fillies, in order to support and
maintain the investment value of those partnerships. The Company will often take
fillies or mares from its existing inventory and exchange them for colts owned
by the various investment partnerships. Fillies and mares are much more valuable
than colts, and the price differential between the fillies and mares surrendered
by the Company and the colts received in exchange is expensed as part of the
cost of horses sold. In determining the value of the fillies and mares
surrendered by the Company and colts received in exchange from the limited
partnerships, the Company recognizes the current market value of the horses
based on the Company's costs of purchasing fillies, mares and colts. Total
replacement costs reflected in cost of sales were $0 and $ 59,950 for the three
months ended October 31, 1998 and 1997, respectively, and $0, and $ 609,950 for
the nine months ended October 31, 1998 and 1997, respectively.
In addition, the average management fees charged by the Company for all
periods presented were approximately $5,000 per investment limited partnership
per year, or approximately $417 per month.
Three Months Ended October 31, 1998 Compared With Three Months Ended October 31,
1997
Revenues. Total revenues for the three months ended October 31, 1998
decreased by $ 271,267 (31.0)% to $ 604,597 from $ 875,864 for the three
months ended October 31, 1997. Revenues from breeding and care of horses
decreased by $ 260,518, the sale of horses accounted for a decrease in
revenues of $ 23,150, and interest and other revenues accounted for the
remaining $ 12,401 increase in revenues. There were no revenues generated
by the sale of horses during the quarter due to the pending Revenue Canada
proposed assessments against the investors in the limited partnerships.
Farm revenues for board and care continued to increase as the number of
horses under the Company's care has grown. Breeding fees and fees charged
for insurance coverage in the third quarter of 1998 as compared to the
third quarter of 1997 accounted for the overall decrease in farm revenues.
Costs and Expenses. Total costs and expenses for the three months ended
October 31, 1998 decreased by $349,965 (60.9%) to $224,837 from $574,802
for the three months ended October 31, 1997. As there were no horse
purchases and sales activity during the three months ended October 31,
1998 as compared to the three months ended October 31, 1997, the Company
was able to control the incurring of expenses associated with those
activities.
Farm expenses as a percentage of farm revenues decreased to 26.5% for
the three months ended October 31, 1998 from 48.1% for the three months ended
October 31, 1997. The decrease was primarily due to reduced salaries and
staffing, reductions in outside breeding fees, cancellation of insurance on the
horses and fewer horse registrations, all of which are a result of the continued
Revenue Canada assessment against the investors in the limited partnerships.
Marketing and Sales. The company incurred only $ 1,645 of marketing and
sales expenses for the three months ended October 31, 1998 that was
attributable to the lack of horse sales. Marketing and sales expenses for
the three months ended October 31, 1997 were $ 0.
General and Administrative. General and administrative expenses for the
three months ended October 31, 1998 decreased by $41,223 to $43,568 from
$84,791 for the three months ended October 31, 1997. The primary reason
for the decrease was professional and consulting fees incurred in
connection with the recapitalization and Registration of the Company
during the three months ended October 31, 1997.
Income Taxes. The provision for taxes for the three months ended October 31,
1998 and 1997 is based upon an effective Canadian tax rate of 40.0%.
Nine Months Ended October 31, 1998 Compared With Nine Months Ended October 31,
1997
Revenues. Total revenues for the nine months ended October 31, 1998
decreased by $ 33,005 (1.1)% to $2,842,219 from $2,875,224 for the nine
months ended October 31, 1997. Revenues from breeding and care of horses
decreased by $672,356, and the sale of horses accounted for an increase in
revenues of $563,950, and interest and other revenues accounted for the
remaining $ 75,401 increase in revenues. The sales of horses in the nine
months ended October 31, 1998 included $ 1,000,000 on the sale of the
rights to purchase all of the colts delivered at the Blue Moons Farms
facilities during the 1997-98 breeding season which was deferred from the
year ended January 31, 1998. Other revenues generated by the sale of
horses were very limited pending the outcome of the Revenue Canada
proposed assessments with the investors. Farm revenues for board and care
continued to increase as the number of horses under the Company's care has
grown. Breeding fees and fees charged for insurance coverage in the first
nine months 1998 as compared to the first nine months of 1997 accounted
for the overall decrease in farm revenues.
Costs and Expenses. Total costs and expenses for the nine months ended
October 31, 1998 decreased by $1,940,454 (67.5%) to $936,179 from
$2,876,633 for the nine months ended October 31, 1997. As the Company's
horse purchases and sales activity was very limited during the nine months
ended October 31, 1998 as compared to the nine months ended October 31,
1997, the Company was able to control the incurring of expenses associated
with those activities.
Farm expenses as a percentage of farm revenues decreased to 29.3% for
the nine months ended October 31, 1998 from 220.0% for the nine months ended
October 31, 1997. The decrease was primarily due to reduced salaries and
staffing, reductions in outside breeding fees, cancellation of insurance on the
horses and fewer horse registrations, all of which are a result of the continued
Revenue Canada assessment against the investors in the limited partnerships.
The cost of horses sold as a percentage of horse sales decreased to
4.1% for the nine months ended October 31, 1998 from 50.9% for the nine months
ended October 31, 1997. The decrease was primarily due to the high margin on the
sale of the rights to purchase all of the colts delivered during the nine months
ended October 31, 1998 and the unusually high mortality rate and replacement
costs of horses sold during the nine months ended October 31, 1997.
Marketing and Sales. The company incurred only $3,318 of marketing and
sales expenses for the nine months ended October 31, 1998 which was
attributable to the lack of horse sales. Marketing and sales expenses for
the nine months ended October 31, 1997 were $64,630.
General and Administrative. General and administrative expenses for the
nine months ended October 31, 1998 decreased by $269,313 to $279,835 from
$549,148 for the nine months ended October 31, 1997. The primary reason
for the decrease was professional and consulting fees incurred in
connection with the recapitalization and Registration of the Company
during the nine months ended October 31, 1997.
Income Taxes. The provision for taxes for the nine months ended October 31,
1998 and 1997 is based upon an effective Canadian tax rate of 40.0%.
Liquidity and Capital Resources
At October 31, 1998, the Company's primary source of liquidity included cash and
cash equivalents of $-0- and open trade credit with vendors of $4,180,477. The
Company has not borrowed any moneys from financial institutions for working
capital needs with the exception of its commercial mortgages on the construction
and improvements to its facilities. The Company has received advances from
related companies for working capital needs of $137,419 as of October 31, 1998.
The Company's working capital increased by $339,663 during the nine months ended
October 31, 1998 from $711,161 at January 31, 1998 to $1,050,824 at October 31,
1998.
Net cash flows from operating activities during the nine months ended October
31, 1998 were a negative $317,721 as compared to a negative $167,221 for the
nine months ended October 31, 1997. The decrease of $150,500 resulted primarily
from the reduction in deferred revenues and an increase in accounts receivable
during the nine months ended October 31, 1998. Accounts receivable from the
limited partnerships has increased during the nine months ended October 31, 1998
primarily do to the limited activities and sales of horses from the limited
partnerships pending the outcome of the Revenue Canada assessments with the
investors.
Net cash flows from investing activities (primarily from the collection of
amounts due from related companies) during the nine months ended October 31,
1998 were $219,700 as compared to net cash flows used in investing activities
(primarily used in the acquisition of property and equipment) of $244,605 for
the nine months ended October 31, 1997.
Net cash flows from financing activities during the nine months ended October
31, 1998 were $83,409 as compared with net cash flows from financing activities
of $387,591 for the nine months ended October 31, 1997. The decrease reflects
the borrowings on new commercial property during the nine months ended October
31, 1997. The Company received advances of $ 137,419 from related companies to
assist in financing operating costs during the nine months ended October 31,
1998.
The balance sheet at October 31, 1998 shows an increase in current assets for
the nine months from $4,880,702 to $5,727,144 and an increase in current
liabilities from $4,169,541 to $4,676,320 and a decrease in deferred revenues
from $1,646,472 to $98,021, all compared with those figures at January 31, 1998.
The increase in current assets and liabilities was primarily attributable to an
increase in accounts receivable and accounts payable during the nine months
ended October 31, 1998.
Company's Financing Requirements
The Company has not had a need for any externally generated financing to fund
its operations or to fund internal growth. The Company's business has been self-
financing, and has not depended on any institutional debt or commercial lines of
credit (except for commercial mortgages on the Company's properties). However,
due to the impact of the ongoing Revenue Canada assessments against the
investors in the limited partnerships, the Company has had to borrow money from
Resi Corp., a related party to fund the increases in the accounts receivable
from the limited partnerships.
The Company has available through Resi Corp. a line of credit of up to
$1,500,000 that can be used to fund operating cash shortfalls and future
acquisitions of new businesses.
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) See Index to Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
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.
ADDISSON INDUSTRIES, INC.
(FORMERLY MERCRISTO DEVELOPMENTS, INC.)
Date ____________________________ _______________________________________
David G. Edwards, President
and Chief Financial Officer
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
Not applicable.
(3) (a) Articles of Incorporation
Restated Certificate of Incorporation is incorporated herein by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form 10 (Registration No. 0-22541) as filed on May
8, 1997.
(b) By-laws
Amended and Restated By-laws are incorporated herein by
reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form 10 (Registration No. 0-22541) as filed on
May 8, 1997.
(4) Instruments defining the rights of security holders, including indentures
(a) The documents listed under Item (3) of this Index are incorporated
herein by reference.
(10) Material Contracts
Not applicable.
(11) Statement re computation of per share earnings
Computation can be clearly determined from the Financial Statements and
Notes thereto included herein.
(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security holders
Not applicable.
(23) Consents of experts and counsel
Not applicable.
(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
The Financial Data Schedule is included herein as Exhibit 27.
(99) Additional Exhibits
Not applicable.
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*Exhibit filed with this Report