SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1995
[ ] 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: 0-23528
J.A. INDUSTRIES, INC.
(Exact name of small business issuer as specified on its charter)
Delaware 13-3421337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34A-2755 Lougheed Highway, Suite 522, Port Coquitlam, B.C. V3B 5W9 Canada
(Address of principal executive offices)
Issuer's telephone number, including area code: 604-941-3413
Check whether the issuer (1) filed all reports required to filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date.
Common Stock, par value $0.0025 per share
Class
7,906,603
Number of shares outstanding
J.A. INDUSTRIES, INC.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Consolidated Condensed
Balance Sheet September 30, 1995 (unaudited) with comparative
figures September 30, 1994 (unaudited)
Consolidated Condensed Statement of Operations for the three months
ended September 30, 1995 (unaudited) with comparative figures
September 30, 1994 (unaudited)
Consolidated Condensed
Statement of Change in Financial Position for the three months
ended September 30, 1995 (unaudited) with comparative figures
September 30, 1994 (unaudited)
Consolidated Condensed Statement of Changes in Shareholder's Equity for
the three months ended September 30, 1995 (unaudited) with
comparative figures June 30, 1994 yearend (audited)
Notes to Condensed Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Signatures
J.A. Industries, Inc.
Consolidated Financial Statements
(unaudited)
First Quarter
September 30, 1995
J.A. Industries, Inc.
Consolidated Balance Sheets
(unaudited)
- --------------------------------------------------------------------------------
September 30
1995 1994
----------- ----------
Assets
Current
Cash $ 3,260 $ 7,153
Accounts receivable
Trade 250,444 702,634
Other 62,826 --
Inventory (note 2) 250,293 428,605
Prepaid expenses and deposits 22,100 34,209
---------- ----------
588,923 1,172,601
Real estate held for resale 474,778 875,000
Property and equipment (note 3) 46,910 565,877
Investments -- 22,075
Intangible assets (note 4) 2,050 124,566
---------- ----------
$1,112,661 $2,760,119
---------- ----------
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J.A. Industries, Inc.
Consolidated Balance Sheets
(unaudited)
- --------------------------------------------------------------------------------
September 30
1995 1994
----------- -----------
Liabilities
Current
Bank indebtedness $ -- $ 145,000
Accounts payable 630,613 970,777
Equipment loans 546,125 119,048
Current portion of long-term debt (note 6) 31,373 170,950
----------- -----------
1,208,111 1,405,775
Loans from shareholders (note 5) 40,767 138,146
Long-term debt (note 6) 12,258 561,842
----------- -----------
1,261,136 2,105,763
----------- -----------
Share Capital and Deficit
Capital stock:
Authorized:
20,000,000 common shares with a par value of $0.0025 per share
Issued:
7,906,603 shares (1994 - 6,717,034) 19,792 16,792
Additional paid-in capital 5,445,253 3,948,594
Accumulated deficit (5,609,016) (3,295,158)
Cumulative translation adjustment (4,504) (15,872)
----------- -----------
(148,476) 654,356
----------- -----------
$ 1,112,661 $ 2,760,119
----------- -----------
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J.A. Industries, Inc.
Consolidated Statements of Operations
(unaudited)
- --------------------------------------------------------------------------------
For the three months ended
September 30
1995 1994
----------- -----------
Sales $ 532,310 $ 1,179,629
Cost of sales 455,030 1,013,768
----------- -----------
Gross profit 77,280 165,861
Selling and marketing expenses 183 25,434
General and administrative expenses 781,384 239,620
----------- -----------
Loss from operations (704,287) (99,193)
Other income (expense) 64 (5,698)
----------- -----------
Consolidated net loss $ (704,223) $ (104,891)
----------- -----------
Loss per share $ 0.08 $ 0.02
----------- -----------
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J.A. Industries, Inc.
Consolidated Statements of Operations
(unaudited)
- --------------------------------------------------------------------------------
For the three months ended
September 30
1995 1994
----------- ------------
Sales $(1,885,275) $ (58,730)
Cost of sales (1,522,428) (84,083)
----------- -----------
Gross profit (362,847) 25,353
Selling and marketing expenses (97,071) (64,354)
General and administrative expenses 301,887 (217,210)
----------- -----------
Loss from operations (567,663) 306,917
Other income (expense) 54,438 (5,698)
----------- -----------
Consolidated net loss $ (513,225) $ 301,219
----------- -----------
Loss per share $ 0.04 $ 0.03
----------- -----------
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J.A. Industries, Inc.
Consolidated Statement of Changes in Financial Position
(unaudited)
- --------------------------------------------------------------------------------
For the three months ended
September 30
1995 1994
----------- ----------
Cash provided by (used in)
Operating activities
Net loss for the period $(704,223) $(104,891)
Items not affecting cash:
Amortization 20,392 26,581
Issuance of stock for services 476,251 --
Changes in non-cash working capital 10,587 24,472
--------- ---------
(196,993) (53,838)
--------- ---------
Financing activities
Issue of common shares 120,000 100,000
Loan from shareholders 40,767 5,782
Long-term debt (5,788) (15,338)
--------- ---------
154,979 90,444
--------- ---------
---------
Increase (decrease) in cash position (42,014) 36,606
Effect of currency translation on cash flow -- (8,311)
Cash position beginning of period 45,274 (166,142)
--------- ---------
Cash position end of period $ 3,260 $(137,847)
--------- ---------
Represented by:
Cash $ 3,260 $ 7,153
Bank indebtedness -- (145,000)
--------- ---------
$ 3,260 $(137,847)
--------- ---------
Accounts receivable (313,197) (347,502)
Inventory (559,787)
Prepaid expenses (37,535)
Accounts payable 531,829 792,082
Income taxes payable --
Purchase agreement -- (133,287)
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J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
September 30, 1995 and 1994
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of:
J.A. Industries, Inc., a Delaware corporation and the following wholly
owned subsidiaries:
J.A. Industries (Canada), Inc., a Canadian corporation. Granite
Marketing Corp., a Cayman Island corporation. Hutronix, Inc. an
Arizona corporation. QDS, de Mexico, S.A. de C.V. a Mexican
corporation. and the 96% owned subsidiary, Hutronix de Mexico, S.A.
de C.V. which has been inactive since August 17, 1982.
All significant inter-company balances and transactions have been
eliminated on consolidation.
J.A. Industries (Canada), Inc., Hutronix, Inc., and QDS, de Mexico, de
C.V., were disposed of during the year ended June 30, 1995 subject to
shareholder approval (note 13).
Translation of Foreign Currencies
Account balances and transactions denominated in foreign currencies have
been translated into U.S. funds as follows:
Assets and liabilities at the rates of exchange prevailing at the
balance sheet date; Revenue and expenses at average exchange rates for
the period in which the transaction occurred; Exchange gains and
losses arising from foreign currency transactions are included in the
determination of net earnings for the period.
2. Inventory
Inventory consists of: 1995 1994
Raw materials $163,725 $501,462
Less: Reserve for obsolescence -- 190,000
-------- --------
163,725 311,462
Work-in-process 75,420 95,473
Finished goods 11,148 21,670
-------- --------
$250,293 $428,605
-------- --------
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J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
September 30, 1995 and 1994
- --------------------------------------------------------------------------------
3. Property and equipment
Accumulated Net Book Value
Cost amortization 1995 1994
----------------- ----------------- ----------------- -----------------
Land $ --- $ --- $ --- $ ---
Building --- --- --- ---
Forklift --- --- --- 7,787
Vehicles 13,121 13,121 --- 84
Office equipment 46,382 46,382 --- 4,118
Computer equipment 152,361 139,361 13,000 18,972
Manufacturing equipment 277,320 243,410 33,910 302,396
Leasehold improvements --- --- --- ---
Assets not-in-service --- --- --- 232,520
----------------- ----------------- ----------------- -----------------
$ 489,184 $ 442,274 $ 46,910 $ 565,877
----------------- ----------------- ----------------- -----------------
4. Intangible assets
Intangible assets comprise the following: 1995 1994
Goodwill $128,767 $128,767
Incorporation costs 3,000 3,000
Patent costs -- 8,895
-------- --------
131,767 140,662
Amortization 129,717 16,096
-------- --------
$ 2,050 $124,566
-------- --------
5. Loans from shareholders
Loans from shareholders comprise the following: 1995 1994
Loan payable to Alexander Michie, balance due on demand with
no stated interest rate $ 20,000 $ --
Loan payable to 391566 B.C. Ltd., balance due on demand with no
stated interest rate 20,767 --
Loan payable to Alexander Michie. The loan is unsecured and
has no terms of repayment. The loan has a stated interest rate
of prime plus 2% -- 138,146
-------- ----------------
$ 40,767 $ 138,146
-------- ----------------
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J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
September 30, 1995 and 1994
- --------------------------------------------------------------------------------
6. Long-term debt
1995 1994
Note payable to a bank executed through the Industrial Development
Authority of the City of Douglas, Arizona due in quarterly instalments of
$12,821, plus interest at 65% of prime (9.0% as of March 31, 1995), due
May 2005; secured by a deed of trust on the real estate held for sale, an
irrevocable letter of credit from a bank in the amount of the outstanding
note payable balance and the assignment of a life insurance policy owned
by a related party on the president of Hutronix, Inc. At March 31, 1995
the company was not in compliance with certain restrictive
covenants contained in this note. $ 546,125 $ 576,908
Note payable to a supplier due in quarterly instalments of
$8,361 plus interest at 6% unsecured, due March 15, 1995 --- 16,447
Promissory note payable to a lender. The principal of $36,155 (CDN
$50,000) plus accrued interest at 24% per annum is payable on demand. The
lender has stated that it is not her intention to
demand repayment of the note before March 31, 1996. --- 49,039
Mortgage payable, on manufacturing equipment, to the Province of British
Columbia, Canada due in monthly payments of $1,787 (CDN $2,500) plus
interest at 6% per annum. The principal balance
is due July 1, 1995. --- 90,398
------------- -----------------
546,125 732,792
Less: Current portion --- 170,950
----------------- -----------------
$ 546,125 $ 561,842
----------------- -----------------
7. Income tax
The Company has losses for income tax purposes which may be carried
forward and applied to reduce future income taxes. The deferred tax
benefit related to these losses has not been recorded in the accounts as
there is not virtual certainty of realization.
All of the income attributable to Granite Marketing Corp. (a Cayman Island
corporation) is reported as non-taxable.
-8-
J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
September 30, 1995 and 1994
- --------------------------------------------------------------------------------
8. Commitments and Contigencies
Under the terms of various agreements, the Company has guaranteed payment
of $18,275 in accounting fees and the $546,125 mortgage on the Douglas,
Arizona plant owned by Hutronix, Inc. The reversal of the Hutronix, Inc.
purchase included an idemnification on the above guarantees. Should the
other party fail to perform, the obligations could be asserted against the
Company. The amounts have been booked in the Company's accounts.
9. Subsequent event
On January 26, 1996 the shareholders ratified the sale of Hutronix, Inc.
and QDS, de Mexico, S.A. de C.V.
-9-
Management's Discussion and Analysis
The following discussion of the results of operations and financial
condition should be read in conjunction with the audited financial statements
and related notes under the caption "Financial Statements".
Overview
In July of 1992, the existing management took over the direction of J
A. Industries, Inc. It was the intention of the management to enhance the value
of its shares on behalf of its shareholders by acquiring cash flow entities
which were, firstly, synergistic with existing subsidiaries and secondly were
companies with consistent growth potential.
The first acquisition was Torik, Inc. in September, 1992, which at that
time was just breaking even on its sales of $300,000 per month. Subsequent to
the Torik acquisition, the Company had entered into litigation and lost the case
to the former management of Torik returning all shares back to the Torik
management. The Company was booking that acquisition at the cost of $200 which
has been written off.
The second acquisition of the assets of Pacific Rim Polytech, took
place in February, 1993 by the Company's wholly owned subsidiary J.A. Industries
(Canada) Inc. ("J.A. Canada"). J.A. Canada immediately started the manufacturing
of underground junction boxes and cable tray. In June, 1995 the Company sold
J.A. Canada to a non-affiliate British Columbia Corporation.
The Company also entered into two licensing agreements and
manufacturing agreements for the manufacture and distribution of electronic
ballasts of which both licenses are inactive.
In September of 1993, the Company acquired Hutronix, Inc., of Tucson,
Az ("Hutronix"). Subsequent to the year ended, 1996, the Company returned the
shares of Hutronix to Baboquivari Cattle Company ("BCC") to settle outstanding
liabilities with BCC.
In December of 1993, the Company acquired the assets of Capital City
Plastic ("CCP"). CCP had been inactive since May of 1993. As CCP was unable to
deliver the equipment as detailed in the purchase agreement, the Company
cancelled the purchase agreement.
In May, 1994 the Company signed an option agreement to acquire 100% of
Link Technologies (Canada) Ltd. ("Link"). The Company was to pay $500,000 USD
plus issue 500,000 shares of common stock to acquire 100% of Link. The Company
was also to provide $1,500,000 USD in working capital for Link. Subsequent to
this agreement the option has expired and no further agreement has been reached.
On March 30, 1994 Granite Marketing Corporation. ("Granite"), then a
wholly owned subsidiary of the Company, entered into an agreement with
Queensland Industries, Inc. ("Queensland") whereby Queensland purchased from
Granite an exclusive license to manufacture,
-10-
promote, market, sell and distribute the products of J.A. Canada relating to
polyurethane underground junction boxes. Queensland is a wholly owned subsidiary
of Wincanton, Corporation ("Wincanton"), a publicly traded Washington State
Corporation. Subsequent to this agreement, the Company rescinded the licensing
agreement in exchange for a $50,000 USD payment by Queensland Industries to
Granite. Granite is currently inactive. Subsequent to the year end, Granite was
sold to an unrelated third party in exchange for assumption of Granite's
liabilities.
On June 28, 1995 the Company signed a letter of intent to merge with
privately held MiNT Corporation ("Mint") through a stock for stock exchange. The
share exchange would have resulted in a change of control of J.A. Industries to
the majority shareholders of Mint. Mint is in the business of providing high
quality contract manufacturing of electronic and electromechanical printed
circuit board assemblies. Subsequent to this letter of intent and subsequent to
the year ended June 30, 1995, the shareholders of Mint elected not to proceed
with the acquisition.
Subsequent to the year ended June 30, 1995, the Company entered into an
Agreement and Plan of Merger (the "Merger") with Kenmar Business Groups, Inc.
("Kenmar") of Raleigh, NC. Pursuant to the terms of the agreement, current
shareholders of Kenmar will receive common stock of J.A. Industries such that
Kenmar shareholders will own approximately 50% of the outstanding shares of J.A.
Industries, Inc. on closing. The agreement is subject to shareholder's approval
of both companies as well, J.A. Industries, Inc. must finalized its settlement
agreement with a former stockholder, Karl Ronstadt and Hutronix, Inc. subsequent
to the year ended June 30, 1995, the Company did resolve its outstanding dispute
with Baboquivari Cattle Company as described above (see "Hutronix").
Kenmar Business Groups, Inc. ("Kenmar") founded in 1984, is a provider
of high quality electronic manufacturing services. It is located in the Research
Triangle area of North Carolina. Kenmar has a broad array of technical
capabilities to bring products to the market from concept to final production.
Kenmar's manufacturing team has experience in producing electronic and
electro-mechanical subassemblies and products for use in the telecommunication,
industrial control, computer, medical and instrumentation industries. Kenmar has
both Surface Mount Technology and Pin Thru-Hole capabilities as well as cable,
harnesses and interconnect assembly lines.
Management believes that the trend towards outsourcing in the
electronic manufacturing industry is expanding. To this end, management still
believes that its strategy to acquire synergistic businesses in the contract
manufacturing industry is a sound plan. The planned Merger between the Company
and Kenmar is the first step in trying to re-establish that plan. Upon
completion of the Merger, current management of Kenmar will assume management of
the Company.
Prior to the Merger, the Company must reduce its liabilities and
contingent liabilities to zero and have working capital of a minimum of two
hundred thousand ($200,000) dollars. To
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this end, the Company has disposed of, settled or is in the process of settling
all outstanding liabilities. The Company has reached agreements and has signed
releases for potential contingent liability claims arising or potentially
arising from several of the Company's former agreements.
The Company intends to fund its capital requirements through a private
placement to meet the terms of the agreement. To date the funds necessary to
complete the Merger are in place and will be released to the Company subject to
Shareholder's approval of the Merger. If Shareholder's approval is not obtained
to complete the Merger, then the funds in escrow would not be released to the
Company.
The Company will continue to focus its expansion plans on the
acquisition of other contract manufacturing operations.
Seasonal factors do not influence the Company's sales.
Liquidity and Capital Resources
Subsequent to the 3 months ended September 30, 1995, Hutronix was
returned to Baboquivari Cattle Company (former shareholder of Hutronix, "BCC")
for release of all liabilities owed by the Company to BCC and BCC's assumption
of all liabilities associated with Hutronix. The Company has no cash flow and
its ability to maintain operations is severely impaired. If the Company cannot
raise additional capital it is unlikely the Company would be able to operate and
it may be forced to seek protection under Chapter 11 of the Bankruptcy Act.
It is the Company's goal in the fiscal year ending June 30, 1996 to
find a suitable acquisition candidate. Management anticipated that the Company
will do further equity financing. Management believes that from these sources
the Company will adequately fund the operations of the Company and allow it to
maintain its aggressive acquisition strategy.
To Address the accountant's report of a "going concern" uncertainty, it
is anticipated that the Company will continue to look for new opportunities in
the contract manufacturing area. On March 1, 1996 the Company entered into an
agreement to merge with Kenmar to fulfill the Company's business strategy. As
part of the Merger, the Company must eliminate all outstanding liabilities and
have working capital of $200,000. At the date of this report, the Company has
approximately $133,000 in liabilities it must satisfy to complete the Merger. As
of May 15, 1996 the Company raised the required funds to complete the Merger
through a private placement of its common stock. The funds are in escrow with
the Company's legal counsel and will be released to the Compnay upon
shareholder's approval of the Merger. In the event the Company did not receive
shaeholder's approval, the funds would not be release from escrow and the
Company wold not be able to meet its financial requirements. If the Merger was
not completed, then the Company could be forced to seek protection under Chapter
11 of the Bankruptcy Act.
In the event that the Company does raise the necessary funds to
complete the Merger, and all other conditions of the Merger are satisfied and
the Merger is completed it is anticipated that
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cash flow from ongoing operations will satisfy the day to day needs of the
Company. Furthermore, as of February 29, 1996, Kenmar had approximately $744,500
in cash or cash equivalents (unaudited). It is anticipated that the merged
company will use these funds to maintain and grow the existing business that it
has. It is also the Company's goal to try and arrange an equity financing in the
amount of $3 million dollars to expand its business. No commitment for such
financing has been arranged and the likelihood of its completion cannot be
guaranteed. In the event the merged company could not raise any additional
capital, it is anticipated that current rates of growth of the merged company
would satisfy its working capital requirements.
Future cash needs of the merged entity would include funds to implement
the Company's acquisition strategy and to sustain the Company through a period
of restructuring and growth.
Notes Payable and Long term debt
Hutronix, Inc. a former subsidiary has a note payable to Bank One
executed through the Industrial Development Authority of the City of Douglas due
in quarterly instalments of $12,821, plus interest at 65% of prime (7.25% as of
June 30, 1994), due may 2005; secured by a deed of trust on the real estate held
for sale and an irrevocable letter of credit from a bank in the amount of the
outstanding note payable balance guaranteed by the Company. At June 30, 1995 the
amount outstanding was $576,908. The subsequent agreement between BCC and the
Company calls for BCC and Hutronix to indemnify the Company against any
liability under this bond. As the solvency of Hutronix, Inc. is uncertain, the
ability for Hutronix, Inc. to indemnify the Company is unlikely. On March 4,
1996 the liability under the guarantee to Bank One was satisfied. Furthermore,
on November 21, 1996 an agreement was reached between Baboquivari Cattle
Company, Karl and Marilyn Ronstadt, Hutronix, Inc. and the Company whereby the
parties exchanged mutual releases relieving the Company of any liabilities that
it had or might have in the future with the parties.
On closing of the Merger between Kenmar and the Company, the Company is
obligated to pay a former minority shareholder of Hutronix, Inc. $10,000 and
issue 50,000 shares of restricted common stock in exchange for a release from
all future obligations the minority shareholder may be entitled to. Also, on
closing, the Company is obligated to pay the former landlord of Hutronix, Inc. a
fee for releasing the Company from a Corporate guarantee on the lease of the
building located at 1150 E. Palmdale, Tucson, AZ. The funds for these
transaction are part of the funding needed for the closing of the Merger
agreement. If the funds were not raised or the Merger was not completed, these
liabilities would still be outstanding.
On June 30, 1995 the Company sold its wholly owned subsidiary, J.A.
Industries (Canada) Inc. to an unrelated third party. The sale relieved the
Company of any long term debt associated with the subsidiary. Furthermore, the
Company obtained releases for all corporate guarantees that it had provided for
the subsidiary subject to certain cash payments as follows. The Company settled
with one creditor by issuing shares of restricted stock in the amount of 136,000
shares to satisfy approximately $34,000 USD of debt. On completion of the Merger
between Kenmar and
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the Company, the Company will incurred a cost of $5,000 USD to settle with one
creditor that comes from a corporate guarantee of the Company. The funds for
settling this amount will come from the funds necessary to close the Merger
transaction. If the funds were not raised and the Merger was not completed, then
this liability would still be outstanding with the creditor.
In March, 1996, the Company came to a final agreement with the former
owners of Capital City Plastics whereby Capital City Plastic and John Szaniszlo
will provide the Company with a release from all liabilities and deliver to the
Company 600,000 shares of common stock issued to Capital City Plastics in
exchange for the Company's release from liabilities, $10,000 and the issuance of
50,000 restricted common stock of the Company. The funds necessary to complete
this transaction are part of the funding needs of the Merger. If the necessary
funds were not raised or the Merger was not completed, the Company's position
would be that there are no liabilities outstanding with Capital City Plastic or
John Szaniszlo as they had breached the original agreement between the parties.
On completion of the Merger, for which there can be no guarantee, the
Company will be assuming the following liabilities based on the Kenmar audited
financial statements for the period ending August 31, 1995 and unaudited
financial statements for the six month period ending February 29, 1996:
Line of credit/loans $ 0
Current maturities of long term debt $ 4,317
Current obligations under capital lease $ 35,203
Accounts payable - trade $ 621,852
Income tax payable $ 0
Other accrued liabilities $ 94,833
=========
Total Current Liabilities $ 756,205
Long Term Debt, less current maturities $ 541,236
Long term obligations under capital lease $ 57,750
=========
Total Liabilities as of February 29, 1996 $1,021,386
Line of Credit: In March, 1994, Kenmar negotiated a $4 million revolving line of
credit with a commercial lender which allowed it to borrow up to 80% of eligible
receivables and was secured by a first lien on all the Company's receivables and
inventory. Borrowing under this line bears interest at prime plus 2.5% (minimum
7.5%) in addition to an annual facility fee and other costs. Kenmar paid off the
line of credit in the fourth quarter of its fiscal year ended August 31, 1995.
Kenmar has not requested a renewal of the line of credit.
-14-
Long-term Debt: Long term debt of Kenmar consists of the following:
1995 1994 1993
---- ---- ----
Subordinated promissory notes payable monthly $524,855 $646,674 $700,675
instalments of $9,009 including interest at 8%
through October 2002.
Bank debt collateralized by a first lien on all the - $217,932 -
Company's plant, equipment, furniture and
fixtures payable in monthly instalments of
$7,950, including interest at prime +1%. this
loan was paid off prior to august 31, 1995.
Uncollateralized note payable to stockholder $ 39,482 $ 43,486 $ 47,149
repayable with interest at 8% in 59 monthly
instalments of 4610 and a balloon payment
of $30,083 on October 15, 1997
Notes payable secured by equipment repayable $ 18,403 $ 42,202 -
in monthly instalments of $2,435 including
interest at 16.85% through April 1996.
(Subsequently, this note was satisfied)
Note payable to stockholder in monthly - - $ 22,069
instalments of $2,535 including interest
at 8% through April, 1994, collateralized
by certain equipment.
$582,380 $950,276 $769,893
Less current maturities $ 22,359 $293,242 $ 79,750
-------- -------- --------
$560,021 $657,034 $690,143
======= ======== ========
Principal maturities of debt Kenmar at August 31, 1995 are as follows:
Year ending August 31
1996 $ 22,359
1997 $ 73,269
1998 $104,776
1999 $ 80,451
2000 $ 87,130
Thereafter $214,395
--------
Total Long-term debt $582,380
========
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Obligations Under Capital Leases of Kenmar:
Kenmar leases equipment under capital leases which expire on various
dates through 1998.
1995 1994 1993
---- ---- ----
Machinery and equipment $200,066 $200,066 $ 62,735
Vehicles - $ 27,871 $ 27,871
-------- -------- --------
Total $200,006 $227,937 $ 90,606
The following is a schedule by years of future minimum lease payments
under capital leases as of august 31, 1995 for Kenmar
Year ending August 31
1996 $ 48,272
1997 $ 49,701
1998 $ 29,431
--------
Total minimum lease payment $127,404
Further Kenmar Commitments:
Kenmar leases certain office and production space, machinery and
equipment under noncancellable operating leases expiring at various dates
through 1998. During the years ended August 31, 1995, 1994 and 1993, Kenmar
incurred rental expenses of $214,505, $271,488 and $230,175 respectively under
these leases. Future minimum lease payments under the terms of the above leases
are as follows:
1996 $38,422
1997 $ 2,952
1998 $ 2,460
Preferred Stock of Kenmar:
The aggregate number of authorized shares of preferred stock is
100,000. Of the 100,000 shares of preferred stock 30,000 shares have been
designated as Class A cumulative preferred stock. The designation of the
remaining 70,000 shares will be determined by the Board of Directors of Kenmar.
Kenmar issued 1,150 shares of $50 par value Class A cumulative
preferred stock ("Class A Preferred") in 1994. During 1993, the Company issued
716 shares of Class A Preferred including upon receipt of the issue price, 200
shares subscribed at August 31, 1992. Each share of Class A Preferred may be
called or put at any time after five years from the date of issuance at a rate
of one and one-half times the issue price. Redemption requirements of Class A
Preferred stock at August 31, 1995 were as follows:
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1997 $150,000
1998 $447,000
1999 $ 68,700
2000 $ 86,250
--------
Total $751,950
========
The Class A Preferred is entitled to a 10% cumulative dividend payable
quarterly, subject to the provisions of North Carolina law. Cumulative unpaid
dividends are $73,008, $23,378, and $7,643 as of August 31, 1995, 1994, and 1993
respectively.
Upon liquidation, the Class A shares have preference over holders of
common stock in an amount equal to the issue price plus cumulative dividends in
arrears. Cash dividends of $0, $32,910 and $40,031 were paid in 1995, 1994, and
1993, respectively.
Results of Operations
The following information is derived from the attached financial
statements and sets forth, for the periods indicated, the relative percentage
that certain income and expense items bear to net sales.
For the 3 month period ended September 30, 1995 compared to the 3 month
period ended September 30, 1994. The auditors report for the period ending June
30, 1995 states that as a result of the discontinuation of operations of the
Company there raises substantial doubt about the Company's ability to continue a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
In June, 1995 the Company disposed of one of its wholly owned operating
subsidiaries J.A. Industries (Canada) Inc. In August the Company disposed of an
inactive subsidiary, Granite Marketing Corporation. In early March 1995, the
Company entered into negotiations with Karl G. Ronstadt and Baboquivari Cattle
Company, former shareholders of Hutronix, Inc. to settle outstanding issues and
potential liabilities. The Company and the former shareholders could not come to
any resolution. On September 23, 1995, the former shareholder of Hutronix, Inc.
exercised his right under a put/call agreement dated September 23, 1993 and
attached to the original purchase agreement of Hutronix, Inc. dated September
15, 1993. The put option allowed the former shareholder to put 262,000 shares of
the Company to the Company at a price of $2.25 creating a liability of $589,500.
The Company did not have the resources to pay the liability. On November 21,
1995, subsequent to the year end, the Company entered into an agreement to
reverse the acquisition of Hutronix, Inc. the only remaining operating
subsidiary of the Company to satisfy all outstanding liabilities between the
former shareholder of Hutronix and the Company. The condition that effected the
decision to enter into the agreement to reverse the Hutronix acquisition
occurred prior to the Company's year end. Although the assets and operations of
Hutronix were included in the Company's June 30, 1995 financial statement, they
were subsequently disposed of and it was so reported in the Company's December
31, 1995 financial statement.
-17-
Subsequent to the period ending September 30, 1995 the Company has
entered into a plan of merger with Kenmar Business Groups Inc. A condition of
the agreement is that the Company is to have no liabilities and working capital
of $200,000. To this end, though the Company has an inactive status, there are
substantial one time charges to eliminate all liabilities and to settle contract
obligations.
For the first quarter period ending September 30, 1995 the Company had
revenue of $532,310. compared to sales of $1,179,629 for the corresponding
period in 1994. The decrease in sales can be attributed to the disposition of
J.A. Industries (Canada) Inc. prior to year end June 30, 1995. Cost of sales for
the 3 month period ended September 30, 1995 were $455,030 generating a gross
profit margin of $77,280 or 14.5% of sales compared to a cost of sales of
$1,013,768 generating a gross profit of $165,861 or 14% of sales for the 3 month
period ended September 30, 1994. Again, the decrease in cost of sales can be
attributed to the disposition of J.A. Industries (Canada) Inc. prior to the year
ended June 30, 1995. For the three month period ending September 30, 1995 G&A
was $781,384 compared to $239,620 for the corresponding period in 1994.
Increased legal and accounting expenses accounted for approximately $75,000 of
the expense. As well, a large portion of the expense was a one time charge to
pay outstanding liabilities and the termination of outstanding contracts. The
preceding items, except for accounting fees, were mostly settled with the
issuance of restricted common stock of the Company. On September 23, 1995,
Baboquivari Cattle Company exercise its put option under a put/call agreement
dated September 23, 1993. The option obligated the Company to purchase 262,000
shares of the Company's stock from Baboquivari at a price of $2.25 creating an
unfunded liability of $589,500. Prior to this period, the auditors of the
Company had treated this item as a non-balance sheet item. Subsequent to the
first quarter ended September 30, 1995, the Company entered into an agreement
with Baboquivari Cattle Company to reverse its September 15, 1993 acquisition
agreement of Hutronix, Inc. in exchange for the release of all liabilities from
Hutronix, Inc and Baboquivari Cattle Company.
On November 21, 1995 the Company entered into an agreement with
Baboquivari Cattle Company to transfer all title of Hutronix, Inc. to
Baboquivari Cattle Company in exchange for a release of all liabilities. Due to
this disposition of the last operating subsidiary of the Company, the Company
had no revenue for the three month period ending December 31, 1995 compared to
of $1,237,956 for the three month period and $2,417,585 for the six month period
ending December 31, 1994. General and administrative expenses for the period
three month period ended December 31, 1995 were $81,921 compared to the
corresponding three month period in 1994 of $239,877. The Company experienced a
net loss of $83,316 for the three month period ending December 31, 1995 compared
to a loss of $86,107 for the corresponding period
-18-
in 1994. The net loss from operations for the six month
period ending December 31, 1995 was $746,960 compared to $190,989 for the
corresponding period in 1994. The loss in 1995 is attributed to the
reorganization and elimination of ongoing contracts and liabilities the Company
needed to satisfy to proceed with its merger agreement with Kenmar Business
Groups, Inc. The Company had a shareholder's deficit of $282,683 for the period
ended December 31, 1995 compared to net equity of $595,265 for the corresponding
period in 1994. Accounts payable at December 31, 1995 were $138,167 compared to
$928,358 for the corresponding period 1994. Due to the discontinuation of
operations, the Company's payables were reduced dramatically. Most of the
expense is attributed to legal and accounting costs due to the restructuring of
the Company. The disposition of Hutronix relieved the Company of its long term
liability with a guarantee on a building in Douglas, Arizona. Therefore, long
term debt was reduce to zero from $561,842 in the corresponding prior year
period.
For the three month period ending March 31, 1996 the Company had no
operations and therefore no revenue compared to sales of $1,035,397 for the
three month period ended March 31, 1995 and sales of $3,452,982 for the nine
month period ended March 31, 1995. General and Administrative expenses for the
three month period ended March 31, 1996 were $298,405 compared to $262,027 for
the corresponding period in 1995. G&A for the nine month period ended March 31,
1996 was $1,043,970 compared to $741,524 for the corresponding period in 1995.
The G&A costs can be attributed to the restructuring and reorganization the
Company experienced from the disposition and discontinuation of operations and
the merger agreement the Company entered into with Kenmar Business Groups, Inc.
The Company had a net loss from operations of $1,118,561 for nine month period
ended March 31, 1996 compared to $300,884 for the corresponding nine month
period in 1995. The Company had a Shareholder's deficit of $203,695 at March 31,
1996 compared to Net Equity of $670,141 for the same period 1995. Current
liabilities were significantly reduce due to cessation of operations to $220,276
for the period ended March 31, 1996 compared to Current Liabilities of $964,465
for the corresponding period ended March 31, 1995.
-19-
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
J.A. INDUSTRIES, INC.
per:/s/Robert Knight/
Robert Knight, Chief Executive Officer May 27, 1996
-20-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended December 31, 1995
[ ] 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: 0-23528
J.A. INDUSTRIES, INC.
(Exact name of small business issuer as specified on its charter)
Delaware 13-3421337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34A-2755 Lougheed Highway, Suite 522, Port Coquitlam, B.C. V3B 5Y9 Canada
(Address of principal executive offices)
Issuer's telephone number, including area code: 604-941-3413
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date.
Common Stock, par value $0.0025 per share
Class
7,906,603
Number of shares outstanding
J.A. INDUSTRIES, INC.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Consolidated Condensed
Balance Sheet December 31, 1995 (unaudited) with comparative
figures December 31, 1994 (unaudited)
Consolidated Condensed Statement of Operations for the six months ended
December 31, 1995 (unaudited) with comparative figures
December 31, 1994 (unaudited)
Consolidated Condensed Statement of Operations for the three months
ended December 31, 1995 (unaudited) with comparative figures
December 31, 1994 (unaudited)
Consolidated Condensed
Statement of Change in Financial Position for the six months
ended December 31, 1995 (unaudited) with comparative figures
December 31, 1994 (unaudited)
Consolidated Condensed Statement of Changes in Shareholder's Equity for
the six months ended December 31, 1995 (unaudited) with
comparative figures June 30, 1994 (audited)
Notes to Condensed Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Signatures
J.A. Industries, Inc.
Consolidated Financial Statements
(unaudited)
Second Quarter
December 31, 1995
J.A. Industries, Inc.
Consolidated Balance Sheets
(unaudited)
- --------------------------------------------------------------------------------------------------------------
December 31
1995 1994
---------------- ----------------
Assets
Current
Cash $ --- $ 5,538
Accounts receivable
Trade --- 569,292
Other --- 59,437
Inventory (note 3) --- 453,274
Prepaid expenses and deposits --- 21,892
---------------- ----------------
--- 1,109,433
Real estate held for resale --- 875,000
Property and equipment (note 4) --- 514,836
Investments --- 22,075
Intangible assets (note 5) --- 120,978
---------------- ----------------
$ --- $ 2,642,322
---------------- ----------------
-1-
J.A. Industries, Inc.
Consolidated Balance Sheets
(unaudited)
- --------------------------------------------------------------------------------------------------------------
December 31
1995 1994
---------------- ----------------
Liabilities
Current
Bank indebtedness $ 68 $ 105,000
Accounts payable 138,167 928,358
Due to shareholders --- 51,426
Share subscription deposits 123,383 ---
Equipment loans --- 119,048
Current portion of long-term debt (note 7) --- 155,270
---------------- ----------------
261,619 1,359,102
Loans from shareholders (note 6) 21,064 136,691
Long-term debt (note 7) - 551,264
---------------- ----------------
282,683 2,047,057
---------------- ----------------
Share Capital and Deficit
Capital stock:
Authorized:
20,000,000 common shares with a par value of $0.0025 per share
Issued:
7,906,603 shares (1994 - 6,817,034) 19,792 17,043
Additional paid-in capital 5,445,253 3,948,343
Accumulated deficit (5,611,973) (3,381,265)
Cumulative translation adjustment (4,504) 11,144
Treasury stock, at cost (131,250) ---
---------------- ----------------
(282,683) 595,265
---------------- ----------------
$ --- $ 2,642,322
---------------- ----------------
-2-
J.A. Industries, Inc.
Consolidated Statements of Operations
(unaudited)
- --------------------------------------------------------------------------------------------------------------
For the six months ended
December 31
1995 1994
---------------- ----------------
Sales $ --- $ 2,417,585
Cost of sales --- 1,977,458
---------------- ----------------
Gross profit --- 440,127
Selling and marketing expenses --- 97,254
General and administrative expenses 745,565 479,497
---------------- ----------------
Loss from operations (745,565) (136,624)
Other income (expense) (74,591) (54,374)
---------------- ----------------
Consolidated net loss $ (820,156) $ (190,998)
---------------- ----------------
Loss per share $ 0.09 $ 0.03
---------------- ----------------
-3-
J.A. Industries, Inc.
Consolidated Statements of Operations
(unaudited)
- --------------------------------------------------------------------------------------------------------------
For the three months ended
December 31
1995 1994
---------------- ----------------
Sales $ --- $ 1,237,956
Cost of sales --- 963,690
---------------- ----------------
Gross profit --- 274,266
Selling and marketing expenses --- 71,820
General and administrative expenses 81,921 239,877
---------------- ----------------
Loss from operations (81,921) (37,431)
Other income (expense) (74,591) (48,676)
---------------- ----------------
Consolidated net loss $ (156,512) $ (86,107)
---------------- ----------------
Loss per share $ 0.01 $ 0.01
---------------- ----------------
-4-
J.A. Industries, Inc.
Consolidated Statement of Changes in Financial Position
(unaudited)
- --------------------------------------------------------------------------------------------------------------
For the six months ended
December 31
1995 1994
---------------- ----------------
Cash provided by (used in)
Operating activities
Net loss for the period $ (820,156) $ (190,998)
Items not affecting cash:
Amortization --- 80,543
Issuance of stock for services 476,251 ---
Loss on sale of subsidiary 74,591 ---
Changes in non-cash working capital 163,395 85,991
---------------- ----------------
(105,918) (24,464)
---------------- ----------------
Financing activities
Issue of common shares 120,000 100,000
Loan from shareholders (14,703) 4,327
Long-term debt --- (41,596)
---------------- ----------------
105,297 62,731
---------------- ----------------
----------------
Investing activities
Purchase of property and equipment --- (4,578)
Proceeds on sale of subsidiary 100 ---
---------------- ----------------
100 (4,578)
---------------- ----------------
Increase (decrease) in cash position (521) 33,689
Effect of currency translation on cash flow --- 32,991
Cash position beginning of period 453 (166,142)
---------------- ----------------
Cash position end of period $ (68) $ (99,462)
---------------- ----------------
Represented by:
Cash $ --- $ 5,538
Bank indebtedness (68) (105,000)
---------------- ----------------
$ (68) $ (99,462)
---------------- ----------------
-5-
J.A. Industries, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
For the six months ended December 31, 1995
and the year ended June 30, 1995
Capital Stock Additional Foreign Stock
Paid In Operating Currency Subscription Treasury
Shares Amount Capital Deficit Translation Receivable Stock
------------------------------------------------------------------------------------------------
Balance June 30, 1994 6,493,778 $ 16,234 $ 3,849,152 $ (3,255,919)$ (7,561)$ --- $ ---
Issued for cash 581,383 1,453 494,797 --- --- --- ---
Issued for consulting fees 582,292 1,456 524,642 --- --- (30,000) ---
Issued and unpaid 500,000 1,250 428,750 --- --- (430,000) ---
Issued to repay debt 50,000 125 51,982 --- --- --- ---
Issued as compensation 12,600 32 12,569 --- --- --- ---
Reverse equipment purchase (600,000) (1,500) (52,148) --- --- --- ---
Reverse Hutronix, Inc. acquisition --- --- --- --- --- --- (131,250)
Shares cancelled (68,450) (171) 171 --- --- --- ---
Aggregate adjustment resulting
from translation of financial
statements into U.S. dollars --- --- --- --- 3,057 --- ---
Net loss for the year ended
June 30, 1995 --- --- --- (2,155,220) --- --- ---
----------------------------------------------------------------------------------------------
Balance June 30, 1995 7,551,603 18,879 5,309,915 (5,411,139) (4,504) (460,000) (131,250)
Issued for cash 300,000 750 119,250 --- --- --- ---
Issued for consulting fees 55,000 163 16,088 --- --- --- ---
Services rendered as consideration
for shares --- --- --- --- --- 460,000 ---
Net loss for the six months ended
December 31, 1995 --- --- --- (820,156) --- --- ---
----------------------------------------------------------------------------------------------
Balance December 31, 1995 7,906,603 $ 19,792 $ 5,445,253 $ (6,231,295)$ (4,504)$ --- $ (131,250)
----------------------------------------------------------------------------------------------
-6-
J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
December 31, 1995 and 1994
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of:
J.A. Industries, Inc., a Delaware corporation and the following
wholly owned subsidiaries:
J.A. Industries (Canada), Inc., a Canadian corporation.
Granite Marketing Corp., a Cayman Island corporation.
Hutronix, Inc. an Arizona corporation.
QDS, de Mexico, S.A. de C.V. a Mexican corporation.
and the 96% owned subsidiary, Hutronix de Mexico, S.A. de C.V. which
has been inactive since August 17, 1982.
All significant inter-company balances and transactions have been
eliminated on consolidation.
J.A. Industries (Canada), Inc. was disposed of during the year ended
June 30, 1995. Hutronix, Inc. and QDS de Mexico were disposed of
during the year ended June 30, 1996 subject to shareholder approval.
Translation of Foreign Currencies
Account balances and transactions denominated in foreign currencies have
been translated into U.S. funds as follows:
Assets and liabilities at the rates of exchange prevailing at the
balance sheet date; Revenue and expenses at average exchange rates for
the period in which the transaction occurred; Exchange gains and
losses arising from foreign currency transactions are included in the
determination of net earnings for the period.
2. Sale of Subsidiary
On November 23, 1995, the Company sold all of the common shares of
Hutronix, Inc. and on and on August 15, 1995 the Company sold all of the
common share of Granite Marketing Corporation for $100. The two
transaction resulted in a loss of $74,591, which has been included in
other expense for the period ended December 31, 1995. Granite Marketing
Corp. was inactive during the period.
-7-
J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
December 31, 1995 and 1994
- --------------------------------------------------------------------------------
3. Inventory
Inventory consists of: 1995 1994
Raw materials $ --- $ 531,321
Less: Reserve for obsolescence --- 190,000
----------------- -----------------
--- 341,321
Work-in-process --- 104,604
Finished goods --- 7,349
----------------- -----------------
$ --- $ 453,274
----------------- -----------------
4. Property and equipment
Accumulated Net Book Value
Cost amortization 1995 1994
----------------- ----------------- ----------------- -----------------
Land $ --- $ --- $ --- $ ---
Building --- --- --- ---
Forklift --- --- --- 7,410
Vehicles --- --- --- 81
Office equipment --- --- --- 46,264
Computer equipment --- --- --- 27,957
Manufacturing equipment --- --- --- 199,669
Leasehold improvements --- --- --- 935
Assets not-in-service --- --- --- 232,520
----------------- ----------------- ----------------- -----------------
$ --- $ --- $ --- $ 514,836
----------------- ----------------- ----------------- -----------------
-8-
J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
December 31, 1995 and 1994
- --------------------------------------------------------------------------------
5. Intangible assets
Intangible assets comprise the following: 1995 1994
Goodwill $ --- $ 128,767
Incorporation costs --- 3,000
Patent costs --- 8,895
------------- -----------------
--- 140,662
Amortization --- 16,096
------------- -----------------
$ --- $ 124,566
------------- -----------------
6. Loans from shareholders
Loans from shareholders comprise the following: 1995 1994
Loan payable to Alexander Michie, balance due on demand with
no stated interest rate. $ 20,000 $ ---
Loan payable to 391566 B.C. Ltd., balance due on demand with no
stated interest rate. 1,064 ---
Loan payable to Alexander Michie. The loan is unsecured and
has no terms of repayment. The loan has a stated interest rate
of prime plus 2%. --- 138,146
----------------- -----------------
$ 21,064 $ 138,146
----------------- -----------------
-9-
J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
December 31, 1995 and 1994
- --------------------------------------------------------------------------------
7. Long-term debt
1995 1994
Note payable to a bank executed through the Industrial Development
Authority of the City of Douglas, Arizona due in quarterly instalments of
$12,821, plus interest at 65% of prime (9.0% as of March 31, 1995), due
May 2005; secured by a deed of trust on the real estate held for sale, an
irrevocable letter of credit from a bank in the amount of the outstanding
note payable balance and the assignment of a life insurance policy owned
by a related party on the president of Hutronix, Inc. At March 31, 1995
the company was not in compliance with certain restrictive
covenants contained in this note. $ - $ 564,087
Note payable to a supplier due in quarterly instalments of
$8,361 plus interest at 6% unsecured, due March 15, 1995 --- 8,086
Promissory note payable to a lender. The principal of $36,155 (CDN
$50,000) plus accrued interest at 24% per annum is payable on demand. The
lender has stated that it is not her intention to
demand repayment of the note before March 31, 1996. --- 51,283
Mortgage payable, on manufacturing equipment, to the Province of British
Columbia, Canada due in monthly payments of $1,787 (CDN $2,500) plus
interest at 6% per annum. The principal balance
is due July 1, 1995. --- 83,078
----------------- -----------------
0 706,534
Less: Current portion --- 155,270
----------------- -----------------
$ 0 $ 551,264
----------------- -----------------
8 Income tax
The Company has losses for income tax purposes which may be carried
forward and applied to reduce future income taxes. The deferred tax
benefit related to these losses has not been recorded in the accounts as
there is not virtual certainty of realization.
All of the income attributable to Granite Marketing Corp. (a Cayman Island
corporation) is reported as non-taxable.
-10-
J.A. Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
December 31, 1995 and 1994
- --------------------------------------------------------------------------------
9 Commitments and Contigencies
Under the terms of various agreements, the Company has guaranteed payment
of $18,275 in accounting fees and the $546,125 mortgage on the Douglas,
Arizona plant owned by Hutronix, Inc. The reversal of the Hutronix, Inc.
purchase included an idemnification on the above guarantees. Should the
other party fail to perform, the obligations could be asserted against the
Company.
10 Subsequent event
On January 26, 1996 the shareholders ratified the sale of Hutronix, Inc.
and QDS, de Mexico, S.A. de C.V.
-11-
Management's Discussion and Analysis
The following discussion of the results of operations and financial
condition should be read in conjunction with the audited financial statements
and related notes under the caption "Financial Statements".
Overview
In July of 1992, the existing management took over the direction of J
A. Industries, Inc. It was the intention of the management to enhance the value
of its shares on behalf of its shareholders by acquiring cash flow entities
which were, firstly, synergistic with existing subsidiaries and secondly were
companies with consistent growth potential.
The first acquisition was Torik, Inc. in September, 1992, which at that
time was just breaking even on its sales of $300,000 per month. Subsequent to
the Torik acquisition, the Company had entered into litigation and lost the case
to the former management of Torik returning all shares back to the Torik
management. The Company was booking that acquisition at the cost of $200 which
has been written off.
The second acquisition of the assets of Pacific Rim Polytech, took place
in February, 1993 by the Company's wholly owned subsidiary J.A. Industries
(Canada) Inc. ("J.A. Canada"). J.A. Canada immediately started the manufacturing
of underground junction boxes and cable tray. In June, 1995 the Company sold
J.A. Canada to a non-affiliate British Columbia Corporation.
The Company also entered into two licensing agreements and
manufacturing agreements for the manufacture and distribution of electronic
ballasts of which both licenses are inactive.
In September of 1993, the Company acquired Hutronix, Inc., of Tucson,
Az ("Hutronix"). Subsequent to the year ended, 1996, the Company returned the
shares of Hutronix to Baboquivari Cattle Company ("BCC") to settle outstanding
liabilities with BCC.
In December of 1993, the Company acquired the assets of Capital City
Plastic ("CCP"). CCP had been inactive since May of 1993. As CCP was unable to
deliver the equipment as detailed in the purchase agreement, the Company
cancelled the purchase agreement.
In May, 1994 the Company signed an option agreement to acquire 100% of
Link Technologies (Canada) Ltd. ("Link"). The Company was to pay $500,000 USD
plus issue 500,000 shares of common stock to acquire 100% of Link. The Company
was also to provide $1,500,000 USD in working capital for Link. Subsequent to
this agreement the option has expired and no further agreement has been reached.
On March 30, 1994 Granite Marketing Corporation. ("Granite"), then a
wholly owned subsidiary of the Company, entered into an agreement with
Queensland Industries, Inc. ("Queensland") whereby Queensland purchased from
Granite an exclusive license to manufacture,
-12-
promote, market, sell and distribute the products of J.A. Canada relating to
polyurethane underground junction boxes. Queensland is a wholly owned subsidiary
of Wincanton, Corporation ("Wincanton"), a publicly traded Washington State
Corporation. Subsequent to this agreement, the Company rescinded the licensing
agreement in exchange for a $50,000 USD payment by Queensland Industries to
Granite. Granite is currently inactive. Subsequent to the year end, Granite was
sold to an unrelated third party in exchange for assumption of Granite's
liabilities.
On June 28, 1995 the Company signed a letter of intent to merge with
privately held MiNT Corporation ("Mint") through a stock for stock exchange. The
share exchange would have resulted in a change of control of J.A. Industries to
the majority shareholders of Mint. Mint is in the business of providing high
quality contract manufacturing of electronic and electromechanical printed
circuit board assemblies. Subsequent to this letter of intent and subsequent to
the year ended June 30, 1995, the shareholders of Mint elected not to proceed
with the acquisition.
Subsequent to the year ended June 30, 1995, the Company entered into an
Agreement and Plan of Merger (the "Merger") with Kenmar Business Groups, Inc.
("Kenmar") of Raleigh, NC. Pursuant to the terms of the agreement, current
shareholders of Kenmar will receive common stock of J.A. Industries such that
Kenmar shareholders will own approximately 50% of the outstanding shares of J.A.
Industries, Inc. on closing. The agreement is subject to shareholder's approval
of both companies as well, J.A. Industries, Inc. must finalized its settlement
agreement with a former stockholder, Karl Ronstadt and Hutronix, Inc. subsequent
to the year ended June 30, 1995, the Company did resolve its outstanding dispute
with Baboquivari Cattle Company as described above (see "Hutronix").
Kenmar Business Groups, Inc. ("Kenmar") founded in 1984, is a provider
of high quality electronic manufacturing services. It is located in the Research
Triangle area of North Carolina. Kenmar has a broad array of technical
capabilities to bring products to the market from concept to final production.
Kenmar's manufacturing team has experience in producing electronic and
electro-mechanical subassemblies and products for use in the telecommunication,
industrial control, computer, medical and instrumentation industries. Kenmar has
both Surface Mount Technology and Pin Thru-Hole capabilities as well as cable,
harnesses and interconnect assembly lines.
Management believes that the trend towards outsourcing in the
electronic manufacturing industry is expanding. To this end, management still
believes that its strategy to acquire synergistic businesses in the contract
manufacturing industry is a sound plan. The planned Merger between the Company
and Kenmar is the first step in trying to re-establish that plan. Upon
completion of the Merger, current management of Kenmar will assume management of
the Company.
Prior to the Merger, the Company must reduce its liabilities and
contingent liabilities to zero and have working capital of a minimum of two
hundred thousand ($200,000) dollars. To
-13-
this end, the Company has disposed of, settled or is in the process of settling
all outstanding liabilities. The Company has reached agreements and has signed
releases for potential contingent liability claims arising or potentially
arising from several of the Company's former agreements.
The Company intends to fund its capital requirements through a private
placement to meet the terms of the agreement. To date the funds necessary to
complete the Merger are in place and will be released to the Company subject to
Shareholder's approval of the Merger. If Shareholder's approval is not obtained
to complete the Merger, then the funds in escrow would not be released to the
Company.
The Company will continue to focus its expansion plans on the
acquisition of other contract manufacturing operations.
Seasonal factors do not influence the Company's sales.
Liquidity and Capital Resources
Subsequent to the 3 months ended September 30, 1995, Hutronix was
returned to Baboquivari Cattle Company (former shareholder of Hutronix, "BCC")
for release of all liabilities owed by the Company to BCC and BCC's assumption
of all liabilities associated with Hutronix. The Company has no cash flow and
its ability to maintain operations is severely impaired. If the Company cannot
raise additional capital it is unlikely the Company would be able to operate and
it may be forced to seek protection under Chapter 11 of the Bankruptcy Act.
It is the Company's goal in the fiscal year ending June 30, 1996 to
find a suitable acquisition candidate. Management anticipated that the Company
will do further equity financing. Management believes that from these sources
the Company will adequately fund the operations of the Company and allow it to
maintain its aggressive acquisition strategy.
To Address the accountant's report of a "going concern" uncertainty, it
is anticipated that the Company will continue to look for new opportunities in
the contract manufacturing area. On March 1, 1996 the Company entered into an
agreement to merge with Kenmar to fulfill the Company's business strategy. As
part of the Merger, the Company must eliminate all outstanding liabilities and
have working capital of $200,000. At the date of this report, the Company has
approximately $133,000 in liabilities it must satisfy to complete the Merger. As
of May 15, 1996 the Company raised the required funds to complete the Merger
through a private placement of its common stock. The funds are in escrow with
the Company's legal counsel and will be released to the Compnay upon
shareholder's approval of the Merger. In the event the Company did not receive
shaeholder's approval, the funds would not be release from escrow and the
Company wold not be able to meet its financial requirements. If the Merger was
not completed, then the Company could be forced to seek protection under Chapter
11 of the Bankruptcy Act.
In the event that the Company does raise the necessary funds to
complete the Merger, and all other conditions of the Merger are satisfied and
the Merger is completed it is anticipated that
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cash flow from ongoing operations will satisfy the day to day needs of the
Company. Furthermore, as of February 29, 1996, Kenmar had approximately $744,500
in cash or cash equivalents (unaudited). It is anticipated that the merged
company will use these funds to maintain and grow the existing business that it
has. It is also the Company's goal to try and arrange an equity financing in the
amount of $3 million dollars to expand its business. No commitment for such
financing has been arranged and the likelihood of its completion cannot be
guaranteed. In the event the merged company could not raise any additional
capital, it is anticipated that current rates of growth of the merged company
would satisfy its working capital requirements.
Future cash needs of the merged entity would include funds to implement
the Company's acquisition strategy and to sustain the Company through a period
of restructuring and growth.
Notes Payable and Long term debt
Hutronix, Inc. a former subsidiary has a note payable to Bank One
executed through the Industrial Development Authority of the City of Douglas due
in quarterly instalments of $12,821, plus interest at 65% of prime (7.25% as of
June 30, 1994), due may 2005; secured by a deed of trust on the real estate held
for sale and an irrevocable letter of credit from a bank in the amount of the
outstanding note payable balance guaranteed by the Company. At June 30, 1995 the
amount outstanding was $576,908. The subsequent agreement between BCC and the
Company calls for BCC and Hutronix to indemnify the Company against any
liability under this bond. As the solvency of Hutronix, Inc. is uncertain, the
ability for Hutronix, Inc. to indemnify the Company is unlikely. On March 4,
1996 the liability under the guarantee to Bank One was satisfied. Furthermore,
on November 21, 1996 an agreement was reached between Baboquivari Cattle
Company, Karl and Marilyn Ronstadt, Hutronix, Inc. and the Company whereby the
parties exchanged mutual releases relieving the Company of any liabilities that
it had or might have in the future with the parties.
On closing of the Merger between Kenmar and the Company, the Company is
obligated to pay a former minority shareholder of Hutronix, Inc. $10,000 and
issue 50,000 shares of restricted common stock in exchange for a release from
all future obligations the minority shareholder may be entitled to. Also, on
closing, the Company is obligated to pay the former landlord of Hutronix, Inc. a
fee for releasing the Company from a Corporate guarantee on the lease of the
building located at 1150 E. Palmdale, Tucson, AZ. The funds for these
transaction are part of the funding needed for the closing of the Merger
agreement. If the funds were not raised or the Merger was not completed, these
liabilities would still be outstanding.
On June 30, 1995 the Company sold its wholly owned subsidiary, J.A.
Industries (Canada) Inc. to an unrelated third party. The sale relieved the
Company of any long term debt associated with the subsidiary. Furthermore, the
Company obtained releases for all corporate guarantees that it had provided for
the subsidiary subject to certain cash payments as follows. The Company settled
with one creditor by issuing shares of restricted stock in the amount of 136,000
shares to satisfy approximately $34,000 USD of debt. On completion of the Merger
between Kenmar and
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the Company, the Company will incurred a cost of $5,000 USD to settle with one
creditor that comes from a corporate guarantee of the Company. The funds for
settling this amount will come from the funds necessary to close the Merger
transaction. If the funds were not raised and the Merger was not completed, then
this liability would still be outstanding with the creditor.
In March, 1996, the Company came to a final agreement with the former
owners of Capital City Plastics whereby Capital City Plastic and John Szaniszlo
will provide the Company with a release from all liabilities and deliver to the
Company 600,000 shares of common stock issued to Capital City Plastics in
exchange for the Company's release from liabilities, $10,000 and the issuance of
50,000 restricted common stock of the Company. The funds necessary to complete
this transaction are part of the funding needs of the Merger. If the necessary
funds were not raised or the Merger was not completed, the Company's position
would be that there are no liabilities outstanding with Capital City Plastic or
John Szaniszlo as they had breached the original agreement between the parties.
On completion of the Merger, for which there can be no guarantee, the
Company will be assuming the following liabilities based on the Kenmar audited
financial statements for the period ending August 31, 1995 and unaudited
financial statements for the six month period ending February 29, 1996:
Line of credit/loans $ 0
Current maturities of long term debt $ 4,317
Current obligations under capital lease $ 35,203
Accounts payable - trade $ 621,852
Income tax payable $ 0
Other accrued liabilities $ 94,833
=========
Total Current Liabilities $ 756,205
Long Term Debt, less current maturities $ 541,236
Long term obligations under capital lease $ 57,750
=========
Total Liabilities as of February 29, 1996 $1,021,386
Line of Credit: In March, 1994, Kenmar negotiated a $4 million revolving line of
credit with a commercial lender which allowed it to borrow up to 80% of eligible
receivables and was secured by a first lien on all the Company's receivables and
inventory. Borrowing under this line bears interest at prime plus 2.5% (minimum
7.5%) in addition to an annual facility fee and other costs. Kenmar paid off the
line of credit in the fourth quarter of its fiscal year ended August 31, 1995.
Kenmar has not requested a renewal of the line of credit.
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Long-term Debt: Long term debt of Kenmar consists of the following:
1995 1994 1993
---- ---- ----
Subordinated promissory notes payable monthly $524,855 $646,674 $700,675
instalments of $9,009 including interest at 8%
through October 2002.
Bank debt collateralized by a first lien on all the - $217,932 -
Company's plant, equipment, furniture and
fixtures payable in monthly instalments of
$7,950, including interest at prime +1%. this
loan was paid off prior to august 31, 1995.
Uncollateralized note payable to stockholder $ 39,482 $ 43,486 $ 47,149
repayable with interest at 8% in 59 monthly
instalments of 4610 and a balloon payment
of $30,083 on October 15, 1997
Notes payable secured by equipment repayable $ 18,403 $ 42,202 -
in monthly instalments of $2,435 including
interest at 16.85% through April 1996.
(Subsequently, this note was satisfied)
Note payable to stockholder in monthly - - $ 22,069
instalments of $2,535 including interest
at 8% through April, 1994, collateralized
by certain equipment.
$582,380 $950,276 $769,893
Less current maturities $ 22,359 $293,242 $ 79,750
-------- -------- --------
$560,021 $657,034 $690,143
======= ======== ========
Principal maturities of debt Kenmar at August 31, 1995 are as follows:
Year ending August 31
1996 $ 22,359
1997 $ 73,269
1998 $104,776
1999 $ 80,451
2000 $ 87,130
Thereafter $214,395
--------
Total Long-term debt $582,380
=======
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Obligations Under Capital Leases of Kenmar:
Kenmar leases equipment under capital leases which expire on various
dates through 1998.
1995 1994 1993
---- ---- ----
Machinery and equipment $200,066 $200,066 $ 62,735
Vehicles - $ 27,871 $ 27,871
-------- -------- --------
Total $200,006 $227,937 $ 90,606
The following is a schedule by years of future minimum lease payments
under capital leases as of august 31, 1995 for Kenmar
Year ending August 31
1996 $ 48,272
1997 $ 49,701
1998 $ 29,431
--------
Total minimum lease payment $127,404
Further Kenmar Commitments:
Kenmar leases certain office and production space, machinery and
equipment under noncancellable operating leases expiring at various dates
through 1998. During the years ended August 31, 1995, 1994 and 1993, Kenmar
incurred rental expenses of $214,505, $271,488 and $230,175 respectively under
these leases. Future minimum lease payments under the terms of the above leases
are as follows:
1996 $38,422
1997 $ 2,952
1998 $ 2,460
Preferred Stock of Kenmar:
The aggregate number of authorized shares of preferred stock is
100,000. Of the 100,000 shares of preferred stock 30,000 shares have been
designated as Class A cumulative preferred stock. The designation of the
remaining 70,000 shares will be determined by the Board of Directors of Kenmar.
Kenmar issued 1,150 shares of $50 par value Class A cumulative
preferred stock ("Class A Preferred") in 1994. During 1993, the Company issued
716 shares of Class A Preferred including upon receipt of the issue price, 200
shares subscribed at August 31, 1992. Each share of Class A Preferred may be
called or put at any time after five years from the date of issuance at a rate
of one and one-half times the issue price. Redemption requirements of Class A
Preferred stock at August 31, 1995 were as follows:
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1997 $150,000
1998 $447,000
1999 $ 68,700
2000 $ 86,250
--------
Total $751,950
=======
The Class A Preferred is entitled to a 10% cumulative dividend payable
quarterly, subject to the provisions of North Carolina law. Cumulative unpaid
dividends are $73,008, $23,378, and $7,643 as of August 31, 1995, 1994, and 1993
respectively.
Upon liquidation, the Class A shares have preference over holders of
common stock in an amount equal to the issue price plus cumulative dividends in
arrears. Cash dividends of $0, $32,910 and $40,031 were paid in 1995, 1994, and
1993, respectively.
Results of Operations
The following information is derived from the attached financial
statements and sets forth, for the periods indicated, the relative percentage
that certain income and expense items bear to net sales.
For the 6 month period ended December 31, 1995 compared to the 6 month
period ended December 31, 1994. The auditors report for the period ending June
30, 1995 states that as a result of the discontinuation of operations of the
Company there raises substantial doubt about the Company's ability to continue a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
In early March 1995, the Company entered into negotiations with Karl G.
Ronstadt and Baboquivari Cattle Company, former shareholders of Hutronix, Inc.
to settle outstanding issues and potential liabilities. The Company and the
former shareholders could not come to any resolution. On September 23, 1995, the
former shareholder of Hutronix, Inc. exercised his right under a put/call
agreement dated September 23, 1993 and attached to the original purchase
agreement of Hutronix, Inc. dated September 15, 1993. The put option allowed the
former shareholder to put 262,000 shares of the Company to the Company at a
price of $2.25 creating a liability of $589,500. The Company did not have the
resources to pay the liability. On November 21, 1995 the Company entered into an
agreement to reverse the acquisition of Hutronix, Inc. the only remaining
operating subsidiary of the Company to satisfy all outstanding liabilities
between the former shareholder of Hutronix and the Company. The condition that
effected the decision to enter into the agreement to reverse the Hutronix
acquisition occurred prior to the Company's year end. Although the assets and
operations of Hutronix were included in the Company's June 30, 1995 financial
statement, they were subsequently disposed of and it was so reported in the
Company's December 31, 1995 financial statement.
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Subsequent to the period ending December 31, 1995 the Company has
entered into a plan of merger with Kenmar Business Groups Inc. A condition of
the agreement is that the Company is to have no liabilities and working capital
of $200,000. To this end, though the Company has an inactive status, there are
substantial one time charges to eliminate all liabilities and to settle contract
obligations.
On September 23, 1995, Baboquivari Cattle Company exercise its put
option under a put/call agreement dated September 23, 1993. The option obligated
the Company to purchase 262,000 shares of the Company's stock from Baboquivari
at a price of $2.25 creating an unfunded liability of $589,500. Prior to this
period, the auditors of the Company had treated this item as a non-balance sheet
item.
On November 21, 1995 the Company entered into an agreement with
Baboquivari Cattle Company to transfer all title of Hutronix, Inc. to
Baboquivari Cattle Company in exchange for a release of all liabilities. Due to
this disposition of the last operating subsidiary of the Company, the Company
had no revenue for the three month period ending December 31, 1995 compared to
of $1,237,956 for the three month period and $2,417,585 for the six month period
ending December 31, 1994. General and administrative expenses for the period
three month period ended December 31, 1995 were $81,921 compared to the
corresponding three month period in 1994 of $239,877. The Company experienced a
net loss of $83,316 for the three month period ending December 31, 1995 compared
to a loss of $86,107 for the corresponding period in 1994. The net loss from
operations for the six month period ending December 31, 1995 was $745,565
compared to $190,989 for the corresponding period in 1994. The loss in 1995 is
attributed to the reorganization and elimination of ongoing contracts and
liabilities the Company needed to satisfy to proceed with its merger agreement
with Kenmar Business Groups, Inc. The Company had a shareholder's deficit of
$282,683 for the period ended December 31, 1995 compared to net equity of
$595,265 for the corresponding period in 1994. Accounts payable at December 31,
1995 were $138,167 compared to $928,358 for the corresponding period 1994. Due
to the discontinuation of operations, the Company's payables were reduced
dramatically. Most of the expense is attributed to legal and accounting costs
due to the restructuring of the Company. The disposition of Hutronix relieved
the Company of its long term liability with a guarantee on a building in
Douglas, Arizona. Therefore, long term debt was reduce to zero from $561,842 in
the corresponding prior year period.
For the three month period ending March 31, 1996 the Company had no
operations and therefore no revenue compared to sales of $1,035,397 for the
three month period ended March 31, 1995 and sales of $3,452,982 for the nine
month period ended March 31, 1995. General and Administrative expenses for the
three month period ended March 31, 1996 were $298,405
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compared to $262,027 for the corresponding period in 1995. G&A for the nine
month period ended March 31, 1996 was $1,043,970 compared to $741,524 for the
corresponding period in 1995. The G&A costs can be attributed to the
restructuring and reorganization the Company experienced from the disposition
and discontinuation of operations and the merger agreement the Company entered
into with Kenmar Business Groups, Inc. The Company had a net loss from
operations of $1,118,561 for nine month period ended March 31, 1996 compared to
$300,884 for the corresponding nine month period in 1995. The Company had a
Shareholder's deficit of $203,695 at March 31, 1996 compared to Net Equity of
$670,141 for the same period 1995. Current liabilities were significantly reduce
due to cessation of operations to $220,276 for the period ended March 31, 1996
compared to Current Liabilities of $964,465 for the corresponding period ended
March 31, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
J.A. INDUSTRIES, INC.
per:/s/Robert Knight
Robert Knight, Chief Executive Officer May 27, 1996
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