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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
Commission file number 2-93668-FW
CURTIS MATHES HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
Texas 75-1975147
(State of incorporation) (I.R.S. Employer Identification No.)
10911 Petal Street, Dallas, Texas 75238
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 503-8880
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(Title of class)
Preferred Stock, par value $1.00 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (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 by check mark, if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
On August 2, 1996, the aggregate market value of the voting stock
held by non-affiliates of the Registrant (21,374,873 shares) was
approximately $30,993,566, based upon the average bid and asked price
per share of $1.45.
On August 2, 1996, there were 24,311,188 shares of Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Exhibits listed on Exhibit index.
GENERAL INDEX
Page
Number
ITEM l. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . 13
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION. . . . . . . . . . . 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
(F-1 through F-35). . . . . . . . . . . . . . . . . . . 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . 19
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . 21
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . 29
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 31
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . 69
CURTIS MATHES HOLDING CORPORATION
PART I
ITEM l. BUSINESS
(a) General Development of Business
Curtis Mathes Holding Corporation, formerly Enhanced Electronics
Corporation, and subsidiaries (the "Company") is engaged in the
manufacture and distribution of consumer electronics products relating
specifically to the home entertainment industry.
The Company was incorporated in Texas on July 13, 1984 as Donny
Osmond Entertainment Corporation and operated in several facets of the
entertainment industry until 1988. The Company filed an S-18
registration statement in November of 1984 and completed the registered
offering in January 1985.
The Company acquired Curtis Mathes Corporation (CM) in November,
1993 and on November 8, 1993 the Company's stock was first listed on the
NASDAQ Small Cap Market (symbol CRTM). CM became the flagship business
of the Company and, to reflect its commitment, the Company changed its
name to Curtis Mathes Holding Corporation in May, 1994. CM continues to
operate as one of the Company's primary subsidiaries, providing the
traditional consumer electronics products which have become so well
known over the years for their quality and reliability.
Another subsidiary, Curtis Mathes Marketing Corporation (CMMC),
during fiscal year 1996 acquired the rights to a proprietary computer-
enhanced television technology called UniViewTM which allows a family,
through the use of its TV remote control, to surf the Internet,
receive e-mail, or to search for movies or programs featuring specific
subjects, stars, or ratings. This technology was successfully exhibited
in May, 1996 at the Consumer Electronics Show in Florida and generated
great enthusiasm among its viewers. CMMC also holds the rights to the
125" projection television technology known as RealViewTM. This
technology is best suited for sports arenas, stadiums, shopping malls,
airports, and other large commercial applications, however, the Company
also expects to use the technology to improve CM's consumer projection
television products.
A subsidiary closely related to CM in the past has been Warranty
Repair Corporation (WRC) which, until recently, has provided the
warranty support for all products sold by CM. CM continues to honor all
of its warranty obligations and now utilizes the expertise of an outside
warranty servicing company to control warranty costs while providing
highly professional services to its customers. The warranty servicing
company monitors all outstanding warranties on CM products, provides
technical assistance to CM's authorized service centers, and serves all
of the warranty related needs of CM's customers.
During fiscal year 1996, the Company sold CM Transportation, Inc.
(CMTI), a subsidiary of the Company initially created to provide
transportation for the economical delivery of CM products to its
dealers. The sale of this subsidiary was a result of the changing
transportation needs of CM. As CM shifted its emphasis away from the
commodity side of consumer electronics, meaning 27" televisions and
smaller products, the number of units being shipped decreased. Without
a substantial number of units being shipped, the benefit of CMTI to the
Company was reduced accordingly. CM's transportation needs are now
served through outside transportation brokers, as in the past.
FFL Corporation (FFL), a subsidiary which in the past engaged in
real estate transactions, remains dormant at this time. Systematic
Electronics Corp., formerly known as Advanced PC Products, Inc. and a
current subsidiary of FFL, also remains dormant at this time.
(b) Financial Information About Industry Segments
Please refer to Note 18 on page F-33 of the Notes to Consolidated
Financial Statements in this Form 10-K for information concerning
Industry Segments.
(c) Description of Business
Major Markets and Products
Curtis Mathes Corporation (CM)
CM's products have traditionally been sold through two primary
markets: independent dealers and distributors. CM would sell its
products directly to independent dealers and to distributors who in turn
would sell the products to other independent dealers in their geographic
areas. These independent dealers would sell the products directly to
the consumer. This distribution system is no longer mandated by legal
restriction, and CM is free to explore additional avenues of
distribution in order to maximize product exposure in the marketplace.
CM's product line consists of the following:
Product Characteristics
Direct View Televisions 32" and 35" screen sizes
(picture tube) Color picture-in-picture
(digital) Surround sound
Projection Televisions 50" size only
(projector and screen) Surround sound
(digital)
The market for traditional direct view televisions remains
essentially flat. Management believes that diminished consumer demand
for value-added products requires the Company to market only those
products that historically have produced the greatest margins and
volumes (32 to 35 direct view, and projection televisions).
Reasonable increases in sales volumes have occurred within the industry
for these larger screen units. It is anticipated by the industry that
consumer demand for traditional direct view televisions will remain
unchanged with minimal increases for the next several years. Both of
the direct view units (32" and 35") and the projection unit to be
offered by CM utilize digital technology, which is expected to become
more of a consumer product from the standpoint of price and availability
as digital technology is improved. (Digital units receiving digital
input from television transmissions, laser discs, or Digital Video
Discs, are able to provide a picture of remarkable clarity when compared
to displays from a typical analog signal.)
Projection television has shown continued growth. Product in the
45" range has become the norm, with larger sizes also becoming much more
in demand. The Company has chosen to offer a 50" unit which is offered
at competitive prices to the Curtis Mathes customer.
Historically, VCR sales represented a noticeable portion of total
CM sales; however, in recent years, a severe decline in sales volume
occurred with this product, which only reinforced the Company's decision
not to compete in the commoditized, low margin consumer electronics
markets. CM plans instead to selectively license its brand name to
other manufacturers who wish to market quality products in the areas in
which the Company has chosen not to participate.
Curtis Mathes Marketing Corporation (CMMC)
The Company's newest proprietary television technology, called
UniView, is designed to meet the high interest and expected demand of
the consumer for easy and affordable access to the Internet through the
television medium. All Curtis Mathes televisions and set-top units
equipped with the unique UniView system seamlessly integrate Internet
access, fax and on-line information services with the traditional TV
viewing experience using broadcast quality translucent graphics. All
UniView units additionally have built-in e-mail, conference phone, on-
screen caller ID, automated VCR control and various interactive
television capabilities. Other unique features include a fast
proprietary multi-tasking operating system and special software that
automatically monitors the TV listings databases and blocks any
programming that parents might find inappropriate based on their own
specifications of show, rating or specific content.
The UniView units are further designed to accept optional input
peripherals, such as the Wireless SurfBoardTM, which will be offered by
the Company as an accessory to the basic system. The UniView system is
fully operational with its standard infrared-style remote control; the
Wireless SurfBoard allows greater flexibility in surfing the Internet
or sending e-mail by providing a full keyboard and mouse touchpad and
provides a high level of data integrity through its radio frequency
wireless technology, which allows operation of the system from up to 50
feet away. The Company's license of the technology from Interactive
Video Publishing, Inc. authorizes the exclusive use of the UniView
technology in its premium television sets and in separate set-top units
on a non-exclusive basis.
CMMC also offers its 10-foot diagonal projection television system
known as RealView to the commercial market. While its competitors rely
upon either thousands of miniature CRTs or banks of monitors to provide
a picture, RealView provides for high resolution and flexible
transmittal of video and graphics from any source onto a 75" x 100"
seamless projection screen through the use of a single light valve
projector. This results in an electrical power consumption rate that is
considerably lower than comparably-sized display systems. CMMC delayed
the introduction of the RealView during the past year while improvements
were made to the technology, resulting in a sharper and brighter image
and a more efficient cabinet design, which makes the unit more easily
transportable. With current funding, CMMC is preparing to market the
newly designed RealView commercially to complement its sales of UniView
and to complement CM's consumer electronics sales.
CMMC also holds certain rights to the former SysPower LED sign
technology. This product offers a unique sign display system, utilizing
light emitting diodes (LED), which interfaces with a control unit and
software which allows the display to be connected and controlled by a
variety of computers and other similar products. CMMC's rights are
exclusive for the market consisting of indoor sports arenas in the
United States seating less than 25,000 where basketball, hockey, or
other sports can be played. Otherwise, the rights are held concurrently
with Animated Systems and Presentations, Inc.
Warranty Repair Corporation (WRC)
WRC has, in the past, provided warranty and repair service for CM
consumer electronics products. Warranty support for CM products is
currently being provided under contract by an outside servicer. WRC is
currently inactive and it offers no other services or products to any
other outside party.
Competition
Curtis Mathes Corporation (CM)
CM has manufactured and markets consumer electronics home
entertainment products, many of which have achieved a unique or
leadership position in their market. CM does, however, encounter
competition in varying degrees in all product groups and for each
product line. Competitors include other domestic and foreign companies
that manufacture and/or sell the same or similar products. The
principal methods of competition are product performance, quality of
services, delivery schedule, price, and other terms and conditions of
sale. However, CM has positioned itself over the years in a niche
market of high quality consumer electronics products made up primarily
of 27" or larger televisions. CM has not tried to compete with lower
quality products that are typically sold for less through large retail
chains, choosing to compete primarily on quality rather than on price
and volume. In the event CM elected to offer its products through a
major retailer, the lower quality products would be in competition with
CM products only to the extent that they offer a less expensive
alternative to lesser demanding consumers.
Curtis Mathes Marketing Corporation (CMMC)
CMMC's UniView proprietary television technology is expected to be
among the first products of its type to enter the marketplace.
Competitors which have announced a television product which allows
access to the Internet include Zenith, Sony, Phillips, and other less
well known companies. The primary methods of competition with these
companies are expected to be price, features, and product performance.
While the product announced by all of CMMC's competitors is limited to
providing Internet access, UniView contains many other features
(described above) for the same price or less.
CMMC's RealView 10-foot diagonal projection television system is in
the same product category as the Jumbotron and DiamondVision color video
display systems manufactured by its competitors. The primary methods of
competition are expected to be price and product performance. As
described in the products section above, the RealView is believed to be
technically superior to its competition with a significantly lower sales
price.
Research and Development
The Company views its ability to offer new, improved, and
innovative television technology and products as an important component
in its plan for future growth. As with the UniView technology license,
the Company intends to take advantage of additional licensing
opportunities, as well as pursue internal and external development of
new products as may be necessary to meet consumer demand. Management
believes that it has reserved adequate funds to cover anticipated
product development and licensing costs during the coming year, which it
believes to be necessary for the Company to maintain its edge in the
marketplace.
Manufacturing
Curtis Mathes Corporation (CM)
CM products have historically been produced by several different
manufacturers which build the products bearing the Curtis Mathes name
and meeting the CM quality standards. Its direct view televisions will
be produced in America and in Taiwan and its projection televisions will
be produced in America and in Mexico.
Curtis Mathes Marketing Corporation (CMMC)
CMMC will also utilize various manufacturers located in America,
Mexico, and in Taiwan to produce the UniView units according to its
specifications. CMMC plans to assemble the RealView units at its Dallas
office/warehouse location, using components manufactured by other
companies. This subsidiary will not be involved in any other
manufacturing activities.
Environmental
To the best of its knowledge, the Company believes that it is
presently in substantial compliance with all existing applicable
environmental laws and does not anticipate that such compliance will
have a material effect on its future capital expenditures, earnings or
competitive position. CM currently utilizes other equipment
manufacturers to assemble its product according to its specifications
for high quality and its operations therefore have no environmental
impact. As CMMC will not be involved in manufacturing, its operations
will likewise have no environmental impact.
Prior Obligations Affecting Current Operations
CM's Plan of Reorganization (the "Plan") was confirmed as of
October 1, 1992 and the obligations of the Plan were assumed by the
Company upon acquisition of CM. The Company could continue to be
affected by the reorganization until September 30, 1998, when the Plan
will terminate. Until termination, or otherwise settled, Deutsche
Financial Services Corporation (DFS) (f/k/a ITT Commercial Finance
Corp.) maintains the right to 1% of gross sales on CM product sales
only, as a priority creditor in the Plan. Further, 1/2% of gross sales
of CM must also be paid monthly to a Liquidating Trustee, which has
been designated by the Bankruptcy Court to administer such payments on
behalf of unsecured creditors in the order of priority.
During March 1996, CM and the Company signed an agreement with DFS
for an early retirement of its entire debt obligation to DFS of
approximately $3.5 million. Initial funding for the transaction was
generated by the sale of product inventory to a third party for
approximately $2,000,000 and included an installment agreement providing
for periodic payments for the balance of the agreed settlement amount.
The funds have been reserved by the Company for the amount due under the
installment agreement and all payments are current under the agreement.
(See Other Matters on page 18 of this Form 10-K, and Note 9 on page F-
24 of the Notes to Consolidated Financial Statements for further
information on the settlement agreement with DFS.)
Beyond these obligations to DFS and the Trustee, CM remains
obligated to service past outstanding product warranties. Cash balances
have been set aside to cover these estimated product warranty costs and
an additional amount is accrued monthly to cover the estimated costs
associated with ongoing warranty support for current products sold.
Many of the warranties on products sold in the past are expiring and due
to lower product sales in the past few years, CM's warranty obligations
are slowly diminishing. (See Item 3 beginning on page 12 of this Form
10-K; and Note 11 on page F-25, and Note 16 on page F-31 of the Notes to
Consolidated Financial Statements for further warranty information.)
Warranty
At June 30, 1996 financial reserves were approximately $84,000 for
CM warranty claims anticipated within the ensuing twelve months and
approximately $270,000 for claims reserved for periods beyond twelve
months. Approximately $32,000 has been set aside as restricted cash
(Orange Account) to cover potential warranty claims on products sold
during the period from the date of filing CM's bankruptcy petition
(January 27, 1992) until the Plan was confirmed on October 1, 1992.
During fiscal year 1996, Management reviewed prior warranty claims
related to the Orange Account and determined that operations had paid
for most of these associated costs, rather than the Orange Account. The
Disbursing Agent established by the CM Plan of Reorganization for the
Orange Account then instructed the Company to maintain $8,000 per month
in the fund as coverage for claims and to utilize the remainder of the
unused funds for other parts and warranty claims. At June 30, 1996 the
above mentioned $32,000 provides for coverage as determined by the
Disbursing Agent.
CM continues to meet its warranty obligations through an outside
warranty servicing company which specializes in warranty service and
repair for consumer electronics. By contracting these services to an
outside servicer, CM is able to more efficiently provide consistent high
quality warranty support, and the Company is able to eliminate the
direct overhead associated with the warranty support function.
Marketing and Distribution
Curtis Mathes Corporation (CM)
CM historically distributed its products principally through a
network of dealers and in some instances, distributors. The products
were then sold to consumers through independently owned and operated
retail and rental store environments. The primary customer reach
extended to consumers seeking value-added products, which are products
to which additional value has been added by including a four year
warranty on the products at no additional cost to the consumer and by
local dealers being able to provide personalized service to their
customers. These added values are not typically offered on products
sold by mass merchandising discount stores, which normally offer only
limited personalized service and offer extended warranties only by
service contracts sold at an additional cost. Although the Company
still believes in the value-added approach, its future distribution
system will not be limited to its traditional approach, and
consideration will be given to any retail outlet or store chain which
can be expected to contribute on favorable terms to overall product
sales. CM has in the past sold product outside of the United States on
a very limited basis, which is not expected to change in the near
future.
The most significant issue with regard to CM's traditional
distribution system has been third party financing. In the past, DFS
would finance CM dealers with significant sales volumes. Since CM's
settlement with DFS, even this limited financing for dealers is not
available and until these dealers obtain their own financing, sales of
CM products through these outlets can be expected to be significantly
impaired.
Curtis Mathes Marketing Corporation (CMMC)
CMMC expects to market its UniView units in the same fashion as CM
markets its products, giving consideration to any retail outlet or store
chain which can be expected to contribute on favorable terms to overall
product sales. CMMC has not in the past sold any products outside of
the United States; however, the Company anticipates opportunities to
expand its geographical sales area.
CMMC expects to market RealView to sports arenas, stadiums,
shopping malls, airports and other large-scale commercial applications.
In connection with its purchase of the RealView technology, CMMC also
acquired extensive marketing information and customer lists from the
seller which is expected to be of great benefit to CMMC as it prepares
to market the product. CMMC expects to make use of a direct
distribution system to its customers.
Trademarks
Curtis Mathes Corporation (CM)
CM owns or holds rights to all trademarks that it considers to be
necessary in the conduct of its business, including the Curtis Mathes
name and logo, which is due for renewal in April, 2005.
CM entered into a license agreement as of June 1, 1994 under which
Animated Systems and Presentations, Inc. has the nonexclusive right to
use the Curtis Mathes Trademark and Logo in connection with an LED sign
system marketed in the United States and Mexico, in return for a royalty
of 4% on the licensee's gross revenue, payable to CM during the term of
the agreement. Management chose to enter into the agreement in
connection with a product (LED sign systems) outside of CM's own product
line as a means of increasing revenue. The current term of the license
expires on June 30, 2001.
CM also granted a license to CMMC as of February 28, 1995 to use
the Curtis Mathes Trademark and Logo in connection with its marketing of
RealView and its LED sign technology, in return for a royalty of 1.5% on
the licensee's gross sales receipts, payable to CM during the term of
the agreement. Management chose to enter into the agreement in
connection with products (commercial large screen televisions and LED
sign systems) outside of CM's own product line as a means of increasing
revenue. The current term of the license expires on February 28, 2010.
CM also granted a license to CMMC as of April 17, 1996 to use the
Curtis Mathes Trademark and Logo in connection with its marketing of
UniView, in return for a royalty of 1.5% on the licensee's gross sales
receipts, payable to CM during the term of the agreement. Management
chose to enter into the agreement in connection with products (units
containing the UniView proprietary television technology) outside of
CM's own product line as a means of increasing revenue. The current
term of the license expires on April 17, 2011.
Curtis Mathes Marketing Corporation (CMMC)
CMMC has filed an Intent to Use with the U.S. Patent and
Trademark Office in connection with the trademark UniView, which it
plans to utilize in marketing the units containing the proprietary
television technology licensed from Interactive Video Publishing, Inc..
CMMC has also filed an Intent to Use with the U.S. Patent and
Trademark Office in connection with the trademark RealView, which it
plans to utilize in marketing its commercial large screen television
technology.
Seasonality
Curtis Mathes Corporation (CM)
As with most consumer electronics companies, CM enjoys a seasonal
business highlighted by an end of calendar year buying season and an end
of product year clearance season. In many ways, this cycle is
advantageous to CM because the brief off-season allows the Company to
prepare its new product line and promotional materials for the next
buying season.
Curtis Mathes Marketing Corporation (CMMC)
The same seasonal variation affecting CM's sales is expected to
have a similar impact on the sales of UniView. CMMC does not expect
RealView sales to experience the same seasonal variation as consumer
electronics due to the commercial application of the product. However,
other seasonal factors which are unknown and unexpected at this time may
impact the sales of RealView.
Customers
No customer of the Company, including its subsidiaries, accounted
for 10% or more of sales for 1995.
Employees
As of June 30, 1996, the Company, including all subsidiaries,
employed 17 persons. The Company believes that its employee relations
are good.
ITEM 2. PROPERTIES
As of June 30, 1996 the Company, including all subsidiaries,
continued to operate from the following locations:
Location Purpose/Use Owned/Leased Square Footage
Dallas, TX Corporate Headquarters,
CM Office/Warehouse
and CMMC Offices Leased 74,882
The Dallas location is equipped with material-handling equipment
used for receiving, storing and distributing large quantities of
consumer electronics products, parts and other product support material.
The Company in fiscal year 1996 completed the relocation of its
subsidiary Warranty Repair Corporation (WRC) from the Athens facility to
the Dallas location. The Athens location had five warehouses which
housed the staff and parts inventory and equipment to service CM
warranty claims. Warranty support for CM products is now provided under
contract with an outside service and repair company, which eliminates
the need for warehouse space dedicated to parts inventory and supplies,
and the space required for shipping and receiving of units for repair.
ITEM 3. LEGAL PROCEEDINGS
The Company is routinely a party to ordinary litigation incidental
to its business, as well as to other litigation of a nonmaterial nature,
the outcome of which management does not expect, individually or in the
aggregate, to have a material adverse effect on the financial condition
or results of operations of the Company.
The Company's subsidiary, CM, received notification on May 5, 1995
that it had been named as a Potentially Responsible Party by the Texas
Natural Resource Conservation Commission (TNRCC) under the Texas Solid
Waste Disposal Act pertaining to a real estate site owned by this
subsidiary for a short period of time during the early 1980s. The
Company responded to the TNRCC to the effect that any liability that may
have arisen out of CM's former ownership of the site was discharged upon
confirmation of CM's Chapter 11 Plan of Reorganization on October 1,
1992. No further proceedings have occurred since the initial
notification by TNRCC. Management intends to vigorously contest any
environmental liability and believes that the outcome of this matter
will have no material adverse financial effect upon the Company.
CM is currently operating under a Chapter 11 Plan of Reorganization
(the "Plan"), which could remain in effect until September 30, 1998,
unless earlier settled. In connection with its acquisition of CM, the
Company agreed to comply in all respects with the Plan. Under the Plan,
CM received a discharge of all pre-petition debts, except for those
specifically allowed under the Plan. CM is further required by the Plan
to maintain certain cash reserves to cover its outstanding product
warranties, to make certain cash contributions proportional to its
income toward the payment of certain classes of allowed claims, and is
restricted in certain areas that relate to corporate structure and to
financial activities outside the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this 10-K Report, through
the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Since November 8, 1993, the Company's Common Stock, $.01 par value
(the "Common Stock") has been traded on the NASDAQ Small Cap Market
Listing, symbol CRTM. Prior to that, it was traded in the Over-the-
Counter (OTC) Market, on the Bulletin Board and Pink Sheets. The
quarterly high and low bid information for the Company's Common Stock
for each quarter in the last two fiscal years are presented below. Such
market quotations reflect interdealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual
transactions.
Quarter Ending Date High Bid Low Bid
Fiscal 1996
June 30, 1996 $ 4.13 $ 0.31
March 31, 1996 $ 0.56 $ 0.19
December 31, 1995 $ 0.97 $ 0.31
September 30, 1995 $ 1.13 $ 0.50
Fiscal 1995
June 30, 1995 $ 1.25 $ 0.53
March 31, 1995 $ 2.13 $ 0.94
December 31, 1994 $ 2.69 $ 1.94
September 30, 1994 $ 2.88 $ 2.00
As of August 2, 1996 there were approximately 8,214 record
shareholders and 24,311,188 common shares outstanding. The Company has
never paid cash dividends on common shares, and does not anticipate
doing so in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The financial statements for fiscal years 1996, 1995, and 1994
excludes any effect of SMI, which was sold on December 31, 1994. The
financial data for fiscal years 1996 and 1995 referenced below includes
twelve months of operations of CM, while the financial statements for
fiscal 1996 includes only eight months of operations of CM, from its
acquisition by the Company until fiscal year ended June 30, 1994. All
financial data for the years referenced below were derived from the
Consolidated Financial Statements of the Company for those years and the
comparability of the information is affected by acquisitions,
dispositions, and other transactions which are described in the
footnotes which accompany those Consolidated Financial Statements, and
which should be read in conjunction with this five-year financial
summary. Other factors which may affect the comparability of the
information for the more recent fiscal years are discussed further in
Item 7 below.
Year Ended June 30,
1996 1995 1994 1993 1992
Consolidated Statement
of Operations Data
Net Sales or Operating
Revenues(1) $ 7,656,836 $21,267,244 $14,730,847 $ -- $ --
Net Income (Loss) (5,887,313) (4,236,585) (309,444) 109,211 (90,846)
Income (Loss)
per Common Share(2) (0.35)(3) (0.44)(4) (0.05)(5) 0.01(6) (0.01)
Income (Loss) from
Continuing Operations(1) (5,887,313) (4,409,585) (1,009,042) (107,621) (90,846)
Income (Loss) from
Continuing Operations
per Common Share(1),(2) (0.35)(3) (0.46)(4) (0.14)(5) (0.03)(6) (0.01)
Consolidated Balance
Sheet Data
Total Assets 15,210,406 14,088,400 18,260,221 3,884,348 1,841
Long Term Debt 1,450,435 3,282,706 2,204,611 453,145 --
Shareholders' Equity 11,723,532 2,920,780 4,217,485 1,511,814 (51,136)
(1) 1994 adjusted based upon the disposition of SMI subsequent to
fiscal year end.
(2) Computed based upon the weighted average number of common shares
outstanding during each fiscal year.
(3) For the year ended June 30, 1996, for purposes of computation of
earnings per share, net loss was increased for preferred stock
dividends in arrears of $26,081 ($0.002 per common share) and the
computation was based upon 17,432,013 weighted average shares
outstanding.
(4) For the year ended June 30, 1995, for purposes of computation of
earnings per share, net loss was increased for preferred stock
dividends in arrears of $78,188 ($0.01 per common share) and the
computation was based upon 9,416,503 weighted average shares
outstanding.
(5) For the year ended June 30, 1994, for purposes of computation of
earnings per share, net loss was increased for preferred stock
dividends in arrears of $121,329 ($0.01 per common share) and the
computation was based upon 8,168,625 weighted average shares
outstanding.
(6) For the year ended June 30, 1993, for purposes of computation of
earnings per share, net income was reduced for preferred stock
dividends in arrears of $36,500 ($0.01 per common share) and the
computation was based upon 7,140,000 weighted average shares
outstanding.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The following discussion provides information to assist in the
understanding of the Company's financial condition and results of
operations and should be read in conjunction with the Consolidated
Financial Statements and related notes appearing elsewhere herein.
Results of Operations
Revenues
Sales for 1996 decreased to $7.66 million which represents a
decline of $13.61 million from 1995. Sales declined for CM in direct
proportion to the decrease of available financing sources for CM
dealers. Prices were reduced on certain product lines to stimulate
sales. In some cases, prices were reduced to the original cost of the
products to reduce dated inventory and to reduce inventory carrying
costs that had already significantly impacted related margins. In
accordance with the Company's redirected emphasis, discussed further
below, the Company in March, 1996 sold all remaining finished goods on
hand, concurrently with an agreement with Deutsche Financial Services
Corporation ( DFS ) for retirement of its entire debt obligation to DFS.
(See Prior Obligations Affecting Current Operations on page 8 of this
Form 10-K; Other Matters on page 18 of this Form 10-K; and Note 9 on
page F-24 of the Notes to Consolidated Financial Statements for further
information on the agreement with DFS.) This inventory reduction sale
further contributed to decreased sales of the Company for 1996. Total
sales for 1996 reflects twelve months of operations; however, sales were
limited to the nine months (July 1995 through March 1996) prior to the
DFS agreement and concurrent inventory reduction sale.
During the current year, the Company redirected its primary focus.
Previously, sale of televisions, camcorders and VCRs have been
considered the Company's primary revenue source. In accordance with its
new focus, the Company will continue to produce lines of televisions;
however, the percentage of overall CM product is expected to be
significantly lower than in the past and production of television lines
will be driven by the demand of the marketplace. The Company recently
licensed a new technologically advanced product known as UniView,
which it has the right to market through its subsidiary CMMC. The
Company has redirected its focus to this new Internet related product as
the primary source of revenue generation for the Company.
Sales for 1995 increased approximately $6.58 million, or 44% over
1994. Sales for 1995 include twelve months of CM operations, while
sales for 1994 represent only eight months. Therefore, sales for the
period ended June 30, 1995, which includes twelve months of CM
operations, compared to the period ended June 30, 1994, which includes
only eight months of CM operations, appear to be consistent on an
annualized basis between years.
Gross Margin
Gross margin as a percentage of sales, was 10.3% in 1996, down from
17.9% in 1995. The primary reason for this decline in margin is the
inventory reduction sale of product near or at cost, in connection with
the DFS settlement agreement previously discussed, whereby the Company
elected to eliminate certain inventory carrying costs, in accordance
with its redefined strategic focus, by selling certain products at lower
margins.
Gross margin as a percentage of sales (excluding the gain on sale
of assets of $250,000 in 1994), was 17.9% in 1995, down from 19.8% in
1994. The primary reason for the decline in gross margin during this
period is the lower margins achieved through the distributor network.
Management believes that, based upon historical data, reasonable
margins should be achievable in the range of 17% to 22%; however, there
can be no assurance of attaining such margins in the future, as the
margin on the new UniView product line remains at this time untested.
Operating Expenses
Total operating expenses for 1996 decreased by $801,000 from 1995.
The significant decrease was a direct result of management's
consolidation of all operations into the Dallas facility. Major
components of the decrease are a savings of approximately $600,000 for
payroll and related payroll expenses, and $50,000 for rent expenses,
which decreased as lease obligations were fulfilled for the Athens
location. Warranty costs decreased as a more efficient means of
servicing warranty obligations were implemented through an outside
servicer. Reorganization costs decreased in direct correlation with CM
sales, as required under the CM Plan of Reorganization.
Total operating expenses for 1995 increased by $3.67 million over
1994. It should be noted that, in comparing these two years, 1995
represents twelve months of CM operations, while 1994 represents only
eight months. The significant increases of the components, including
the additional effect of four months of CM operations, are approximately
$40,000 for rent, $120,000 for depreciation, $500,000 for other, and
$700,000 for warranty.
The Company anticipates that in 1997, selling, general, and
administrative expense will increase in absolute dollars as it
introduces the new UniView product line to the marketplace.
Accordingly, related expenses, including personnel and marketing costs
are expected to rise in direct proportion to the introduction of this
new product line. Funds necessary to accomplish the initial phases of
this product introduction have been reserved for this purpose.
Interest Expense
Interest expense for fiscal 1996 decreased by $991,000 from 1995,
which is primarily attributable to the settlement of the Company's line
of credit and related notes payable, as previously discussed. Lower
average inventory levels resulted in significant inventory carrying cost
savings, including interest expense.
Interest expense for fiscal 1995 increased by $741,000 over 1994,
which occurred as a result of the unexpected reduced sales brought on by
a restructuring of the distribution system. Because of this change in
planned sales, the Company's average inventory levels were substantially
higher than 1994, which resulted in increased interest payments to DFS.
The direct correlation between interest expense and inventory levels was
due to the Company's financing arrangement with DFS, which called for
interest payments on all unsold products.
Liquidity and Capital Resources
Cash Flows From Operations
Cash used by operations for the fiscal years ended June 30, 1996
and 1995 were ($1,919,841) and ($5,858,000), respectively. Significant
components of cash flows from operations for 1996 include $990,231 for
decreases in accounts receivable, $2,329,000 for decreases in inventory,
$536,000 for increase of provision for bad debts, $363,000 for decreases
of current liabilities, and $645,000 for depreciation and amortization,
coupled with the effects of a $5,887,000 loss from operations.
Cash used by operations for the fiscal years ended June 30, 1995
and 1994 were ($5,858,000) and $4,042,000, respectively. Major
components of cash flows from operations for 1995 include $921,000 for
increases in inventory, $563,000 for increases in accounts receivable,
$537,000 for decreases in accounts payable, and $477,000 for
depreciation and amortization, coupled with the $4,236,000 loss from
operations.
Cash Flows From Investing Activities
During fiscal year 1996 the Company purchased for cash
approximately $136,000 of property, plant and equipment as compared to
approximately $300,000 during fiscal year 1995 and $449,000 for fiscal
1994. The Company expects the level of capital expenditures to be
commensurate with levels of sales and operations. The level of future
capital expenditure is not expected to materially exceed 1996 capital
expenditures.
Cash Flows from Financing Activities
The Company generated net cash from financing activities of
$6,119,000 during the fiscal year ended June 30, 1996. Significant
components include $10,271,000 generated from issuances of preferred and
common stock; $2,572,000 net payments on its line of credit; and
$1,235,000 payments of long term debt. Until its new products become
available to the market, which is expected in time for the end of year
holiday season, the Company expects to finance its operations primarily
through its cash reserves and, as necessary, through additional
issuances of common and preferred stock.
CM formerly had a $19,500,000 inventory line of credit established
with Deutsche Financial Services Corporation (DFS) (f/k/a ITT Commercial
Finance Corp.), collateralized by inventory and other assets of CM. At
June 30, 1996 there was no outstanding balance owed on this line of
credit, due to the settlement agreement noted below in Other Matters.
Management continually evaluates the need for other sources of financing
and working capital and intends to pursue any source which it considers
appropriate based upon the needs of the Company and market conditions.
The Company currently possesses sufficient cash reserves and may raise
additional capital through the issuance of common and/or preferred stock
as might be required going forward. Additionally, the Company will
consider a replacement line of credit for financing needs as they arise.
The Company generated cash from financing activities of $5,444,000
during the year ended June 30, 1995, compared to ($1,379,000) for fiscal
1994. Significant components in 1995 were $2,429,000 raised through
issuances of preferred and common stock; $3,437,000 generated through
increased borrowing on its line of credit; and a $152,000 reduction of
cash flows from financing activities related to the redemption of
preferred stock and payment of dividends on preferred stock.
Other Matters
During the year, the Company settled its entire debt obligation to
DFS, which consisted of $2,987,706 owed on its line of credit and
$665,291 owed on a separate note payable. The settlement consisted of
cash of $1,900,536, generated by the inventory reduction sale previously
discussed, which was paid directly to DFS by an independent third party;
and a new $500,000 short term note payable to DFS. The balance of this
short term note payable at current fiscal year end was $300,000. Funds
for payment of this balance have been reserved and are available for
payment according to schedule. The Company plans to recognize a
$1,252,461 deferred gain as a result of the settlement with DFS, upon
final payment of the short term note, which is expected to occur in the
first quarter of fiscal 1997. Although the financing arrangement with
DFS met certain needs of CM during critical times in CM's past, in some
respects the arrangement was burdensome and made it difficult for CM to
have sufficient operating capital after making the restrictive payments
due to DFS under the arrangement. As a result of the settlement with
DFS, the Company is free to seek other potentially less restrictive and
more favorable financing arrangements.
During current and previous years, CM has been a party to financial
instruments with certain off balance sheet risk. These risks have been
limited to repurchase obligations for CM dealers related to inventory
financed under CM's dealer floorplan agreement with DFS, and risks
associated with a 1% of sales commitment under the CM Plan of
Reorganization due to DFS. The aforementioned settlement agreement
releases CM of obligations with regard to the 1% of sales, amounting to
$1.55 million upon fulfillment of the $500,000 note payable previously
discussed.
Factors That May Affect Future Results
The Company participates in a highly volatile industry which is
characterized by rapidly changing customer demand patterns and fierce
industry-wide competition for market share, resulting in aggressive
pricing strategies. In anticipation of continued growth and expansion
of its market share, the Company has shifted its focus to the CMMC
UniView product line, with the CM product line assuming a lesser role.
The Company's product strategy focuses in part on marketing products
with distinctive features which meet and exceed evolving industry
performance standards, which meet and exceed customer quality
expectations, and which are affordable for a wide variety of purchasers.
Because of the pace of technological advances, the Company must
introduce on a timely basis new products that offer customers the latest
competitive and innovative technologies while managing the production
and marketing cycles of its existing products. For the Company to
attain and maintain its anticipated market share for its products, it
will be necessary to accurately forecast customer requirements; maintain
short design cycles while meeting and exceeding evolving industry
performance standards; efficiently manage its product transitions,
inventory levels and manufacturing processes; and distribute its
products quickly and efficiently in response to customer demand. A
breakdown in any one of the foregoing areas could have an adverse effect
upon the anticipated operating results of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and related Financial Statement
Schedules are included at pages F-1 through F-35 in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
A new independent accountant, King, Burns & Company, P.C., was
engaged as of October 31, 1994 as the principal accountant to audit the
Registrant's financial statements beginning with fiscal year ended June
30, 1994. The new engagement was initially reported in Form 8-K dated
November 4, 1994. Prior to engaging that accountant, neither the
Registrant (nor anyone on its behalf) consulted the newly engaged
accountant regarding (I) either: the application of accounting
principles to a specified transaction, either completed or proposed; or
the type of audit opinion that might be rendered on the Registrant's
financial statements; or (ii) any matter that was either the subject of
a disagreement or a reportable event.
The Registrant provided the newly engaged accountant with a copy of
the Form 8-K containing the above disclosures, prior to filing with the
Commission, requested the accountant to review the disclosures, and to
furnish the Registrant with a letter addressed to the Commission
containing any new information, clarification of the Registrant's
expression of its views, or the respects in which it did not agree with
the statements made by the Registrant therein. The accountant elected
not to furnish such a letter, stating that it had nothing to add to the
disclosures contained therein.
The client-auditor relationship between the Registrant and Hein +
Associates LLP ended, with the approval of Registrant's audit committee,
by mutual agreement as of October 26, 1994. The change in certifying
accountant became necessary when the former accountant advised the
Company that it would be unable to complete the audit of the Company's
financial statements for fiscal year ended June 30, 1994, as explained
in more detail below.
The former accountant's report on Registrant's financial statements
for either of the past two fiscal years contained no adverse opinion, no
disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles. During the
Registrant's two most recent fiscal years and the subsequent interim
period preceding termination of the relationship, there were no
disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure. There were, however, unresolved differences of
opinion on the accounting for certain transactions as specified below.
During fiscal year ended June 30, 1994, without prior consultation
with its former accountant, the Company reported certain transactions in
a manner the Company believed to be appropriate for a fair statement of
results for the periods presented. After subsequent review by the
former accountant, the Company was advised that the former accountant
believed it would be necessary to report in a different manner two real
estate sales in which gains of $155,000 and $275,000, respectively, were
recorded; and the sale of 20% of a subsidiary in which a gain of
approximately $699,000 was recorded. Because these sales were made to
parties that are, in the former accountant's opinion, related to the
Company, the Company was advised that it would be necessary to defer
recognition of those gains pending either (I) final resolution of the
transactions with the parties or (ii) consummation of the transactions
with other parties that are not related to the Company.
The Company was further advised that the former accountant would
require additional information to evaluate a series of transactions
related to another subsidiary, in which income of $690,000 was
recognized and an investment in $2,240,000 of preferred stock of the
subsidiary following the sale was recorded as an asset of the Company.
The information was required for the former accountant to evaluate the
propriety of the gain recognition in these series of transactions. In
addition, the former accountant advised the Company that it believed the
preferred stock of the subsidiary should not be recorded as an asset of
the Company, but should be reflected as a reduction in stockholders'
equity because the primary asset of the former subsidiary following the
series of transactions was an investment in the Company's preferred
stock.
Obtaining the additional information would have required a review
or an audit of the financial statements of an entity that had invested
in the Company and had participated in several transactions with the
Company, including the series of transactions mentioned in the
immediately preceding paragraph. The Company furnished to the former
accountant all information within its control, but was unable to obtain
the required additional information from the investor. The former
accountant advised the Company that, without the additional information,
it would be unable to complete the audit.
The former accountant further advised the Company that the
accounting for several transactions, including those mentioned above,
had not, in the former accountant's opinion, been properly processed
through the Company's system of internal controls and that condition
could impact the Company's financial statements. The former accountant
also advised the Company that, to satisfy its reporting responsibility
under generally accepted auditing standards, additional work would be
necessary to understand the cause of certain accounting errors that the
former accountant perceived the Company had made.
The above disclosures were initially reported in Form 8-K/A dated
November 15, 1994. The Registrant provided the former accountant with a
copy of the Form 8-K/A, prior to filing with the Commission, and
requested the former accountant to furnish the Registrant with a letter
addressed to the Commission stating whether it agreed with the
statements made in the Form 8-K/A and, if not, stating the respects in
which it did not agree. The former accountant's letter, confirming
agreement with the statements made in the Form 8-K/A, was attached
thereto, and is incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors
The following sets forth, with respect to each member of the
Company's Board of Directors as of June 30, 1996, his name, age, period
served as director, present position, if any, with the Company and other
business experience. All directors serve one-year terms between annual
meetings of shareholders.
Patrick A. Custer, 47, is the Chairman of the Board, President and
Chief Executive Officer of the Company. Mr. Custer served as a director
of the Company from 1984 to 1985, and from 1987 until the present. He
served as President and Chief Executive Officer of the Company from 1984
to 1985 and from September, 1992 until the present. From 1986 until
1990, Mr. Custer was an international business consultant for Park
Central Funding (Guernsey), Ltd. From 1978 until 1982, Mr. Custer was a
general securities principal and worked for a major brokerage firm as a
corporate finance specialist and was owner of his own brokerage firm.
He was responsible for structuring and funding IPO's, real estate,
energy companies, and numerous high-tech start-up companies. Mr. Custer
is a graduate of Texas Tech University in Finance and Management, with
additional studies in Electrical Engineering and master studies in
Finance.
Edward M. Warren, 55, has been a director of the Company since
September, 1992. Since 1980, he has been the Registered Principal and
Branch Manager for a major securities firm in Albany New York. He is
also a Financial Consultant, having presented numerous financial
seminars over the years throughout eastern New York and western New
England. He is a co-founder of the Coronado Group, which provides
professional services to the financial community, such as the analysis
of economic and market conditions, review of financial products,
exchange of marketing ideas, and continuing evaluation and
recommendation of asset allocation models. Mr. Warren received his
undergraduate degree from Williams College and holds a Master of Arts
degree from Harvard University.
Billy J. Robinson, 48, has been a director of the Company since
March, 1994. He has also served as Vice President/ General Counsel of
the Company since October, 1993, and as Secretary of the Company since
June, 1994. Mr. Robinson has over fifteen years legal experience,
representing banks and other financial institutions, with a
concentration in commercial transactions and real estate. He was a
shareholder in the law firm of Curry, Curry & Robinson, P.C. from 1980
until February, 1992. From February, 1992 until October, 1993, he
continued his practice as a sole practitioner. Mr. Robinson is
admitted to practice before the United States Supreme Court, the United
States District Court for the Northern District of Texas and the
District of New Mexico, and is licensed to practice before all state
courts in Texas and New Mexico. Mr. Robinson is a certified Mediator in
the State of Texas and is the author of the 1994-95 Real Estate Law
Correspondence Course for the Texas Tech University Paralegal
Certification Program.
Bernard S. Appel, 64, has been a director of the Company since
February, 1995. He has enjoyed a career of 34 years with Radio Shack,
holding every key merchandising and marketing position, culminating with
his promotion to president in 1984. In 1992 he was promoted to Chairman
of Radio Shack and Senior Vice President of Tandy Corporation. Since
August, 1993, Mr. Appel has operated the private consulting firm of
Appel Associates, focusing upon consumer electronics product
development, marketing and distribution. He is a director of IRG
Technologies, Inc., a company with a class of securities registered
pursuant to section 12 of the Exchange Act of 1934, and is also a
director of several privately held companies. Mr. Appel also has an
arrangement with the Company to provide consulting services.
Executive Officers
The following sets forth, with respect to each executive officer of
the Company not heretofore named, as of June 30, 1996, his name, age,
present position and offices held with the Company, period of service in
such capacity, and other business experience. All officers serve
indefinite terms at the discretion of the Board of Directors.
F. Shelton Richardson, Jr., 37, has been Vice President/ Chief
Financial Officer of the Company since February 27, 1995. From
February, 1990 to February, 1995 he was Chief Financial Officer of
Captivision, Inc., a consulting firm specializing in electronics and
telecommunications ventures. From January, 1987 to February, 1990 he
was the Controller for the law firm of Ryan & Smith. Mr. Richardson
holds a Bachelor of Science degree in Accounting and Taxation from the
University of Houston and a Master of Business Administration from
Houston Baptist University.
Thomas W. (Bill) Park, 60, has been Vice President/ Chief Operating
Officer of subsidiary Curtis Mathes Corporation (CM) since October 3,
1994; and has been Vice President/ Chief Operating Officer of subsidiary
Curtis Mathes Marketing Corporation (CMMC) since July 1, 1995. He
enjoyed a career of 29 years with CM, before leaving the company in
August, 1993 for a position as Vice President of Benelec Corporation, an
international trading company dealing in electronics, medical supplies,
and other products. From August, 1993 until his return to the company
in 1994, Mr. Park continued to make his knowledge and experience
available to CM as a consultant. During his career with CM, he served
in various positions with the company, beginning as an Office Manager/
Cost Accountant in 1964 and culminating as Executive Vice President in
1985, in which capacity he served until 1993. Mr. Park has traveled
extensively and maintains valuable business contacts in Europe and Asia.
He holds a Bachelor of Business Administration degree in Finance from
the University of Texas.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the 1934 Act ("Section 16(a)"), requires the
Company's directors, executive officers and persons who beneficially own
more than 10% of a registered class of the Company's equity securities
("10% Owners") to file reports of beneficial ownership of the Company's
securities and changes in such beneficial ownership with the Securities
and Exchange Commission ("Commission"). Directors, executive officers
and 10% Owners are also required by rules promulgated by the Commission
to furnish the Company with copies of all forms they file pursuant to
Section 16(a).
Based solely upon a review of the copies of the forms filed
pursuant to Section 16(a) furnished to the Company, or written
representations that no year-end Form 5 filings were required for
transactions occurring during Fiscal Year Ended June 30, 1996, the
Company believes that during the fiscal year ended June 30, 1996, all
Section 16(a) filing requirements applicable to its directors, executive
officers and 10% Owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid over the last
three completed fiscal years to the Company's Chief Executive Officer
and any other executive officer of the Company who received compensation
of $100,000 or more during the fiscal year ended June 30, 1996.
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
All
Other
Name and Year Other Restricted Securities LTIP Compen-
Principal Ended Annual Stock Underlying Payouts sation
Position Jun. 30 Salary($) Bonus($) Compensation($) Award(s)($) Options/SARs(#) ($) ($)
Patrick A. Custer 1996 102,692 -0- 12,000 59,750 -0- -0- -0-
Chairman of the 1995 121,458 -0- 12,308 -0- -0- -0- -0-
Board and CEO 1994 122,876 -0- 12,308 -0- -0- -0- -0-
Billy J. Robinson 1996 72,981 -0- 27,500 79,475 -0- -0- -0-
Vice President, 1995 83,937 -0- 32,776 43,625 -0- -0- -0-
General Counsel 1994 56,667 -0- 16,609 29,083 -0- -0- -0-
Compensation of Directors
None of the inside Directors are paid compensation as such, except
for services performed in another capacity, such as an executive officer
of the Company. The outside Directors of the Company are paid $500 per
meeting, plus their expenses for attending Board of Director meetings.
The Company entered into a consulting contract with Mr. Appel as of
February 21, 1995 under which Mr. Appel is paid $6,250 per calendar
quarter in return for a minimum of ten hours of consulting services per
month to be devoted to the Company. In connection with his appointment
to the Board, Mr. Appel further received stock options for 50,000 shares
of common stock of the Company, exercisable at $1.28 per share for five
years, which were exercised by Mr. Appel on May 9, 1996.
Employment Contracts
Effective October 11, 1993, the Company entered into a four year
employment arrangement with Mr. Robinson at an annual salary, plus
employee benefits. The arrangement also provided for a stock bonus of
50,000 common shares of the Company, deemed to be earned by Mr. Robinson
over the term of the agreement, and an $80,000 salary advance. Twenty-
five percent of the salary advance will be forgiven for each year Mr.
Robinson remains employed with the Company. If Mr. Robinson's
employment with the Company is terminated for any reason other than for
cause, he will be entitled to receive the unpaid balance of the stock
bonus and the remaining balance of the salary advance will be forgiven.
If Mr. Robinson is terminated subsequent to a change of control of the
Company, such termination would be deemed to be termination without
cause. Fifty percent of the salary advance has been forgiven pursuant
to action by the Board of Directors.
Compensation Committee Interlocks and Insider Participation
Mr. Custer, Mr. Robinson, and Mr. Richardson participated in
advising the Company's Board of Directors concerning certain aspects of
executive officer compensation during the last completed fiscal year.
Mr. Custer is Chairman of the Board, President and Chief Executive
Officer of the Company; Mr. Robinson is Vice President, Secretary,
General Counsel, and a director; and Mr. Richardson is Vice President,
Chief Financial Officer.
Board of Directors Report on Executive Compensation
Executive Compensation
The Company has structured its executive compensation program
within the financial framework of the Company with a goal of attracting
and retaining high-quality executive talent. The executive compensation
program consists generally of base salary and employee benefits. The
Company reviews its compensation programs periodically and compares its
pay practices with other similar companies and with companies staffed
with similarly-skilled executives. During the first fiscal quarter of
each year, the Company reviews salary increases for the current year
and, considering the Company's financial performance and each executive
officer's perceived contribution to that performance, salaries are set
accordingly.
Chief Executive Officer
For the year ended June 30, 1996, Mr. Custer received $114,692 and
restricted stock awards valued at $59,750 for his services as President
and Chief Executive Officer of the Company. The factors the Company
considered in setting his compensation include Mr. Custer's leadership
in restructuring the Company, his contribution to the strategic focus of
the Company, and the Company's financial performance during fiscal year
ended June 30, 1995 and 1996.
Patrick A. Custer (Chairman) Edward M. Warren
Bernard S. Appel Billy J. Robinson
F. Shelton Richardson, Jr.
The foregoing report is not incorporated by reference in any prior
or future filings of the Company under the Securities Act of 1933, as
amended (the "1933 Act"), or under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), unless the Company specifically
incorporates the report by reference and the report shall not otherwise
be deemed filed under such Acts.
Performance Graph
The following graph compares total stockholder returns of the
Company since December 31, 1992 to two indices: a Composite Market
Index which includes the NASDAQ Market (the "Broad Market") and the
companies classified under S.I.C. code 3651 for consumer electronics
(Household Audio and Video Equipment) (the "Industry Index"). The total
return for the Company's stock and for each index assumes the
reinvestment of dividends, although dividends have never been declared
on the Company's stock. The Broad Market tracks the aggregate price
performance of equity securities of all companies traded on the various
exchanges, including the NASDAQ Market. The Industry Index tracks the
aggregate price performance of equity securities of companies traded on
the various exchanges, including the NASDAQ Market, which are grouped
under S.I.C. code 3651 for consumer electronics (Household Audio and
Video Equipment.)
The graph should be viewed in the context of the disposition of
Southwest Memory, Inc. by the Company in December, 1994, and the
consolidation of its primary business operations into the Curtis Mathes
Corporation subsidiary. As a result, the indications of the graph may
not necessarily indicate future performance of the Company.
Comparison of Cumulative Total Return on Investment
Since December 31, 1992(1)
1/1/93 6/30/93 6/30/94 6/30/95 6/30/96
Curtis
Mathes 100.00 200.00 576.00 138.00 276.00
SIC Code 100.00 120.64 179.75 148.15 182.14
NASDAQ
Market 100.00 111.94 122.75 143.96 181.22
(1) For a meaningful comparison of the Company's stock performance with
that of similar companies, December 31, 1992 was chosen as the
beginning date for the comparison. Characterization of the primary
business activity of the Company as consumer electronics began with
the acquisition of Southwest Memory, Inc. in December, 1992.
Before then, the Company was essentially dormant and comparison of
the performance of its stock before that date would have limited
application.
The foregoing graph is not incorporated in any prior or future
filings of the Company under the 1933 Act or the 1934 Act, unless the
Company specifically incorporates the graph by reference, and the graph
shall not otherwise be deemed filed under such Acts.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 2,
1996 with respect to the beneficial ownership of Common Stock by (I)
persons known to the Company to be the beneficial owners of more than 5%
of the outstanding shares of Common Stock, (ii) all directors of the
Company, (iii) each of the executive officers named in the Summary
Compensation Table (appearing in Item 11) and (iv) all directors and
executive officers of the Company as a group.
The number of shares of Common Stock beneficially owned by each
individual set forth below is determined under the rules of the
Commission and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which an individual has
sole or shared voting power or investment power and any shares which an
individual presently, or within 60 days of September 28, 1996 (the date
on which this Form 10-K is due at the Commission, the "Due Date"), has
the right to acquire through the exercise of any stock option or other
right. Unless otherwise indicated, each individual has sole voting and
investment power (or shares such powers with his spouse) with respect to
the shares of Common Stock set forth in the following table. The
information is based upon corporate records, information furnished by
each shareholder, or information contained in filings made with the
Securities and Exchange Commission.
Number of Shares
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
5% Beneficial Owners
Patrick A. Custer 2,381,215(1) 9.75%
P. O. Box 802808
Dallas, Texas 75380-2808
D. Ronald Allen 1,997,665(2) 7.67%
8111 Preston Rd., Suite 550
Dallas, TX 75225-6308
Custer Company, Inc. 2,026,515(3) 8.29%
P.O. Box 802808
Dallas, TX 75380-2808
Geninvest, S.A. 4,027,333(4) 14.41%
c/o Lewis D. Rowe, Director
P.O. Box 1561
Zephyr House, Mary Street,
Grand Cayman, British West Indies
The Alana Group, Ltd. 1,250,000 5.14%
c/o Trident Trust
P.O. Box 146
Road Town, Tortola BVI
Directors
Edward M. Warren 202,500 0.83%
Patrick A. Custer 2,381,215(1) 9.75%
Billy J. Robinson 65,000(5) 0.27%
Bernard S. Appel 50,000 0.21%
Executive Officers
Patrick A. Custer 2,381,215(1) 9.75%
Billy J. Robinson 65,000(5) 0.27%
All Directors and Executive
Officers as a Group 2,936,315(6) 12.00%
(1) Includes 125,000 shares owned outright by Mr. Custer; 1,906,515
shares held of record by Custer Company, Inc., a family trust, over
which Mr. Custer exercises voting control; 120,000 shares issuable
to Custer Company, Inc. upon exercise of warrants; 229,500 shares
owned by his wife; 100 shares owned by his son; and 100 shares of
which Mr. Custer shares beneficial ownership with a minor son.
(2) Includes 120,000 shares owned by Winterstone Management Company,
which is controlled by Mr. Allen; 136,865 shares and 805,600 shares
issuable upon exercise of warrants held by Associates Funding
Group, Inc., which is controlled by Mr. Allen; and 935,200 shares
issuable upon exercise of warrants held by QAG, Inc., which is
controlled by Mr. Allen.
(3) Includes 120,000 shares issuable upon exercise of warrants.
(4) Includes 3,627,333 shares issuable upon exercise of warrants.
(5) Shares are held in escrow to be earned over four year term of
employment, but over which Mr. Robinson has voting rights.
(6) Includes 2,698,715 shares beneficially owned by all directors.
Also includes 100,000 shares owned outright by Mr. Katz, 10,000
shares owned by his wife, 10,000 shares held in the name of his
minor daughter, 4,000 shares owned by his father's estate, and
55,000 shares owned by his mother, all of which Mr. Katz is deemed
to be the beneficial owner. Also includes 15,000 shares and 20,000
shares issuable to Mr. Richardson upon exercise of stock options.
Also includes 10,000 shares and 13,600 shares issuable to Mr. Park
upon exercise of stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year ended June 30, 1996, the Company engaged in the
transactions described below with various entities affiliated with the
Company. Management believes these transactions contain substantially
competitive terms as those available from unaffiliated sources.
Transactions with Related Parties
Ilya K. Drapkin
In December, 1992 Mr. Drapkin, then owner of Southwest Memory, Inc.
(SMI) sold 100% of his company (SMI) to the Company. The purchase price
was 500,000 shares of the Company's common stock, valued at that time at
$16,500, and an employment agreement that included contingent
consideration based on future earnings of SMI. Prior to this sale,
neither Mr. Drapkin nor SMI were related to the Company. SMI became a
wholly owned subsidiary of the Company, with Mr. Drapkin becoming a 5%
beneficial owner of the Company and remaining as an officer of SMI.
In December, 1994, SMI Chips, Inc., a corporation controlled by Mr.
Drapkin, repurchased SMI from the Company. Reasons for the sale
included differing management styles and the inability to control
operations due to Mr. Drapkin's continued and required involvement.
Management found itself spending inordinate amounts of time
concentrating on a segment of the Company which was not the primary
focus of the Company. Other reasons for the sale included the high risk
nature of the business and the fact that the Company had changed its
focus to concentrate upon its consumer electronics segment.
The consideration received for the sale of SMI consisted of two
promissory notes totaling $1,570,000. The first note in the original
principal sum of $500,000, bearing interest at an annual rate of 7.5%
and secured by 500,000 common shares of the Company, provided for a
balloon payment on or before February 20, 1995. This note has been
paid. The second note in the original principal sum of $1,070,000,
bearing interest at an annual rate of 7.5%, provided for eight quarterly
installment payments of $145,279.64, beginning April 1, 1995. The
second note was guaranteed by Charter World International, Ltd. and was
initially secured by a second lien pledge of three promissory notes
previously executed by third parties and payable to Charter World
International, Ltd., in the total face amount of $1,593,493, two of
which were in turn secured by certain real estate. During fiscal year
1995, the Company accepted a substitution of collateral on the second
note in the form of 97,500 shares of the Company's Series G Preferred
Stock held in the name of Associates Funding Group, Inc. (AFG).
SMI Chips, Inc. initially performed on payment of the second note
receivable; however, during fiscal year 1996, payments on the note
became delinquent and the Company offset against the collateral securing
the note. A reserve for bad debts equal to the balance of $613,144 left
owing on the note has been recorded on the Company's financial
statements until a determination can be made by the Company of its
collectability.
The Company further recognized a $250,000 write off of a note
guaranteed by Mr. Drapkin, relating to ID Logic, Inc., which was
determined to be uncollectible during the current year.
Charter World International, Ltd.
Charter World International, Ltd. is a foreign investor which
previously owned common and Series B preferred stock of the Company.
Charter World, acting as a distributor, sold inventory (computer memory
chips) to SMI from a supplier in California called A.C.D.C. $5.9
million of this product was purchased by the Company through Charter
World during fiscal year ended June 30, 1994. Payment for the product
was made partly in the form of cash from SMI and $4.07 million of the
product was purchased through the issuance by the Company of Series B
preferred stock. The structure of this transaction conserved the
Company's resources by allowing SMI to purchase inventory using
preferred stock of the Company, while allowing Charter World the benefit
of its investment in the Company's preferred stock. No relationship
between Charter World and the Company existed prior to this transaction.
Management believes that Charter World guaranteed the note of SMI Chips,
Inc. for the purchase of SMI from the Company pursuant to business
commitments between the parties, to which the Company was not a party.
Management is unaware of any relationship between Charter World and SMI
other than as described. (See Note 12 on page F-31 of the Notes to
Consolidated Financial Statements for further information.)
D. Ronald Allen/Associates Funding Group, Inc.
D. Ronald Allen, CPA, a consultant for the Company and currently a
7.67% beneficial owner of the Company, became affiliated in late 1992
when he assisted the Company in acquiring Southwest Memory, Inc.
("SMI"). Mr. Allen is President of Winterstone Management Company,
which is a family owned corporation and record holder of 120,000 shares
of the Company's common stock. Mr. Allen also owns Associates Funding
Group, Inc. (AFG), which is record holder of 136,865 common shares and
805,600 common shares issuable upon exercise of warrants of the Company.
Mr. Allen is also President of QAG, Inc. (QAG), which holds 935,200
common shares issuable upon exercise of warrants of the Company. Mr.
Allen has from time to time assisted the Company in structuring
transactions between the Company and entities with which he is
associated as principal or agent, which transactions are described as
follows:
(a) In September, 1995 the Company redeemed for cash from AFG
14,958 shares of Series G Preferred Stock of the Company for face value
of $149,580, plus accrued dividends on outstanding Series G Preferred
Stock of $80,417.
(b) In May, 1996 AFG converted 97,500 shares of the Company's
Series G Preferred Stock, representing collateral for payment of the SMI
Chips second note, into 390,000 common shares of the Company. (See
previous discussion of the SMI Chips note in this section above.) The
net result of this stock conversion was a shift of equity. Of the
390,000 shares converted, 253,135 shares were retained by the Company
and applied to the outstanding balance of the SMI Chips note receivable.
The remaining 136,865 common shares were issued to AFG.
Indebtedness of Management
The Company advanced Mr. Robinson $80,000 pursuant to an employment
arrangement, whereby twenty-five percent of the advance will be forgiven
for each year Mr. Robinson remains employed with the Company. If Mr.
Robinson's employment with the Company is terminated for any reason
other than for cause, the remaining balance of the advance will be
forgiven. If Mr. Robinson is terminated subsequent to a change of
control of the Company, such termination would be deemed to be
termination without cause. Fifty percent of the advance has been
forgiven pursuant to action by the Board of Directors.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) Financial Statements
Reference is made to page F-1 of this Form 10-K for an index
of all financial statements filed as part of this report.
(2) Financial Statement Schedules
Reference is made to page F-1 of this Form 10-K for an index
of all financial statement schedules filed as part of this
report.
All other schedules are omitted because they are not
applicable or not required, or because the required
information is included in the financial statements or notes
thereto.
(3) Exhibits
Reference is made to the Exhibit Index beginning on page 69 of
this Form 10-K for a list of all exhibits filed with and
incorporated by reference in this report.
(b) Reports on Form 8-K
During the three months ended June 30, 1996 the Company has
filed no Current Reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
CURTIS MATHES HOLDING CORPORATION
By: /s/ PAT CUSTER
Patrick A. Custer
President and Chief Executive Officer
August 16, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated.
Principal Executive Officer
/s/ PAT CUSTER Chairman of the Board, August 16, 1996
Patrick A. Custer President, Chief Executive
Officer and Director
Principal Financial and Accounting Officer
/s/ F. SHELTON RICHARDSON, JR. Vice President, August 16, 1996
F. Shelton Richardson, Jr. Chief Financial
Officer
Additional Directors
/s/ BILLY J. ROBINSON Vice President, August 16, 1996
Billy J. Robinson Secretary,
General Counsel,
and Director
/s/ BERNARD S. APPEL Director August 16, 1996
Bernard S. Appel
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CURTIS MATHES HOLDING CORPORATION
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
JUNE 30, 1996 AND 1995
CURTIS MATHES HOLDING CORPORATION
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets for years ended
June 30, 1996 and 1995 F-4
Consolidated Statements of Operations for years ended
June 30, 1996, 1995 and 1994 F-7
Consolidated Statement of Changes in Stockholders' Equity
for years ended June 30, 1996, 1995 and 1994 F-8
Consolidated Statements of Cash Flows for years ended
June 30, 1996, 1995 and 1994 F-11
Notes to Consolidated Financial Statements F-15
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts F-35
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the financial
statements or notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Curtis Mathes Holding Corporation
We have audited the consolidated balance sheets of Curtis Mathes Holding
Corporation (formerly Enhanced Electronics Corporation) and Subsidiaries as of
June 30, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the years in the
three year period ended June 30, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Curtis Mathes
Holding Corporation and Subsidiaries as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three year period ended June 30, 1996, in conformity with generally accepted
accounting principles.
As described in Note 1 to the financial statements, the Company previously
restated its financial statements as of and for the year ended June 30, 1994.
As discussed in Note 3, Curtis Mathes Holding Corporation disposed of its
electronics components segment effective December 31, 1994.
KING, BURNS & COMPANY, P.C.
Dallas, Texas
August 7, 1996
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
ASSETS
1996 1995
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 4,150,481 $ 91,693
Subscriptions receivable 4,351,500 --
Accounts receivable
Trade, net of allowance of $77,034 for 1995 8,445 978,306
Other (including $40,000 and $60,000 due from
related parties) 40,000 196,387
Notes receivable, current portion ($4,807 and $606,119
due from related parties) 354,807 606,119
Inventory 646,929 5,297,002
Current portion of restricted cash 47,423 84,190
Prepaid expenses and other 585,583 108,833
----------- -----------
Total current assets 10,185,168 7,362,530
----------- -----------
PROPERTY AND EQUIPMENT, net 656,102 1,263,722
----------- -----------
OTHER ASSETS
Notes receivable, less current portion (all due from
related parties) -- 363,664
Restricted cash, less current portion -- 196,442
Trademark, net of accumulated amortization of $577,389
and $331,925 4,338,366 4,583,830
Other 30,770 318,212
----------- -----------
Total Other Assets 4,369,136 5,462,148
----------- -----------
TOTAL ASSETS $15,210,406 $14,088,400
=========== ===========
- Continued -
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- -----------
CURRENT LIABILITIES
Advances on lines of credit $ -- $ 5,124,354
Current maturities of long-term debt (including
$765,000 due to related parties in 1995) 807,847 1,552,879
Current maturities of obligations under capital leases 109,487 113,655
Debentures -- 555,000
Checks issued in excess of cash balances -- 32,852
Trade accounts payable 134,522 954,903
Current portion of pre-petition liabilities -- 92,224
Accrued and other current liabilities 649,456 1,125,581
Deferred gain 1,252,461 --
----------- -----------
Total current liabilities 2,953,773 9,551,448
LONG-TERM DEBT, less current maturities 186,310 836,428
OBLIGATIONS UNDER CAPITAL LEASES, less current maturities 88,876 90,915
PRE-PETITION LIABILITIES, net of current portion -- 261,301
OTHER LIABILITIES 257,915 427,528
----------- -----------
Total liabilities 3,486,874 11,167,620
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 9,10,
11, 15, 16, 17 and 19)
- Continued -
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY - CONTINUED
1996 1995
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, cumulative, $1.00 par value;
1,000,000 shares authorized:
Series A, 140,000 shares (liquidation
preference of $140,000) $ 140,000 $ 140,000
Series G, 117,305 and 229,763 shares
(liquidation preference of $1,173,050) 117,305 229,763
Series H, 55 shares in 1996 (liquidation
preference of $1,375,000) 55 --
Series I, 5,385 shares in 1996 (liquidation
preference of $5,385,000) 5,385 --
Common stock, $.01 par value; 40,000,000 shares
authorized; 24,311,188 and 9,954,800 shares issued
and outstanding at June 30, 1996 and 1995, respectively 243,112 99,548
Additional paid-in capital 22,193,525 7,234,151
Accumulated deficit, since July 1, 1993 quasi
reorganization in which an accumulated deficit
of $4,140,595 was eliminated (10,975,850) (4,782,682)
------------ ------------
Total Stockholders' Equity 11,723,532 2,920,780
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,210,406 $ 14,088,400
============ ============
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
REVENUES:
Net sales $ 7,656,836 $ 21,267,244 $ 14,730,847
Gain on sales of assets (including $250,000
in 1994 from a related party) -- -- 250,000
Royalty income -- 300,000 --
------------ ------------ ------------
Total Revenue 7,656,836 21,567,244 14,980,847
COST OF SALES 6,867,560 17,712,200 11,804,941
------------ ------------ ------------
Gross Profit 789,276 3,855,044 3,175,906
OPERATING EXPENSES 6,400,523 7,201,209 3,535,342
------------ ------------ ------------
Operating Loss (5,611,247) (3,346,165) (359,436)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest and other income, net 307,367 128,663 153,512
Interest expense (583,433) (1,574,540) (833,623)
------------ ------------ ------------
Total Other Income (Expense) (276,066) (1,445,877) (680,111)
------------ ------------ ------------
MINORITY INTEREST SHARE OF
LOSS OF SUBSIDIARY -- 382,457 30,505
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (5,887,313) (4,409,585) (1,009,042)
DISCONTINUED OPERATIONS
Income from operations of discontinued
electronics components segment -- 74,590 699,598
Gain on sale of discontinued segment -- 98,460 --
------------ ------------ ------------
NET LOSS $ (5,887,313) $ (4,236,535) $ (309,444)
============ ============ ============
Loss from continuing operations attributable
to common shareholders (Note 1) $ (6,187,353) $ (4,331,397) $ (1,130,371)
============ ============ ============
Loss attributable to common
shareholders (Note 1) $ (6,187,353) $ (4,158,347) $ (430,773)
============ ============ ============
Loss from continuing operations per share
attributable to common stockholders $ (0.35) $ (0.46) $ (0.14)
============ ============ ============
Loss per share attributable to
common stockholders $ (0.35) $ (0.44) $ (0.05)
============ ============ ============
Weighted average common shares outstanding 17,432,013 9,416,503 8,168,625
============ ============ ============
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1996, 1995 and 1994
Additional Notes Receivable
Common Stock Preferred Stock Paid-In and Investment in Accumulated
Shares Amount Shares Amount Capital Preferred Stock Deficit
----------- ----------- ----------- ----------- ----------- --------------- -----------
BALANCES - June 30, 1993 7,614,000 $ 76,140 145,850 $ 145,850 $ 5,430,419 $ -- $(4,140,595)
Reclassification pursuant to
quasi reorganization -- -- -- -- (4,140,595) -- 4,140,595
Issuances of common stock for
acquisitions of companies 662,500 6,625 -- -- 2,193,375 -- --
Other issuances of common stock 135,500 1,355 -- -- 416,365 -- --
Redemption of Series C
preferred stock -- -- (5,000) (5,000) (495,000) -- --
Issuance of Series B preferred
stock for inventory -- -- 4,070 4,070 4,065,905 -- --
Issuance of Series B preferred
stock in satisfaction
of notes payable -- -- 361 361 360,632 -- --
Redemption of Series B preferred
stock in satisfaction of notes
receivable -- -- (1,417) (1,417) (342,156) -- --
Partial redemption of Series B
preferred stock -- -- (100) (100) (99,900) -- --
Redeemable preferred stock -- -- (850) (850) (849,150) -- --
Investment in preferred stock -- -- -- -- -- (2,240,000) --
Net loss for the year -- -- -- -- -- -- (309,444)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCES - June 30, 1994 8,412,000 84,120 142,914 142,914 6,539,895 (2,240,000) (309,444)
Issuances of common stock
for cash 1,400,000 14,000 -- -- 1,750,500 -- --
Issuances of common stock for
reduction of advances to a
shareholder and officer 120,000 1,200 -- -- 58,800 -- --
Other issuances of common stock 22,800 228 -- -- -- -- --
- Continued -
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
Years ended June 30, 1996, 1995 and 1994
Common Stock Preferred Stock
Shares Amount Shares Amount
------- ------ --------- -----------
Conversion of Series B preferred
stock to Series F preferred stock -- $ -- $ -- $ --
Net redemption of Series F
preferred stock in connection
with settlement of liabilities -- -- (1,056) (1,056)
Issuance of Series F preferred
stock for dividends -- -- 183 183
Redemption of Series F preferred
stock in satisfaction of notes
receivable and interest from APC -- -- (252) (252)
Issuance of Series F preferred
stock in satisfaction of
notes payable -- -- 1,049 1,049
Redemption of Series F preferred
stock in satisfaction of notes
receivable from AFG -- -- (125) (125)
Redemption of Series F preferred
stock in connection with
employee settlement -- -- (25) (25)
Redemption of Series F preferred
stock for investment in APC -- -- (2,240) (2,240)
Redemption of Series F preferred
stock for cash -- -- (98) (98)
Conversion of Series F preferred
stock to series G preferred stock -- -- 35,350 35,350
Issuance of Series G preferred
stock for cash -- -- 96,563 96,563
Issuance of Series G preferred stock
for repurchase of 20% interest in
Curtis Mathes Corporation -- -- 97,500 97,500
Dividends paid in cash -- -- -- --
Net loss for the year -- -- -- --
------ ------ ----------- -----------
- Continued -
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
Years ended June 30, 1996, 1995 and 1994
Additional Notes Receivable
Paid-In and Investment in Accumulated
Capital Preferred Stock Deficit
----------- ---------------- ------------
Conversion of Series B preferred
stock to Series F preferred stock $ -- $ -- $ --
Net redemption of Series F
preferred stock in connection
with settlement of liabilities (699,098) -- --
Issuance of Series F preferred
stock for dividends 182,564 -- --
Redemption of Series F preferred
stock in satisfaction of notes
receivable and interest from APC -- -- --
Issuance of Series F preferred
stock in satisfaction of
notes payable 1,048,415 -- --
Redemption of Series F preferred
stock in satisfaction of notes
receivable from AFG -- -- --
Redemption of Series F preferred
stock in connection with
employee settlement (24,975) -- --
Redemption of Series F preferred
stock for investment in APC (2,237,760) 2,240,000 --
Redemption of Series F preferred
stock for cash (97,902) -- --
Conversion of Series F preferred
stock to series G preferred stock (35,350) -- --
Issuance of Series G preferred
stock for cash 578,437 -- --
Issuance of Series G preferred stock
for repurchase of 20% interest in
Curtis Mathes Corporation 170,625 -- --
Dividends paid in cash -- -- (236,703)
Net loss for the year -- -- (4,236,535)
----------- ----------- -----------
- Continued -
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
Years ended June 30, 1996, 1995 and 1994
Common Stock Preferred Stock
Shares Amount Shares Amount
------------ ------------ ---------- ------------
BALANCES - June 30, 1995 9,954,800 $ 99,548 $ 369,763 $ 369,763
Issuance of Series H preferred
stock for cash -- -- 55 55
Issuance of Series I preferred
stock for cash -- -- 550 550
Subscriptions for Series I preferred
stock -- -- 4,835 4,835
Conversion of Series G preferred
stock to common 136,900 1,369 (112,458) (112,458)
Conversion of debentures and
demand notes 1,050,000 10,500 -- --
Issuance of common stock for fees
and services 222,000 2,220 -- --
Issuance of common stock for
employee compensation 83,000 830 -- --
Issuance of common stock for cash
and payment of note payable
of $145,280 10,317,100 103,171 -- --
Exercise of warrants 1,887,000 18,870 -- --
Issuance of common stock for fees
on above common stock issuances
for cash 660,400 6,604 -- --
Dividends paid in cash -- -- -- --
Net loss for the year -- -- -- --
------------ ------------ ---------- ------------
BALANCES - June 30, 1996 24,311,200 $ 243,112 262,745 $ 262,745
============ ============ ========== ============
- Continued -
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
Years ended June 30, 1996, 1995 and 1994
Additional Notes Receivable
Paid-In and Investment in Accumulated
Capital Preferred Stock Deficit
----------- ----------------- -----------
BALANCES - June 30, 1995 $ 7,234,151 $ -- $ (4,782,682)
Issuance of Series H preferred
stock for cash 1,287,445 -- --
Issuance of Series I preferred
stock for cash 494,450 -- --
Subscriptions for Series I preferred
stock 4,346,665 -- --
Conversion of Series G preferred
stock to common (405,875) -- --
Conversion of debentures and
demand notes 789,500 -- --
Issuance of common stock for fees
and services 149,280 -- --
Issuance of common stock for
employee compensation -- -- --
Issuance of common stock for cash
and payment of note payable
of $145,280 5,845,279 -- --
Exercise of warrants 2,452,630 -- --
Issuance of common stock for fees
on above common stock issuances
for cash -- -- --
Dividends paid in cash -- -- (305,855)
Net loss for the year -- -- (5,887,313)
------------ ------- ------------
BALANCES - June 30, 1996 $ 22,193,525 $ -- $(10,975,850)
============ ======= ============
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(5,887,313) $(4,236,535) $ (309,444)
Adjustments to reconcile net loss
to cash provided (used) by operating activities:
Non-cash purchase of inventory included
in cost of sales -- -- 4,069,975
(Gain) loss on sales of assets 305 44,185 (225,000)
Gain on sale of discontinued segment -- (98,460) --
Depreciation and amortization 645,128 477,014 256,928
Provision for bad debts 536,080 (59,512) --
Provision for obsolete inventory (282,457) 9,962 125,861
Minority interest share of loss in subsidiary -- (382,457) (30,505)
Issuance of shares as employee compensation
and/or financing fees 830 -- 56,553
Commissions paid through issuance of common stock 228 --
Interest income earned through redemption of
preferred stock -- (2,500) --
Employee settlement through redemption of
preferred stock -- (25,000) --
Common stock issued for consulting fees 30,000 -- --
Write off of note receivable 25,000 -- --
Write off of investment 250,000 -- --
Changes in assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable 990,231 (563,429) (2,697,868)
Inventory 2,329,882 (921,877) 3,582,036
Prepaid expense and other (460,144) 153,648 (51,112)
Restricted cash 233,209 65,263 (13,296)
Other assets 32,720 164,048 (426,748)
Accounts payable, accrued liabilities
and other current liabilities (193,699) (537,515) 76,225
Other liabilities (169,613) 54,183 (371,127)
----------- ----------- -----------
Cash provided (used) by operating activities (1,919,841) (5,858,754) 4,042,478
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (136,558) (299,328) (449,217)
Purchase of subsidiary and assets and liabilities in
connection with CM acquisition -- -- (1,660,892)
Repurchase of 20% interest in CM -- (151,000) --
Reorganization payments to trustee and DFS -- (361,267) --
- Continued -
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES - Continued
Proceeds from sale of assets $ -- $ -- $ 37,004
Cash balance in company acquired (disposed) (5,342) (11,992) 19,481
Collections on notes receivable 1,193 625,217 4,955
------------ ------------ ------------
Cash used for investing activities (140,707) (198,370) (2,048,669)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Checks issued in excess of cash balances (32,852) 32,852 (648,644)
Issuance of debentures -- -- 1,170,000
Change in borrowings under line of
credit agreements (2,572,024) 3,437,866 (2,003,088)
Proceeds from long-term debt -- -- 1,006,000
Principal payments on long-term debt (1,235,147) (196,605) (411,668)
Principal payments on capital lease obligations (6,207) (116,844) (16,627)
Issuances of preferred and common stock for cash 10,271,421 2,439,500 125,000
Redemption of preferred stock -- (98,000) (600,000)
Dividends paid (305,855) (53,956) --
------------ ------------ ------------
Cash provided (used) by financing activities 6,119,336 5,444,813 (1,379,027)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,058,788 (612,311) 614,782
CASH AND CASH EQUIVALENTS, BEGINNING 91,693 704,004 89,222
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 4,150,481 $ 91,693 $ 704,004
============ ============ ============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 508,898 $ 1,787,846 $ 1,534,482
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Conversion of debentures and demand notes into common stock $ 800,000 $ -- $ --
============ ============ ============
Issuance of common stock for fees and services $ 151,500 $ -- $ --
============ ============ ============
Issuance of common stock for note payable $ 145,280 $ -- $ --
============ ============ ============
Sale of inventory parts for note receivable $ 350,000 $ -- $ --
============ ============ ============
Issuance of common stock for subscriptions receivable $ 4,350,500 $ -- $ --
============ ============ ============
Issuance of common stock for commission $ 6,604 $ 228 $ --
============ ============ ============
- Continued -
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
-------- ---------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES - Continued
Purchases of property and equipment for notes payable $ 59,337 $ 511,047 $ --
======== ========== ==========
Issuance of common stock to employees $ -- $ -- $ 193,365
======== ========== ==========
Issuance of common stock in satisfaction of amounts
due to shareholder $ -- $ 60,000 $ --
======== ========== ==========
Redemption of preferred stock in connection with
employee settlement $ -- $ 25,000 $ --
======== ========== ==========
Issuance of preferred stock in satisfaction
of notes payable and accounts payable $ -- $1,049,464 $ 360,993
======== ========== ==========
Redemption of preferred stock in satisfaction
of notes receivable and interest $ -- $3,673,500 $1,416,679
======== ========== ==========
Conversion of debentures to demand notes payable $ -- $ 615,000 $ --
======== ========== ==========
Line of credit converted to long term debt $ -- $1,024,750 $ --
======== ========== ==========
Issuance of preferred stock for dividends $ -- $ 182,747 $ --
======== ========== ==========
Sale of SMI for notes payable $ -- $1,570,000 $ --
======== ========== ==========
Preferred stock ($268,125) and notes payable ($150,000)
portion of consideration for repurchase of 20% of CM $ -- $ 418,425 $ --
======== ========== ==========
Purchase of inventory in exchange for
preferred stock $ -- $ -- $4,069,975
======== ========== ==========
Issuance of common stock in connection with
purchase of APC $ -- $ -- $1,800,000
======== ========== ==========
Issuance of common stock in connection with
purchase of 20% of FFL $ -- $ -- $ 30,000
======== ========== ==========
Issuance of common stock in connection with
purchase of CM $ -- $ -- $ 370,000
======== ========== ==========
- Continued -
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
------ ------ -------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES - Continued
Market value of common stock issued in excess
of cash received in connection with
financing agreement $ -- $ -- $ 97,720
====== ====== ==========
Contribution of capital in connection with sale of CWI $ -- $ -- $ 135,346
====== ====== ==========
Receipt of note receivable in connection with
sale of billboard sign technology $ -- $ -- $ 225,000
====== ====== ==========
Receipt of note receivable in connection with
sale of 20% of CM stock discounted to
$417,000 $ -- $ -- $ 417,000
====== ====== ==========
Receipt of notes receivable in connection with
sale of land $ -- $ -- $1,572,309
====== ====== ==========
Receipt of note receivable in connection with
sale of CWI $ -- $ -- $ 125,000
====== ====== ==========
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Consolidation
Curtis Mathes Holding Corporation (formerly Enhanced Electronics Corporation)
was formed on July 13, 1984, to operate in the entertainment industry. The
Company discontinued this line of business in 1988, acquired rent-to-own
operations which were subsequently discontinued, and was deemed to have
reentered the development stage effective July 1, 1990.
The Company was no longer considered to be in the development stage following
the acquisition of operating subsidiaries FFL, Inc. (FFL) and Southwest
Memory, Inc. (SMI) in December 1992. In November 1993, the Company acquired
100% of the common stock of Curtis Mathes Corporation ("CM") (20% was
subsequently sold). In June 1995, the Company reacquired the outstanding 20%
to regain 100% ownership of Curtis Mathes. In December, 1994, the Company
sold SMI (see Note 3).
During 1996, the Company operated principally as a wholesale distributor in
the consumer electronics industry through its 100% owned subsidiary Curtis
Mathes Corporation ("CM"). The Company also owns 100% of FFL, which was
involved in real estate and financing transactions in prior years but which
is now inactive. The Company has other subsidiaries which have been
relatively inactive. Towards the latter half of fiscal 1996, the Company
redirected its focus toward a new product called Uniview which allows the
user, through the use of their TV remote control, to 'surf the Internet',
receive E-Mail, or to search for movies or programs featuring specific
subjects, stars or ratings. The Company intends to continue on a reduced
scale its traditional wholesale distributor business as well. (See Note 2).
The accompanying financial statements include the accounts of Curtis Mathes
Holding Corporation and its subsidiaries. These entities are collectively
referred to herein as "the Company". All material intercompany accounts and
transactions are eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid debt instruments having an original
maturity of three months or less when purchased to be cash equivalents for
purposes of the statement of cash flows.
Inventory
Inventories are stated at the lower of average cost or market.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives of three to seven years.
Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Trademark
Trademark represents the value considered to arise from the Curtis Mathes
Corporation name and reputation and consists of the excess of the purchase
price paid over the estimated fair market value of identifiable net assets
acquired in connection with the acquisition of Curtis Mathes Corporation.
The excess purchase price includes amounts currently being paid to Deutsche
Financial Services ("DFS"), (previously ITT Commercial Finance Corporation)
and unsecured creditors in accordance with the Curtis Mathes Corporation
reorganization (see Note 16). The trademark value is amortized on a
straight-line basis over 20 years. Amortization of the trademark for the
years ended June 30, 1996, 1995 and 1994 amounted to $244,264, $206,284, and
$146,286, respectively.
On an on-going basis, management reviews recoverability, the valuation and
amortization of the trademark. As a part of this review, the Company
considers the undiscounted value of the projected future net earnings in
evaluating the value of the trademark. If the undiscounted future net
earnings is less than the stated value, the trademark would be written down
to its fair value.
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. The Company records deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements and income tax returns. Deferred tax assets and
liabilities are determined based on the differences between the financial
statement and income tax bases of assets and liabilities using currently
enacted tax rates.
Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, CM is a party to financial instruments with
off-balance sheet risk to meet the financing needs of the CM dealers. These
financial instruments principally include obligations to repurchase defaulted
dealer receivables and inventory financed under CM's dealer floorplan
agreement with DFS.
CM's exposure to credit loss in the event of nonperformance by CM dealers
with respect to the repurchase obligations is represented by the contractual
amount of the instruments as discussed in Note 16. CM uses the same credit
policies in evaluating its guarantees as it does for financial instruments
reflected in the Company's financial statements.
Sale of Accounts Receivable
Historically, the Company has sold a significant portion of its accounts
receivable to a finance company on a recourse basis, with an option to
repurchase the receivables. The Company does not remove the accounts from
its balance sheet until the accounts are collected by the finance company or
written off as uncollectible. The Company records a payable for the proceeds
of receivable sales, pending collection of the receivable. At June 30, 1996,
no accounts receivable are factored under this arrangement.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Net Income (Loss) Per Common Share
Net income (loss) per share of common stock is computed based on the weighted
average number of common shares outstanding during each respective year. Net
income (loss) for purposes of the computation of income (loss) per share is
reduced for preferred stock dividends of $300,040, $78,188 and $121,329
($0.02, $0.01 and $0.01 per common share) for the years ended June 30, 1996,
1995, and 1994, respectively. Fully diluted loss per share for the years
ended June 30, 1996, 1995 and 1994 is the same as primary loss per share
since the assumed conversion of common stock warrants would be anti-dilutive.
Quasi Reorganization
Effective July 1, 1993, the stockholders and directors of the Company
approved a plan of quasi reorganization. Pursuant to the plan, all assets
and liabilities as of that date were adjusted to estimated fair value (such
adjustments were nominal) and an accumulated deficit of $4,140,595 was
removed from the balance sheet with a corresponding charge to additional
paid-in capital.
Accounting Standards Not Yet Adopted
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" ("SFAS 123"), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation
expense in the income statement, or the pro forma effect on net income and
earnings per share of such compensation expense to be disclosed in the
footnotes to the Company's financial statements commencing with the Company's
1997 fiscal year. The Company expects to adopt SFAS 123 on a disclosure
basis only. As such, implementation of SFAS 123 is not expected to impact
the Company's balance sheet or statement of operations.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that were used.
Fair Market Value of Financial Instruments
The carrying amount for cash and cash equivalents, notes receivable, and long
term debt is not materially different than fair market value because of the
short maturity of the instruments and/or their respective interest rate
amounts.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Restatement of the year ended June 30, 1994 financial statements
The Company previously restated and reissued its fiscal 1994 financial
statements. Amendments to those financial statements are included throughout
these financial statements as applicable. The adjustments relate principally
to gains reported on related party transactions and the proper accounting
thereof. These financial statements also include additional adjustments for
fiscal 1994 for the related party transactions in response to comments by the
Securities and Exchange Commission.
2. BUSINESS AND RECAPITALIZATION
As reflected in the accompanying consolidated financial statements, the
Company incurred losses from continuing operations of $5,887,313, $4,409,585
and $1,009,042 during the years ended June 30, 1996, 1995 and 1994,
respectively. During 1996 and 1995, the Company also used substantial cash
in operations. Revenues from its traditional business declined significantly
during 1996. During the second half of fiscal 1996, the Company redirected
its focus toward a new product, Uniview. This refocus by the Company and
resulting recapitalization through the issuance of common and preferred stock
for cash and the conversion of debt to equity has significantly improved the
current financial condition of the Company. The Company's ability to
continue as a going concern in the long term will be based on its ability to
capitalize on this new direction and capture a portion of this market going
forward.
3. ACQUISITIONS AND DISPOSITIONS
CM and WRC
In November 1993, the Company acquired 100% of the common stock of CM and
substantially all of the assets of Whitaker Repair Company, Inc. ("WRC"),
which provided warranty repair services under the CM warranty program, in
exchange for a total cash payment of $1,500,000. The Company also
capitalized approximately $555,000 of costs directly associated with the
acquisitions which included $370,000 recorded for the issuance of 92,500
shares of the Company's common stock to brokers involved in the transaction
resulting in a total cost of acquisition of approximately $2,055,000. Prior
to and at the time of the acquisition of CM, no relationship existed between
the Company and CM. In connection with its acquisition, the Company adopted
the reorganization plan of CM in accordance with CM's October 1, 1992
reorganization. As a result of the purchase and resultant adoption of the
plan of reorganization, the Company is required to pay on a monthly basis
1.5% of its sales to the trustees. (See further discussion at Note 16).
Significant identifiable assets of CM and WRC that were acquired included
inventory, leasehold improvements and accounts receivable. The acquisitions
of CM and WRC were accounted for as purchases and the operations of each are
included in the consolidated financial statements beginning November 1, 1993.
The Company recorded costs in excess of net assets acquired of approximately
$3,747,000, the amount of the purchase price in excess of the estimated fair
market value of the net assets acquired.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS AND DISPOSITIONS - Continued
CM and WRC - Continued
The following unaudited proforma financial information has been prepared as
if the acquisition of CM and WRC occurred at the beginning of 1994 as
follows:
Revenues $ 87,615,000
Net income (loss) attributable to common stockholders $ (322,000)
Net income (loss) per share attributable to common
stockholders (after effect of preferred stock dividends
in arrears of $121,329) $ (0.04)
Proforma financial information including the effect of the disposition of SMI
effective December 31, 1994 is as follows:
Revenues $ 23,329,000
Net income (loss) attributable to common stockholders $ (1,022,000)
Net income (loss) per share attributable to common
stockholders (after effect of preferred stock dividends
in arrears of $121,329) $ (0.13)
Effective March 15, 1994, the Company sold 20% of the common stock of CM to
Associates Funding Group, Inc. ("AFG", a company controlled by D. Ronald
Allen ("Ron Allen"), a shareholder of the Company) in exchange for a note
receivable of $417,000. The gross note receivable amount of $1,100,000 was
discounted to $417,000 to record the transaction at the Company's basis which
also approximates fair market value. The note receivable and related accrued
interest were repaid in fiscal 1994 by the redemption of 1,100 shares the
Company's Series B Preferred Stock acquired from Charter World International,
Ltd. ("Charter") as further discussed in Note 12. As the sale was concluded
with a corporation affiliated through common ownership, the sale transaction
has been recorded at the Company's proportionate cost basis of CM.
Accordingly, no gain was recorded in connection with this sale.
The sale arose out of discussions with an Asian investor concerning a
manufacturing facility joint venture in which the investor would also
participate in the ownership of CM, to further tie their investment and CM
together. The investor was to make its investment through AFG and the 20%
interest in CM was transferred to AFG in anticipation of this investment.
The transaction for the manufacturing facility did not materialize and the
20% interest in CM was ultimately repurchased by the Company in June 1995.
(See also Note 13).
The Company reacquired the outstanding 20% interest in CM for a total of
$568,125 consisting of 97,500 shares of Series G preferred stock, a $150,000
promissory note, and $151,000 cash. The consideration has been capitalized
to trademark and will be amortized on a straight line basis over 20 years.
The 97,500 Series G preferred shares were valued at the number of common
shares assuming conversion at average common share prices at the closing
date.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS AND DISPOSITIONS - Continued
APC
Effective September 30, 1993, the Company acquired 100% of the common stock
of Advanced PC Products, Inc. ("APC") in exchange for 450,000 shares of the
Company's common stock. The Company and APC were unrelated at the time of
acquisition. APC is engaged in the distribution and sale of hardware
products and parts and software for personal computers. The stock issued by
the Company was recorded at $1,800,000, which represented the quoted value of
the shares at date of closing.
The Company originally acquired APC from Mr. Liu to expand the Company's
product line to include computers that would be sold nationally through the
CM dealer network. After operating the business for a period of time,
however, it became evident that too much on-site installation was required to
move the business beyond a regional level. As a result of this and other
philosophical differences between CM and Mr. Liu over the direction of the
Company, it was determined that the best solution was to sell APC. Mr. Liu
desired to reacquire APC and agreed to reimburse the Company for $250,000 in
management expenses incurred at the corporate level.
In May, 1994, the Company transferred 100% of its APC common stock to QAG,
Inc., a company owned by Ron Allen, a shareholder of the Company, in exchange
for 100% of newly issued preferred stock of APC. The preferred stock earned
4% cumulative dividends, had a $2,240,000 liquidation preference, had no
voting rights nor conversion privileges and could be redeemed at the sole
option of APC. Concurrently, the operating assets and liabilities of APC
were sold to Mr. Liu and APC acquired $2,240,000 of the Company's Series B
preferred stock from Charter (See Note 12), which served as collateral for
the Company's investment in APC's preferred stock. APC generated net income
of approximately $375,000 during the period that it was operated by the
Company's management. The Company also received a note receivable of
$250,000 discounted to $1.00 (the note was discounted to $1.00 as the
settlement of the note receivable was for preferred stock with a related
party) as reimbursement for management expenses (which is
an allocated amount substantially indistinguishable from the general
operating expenses of the Company). As the sale was conducted with a
corporation affiliated through common ownership, the sale transaction has
been recorded at the Company's cost basis of $2,175,000 (initial cost of
$1,800,000 plus $375,000 in net income generated by the Company) which
approximates fair market value. Fair market value approximates cost plus
earnings because the original purchase of APC was with an unrelated third
party, and the purchase and sale date are separated by a relatively short
period. Accordingly, no gain on sale was recorded in connection with this
transaction. The discounted note receivable of $1.00 (see Note 6) was
settled during fiscal year 1995 through the redemption of Series B preferred
stock also acquired from Charter.
The $2,240,000 Series B preferred stock of the Company held by APC is
considered a "de facto" redemption against the preferred stock investment of
$2,240,000 held in APC, and, accordingly, at June 30, 1994, the investment in
APC has been reflected as a reduction of stockholders' equity. During 1995
the $2,240,000 Series B preferred stock was redeemed against the $2,240,000
investment in APC.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS AND DISPOSITIONS - Continued
CWI
CWI Partners, Inc. ("CWI") was incorporated effective April 17, 1992. The
primary asset created in connection with this entity was the licensed ability
of the Company to operate as a mutual fund. The net earnings of CWI since
acquisition to the date of its sale were nominal. Effective March 31, 1994,
the Company sold its interest in CWI to an unrelated entity for cash of
$25,000 and a note for $125,000. The entity defaulted on the note and sold
CWI to AFG. As the sale was ultimately concluded through the redemption of
preferred stock from a related party, the transaction has been recorded at
the Company's cost basis with the note being discounted to a nominal amount
equal to the par value of the preferred stock ultimately redeemed against it,
$125.00. Accordingly, no gain on sale was recorded in connection with the
transaction.
IDL
In July 1993, the Company formed ID Logic, Inc. ("IDL") with Ilya K. Drapkin
("Ilya Drapkin"), an individual (also an employee of SMI) who owned the
marketing and trademark license rights to a radio tuning product. The
Company was issued 80% of the common stock of IDL and agreed to purchase
$3,000,000 of preferred stock. The Company paid $100,000 for preferred stock
in July 1993 and agreed to pay for the remaining $2,900,000 in installments
through November 1994. During the year ended June 30, 1994, $150,000 of
additional preferred stock was purchased. Subsequent to June 30, 1994, as a
result of the Company's redirected strategic focus, the Company agreed to
release its marketing rights to the technology and was released from its
obligation to purchase additional preferred stock. During 1996, the
investment in preferred stock was written off.
SMI and FFL
In December 1992, the Company acquired 100% of the common stock of SMI
by issuing the sole shareholder 500,000 shares of the Company's common stock
and granting him an employment agreement that included contingent
consideration based on future earnings of SMI (SMI was disposed of in 1995).
In connection with the acquisition of SMI, the Company also acquired 80% of
FFL by issuing 500,000 shares of its treasury stock and making cash payments
to the seller of $88,000. An additional payment of $25,000 was also made in
connection with the acquisitions. Of the treasury shares issued, 307,500
shares were acquired from the president of the Company for approximately
$19,000 in order to facilitate the transaction. There was no relationship
between the Company and its affiliates and SMI and FFL prior to and at the
time of the acquisitions of SMI and FFL.
The 1,000,000 shares of common stock issued by the Company to acquire SMI and
FFL were recorded at approximately $33,000, which represented the estimated
fair market value of the combined net assets acquired and the other costs
related to the acquisition of $113,000. The Company acquired the remaining
20% interest in FFL during 1994 by issuing an additional 120,000 shares of
its common stock, valued at $30,000, which represented the quoted value of
the shares at that time.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS AND DISPOSITIONS - Continued
SMI and FFL - Continued
Effective December 31, 1994, the Company sold back to its former owner, Ilya
Drapkin, 100% of the issued and outstanding capital stock of SMI, its
electronic components division, pursuant to a Memorandum of Stock Sale
Agreement. The consideration received consisted of two promissory notes
totaling $1,570,000. One promissory note for $500,000 (bearing interest at
7.5%) was collected in cash during fiscal 1995. The remaining balance of the
second promissory note is due in quarterly installments of $145,280, bears
interest at 7.5% and is guaranteed by Charter. (See Note 6). At June 30,
1996, the note is in default as no payments have been received after the
first quarterly payment was remitted. The Company has established a reserve
equal to the remaining balance (plus accrued interest) of $613,114 at June
30, 1996.
Revenues for SMI for the period ended December 31, 1994 and the year
ended June 30, 1994 are as follows:
December 31,
1994 1994
----------- -----------
REVENUES $34,230,595 $64,286,266
=========== ===========
The assets and liabilities at December 31, 1994 (disposition date) and June
30, 1994 of SMI are as follows:
ASSETS
Cash $ 11,992 $ 514,771
Trade accounts receivable, net 5,210,953 3,945,074
Inventory, net 511,442 702,058
Other current assets 62,301 195,673
Property and equipment 113,454 100,751
Other assets 398,337 353,362
----------- -----------
Total assets $ 6,308,479 $ 5,811,689
=========== ===========
LIABILITIES
Advances on lines of credit $ 3,766,678 $ 2,350,695
Trade accounts payable 987,288 1,948,727
Due to CMH 1,115,639 1,233,632
Other 82,973 5,288
----------- -----------
Total liabilities $ 5,952,578 $ 5,538,342
=========== ===========
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. ACQUISITION AND SALE OF REAL ESTATE
During the year ended June 30, 1993, through a newly created subsidiary JH&BC
Corp, the Company purchased land from an entity related to Ron Allen, a
shareholder, for $1,200,000 based upon an independent appraisal value.
Management was considering the acquisition of CM at this time and one of the
pad sites was projected to be the location of a CM company owned super store.
In connection with the purchase of the land, 850 Series E Preferred shares
totaling $850,000 were issued by the Company as partial consideration (see
Note 13) with the balance being settled by notes payable and cash.
The property was sold to an entity related to Ron Allen. As the sale was
entered into with a related party and involved the Company's preferred stock,
the sale was recorded at the Company's cost which approximated fair market
value. Accordingly, no gains were recorded in connection with the
transaction. Ultimately, the Company abandoned its plan for a CM Company
Super Store at that location.
During the year ended June 30, 1994, for investment purposes the Company also
purchased land from an unrelated company and subsequently sold the land to a
company affiliated through Ron Allen. This sale was recorded at the
Company's cost which approximated fair market value. Accordingly, no gains
were recorded in connection with this sale.
Subsequent to June 30, 1994, the amounts due to the Company in connection
with these sales were settled partially through redemption of Series E
preferred stock and partially as a reduction of amounts due by the Company.
The Series E preferred stock was required to be redeemed upon sale of the
land by JH&BC Corp. During 1995, the note receivable was redeemed against
the preferred stock.
5. RESTRICTED CASH
In accordance with CM's plan of reorganization (see Note 16), a post-petition
warranty bank account was established and funded for the purpose of securing
payment of warranty claims on units sold by CM during the period from January
28, 1992 to September 30, 1992. The post-petition warranty account is to be
used for no other purpose than paying valid warranty claims on units sold
during the period CM was in bankruptcy. During 1996, based on the
availability of funds versus expected future payments, the Company obtained
permission from the disbursing agent, (Ron Allen, a related party), to use
funds for payment of warranty claims arising out of other periods in addition
to those specified in the plan of reorganization. Any surplus funds
remaining in the post-petition warranty account on February 1, 1997, shall
vest with the reorganized Curtis Mathes Corporation.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. NOTES RECEIVABLE
Notes receivable at June 30, 1996 and 1995 consist of the following:
1996 1995
---------- ----------
Note receivable from Inman's Corporation, non-interest earning,
with bi-monthly installments of $8,250, secured by parts
inventory and proceeds from sale of parts inventory. $350,000 $ -
Note receivable from employee, earning interest at 9.5%,
secured by automobile. 4,807 -
Unsecured note receivable in connection with sale of SMI,
earning interest at 7.5%, with quarterly installments of
$145,280, including interest, pledged as security for
note payable to DFS (See Note 9) -- 944,783
Note receivable from BC&Q, Corp., affiliated with Ron
Allen, due on demand -- 25,000
--------- ---------
354,807 969,783
Less current portion (354,807) (606,119)
--------- ---------
Long-term portion $ -- $363,664
========= =========
7. INVENTORY
Inventory at June 30, 1996 and 1995 consists of the following:
1996 1995
----------- -----------
Consumer electronic products $ 646,929 $ 4,822,073
Electronic components -- 752,749
Furniture -- 4,637
----------- -----------
646,929 5,579,459
Less reserve for excess and obsolete inventory -- (282,457)
----------- -----------
$ 646,929 $ 5,297,002
=========== ===========
Also see Note 9.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 and 1995 consist of the following:
1996 1995
----------- -----------
Equipment $ 1,198,566 $ 1,109,192
Vehicles 7,500 391,114
Furniture and fixtures 49,690 49,690
Leasehold improvements 71,692 70,464
----------- -----------
1,327,448 1,620,460
Less accumulated depreciation and amortization (671,346) (356,738)
----------- -----------
Net property and equipment $ 656,102 $ 1,263,722
=========== ===========
Equipment under capital leases included above at June 30, 1996 and 1995
amounted to $323,761, and the related accumulated amortization amounted to
$272,401 and $152,561, respectively.
Depreciation expense for the years ending June 30, 1996, 1995 and 1994
totaled $391,331, $275,488 and $110,642, respectively.
9. BORROWING ARRANGEMENTS AND DEBT
Until March 1996, the Company utilized a line of credit payable to Deutsche
Financial Services ("DFS"), previously ITT Commercial Finance Corporation.
Borrowings outstanding under the line of credit were collateralized by
inventory of CM and at June 30, 1995 amounted to $4,705,405. Principal
payments on the line of credit were due to DFS as inventory was sold by CM.
Interest at prime plus 1.75% (10.75% at June 30, 1995) was payable monthly.
During 1996, the Company negotiated a settlement agreement with DFS, whereby
all but $500,000 of the unpaid balance was forgiven, subject to payment in
full of the remaining $500,000 on or before April 8, 1997, resulting in a
deferred gain of $1,252,461. The deferred gain will be recorded as an
extraordinary gain on extinguishment of debt once the $500,000 is settled in
full.
The Company has an arrangement with Fidelity Funding, Inc. ("Fidelity")
pursuant to which it assigns accounts to Fidelity for collection on a
recourse basis. Fidelity charges interest on outstanding advances at prime
plus 7% (15.25% at June 30, 1996). Fidelity advances 80% of the uncollected
accounts receivable assigned. Amounts due to Fidelity are collateralized by
financed accounts receivable. The Company has no outstanding balance at June
30, 1996, but the arrangement is available at the Company's option. The
outstanding balance at June 30, 1995 was $314,024.
The Company had debentures with an outstanding balance of $555,000 at June
30, 1995. During 1996, all of the debentures were converted into the
Company's common stock.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. BORROWING ARRANGEMENTS AND DEBT - Continued
Long-term debt at June 30, 1996 and 1995 consists of the following:
1996 1995
-------- --------
Note payable to an individual with imputed interest of 10%, payable in
monthly installments of $1,458, unsecured $ 66,455 $ --
Note payable to a financial institution with interest at 10.9%, payable in
monthly installments of $2,677, collaterized by equipment 32,686 --
Note payable to AIG Designs, Inc. with interest at 10%, payable in
monthly installments of approximately $15,000, unsecured 227,319 --
Note payable to DFS with interest at prime (8.25% at June 30, 1996),
payable in monthly principal installments of $33,000 plus interest,
collaterized by a note receivable due from SMI and inventory 300,000 --
Note payable to a financial institution with interest at 12%, payable in
quarterly installments of $145,280, collateralized by note
receivable from SMI -- 905,089
Notes payable to a financial institution with interest ranging from
12.75% to 13.5% payable in monthly installments of $7,846,
collateralized by semi trucks and trailers -- 307,767
Note payable to a financial institution with interest at 6%, payable in
eight quarterly installments of principal of $58,778, plus interest,
collateralized by certain inventory 367,697 411,451
Notes payable to shareholders bearing interest at 13%, payable -- 615,000
on demand
Note payable to Charter in connection with repurchase of 20% interest
in CM, bearing interest at 9.5%, with principal and interest due
October 5, 1995 -- 150,000
----------- -----------
994,157 2,389,307
Less current portion (807,847) (1,552,879)
----------- -----------
Long-term portion $ 186,310 $ 836,428
=========== ===========
During the year ended June 30, 1994, the Company paid approximately $49,000
in interest and financing fees to various corporations affiliated with Ron
Allen.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. BORROWING ARRANGEMENTS AND DEBT - Continued
The following is a schedule of maturities of long-term debt at June 30, 1996:
1997 $807,847
1998 143,766
1999 13,866
2000 15,318
2001 13,360
--------
$994,157
========
10. PRE-PETITION LIABILITIES
Pre-petition liabilities consisted of priority claims under CM's plan of
reorganization to pay the administrative fee of the bankruptcy trustee and
for Federal and state payroll taxes, state income and sales taxes, and state
and local property taxes. As of June 30, 1996, stipulated amounts for each
of these priority claims and administrative fees have been paid in full.
11. ALLOWANCE FOR WARRANTY CLAIMS
Warranty costs, where applicable, are recorded by CM upon the sale of the
electronic products based on estimates of failure rates and costs to repair
defective units. A simple average of the failure rates and repair costs is
applied to the total number of units that are under warranty to establish the
allowance for warranty claims.
All electronic products sold up to the date of settlement with DFS (March,
1996) included a four year parts and labor warranty. Pursuant to CM's plan
of reorganization, CM agreed to continue to extend a parts only warranty for
the time period of the original warranties on units sold prior to CM's
bankruptcy filing on January 27, 1992.
The reorganized CM was required under the plan of reorganization to fully
fund the cost of warranty claims for units sold during the period CM was in
bankruptcy. In addition, CM's plan of reorganization provided that the
reorganized CM fund in a segregated bank account an amount equal to 1.25% of
gross electronic sales to pay warranty claims subsequent to the
reorganization confirmation date (October 1, 1992). The remaining liability
at June 30, 1996 represents the remaining four months of coverage until
expiration of warranties in October, 1996.
For the years ended June 30, 1996, 1995 and the eight months ended June 30,
1994, the Company provided for warranty allowance at a rate of approximately
2.5% of sales. Management believes that the reserve is adequate to cover
potential warranty claims. Other current liabilities in the accompanying
balance sheets include an allowance for warranty claims of $96,479 and
$106,087 at June 30, 1996 and 1995, respectively and other long-term
liabilities include an allowance for warranty claims of $257,915 and $423,095
at June 30, 1996 and 1995, respectively.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. ALLOWANCE FOR WARRANTY CLAIMS - Continued
During fiscal 1996, the Company sold all of its remaining parts inventory on
hand to a third party and outsourced repairs and parts servicing for all
warranty obligations. The Company pays fees for the service and repair of
warrantied units.
12. RELATED PARTY TRANSACTIONS
During 1996, the Company wrote off a $25,000 note receivable from BC & Q.
During the year ended June 30, 1994, the Company issued 4,070 shares of
Series B preferred stock to Charter in exchange for $4,069,975 of inventory.
The inventory was valued at similar inventory purchased on a cash basis.
Subsequent purchases on an accounts payable basis amounting to $1,827,250
were also made resulting in Charter accounting for approximately 10% of
inventory purchased by SMI during the year ended June 30, 1994. Charter is
related to the Company through business transactions conducted with the
Company and other affiliates, its acquisition of 437,000 common shares in
CMH, (acquired in connection with the APC disposition transaction) and its
acquisition of the Company's preferred Series B stock.
In 1994, the Company advanced $80,000 to an employee in connection with an
employment agreement. The amount accrues to the individual at $20,000 per
year and is being amortized over the same period. In connection with this
employment agreement, the Company also issued 50,000 shares to this
individual valued at $174,500 which is also being amortized over the same
period.
At June 30, 1994, an individual, Ilya Drapkin, a shareholder of CMH, owed the
Company $121,389 for advances made by the Company. This amount was settled
during the year ended June 30, 1995.
During the year ended June 30, 1994, the Company sold technology in
connection with billboard signs to Animated Systems & Presentations, Inc., a
company affiliated with Phillip Scheldt, a shareholder and prior officer of
the Company for $25,000 in cash and a note receivable of $225,000 which was
collected subsequent to June 30, 1994. The transaction resulted in a
realized gain of $250,000 which is reflected in the accompanying consolidated
statements of operations as "gain on sales of assets". In connection with
the sale, the Company received royalty payments which amounted to $300,000
during the year ended June 30, 1995.
See Note 3 regarding sale of SMI.
See discussion throughout financial statement footnotes concerning settlement
of note receivable and payable.
See Note 3 regarding reacquisition of 20% of CM.
See issuance of 120,000 shares for settlement of $60,000 due to the Company
president, in Note 13.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 1,000,000 authorized shares of $1.00 par value cumulative
preferred stock. The Company's articles of incorporation allows the board of
directors to determine the number of shares and determine the relative rights
and preferences of any series of preferred stock to be issued. In various
transactions during 1994, the Company issued 4,070 shares of Series B
preferred stock ("Series B") to Charter in exchange for $4,069,975 of
inventory. The Company also issued 361 shares of Series B in satisfaction of
a note payable of $360,993, and 1,417 shares of Series B were redeemed in
satisfaction of certain notes receivable totaling $1,416,679 as described in
Note 3. In addition, 100 shares of Series B were redeemed for cash.
In December 1992, the Company issued 140,000 shares of Series A Preferred
Stock ("Series A") and 280,000 shares of common stock in a private placement
for $140,000 in cash. Of the common shares issued, 220,000 had been acquired
from the president of the Company for $13,700 to be used for the private
placement. On March 31, 1993, the Company issued 5,000 shares of Series C
preferred stock ("Series C") and 100,000 shares of common stock to a company
owned by the president of the Company for $500,000 cash. During 1994, all
shares of Series C were redeemed for cash.
In June 1993, the Company issued 850 shares of Series E preferred stock
("Series E") as partial consideration for land acquired for investment and
resale. Due to changes in circumstances in 1994, (see Note 4), at June 30,
1994, the 850 Series E preferred shares were classified as redeemable
preferred stock. During the year ended June 30, 1995 the preferred stock was
redeemed against the note receivable.
During 1995, all outstanding Series B were converted into Series F preferred
stock which provide for cumulative dividends of 4%. During the year ended
June 30, 1995, Series F preferred stock ("Series F") was issued and redeemed
in connection with payment of dividends, settlement of notes payable and
notes receivable, settlement with an employee, and the cancellation of an
investment in APC. In addition, $98,000 in Series F was also redeemed for
cash.
The remaining outstanding shares of Series F preferred stock was
converted to Series G preferred stock ("Series G") which provides for
cumulative dividends of 14% and has a liquidation preference of $10.00 per
share. The Series G stock is convertible into the Company's common stock at
$2.50 per share. In connection with the reacquisition of 20% of CM, 97,500
shares of Series G stock were issued. In addition, 96,563 shares of Series G
were issued to AFG for cash proceeds of $675,000.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. STOCKHOLDERS' EQUITY - Continued
Preferred Stock - Continued
In May, 1996, AFG converted 97,500 shares of Series G preferred stock with an
original basis of $568,125 to 390,000 shares of common stock. The Company
issued 136,900 of these shares and canceled 253,100 shares in satisfaction of
the remaining balance of a note receivable and accrued interest due from SMI.
The preferred shares were previously held as collateral on the note
receivable from SMI. During 1996, two additional series preferred stock were
authorized, Series I (6,500 authorized) and Series H (70 authorized). During
1996, 55 and 5,385 Series H and I, respectively, were issued for cash
proceeds of $1,782,500 and subscriptions receivables of $4,351,500.
In addition, the Company paid $230,000 and issued 20,742 shares of Series G
Preferred shares for the cancellation of 35,700 shares of Series G Preferred
Stock owned by AFG and payment of past due dividends.
Common Stock
The Company issued 63,500 shares of common shares to employees during 1994.
The shares were recorded at the quoted values, which totaled $193,365. Of
this amount, $174,500 relates to an employment agreement with a four year
term. Accordingly, such amount is being amortized on a straight-line basis
over the related agreement.
Also during the year ended June 30, 1994, 72,000 shares of common stock were
issued to a finance company for cash of $125,000. The consideration received
was less than market value and accordingly, the difference between the issue
price and market value of $97,920 was capitalized as a financing fee and is
being amortized over the two year life of the financing agreement. As of
June 30, 1996, these fees have been fully amortized.
All notes receivable outstanding as of June 30, 1994 issued in connection
with companies related through common ownership and other affiliations with
the Company as described in Note 3, to the extent ultimately settled through
the return of the Company's preferred stock, have been offset against
stockholders' equity which is consistent with the recording of credits in
connection with these transactions as contributions to capital.
During 1995, the Company issued 1,400,000 common shares for cash of
$1,764,500. The Company also issued 120,000 shares to Custer Company, a
company controlled by Pat Custer, a shareholder and president of the Company,
in satisfaction of advances amounting to $60,000.
During 1996, the Company issued 83,000 shares of common shares to employees
as bonuses. The shares were recorded at par value, amounting to $830.
During 1996, 12,204,100 common shares were issued for cash and settlement of
a note payable. The Company issued additional shares in 1996 in connection
with fees and services payable and conversion of debentures and demand notes
as detailed in the consolidated statement of changes in stockholders equity.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. STOCKHOLDERS' EQUITY - Continued
Common stock warrants issued and outstanding as of June 30, 1996 are as
follows:
Shares Exercise Price Issuance Date Term
------ -------------- ------------- ----
155,000 3.940 March 1994 5 years
30,000 3.125 April 1994 5 years
40,000 3.125 May 1994 5 years
30,000 3.125 June 1994 5 years
57,000 3.000 July 1994 3 years
20,000 2.250 February 1995 5 years
105,000 1.250 April 1995 5 years
1,240,800 2.500 May 1995 4 years
13,600 2.650 May 1995 5 years
720,000 1.500 June 1995 3 years
1,020,000 1.500 July 1995 3 years
124,000 1.000 August 1995 3 years
1,250,000 1.500 August 1995 3 years
700,000 1.500 September 1995 3 years
1,778,000 1.500 October 1995 3 years
296,000 1.500 November 1995 3 years
100,000 1.500 December 1995 3 years
1,053,333 1.500 March 1996 3 years
400,000 1.500 April 1996 3 years
20,000 0.500 May 1996 3 years
50,000 1.500 May 1996 3 years
55,000 3.000 May 1996 3 years
75,000 3.280 May 1996 5 years
40,000 4.500 May 1996 3 years
All warrants were issued with an exercise price equal to the quoted market
price of the Company's common stock on the date of issue. During the year
ended June 30, 1996, 1,887,000 warrants were exercised for total cash
proceeds of $2,471,500. No warrants were exercised during 1995 or 1994.
Dividends of $305,855 on preferred stock were paid during the year ended
June 30, 1996. Dividends of $236,703 were paid during the year ended June
30, 1995, of which, $182,747 were paid through the issuance of additional
preferred stock. Cumulative dividends in arrears as of June 30, 1996, 1995
and 1994 amounted to $26,081, $31,896 and $121,329, respectively.
14. INCOME TAXES
The Company did not record a provision for income taxes during the years
ended June 30, 1996, 1995 and 1994. A reconciliation of income tax expense
computed by applying the U.S. federal tax rates to the pre-tax income from
continuing operations and actual income tax expense is as follows:
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. INCOME TAXES - Continued
1996 1995 1994
------------ ------------- ---------
Tax expense (benefit) at statutory rate $(2,177,000) $ (1,707,000) $(116,000)
Difference in gain on sale of stock - - 746,000
Difference in gain on sale of real estate - - 75,000
Preferred stock discount - - (67,000)
Goodwill - - 11,000
Difference on sale of SMI - 310,000 -
Net operating loss carryforward - - (649,000)
Valuation allowance 2,177,000 1,397,000 -
------------ ------------- ---------
$ - $ - $ -
============ ============= =========
The components of the Company's deferred income taxes at June 30, 1996
and 1995 are as follows:
1996 1995
----------- -----------
Current:
Inventory reserve $ (36,000) $ 104,000
Note receivable reserve 227,000 --
Other -- 28,000
Valuation allowance (191,000) (132,000)
----------- -----------
-- --
----------- -----------
Noncurrent:
Goodwill (310,000) (298,000)
Depreciation (53,000) (17,000)
Warranty reserve 95,000 196,000
Net operating loss carryforward 5,565,000 3,281,000
Valuation allowance (5,297,000) (3,162,000)
----------- -----------
-- --
----------- -----------
Total $ -- $ --
=========== ===========
At June 30, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $14,400,000 which may be used
to offset future taxable income, subject to the provisions of Internal
Revenue Code Section 382, and will expire in various amounts in the years
2000 through 2011 if not utilized. The total change in the valuation
allowance for the years ended June 30, 1996, 1995 and 1994 amounted to
$2,194,000, $2,451,000 and $(591,000) respectively.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
15. COMMITMENTS AND CONTINGENCIES
In the normal course of business, CM transfers receivables from qualified
dealers to DFS and Fidelity Funding, Inc. under a repurchase agreement.
The agreements require CM, in the event of default by the dealer, to
repurchase property that is collateral (inventory consisting of consumer
electronic products) for the financing provided to the Curtis Mathes dealer.
CM is contingently liable to DFS and Fidelity Funding, Inc. for the portion
of the receivable that is defaulted through non payment or non recovery of
the collateral. The maximum contingent liability at June 30, 1996 was
approximately $2,155,000.
In conjunction with the settlement agreement with DFS, all dealer financing
programs were canceled effective August 1, 1996.
During fiscal 1996, the Company entered into a license agreement to obtain
certain Uniview technology for an original period of five years. Under the
terms of the agreement, royalties of 3% of all sales of the product will be
remitted to the licensor. In June, 1996, the Company paid an advance
royalty of $500,000 (included in prepaid expenses and other in the
accompanying consolidated balance sheet) that will be applied to future
royalties due once sales begin.
During fiscal 1996, the Company entered into an agreement to obtain
advertising in exchange for $710,400 in cash and $719,400 in CM electronic
component inventory. Advertising is to be received prior to December 31,
1997.
In the normal course of business, the Company is involved in various
product liability lawsuits, the cumulative effect of which when ultimately
settled will not, in management's opinion, be material to the Company's
financial position and results of operations. The Company has accrued
$150,000 in connection with these items which is management's estimate of
the ultimate aggregate settlement amount.
The Company has been named as a potentially responsible party to an
environmental claim involving the State of Texas. Management believes that
any potential liability was discharged in the CM bankruptcy.
The Company leases equipment under capital leases and office and purchase
facilities under long-term noncancelable operating leases. The leases carry
no renewal options. During 1995, the Company entered into a lease which
consolidated certain purchasing and office facilities.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
15. COMMITMENTS AND CONTINGENCIES - Continued
The following is a schedule of future minimum lease payments at June 30,
1996:
Operating
Operating sub-lease Capital
leases income leases
---------- ---------- ----------
1997 $ 454,181 $(41,322) $ 199,102
1998 356,767 (1,722) 35,987
1999 318,290 -- 19,223
2000 158,026 -- --
2001 -- -- --
---------- -------- ---------
$1,287,264 $(43,044) 254,312
========== ========
Less amount representing interest (55,949)
---------
Present value of net minimum lease payments
including current maturities of $109,487 $ 198,363
=========
Rental and lease expense under operating leases for the years ended June
30, 1996, 1995 and 1994 was approximately $459,108, $410,000 and $267,000,
respectively.
16. CURTIS MATHES CORPORATION REORGANIZATION
On October 1, 1992, the Bankruptcy Court for the Eastern District of Texas
confirmed CM's plan of reorganization ("Plan"), subject to certain positive
and negative covenants. The Plan provided for the following key provisions
which affect the ongoing operations of the reorganized CM.
Warranty Costs
The reorganized CM assumed the warranties for the original warranty periods
for units that were sold prior to CM filing for bankruptcy (pre-petition).
The warranty assumed covers parts with a cost in excess of $15 for the
remaining term of the warranty period.
Treatment of DFS Allowed Unsecured Claim
The DFS allowed unsecured claim is identified as "class twelve" in the Plan
and cannot exceed $2,600,000. Beginning on the effective date of the Plan,
CM was required to contribute up to $400,000 as needed to fund anticipated
losses on certain specific home entertainment units financed by DFS.
Additionally, in February 1993, CM began remitting to DFS on a monthly basis
an amount equal to 1% of the Company's gross sales for the preceding month.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
16. CURTIS MATHES CORPORATION REORGANIZATION - Continued
As of June 30, 1996, CM was current in making the remittances to DFS, which
amounted to approximately $71,260 and $216,000 for the years ended June 30,
1996 and 1995, respectively, and approximately $136,000 for the eight month
period ended June 30, 1994. The remaining liability at June 30, 1996 is
approximately $1.5 million.
This payment will be made to DFS for a period of 72 months from the
effective date of the Plan or until the class twelve claim is paid in full.
If the claim is repaid before the expiration of the 72 month period, the 1%
payment will be remitted to the trustee for the benefit of the "class
fourteen" creditors until the expiration of the 72 month period.
Treatment of Allowed Claims of Unsecured Creditors
The allowed claims of unsecured creditors are identified as "class fourteen"
in the Plan. Beginning in November 1992, CM was required to deposit on a
monthly basis with the trustee for the creditors' committee an amount equal
to 1/2% of CM's electronic sales for the preceding month. As of June 30,
1996, CM was current in making the remittances, which amounted to
approximately $36,000 and $108,000 for the years ended June 30, 1996 and
1995, respectively, and $96,000 for the eight month period ended June 30,
1994. This payment will be made by CM to the trustee for a period of 72
months from the effective date of the Plan.
17. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company's customers are located throughout the United States. No single
customer accounted for 10% or more of the Company's net sales in 1996, 1995
or 1994.
Financial instruments subject to credit risk consist primarily of cash,
subscriptions receivable and notes receivable. Cash is at risk to the
extent that it exceeds Federal Deposit Insurance Corporation insured amounts
(approximately $251,793 at June 30, 1996). To minimize risk, the Company
places its cash with high credit quality financial institutions.
Subscriptions receivable were all collected subsequent to year end. The
significant portion of notes receivable is secured by the parts inventory
included in the sale.
18. BUSINESS SEGMENT INFORMATION
During 1996, the Company was engaged primarily in the distribution of
consumer electronic products and previously various real estate activities
in the United States. The following tables set forth certain information
with respect to the years ended June 30, 1996, 1995 and 1994:
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
18. BUSINESS SEGMENT INFORMATION - Continued
1996 1995 1994
------------ ------------ ------------
Net revenues:
Consumer electronics $ 7,656,836 $ 21,267,244 $ 14,730,847
Corporate -- 300,000 250,000
------------ ------------ ------------
Consolidated $ 7,656,836 $ 21,567,244 $ 14,980,847
============ ============ ============
Operating loss:
Consumer electronics $ (3,478,435) $ (2,281,536) $ 296,645
Real estate and other -- (4,010) 415,353
Corporate (1,825,445) (931,956) (661,906)
Eliminations -- -- (256,016)
------------ ------------ ------------
Total operating loss (5,303,880) (3,217,502) (205,924)
Less interest expense (583,433) (1,574,540) (833,623)
Add minority interest loss
of subsidiary -- 382,457 30,505
------------ ------------ ------------
Loss from
continuing operations $ (5,887,313) $ (4,409,585) $ (1,009,042)
============ ============ ============
Identifiable assets:
Consumer electronics $ 6,356,795 $ 12,334,861 $ 10,008,989
Electronic components -- -- 5,811,689
Real estate and other 29,487 55,713 1,236,752
Corporate 8,824,124 1,697,826 2,886,638
Eliminations -- -- (1,683,847)
------------ ------------ ------------
$ 15,210,406 $ 14,088,400 $ 18,260,221
============ ============ ============
Depreciation and amortization:
Consumer electronics $ 436,122 $ 317,483 $ 152,401
Electronic components -- -- 49,653
Real estate and other 1,226 756 12,003
Corporate 207,780 158,775 42,871
------------ ------------ ------------
$ 645,128 $ 477,014 $ 256,928
============ ============ ============
Capital expenditures:
Consumer electronics $ 194,667 $ 742,432 $ 145,817
Electronic components -- -- 105,972
Real estate and other -- -- --
Corporate 1,228 67,943 197,428
Less capital expenditures
paid for other than by cash (59,337) (511,047) --
------------ ------------ ------------
$ 136,558 $ 299,328 $ 449,217
============ ============ ============
Operating loss for segment reporting purposes consists of revenues and other
income, less all expenses except interest expense.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 19. RETIREMENT PLAN
Prior to bankruptcy filing in 1992, the Company had a defined benefit plan
which covered substantially all full-time employees. The Company believed
that all liability for funding of the Plan had been discharged in bankruptcy.
However, it has been determined that funding of the plan for prior years
service has not been relieved. Therefore, the Company has accrued the amount
of the unfunded plan liability as of January 1, 1995, resulting in
recognition of approximately $171,000 in pension cost for the year ended June
30, 1996. As the plan covers former employee services, the plan liability at
June 30, 1996 does not differ substantially from the actuarial report
performed at January 1, 1995.
The following table sets forth the funded status of the Company's defined
pension plan as of January 1, 1995:
Actuarial present value of benefit obligations:
January 1,
1995
---------
Accumulated benefit obligation $ 685,152
---------
Projected benefit obligation $ 685,152
Plan assets at fair value 518,514
---------
Excess projected benefit obligation 166,638
Increase due to an assumption change 883
---------
Net pension liability $ 167,521
=========
Net pension cost for 1996 included the following components:
Funding deficiency accumulated in prior years $ 141,348
Funding deficiency for 1994 32,827
Net amortization and deferrals (6,654)
---------
Net pension cost $ 167,521
=========
The weighted average assumed discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.75%. The plan's assets
are invested in fixed income assets.
20. SUBSEQUENT EVENTS
In July, 1996, 117,305 Series G Preferred shares were redeemed by the Company
for $1,200,496 cash.
SCHEDULE II
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1994, 1995, and 1996
Balance at Charged to Charged to
beginning costs and to other Balance at
Description of year expenses accounts Deductions end of year
- ----------- ------- -------- -------- ---------- -----------
Year ended June 30, 1994
Allowance for doubtful
accounts $(164,601) $ 65,121 $ -- $ -- $ (99,480)
Inventory obsolescence
reserve (427,316) 121,389 -- -- (305,927)
Note receivable reserve -- -- -- -- --
Year ended June 30, 1995
Allowance for doubtful
accounts (99,480) 340,947 -- 318,502 (77,034)
Inventory obsolescence
reserve (305,927) 250,208 -- 173,955 (229,675)
Note receivable reserve -- -- -- -- --
Year ended June 30, 1996
Allowance for doubtful
accounts (77,034) -- 77,034 -- --
Inventory obsolescence
reserve (229,675) 118,672 111,003 -- --
Note receivable reserve -- 613,114 -- -- 613,114
*Note: deductions represent uncollectible accounts or inventories written off.
CURTIS MATHES HOLDING CORPORATION
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibits Page
2.1 Memorandum of Sale and Purchase Agreement (CMC) for
the acquisition of Curtis Mathes Corporation (filed
as Exhibit "A" to the Company's quarterly report on
Form 10-Q for the quarter ended December 31, 1993
and incorporated herein by reference.)
2.2 Memorandum of Sale and Purchase Agreement (WRC) for
the acquisition of certain assets of Whitaker Repair
Company, Inc. (filed as Exhibit "B" to the Company's
quarterly report on Form 10-Q for the quarter ended
D e cember 31, 1993 and incorporated herein by
reference.)
2.3 Memorandum of Stock Sale Agreement for the sale of
Southwest Memory, Inc. (filed as Exhibit "A" to the
Company's current report on Form 8-K dated January
13, 1995 and incorporated herein by reference.)
2.4 Memorandum of Stock Sale Agreement dated February
27, 1996 for the sale of CM Transportation, Inc. to
Q u ality Logistics Specialists, Inc. (filed as
Exhibit "2.1" to the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1996 and
incorporated herein by reference.)
3(i) Articles of Incorporation of the Company, as amended
(filed as Exhibit "4.1" to the Company's
Registration Statement on Form S-3 originally filed
w i t h the Commission on June 20, 1996 and
incorporated herein by reference.)
3(ii) Bylaws of the Company, as amended (filed as
Exhibit "3(ii)" to the Company's annual report on
Form 10-K for the fiscal year ended June 30, 1994
and incorporated herein by reference.)
4.1 Form of Common Stock Certificate of the Company
(filed as Exhibit "4.2" to the Company's annual
report on Form 10-K for the fiscal year ended June
30, 1994 and incorporated herein by reference.)
4.2 Series A Preferred Stock terms and conditions (filed
as Exhibit "4.3" to the Company's annual report on
Form 10-K for the fiscal year ended June 30, 1994
and incorporated herein by reference.)
4.3 Series G Preferred Stock terms and conditions
(filed as Exhibit "4.7" to the Company's annual
report on Form 10-K for the fiscal year ended June
30, 1995 and incorporated herein by reference.)
4.4 Series H Preferred Stock terms and conditions (filed
as Exhibit "4.4" to the Company's Registration
Statement on Form S-3 originally filed with the
Commission on June 20, 1996 and incorporated herein
by reference.)
4.5 Series I Preferred Stock terms and conditions (filed
as Exhibit "4.5" to the Company's Registration
Statement on Form S-3 originally filed with the
Commission on June 20, 1996 and incorporated herein
by reference.)
10.1 Sublicense Agreement dated June 1, 1994 between
SysPower Corporation and Animated Systems and
Presentations, Inc. (filed as Exhibit "10.4" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1994 and incorporated herein by
reference.)
10.2** Written description of employment arrangement with
Mr. Robinson (filed as Exhibit "10.5" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1994 and incorporated herein
by reference.)
10.3 Business Financing Agreement dated as of October 27,
1992 between Curtis Mathes Corporation and Deutsche
Financial Services Corporation (f/k/a ITT Commercial
Finance Corp.) (filed as Exhibit "10.8" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.4 Amendment to Business Financing Agreement dated as
of July 15, 1994 between Curtis Mathes Corporation
and Deutsche Financial Services Corporation (f/k/a
ITT Commercial Finance Corp.) (filed as Exhibit
"10.9" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and
incorporated herein by reference.)
10.5 Addendum to Business Financing Agreement dated as of
August 13, 1994 between Curtis Mathes Corporation
and Deutsche Financial Services Corporation (f/k/a
ITT Commercial Finance Corp.) (filed as Exhibit
"10.10" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and
incorporated herein by reference.)
10.6 Letter Agreement dated as of September 19, 1994
between Curtis Mathes Corporation and Deutsche
Financial Services Corporation (f/k/a ITT Commercial
Finance Corp.) (filed as Exhibit "10.11" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.7 Amendment to Business Financing Agreement dated as
of January 17, 1995 between Curtis Mathes
Corporation and Deutsche Financial Services
Corporation (f/k/a ITT Commercial Finance Corp.)
(filed as Exhibit "10.12" to the Company's annual
report on Form 10-K for the fiscal year ended June
30, 1995 and incorporated herein by reference.)
10.8 Floorplan Purchase Agreement dated as of October 27,
1992 between Curtis Mathes Corporation and Deutsche
Financial Services Corporation (f/k/a ITT Commercial
Finance Corp.) (filed as Exhibit "10.13" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.9 Amendment to Floorplan Purchase Agreement dated as
of April 30, 1993 between Curtis Mathes Corporation
and Deutsche Financial Services Corporation (f/k/a
ITT Commercial Finance Corp.) (filed as Exhibit
"10.14" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and
incorporated herein by reference.)
10.10 Financing Program Agreement dated as of October 27,
1992 between Curtis Mathes Corporation and Deutsche
Financial Services Corporation (f/k/a ITT Commercial
Finance Corp.) (filed as Exhibit "10.15" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.11 Amendment to Financing Program Agreement dated as
of November 6, 1992 between Curtis Mathes
Corporation and Deutsche Financial Services
Corporation (f/k/a ITT Commercial Finance Corp.)
(filed as Exhibit "10.16" to the Company's annual
report on Form 10-K for the fiscal year ended June
30, 1995 and incorporated herein by reference.)
10.12 Amendment to Financing Program Agreement dated as of
April 15, 1993 between Curtis Mathes Corporation and
Deutsche Financial Services Corporation (f/k/a ITT
Commercial Finance Corp.)(filed as Exhibit "10.17"
to the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1995 and incorporated
herein by reference.)
10.13 Amendment to Financing Program Agreement dated as of
September 8, 1993 between Curtis Mathes Corporation
and Deutsche Financial Services Corporation (f/k/a
ITT Commercial Finance Corp.) (filed as Exhibit
"10.18" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and incor-
porated herein by reference.)
10.14 Revolving Credit and Security Agreement dated March
17, 1994 between Curtis Mathes Corporation and
Fidelity Funding, Inc. (filed as Exhibit "10.19" to
the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1995 and incorporated
herein by reference.)
10.15 Asset Purchase Agreement between Curtis Mathes
Marketing Corporation and Hughes Training, Inc. dated
as of October 25, 1994, relating to the purchase of
the RealView technology (filed as Exhibit "10.20" to
the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1995 and incorporated
herein by reference.)
10.16** Letter Consulting Agreement between the Company and
Mr. Appel dated January 30, 1995 (filed as Exhibit
"10.21" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and
incorporated herein by reference.)
10.17 Trademark License Agreement dated June 1, 1994
between Curtis Mathes Corporation, as Licensor, and
Animated Systems and Presentations, Inc., as Licensee
relating to CM trademark license for LED sign systems
(filed as Exhibit "10.25" to the Company's annual
report, as amended, on Form 10-K/A for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.18 First Amended Partial Assignment of Rights Under
Sublicense Agreement dated February 28, 1995 between
Animated Systems and Presentations, Inc. and Curtis
Mathes Marketing Corporation, relating to LED sign
technology (filed as Exhibit "10.26" to the Company's
annual report, as amended, on Form 10-K/A for the
fiscal year ended June 30, 1995 and incorporated
herein by reference.)
10.19 Trademark License Agreement dated February 28, 1995
between Curtis Mathes Corporation, as Licensor, and
Curtis Mathes Marketing Corporation, as Licensee,
relating to CM trademark license for RealView
products and LED sign systems (filed as Exhibit
"10.27" to the Company's annual report, as amended,
on Form 10-K/A for the fiscal year ended June 30,
1995 and incorporated herein by reference.)
10.20* Trademark License Agreement dated April 17, 1996
between Curtis Mathes Corporation, as Licensor,
and Curtis Mathes Marketing Corporation, as
Licensee, relating to CM trademark license for
UniView products.
10.21 Settlement and Release Agreement dated as of March
9, 1996 between the Company and Deutsche Financial
Services Corporation, f/k/a ITT Commercial Finance
Corp. (filed as Exhibit "10.1" to the Company's
quarterly report on Form 10-Q for the quarter ended
March 31, 1996 and incorporated herein by
reference.)
10.22* Contract for Sale of Goods dated March 15, 1996
between Curtis Mathes Corporation and R.S. Haas and
Silverman Retail Consultants, Inc. for the sale of
CM inventory in connection with DFS Settlement and
Release Agreement.
10.23* Letter of Intent dated April 29, 1996 between Curtis
Mathes Corporation, and Inman's Corporation relating
to CM warranty service.
10.24* Warranty Service Agreement dated May 10, 1996 between
Curtis Mathes Corporation, Warranty Repair
Corporation, and Inman's Corporation relating to CM
warranty service.
10.25* Memorandum of Asset Purchase Agreement dated June
19, 1996 between Warranty Repair Corporation and
Inman's Corporation relating to sale of WRC's parts
inventory.
10.26* Promissory Note from Inman's Corporation to Warranty
Repair Corporation dated June 19, 1996 relating to
sale of WRC parts inventory.
10.27* Security Agreement dated June 19, 1996 between
Inman's Corporation and Warranty Repair Corporation
relating to sale of WRC parts inventory.
10.28* Technology License Agreement dated April 23, 1996
between Interactive Video Publishing, Inc., as
Licensor, and Curtis Mathes Marketing Corporation, as
Licensee, relating to UniView (Vista and KOSMOS)
technology.
10.29* Trademark License Agreement dated April 23, 1996
between Curtis Mathes Corporation, as Licensor, and
Interactive Video Publishing, Inc., as Licensee,
relating to CM trademark license for Vista set-top
units.
16 Letter regarding change in certifying accountant
(filed as Exhibit to the Company's current report on
Form 8-K/A dated November 15, 1994 and incorporated
herein by reference.)
21* Subsidiaries of the Company.
27* Financial Data Schedule.
_______________
* Filed herewith.
** Management contract or compensation plan or arrangement required to
be filed as a exhibit pursuant to Item 14(c).