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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, 1997
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)
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 29, 1997, the aggregate market value of the voting stock
held by non-affiliates of the Registrant (37,536,564 shares) was
approximately $22,146,573 based upon the average of the closing bid and
closing asked price per share of $0.59.
On August 29, 1997, there were 40,612,279 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 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 10
ITEM 6. SELECTED FINANCIAL DATA 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
(F-1 through F-35) 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 17
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 17
ITEM 11. EXECUTIVE COMPENSATION 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 27
SIGNATURES 28
EXHIBIT INDEX 69
CURTIS MATHES HOLDING CORPORATION
PART I
ITEM l. BUSINESS
(a) General Development of Business
Curtis Mathes Holding Corporation and subsidiaries (the "Company")
is engaged in the development, marketing and distribution of consumer
electronics products and online services relating specifically to
Internet access through the television medium.
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 1984 and completed the registered
offering in January 1985.
In November 1993, the Company acquired Curtis Mathes Corporation
(CMC), maker of consumer electronics products relating specifically to
the home entertainment industry. On November 8, 1993 the Company's stock
was first listed on the NASDAQ SmallCap Market (symbol CRTM) and in May
1994, the Company changed its name to Curtis Mathes Holding Corporation.
A subsidiary closely related to CMC in the past has been Warranty
Repair Corporation (WRC) which provided warranty support for all products
sold by CMC. CMC 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 CMC products, provides technical assistance to CMC's
authorized service centers, and serves all of the warranty related needs
of CMC's customers.
During fiscal 1997, another subsidiary, Curtis Mathes Marketing
Corporation (CMMC), developed and continues to refine a proprietary
technology called uniViewT which allows a family, through their
television set, to "surf" the Internet, send and receive e-mail, talk on
the telephone, program their VCR, and search for movies or programs
featuring specific subjects, actors, or ratings. uniView is currently
available in the stores and has generated great enthusiasm among its
purchasers. CMMC also holds a patent on 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.
A subsidiary closely related to CMMC, Curtis Mathes Xpressway
Corporation (CMX), provides Internet access and online content for
uniView customers and other subscribers to the Curtis Mathes XpresswayT
Online Service.
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 16 on page F-35 of the Notes to Consolidated
Financial Statements in this Form 10-K for information concerning
Industry Segments.
(c) Narrative Description of Business
Major Markets and Products
Curtis Mathes Corporation (CMC)
CMC does not have a product line at this time. This subsidiary
historically produced both direct view and projection televisions.
Warranty Repair Corporation (WRC)
WRC has, in the past, provided warranty and repair service for CMC
consumer electronics products. Warranty support for CMC 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.
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 online 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 the capability of
automatically monitoring the TV listings databases and blocking 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 a wireless keyboard, 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 infrared
wireless keyboard allows greater flexibility in "surfing" the Internet or
sending e-mail by providing a full keyboard and mouse touchpad, while the
RF Wireless Keyboard 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.
CMMC also offers for licensing its patent rights on the 10-foot
diagonal projection television system known as RealView, in the
commercial market. While competitors of this technology 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.
Curtis Mathes Xpressway Corporation (CMX)
CMX, a new subsidiary of the Company this fiscal year was
established to primarily support the Company's uniView products. CMX
provides specialized Internet-access and online services for TV based
systems, such as the Company's uniView product line. The service
retrieves Internet pages and graphics, translates them into TV-based
formatting, and provides them to consumers for viewing on their
television sets. CMX further provides Internet access to personal
computer (PC) users as well as non-uniView set top boxes.
Competition
Curtis Mathes Marketing Corporation (CMMC)
CMMC's uniView proprietary television technology is 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 additional features, some of which are described
above.
CMMC's RealView 10-foot diagonal projection television technology is
in the same product category as the Jumbotron and DiamondVision color
video display systems manufactured by its competitors. The primary
methods of competition on products utilizing this technology are expected
to be price and product performance. As described in the products
section above, the RealView technology is believed to be technically
superior to its competition, creating an advantage for licensees of this
technology with a significantly lower sales price.
Curtis Mathes Xpressway Corporation (CMX)
The online services industry where CMX operates is intensely and
increasingly competitive and includes a large number of Internet service
providers. Competition has enhanced the consumer demand for the most
technologically advanced services, at the lowest possible price. The
primary methods of competition with other Internet service providers are
expected to be features and product performance. It is not possible to
determine the ultimate acceptance of the Curtis Mathes Xpressway Online
Service; however, the Company has positioned this subsidiary to service
uniView and non-uniView set top box users as well as PC users to appeal
to the widest range of consumers.
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. The Company intends to take advantage of licensing
opportunities, as well as pursue internal and external development of new
products as may be necessary to meet consumer demand. Management
believes that adequate funds are available to cover anticipated product
development and licensing opportunities during the coming year, which are
necessary for the Company to maintain an edge in the marketplace.
Manufacturing
Curtis Mathes Marketing Corporation (CMMC)
CMMC will utilize various manufacturers located in America and
abroad to produce the uniView line of products according to its
specifications. This subsidiary will not be involved in any other
manufacturing activities.
Environmental
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. CMMC 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 CMX will not be involved in manufacturing, its
operations will likewise have no environmental impact.
Prior Obligations Affecting Current Operations
CMC'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 CMC. The Company could continue to be
affected by the reorganization until September 30, 1998, when the Plan
will terminate. Until termination, or otherwise settled, 1/2% of gross
sales of CMC, if any, must 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.
In addition to this obligation to the Trustee, CMC remains obligated
to service past outstanding product warranties. Reserves 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, CMC's warranty obligations are
slowly diminishing. (See Item 3 beginning on page 9 of this Form 10-K;
and Note 9 on page F-24, and Note 14 on page F-34 of the Notes to
Consolidated Financial Statements for further warranty information.)
Warranty
At June 30, 1997 financial reserves were approximately $544,000 for
CMC warranty claims anticipated during the remainder of the warranty
obligation period. CMC 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, CMC 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 Marketing Corporation (CMMC)
CMMC markets its uniView line of products and accessories through
national and regional retail chains and outlets, 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 yet sold any
products outside of the United States; however, the Company anticipates
opportunities to expand its geographical sales area.
CMMC makes available its RealView technology to manufacturers
interested in marketing their products to sports arenas, stadiums,
shopping malls, airports and other large-scale commercial applications.
Trademarks
Curtis Mathes Corporation (CMC)
The Company 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.
CMC 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 CMC during the term of
the agreement. Management chose to enter into the agreement in connection
with a product (LED sign systems) outside of the Company's own product
lines as a means of increasing revenue. The current term of the license
expires on June 30, 2001.
CMC 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 CMC 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
CMC's traditional product line as a means of increasing revenue. The
current term of the license expires on April 17, 2011.
Curtis Mathes Marketing Corporation (CMMC)
The Company 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 uniView product line.
The Company 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 patented commercial large screen
television technology.
The Company has also filed an "Intent to Use" with the U.S. Patent
and Trademark Office in connection with the new "Curtis Mathes design and
logo" which it plans to utilize in marketing the uniView and future
product lines.
Curtis Mathes Xpressway Corporation (CMX)
The Company has filed an "Intent to Use" with the U.S. Patent and
Trademark Office in connection with the "CM and design" and the trademark
"Curtis Mathes Xpressway & Design" which it plans to utilize in marketing
the Curtis Mathes Xpressway Online Service.
Seasonality
Curtis Mathes Marketing Corporation (CMMC)
CMMC expects the uniView product line to be subject to seasonality
highlighted by an end of calendar year consumer buying season and an end
of product year clearance season.
Curtis Mathes Xpressway Corporation (CMX)
CMX revenue streams should not be subject to the same seasonality
concerns of CMMC. Due to the nature of the online Internet service
provided by CMX, there is no known seasonal time period where revenue
would be greater than another.
Customers
All revenues for 1997 were a result of slow-moving inventory
exchanged for television advertising on a major cable network.
Historically, no customer has accounted for 10% or more of the sales for
the Company in a given year. The Company does not expect that sales to
any one customer will be 10% or more in the future.
Employees
As of June 30, 1997, the Company, including all subsidiaries,
employed 31 persons. The Company believes that its employee relations
are good.
ITEM 2. PROPERTIES
As of June 30, 1997 the Company, including all subsidiaries,
continued to operate from the following locations:
Location Purpose/Use Owned/Leased Square Footage
Dallas, TX Corporate Headquarters Leased 74,882
This location is equipped with material-handling equipment with the
capability of receiving, storing and distributing large quantities of
consumer electronics products, parts and other product support material.
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 in excess of the amount accrued
at June 30, 1997.
The Company's subsidiary, CMC, 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 CMC's former ownership of the site was discharged upon
confirmation of CMC'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.
On November 2, 1994, a class action suit was filed against CMC
alleging various violations of the Minnesota consumer protection laws
arising out of certain rent-to-own transactions between certain former
CMC dealers located in Minnesota and their customers. Damages were
unspecified and management believes that CMC has no liability. However,
as with any litigation of this type and magnitude, defense costs and the
timing and degree of potential liability are uncertain and there can be
no assurance that these proceedings will not have an adverse impact on
the Company in the future. The action is currently pending and set for
trial during the Fall of 1997 in the United States District Court for the
District of Minnesota, Fourth Division, under Cause No. Cv. 4-95-682,
styled Charlene Powell v. Curtis Mathes Corporation; 99 cent Video, Inc.,
d/b/a Curtis Mathes; CDM Enterprises, Inc., d/b/a Curtis Mathes Home
Entertainment Center; and John Doe, corporations d/b/a Curtis Mathes.
CMC 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 CMC, the
Company agreed to comply in all respects with the Plan. Under the Plan,
CMC received a discharge of all pre-petition debts, except for those
specifically allowed under the Plan. CMC 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
Market Information
The Company's Common Stock, $.01 par value (the "Common Stock") is
traded on the NASDAQ SmallCap Market under ticker symbol "CRTM." 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 1997
June 30, 1997 $ 1.81 $ 0.88
March 31, 1997 $ 2.00 $ 1.00
December 31, 1996 $ 1.88 $ 0.63
September 30, 1996 $ 2.53 $ 1.31
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
As of August 29, 1997 there were approximately 11,300 record
shareholders and 40,612,279 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
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,
1997 1996 1995 1994 1993
Consolidated Statement
of Operations Data
- ----------------------
Net Sales or Operating
Revenues(1) $ 2,503,512 $ 7,656,836 $ 21,267,244 $ 14,730,847 $ -
Net Income (Loss) (7,509,040) (5,887,313) (4,236,585) (309,444) 109,211
Income (Loss)
per Common Share(2) (023)(3) (0.35)(4) (0.44)(5) (0.05)(6) 0.01(7)
Income (Loss) from
Continuing Operations(1) (8,298,466) (5,887,313) (4,409,585) (1,009,042) (107,621)
Income (Loss) from
Continuing Operations
per Common Share(1),(2) (0.25)(3) (0.35)(4) (0.46)(5) (0.14)(6) (0.03)(7)
Year Ended June 30,
1997 1996 1995 1994 1993
Consolidated Balance Sheet Data
- -------------------------------
Total Assets $ 15,474,753 $ 15,210,406 $ 14,088,400 $ 18,260,221 $ 3,884,348
Long Term Debt 961,030 1,450,435 3,282,706 2,204,611 453,145
Shareholders' Equity 12,300,635 11,723,532 2,920,780 4,217,485 1,511,814
(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, 1997, for purposes of computation of
earnings per share, net loss was increased for dividends in arrears
of $27,223 ($0.00 per common share) and the computation was based
upon 32,537,971 weighted average shares outstanding.
(4) 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.
(5) 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.
(6) 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.
(7) 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
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 1997 decreased to $2.50 million which represents a decline
of $5.15 million from 1996. The decrease occurred as the Company
redirected its primary focus to the development of the uniView product
line. Unforeseen delays of uniView's introduction contributed to
diminished sales for the year. All sales for the year ended June 30,
1997 are a result of finished goods inventory exchanged for advertising
from a major cable television network.
Sales for 1996 decreased to $7.66 million, a decrease of $13.61
million from 1995. Sales declined for CMC in direct proportion to the
decrease of available financing sources for CMC dealers. Prices were
reduced on certain product lines to stimulate sales. In some cases,
prices were lowered to the original cost of the products to encourage
sale of dated inventory and to reduce inventory carrying costs that had
already significantly impacted related margins.
Gross Margin
Gross margin, as a percentage of sales for 1997, was a negative 4%,
compared to 10.3% in 1996. During the current year, dated inventory was
sold at below original cost while costs of running nationwide points of
presence for the CMX online service resulted in additional negative
costs.
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 Deutsche Financial Services Corporation ("DFS") settlement agreement,
whereby the Company elected to eliminate certain inventory carrying
costs, in accordance with its redefined strategic focus, by selling
certain products at lower margins.
Operating Expenses
Operating expenses for 1997 increased by $2,500,000 from 1996.
Significant components of this increase are $1,981,000 for advertising
and $517,000 for research and development. Where appropriate, the
Company has elected to capitalize certain expenses relating to the
uniView product line and CMX online service.
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 CMC
sales, as required under the CMC Plan of Reorganization.
The Company anticipates that in 1998, selling, general, and
administrative expenses will increase 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.
Interest Expense
Interest expense declined from $583,000 during fiscal 1996 to
$86,000 during fiscal 1997. This decline resulted from the continued
decline in average borrowings outstanding. The Company generated
interest income in fiscal years 1997 and 1996 from invested cash
balances.
Interest expense for fiscal 1996 decreased by $991,000 from 1995,
which was primarily attributable to the settlement of the Company's line
of credit and related notes payable to DFS. Lower average inventory
levels during fiscal 1996 resulted in significant inventory carrying cost
savings, including interest expense.
Liquidity and Capital Resources
Cash Flows From Operations
Cash used by operations for the fiscal years ended June 30, 1997 and
1996 were ($7,270,000) and ($1,920,000), respectively. Major components
of cash flows from operations for 1997 included: $1,825,000 for
increases in prepaid expenses related to parts inventory components for
uniView production; $789,000 for recognition of gain on extinguishment of
debt (net of income taxes of $463,000); the increase in accounts payable,
accrued liabilities, and other payables of $1,439,000; $691,000 for
depreciation and amortization; and the effects of a ($7,509,000) loss
from operations.
Cash used by operations for the fiscal years ended June 30, 1996 and
1995 were ($1,920,000) and ($5,858,000), respectively. Significant
components of cash flows from operations for 1996 included: $990,000 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 Flows From Investing Activities
During fiscal 1997, the Company purchased, for cash, approximately
$2,100,000 of property, plant and equipment as compared to approximately
$136,000 during fiscal 1996 and $300,000 during fiscal 1995. The Company
also paid $3,650,000 in cash in 1997 for development of software
pertaining to the uniView/Xpressway product lines. Further, $1,114,000
was paid in cash for licensing of technologies pertaining to software for
the uniView/Xpressway product lines. The level of future capital
expenditures is expected to exceed 1997 capital expenditures as the
Company seeks to meet the demanding technological requirements of the
uniView/Xpressway lines.
Cash Flows from Financing Activities
The Company generated net cash from financing activities of
$11,767,000 during the fiscal year ended June 30, 1997. Significant
components included $8,296,000 received from issuances of preferred and
common stock; $1,000,000 received from advances under the Company's
borrowing arrangement that was later converted to common stock;
$1,173,000 paid in cash for preferred stock redeemed; $643,000 for
payments on long term debt; and the receipt of $4,352,000 cash for common
stock issued in the prior year.
The Company produced 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.
Other Matters
During 1996, the Company settled its debt obligation to DFS. As
discussed in the 1996 Form 10-K, the Company did recognize a $789,000
deferred gain (net of income taxes of $463,000) as a result of the
settlement of a note owed to DFS. This item is disclosed as an
extraordinary item on the financial statements for the year ended June
30, 1997.
The Company continues to be a party to financial instruments with
certain off-balance sheet risk. These risks have been limited to
repurchase obligations for CMC dealers related to inventory financed
under CMC's dealer floor-plan agreement with DFS. This off-balance sheet
risk at June 30, 1997 was estimated to be $410,000 as compared to
$1,550,000 at June 30, 1996. As dealers refinance their DFS obligations,
or pay down their debt, CMC's exposure decreases.
During the fiscal years ended June 30, 1997, 1996, and 1995 the
Company did not achieve a positive cash flow from operations.
Accordingly, the Company relies on available borrowing arrangements and
continued sale of its common and preferred stock to fund operations until
a positive cash flow from operations can be achieved. If the Company is
unable to achieve a positive cash flow from operations, additional
financing or placements will be required. Management continually
evaluates opportunities with various investors to raise additional
capital, without which, the Company's growth and profitability could be
restricted. Although management believes that sufficient financing
resources are available, there can be no assurance that such resources
will continue to be available to the Company or that they will be
available upon terms favorable to the Company.
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. 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.
Outlook: Issues and Uncertainties
The Company does not provide forecasts of future financial
performance. While management is optimistic about long-term prospects,
the following issues and uncertainties, among others, should be
considered in evaluating its growth outlook.
Customer Acceptance
While the Company has performed extensive usability and beta testing
of new products, user acceptance and corporate penetration rates
ultimately dictate the success of development and marketing efforts.
Rapid Technological Changes
The consumer electronics and Internet access industry is undergoing
rapid changes, including evolving industry standards, frequent new
product introductions and changes in consumer requirements and
preferences. The introduction of new technologies and products can
render the Company's existing and announced products obsolete or
unmarketable. The development cycle for products utilizing new
technology may be significantly longer than the Company's current
development cycle for products on existing and proposed technology and
may require the Company to invest resources in products that may not
become profitable. There can be no assurance that the expected demand
for the Company's products will materialize or continue or that the mix
of the Company's future product offerings will keep pace with
technological changes or satisfy evolving consumer preferences or that
the Company will be successful in developing and marketing future
products. Failure to develop and introduce new products and product
enhancements in a timely fashion could have a material adverse effect on
the Company's business, operating results and financial condition.
Long-term Research and Development Investment Cycle
Software requires an investment in product development which often
involves a long payback cycle. The Company plans to continue significant
investments in software research and development and related product
opportunities. Accordingly, management expects total spending for
research and development in 1998 to increase over spending in 1997.
Sales and Marketing and Support Investments
The Company plans for 1998 include significant investments of
capital into sales, marketing and support groups. Management believes
that these investments will position product within the market place in
the most favorable light.
Limited Protection of Intellectual Property and Proprietary Rights: Risk
of Litigation
The Company regards its television Internet access technology
containing software related components as proprietary and relies
primarily on a combination of trademark, copyright and trade secret laws,
employee and third-party nondisclosure agreements, and other methods to
protect these proprietary rights. As the number of television Internet
access products in the industry increases and the functionality of these
products overlap, infringement claims may also increase. There can be no
assurance that third parties will not assert infringement claims against
the Company in the future with respect to current or future products.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and related Financial Statement
Schedules are included at pages F-1 through F-40 in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the Company's two most recent fiscal years, no independent
accountant engaged as the principal accountant to audit the Company's
financial statements has resigned or was dismissed.
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, 1997, 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, 48, 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, 56, 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, 49, 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 eighteen years legal experience,
representing banks and other financial institutions, with a concentration
in commercial transactions and real estate. 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, 65, 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.
Executive Officers
The following sets forth, with respect to each executive officer of
the Company not heretofore named, as of June 30, 1997, his name, age,
present position and offices held with the Company, period of service in
such capacity, and other business experience.
F. Shelton Richardson, Jr., 38, has been Vice President/ Chief
Financial Officer of the Company since February, 1995. He has been
strategically involved in the restructuring of the Company from a
commodity manufacturer of consumer electronics products to a
technologically advanced mainstream developer of Internet access
products. In addition, Mr. Richardson has been instrumental in the
design, development and implementation of Curtis Mathes Xpressway, the
Company's largest potential revenue source. 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, 61, has been Vice President/ Chief Operating
Officer of subsidiary Curtis Mathes Corporation (CMC) since October 3,
1994; has been Vice President/ Chief Operating Officer of subsidiary
Curtis Mathes Marketing Corporation (CMMC) since July 1, 1995; and has
been Vice President/ Chief Operating Officer of subsidiary Curtis Mathes
Xpressway Corporation (CMX) since January 10, 1997. Mr. Park is
responsible for the initial development of product and all phases through
the manufacturing process for the new uniView line of products. The
securing of strategic technological partners is also an important area of
his responsibility. He enjoyed a career of 29 years with CMC, before
leaving 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 CMC as a consultant. During his career with CMC,
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.
Thomas P. O'Mara, 37, joined the Company in August, 1996, and in
April, 1997 was promoted to Vice President/ Sales and Marketing of
subsidiaries Curtis Mathes Marketing Corporation (CMMC) and Curtis Mathes
Xpressway Corporation (CMX), bringing with him more than 14 years of
experience in the consumer electronics industry. Mr. O'Mara is
responsible for management of the Company's domestic and international
sales force. He also oversees all marketing and advertising strategy for
all of the Company's products, including uniView and the Curtis Mathes
Xpressway. In addition, Mr. O'Mara has applied his broad technology
expertise in the actual development, design and execution of uniView and
the Curtis Mathes Xpressway. He also supervises corporate marketing and
communications, channel partner programs, and strategic alliance
programs. Prior to joining the Company, O'Mara was a regional sales
manager for the car electronics division of Pioneer Electronics. During
his 13-year tenure with Pioneer, he was directly involved in sales and
marketing aspects for the majority of all of Pioneer's consumer
electronics products. Mr. O'Mara received a bachelor of business
administration degree in accounting from LaSalle University
(Philadelphia, Pa.).
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, 1997, the Company believes that during
the fiscal year ended June 30, 1997, 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
$100,000 or more during the fiscal year ended June 30, 1997.
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
All
Other
Name and Year Other Restricted Securities LTIP Compen-
Principal Ended Annual Stock Underlying Payouts sation
Position Jun. 30 Salary($) Bonus($) Compensation($) Award(s)($) Options/SARs(#) ($) ($)
Patrick A. Custer 1997 151,310 11,200 12,000 -0- 400,000 -0- -0-
Chairman of the 1996 102,692 -0- 12,000 59,750 -0- -0- -0-
Board and CEO 1995 121,458 -0- 12,308 -0- -0- -0- -0-
Billy J. Robinson 1997 110,481 11,200 27,500 43,625 150,000 -0- -0-
Vice President, 1996 72,981 -0- 27,500 79,475 -0- -0- -0-
General Counsel 1995 83,937 -0- 32,776 43,625 -0- -0- -0-
Option/SAR Grants in Last Fiscal Year
The following table shows all individual grants of stock options to
the named executive officers during the fiscal year ended June 30, 1997.
Grant Date
Individual Grants Value
------------------------------------------------------- ----------
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/
Underlying SARs
Name and Options/ Granted to Exercise Market Grant
Principal SARs Employees or Base Price on Date
Position Granted in Fiscal Price the Date Expiration Present
(#)(1)(2) Year(2) ($/Sh) of Grant Date Value(3)
Patrick A. Custer
Chairman of the
Board and CEO 400,000 40% $0.94 $1.34 April 6, 2002 $231,960
Billy J. Robinson
Vice President
and General
Counsel 150,000 15% $0.94 $1.34 April 6, 2002 $ 92,420
(1) Options have a five-year life, vest in increments over two and one-
half years and are priced at seventy (70%) percent of the average
trading price of the Common Stock, as reported by NASDAQ, for the
five (5) trading days immediately preceding the date of grant.
(2) The Company has not made any grants of SARs.
(3) The options were valued as of April 7, 1997 using the SFAS 123 -
Black Scholes Option Pricing Model, assuming expected volatility of
60%, a 6% risk-free rate of return, 0% dividend yield, and time of
exercise of 4.75 years. (Please refer to Note 11 on page F-30 of
the Notes to Consolidated Financial Statements in this Form 10-K for
further information concerning pricing of options.)
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table shows aggregate exercises of options (or tandem
stock appreciation rights) and freestanding stock appreciation rights
during the fiscal year ended June 30, 1997 by each of the named executive
officers.
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#)(2) FY-End ($)(2)(3)
Name and Shares Value
Principal Acquired Realized Exercisable (E)/ Exercisable/
Position on Exercise ($)(1) Unexercisable (U) Unexercisable
- -------- ----------- ------ ----------------- -------------
Patrick A. Custer
Chairman of the 50,000 7,000 50,000 (E) --
Board and CEO 300,000 (U) --
Billy J. Robinson
Vice President
and General 37,500 (E) --
Counsel -- -- 112,500 (U) --
(1) Amount shown is based upon the average of the closing bid and
closing asked price per share of the Company's Common Stock on the
Nasdaq SmallCap Market on the date of exercise, June 13, 1997, which
was $1.08.
(2) The Company has not made any grants of SARs.
(3) On June 30, 1997 the options were not considered "in-the-money," as
the fair market value of the underlying securities on that date
($0.89) did not exceed the exercise price of the options.
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 additionally granted each of the two outside directors stock
options to purchase 75,000 shares of Common Stock of the Company. The
options have a five-year life, vest in increments over two years and are
priced at seventy (70%) percent of the average trading price of the
Common Stock, as reported by NASDAQ, for the five (5) trading days
immediately preceding the date of grant. The exercise price of the
options is $0.94 per share and the market price of the Common Stock on
the date of grant, April 7, 1997, was $1.34 per share.
Employment Contracts and Termination and Change-in-Control Arrangements
In April 1997 the Company entered into employment agreements with
named executive officers Messrs. Custer and Robinson for approximately a
three-year term with the Company. The terms of both employment agreements
include an agreed annual salary, employee benefits, nonstatutory stock
options, portions of which vest at certain times depending on the
employee's continued tenure with the Company, and provisions concerning
termination of employment upon sale or change in control of the Company.
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, 1997, Mr. Custer received $174,510 and
nonstatutory employee stock options, the vested portion of which was
valued at $47,119, 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 and financial
positioning of the Company, and included a consideration of his
responsibilities, experience, and skills.
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 during fiscal year ended June 30,
1995, the reduction in the commodity business operations of the Curtis
Mathes Corporation subsidiary during fiscal year ended June 30, 1996, and
the introduction during fiscal year ended June 30, 1997 of the Company's
technologically advanced Internet access products, the Curtis Mathes
uniViewT and the Curtis Mathes XpresswayT Internet Service Provider and
Online Service. Accordingly, the indications of the graph may not
necessarily indicate future performance of the Company.
1/1/93 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
Curtis 100.00 200.00 576.00 138.00 276.00 182.00
Mathes
SIC Code 100.00 120.64 179.75 148.15 182.14 213.06
NASDAQ 100.00 111.94 122.75 143.96 181.22 218.30
Market
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 29,
1997 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 and significant subsidiaries 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 2,498,615(1) 6.13%
P. O. Box 802808
Dallas, Texas 75380-2808
D. Ronald Allen 2,010,165(2) 4.75%
10911 Petal Street, Suite 105
Dallas, TX 75238
Custer Company, Inc. 2,026,515(3) 4.98%
P.O. Box 802808
Dallas, TX 75380-2808
Geninvest, S.A. 3,627,333(4) 8.20%
c/o Lewis D. Rowe, Director
P.O. Box 1561
Zephyr House, Mary Street,
Grand Cayman, British West Indies
Directors
Patrick A. Custer 2,498,615(1) 6.13%
Edward M. Warren 227,500(5) 0.56%
Billy J. Robinson 102,500(6) 0.25%
Bernard S. Appel 75,000(7) 0.18%
Executive Officers
Patrick A. Custer 2,498,615(1) 6.13%
Billy J. Robinson 102,500(6) 0.25%
All Directors and Executive
Officers as a Group 3,075,715(8) 7.50%
(1) Includes 175,000 shares owned outright by Mr. Custer; 50,000 shares
issuable to Mr. Custer upon exercise of vested nonstatutory Employee
Stock Options; 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; 237,500 shares owned by his wife; 9,400 shares
held by his wife for the benefit of his minor daughter; and 100
shares each owned by his two sons.
(2) Includes 120,000 shares owned by Winterstone Management Company,
which is controlled by Mr. Allen; 149,365 shares owned outright, 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) Issuable upon exercise of warrants.
(5) Includes 202,500 shares owned outright, and 25,000 shares issuable
to Mr. Warren upon exercise of stock options.
(6) Includes 65,000 shares owned outright, and 37,500 shares issuable to
Mr. Robinson upon exercise of vested nonstatutory Employee Stock
Options. Shares are held in escrow to be earned over four year term
of employment, but over which Mr. Robinson has voting rights.
(7) Includes 50,000 shares owned outright, and 25,000 shares issuable to
Mr. Appel upon exercise of stock options.
(8) Includes 2,903,615 shares beneficially owned by all directors. Also
includes 15,000 shares owned outright, and 57,500 shares issuable to
Mr. Richardson upon exercise of vested nonstatutory Employee Stock
Options. Also includes 10,000 shares owned outright, and 51,100
shares issuable to Mr. Park upon exercise of vested nonstatutory
Employee Stock Options. Also includes 1,000 shares owned outright,
and 37,500 shares issuable to Mr. O'Mara upon exercise of vested
nonstatutory Employee Stock Options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year ended June 30, 1997, 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
D. Ronald Allen/Associates Funding Group, Inc.
D. Ronald Allen, CPA, a consultant for the Company and currently a
4.75% 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 149,365 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 July 1996 the Company redeemed for cash from AFG 117,305
shares of Series G Preferred Stock of the Company for face value of
$1,173,050, plus accrued dividends on outstanding Series G Preferred
Stock of $27,446
(b) In January 1997 the Company and a limited partnership, CMLP
Group, Ltd., of which AFG is the General Partner, entered into a Joint
Venture Agreement relating to the acquisition and development of certain
real estate as the future site of the Company's corporate offices. The
initial capital of the joint venture consisted of $276,285.27 contributed
by CMLP Group, Ltd. and $354,000 contributed by the Company. No further
action has been taken in furtherance of this project. The Company
expects to pursue completion of this project according to the future
needs and financial resources of the Company. In addition to AFG, other
members of CMLP Group, Ltd. include Custer Company, Inc., Billy J.
Robinson, F. Shelton Richardson, Jr., Neal J. Katz, Thomas W. (Bill)
Park, and Thomas P. O'Mara.
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, 1997 the Company filed
four Current Reports on Form 8-K, one dated April 23, 1997, one
dated May 1, 1997, one dated May 14, 1997, and one dated June
23, 1997, all reporting Sales of Equity Securities Pursuant to
the exemption from registration afforded by Regulation S.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. With the exception of historical information, the
matters discussed or incorporated by reference in this Annual Report on
Form 10-K are forward-looking statements that involve risks and
uncertainties including, but not limited to, economic conditions, product
demand and industry capacity, competitive products and pricing,
manufacturing efficiencies, new product development, ability to enforce
intellectual property rights, and other risks indicated in filings with
the Securities and Exchange Commission.
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
September 4, 1997
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, September 4, 1997
Patrick A. Custer President, Chief Executive
Officer and Director
Principal Financial and Accounting Officer
/s/ F. SHELTON RICHARDSON, JR. Vice President, September 4, 1997
F. Shelton Richardson, Jr. Chief Financial Officer
Additional Directors
/s/ BILLY J. ROBINSON Vice President, Secretary, September 4, 1997
Billy J. Robinson General Counsel and Director
/s/ EDWARD M. WARREN Director September 4, 1997
Edward M. Warren
/s/ BERNARD S. APPEL Director September 4, 1997
Bernard S. Appel
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CURTIS MATHES HOLDING CORPORATION
AND SUBSIDIARIES
JUNE 30, 1997 AND 1996
CURTIS MATHES HOLDING 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, 1997 and 1996 F-4
Consolidated Statements of Operations for years ended
June 30, 1997, 1996 and 1995 F-7
Consolidated Statement of Changes in Stockholders' Equity
for years ended June 30, 1997, 1996 and 1995 F-8
Consolidated Statements of Cash Flows for years ended
June 30, 1997, 1996 and 1995 F-12
Notes to Consolidated Financial Statements F-15
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-40
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 and Subsidiaries as of June 30, 1997 and 1996, 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, 1997. 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,
1997 and 1996, and the results of their operations and their cash
flows for each of the years in the three year period ended June 30,
1997, in conformity with generally accepted accounting principles.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
August 6, 1997
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
ASSETS
1997 1996
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 800,346 $ 4,150,481
Marketable securities 282,142 -
Subscriptions receivable - 4,351,500
Accounts receivable
Trade - 8,445
Due from related parties 20,000 40,000
Note receivable, net of allowance
of $375,000 in 1997 35,237 354,807
Inventory 79,701 646,929
Current portion of restricted cash - 47,423
Prepaid expenses 1,918,998 93,916
------------ ------------
Total current assets 3,136,424 9,693,501
------------ ------------
PROPERTY AND EQUIPMENT, net 2,319,012 656,102
------------ ------------
OTHER ASSETS
Investment in joint venture 354,000 -
Notes receivable, less current portion 291,521 -
Software development 4,149,748 491,667
Licenses 1,100,117 -
Trademark, net of accumulated
amortization of $822,693
and $577,389 4,093,061 4,338,366
Other 30,870 30,770
------------ ------------
Total other assets 10,019,317 4,860,803
------------ ------------
TOTAL ASSETS $ 15,474,753 $ 15,210,406
-Continued-
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
June 30, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
------------ ------------
CURRENT LIABILITIES
Trade accounts payable $ 355,894 $ 134,522
Accrued and other current liabilities 1,197,194 649,456
License fees payable 660,000 -
Current maturities of long-term debt,
including $34,000 due to related
parties in 1997 301,810 807,847
Current maturities of obligations
under capital leases 38,296 109,487
Deferred gain - 1,252,461
------------ ------------
Total current liabilities 2,553,194 2,953,773
------------ ------------
LONG TERM DEBT, less current maturities 171,469 186,310
OBLIGATIONS UNDER CAPITAL LEASES,
less current maturities 14,262 88,876
WARRANTY PROVISION 435,193 257,915
------------ ------------
Total liabilities 3,174,118 3,486,874
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2,8,9,11,
13,14,15,17 and 19)
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 shares in 1996 - 117,305
Series H, 3 and 55 shares in 1996
(liquidation preference of $75,000 in 1997) 3 55
Series I, 5,385 shares in 1996 - 5,385
Series K, 9 shares in 1997 (liquidation
preference of $1,035,000) 9 -
Series L, 1,275 shares in 1997 (liquidation
preference of $1,275,000) 1,275 -
Common stock, $.01 par value; 80,000,000 and
40,000,000 shares authorized and 36,709,186
and 24,311,188 issued and outstanding at
June 30, 1997 and 1996, respectively 367,092 243,112
Additional paid-in-capital 30,317,592 22,193,525
Accumulated deficit, since July 1, 1993 quasi
reorganization in which an accumulated
deficit of $4,140,595 was eliminated (18,525,336) (10,975,850)
------------- -------------
Total Stockholders' Equity 12,300,635 11,723,532
------------- -------------
TOTAL LIABILITIES AND EQUITY $ 15,474,753 $ 15,210,406
============= =============
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
------------- ------------- -------------
REVENUES:
Net sales $ 2,503,512 $ 7,656,836 $ 21,267,244
Royalty income - - 300,000
------------- ------------- -------------
Total Revenue 2,503,512 7,656,836 21,567,244
COST OF SALES 2,612,402 6,867,560 17,712,200
------------- ------------- -------------
Gross Profit (108,890) 789,276 3,855,044
OPERATING EXPENSES 8,801,723 6,400,523 7,201,209
------------- ------------- -------------
Operating Loss (8,910,613) (5,611,247) (3,346,165)
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest and other income, net 235,404 307,367 128,663
Interest expense (86,292) (583,433) (1,574,540)
------------- ------------- -------------
Total Other Income (Expense) 149,112 (276,066) (1,445,877)
------------- ------------- -------------
MINORITY INTEREST SHARE OF
LOSS OF SUBSIDIARY - - 382,457
------------- ------------- -------------
LOSS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM (8,761,501) (5,887,313) (4,409,585)
Income tax benefit 463,035 - -
------------- ------------- -------------
LOSS FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY ITEM (8,298,466) (5,887,313) (4,409,585)
DISCONTINUED
OPERATIONS
Income from operations
of discontinued electronics
components segment - - 74,590
Gain on sale of discontinued
segment - - 98,460
------------- ------------- -------------
Loss before extraordinary item (8,298,466) (5,887,313) (4,236,535)
EXTRAORDINARY ITEM
Gain on extinguishment of
debt, net of income taxes
of $463,035 789,426 - -
------------- ------------- -------------
-Continued-
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
------------- ------------- -------------
NET LOSS $ (7,509,040) $ (5,887,313) $ (4,236,535)
============= ============= =============
Loss from continuing
operations attributable
to common shareholders
(Note 1) $ (8,325,689) $ (6,187,353) $ (4,331,397)
============= ============= =============
Loss attributable to common
shareholders (Note 1) $ (7,536,263) $ (6,187,353) $ (4,158,347)
============= ============= =============
Loss from continuing
operations per share
attributable to common
shareholders $ (0.25) $ (0.35) $ (0.46)
============= ============= =============
Gain from extraordinary item
per share $ 0.02 $ - $ -
============= ============= =============
Loss per share attributable to
common shareholders $ (0.23) $ (0.35) $ (0.44)
============= ============= =============
Weighted average common shares
outstanding 32,307,591 17,432,013 9,416,503
============= ============= =============
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1997, 1996 and 1995
Additional Notes Receivable
Common Stock Preferred Stock Paid-In and Investment in Accumulated
Shares Amount Shares Amount Capital Preferred Stock Deficit
---------- ---------- -------- ------------ ------------ ----------------- --------------
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 - - - - -
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) (699,098) - -
Issuance of Series F preferred
stock for dividends - - 183 183 182,564 - -
-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, 1997, 1996 and 1995
Additional Notes Receivable
Common Stock Preferred Stock Paid-In and Investment in Accumulated
Shares Amount Shares Amount Capital Preferred Stock Deficit
---------- ---------- -------- ------------ ------------ ----------------- --------------
Redemption of Series F preferred
stock in satisfaction of notes
receivable and interest from
Advanced PC Products, Inc.("APC") - $ - (252) $ (252) $ - $ - $ -
Issuance of Series F preferred
stock in satisfaction of
notes payable - - 1,049 1,049 1,048,415 - -
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) (24,975) - -
Redemption of Series F preferred
stock for investment in APC - - (2,240) (2,240) (2,237,760) 2,240,000 -
Redemption of Series F preferred
stock for cash - - (98) (98) (97,902) - -
Conversion of Series F preferred
stock to series G preferred stock - - 35,350 35,350 (35,350) - -
Issuance of Series G preferred
stock for cash to AFG - - 96,563 96,563 578,437 - -
Issuance of Series G preferred stock
for repurchase of 20% interest in
Curtis Mathes Corporation - - 97,500 97,500 170,625 - -
Dividends paid in cash - - - - - - (236,703)
Net loss for the year - - - - - - (4,236,535)
---------- ---------- -------- ------------ ------------ ------------ --------------
BALANCES - June 30, 1995 9,954,800 99,548 369,763 369,763 7,234,151 - (4,782,682)
Issuance of Series H preferred
stock for cash - - 55 55 1,287,445 - -
Issuance of Series I preferred
stock for cash - - 550 550 494,450 - -
Subscriptions for Series I preferred
stock - - 4,835 4,835 4,346,665 - -
Conversion of Series G preferred
stock to common 136,900 1,369 (112,458) (112,458) (405,875) - -
Conversion of debentures and
demand notes 1,050,000 10,500 - - 789,500 - -
Issuance of common stock for fees
and services 222,000 2,220 - - 149,280 - -
Issuance of common stock for
employee compensation 83,000 830 - - - - -
Issuance of common stock for cash
and payment of note payable
of $145,280 10,317,088 103,171 - - 5,845,279 - -
Exercise of warrants 1,887,000 18,870 - - 2,452,630 - -
-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, 1997, 1996 and 1995
Additional Notes Receivable
Common Stock Preferred Stock Paid-In and Investment in Accumulated
Shares Amount Shares Amount Capital Preferred Stock Deficit
---------- ---------- -------- ------------ ------------ ----------------- --------------
Issuance of common stock for
fees on above common stock
issuances for cash 660,400 $ 6,604 - $ - $ - $ - $ -
Dividends paid in cash - - - - - - (305,855)
Net loss for the year - - - - - - (5,887,313)
---------- ---------- -------- ------------ ------------ ------------ --------------
BALANCES - June 30, 1996 24,311,188 243,112 262,745 262,745 22,193,525 - (10,975,850)
Redemption of Series G
preferred for cash - - (117,305) (117,305) (1,055,745) - -
Conversion of Series H
preferred for common stock 879,068 8,791 (52) (52) (8,739) - -
Issuance of Series I
preferred stock for cash - - 800 800 728,200 - -
Conversion of Series I
preferred to common stock 5,200,136 52,001 (6,185) (6,185) (45,816) - -
Issuance of Series J
preferred stock for cash - - 1,625 1,625 1,460,875 - -
Conversion of Series J
preferred for common stock 1,481,140 14,811 (1,625) (1,625) (13,186) - -
Issuance of common stock
for cash 3,220,000 32,200 - - 3,568,426 - -
Issuance of Series K
preferred for cash - - 11 11 983,876 - -
Issuance of Series L
preferred stock for cash - - 1,500 1,500 1,423,500 - -
Conversion of Series K
preferred for common stock 135,501 1,355 (2) (2) (1,353) - -
Issuance of common stock for
warrants exercised 100,000 1,000 - - 81,000 - -
Conversion of Series L
preferred for common stock 303,797 3,038 (225) (225) 2,813 - -
Conversion of Line of Credit
note payable for common stock 1,078,356 10,784 - - 1,000,216 - -
Dividends paid in cash - - - - - - (40,446)
Net loss for the year - - - - - - (7,509,040)
---------- ---------- -------- ------------ ------------ ------------ --------------
BALANCES - June 30, 1997 36,709,186 $ 367,092 141,287 $ 141,287 $ 30,317,592 $ - $ (18,525,336)
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (7,509,040) $ (5,887,313) $ (4,236,535)
Adjustments to reconcile net loss
to cash provided (used) by operating activities:
(Gain) loss on sales of assets 1,200 305 44,185
Gain on sale of discontinued segment - - (98,460)
Depreciation and amortization 690,504 645,128 477,014
Income tax benefit (463,035) - -
Gain on extinguishment of debt (789,426) - -
Provision for bad debts 375,000 536,080 (59,512)
Provision for obsolete inventory 255,115 (282,457) 9,962
Minority interest share of loss in subsidiary - - (382,457)
Issuance of shares as employee compensation
and/or financing fees - 830 -
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 28,445 990,231 (563,429)
Inventory 312,113 2,329,882 (921,877)
Prepaid expense and other (1,825,081) (460,144) 153,648
Restricted cash 47,423 233,209 65,263
Other assets (100) 32,720 164,048
Accounts payable, accrued liabilities
and other current liabilities 1,429,110 (193,699) (537,515)
Other liabilities 177,278 (169,613) 54,183
------------- ------------- -------------
Cash provided (used) by operating activities (7,270,494) (1,919,841) (5,858,754)
------------- ------------- -------------
-Continued-
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment $ (2,100,359) $ (136,558) $ (299,328)
Investment in joint venture (354,000) - -
Software development (3,649,748) - -
Licenses (1,113,867) - -
Investment in marketable securities (282,142) - -
Repurchase of 20% interest in CM - - (151,000)
Reorganization payments to trustee and DFS - - (361,267)
Cash balance in company acquired (disposed) - (5,342) (11,992)
Collections on notes receivable 28,049 1,193 625,217
Issuance of note receivable (375,000) - -
------------- ------------- -------------
Cash used for investing activities (7,847,067) (140,707) (198,370)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Checks issued in excess of cash balances - (32,852) 32,852
Receipts under borrowing arrangements 1,000,000 - -
Change in borrowings under line of credit agreements - (2,572,024) 3,437,866
Proceeds from long-term debt 122,062 - -
Principal payments on long-term debt (642,940) (1,235,147) (196,605)
Principal payments on capital lease obligations (145,805) (6,207) (116,844)
Issuances of preferred and common stock for cash 8,296,105 10,271,421 2,439,500
Redemption of preferred stock for cash (1,173,050) - (98,000)
Receipt of cash for common stock issued in
prior year 4,351,500 - -
Dividends paid (40,446) (305,855) (53,956)
------------- ------------- -------------
Cash provided by financing activities 11,767,426 6,119,336 5,444,813
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,350,135) 4,058,788 (612,311)
CASH AND CASH EQUIVALENTS, BEGINNING 4,150,481 91,693 704,004
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 800,346 $ 4,150,481 $ 91,693
============= ============= =============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 64,231 $ 508,898 $ 1,787,846
============= ============= =============
-Continued-
See accompanying notes to consolidated financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
------------- ------------- -------------
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for settlement of cash received
under borrowing arrangements, including $78,356 in
accrued interest. $ 1,078,356 $ - $ -
============= ============= =============
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 and receivable $ - $ 4,350,500 $ -
============= ============= =============
Issuance of common stock for commission $ - $ 6,604 $ 228
============= ============= =============
Purchases of property and equipment for notes payable $ - $ 59,337 $ 511,047
============= ============= =============
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 receivable and interest $ - $ - $ 1,049,464
============= ============= =============
Redemption of preferred stock in satisfaction
of notes receivable and interest $ - $ - $ 3,673,500
============= ============= =============
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
============= ============= =============
See accompanying notes to consolidated financial statements
CURTIS MATHES HOLDING 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 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 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.
During 1997, the Company created a new subsidiary, Curtis Mathes
Xpressway Corporation (Xpressway). Xpressway was created to
construct, own, and operate the Company's new Internet service
provider (ISP) which will be the Internet "on ramp" for uniView
users.
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.
Marketable Securities
Marketable securities are classified as available-for-sale and
stated at fair market value. The historical cost of these
securities approximates their fair market value at June 30, 1997.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Prepaid Expenses
Prepaid expenses include approximately $1,350,000 advanced to an
entity to fund the production of uniView inventory.
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.
Software Development Costs
Software development costs have been capitalized in accordance
with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed" ("SFAS 86"). Under SFAS 86, capitalization
of software development costs begins upon the establishment of
technological feasibility and ends when a product is available
for general release to customers. Software development costs
will be amortized after the product is placed in service over a
period ranging from three to five years.
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 paid to Deutsche Financial Services
("DFS"), (previously ITT Commercial Finance Corporation) and
unsecured creditors in accordance with the Curtis Mathes
Corporation reorganization (see Note 14). The trademark value is
amortized on a straight-line basis over 20 years. Amortization
of the trademark for the years ended June 30, 1997, 1996 and 1995
amounted to $244,238, $244,264 and $206,284, 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 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.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Research and Development Costs
Research and development costs are charged to operations when
incurred and are included in operating expenses. The amounts
charged to expense in 1997, 1996 and 1995 were $516,931 and
$11,480 and $0, respectively.
Advertising Costs
Advertising costs are charged to operations when the advertising
first takes place. Advertising costs charged to expense in 1997,
1996, and 1995 totaled $1,981,172, $142,891 and $249,151,
respectively.
License Fees
The cost of initial license fees and other operating rights
acquired are being amortized on the straight line method over
their remaining contractual lives of five years. Amortization
expense charged to operations in 1997 totaled $7,750.
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
13. CM uses the same credit policies in evaluating its
guarantees as it does for financial instruments reflected in the
Company's financial statements.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Net Loss Per Common Share
Net loss per share of common stock is computed based on the
weighted average number of common shares outstanding during each
respective year. Net loss for purposes of the computation of
loss per share is increased for preferred stock dividends of
$27,223, $300,040 and $78,188 ($.00, $0.02 and $0.01 per common
share) for the years ended June 30, 1997, 1996, and 1995,
respectively. Fully diluted loss per share for the years ended
June 30, 1997, 1996 and 1995 is the same as primary loss per
share since the assumed conversion of convertible securities
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.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") became effective in
fiscal 1997. 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. The Company has
adopted SFAS 123 on a disclosure basis only. (See Note 11).
Accounting Standards Not Yet Adopted
In February, 1997, Statement of Financial Accounting Standards
No. 128, "Earnings per Share" was issued. This statement
standardizes the earnings per share calculation with
International Accounting Standards and is effective for years
ending after December 15, 1997. Implementation of this statement
is not expected to materially impact the Company's earnings per
share calculations.
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.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
Reclassifications
Certain prior year amounts have been reclassified in order to
conform to current year presentation.
2. ABILITY TO CONTINUE AS A GOING CONCERN
As reflected in the accompanying consolidated financial
statements, the Company incurred losses from continuing
operations of $8,298,466, $5,887,313 and $4,409,585 during the
years ended June 30, 1997, 1996 and 1995, respectively. During
1997, 1996 and 1995, the Company also used substantial cash in
operations. During the second half of fiscal 1996, the Company
redirected its focus toward a new product, uniView. Since the
Company's change of focus in late fiscal 1996, substantially all
resources have been committed to the development and refining of
the new uniView product. The Company's ability to continue as a
going concern will be based on its ability to obtain the
operating funds necessary to fund this new direction until cash
flows generated by operations are sufficient to meet the cash
flow needs of the Company.
The Company introduced its product to the market in August, 1997
and, based on early shipments of product, believes that it has
begun to achieve product acceptance.
Management projections rely heavily on additional financing in
fiscal 1998. Management's plans with respect to the required
financing include significant draw downs on the Company's
existing borrowing arrangement (See Note 8), cash from the
exercise of stock warrants, and cash from additional issuances of
common stock. Management believes that the product will be
successful and that the necessary financing to fund its
operations will be obtained.
3. ACQUISITIONS AND DISPOSITIONS
CM
The Company reacquired the outstanding 20% interest in CM in
June, 1995 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
3. ACQUISITIONS AND DISPOSITIONS - Continued
SMI
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. During 1997, the remaining
balance of the second promissory note became uncollectable and
was charged against a previously established allowance.
4. RESTRICTED CASH
In accordance with CM's plan of reorganization (see Note 14), 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 was 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 to use
funds for payment of warranty claims arising out of other periods
in addition to those specified in the plan of reorganization.
Surplus funds remaining in the post-petition warranty account on
February 1, 1997, vested with the reorganized Curtis Mathes
Corporation.
5. NOTES RECEIVABLE
Notes receivable at June 30, 1997 and 1996 consist of the following:
1997 1996
------------ ------------
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. $ 323,911 $ 350,000
Note receivable from employee, earning interest
at 9.5%, secured by automobile. 2,847 4,807
Note receivable from ViewCall America, Inc.,
non-interest bearing, secured by borrower's
notes receivable 375,000 -
Less reserve for bad debts (375,000) -
------------ ------------
326,758 354,807
Less current portion (35,237) (354,807)
------------ ------------
Long-term portion $ 291,521 $ -
============ ============
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVENTORY
Inventory at June 30, 1997 and 1996 consists of the following:
1997 1996
------------ ------------
Consumer electronic products $ 334,816 $ 646,929
Less reserve for excess and obsolete inventory (255,115) -
------------ ------------
$ 79,701 $ 646,929
============ ============
Also see Note 8.
7. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 and 1996
consist of the following:
1997 1996
------------ ------------
Equipment $ 3,137,944 $ 1,198,566
Vehicles 22,589 7,500
Furniture and fixtures 131,483 49,690
Leasehold improvements 100,490 71,692
Computer software 35,301 -
------------ ------------
3,427,807 1,327,448
Less accumulated depreciation and amortization (1,108,795) (671,346)
------------ ------------
Net property and equipment $ 2,319,012 $ 656,102
============ ============
Equipment under capital leases included above at June 30, 1997
and 1996 amounted to $407,332 and $323,761, respectively, and the
related accumulated amortization amounted to $349,660 and
$272,401, respectively.
Depreciation expense for the years ending June 30, 1997, 1996 and
1995 totaled $437,448, $391,331 and $275,488, respectively.
8. BORROWING ARRANGEMENTS AND DEBT
Long-term debt at June 30, 1997 and 1996 consists
of the following:
1997 1996
------------ ------------
Note payable to an individual with imputed
interest of 10%, payable in monthly
installments of $1,458, unsecured. $ 48,959 $ 66,455
Note payable to a financial institution with
interest at 10.9%, payable in monthly installments
of $2,677, collateralized by equipment. 561 32,686
Note payable to AIG Designs, Inc. with interest
at 10%, payable in monthly installments of
approximately $15,000, unsecured. - 227,319
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. BORROWING ARRANGEMENTS AND DEBT - Continued
Long-term debt at June 30, 1997 and 1996 - Continued
1997 1996
------------ ------------
Note payable to DFS with interest at prime
(8.25% at June 30, 1996), payable in monthly
principal installments of $33,000 plus interest,
collateralized by a note receivable due from SMI
and inventory. $ - 300,000
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. 389,759 367,697
Note payable to Custer Company, Inc. 34,000 -
------------ ------------
473,279 994,157
Less current portion (301,810) (807,847)
------------ ------------
Long-term portion $ 171,469 $ 186,310
============ ============
The following is a schedule of maturities of long-term
debt at June 30, 1997:
1998 $ 301,810
1999 142,108
2000 17,496
2001 11,865
---------
$ 473,279
=========
At June 30, 1995, the Company had debentures with an outstanding
balance of $555,000. During 1996, all of the debentures were
converted into the Company's common stock.
The Company has a revolving borrowing arrangement with an
investor which provides for borrowings up to $10,000,000
outstanding at any given time. Amounts outstanding bear interest
at prime plus 1.5%, are unsecured, and to the extent not
converted to common stock, are due within one year of the draw
down. The Company and the investor generally agree on the terms
of conversion at the time of draw down. Amounts available under
the borrowing "facility" are increased by the amount converted
into common stock to a maximum of $10,000,000.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. 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 the warranties in
October, 1996.
For the years ended June 30, 1997, 1996 and 1995, the Company
provided for warranty allowance at a rate of approximately 5%,
2.5% and 2.5% of sales, respectively. 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 $108,798 and $96,479
at June 30, 1997 and 1996, respectively and other long-term
liabilities include an allowance for warranty claims of $435,193
and $257,915 at June 30, 1997 and 1996, respectively.
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.
10. RELATED PARTY TRANSACTIONS
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
the Company, owed the Company $121,389 for advances made by the
Company. This amount was settled during the year ended June 30,
1995.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RELATED PARTY TRANSACTIONS - Continued
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. In connection with the sale, the Company
received royalty payments which amounted to $300,000 during the
year ended June 30, 1995.
During 1995, the Company 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 1995, 96,563 shares of Series G were issued to Associates
Funding Group ("AFG"), a related party, for cash proceeds of
$675,000.
During 1996, the Company wrote off a $25,000 note receivable from
BC & Q, a related entity.
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.
In connection with the purchase and sale of a company in previous
years, at June 30, 1994, the Company ended up holding both an
investment of preferred stock issued by that entity (a related
company) and issued outstanding preferred shares of the Company
being held by that entity. The $2,240,000 Series B preferred
stock of the Company held by the entity was considered a "de
facto" redemption against the preferred stock investment of
$2,240,000 held in the entity, and, accordingly, at June 30,
1994, the investment in that entity 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 the entity.
See Note 3 regarding sale of SMI.
See Note 18 regarding investment in joint venture.
See Note 20 regarding extraordinary item.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. 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.
At June 30, 1997, the Company has issued and outstanding 140,000
Series A preferred shares, 3 Series H preferred shares, 9 Series
K preferred shares and 1,275 Series L preferred shares. Series A
preferred shares are non-convertible, redeemable and carry
dividends of 6%. Series H preferred shares are convertible,
redeemable and carry dividends of 5%. Series K preferred shares
are convertible, redeemable, and carry dividends of 10%. Series
L preferred shares are convertible and carry no dividends.
Subsequent to June 30, 1997, the Company issued $1,500,000 in
Series M preferred stock. These shares are convertible,
redeemable and carry dividends of 3%.
Dividends of $40,446 and $305,855 on preferred stock were paid
during the year ended June 30, 1997 and 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, 1997, 1996
and 1995 amounted to $12,858, $26,081 and $31,896, respectively.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY - Continued
Common Stock
Common stock warrants issued and outstanding as of June 30, 1997
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
790,000 1.500 July 1995 3 years
74,000 1.000 August 1995 4 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
50,000 1.500 May 1996 2 years
55,000 3.000 May 1996 3 years
22,500 3.280 May 1996 5 years
40,000 4.500 May 1996 3 years
230,000 1.50 October 1996 3 years
1,165,101 1.75 October 1996 1 year
52,500 3.28 March 1997 4 years
200,000 0.94 April 1997 5 years
11,666 1.188 May 1997 1 year
43,332 1.219 May 1997 1 year
9,999 1.25 May 1997 1 year
50,000 0.94 June 1997 5 years
----------
10,782,831
During the year ended June 30, 1997 and 1996, 100,000 and
1,887,000 warrants were exercised, respectively, for total cash
proceeds of $82,000 and $2,471,500, respectively. No warrants
were exercised during 1995.
Compensatory Stock Options
The Company has periodically granted stock options for employment
and outside services received during the years reported. These
options are treated as fixed, compensatory awards. During 1997,
the Company granted 1,000,000 options to key employees which vest
over four years. All other compensatory options vested
immediately upon their grant date.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY - Continued
Compensatory Stock Options - Continued
The Company applies APB Opinion 25 in accounting for it's stock
based compensation awards. During 1997, 1996 and 1995, options
issued with exercise prices less than market value on the grant
date were immaterial and, accordingly, no compensation expense
has been recognized in these years. Had compensation cost been
determined on the basis of fair value pursuant to FASB Statement
No. 123, net loss and net loss per share for 1997 and 1996 would
have been increased as follows:
1997 1996
------------- -------------
Net loss:
As reported $ (7,509,040) $ (5,887,313)
Pro forma (7,682,011) (5,996,393)
Loss per share:
As reported (0.23) (0.35)
Pro forma (0.24) (0.36)
Changes in the Company's compensatory options with exercise
prices above, equal to, and below market price at the grant date
are as follows:
Above Equal To Below
---------------- ---------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise Total
Options Price Options Price Options Price Options
------- ------- ------- ------- --------- ------ ---------
Outstanding at
June 30,
1995 90,600 $ 2.78 - $ - - $ - 90,600
Granted in
1996 282,250 2.00 7,000 .75 32,000 .61 321,250
Exercised in
1996 (170,500) .97 (7,000) .75 (14,000) .75 (191,500)
Forfeited/Expired
in 1996 - - - - - - -
------- ------- ------- ------- --------- ------ ---------
Outstanding at
June 30,
1996 202,350 3.22 - - 18,000 .50 220,350
Granted in
1997 - - - - 1,053,500 .94 1,053,500
Exercised in 1997 - - - - (71,500) .83 (71,500)
Forfeited/Expired
in 1997 - - - - - - -
------- ------- ------- ------- --------- ------ ---------
Outstanding at
June 30, 1997 202,350 $ 3.22 - $ - 1,000,000 $ .94 1,202,350
======= ======= ======= ======= ========= ====== =========
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY - Continued
Compensatory Stock Options - Continued
A summary of the weighted average grant date fair values of
options with exercise prices above, equal to, and below market
price at the date of grant are as follows:
Above Equal To Below
----- -------- -----
1996 .24 .13 1.29
1997 0 0 .61
The following table summarizes information about compensatory
stock options outstanding at June 30, 1997:
Options Outstanding Options Exercisable
- --------------------------------------------------- -------------------------
Weighted Avg.
Range of Remaining Weighted Avg. Weighted Avg.
Exercise Number Contractual Exercise Number Exercisable
Prices Outstanding Life Price Exercisable Price
- ---------- ----------- ------------ ------------- ----------- ------------
$.94-$4.50 1,202,350 4.27 years $1.32 452,350 $1.96
The fair value of each option granted is estimated on the grant
date using the Black-Scholes option pricing model. The model
requires the input of subjective assumptions. The following
assumptions were made in estimating the fair value of all
compensatory stock options:
1997 1996
---- ----
Dividend yield 0% 0%
Risk-free interest rate 6% 6%
Expected volatility 60% 60%
Expected life 4.75 years 1.47 years
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES
A reconciliation of income tax expense (benefit) computed by
applying the U.S. federal tax rates to loss from continuing
operations before income taxes and extraordinary items and
recorded income tax expense (benefit) is as follows:
1997 1996 1995
------------- ------------- -------------
Tax expense (benefit)
at statutory rate $ (3,239,127) $ (2,177,000) $ (1,707,000)
Meals and entertainment 5,998 - -
Amortization of goodwill 90,689 - -
Difference on sale of SMI - - 310,000
Change in estimate for
prior years 1,213,485 - -
Valuation allowance 1,465,920 2,177,000 1,397,000
------------- ------------- -------------
$ (463,035) $ - $ -
============= ============= =============
The components of the Company's deferred income taxes at June 30,
1997 and 1996 are as follows:
1997 1996
------------- -------------
Current:
Inventory reserve $ 94,316 $ (36,000)
Note receivable reserve 138,638 227,000
Warranty reserve 169,618 -
Valuation allowance (402,572) (191,000)
------------- -------------
- -
------------- -------------
Noncurrent:
Goodwill - (310,000)
Depreciation (73,747) (53,000)
Warranty reserve 160,891 95,000
Software development costs (1,534,162) -
Net operating loss carryforward 7,831,025 5,565,000
Valuation allowance (6,384,007) (5,297,000)
------------- -------------
- -
------------- -------------
Total $ - $ -
============= =============
At June 30, 1997, the Company has net operating loss
carryforwards for Federal income tax purposes of approximately
$21,000,000 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 2012
if not utilized. The total change in the valuation allowance for
the years ended June 30, 1997, 1996 and 1995 amounted to
$1,465,920, $2,194,000 and $2,451,000, respectively.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS AND CONTINGENCIES
During 1996 and 1995, CM transferred receivables from qualified
dealers to DFS under a repurchase agreement. The agreement
requires 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 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, 1997 was approximately $410,000. In conjunction with the
settlement agreement with DFS, all dealer financing programs were
canceled effective August 1, 1996.
The Company is a defendant in a class action lawsuit. The suit
asks for damages of approximately $1,000,000. Management believes
that the suit is without merit and intends to vigorously defend
its position, but is unable to determine the outcome or the
related financial exposure if any.
In the normal course of business, the Company is involved in
various product liability and other lawsuits. The Company has
accrued $350,000 in connection with these items which is
management's estimate of the ultimate aggregate settlement
amount.
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.
The following is a schedule of future minimum lease payments at
June 30, 1997:
Operating Capital
leases leases
--------- ----------
1998 $ 444,178 $ 50,749
1999 318,290 22,913
2000 158,026 -
2001 - -
--------- ----------
$ 920,494 73,662
=========
Less amount representing interest (21,104)
Present value of net minimum lease ----------
payments including current
maturities of $38,296 $ 52,558
==========
Rental and lease expense under operating leases for the years
ended June 30, 1997, 1996 and 1995 was approximately $476,000,
$459,000 and $410,000, respectively.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. 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 was identified as "class twelve"
in the Plan and could not 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. CM paid DFS 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. All remaining amounts due under this claim were settled
pursuant to the March, 1996 agreement described in Note 20.
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, 1997, CM was
current in making the remittances, which amounted to
approximately $12,500, $36,000 and $108,000 for the years ended
June 30, 1997, 1996 and 1995, respectively. This payment will be
made by CM to the trustee for a period of 72 months from the
effective date of the Plan.
15. 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 or 1995. During 1997, the Company discontinued the
sale of its traditional products. All 1997 sales were to one
customer in exchange for advertising services.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK - Continued
Financial instruments subject to credit risk consist primarily of
cash, marketable securities and notes receivable. Cash is at
risk to the extent that it exceeds Federal Deposit Insurance
Corporation insured amounts (approximately $646,956 at June 30,
1997). To minimize risk, the Company places its cash and
marketable securities with high credit quality financial
institutions. The significant portion of notes receivable is
secured by the parts inventory included in the sale.
16. BUSINESS SEGMENT INFORMATION
During 1997, 1996 and 1995 the Company was engaged primarily in
the distribution of consumer electronic products. The following
tables set forth certain information with respect to the years
ended June 30:
1997 1996 1995
------------- ------------- -------------
Net revenues:
Consumer electronics $ 2,503,512 $ 7,656,836 $ 21,267,244
Corporate - - 300,000
------------- ------------- -------------
Consolidated $ 2,503,512 $ 7,656,836 $ 21,567,244
============= ============= =============
Operating loss:
Consumer electronics $ (6,229,880) $ (3,478,435) $ (2,281,536)
Real estate and other - - (4,010)
Corporate (1,982,294) (1,825,445) (931,956)
------------- ------------- -------------
Total operating Loss (8,212,174) (5,303,880) (3,217,502)
Less interest expense (86,292) (583,433) (1,574,540)
Add minority interest loss of subsidiary - - 382,457
------------- ------------- -------------
Loss from continuing operations $ (8,298,466) $ (5,887,313) $ (4,409,585)
============= ============= =============
Identifiable assets:
Consumer electronics $ 13,620,173 $ 6,356,795 $ 12,334,861
Real estate and other - 29,487 55,713
Corporate 1,854,580 8,824,124 1,697,826
------------- ------------- -------------
$ 15,474,753 $ 15,210,406 $ 14,088,400
============= ============= =============
Depreciation and amortization:
Consumer electronics $ 501,310 $ 436,122 $ 317,483
Real estate and other - 1,226 756
Corporate 189,194 207,780 158,775
------------- ------------- -------------
$ 690,504 $ 645,128 $ 477,014
============= ============= =============
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. BUSINESS SEGMENT INFORMATION - Continued
1997 1996 1995
------------- ------------- -------------
Capital expenditures:
Consumer electronics $ 1,689,685 $ 194,667 $ 742,432
Corporate 410,674 1,228 67,943
Less capital expenditures
paid for other than by cash (28,882) (59,337) (511,047)
------------- ------------- -------------
$ 2,071,477 $ 136,558 $ 299,328
============= ============= =============
Operating loss for segment reporting purposes consists of
revenues and other income, less all expenses except interest
expense.
17. 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 was determined in
1996 that funding of the plan for prior years service has not
been relieved. Therefore, the Company accrued the amount of the
unfunded plan liability as measured January 1, 1995, resulting in
recognition of approximately $171,000 in pension cost for the
year ended June 30, 1996.
The following table sets forth the funded status of the Company's
defined pension plan:
Actuarial present value of benefit obligations:
1997 1996
------------- -------------
Accumulated benefit obligation $ 708,186 $ 685,152
------------- -------------
Projected benefit obligation 708,186 685,152
Plan assets at fair value 618,503 518,514
------------- -------------
Excess projected benefit obligation $ 89,683 $ 166,638
Increase due to an assumption change - 883
------------- -------------
Net Pension Liability $ 89,683 $ 167,521
============= =============
Net pension cost includes the following components:
Funding deficiency accumulated in prior years $ - $ 141,348
Funding deficiency for 1994 - 32,827
Net amortization and deferrals - (6,654)
Interest on unfunded liability 21,227 -
Actuarial loss (3,360) -
------------- -------------
Net pension cost $ 17,867 $ 167,521
============= =============
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. RETIREMENT PLAN - Continued
The weighted average assumed discount rate used in determining
the actuarial present value of the projected benefit obligation
for both 1997 and 1996 was 7.75%. The weighted average assumed
rate of return on pension plan assets for both 1997 and 1996 was
7.75%.
18. INVESTMENT IN JOINT VENTURE
During 1997, the Company entered into a joint venture agreement
with CMLP Group, Ltd. (CMLP), a related party. The joint venture
entity, Westgrove Joint Venture (Westgrove), was organized for
the purposes of purchasing and managing a particular tract of
land. CMLP, a limited partnership, is jointly owned by the
Company's officers, members of management, and other related
parties. Associates Funding Group, Inc., a related party, is
CMLP's general partner. Management and control of Westgrove is
maintained by CMLP.
The carrying amount of the investment represents the Company's
initial contribution. The agreement entitles the Company to a 56
percent ownership and earnings allocation. The investment is
accounted for under the equity method of accounting.
19. LICENSING FEES AND ROYALTIES
During 1997 and 1996, the Company entered into numerous licensing
agreements with third parties. These agreements provide for the
licensed use by the Company of certain proprietary technologies,
and vary in their terms and conditions. Each agreement required
an initial payment which has been capitalized and included in
licensing fees at year end. Pursuant to these agreements, the
Company also committed to future royalties and minimum periodic
payments.
Future minimum payments for the years ended June 30 due under
these licensing agreements are as follows:
1998 $ 450,000
1999 1,000,000
2000 1,800,000
2001 1,050,000
2002 750,000
-----------
$ 5,050,000
===========
During fiscal 1996, the Company entered into a licensing
agreement to obtain certain technology for an original period of
five years. In June, 1996, the Company paid an advance royalty of
$500,000 (included in software development costs in the
accompanying balance sheet). Under the terms of the agreement,
royalties of 3% of all sales of the product are to be remitted to
the licensor. However, the technology was not utilized to the
extent originally anticipated, and management does not believe
that any future royalties are payable under this agreement.
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. LICENSING FEES AND ROYALTIES - Continued
During fiscal 1997, the Company entered into an agreement for the
licensed use of certain technology. Under the terms of the
agreement, the Company is obligated to pay future royalties based
on uniView units shipped as follows:
First 100,000 units $4.00 per unit
Next 250,000 units $3.50 per unit
Next 650,000 units $3.00 per unit
Next 1,000,000 units $2.75 per unit
Above 2,000,000 units $2.50 per unit
During fiscal 1997, the Company entered into an agreement for the
licensed use of a computer software operating system. Under the
terms of the agreement, the Company is obligated to pay future
royalties based on manufactured uniView units as follows:
First 40,000 units no royalty
Next 60,000 units 10.00 (British pounds) per unit
Next 100,000 units 8.00 (British pounds) per unit
Next 200,000 units 6.00 (British pounds) per unit
Next 400,000 units 5.00 (British pounds) per unit
Next 800,000 units 4.00 (British pounds) per unit
At June 30, 1997, the exchange rate for the British Pound was
$1.6309.
20. EXTRAORDINARY ITEM
The extraordinary item of $789,426, net of income tax of
$463,035, represents a gain on forgiveness of debt by DFS.
Effective March 9, 1996, the Company and DFS entered into an
agreement to settle amounts due from CM to DFS. Under the
agreement, all but $500,000 and future repurchase liabilities was
forgiven subject to payment in full of the remaining $500,000 on
or before April 8, 1997. At June 30, 1996, the Company owed DFS
$300,000 of this amount. During 1997, the Company paid DFS
$200,000 in cash. The remaining $100,000 was paid by the Custer
Company, Inc., a related party who assumed the receivable from
DFS.
SCHEDULE II
CURTIS MATHES HOLDING CORPORATION
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1997, 1996, and 1995
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, 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)
Year ended June 30, 1997
Inventory Obsolescence
reserve - (255,115) - - (255,115)
Note receivable reserve (613,114) - (375,000) 613,114 (375,000)
*Note: deductions represent uncollectible accounts or inventories
written off.
CURTIS MATHES HOLDING 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.) N/A
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 December
31, 1993 and incorporated herein by reference.) N/A
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
with the Commission on June 20, 1996 and incorporated herein by reference.)
N/A
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.) N/A
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.) N/A
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.) N/A
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.) N/A
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.) N/A
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.) N/A
4.6 Series J Preferred Stock terms and conditions (filed as Exhibit "4.2" to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996 and incorporated herein by reference.) N/A
4.7 Form of warrant issued in connection with Series J Preferred Stock (filed
as Exhibit "4.5" to the Company's Current Report on Form 8-K dated April
23, 1997 and incorporated herein by reference.) N/A
4.8 Series K Preferred Stock terms and conditions (filed as Exhibit "4.4" to
the Company's Current Report on Form 8-K dated May 16, 1997 and
incorporated herein by reference.) N/A
4.9 Form of subscription agreement for Series K Preferred Stock (filed as
Exhibit "4.5" to the Company's Current Report on Form 8-K dated May 16,
1997 and incorporated herein by reference.) N/A
4.10 Form of warrant issued in connection with Series K Preferred Stock (filed
as Exhibit "4.4" to the Company's Current Report on Form 8-K dated May 23,
1997 and incorporated herein by reference.) N/A
4.11 Series L Preferred Stock terms and conditions (filed as Exhibit "4.5" to
the Company's Current Report on Form 8-K dated May 23, 1997 and
incorporated herein by reference.) N/A
4.12 Form of subscription agreement for Series L Preferred Stock (filed as
Exhibit "4.6" to the Company's Current Report on Form 8-K dated May 23,
1997 and incorporated herein by reference.) N/A
4.13 Series M Preferred Stock terms and conditions, as amended on July 11, 1997
(filed as Exhibit "4.7" to the Company's Registration Statement on Form S-3
filed with the Commission on August 18, 1997 and incorporated herein by
reference.) N/A
4.14 Form of Securities Subscription Agreement for Series M Preferred Stock
(filed as Exhibit "4.12" to the Company's Current Report on Form 8-K dated
June 23, 1997 and incorporated herein by reference.) N/A
4.15 Form of subscription agreement for Convertible Revolving Credit Note
(filed as Exhibit "4.7" to the Company's Current Report on Form 8-K dated
May 23, 1997 and incorporated herein by reference.) N/A
4.16 Form of Convertible Revolving Credit Note (filed as Exhibit "4.8" to the
Company's Current Report on Form 8-K dated May 23, 1997 and incorporated
herein by reference.) N/A
4.17 Form of subscription agreement for warrants executed in connection with a
Revolving Credit Agreement pertaining to a $10 million line of credit
(filed as Exhibit "4.7" to the Company's Current Report on Form 8-K dated
March 14, 1997 and incorporated herein by reference.) N/A
4.18 Form of warrant issued in connection with a Revolving Credit Agreement
pertaining to a $10 million line of credit (filed as Exhibit "4.6" to the
Company's Current Report on Form 8-K dated March 14, 1997 and incorporated
herein by reference.) N/A
10.1 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.) N/A
10.2 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.) N/A
10.3 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.) N/A
10.4 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.) N/A
10.5 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.) N/A
10.6 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 incorporated herein by reference.) N/A
10.7 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.) N/A
10.8 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.) N/A
10.9* Lease Agreement by and between Terry N. Worrell, Sharon C. Worrell, and
Kay Y. Moran, Trustee, as Landlord, and Curtis Mathes Corporation, as
Tenant, dated October 27, 1994 pertaining to the property utilized as the
Corporate headquarters. 76
10.10 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.) N/A
10.11 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.) N/A
10.12 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.) N/A
10.13 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 (filed as Exhibit "10.22" to the Company's annual report on Form
10-K for the fiscal year ended June 30, 1996 and incorporated herein by
reference.) N/A
10.14 Amended Trademark License Agreement dated as of April 17, 1996 between
Curtis Mathes Corporation, as Licensor, and Curtis Mathes Marketing
Corporation, as Licensee, relating to Curtis Mathes trademark license for
uniView product category (filed as Exhibit "10.1" to the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1997 and
incorporated herein by reference.) N/A
10.15 Letter of Intent dated April 29, 1996 between Curtis Mathes Corporation,
Warranty Repair Corporation, and Inman's Corporation relating to CM
warranty service (filed as Exhibit "10.23" to the Company's annual report
on Form 10-K for the fiscal year ended June 30, 1996 and incorporated
herein by reference.) N/A
10.16 Warranty Service Agreement dated May 10, 1996 between Curtis Mathes
Corporation, Warranty Repair Corporation, and Inman's Corporation relating
to CM warranty service (filed as Exhibit "10.24" to the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by reference.) N/A
10.17 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 (filed as Exhibit "10.25" to the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by reference.) N/A
10.18 Promissory Note from Inman's Corporation to Warranty Repair Corporation
dated June 19, 1996 relating to sale of WRC parts inventory (filed as
Exhibit "10.26" to the Company's annual report on Form 10-K for the fiscal
year ended June 30, 1996 and incorporated herein by reference.) N/A
10.19 Security Agreement dated June 19, 1996 between Inman's Corporation and
Warranty Repair Corporation relating to sale of WRC parts inventory (filed
as Exhibit "10.27" to the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1996 and incorporated herein by reference.) N/A
10.20 Revolving Credit Agreement dated as of October 1, 1996 pertaining to a $10
million line of credit (filed as Exhibit "10" to the Company's quarterly
report on Form 10-Q for the fiscal quarter ended December 31, 1996 and
incorporated herein by reference.) N/A
10.21 Manufacturing and Consulting Services Agreement dated as of December 6,
1996 between Curtis Mathes Marketing Corporation and McDonald Technologies
International, Inc., relating to the manufacture of Curtis Mathes uniView
set-top units (filed as Exhibit "10.3" to the Company's quarterly report
on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein
by reference.) N/A
10.22 Trademark License Agreement dated as of January 10, 1997 between Curtis
Mathes Corporation, as Licensor, and Curtis Mathes Xpressway Corporation,
as Licensee, relating to Curtis Mathes trademark license for Internet
access and online services (filed as Exhibit "10.2" to the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1997 and
incorporated herein by reference.) N/A
10.23* Joint Venture Agreement dated as of January 20, 1997 between Curtis
Mathes Marketing Corporation and CMLP Group, Ltd. pertaining to a tract
of land located in the Beltwood North-Trinity Addition to the City of
Carrollton, Dallas County, Texas. 103
10.24 RiscOS Licence and Development Agreement dated as of February 20, 1997
between Curtis Mathes Marketing Corporation and Acorn Computers Limited,
relating to the license and development of the Curtis Mathes uniViewT
technology (filed as Exhibit "10.4" to the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by
reference.) N/A
10.25 Technology License and Distribution Agreement dated as of March 28, 1997
between Curtis Mathes Marketing Corporation and Sun Microsystems, Inc.,
relating to a license of the Java technology (filed as Exhibit "10.5" to
the Company's quarterly report on Form 10-Q for the quarter ended March
31, 1997 and incorporated herein by reference.) N/A
10.26** Employment Contract with Mr. Custer dated as of
April 7, 1997. 106
10.27** Employment Contract with Mr. Robinson dated as of
April 7, 1997. 114
10.28** Stock Option Agreement with Mr. Appel dated as of
April 7, 1997. 122
10.29** Stock Option Agreement with Mr. Warren dated as
of April 7, 1997. 126
21* Subsidiaries of the Company. 130
27* Financial Data Schedule (for EDGAR filing purposes only.) 134
_______________
* Filed herewith.
** Management contract or compensation plan or arrangement required
to be filed as a exhibit pursuant to Item 14 (c).