Item 1. DESCRIPTION OF BUSINESS
GENERAL
Striker Industries, Inc. (hereinafter referred to as Striker or the Company), a Delaware corporation, is in the business of manufacturing recyclables and pulp products into a paper-based felt and asphalt saturated felt paper for use in the roofing industry.
Management's objective is to expand the Company's current business through internal growth and acquisitions that provide strategic opportunities to broaden its product offerings, increase market share and provide profits. Management believes the roofing industry is attractive for the following reasons:
(a) Size of industry (total industry sales were approximately $18 billion in 1997). (b) Stable low-tech nature of products. (c) Consistent industry growth. (d) Historically non-cyclical demand for products. (e) Low product liability exposure.
Management believes that asphalt-roofing products are the best low-cost products to protect a roof system. Additionally, management believes that asphalt roofs are installed on approximately 80% of the single-family residences in North America.
PRODUCTS AND COMPETITION
The Company's two manufacturing facilities are currently idled. A shortage of working capital due to accelerated debt payments resulting from the failure of the GS Roofing merger transaction forced the Company to idle both plants (see Note 9 to Notes To Consolidated Financial Statements). Management is committed to reactivating both plants. It is the goal of Management to have both plants re-started and operating by year-end 1998.
When operating, the Company is capable of manufacturing two products; dry felt paper and asphalt-saturated felt for use in the roofing industry. The dry felt manufactured by the Company is a base homogeneous sheet of porous, soft paper made from used, recycled old corrugated containers and mixed paper and wood flour. The Company does not believe that either it or any other roofing felt manufacturer employs any unique or proprietary process in its dry felt paper-making manufacturing, especially considering the low grade of paper being manufactured. The basic operations of the business can generally be divided into (i) stock preparation, (ii) machine processing of paper, and (iii) finishing operations. The mixture of pulps, the fibrous materials from which paper is formed, is received by the Company in the form of old corrugated containers and various types and grades of sheet paper which come directly from waste collectors and recyclers. Generally, waste paper is trucked in to the Company's manufacturing facilities at the Stephens, Arkansas plant and at the Thorold, Ontario, Canada plant (the Felt Mills, more fully described in Item 2
Item 2. DESCRIPTION OF PROPERTY
The administrative and finance offices of the Company are located in Houston, Texas in approximately 5,038 square feet of leased office space at One Riverway, Suite 2450, Houston, Texas 77056.
The Company's property in the United States consists primarily of approximately 40 acres of land in Ouachita County, Arkansas, just outside the city limits of Stephens, Arkansas, all improvements thereon and that portion of the personal property thereon which was acquired in February 1991 by Holdings, which property and improvements had previously been used as a manufacturing facility of felt, a truck repair and scales facility and a machine shop (collectively herein referred to as the Stephens Mill). The Stephens Mill's manufacturing facility is housed in a main building, approximately 800 feet in length, 100 feet in width and approximately two stories in height, located on the 40 acre tract of land. Boilers used in operation of the Stephens Mill are housed in an approximate 500 square foot control room located immediately adjacent to the main building. A spur of Southern Pacific Railroad serves the Stephens Mill, and trucking docks are located in the front of the main building. Two warehouse buildings are also located on the Stephens Mill property which are used for storage of raw materials and finished goods. Four water-recirculating ponds take up approximately 10 acres of the Stephens Mill's 40-acre site. These ponds furnish an essential source of continuous recirculating water required in the felt producing process of the Company's business.
The Stephens Mill's production equipment and machinery, including a hydrapulper, presses, screening, filtration and rolling equipment are located in the main manufacturing building. Some of the production machinery and equipment is 30 years or more old and has undergone significant improvements and modernization since the Company bought the Stephens Mill in 1991. The Stephens Mill facility itself is approximately 35 years old. In order to be able to compete in the market, the Company must gain efficiencies that will allow the Company to achieve profitability. In order to gain necessary efficiencies, the Company must make capital improvements and general repairs to the machinery, equipment and its buildings as part of reactivating the Stephens Mill.
On or about February 25, 1997, the Company's Stephens Mill experienced a severe storm in connection with tornado activity in the area. The Stephens Mill did not suffer any damage from tornadoes; however, the heavy rains associated with the storm damaged the roof covering a section of one of the main buildings. The Company was not utilizing the area damaged at the time. During April 1997, the Company settled the damage claim for $75,000.
On or about May 14, 1997, a fire occurred in a finished goods warehouse at the Stephens Mill. The building, which is isolated and separate from the main Mill building and its contents, was completely destroyed. At the time of the fire, there were no finished goods stored in the warehouse; however, a quantity of raw materials stored in the warehouse was destroyed in the fire. In June 1997, the Company settled its fire damage claim with the insurance company for approximately $122,000.
The Company has no formal plans to improve the 40-acre tract of land that is part of the Stephens Mill property. The Company holds this land, however, for future expansion of the Stephens Mill manufacturing facility as and when needed. All of the Company's real property, buildings and improvements constituting a part of, or located on, its Stephens Mill site and its administrative offices in Houston, including, without limitation, all machinery, equipment, furniture, furnishings and fixtures and related personal property located thereon, are subject to the first mortgage, liens and encumbrances created in favor of Finova Capital Corporation under the terms and provisions of a Mortgage and Security Agreement dated April 25, 1995 securing indebtedness of the Company and its subsidiaries to Finova Capital Corporation. The assets mentioned above are now also subject to a second lien in favor of BlueStone Capital Partners LP (BlueStone), as agent for holders of the Company's Original Issue Discount Notes (the "OID Notes").
On May 23, 1997, the Company temporarily suspended operations at its Stephens Mill. The Stephens Mill had been experiencing a significant level of unscheduled downtime and required increased repairs and maintenance to operate. Additionally, the Company had experienced a shortage of working capital during the early part of 1997 as a result of unanticipated required repayment obligations of the Company directly caused by and resulting from the wrongful repudiation of the Transaction (see Item 3
Item 3. LEGAL PROCEEDINGS
On April 25, 1996, the Company signed an agreement to combine in a merger transaction (the Transaction) with the indirect parent corporation of one of the largest privately owned manufacturers of asphalt shingles and built up roofing (GS Roofing). The closing of the transaction had been extended in writing by mutual agreement of the parties to April 21, 1997, provided that (i) a Registration Statement required to raise the equity component of the financing required for closing was filed with the Securities and Exchange Commission (which document was filed with the Securities and Exchange Commission December 26, 1996) and (ii) the merger became effective on or before April 21, 1997 or within incremental five business day periods of time thereafter so long as bona fide marketing efforts were being conducted by the underwriters with a view to such Registration Statement becoming effective on or before April 30, 1997.
On or about February 4, 1997, via facsimile transmission the President of GS Roofing sent a notice to the Company of GS Roofing's repudiation of the Transaction. Subsequent to that date, the Company made protracted attempts to reinstate the Transaction, without success. Accordingly, management ultimately retained counsel and filed a suit styled Striker Industries, Inc., David A. Collins and Matthew D. Pond vs. Newgen Holdings, Inc., Gen Holdings, Inc., GS Roofing Products Company, Inc., Donald F. Smith and Maredon-I, Ltd. pending at the date of this Report in the 133rd Judicial District Court of Harris County, Texas alleging, among other things, a breach of contract by the defendants resulting from the defendants' wrongful repudiation of the binding agreements between the Company and the defendants providing for the Transaction, which action by the defendants severely impaired the Company's ability to complete the equity and debt offerings which were a critical part of the Transaction. The lawsuit is still in the preliminary stages. Pre-trial discovery has commenced and depositions have begun. The Company is unable at present to express any opinion regarding the probable outcome of this litigation.
In connection with the Transaction, the Company received bridge financing from the underwriter, BlueStone. As is customary with bridge financing, both the Company and the OID Note noteholders contemplated payment of the bridge notes out of the debt and equity financing of the Transaction. Subsequent to December 31, 1996, and following repudiation of the Transaction by GS Roofing, the Company received a demand notice from BlueStone accelerating the due date of the OID Notes to April 3, 1997 from April 25, 1997. During May 1997, $1,978,000 was repaid and the remaining balance of $332,000, by agreement in principle was to be paid by June 30, 1997. On October 28, 1997, the Company reached an agreement with BlueStone to repay the outstanding principal balance plus accrued interest of $30,876 and BlueStone's out of pocket legal expenses relating to the Transaction of $44,400. The agreement calls for the Company to make eight scheduled monthly payments beginning in December 1997. As of the date of this report, the Company has made all payments required by the agreement. The remaining balance of $380,276 of the OID Notes plus accrued expenses and out of pocket legal expenses has been classified as current debt at December 31, 1997. The OID Notes indebtedness is guaranteed by the Company's U.S. subsidiaries and is secured by a second and subordinate lien and security interest on the assets of each of the Company's U.S. subsidiaries, including its Stephens, Arkansas plant, junior in priority to the lien on the same assets held by its senior lender. It is also secured by a lien and security interest on the assets of the Company's Canadian subsidiary, either junior in time or subordinated to the subsidiary's senior lenders in Canada.
Throughout calendar year 1997, the Company and its subsidiaries have worked diligently to resolve, compromise, settle and/or pay various vendor claims and legal proceedings filed against them arising in the ordinary course of their business. At December 31, 1997, five lawsuits seeking recovery of significant sums were pending, principally against Striker Paper Corporation and Striker Paper Canada, Inc., the US and Canadian subsidiaries that operate the Stephens Mill and the Thorold Mill, all of which suits were settled, or are in substantial discount payment settlement negotiations entered into, subsequent to year-end and prior to the date of this report. All but one of these proceedings were settled by execution by the parties of written Settlement Agreements providing time payment plans with respect to the claims asserted.
In addition, following extensive negotiations and the inability of the Company's Canadian subsidiary to reach agreement on an employment termination package with the former manager of the Thorold Mill, suit was filed on or about April 7, 1997 in Ontario Province, Canada by the former Mill manager against Striker paper Canada, Inc. claiming damages of $142,000 Canadian for alleged wrongful dismissal and $50,000 Canadian for alleged mental distress. Striker Paper Canada filed a Statement of Defense and Counterclaim on September 30, 1997. The Counterclaim seeks damages in the amount of $150,000 Canadian from the plaintiff for his fraudulent or negligent misrepresentation in failing to disclose information within his knowledge to Striker Paper Canada during the negotiations for Striker Paper Canada's purchase of the Thorold Mill. No further action has been taken in this proceeding as of the date of this report.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of fiscal year 1997 to a vote of security holders of the Company, through solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to April 1994, the public market for shares of Common Stock of the Company had been inactive since the beginning of the third quarter of 1991. However, trading in shares of the Company's Common Stock commenced again in, and continued to June 9, 1994 in the over-the-counter electronic bulletin board market. On April 17, 1995, the Company's Common Stock was admitted to trading on the NASDAQ SmallCap market. The high and low trade prices for the Company's Common Stock in either the over-the-counter electronic bulletin board or NASDAQ SmallCap markets for each full quarterly period within the two most recent fiscal years, or part thereof for which quotes are available, are as follows:
The above quotations reflect interdealer prices, without retail markup, markdown or commissions, and may not necessarily represent actual transactions in the Company's Common Stock.
On June 9, 1994, shares of the Company's Common Stock were admitted to trading on the Boston Stock Exchange, and the high and low sales prices for the Company's Common Stock on the Boston Stock Exchange for each full quarterly period within the two most recent fiscal years, or part thereof for which quotes are available, are as follows:
During May 1997, the Company's shareholders approved a 1-for-2.5 reverse stock split. For consistency, The above quotations have been restated to reflect the reverse stock split. The approximate number of record holders of Common Stock of the Company at March 31, 1998, was 1,949 and the number of round lot shareholders (beneficial and record) was approximately 337. Shareholders of record include shares that are held in nominee or street name. The Company did not pay any cash dividends on shares of its Common Stock during its three most recent fiscal years.
Item 6.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived from the audited consolidated financial statements of the Company, and should be read in conjunction with the Company's consolidated financial statements and notes thereto (Item 8 herein) and Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the financial statements of the Company included elsewhere in this Form 10-K:
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Sales for the year ended December 31, 1997 were $1,574,958, compared to sales of $7,342,748 for the year ended December 31, 1996. The decrease in sales is primarily the result of idled facilities at both Mills. The Stephens Mill only operated for approximately four months in 1997. The Thorold Mill was idle for the entire year.
Sales for the year ended December 31, 1996 were $7,342,748, compared to sales of $7,983,577 for the year ended December 31, 1995. The decrease in sales is primarily due to a decrease in the average realized sales price of dry felt and a decrease in the volume of the Stephens Mill of approximately 1,400 tons that was partially offset by the increase in dry felt sold by the Thorold Mill.
Gross margin decreased to a negative $1,649,278 for the year ended December 31, 1997 from a gross margin of $399,754 for the year ended December 31, 1996. The decrease in gross margin is primarily due to the lack of operations from idled facilities and unabsorbed fixed production costs. These costs were incurred during the four months of operation at the Stephens Mill and during the period both Mills were idled.
Gross margin decreased to $399,754 for the year ended December 31, 1996 from a gross margin of $960,335 for the year ended December 31, 1995. The decrease in gross margin is primarily due to an increase in utility usage and rates, lower realized sales prices for dry felt and the fact that no pulp hedge gain was realized in the 1996 period (see Note 12 to the consolidated financial statements). In addition, the Company incurred significant operating expenses associated with the ongoing refurbishment and July start-up of the Thorold Mill.
Selling, general and administrative expenses decreased by $2,229,706 to $3,367,392 for the year ended December 31, 1997, from $5,597,098 for the year ended December 31, 1996. This decrease was due to (i) a significant decrease in the professional fees in 1997 from those incurred in 1996 relating to the failed Transaction and (ii) a reduction in office expenses and reduced salary and related expenses due to the reduced operations in 1997.
Selling, general and administrative expenses increased by $3,604,360 to $5,597,098 for the year ended December 31, 1996, from $1,992,738 for the year ended December 31, 1995. This increase was due to (i) the write-off of approximately $1,770,000 of deferred acquisition costs as a result of GS Roofing's repudiation of the planned merger with Striker (ii) an increase in office expenses (iii) an increase in executive compensation and (iv) severance costs associated with a staff reduction made in anticipation of consolidating the administrative office of Striker with that of GS Roofing.
The loss on asset impairment increased to $791,006 for the year ended December 31, 1997 from $391,635 for the year ended December 31, 1996. This increase was primarily due to the further write down of the Company's idle saturating equipment and a write down of long-lived spare parts.
The loss on asset impairment increased to $391,635 for the year ended December 31, 1996 from $0 for the year ended December 31, 1995. The writedown of assets, pursuant to SFAS 121, relates to the idle saturating line at the Stephen Mill.
Interest expense, net, increased to $1,986,125 for the year ended December 31, 1997, from $840,510 for the year ended December 31, 1996. This increase is due to an increase in discounted subordinated debt borrowings during 1997, the amortization of the related deferred financing costs, and the net effects of approximately $870,000 of deferred finance costs written-off and the forgiveness of $560,000 of accrued interest payable related to the Subordinated notes exchanged for Zero Coupon Notes.
Interest expense, net, increased to $840,510 for the year ended December 31, 1996, from $311,004 for the year ended December 31, 1995. This increase is due to the increase in secured borrowings and subordinated debt borrowings during 1996 and the amortization of the related deferred financing costs.
Because the Company has been in a loss position for financial and income tax reporting purposes, no current or deferred income tax benefits have been provided due to the uncertainty of realization of net operating loss carryforwards.
CASH FLOWS - COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Cash flows used by operating activities decreased to $3,249,808 for the year ended December 31, 1997 from cash flows used by operating activities of $4,438,655 for the year ended December 31, 1996. The decrease is primarily due to cash provided by the reduced investment in current assets in the 1997 period.
Cash flows used by operating activities increased to $4,438,655 for the year ended December 31, 1996 from cash flow provided by operating activities of $861,832 for the year ended December 31, 1995. The increase in cash flow used by operating activities primarily resulted from increased losses in the 1996 period.
Cash flows provided by investing activities increased to $425,027 for the year ended December 31, 1997 from cash flows used by investing activities of $610,515 for the year ended December 31, 1996. The increase was primarily due to a significant reduction in net capital spending and the maturity of certificates of deposit held in Canada in the 1997 period.
Cash flows used in investing activities decreased to $610,515 for the year ended December 31, 1996 from $4,658,474 for the year ended December 31, 1995. The decrease was primarily due to a significant decrease in expenditures for property and equipment in the 1996 period.
Cash flows provided by financing activities decreased to $2,684,237 for the year ended December 31, 1997 from $5,200,098 for the year ended December 31, 1996. The decrease is primarily due to less new debt placed and the repayment of the BlueStone OID notes in the 1997 period.
Cash flows provided by financing activities increased to $5,200,098 for the year ended December 31, 1996 from $3,919,460 for the year ended December 31, 1995. The increase is primarily due to bridge financing borrowings related to the GSR transaction in the 1996 period.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1997, the Company had an operating loss and continues to experience short-term liquidity concerns. Throughout 1997, the Company implemented several strategies to survive in the wake of the failed Transaction and the suspended operations at its Thorold and Stephens Mills.
o For the year ended December 31, 1997, the Company has raised over $5,000,000 of subordinated debt to fund working capital needs and retire a substantial portion of the OID Notes.
o The Company exchanged subordinated notes payable for newly issued Zero Coupon notes payable at a lower stated rate of interest. This exchange allowed the Company to extend the maturity date from 1998 to 2005 on approximately $10,000,000 of subordinated debt and reduce the interest rate due thereon, from 10.25% to 2.25%. In December 1997, the Company issued an additional $1,000,000 of Zero Coupon notes payable maturing December 31, 2005, with principal and interest due upon maturity.
o The Company converted the West Oxford Subordinated Notes into warrants to purchase common stock.
o The Company was able to negotiate an amended financing agreement with its Canadian lender. This agreement limits the ability of the lender to enforce its rights for technical default items, specifically ratio and financial covenants, under its existing financing and security agreements with Striker Canada until August 1, 1998 (see Note 6 to Notes To Consolidated Financial Statements).
o The Company negotiated a forbearance agreement with its Stephens lender (the Forbearance Agreement). This agreement calls for the Company to make equal monthly payments of principal and interest for a period of approximately three years. The Stephens lender agreed to forbear as long as payments are made and the other conditions of the Forbearance Agreement are complied with (see Note 6 to Notes To Consolidated Financial Statements).
o The Company's Canadian subsidiary accepted a Financing Proposal from a Canadian lender for a $1,500,000 Canadian credit facility to finance the restart of the Thorold Mill and for general working capital requirements. On January 30, 1998, the Company's Canadian subsidiary accepted a credit facility proposal from a Canadian Credit Union for an $800,000 Canadian line of credit to fund working capital requirements pending collection of accounts receivable in connection with the start-up of the Thorold Mill. Effective March 20, 1998, these financings were closed and the Canadian subsidiary received a first tranche funding of $1,250,000 Canadian pursuant to the signings of the financing agreements with the Canadian lenders on April 14, 1998 (see Note 19 to Notes To Consolidated Financial Statements).
There can be no assurances that the ultimate resolution of the above items, either individually or in the aggregate will be adequate to ensure the existence of the Company as a going concern.
The Company experienced a decrease in current liabilities for the year ended December 31, 1997 from the year ended December 31, 1996. Although the Company has experienced a decrease in current liabilities, the Company has a working capital deficit of $3,837,910 at December 31, 1997 compared to a working capital deficit of $5,642,331 at December 31, 1996. The decrease in current liabilities is primarily due to a reclass of short-term debt to long-term debt coupled with a substantial reduction in both lines of credit partially offset by an increase in accounts payable.
On January 16, 1997, the Company experienced a fire at its Thorold Mill. An electrical short in the main building that houses the paper line caused the fire. The fire caused extensive damage to a part of the building and the sheet forming section of the paper line. The Company immediately contacted its insurance carrier and started rebuilding the damaged plant building and replacement of the damaged equipment. The repairs and rebuilding of the plant and its equipment were completed on or about May 30, 1997. As of the date of this Report, the Company anticipates having additional repairs and capital projects completed and resuming full operation on or about May 31, 1998.
As of the date of this report, both of the Company's plants are idled. The fire related repairs and rebuilding are complete at the Thorold Mill, however, there are still capital projects that need to be completed prior to start-up. Management has also identified several capital projects that are necessary at the Stephens Mill to begin operations and improve efficiencies needed for profitable operation. However, for the Company to benefit fully from any improvements made to the plants, the Company must operate the plants at capacity (for the full production levels, typically 11.5 months per year). Management is committed to seek and obtain the necessary financing to resume operations, but not to resume operations in any instance until the financing for each plant is in place and the capital projects have been completed.
There have been several events from the prior year that continue to affect the Company. During 1996 and early 1997, the Company devoted substantial amounts of cash to acquisition activities for the Transaction. The Company raised over $3,000,000 in subordinated debt during 1996 and early 1997 to pay for the costs of the Transaction. It was the intention of the Company to pay all outstanding debt and past-due payables upon the closing of the Transaction. Due to the substantial amounts of cash used for acquisition activities and the intention to pay all of the payables at closing, accounts payable were aged beyond their terms. Due to the significant resources devoted to the Transaction and subsequent wrongful repudiation of the Transaction, the Company's ability to repay debt, pay past-due accounts payable, finance needed capital projects and continue operations has been gravely impaired.
The factors listed above have led to the ongoing working capital deficit. Upon a resumption of operations, the Company must closely monitor operations and continue to identify and implement capital projects that will improve efficiencies and lower costs. However, there can be no assurance that such cost reductions will allow the Company to achieve profitability.
In February, March and April 1997, the Company issued $643,000 in aggregate principal amount of 10.25% Subordinated Notes Payable to international investors. The notes called for a maturity date of December 31, 1998 with interest payable quarterly. The proceeds were used for working capital needs. These notes were exchanged for Zero Coupon Notes.
In April, May and June 1997, a wholly owned subsidiary of the Company issued $3,025,000 in aggregate amount of 10.25% Subordinated Notes Payable (the "STDF Notes") to international investors. The terms of the STDF Notes call for maturity on December 31, 1998 with interest payable quarterly. Approximately $2,000,000 of the proceeds was used to pay down a substantial portion of the OID Note Notes. The remaining proceeds were used for working capital needs and to pay $210,000 of the $310,000 in breakup fees as a result of the repudiation of the Transaction. The STDF Notes were exchanged for Zero Coupon Notes.
In August, September and October 1997, the Company issued an additional $734,500 in aggregate principal amount of 10.25% Subordinated Notes Payable to international investors. The Notes call for a maturity date of December 31, 1998, with interest payable quarterly. The proceeds of the Notes were used for working capital needs. These notes were exchanged for Zero Coupon Notes.
In the fourth quarter 1997, the Company exchanged an aggregate $9,747,500 of 10.25% subordinated notes due 1998 for Zero Coupon Notes due 2005. Accrued interest aggregating $559,825 was forgiven upon the exchange.
In December 1997, the Company issued approximately $1,000,000 of Zero Coupon Notes (the "Zero Notes") to international investors. The Zero Notes mature on December 31, 2005 and have a stated interest rate of 2.25%, with principal and accrued interest due on the maturity date.
Management is currently pursuing various strategies in order to provide needed liquidity and provide financing for capital projects. Management believes that negotiations regarding obtaining new debt and/or equity financing are vital to continuing operations. Subsequent to year-end, the Company successfully completed an aggregate $2,300,000 Canadian term loan and revolving line of credit facility with new Canadian lenders. Management believes that this new loan will provide the ability for the Company to complete necessary capital improvement projects and provide working capital for the start up. Additionally, Management is in discussion with various financing groups including government sponsored programs and lenders for financing for the Stephens Mill.
Management believes that the Company can achieve profitability through operational changes, improvements and acquisitions. Management believes that strategic acquisitions can enhance profitability and increase investor/shareholders' value in the Company. The Company intends to focus on strategic acquisitions in order to grow, gain economies of scale and allocate administrative costs after it has completed the start up at both Mills.
The ability of the Company to achieve successful operations and realize its assets is dependent upon many factors including profitable operation of both Mills, penetration of existing and new markets at a profitable margin and volume levels and cash liquidity.
Management does not believe its existing funds and its existing financial arrangements will adequately fund the cash needs of the start-up of both Mills and the Company's operations during the next year. To meet working capital requirements and expand its business, the Company will need to borrow additional amounts, obtain an additional third-party credit facility and/or restructure its existing debt. The Company currently has two existing credit lines, one consisting of a revolving line of credit and a term loan collateralized by receivables, inventories, and fixed assets and one consisting of a term loan collateralized by receivables, inventories, and fixed assets. At December 31, 1997, there were no amounts available under the line of credit. The Company is pursuing additional financing arrangements that might include private or public sales of equity or debt securities. However, there can be no assurances that the Company will be able to obtain any additional debt or equity financing.
Management believes that some, if not all, of the above mentioned strategies will allow the Company to obtain sufficient working capital and acquisition financing to continue with its plan of growth through acquisitions. However, there can be no assurance that any of these strategies will be achieved or that the Company will be able to exist as a going concern.
INFLATION AND SEASONALITY
Inflation in the United States has not had a material effect on the Company in recent years. Revenues and earnings may vary from quarter to quarter, depending on weather conditions and other factors. The Company's operating results for any particular quarter may not be indicative of the results for any future quarter or any year.
YEAR 2000 CONDITION
Many computer software systems, as well as certain hardware and equipment containing date sensitive data were structured to utilize a two-digit field, meaning that they may not be able to properly recognize dates in the year 2000. This could result in significant system and equipment failures. While the Company does not believe that its main computer is year 2000 complaint, it does not believe that any necessary changes will have a material impact on the Company. The Company utilizes several new personal computers for many of its tasks that are year 2000 complaint. Additionally, the Company does not believe that its future operations will be adversely impaired by its vendors' or customers' efforts to become year 2000 compliant.
Item 8.
Item 8. FINANCIAL STATEMENTS
Reference is made to the consolidated financial statements, the report thereon, the notes thereto commencing on page of this Form 10-K, which consolidated financial statements, report and notes are incorporated herein by reference.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with the Company's independent accountants during the Company's three most recent fiscal years.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a listing of, and certain information with respect to, all Directors and executive officers of the Registrant as of the date of this Annual Report:
DAVID A. COLLINS has served as President and Chief Executive Officer of the Company (formerly "Striker Petroleum Corporation") from January 1993 to the present. He has also served as an officer (Chief Executive Officer, May 1992) and/or director of Striker Holdings, Inc. and its wholly-owned subsidiary, Striker Paper Corporation, January 1991 to the present, Striker Paper Canada, Inc., December 30, 1994 to the present, West Oxford Industries, Inc., February 15, 1996 to the present and STDF Corp., April 5, 1997 to the present. Mr. Collins also served as President, principal and managing director of Serfin Securities, Inc. (formerly "OBSA International, Inc."), a broker-dealer subsidiary of Grupo Financero Serfin, S.A. de S.V., the Mexican holding company of Operadora de Bolsa, S.A., de C.V., a publicly-traded Mexican broker-dealer, January 1988 to June 1992.
WILLIAM B. LOCANDER has been Chairman and Frank Harvey Professor of Marketing and Quality in the Department of Marketing of the University of South Florida from 1992 to the present and has served as Distinguished Professor of Marketing and Phillips Consumer Electronics Faculty Scholar in the Department of Marketing and Transportation at the University of Tennessee, Knoxville, from 1983 to 1992. Dr. Locander has served as a member of the Board of Examiners for the Malcolm Baldridge National Quality Award, 1991 and 1992; Chairman of the American Marketing Association Strategic Planning Committee, 1989 to 1990; and President of the American Marketing Association, 1988 to 1989.
MATTHEW D. POND has served as the Chief Financial Officer, Secretary and Treasurer of the Company from December 1993 to the present. Mr. Pond served only as Chief Financial Officer of the Company from September to December 1993. Mr. Pond has also served as a director and officer of Striker Holdings, Inc. and its wholly-owned subsidiary Striker Paper Corporation, December 1993 to the present, and as an officer of Striker Paper Canada, Inc., December 30, 1994 to the present, West Oxford Industries, Inc., February 15, 1996 to the present and STDF Corp., April 5, 1997 to the present. Mr. Pond was a certified public accountant with Arthur Andersen & Co. in its Dallas and Houston, Texas offices from September 1986 through August 1993.
THOMAS H. CLARKE was elected a Director of the Company effective February 19, 1998. He is a recently retired roofing industry executive. Mr. Clarke was employed by Globe Building Materials, Inc. from January 1986 until his retirement in December 1995 and served as President of that company from 1989 to the time of his retirement. From approximately 1989 until December 1995, Mr. Clarke also served as a director and member of the Executive Committee of the Asphalt Roofing Manufacturing Association.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and Directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Officers, Directors and greater than 10% stockholders are required to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of the forms received by it, the Company believes that during the year ended December 31, 1997 all filing requirements applicable to the Company's officers, Directors and greater than 10% stockholders were met.
Item 11.
Item 11. EXECUTIVE COMPENSATION
Summary of Compensation. The following table provides certain summary information concerning compensation paid or accrued during the fiscal years ended December 31, 1997, 1996, and 1995 to the Company's Chief Executive Officer and Chief Financial Officer:
Option Grants. No options were granted to the Chief Executive Officer or the Chief Financial Officer during the fiscal years ended December 31, 1997, 1996 and 1995.
Aggregated Option Exercises and Fiscal Year-End Option Values. The following table provides information with respect to options exercised during the fiscal year ended December 31, 1997 by the officers of the Company listed in the preceding table and the fiscal year-end value of unexercised options held by such officers:
- ----------------------------------- (1) Adjusted to reflect the 1-for-2.5 reverse stock split on June 26, 1997.
(2) Calculated by multiplying the number of shares underlying outstanding in-the-money options by the difference between the fair market value of the Common Stock on December 31, 1997 ($13.75 per share), calculated with reference to the closing price of the Company's Common Stock on the NASDAQ Small Cap Market on that date, and the exercise price, which is $2.50 per share, adjusted for the June 26, 1997 reverse stock split. Options are in-the-money if the fair market value of the underlying Common Stock exceeds the exercise price of the option shares.
Compensation of Directors. Directors do not receive compensation for service on the Board of Directors; however, employee-Directors are eligible to participate and do participate in the Company's Stock Plan as stated above.
Employment Agreements. The Company has not entered into employment agreements with its above named Executive Officers.
Board of Directors Interlocks and Insider Participation. Messrs. Collins, Locander and Pond served on the Board of Directors in 1997. Messrs. Collins and Pond also serve as executive officers of the Company and as directors and officers of its various subsidiary corporations.
Board of Directors Compensation Report. The Company has developed and implemented compensation policies, plans and programs that consist of the following elements: base compensation, cash bonuses and stock benefit plans.
Executive base compensation for senior executives (including the Chief Executive Officer and Chief Financial Officer), is intended to be competitive with that paid in comparably situated industries and to provide a reasonable degree of financial security and flexibility to those individuals whom the Board of Directors regards as performing the duties associated with the various senior executive positions. In furtherance of this objective, the Board of Directors periodically, though not necessarily annually, reviews the salary levels of comparable companies to provide a reasonable basis for comparison. Although the Board of Directors does not attempt to specifically tie executive base pay to that offered by any particular sampling of companies, the review provides a useful gauge in administering the Company's base compensation policy. In general, however, the Board of Directors considers the credentials, length of service, experience, and consistent performance of each individual senior executive when setting compensation levels.
The Revenue Reconciliation Act of 1993 restricts the ability of a publicly-held corporation to deduct compensation in excess of $1,000,000 paid to its Chief Executive Officer and the four most highly compensated officers. Based on its current compensation structure, the Company does not anticipate that any of its officers will reach the $1,000,000 threshold.
The Company's Stock Plan is intended to provide key employees, including the Chief Executive Officer and the named executive officers of the Company and its subsidiaries, with a continuing proprietary interest in the Company, with a view to increasing the interest in the Company's welfare of those personnel who share the primary responsibility for the management and growth of the Company. Moreover, the Stock Plan provides a significant non-cash form of compensation, which is intended to benefit the Company by enabling it to continue to attract and to retain qualified personnel.
The bonuses posted on the executive compensation schedule above represent advances made, for anticipated expenses and various other costs, originally posted as an employee receivable, that have been forgiven and/or fully reserved by the Company at year end for the years ended December 31, 1997 and 1996.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based upon information contained in (i) the Shareholder List of the Company as of March 31, 1998 prepared by the Company's Transfer Agent, American Securities Transfer and Trust, Inc., and (ii) securities deemed outstanding pursuant to Rule 13d-3 (d) (1) of the Exchange Act at the date of this Annual Report, the following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock by each person known to the Company to be the owner of more than five percent of the outstanding shares of its Common Stock, and by each executive officer named in the Summary Compensation Table (see "Executive Compensation") and by all Directors and executive officers of the Company as a group:
(1) Includes 300,000 shares that may be acquired upon the exercise of vested options (2) Includes 530,000 shares that may be acquired upon the exercise of vested options
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995, certain international investors reimbursed the Company $132,000 for salaries paid to certain of the Company's executive employees to compensate the Company for time of the employees spent on special projects for the investors which were not related to the Company. There were no salaries reimbursed for 1996 or 1997.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Financial Statements:
See: "Index to Financial Statements" set forth on Page of this Form 10-K."
(b) Reports on Form 8-K:
None.
(c) Exhibits.
2.1 Stock Purchase Agreement dated as of December 3, 1992, between Collins Acquisition Group, Inc., and Hallwood Energy Partners L.P., Hallwood Consolidated Resources Corporation and Hallwood Oil and Gas, Inc., and Amendment to Stock Purchase Agreement dated January 13, 1993, between the same parties (filed as Exhibit 2.1 to the Company's Annual Report on Form 10-KSB for the period ended December 31, 1993, hereinafter referred to as the "1993 Form 10-KSB," and hereby incorporated by reference).
2.2 Plan of Reorganization and Agreement dated April 23, 1993, between the Company and Striker Industries, Inc. (now Striker Holdings, Inc.), with the Agreement and Plan of Merger of even date therewith attached as Annex A thereto (filed as Exhibit 2.2 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
2.3 Asset Purchase Agreement dated as of March 10, 1995, between Northern Globe Building Materials, Inc., and the Company (filed as Exhibit 2.3 to the Company's 1994 Form 10-KSB, and incorporated herein by reference).
2.4 Plan and Agreement of Merger among Striker Industries, Inc., GSR Industries, Inc., Striker Acquisition No. 3, Inc., Newgen Holding, Inc., Donald F. Smith, Edward T. Nesselroade, et al dated as of November 29, 1996 filed as Exhibit 2.4 to the Company's 1996 Form 10-K, and incorporated herein by reference).
3.1 Certificate of Incorporation of the Company and all Amendments thereto (filed as Exhibit 3.1 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
3.2 By-laws of the Company (filed as Exhibit 3.2 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
3.3 Certificate of Amendment to the Company's Certificate of Incorporation effecting a 1-for-2.5 reverse stock split of the issued Common Stock of the Company, filed in the office of the Secretary of State of Delaware on June 26, 1997.
4.1 Pages 1, 2 and 3 of the Certificate of Amendment to the Company's Certificate of Incorporation filed in the office of the Secretary of State of Delaware on September 27, 1993 (included as part of Exhibit 3.1 above and filed as Exhibit 4.1 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
4.2 Security Agreement between the Company's wholly owned subsidiary, Striker Paper Corporation, and Finova Capital Corporation dated April 25, 1995 covering a revolving credit facility (filed as Exhibit 4.2 to the Company's 1995 Form 10-K, and incorporated herein by reference).
4.3 Warrant of the Company issued in February and March 1995 to purchase, in the aggregate, up to 400,000 shares of the Company's Common Stock (filed as Exhibit 10.8 to the Company's 1994 Form 10-KSB, and incorporated herein by reference).
4.4 Subordinated Note of the Company maturing December 31, 2005 ($2,577,000 in aggregate principal amount) issued December 29, 1997, referred to in the Company's 1997 Form 10-K as Zero Coupon Notes.
4.5 Subordinated Promissory Note of the Company's wholly-owned subsidiary, West Oxford Industries, Inc., maturing December 31, 2005 ($4,100,000 in aggregate principal amount) issued December 26, 1997, referred to in the Company's Form 10-K as Zero Coupon Notes.
4.6 Credit facilities' commitment letter agreement dated May 16, 1995 between North American Trust Company of Hamilton, Ontario, Canada and the Company's wholly-owned Canadian subsidiary, Striker Paper Canada, Inc. (filed as Exhibit 4.6 to the Company's 1995 Form 10-K, and incorporated herein by reference).
4.7 $2,000,000 Canadian dollar amount Debenture of Striker Paper Canada, Inc. in favor of North American Trust Company, dated July 13, 1995 (filed as Exhibit 4.7 to the Company's 1995 Form 10-K and incorporated herein by reference).
4.8 General Security Agreement dated July 13, 1995 between Striker Paper Canada, Inc. and North American Trust Company (filed as Exhibit 4.8 to the Company's 1995 Form 10-K and incorporated herein by reference).
4.9 Financial Assistance Agreement dated May 16, 1995 between Ontario Development Corporation, Striker Paper Canada, Inc. and Striker Industries, Inc. (filed as Exhibit 4.9 to the Company's 1995 Form 10-K, and incorporated herein by reference).
4.10 Warrant of the Company to purchase up to 60,000 shares of the Company's Common Stock issued to Ontario Development Corporation, dated September 8, 1995 (filed as Exhibit 4.10 to the Company's 1995 Form 10-K, and incorporated herein by reference).
4.11 Mortgage and Security Agreement between the Company's indirect Wholly-owned Subsidiary, Striker Holdings, Inc., and Finova Capital Corporation dated as of April 25, 1995 securing payment of all Obligations owing by the Company and any of its subsidiary corporations to Finova Capital Corporation (filed as Exhibit 4.11 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.12 Promissory Note of the Company's Wholly owned Subsidiary, STDF Corp., maturing December 31, 2005 ($4,925,000 in aggregate principal amount) issued September through December, 1997, referred to in the Company's 1997 Form 10-K as Zero Coupon Notes.
4.13 Guaranty of the Company of covering all Subordinated Notes of its wholly owned subsidiary, STDF Corp., referred to in Exhibit 4.12.
4.14 Guaranty of the Company covering all Promissory Notes of its wholly owned subsidiary, West Oxford Industries, Inc., referred to in Exhibit 4.5.
4.15 10% Convertible Subordinated Note of the Company's wholly-owned Subsidiary, West Oxford Industries, Inc., dated October 28, 1996 ($798,000 in aggregate principal amount), with Exhibit A thereto (filed as Exhibit 4.15 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.16 Letter agreement dated January 23, 1997 amending the first paragraph only of all 10% Convertible Subordinated Notes dated October 28, 1996 referred to in Exhibit 4.15 (filed as Exhibit 4.16 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.17 Guaranty of the Company covering all 10% Convertible Subordinated Notes dated October 28, 1996, of its Wholly-owned subsidiary, West Oxford Industries, Inc., referred to in Exhibit 4.15 (filed as Exhibit 4.17 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.18 Original Issue Discount Promissory Note of the Company ($2,310,000 in original principal amount) issued by the Company on November 26, 1996 and on January 21, 1997 (filed as Exhibit 4.18 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.19 Warrant of the Company issued on November 26, December 2 and December 18 and on January 21, 1997 to holders of the Company's Original Issue Discount Notes covering the right to purchase, in the aggregate, up to 330,000 shares (now 132,000 shares, adjusted for the 1-for-2.5 reverse stock split on June 26, 1997, referred to in Exhibit 3.3) of the Company's Common Stock (filed as Exhibit 4.19 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.20 Security Agreement dated as of January 21, 1997 between the Company's Wholly-owned subsidiaries, West Oxford Industries, Inc., Striker Holdings, Inc. and Striker Paper Corporation, and BlueStone Capital Partners, LP, Agent for the holders of the Original Issue Discount Promissory Notes of the Company referred to in Exhibit 4.18 (filed as Exhibit 4.20 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.21 Mortgage Agreement dated as of January 21, 1997 between the Company's Wholly-owned Subsidiary, Striker Holdings, Inc., and BlueStone Capital Partners, LP, Agent for the holders of the Company's Original Issue Discount Promissory Notes referred to in Exhibit 4.18, second subordinate and junior in priority to the Mortgage and Security Agreement in favor of Finova Capital Corporation referred to in Exhibit 4.11, securing payment of the Company's Original Issue Discount Notes referred to in Exhibit 4.18 (filed as Exhibit 4.21 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.22 Forbearance Agreement dated August 11, 1997 between Laurentian Bank of Canada and the Company's wholly owned subsidiary, Striker Paper Canada, Inc.
4.23 Forbearance Agreement dated October 20, 1997 between Finova Capital Corporation, The Company, Striker Paper Corporation and Striker Holdings, Inc, direct or indirect wholly owned subsidiaries of the Company.
4.24 Letter agreement of Forbearance and subordination dated December 11, 1997 between BlueStone Capital Partners, L.P. and the Company.
10.1 Financing Proposal dated October 20, 1997 between First Ontario Fund and the Company's Canadian subsidiary, Striker Paper Canada, Inc.
10.2 Credit Facility commitment letter dated December 23, 1997 between Credit Union Central of Ontario Limited, So-Use Credit Union Limited and the Company's Canadian subsidiary, Striker Paper Canada, Inc.
10.3 Lease Agreement dated February 8, 1994, between Coventry Fund I Ltd. and the Company, covering the Company's leased administrative and finance offices in Houston, Texas (filed as Exhibit 10.4 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
10.4 1994 Amended and Restated Incentive Stock Plan of the Company (filed as Exhibit 10.9 to the Company's 1994 Form 10-KSB, and incorporated herein by reference).
21.1 The following is a list of all subsidiaries of the Company and the respective state or province of incorporation of each subsidiary. The Company owns directly, of record and beneficially, all of the voting stock of Striker Holdings, Inc., Striker Paper Canada, Inc., Striker Services Canada, Inc., West Oxford Industries, Inc. and STDF Corp. Striker Holdings, Inc., in turn, owns directly, of record and beneficially, all of the voting stock of Striker Paper Corporation. Each subsidiary conducts its business under its corporate name designated below:
27 Financial Data
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.
STRIKER INDUSTRIES, INC.
by: /s/ DAVID A. COLLINS ------------------------------------ David A. Collins, President and Chief Executive Officer
DATE: April 15, 1998
In accordance with 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 date indicated:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Striker Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Striker Industries, Inc. (a Delaware corporation), and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Striker Industries, Inc., and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Houston, Texas April 15, 1998
STRIKER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
See accompanying notes to consolidated financial statements.
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
See accompanying notes to consolidated financial statements.
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(DEFICIT)
For the years ended December 31, 1997, 1996 and 1995
See accompanying notes to consolidated financial statements.
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
See accompanying notes to consolidated financial statements.
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
See notes to accompanying consolidated financial statements
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1996
1. ORGANIZATION AND OPERATIONS:
Description of Business
Striker Industries, Inc. (Striker or the Company), a Delaware corporation, is in the business of manufacturing recyclables and pulp products into a paper-based felt and asphalt saturated felt paper for use in the roofing industry.
During May 1997, the Company's shareholders approved a 1-for-2.5 reverse stock split. For consistency, all reported share amounts have been restated to reflect the reverse stock split.
Financial Condition and Basis of Preparation
During April 1996, the Company signed an agreement to combine in a merger transaction (the Transaction) with the indirect parent corporation of GS Roofing Products Company, Inc. (GS Roofing). A Registration Statement required to raise the equity component of the financing required for closing was filed with the Securities and Exchange Commission on December 26, 1996. The Transaction was anticipated to close on or before April 30, 1997. On or about February 4, 1997, the President of GS Roofing sent a notice to the Company of GS Roofing's repudiation of the Transaction. Consequently, due in part to the significant resources allocated to the Transaction and the acceleration of debt payments, the ability of the Company to continue has been impaired.
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Throughout 1997, the Company implemented several strategies to survive in the wake of the failed Transaction and the suspension of operations at its Thorold and Stephens Mills (discussed in further detail below).
o For the year ended December 31, 1997, the Company has raised over $5,000,000 of subordinated debt to fund working capital needs and retire a substantial portion of the OID Note (see Note 6 to Notes To Consolidated Financial Statements).
o The Company exchanged subordinated notes payable for newly issued Zero Coupon notes payable at a lower stated rate of interest. This exchange allowed the Company to extend the maturity date from 1998 to 2005 on approximately $10,000,000 of subordinated debt and reduce the interest rate due thereon, from 10.25% to 2.25%. In December 1997, the Company issued an additional $1,000,000 of Zero Coupon notes payable maturing December 31, 2005, with principal and interest due upon maturity (see Note 6 to Notes To Consolidated Financial Statements).
o The Company converted the West Oxford Subordinated Notes into warrants to purchase common stock (see Note 6 to Notes To Consolidated Financial Statements).
o The Company was able to negotiate an amended financing agreement with its Canadian lender. This agreement limits the ability of the lender to enforce its rights for technical default items, specifically ratio and financial covenants, under its existing financing and security agreements with Striker Canada until August 1, 1998 (see Note 6 to Notes To Consolidated Financial Statements).
o The Company negotiated a forbearance agreement with its Stephens lender (the Forbearance Agreement). This agreement calls for the Company to make equal monthly payments of principal and interest for a period of approximately three years. The Stephens lender agreed to forbear as long as payments are made and the other conditions of the Forbearance Agreement are complied with (see Note 6 to Notes To Consolidated Financial Statements).
o The Company's Canadian subsidiary accepted a Financing Proposal from a Canadian lender for a $1,500,000 Canadian credit facility to finance the restart of the Thorold Mill and for general working capital requirements. On January 30, 1998, the Company's Canadian subsidiary accepted a credit facility proposal from a Canadian Credit Union for an $800,000 Canadian line of credit to fund working capital requirements pending collection of accounts receivable in connection with the start-up of the Thorold Mill. Effective March 20, 1998, these financings were closed and the Canadian subsidiary received a first tranche funding of $1,250,000 Canadian pursuant to the signings of the financing agreements with the Canadian lenders on April 14, 1998 (see Note 19 to Notes To Consolidated Financial Statements).
There can be no assurances that the ultimate resolution of the above items, either individually or in the aggregate will be adequate to ensure the existence of the Company as a going concern.
The Company experienced a decrease in current liabilities for the year ended December 31, 1997 from the year ended December 31, 1996. Although the Company has experienced a decrease in current liabilities, the Company has a working capital deficit of $3,837,910 at December 31, 1997 compared to a working capital deficit of $5,642,331 at December 31, 1996. The decrease in current liabilities is primarily due to a reclass of short-term debt to long-term debt coupled with a substantial reduction in both lines of credit partially offset by an increase in accounts payable.
On January 16, 1997, the Company experienced a fire at its Thorold Mill. An electrical short in the main building that houses the paper line caused the fire. The fire caused extensive damage to a part of the building and the sheet forming section of the paper line. The Company immediately contacted its insurance carrier and started rebuilding the damaged plant building and replacement of the damaged equipment. The repairs and rebuilding of the plant and its equipment were completed on or about May 30, 1997.
As of the date of this report, both of the Company's plants are idled. The fire related repairs and rebuilding are complete at the Thorold Mill, however, there are still capital projects that need to be completed prior to start-up. Management has also identified several capital projects that are necessary at the Stephens Mill to begin operations and improve efficiencies needed for profitable operation. However, for the Company to benefit fully from any improvements made to the plants, the Company must operate the plants at capacity (for the full production levels, typically 11.5 months per year). Management is committed to seek and obtain the necessary financing to resume operations, but not to resume operations in any instance until the financing for each plant is in place and the capital projects have been completed.
There have been several events from the prior year that continue to affect the Company. During 1996 and early 1997, the Company devoted substantial amounts of cash to acquisition activities for the Transaction. The Company raised over $3,000,000 in subordinated debt during 1996 and early 1997 to pay for the costs of the Transaction. It was the intention of the Company to pay all outstanding debt and past-due payables upon the closing of the Transaction. Due to the substantial amounts of cash used for acquisition activities and the intention to pay all of the payables at closing, accounts payable were aged beyond their terms. Due to the significant resources devoted to the Transaction and subsequent wrongful repudiation of the Transaction, the Company's ability to repay debt, pay past-due accounts payable, finance needed capital projects and continue operations has been gravely impaired.
The factors listed above have led to the ongoing working capital deficit. Upon a resumption of operations, the Company must closely monitor operations and continue to identify and implement capital projects that will improve efficiencies and lower costs. However, there can be no assurance that such cost reductions will allow the Company to achieve profitability.
Management is currently pursuing various strategies in order to provide needed liquidity and provide financing for capital projects. Management believes that negotiations regarding obtaining new debt and/or equity financing are vital to continuing operations. Subsequent to year-end, the Company successfully completed an aggregate $2,300,000 Canadian term loan and revolving line of credit facility with new Canadian lenders. Management believes that this new loan will provide the ability for the Company to complete necessary capital improvement projects and provide working capital for the Thorold Mill start up. Additionally, Management is in discussion with various financing groups including government sponsored programs and lenders for financing for the Stephens Mill.
Management believes that the Company can achieve profitability through operational changes, improvements and acquisitions. Management believes that strategic acquisitions can enhance profitability and increase investor/shareholders' value in the Company. The Company intends to focus on strategic acquisitions in order to grow, gain economies of scale and allocate administrative costs after it has completed the start up at both Mills.
The ability of the Company to achieve successful operations and realize its assets is dependent upon many factors including profitable operation of both Mills, penetration of existing and new markets at a profitable margin and volume levels and cash liquidity.
Management does not believe its existing funds and its existing financial arrangements will adequately fund the cash needs of the start-up of both Mills and the Company's operations during the next year. To meet working capital requirements and expand its business, the Company will need to borrow additional amounts, obtain an additional third-party credit facility and/or restructure its existing debt. The Company currently has two existing credit lines, one consisting of a revolving line of credit and a term loan collateralized by receivables, inventories, and fixed assets and one consisting of a term loan collateralized by receivables, inventories and fixed assets. At December 31, 1997, there were no amounts available under the line of credit. The Company is pursuing additional financing arrangements that might include private or public sales of equity or debt securities. However, there can be no assurances that the Company will be able to obtain any additional debt or equity financing.
Management believes that some, if not all, of the above mentioned strategies will allow the Company to obtain sufficient working capital and acquisition financing to continue with its plan of growth through acquisitions. However, there can be no assurance that any of these strategies will be achieved or that the Company will be able to exist as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Certain reclassifications have been made to the 1996 and 1995 consolidated financial statements to conform to the 1997 presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Striker and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost or market using the average cost method. The finished goods inventories include materials, direct labor and plant overhead.
Restricted Cash
At December 31, 1996, cash restricted as to use of $360,000, represents short-term certificates of deposit pledged to the Company's Canadian Lender. On or about December 5, 1997, pursuant to a forbearance agreement between Striker Canada and its Canadian lender, the short-term certificates of deposit matured, were cashed and the proceeds used to retire the balance on the revolving line of credit.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major renewals and betterments, which extend the original estimated economic useful lives of the applicable assets, are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of "("SFAS 121"). This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As a result of adopting this statement, the Company recorded an asset impairment of $391,635 in 1996. For the year ended December 31, 1997, the Company recorded an asset impairment of $791,006. Both impairments related primarily to idle saturating equipment located at the Stephens Mill.
Depreciation
The Company uses the units-of-production method of depreciation for substantially all machinery and equipment. The units-of-production method provides for depreciation charges proportionate to the level of production activity thereby recognizing that depreciation of the Company's machinery is related to physical wear of the equipment and represents a method common to that used by many in the pulp and paper industry. Idle machinery and equipment is depreciated at twenty-five percent of depreciation calculated using the straight-line method for the periods in which the machinery and equipment is idle.
Deferred Costs and Other, Net
Deferred costs and other, net, include organization costs and deferred acquisition and financing costs in 1997 and 1996. The organization costs were amortized over a five-year period on a straight-line basis. As of the years ended December 31, 1996 and 1997, the Company's organization costs have been fully amortized. Where applicable deferred acquisition costs are added to the cost of the assets acquired after the acquisition is completed. Deferred financing costs are being amortized over the life of the related respective financing obtained.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rate and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recongized in income in the period that includes the enactment date.
Revenue Recognition
The Company generally recognizes revenue when products are shipped or when the customer has accepted the product.
Earnings (Loss) Per Common Share
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings Per Share." SFAS No. 128 established standards for computing and presenting income (loss) per common share. It replaces primary and fully diluted income (loss) per common share with basic and diluted income (loss) per common share. Basic income (loss) per common share excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock. When dilutive, stock options and warrants are used in the computation of diluted earnings (loss) per common share as share equivalents using the treasury stock method.
The number of weighted average shares outstanding used in computing the earnings (loss) per share was 4,370,922 in 1997, 4,335,202 in 1996 and 3,952,950 in 1995. Basic and diluted earnings (loss) per share are the same for each of these years. In calculating diluted earnings (loss) per share for the years ended December 31, 1997, 1996 and 1995, options to purchase 620,000, 620,000 and 1,030,0000 shares of common stock, respectively at exercise prices ranging from $2.50 to $14.38 per share, and warrants to purchase 344,827, 26,667 and 26,667 shares of common stock, respectively at exercise prices ranging from $5.00 to $7.50 per share were outstanding during the respective years but were not included in the computation of diluted earnings (loss) per common share due to their antidilutive effect.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 allows a company to adopt a new fair value based method of accounting for its stock based compensation plans, or to continue to follow the intrinsic method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock to Employees."
The Company has elected to continue to follow APB Opinion No.25 and provide the pro forma disclosures as required by SFAS 123.
Translation of Foreign Currency Financial Statements
Assets and liabilities of the foreign subsidiary have been translated into United States dollars at the applicable rates of exchange in effect at the end of the period reported. Revenues and expenses have been translated at the applicable weighted average rates of exchange in effect during the period reported. Translation adjustments are reflected as a separate component of stockholders' equity. Any transaction gains and losses are included in the determination of net income (loss).
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents include cash and short-term investments which mature within three months of their date of purchase.
3. PROPERTY AND EQUIPMENT, NET:
The Company's property and equipment consisted of the following:
4. DEFERRED COSTS AND OTHER, NET:
The Company's deferred costs and other, net, consisted of the following:
5. INCOME TAXES:
The Company did not recognize a provision for income taxes for the year ended December 31, 1997. The Company had tax-basis operating loss carryforwards of approximately $19,395,000 at December 31, 1997, which expire from 2007 through 2012.
Federal income taxes provided were different from the amount computed by applying the statutory U.S. federal income tax rate (34 percent) for the following reasons:
The tax effect of temporary differences and tax attributes representing deferred tax liabilities and assets are as follows at December 31:
6. DEBT:
The Company's debt consisted of the following at:
CREDIT FACILITIES:
On May 4, 1995, the Company entered into a financing agreement consisting of a term loan based upon the liquidation value of certain of the Company's fixed assets at the Stephens mill and a revolving line of credit based upon eligible accounts receivable assets (collectively "the Stephens Facility"). Advances under the Facility are limited to $2,500,000 in the aggregate and bear interest at prime plus 3.5%.
During September 1997, the Company received a default notice and demand for payment from its Stephens Facility lender ("the Stephens lender"). The Stephens lender issued the default notice for non-payment of outstanding interest on the term loan and the revolver in addition to technical defaults, primarily the suspension of operations at the Stephens Mill. The Company negotiated and signed a Forbearance Agreement with the Stephens lender. As a condition of the Forbearance Agreement, the Company paid all then outstanding principal and interest and continues to make monthly payments in settlement of the debt.
On July 28, 1995, the Company's Canadian Subsidiary, Striker Paper Canada Inc. ("Striker Canada"), entered into a financing agreement with a Canadian lender consisting of a term loan based upon the liquidation value of certain of Striker Canada's fixed assets and a revolving line of credit based upon eligible accounts receivable (collectively "the Canadian Facility"). Advances under the Canadian Facility are limited to $2,000,000 Canadian in the aggregate and bear interest at Canadian prime plus 2.5%.
At December 31, 1997, there were no amounts available under this financing agreement.
At December 31, 1996, Striker Canada was not in compliance with certain covenants of the Canadian Facility, subsequently; the Company had reclassified the entire Canadian Facility as current debt for the year ended December 31, 1996. On August 11, 1997, the Company signed a Forbearance Agreement with the Canadian lender to waive demand rights for technical default items, namely ratio and financial covenants, for a period of three years beginning August 1, 1997. Under the original terms of the Forbearance Agreement, Striker Canada paid principal and interest in advance through January 31, 1998. On March 10, 1998, the Company entered into an amended financing agreement with the Canadian lender that required Striker Canada to prepay principal and interest through July 31, 1998. The conditions of the Forbearance Agreement were extended to July 31, 1998 as part of the new financing agreement (See Note 19 to Notes To Consolidated Financial Statements).
SUBORDINATED DEBT:
Striker Industries, Inc. Notes:
In December 1996 and January 1997, the Company issued $2,310,000 in aggregate principal amount of Original Issue Discount Notes (the "OID Notes"). The OID Notes mature at the earlier of (i) 4/25/97, or (ii) closing of any public or private debt or equity financing exceeding $10.5 million. The proceeds of the OID Notes were used for working capital needs.
In connection with the Transaction, the Company received bridge financing from the underwriter, BlueStone. As is customary with bridge financing, both the Company and the OID Note noteholders contemplated payment of the bridge notes out of the debt and equity financing of the Transaction. Following repudiation of the Transaction by GS Roofing, the Company received a demand notice from BlueStone accelerating the due date of the OID Notes to April 3, 1997 from April 25, 1997. During May 1997, $1,978,000 was repaid and the remaining balance of $332,000, by agreement in principle was to be paid by June 30, 1997. On October 28, 1997, the Company reached an agreement with BlueStone to repay the outstanding principal balance along with accrued interest of $30,876 and BlueStone's out of pocket legal expenses relating to the Transaction of $44,400. The agreement calls for the Company to make monthly payments for an eight-month period beginning in December 1997. As of the date of this report, the Company has made all payments as required by the agreement. The remaining balance of $380,276 of the OID Notes has been classified as current debt at December 31, 1997. The OID Notes are secured by a second and subordinate lien and security interest on the assets of each of the Company's U.S. subsidiaries, including its Stephens, Arkansas plant, junior in priority to the lien on the same assets held by its senior lender. The OID Notes are also guaranteed by each of the Company's U.S. subsidiaries. It is also secured by a lien and security interest on the assets of the Company's Canadian subsidiary, either junior in time or subordinated to the subsidiary's senior lenders in Canada.
On March 2, 1995, the Company issued $1,200,000 of 10.25% Subordinated Notes (the SII Notes) to international investors. The SII Notes mature on December 31, 1998, and interest is payable quarterly. The proceeds of the SII Notes were used to pay down the affiliate notes payable.
In February, March and April 1997, the Company issued $643,000 in aggregate principal amount of 10.25% Subordinated Notes (new "SII Notes") to international investors. The SII Notes mature on December 31, 1998 with interest payable quarterly. The proceeds of the Notes were used for working capital needs.
In August, September and October 1997, the Company issued $734,500 in aggregate principal amount of 10.25% Subordinated Notes (new "SII Notes") to international investors. The SII Notes mature on December 31, 1998 with interest payable quarterly. The proceeds of the Notes were used for working capital needs.
On or about December 14, 1997, the Company completed the exchange of $2,577,500 of SII Notes for $2,577,500 in Zero Coupon Notes. The Zero Coupon Notes carry a minimum interest rate of 2.25% with a maximum interest rate of 10.25% solely dependent upon the discretion of the Board of Directors. Principal and interest are due upon maturity of the notes.
West Oxford Industries, Inc. Notes:
During 1996, a wholly owned subsidiary of the Company issued $798,000 in aggregate principal amount of Subordinated Notes (the "West Oxford Subordinated Notes") to several investors. The West Oxford Subordinated Notes mature at the earlier of (i) 5/15/97, or (ii) closing of any public or private debt or equity financing exceeding $10.5 million. The proceeds of the West Oxford Subordinated Notes were used for working capital needs.
On August 1, 1997, the Company sent the West Oxford Subordinated Note noteholders a written offer giving the noteholders a choice of either (i) 1,333 post-split restricted shares of the Company's Common Stock for each $10,000 or part thereof of debt provided, or (ii) a Warrant to purchase 2,667 post-split restricted shares of the Company's Common Stock for each $10,000 or part thereof of debt provided, in payment in full and in cancellation and exchange in either instance for the Notes held by the Subordinated noteholders. This offer is consistent with alternatives contained in the letter agreement attached as Exhibit A to the original Notes. Although no common stock or warrants have yet been issued, the Company has reflected the West Oxford Subordinated Notes as converted into warrants for the year ended December 31, 1997.
In February, June and July 1996, a wholly owned subsidiary of the Company issued $4,100,000 in aggregate principal amount of 10.25% Subordinated Notes (the West Oxford Notes) to international investors. The West Oxford Notes mature on December 31, 1998 and interest is payable quarterly. The proceeds of the West Oxford Notes were used for working capital needs.
On or about December 14, 1997, the Company completed the exchange of $4,100,000 of West Oxford Notes for $4,100,000 in Zero Coupon Notes. The Zero Coupon Notes carry a minimum interest rate of 2.25% with a maximum interest rate of 10.25% solely dependent upon the discretion of the Board of Directors. Principal and interest are due upon maturity of the notes.
STDF Corp. Notes:
In March, April and June 1997, a wholly owned subsidiary of the Company issued $3,025,000 in aggregate amount of 10.25% Subordinated Promissory Notes (the "STDF Notes") to international investors. The terms of the STDF Notes call for maturity on December 31, 1998 with interest payable quarterly. Approximately $2,000,000 of the proceeds of the STDF Notes was used to pay down the OID Note Notes. The remaining proceeds were used for working capital needs and to pay $210,000 of the $310,000 in breakup fees as a result of the repudiation of the Transaction (see Note 9 to Notes To Consolidated Financial Statements).
On September 26, 1997, the Company completed the exchange of a subsidiary's $3,025,000 subordinated notes payable (the STDF Notes) for $3,025,000 in Zero Coupon Notes. The Zero Coupon Notes carry a minimum interest rate of 2.25% with a maximum interest rate of 10.25% solely dependent upon the discretion of the Board of Directors. Principal and interest are due upon maturity of the notes.
In December 1997, the Company completed the issuance of a subsidiary's $1,000,000 in Zero Coupon Notes. The Zero Coupon Notes carry a minimum interest rate of 2.25% with a maximum interest rate of 10.25% solely dependent upon the discretion of the Board of Directors. Principal and interest are due upon maturity of the notes.
In connection with the subordinated noteholders exchange for Zero Coupon Notes, the noteholders forgave approximately $560,000 of accrued interest payable. The Company has recorded the forgiveness of the accrued interest payable as a reduction of interest expense on the December 31, 1997 Consolidated Statement of Operations. In addition, the Company wrote-off approximately $870,000 of deferred finance costs related to the exchanged subordinated notes which was recorded as interest expense for the year ended December 31, 1997.
Aggregate maturities for subordinated notes payables, current and long-term debt and capital leases obligations for each of the five years subsequent to December 31, 1997 were approximately:
Interest paid for the years ended December 31, 1997, 1996 and 1995, was $210,532, $628,113 and $322,915, respectively.
7. LEASES:
The Company leases certain machinery, equipment and vehicles and certain computer and office equipment under noncancelable long-term capital leases. Future minimum lease payments under all noncancelable long-term capital leases as of December 31, 1997 are as follows:
The Company also leases certain office space under noncancelable long-term operating leases. Future minimum lease payments under all noncancelable long-term operating leases as of December 31, 1997 are as follows:
Total rental expense pursuant to noncancelable long-term operating leases was approximately $65,160, $60,348 and $57,142 for the years ended December 31, 1997, 1996 and 1995, respectively.
8. STOCKHOLDERS' EQUITY:
During July, August and October 1997, investors made capital contributions to the Company totaling $45,000.
During May 1997, the Company's shareholders approved a 1-for-2.5 reverse stock split. For consistency, the number of shares presented through-out this document have been restated as if the reverse stock split had been in effect for all historical periods.
During the fourth quarter of 1996 and the first quarter of 1997, the Company issued Warrants to purchase an aggregate of 132,000 shares of Common Stock of the Company to holders of the Original Issue Discount Notes, contemporaneously with the issuance to them of the Notes and as a part of the unit(s) of Original Issued Discount note and Warrant subscribed for and purchased by them, at an Exercise Price of $7.50 per share over a term of five years from date of issuance.
During July 1996, the Company advanced an employee approximately $80,000 for a stock purchase. During December 1996, the Company accepted 4,800 shares of its common stock as partial payment of the employee's receivable balance in the amount $75,000. The common stock purchased is reflected as Treasury stock on the consolidated financial statements at cost.
On or about April 15, 1996, David A. Collins and Matthew D. Pond exercised a combined total of 110,000 options at $2.50 per share, pursuant to their respective non-qualified stock option agreements. The shares were issued in exchange for two separate promissory notes aggregating $275,000, secured by the pledge by each maker of a part of all of the shares acquired.
During the quarter ended March 31, 1995, the Company authorized the issuance of 400,000 Warrants to purchase one share each of Common Stock of the Company at a Warrant Price of $3.75 per warrant and an Exercise Price of $5.00 per share escalating to $6.63 per share over the term of the Warrant which expired on February 28, 1997. During the quarter ended March 31, 1995, $850,000 was received by the Company upon issuance of 226,667
Warrants to six international investors, four of which are stockholders. During the quarter ended June 30, 1995, an additional $100,000 was received upon issuance of 26,667 Warrants.
During the quarter ended June 30, 1995, 226,667 Warrants were exercised at the exercise price of $5.00 per share. The Company received $1,133,336 for 226,667 shares of Common Stock of the Company. As of December 31, 1996 and 1995, 26,667 warrants remained outstanding. These warrants expired in February 1997.
The Company paid $71,000 upon the issuance and $160,000 upon the exercise, in commissions to an affiliate of the Company in connection with the placement and exercise of the Warrants during the six months ended June 30, 1995. The Company reflected the commissions paid as a reduction of Additional Paid in Capital.
The Company has 5,000,000 authorized shares of preferred stock, none of which has been issued or is outstanding.
9. COMMITMENTS AND CONTINGENCIES:
Contingencies
On April 25, 1996, the Company signed an agreement to combine in a merger transaction (the Transaction) with the indirect parent corporation of one of the largest privately owned manufacturers of asphalt shingles and built up roofing (GS Roofing). The closing of the transaction had been extended in writing by mutual agreement of the parties to April 21, 1997, provided that (i) a Registration Statement required to raise the equity component of the financing required for closing was filed with the Securities and Exchange Commission (which document was filed with the Securities and Exchange Commission December 26, 1996) and (ii) the merger became effective on or before April 21, 1997 or within incremental five business day periods of time thereafter so long as bona fide marketing efforts were being conducted by the underwriters with a view to such Registration Statement becoming effective on or before April 30, 1997.
On or about February 4, 1997, via facsimile transmission the President of GS Roofing sent a notice to the Company of GS Roofing's repudiation of the Transaction. Subsequent to that date, the Company made protracted attempts to reinstate the Transaction, without success. Accordingly, management ultimately retained counsel and filed a suit styled Striker Industries, Inc., David A. Collins and Matthew D. Pond vs. Newgen Holdings, Inc., Gen Holdings, Inc., GS Roofing Products Company, Inc., Donald F. Smith and Maredon-I, Ltd. pending at the date of this Report in the 133rd Judicial District Court of Harris County, Texas alleging, among other things, a breach of contract by the defendants resulting from the defendants' wrongful repudiation of the binding agreements between the Company and the defendants providing for the Transaction, which action by the defendants severely impaired the Company's ability to complete the equity and debt offerings which were a critical part of the Transaction. The lawsuit is still in the preliminary stages. Pre-trial discovery has commenced and depositions have begun. The Company is unable at present to express any opinion regarding the probable outcome of this litigation.
Throughout calendar year 1997, the Company and its subsidiaries have worked diligently to resolve, compromise, settle and/or pay various vendor claims and legal proceedings filed against them arising in the ordinary course of their business. At December 31, 1997, five lawsuits seeking recovery of significant sums were pending, principally against Striker Paper Corporation and Striker Paper Canada, Inc., the US and Canadian subsidiaries that operate the Stephens Mill and the Thorold Mill, all of which suits were settled, or are in substantial discount payment settlement negotiations entered into, subsequent to year-end and prior to the date of this report. All but one of these proceedings were settled by execution by the parties of written Settlement Agreements providing time payment plans with respect to the claims asserted.
In addition, following extensive negotiations and the inability of the Company's Canadian subsidiary to reach agreement on an employment termination package with the former manager of the Thorold Mill, suit was filed on or about April 7, 1997 in Ontario Province, Canada by the former Mill manager against Striker paper Canada, Inc. claiming damages of $142,000 Canadian for alleged wrongful dismissal and $50,000 Canadian for alleged mental distress. Striker Paper Canada filed a Statement of Defense and Counterclaim on September 30, 1997. The Counterclaim seeks damages in the amount of $150,000 Canadian from the plaintiff for his fraudulent or negligent misrepresentation in failing to disclose information within his knowledge to Striker Paper Canada during the negotiations for Striker Paper Canada's purchase of the Thorold Mill. No further action has been taken in this proceeding as of the date of this report.
Commitments
During 1995, the Company entered into sales contracts (the Sales Contracts) with three of its major customers. Under terms of the Sales Contracts, the customers were required to purchase at least 1,900 tons of dry felt each month, in the aggregate, for a period of eighteen months at prices based in part upon the mix of raw materials used in the manufacture of the dry felt and the quoted market price of the raw materials. During the fourth quarter of 1996, the Sales Contracts terminated. One of the three contract customers renewed its contract for an additional period of twelve months with no change in terms. Due to the suspension of operations at the Stephens Mill, the Company was unable to supply the contract customer with stipulated amounts of dry felt. The contract customer was able to obtain dry felt at market prices without any impairment to its operations. Therefore, Management does not anticipate any action against the Company for failure to perform under terms of the contract.
During 1995, the Company entered into an agreement with the Sierra Club (Sierra) and the Arkansas Department of Pollution Control and Ecology (ADPCE) to settle claims brought by those parties concerning non-toxic discharges in excess of state water permits for the Stephens, Arkansas mill. The Company paid to ADPCE a civil penalty in the amount of $15,000 for excess discharges beyond permit allowances into Smackover Creek, near the Stephens, Arkansas mill. In addition, the Company agreed with ADPCE and Sierra to contribute $55,000 to environmental projects in the state of Arkansas. The contribution was paid in full during 1995. The Company has been working with environmental engineering companies to put in place the plans and equipment necessary to improve and ultimately eliminate the non-toxic discharges. The Company had received preliminary approval from the ADPCE and the state health department to begin construction of a closed loop system. As of March 27, 1996, the closed loop system's construction was completed. The $15,000 civil penalty and the $55,000 contribution for environmental projects have been recorded as other expense in the accompanying consolidated statements of operations for the year ended December 31, 1995. Management believes that the Company has remained in compliance of its permit during 1997.
10. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMER TRANSACTIONS:
During the year ended December 31, 1997, the three top customers accounted for 46 percent, 26 percent and 23 percent of revenues. There were no outstanding accounts receivable at December 31, 1997. During the year ended December 31, 1996, three customers accounted for 36 percent, 25 percent and 13 percent of revenues. These same customers accounted for 12 percent, 7 percent and 17 percent of accounts receivable, respectively, at December 31, 1996.
Historically, the Company's customers have been distributors and wholesalers of roofing materials used in the residential construction industry. As a result, the Company is subject to demand fluctuations resulting from the level of residential construction and repair work that is impacted by various economic factors.
11. RELATED-PARTY TRANSACTIONS:
In connection with the issuance of the STDF Notes, the Company paid $250,000 of commissions to an individual who is also a noteholder of the Company.
During 1995, affiliates of an officer/stockholder of the Company and international investors reimbursed the Company $132,000 for salaries paid to certain executive employees. These payments were made to compensate the Company for the time that the employees spent working on special projects for the affiliates that were not related to the Company. The Company has treated these amounts as reimbursement of salary expense for the year ended December 31, 1995. There was no reimbursement of salary expense for the years ended December 31, 1996 and 1997.
12. PULP HEDGE CONTRACT:
During 1994, certain traditional sources of raw materials used by Striker Paper were unable to meet Striker Paper's requirements at satisfactory price levels. Accordingly, Striker Paper experienced a dramatic increase in the cost of its raw materials. In an effort to mitigate its exposure to rising raw material costs, the Company created a new subsidiary, Striker Services Corporation (Striker Services). Striker Services was created to obtain one raw material component, old corrugated containers (OCC), in sufficient quantities at or below market prices to meet Striker Paper's production requirements. Effective April 1, 1996, the Company sold Striker Services to a third party (see Note 15 to Notes To Consolidated Financial Statements)
As a result of continued concern about rising raw material costs and the uncertainty of the success of the OCC gathering operations of Striker Services Corporation, the Company entered into a pulp hedge contract (the Hedge) effective July 1, 1994 with an international investor which was also a stockholder and a noteholder, to effectively hedge against rising raw material prices. The terms of the Hedge provided for a term of six months and for a fixed notional amount that would be an approximation of Striker Paper's pulp needs for production in Stephens, Arkansas. The Hedge provided that the amount of net gain or loss, as applicable, would be equivalent to the difference between the designated strike price, as set forth in the Hedge contract, and the Company's imputed cost. The Hedge provided that SSC's imputed cost would be the lessor of: (i) SSC's cash cost (as defined) or (ii) 95 percent of the market price for OCC as quoted in industry publications. The Company canceled the Hedge effective July 1, 1995. No activity was recorded for the remainder of the year ended December 31, 1995. A gain of $467,772 from the Hedge has been recorded as reductions of cost of goods sold for the year ended December 31, 1995.
13. ASSET PURCHASE OF THOROLD MILL:
On May 5, 1995, the asset purchase transaction of the land, building and equipment of Northern Globe Building Materials, Inc.'s idled dry felt mill in Thorold, Ontario, Canada (the "Thorold Mill") pursuant to the Asset Purchase Agreement between Northern Globe Building Materials, Inc. (Northern), dated March 10, 1995 was consummated. The purchase price of the assets purchased was 538,316 shares of common stock of the Company and $250,000 cash. The assets purchased were recorded at the sum of the estimated market value of the shares of Common Stock issued ($13.75 per share), cash paid and acquisition costs incurred in connection with the purchase. The physical properties and assets purchased were recorded at the total consideration paid of $8,667,642.
The physical properties and assets purchased had formerly been used to manufacture dry felt paper, but had not been in operation and had been idled and wholly inactive for more than two years by its previous owners preceding their purchase by the Company.
Pro forma information assuming the acquisition had been completed at January 1, 1995 is not meaningful since the Thorold plant had been idled for the two years prior to the Company's acquisition.
14. CASUALTY LOSSES AT MILLS:
On January 16, 1997, the Company experienced a fire at its Thorold Mill. An electrical short in the main building that houses the paper line caused the fire. The fire caused extensive damage to a part of the building and the sheet forming section of the paper line. The final settlement claim indicated total damage to be approximately $1,500,000. The insurance coverage on the plant and its contents proved to be more than adequate to cover all the costs of rebuilding and replacing all fire damage to the plant and equipment. The fire-damaged repairs were completed on or about May 30, 1997. The Company has identified additional repairs and maintenance that will be necessary prior to start-up. From the date of the fire to the present, the Thorold Mill has remained idled. During December 1997 and subsequent to year end, there has been repair and maintenance work performed along with capital improvement projects. The Company has focused on long lead-time projects in anticipation of the closing of the financing agreement (see Note 19 to Notes To Consolidated Financial Statements). The Company has estimated that the start-up of the Thorold Mill will require approximately $1,000,000 to complete the capital projects and provide working capital. The Company signed a financing agreement with a new group of Canadian lenders for an aggregate $2,300,000 Canadian loan for capital projects and working capital on March 20, 1998.
On or about February 25, 1997, the Company's Stephens Mill experienced a severe storm in connection with tornado activity in the area. The Stephens Mill did not suffer any damage from tornadoes; however, the heavy rains associated with the storm damaged the roof covering a section of one of the main buildings. The Company was not utilizing the area damaged at the time. During April 1997, the Company settled the damage claim for $75,000.
On or about May 14, 1997, a fire occurred in a finished goods warehouse at the Stephens Mill. The building, which is isolated and separate from the main Mill building and its contents, was completely destroyed. At the time of the fire, there were no finished goods stored in the warehouse; however, a quantity of raw materials stored in the warehouse was destroyed in the fire. In June 1997, the Company settled its fire damage claim with the insurance company for approximately $122,000.
15. SALE OF SUBSIDIARY:
Effective April 1, 1996, the Company sold 100% of the outstanding shares of its subsidiary, SSC, for consideration equal to the adjusted net book value of SSC after giving affect to the capitalization of the intercompany account payable owing to the Company by SSC. During December 1996, the Company received payment in full of the note receivable.
During the months subsequent to the effective date of the sale of SSC's outstanding shares, the Company made several advances of cash and non-cash items to SSC. The Company recorded these advances as a current receivable. Due to the uncertainty surrounding the former subsidiary's ability to operate and generate sufficient cash flow, the Company has made an allowance for the entire balance of the advances made which total $489,670.70.
Subsequent to December 31, 1997, the Company entered into a Settlement and Mutual Release Agreement with SSC and related parties all outstanding claims of the Company against all released parties in consideration of the payment and transfer to the Company of approximately $63,000 of cash, a Balemaster Auto-Tie Baler and a tract of land in Houston, Harris County, Texas containing approximately 1.3 acres of land.
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments.
Cash and Short-Term Financial Instruments
The carrying amount approximates fair value due to the short maturity of these instruments.
Long-Term Debt
The fair value of the Zero Coupon Notes, which carry a 2.25% annual interest rate, has been estimated by the Company to be $6,822,000 using a present value method of calculation. The carrying value of all other long-term debt approximates its fair value, as interest rates associated with this debt are either variable or based on prevailing market rates for the Company.
17. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS FOR THE YEAR ENDED DECEMBER 31,:
Operations in 1995 were primarily in the United States.
18. ACCOUNTING FOR STOCK-BASED COMPENSATION:
Effective January 1, 1994, the Company created the 1994 Stock Option Plan (the Plan) which provides for the grant of stock options for up to 1,600,000 shares of common stock to the officers and employees of the Company and its subsidiaries. The board of directors, which administers the Plan, has authority to determine the individuals to whom, and the time at which, options shall be granted, as well as the number of shares to be covered by each grant. Effective March 15, 1995, 60,000 options were granted to two employees at an exercise price equivalent to the fair value of the common stock at such date of $14.38 per share. Such options vest at varying rates per year and expire on December 31, 2013, if not previously exercised. At December 31, 1997, options covering 470,000 shares were vested. During 1996, 110,000 options granted under the Plan had been exercised. During 1997, no options granted under the Plan had been exercised.
Set forth below is certain information regarding such issuances, exercises and cancellations of options in each of the indicated fiscal years:
The 590,000 options outstanding as of December 31, 1997 had exercise prices ranging between $2.50 and $14.38 and a weighted average exercise price of $3.60.
The Company has elected to continue to follow APB Opinion No. 25; however, if the Company adopted SFAS 123, the Company's net loss and earnings per share for the years ended December 31, 1997 and 1996 would have been as follows:
The fair value of each option was determined using the Black-Scholes option valuation model. The key input variables used in valuing the options were as follows: average risk-free interest rate based on 5-year Treasury bonds, stock price volatility of 50% and estimated option term pricing of five years. The effects of applying SFAS 123 as calculated above may not be representative of the effects on reported net income (loss) for future years.
19. SUBSEQUENT EVENTS (UNAUDITED):
During January, February and March 1998, the Company has issued an additional $2,000,000 of Zero Coupon notes payable. These notes are identical to the exchanged notes and new Zero Coupon Notes issued during 1997. The notes call for a minimum rate of interest of 2.25%, with principal and interest due at maturity, which is December 31, 2005. The proceeds of the notes have been used for working capital needs and equity infusion into the Canadian subsidiary.
The Company's Canadian subsidiary accepted a Financing Proposal from a Canadian lender for a $1,500,000 Canadian credit facility to finance the restart of the Thorold Mill and for general working capital requirements. On January 30, 1998, the Company's Canadian subsidiary accepted a credit facility proposal from a Canadian Credit Union for an $800,000 Canadian line of credit to fund working capital requirements pending collection of accounts receivable in connection with the start-up of the Thorold Mill. Effective March 20, 1998, these financings were closed and the Canadian subsidiary received a first tranche funding of $1,250,000 Canadian pursuant to the signings of the financing agreements with the Canadian lenders on April 14, 1998.
EXHIBIT INDEX
2.1 Stock Purchase Agreement dated as of December 3, 1992, between Collins Acquisition Group, Inc., and Hallwood Energy Partners L.P., Hallwood Consolidated Resources Corporation and Hallwood Oil and Gas, Inc., and Amendment to Stock Purchase Agreement dated January 13, 1993, between the same parties (filed as Exhibit 2.1 to the Company's Annual Report on Form 10-KSB for the period ended December 31, 1993, hereinafter referred to as the "1993 Form 10-KSB," and hereby incorporated by reference).
2.2 Plan of Reorganization and Agreement dated April 23, 1993, between the Company and Striker Industries, Inc. (now Striker Holdings, Inc.), with the Agreement and Plan of Merger of even date therewith attached as Annex A thereto (filed as Exhibit 2.2 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
2.3 Asset Purchase Agreement dated as of March 10, 1995, between Northern Globe Building Materials, Inc., and the Company (filed as Exhibit 2.3 to the Company's 1994 Form 10-KSB, and incorporated herein by reference).
2.4 Plan and Agreement of Merger among Striker Industries, Inc., GSR Industries, Inc., Striker Acquisition No. 3, Inc., Newgen Holding, Inc., Donald F. Smith, Edward T. Nesselroade, et al dated as of November 29, 1996 filed as Exhibit 2.4 to the Company's 1996 Form 10-K, and incorporated herein by reference).
3.1 Certificate of Incorporation of the Company and all Amendments thereto (filed as Exhibit 3.1 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
3.2 By-laws of the Company (filed as Exhibit 3.2 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
3.3 Certificate of Amendment to the Company's Certificate of Incorporation effecting a 1-for-2.5 reverse stock split of the issued Common Stock of the Company, filed in the office of the Secretary of State of Delaware on June 26, 1997.
4.1 Pages 1, 2 and 3 of the Certificate of Amendment to the Company's Certificate of Incorporation filed in the office of the Secretary of State of Delaware on September 27, 1993 (included as part of Exhibit 3.1 above and filed as Exhibit 4.1 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
4.2 Security Agreement between the Company's wholly owned subsidiary, Striker Paper Corporation, and Finova Capital Corporation dated April 25, 1995 covering a revolving credit facility (filed as Exhibit 4.2 to the Company's 1995 Form 10-K, and incorporated herein by reference).
4.3 Warrant of the Company issued in February and March 1995 to purchase, in the aggregate, up to 400,000 shares of the Company's Common Stock (filed as Exhibit 10.8 to the Company's 1994 Form 10-KSB, and incorporated herein by reference).
4.4 Subordinated Note of the Company maturing December 31, 2005 ($2,577,000 in aggregate principal amount) issued December 29, 1997, referred to in the Company's 1997 Form 10-K as Zero Coupon Notes.
4.5 Subordinated Promissory Note of the Company's wholly-owned subsidiary, West Oxford Industries, Inc., maturing December 31, 2005 ($4,100,000 in aggregate principal amount) issued December 26, 1997, referred to in the Company's Form 10-K as Zero Coupon Notes.
4.6 Credit facilities' commitment letter agreement dated May 16, 1995 between North American Trust Company of Hamilton, Ontario, Canada and the Company's wholly-owned Canadian subsidiary, Striker Paper Canada, Inc. (filed as Exhibit 4.6 to the Company's 1995 Form 10-K, and incorporated herein by reference).
4.7 $2,000,000 Canadian dollar amount Debenture of Striker Paper Canada, Inc. in favor of North American Trust Company, dated July 13, 1995 (filed as Exhibit 4.7 to the Company's 1995 Form 10-K and incorporated herein by reference).
4.8 General Security Agreement dated July 13, 1995 between Striker Paper Canada, Inc. and North American Trust Company (filed as Exhibit 4.8 to the Company's 1995 Form 10-K and incorporated herein by reference).
4.9 Financial Assistance Agreement dated May 16, 1995 between Ontario Development Corporation, Striker Paper Canada, Inc. and Striker Industries, Inc. (filed as Exhibit 4.9 to the Company's 1995 Form 10-K, and incorporated herein by reference).
4.10 Warrant of the Company to purchase up to 60,000 shares of the Company's Common Stock issued to Ontario Development Corporation, dated September 8, 1995 (filed as Exhibit 4.10 to the Company's 1995 Form 10-K, and incorporated herein by reference).
4.11 Mortgage and Security Agreement between the Company's indirect Wholly-owned Subsidiary, Striker Holdings, Inc., and Finova Capital Corporation dated as of April 25, 1995 securing payment of all Obligations owing by the Company and any of its subsidiary corporations to Finova Capital Corporation (filed as Exhibit 4.11 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.12 Promissory Note of the Company's Wholly owned Subsidiary, STDF Corp., maturing December 31, 2005 ($4,925,000 in aggregate principal amount) issued September through December, 1997, referred to in the Company's 1997 Form 10-K as Zero Coupon Notes.
4.13 Guaranty of the Company of covering all Subordinated Notes of its wholly owned subsidiary, STDF Corp., referred to in Exhibit 4.12.
4.14 Guaranty of the Company covering all Promissory Notes of its wholly owned subsidiary, West Oxford Industries, Inc., referred to in Exhibit 4.5.
4.15 10% Convertible Subordinated Note of the Company's wholly-owned Subsidiary, West Oxford Industries, Inc., dated October 28, 1996 ($798,000 in aggregate principal amount), with Exhibit A thereto (filed as Exhibit 4.15 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.16 Letter agreement dated January 23, 1997 amending the first paragraph only of all 10% Convertible Subordinated Notes dated October 28, 1996 referred to in Exhibit 4.15 (filed as Exhibit 4.16 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.17 Guaranty of the Company covering all 10% Convertible Subordinated Notes dated October 28, 1996, of its Wholly-owned subsidiary, West Oxford Industries, Inc., referred to in Exhibit 4.15 (filed as Exhibit 4.17 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.18 Original Issue Discount Promissory Note of the Company ($2,310,000 in original principal amount) issued by the Company on November 26, 1996 and on January 21, 1997 (filed as Exhibit 4.18 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.19 Warrant of the Company issued on November 26, December 2 and December 18 and on January 21, 1997 to holders of the Company's Original Issue Discount Notes covering the right to purchase, in the aggregate, up to 330,000 shares (now 132,000 shares, adjusted for the 1-for-2.5 reverse stock split on June 26, 1997, referred to in Exhibit 3.3) of the Company's Common Stock (filed as Exhibit 4.19 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.20 Security Agreement dated as of January 21, 1997 between the Company's Wholly-owned subsidiaries, West Oxford Industries, Inc., Striker Holdings, Inc. and Striker Paper Corporation, and BlueStone Capital Partners, LP, Agent for the holders of the Original Issue Discount Promissory Notes of the Company referred to in Exhibit 4.18 (filed as Exhibit 4.20 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.21 Mortgage Agreement dated as of January 21, 1997 between the Company's Wholly-owned Subsidiary, Striker Holdings, Inc., and BlueStone Capital Partners, LP, Agent for the holders of the Company's Original Issue Discount Promissory Notes referred to in Exhibit 4.18, second subordinate and junior in priority to the Mortgage and Security Agreement in favor of Finova Capital Corporation referred to in Exhibit 4.11, securing payment of the Company's Original Issue Discount Notes referred to in Exhibit 4.18 (filed as Exhibit 4.21 to the Company's 1996 Form 10-K, and incorporated herein by reference).
4.22 Forbearance Agreement dated August 11, 1997 between Laurentian Bank of Canada and the Company's wholly owned subsidiary, Striker Paper Canada, Inc.
4.23 Forbearance Agreement dated October 20, 1997 between Finova Capital Corporation, The Company, Striker Paper Corporation and Striker Holdings, Inc, direct or indirect wholly owned subsidiaries of the Company.
4.24 Letter agreement of Forbearance and subordination dated December 11, 1997 between BlueStone Capital Partners, L.P. and the Company.
10.1 Financing Proposal dated October 20, 1997 between First Ontario Fund and the Company's Canadian subsidiary, Striker Paper Canada, Inc.
10.2 Credit Facility commitment letter dated December 23, 1997 between Credit Union Central of Ontario Limited, So-Use Credit Union Limited and the Company's Canadian subsidiary, Striker Paper Canada, Inc.
10.3 Lease Agreement dated February 8, 1994, between Coventry Fund I Ltd. and the Company, covering the Company's leased administrative and finance offices in Houston, Texas (filed as Exhibit 10.4 to the Company's 1993 Form 10-KSB, and incorporated herein by reference).
10.4 1994 Amended and Restated Incentive Stock Plan of the Company (filed as Exhibit 10.9 to the Company's 1994 Form 10-KSB, and incorporated herein by reference).
21.1 The following is a list of all subsidiaries of the Company and the respective state or province of incorporation of each subsidiary. The Company owns directly, of record and beneficially, all of the voting stock of Striker Holdings, Inc., Striker Paper Canada, Inc., Striker Services Canada, Inc., West Oxford Industries, Inc. and STDF Corp. Striker Holdings, Inc., in turn, owns directly, of record and beneficially, all of the voting stock of Striker Paper Corporation. Each subsidiary conducts its business under its corporate name designated below:
27 Financial Data