SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2004; OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________________
TO ___________________________
0-17430
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Commission File Number
OBSIDIAN ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 35-2154335
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
111 MONUMENT CIRCLE, SUITE 4800 46204
INDIANAPOLIS, INDIANA
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(Address of principal executive offices) (Zip code)
(317) 237-4122
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding at
$.0001 par value June 14, 2004
3,109,333 shares
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION:
Item 1 - Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets - April 30, 2004
and October 31, 2003 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended April 30, 2004 and 2003 5
Condensed Consolidated Statement of Changes of Stockholders'
Deficit and Comprehensive Loss 6
Condensed Consolidated Statements of Cash Flows
Three and Six Months Ended April 30, 2004 and 2003 7
Notes to Condensed Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 31
Item 4 - Controls and Procedures 31
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings 32
Item 2 - Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 32
Item 3 - Defaults Upon Senior Securities 33
Item 4 - Submission of Matters to a Vote of Security Holders 33
Item 5 - Other Information 33
Item 6 - Exhibits and Reports on Form 8-K 33
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
(unaudited)
April 30, October 31,
2004 2003
----------------------------------
Assets
Current assets:
Cash and cash equivalents $ 561 $ 1,148
Marketable securities 80 114
Accounts receivable, net of allowance for doubtful accounts
of $506 for 2004 and $496 for 2003 3,922 3,665
Accounts receivable, related parties 77 52
Inventories, net 8,083 7,455
Prepaid expenses and other assets 871 1,081
----------------------------------
Total current assets 13,594 13,515
Property, plant and equipment, net 23,729 24,480
Other assets:
Other intangible assets, net of accumulated amortization of $1,082 for
2004 and $907 for 2003 7,633 7,878
Other 13 9
----------------------------------
$ 44,969 $ 45,882
==================================
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share and share data)
(unaudited)
April 30, October 31,
2004 2003
----------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion of long-term debt $ 9,231 $ 2,379
Current portion of long-term debt, related parties --
Accounts payable, trade 5,467 2,742
Accounts payable, related parties 758 837
Accrued expenses and customer deposits 1,337 1,512
----------------------------------
Total current liabilities 16,793 7,470
Accounts payable, related parties 556 --
Long-term debt, net of current portion 16,945 24,765
Long-term debt, related parties 16,071 13,937
Deferred income tax liabilities 647 651
Commitments and contingencies
Minority interest 196 172
Redeemable stock:
Common stock, 154,482 shares outstanding for 2004 1,007 --
Class of Series C Preferred Stock: 386,206 shares outstanding for
2003 -- 1,803
Class of Series D Preferred Stock: 32,143 shares outstanding for 2003 -- 337
Stockholders' equity (deficit):
Common stock, par value $.0001 per share; 10,000,000 shares authorized,
outstanding 2,784,400 in 2004, 720,157 in 2003 1 1
Preferred stock, 5,000,000 shares authorized, no shares outstanding in
2004; Class of Series C convertible preferred stock, par value $.001,
4,600,000 authorized, 3,982,193 issued and outstanding for 2003, 200,000
shares of undesignated preferred stock authorized -- 5
Preferred stock, 200,000 shares authorized, no shares outstanding in 2004;
Class of Series D convertible preferred stock, par value $.001, 88,330
shares issued and outstanding in 2003 -- --
Additional paid-in capital 12,625 11,745
Accumulated other comprehensive loss (34) --
Accumulated deficit (19,838) (15,004)
----------------------------------
Total stockholders' deficit (7,246) (3,253)
----------------------------------
$ 44,969 $ 45,882
==================================
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share and share data)
(unaudited)
Three Months Ended Six Months Ended
----------------------------------------------------------------------
April 30, 2004 April 30, 2003 April 30, 2004 April 30, 2003
----------------------------------------------------------------------
Net sales $ 16,292 $ 15,107 $ 28,338 $ 26,007
Cost of sales 15,189 13,316 26,168 23,056
----------------------------------------------------------------------
Gross profit 1,103 1,791 2,170 2,951
Selling, general and administrative expenses 3,019 2,197 5,364 4,253
----------------------------------------------------------------------
Loss from operations (1,916) (406) (3,194) (1,302)
Other income (expense):
Interest expense, net (982) (904) (1,951) (1,688)
Other expense, net 8 -- 37 3
----------------------------------------------------------------------
Loss before income taxes and discontinued
operations (2,890) (1,310) (5,108) (2,987)
Income tax benefit -- 401 -- 559
----------------------------------------------------------------------
Loss before discontinued operations (2,890) (909) (5,108) (2,428)
Loss from discontinued operations, net of tax -- -- -- (49)
----------------------------------------------------------------------
Loss before minority interest (2,890) (909) (5,108) (2,477)
----------------------------------------------------------------------
Minority interest 7 -- (24) --
----------------------------------------------------------------------
Net loss $ (2,883) $ (909) $ (5,132) $ (2,477)
======================================================================
Basic and diluted loss per share
attributable to common shareholders:
From continuing operations $ (1.00) $ (1.26) $ (3.28) $ (3.37)
Discontinued operations, net of tax -- -- -- (.07)
----------------------------------------------------------------------
Net loss per share $ (1.00) $ (1.26) $ (3.28) $ (3.44)
======================================================================
Weighted average common shares outstanding
basic and diluted 1,941,861 720,157 1,320,884 720,157
======================================================================
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
(dollars in thousands)
(unaudited)
Series C Convertible Series D Convertible
Comprehensive Common Stock Preferred Stock Preferred Stock
-----------------------------------------------------------------
Loss Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------------------
Balance at October 31, 2003 720,157 $ 1 3,982,193 $ 5 118,687 $ --
Assignment of 16,071 shares of Series D mandatory
redeemable Preferred Stock $ -- -- -- -- -- 16,071 --
Extension of stock options -- -- -- -- -- -- --
Conversion of Series C and Series D convertible
Preferred Stock to common stock -- 2,064,243 -- (3,982,193) (5) (134,758) --
Loss on available-for-sale marketable securities (34) -- -- -- -- -- --
Fair value adjustment on redeemable Preferred Stock -- -- -- -- -- -- --
Net loss (5,132) -- -- -- -- -- --
-------------------------------------------------------------------------------
Total comprehensive loss $ (5,166)
==============
Balance at April 30, 2004 $12,625 $ (34) $(19,838) $(7,246)
===============================================
Additional Other
Paid-in Comprehensive Accumulated
Capital Loss Deficit Total
-----------------------------------------------
Balance at October 31, 2003 $11,745 $ -- $(15,004) $(3,253)
Assignment of 16,071 shares of Series D mandatory
redeemable Preferred Stock 337 -- -- 337
Extension of stock options 40 -- -- 40
Conversion of Series C and Series D convertible
Preferred Stock to common stock 5 -- -- --
Loss on available-for-sale marketable securities -- (34) -- (34)
Fair value adjustment on redeemable Preferred Stock 498 -- 298 796
Net loss -- -- (5,132) (5,132)
-----------------------------------------------
Total comprehensive loss
Balance at April 30, 2004 $12,625 $ (34) $(19,838) $(7,246)
===============================================
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
--------------------------------
April 30, 2004 April 30, 2003
--------------------------------
Cash flow from operating activities:
Loss from continuing operations $ (5,132) $ (2,428)
Adjustments to reconcile loss from continuing operations to net cash used in
operating activities:
Depreciation and amortization 1,563 1,446
Other 201 (413)
Changes in operating assets and liabilities
Accounts receivable, net (269) (687)
Inventories, net (628) (614)
Other, net 2,764 100
--------------------------------
Net cash used in operating activities (1,501) (2,596)
--------------------------------
Cash flows from investing activities:
Capital expenditures (627) (296)
Other 60 --
--------------------------------
Net cash used in investing activities (567) (296)
--------------------------------
Cash flows from financing activities:
Advances from (repayments to) related parties, net 1,312 (961)
Net borrowings (repayments) on lines of credit (193) 1,188
Net borrowings (repayments) on long-term debt, including related parties 362 2,533
--------------------------------
Net cash provided by financing activities 1,481 2,760
Net cash used in discontinued operations -- (41)
--------------------------------
Decrease in cash and cash equivalents (587) (173)
Cash and cash equivalents, beginning of period 1,148 920
--------------------------------
Cash and cash equivalents, end of period $ 561 $ 747
================================
Interest paid $ 1,160 $ 832
================================
Taxes paid $ 57 $ 63
================================
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
--------------------------------
April 30, 2004 April 30, 2003
--------------------------------
Supplemental disclosure of noncash operating, investing and financing
activities:
Acquisition of coaches and equipment through issuance of debt $ -- $ 2,304
Contribution to capital from sale of Champion to related party $ -- $ 1,142
Issuance of mandatory redeemable preferred stock in conjunction with the sale of
Champion $ -- $ 675
Tax effect of sale of coaches to a related party $ -- $ 96
Fair value change on redeemable stock $ 796 $ (131)
Reclassification of debt due to assumption of credit agreement by Fair
Holdings $ -- $ 1,488
Assignment and assumption of mandatory redeemable preferred stock $ 337 $ --
The accompanying notes are an integral part of the condensed consolidated financial statements.
8
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS:
Obsidian Enterprises, Inc. ("Obsidian Enterprises"), formerly Danzer
Corporation, was reorganized (the "Reorganization") through an Acquisition and
Plan of Reorganization with U.S. Rubber Reclaiming, Inc. and Related Entities
("U.S. Rubber Companies"), which was consummated on June 21, 2001 (the
"Effective Date"). The Acquisition and Plan of Reorganization of Obsidian
Enterprises with U.S. Rubber Companies was accounted for as a reverse
acquisition as the shareholders of the U.S. Rubber Companies owned a majority of
the outstanding stock of Obsidian Enterprises subsequent to the Acquisition and
Plan of Reorganization. For accounting purposes, U.S. Rubber Reclaiming, Inc. is
deemed to have acquired Obsidian Enterprises.
Pursuant to the Plan of Acquisition and Reorganization, United Expressline, Inc.
was acquired July 31, 2001.
The accompanying financial data as of April 30, 2004 and for the six months
ended April 30, 2004 and 2003 has been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to such rules and regulations. The October 31, 2003 consolidated balance sheet
was derived from audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the United
States of America. However, the Company believes that the disclosures are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the period ended October 31, 2003. The Company follows
the same accounting policies in preparation of interim reports.
In the opinion of management, all adjustments (which include normal recurring
adjustments except as disclosed herein) necessary to present a fair statement of
financial position as of April 30, 2004 and results of operations, cash flows
and stockholders' deficit for the six months ended April 30, 2004 have been
made. The results of operations for the six months ended April 30, 2004 are not
necessarily indicative of the operating results for the full fiscal year or any
future periods.
The entities resulting from the merger described above, considered accounting
subsidiaries of U.S. Rubber Reclaiming, Inc. (the accounting acquirer) and legal
subsidiaries of Obsidian Enterprises, Inc. after the Acquisition and Plan of
Reorganization are as follows:
U.S. Rubber Reclaiming, Inc. ("U.S. Rubber", the accounting acquirer), which is
engaged in reclaiming scrap butyl rubber into butyl reclaim for resale to
manufacturers of rubber products.
Obsidian Enterprises, Inc. (formerly Danzer, the legal acquirer), a holding
company.
9
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED
Danzer Industries, Inc. ("Danzer Industries"), which is principally engaged in
the design, manufacture and sale of truck bodies and cargo trailers.
Pyramid Coach, Inc. ("Pyramid"), which is engaged in the leasing of coaches,
designed and fitted out for use for travel by country, rock bands and other
business enterprises, primarily on weekly to monthly leases. The coach leasing
segment also includes the assets, liabilities, equity and results of operations
of DW Leasing, LLC ("DW Leasing"), Obsidian Leasing Company, Inc. ("Obsidian
Leasing"), formed November 1, 2001 and DC Investments Leasing, LLC ("DC
Investments Leasing), formed December 13, 2002. DW Leasing and DC Investments
Leasing are controlled by individuals who are also controlling shareholders of
Obsidian Enterprises, Inc. and, accordingly, Pyramid. In addition, these
entities meet the requirements for consolidation under FASB Interpretation No.
46 (FIN No. 46), Consolidation of Variable Interest Entities, an interpretation
of Accounting Research Bulletin No. 51. DW Leasing, Obsidian Leasing and DC
Investments Leasing also own the majority of the coaches operated by Pyramid.
All intercompany transactions are eliminated in consolidation.
United Expressline, Inc. ("United") manufactures and sells general use cargo
trailers and specialty trailers used in the racing industry and for other
special purposes.
Champion Trailer, Inc. ("Champion"), which manufactures and sells transport
trailers to be used primarily in the auto racing industry. Effective October
2002, the Company's Board of Directors agreed to a plan to dispose of Champion
as further described in Note 3. The sale of Champion was completed January 30,
2003. Accordingly, the operations of Champion are classified as discontinued
operations in the accompanying financial statements.
BASIS OF PRESENTATION:
In the period since June 2001, the Company has incurred losses and reductions in
equity. During this period losses and certain third-party debt repayments have
been financed with DC Investments, LLC ("DC Investments") and its subsidiary
Fair Holdings, Inc. ("Fair Holdings"), entities controlled by the Company's
Chairman. Borrowings from DC Investments and Fair Holdings have been on terms
that may not have been available from other sources. As of April 30, 2004, total
debt outstanding to DC Investments and Fair Holdings was $16,792. The Company
incurred a net loss for the year ended October 31, 2003 of $3,873, which
included a loss from discontinued operations of $49. In addition, the Company
incurred a net loss from continuing operations of $5,132 for the six months
ended April 30, 2004.
The Company has continued to address liquidity and working capital through
various means including operational changes and refinancing existing debt.
During the period these plans were put in place, the Company received financial
support from Fair Holdings.
During 2003, the Company undertook various actions to improve its operations and
liquidity. Such actions as described below include the sale of Champion,
conversion of debt to equity and refinancing of certain of its debt agreements.
Management believes that the Company has financing agreements in place to
provide adequate liquidity and working capital throughout fiscal 2004. However,
there can be no assurance that such working capital and liquidity will in fact
be adequate. Therefore, the Company may be required to draw upon other liquidity
sources. The Company has therefore secured an increased financial commitment
from Fair Holdings to provide, as needed, additional borrowings under a $15,000
line of credit agreement, which expires January 1, 2007. Currently, availability
under the agreement is approximately $7,186.
10
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED
In view of these matters realization of assets and satisfaction of liabilities
in the ordinary course of business is dependent on the Company's ability to
generate sufficient cash flow to satisfy its obligations on a timely basis,
maintain compliance with its financing agreements and continue to receive
financing support from Fair Holdings to provide liquidity if needed.
Management, as a part of its plan towards resolving these issues and generating
positive cash flow and earnings, is taking the actions as described below.
Although management believes these actions will improve operations and
liquidity, there can be no assurance that such actions will sufficiently improve
operations or liquidity.
o We commenced a strategy in late 2003 of pursuing strategic acquisition
opportunities that include targets both in our traditional, basic
industries and manufacturing sectors as well as targets that possess
assets (including cash) that are outside our traditional areas of
focus, and available on terms that our management believed to be
attractive. While no material negotiations are currently active with
respect to any targets, we anticipate that over the course of 2004 we
will pursue acquisition opportunities that we deem attractive in a
variety of industry sectors. Ultimately, these acquisitions may (but
cannot be guaranteed to) result in our having increased financial
resources and potentially a broader asset base and more diversified
sources of revenue.
o Implementation of the new fine grind production process in the butyl
rubber reclaiming segment. The new process provides the opportunity to
maximize the use of the existing raw materials in the existing butyl
reclaim production and also provides potential additional production
of natural rubber.
o We continue to organize our butyl rubber reclamation project with
chapters of the Future Farmers of America in various States. The
success of this project will provide a new resource for obtaining the
additional raw materials for our butyl reclaim segment.
o Capitalize on the trailer production line that provides a new product
line at Danzer Industries and its existing and potential new
customers. This production line and related sales effort have allowed
us to enter a new market along the East coast of the U.S. Our ability
to capitalize on this opportunity will be a determining factor on our
ability to reduce this operation's use of working capital resources.
Management will continue to evaluate the operations on a continuous
basis.
11
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED
Our high level of debt creates liquidity issues for us and the stringent
financial covenants that are common for this type of debt increase the
probability that our subsidiaries may from time to time be in technical default
under these loans. These risks are mitigated, in part, for our United and U.S.
Rubber subsidiaries by the right described under "Guarantees of Partners." They
are also mitigated by the divestiture of Champion completed in January 2003, and
the completed refinancing efforts over the past year with respect to U.S. Rubber
and the coach leasing segment.
Significant financial covenants in our credit agreements are the maintenance of
minimum ratios, levels of earnings to funded debt and fixed charge coverage
rate. We did not meet requirements and covenants in certain debt agreements as
further discussed in Note 4.
SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts of
assets, liabilities, revenues and expenses and the related disclosures of
contingent assets and liabilities. Significant items subject to such estimates
and assumptions include valuation allowances for accounts receivable,
inventories and deferred tax assets, the fair values of assets and liabilities
when allocating the purchase price of acquisitions, and the carrying value of
property and equipment and goodwill. Actual results may differ from those
estimates.
Earnings Per Share:
Basic per-share amounts are computed, generally, by dividing net income or loss
attributable to common shareholders by the weighted-average number of common
shares outstanding. Diluted per-share amounts are computed similar to basic
per-share amounts except that the weighted-average shares outstanding are
increased to include additional shares for the assumed exercise of stock options
and warrants, if dilutive.
All references in the financial statements related to share amounts, per share
amounts and average shares outstanding have been adjusted retroactively to
reflect the Company's 1-to-50 reverse stock split of its common stock effective
February 16, 2004.
The Company has a note payable agreement which is convertible by the holder to
common stock totaling 100,000 shares at a conversion rate of $5.00 per share. In
addition, the Company has options outstanding to purchase a total of 16,000
shares of common stock, at a weighted average exercise price of $4.50. However,
because the Company incurred a loss for the periods ended April 30, 2004 and
2003, respectively, the inclusion of those potential common shares in the
calculation of diluted loss per share would have an antidilutive effect.
12
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED
The Company's Series C Preferred Stock and Series D Preferred Stock, which have
all the rights and privileges of the Company's common stock, were convertible
into common stock at rates of .40-to-1 and 3.50-to-1, respectively. Following
the effective date of the 50-to-1 reverse split of the common stock, these
shares were converted to common stock, and such shares are included in the
weighted average common shares outstanding from the date of conversion. There
were no shares of preferred stock outstanding as of April 30, 2004.
Basic and diluted loss per share have been computed as follows:
Three Months Ended Six Months Ended
--------------------------------------- --------------------------------------
April 30, 2004 April 30, 2003 April 30, 2004 April 30, 2003
------------------- ------------------- ------------------ -------------------
Loss before discontinued operations and
minority interest $ (2,883) $ (909) $ (5,132) $ (2,428)
Change in fair value of mandatory
redeemable stock 935 (32) 796 (131)
------------------- ------------------- ------------------ -------------------
Loss attributable to common
shareholders before discontinued
operations (1,948) (941) (4,336) (2,559)
Loss from discontinued operations, net
of tax -- -- -- (49)
------------------- ------------------- ------------------ -------------------
Net loss attributable to common
shareholders $ (1,948) $ (941) $ (4,336) $ (2,608)
=================== =================== ================== ===================
Weighted average common shares
outstanding, basic and diluted 1,941,861 720,157 1,320,884 720,157
=================== =================== ================== ===================
Loss per share, basic and diluted,
attributable to common shareholders:
From continuing operations $ (1.00) $ (1.26) $ (3.28) $ (3.37)
Discontinued operations -- -- -- (.07)
------------------- ------------------- ------------------ -------------------
Net loss per share $ (1.00) $ (1.26) $ (3.28) $ (3.44)
=================== =================== ================== ===================
13
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED
STOCK OPTIONS
The Company accounts for stock-based compensation under the provisions of APB
No. 25. The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation expense is
recognized if the exercise price of stock options equals the fair market value
of the underlying stock at the date of grant. Had compensation expense for the
Company's stock option plans been determined based on the fair value at the
grant date for awards consistent with the provisions of SFAS No. 123, the
Company's basic and diluted net loss per share would have been as follows:
Three Months Ended Six Months Ended
-------------------------------------- -------------------------------------
April 30, 2004 April 30, 2003 April 30, 2004 April 30, 2003
------------------ ------------------- ------------------ ------------------
Net loss as reported $ (2,883) $ (909) $ (5,132) $ (2,477)
Deduct total stock-based employee
compensation expense determined
under fair value methods -- -- -- --
------------------ ------------------- ------------------ ------------------
Pro forma net loss (2,833) (909) (5,132) (2,477)
Loss per share:
As reported, basic and diluted: $ (1.00) $ (1.26) $ (3.28) $ (3.44)
Pro forma, basic and diluted: $ (1.00) $ (1.26) $ (3.28) $ (3.44)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. There were no stock options issued for the
three and six months ended April 30, 2004 and 2003. During 2004 and 2003,
certain options were extended. Their effect on pro forma net income was
immaterial.
14
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
2. INVENTORIES
Inventories are stated at the lower-of-cost (first-in, first-out method) or
market and are comprised of the following components:
April 30, October 31,
2004 2003
------------------ -------------------
Raw materials $ 5,059 $ 4,647
Work-in-process 887 499
Finished goods 2,444 2,630
Valuation reserve (307) (321)
------------------ -------------------
Total $ 8,083 $ 7,455
================== ===================
3. DISCONTINUED OPERATIONS
On October 30, 2002, the Company's Board of Directors agreed to sell the assets
of Champion to an entity controlled by Messrs. Durham and Whitesell (Officers of
the Company) for the assumption of all liabilities of Champion excluding its
subordinated debt. The decision to divest Champion was based on the entity's
inability to achieve profitable operations in the foreseeable future without
substantial cash infusion. The Company also agreed in principal to settle the
outstanding subordinated debt due to Markpoint Equity Fund J.V. ("Markpoint")
from Champion in exchange for a cash payment of $675 and issuance to the debt
holder of 32,143 shares of the Company's Series D Preferred Stock. In addition,
the agreement provided Markpoint the option to require the Company to repurchase
these shares at a price of $21 per share. The sale of Champion was completed on
January 30, 2003. Champion is accounted for as a discontinued operation and
therefore the results of operations and cash flows have been removed from the
Company's continuing operations for all periods presented.
The sale of Champion resulted in an increase in equity of the Company of $1,142,
net of tax of $97. No gain or loss was recognized on the sale because of the
involvement of related parties.
A summary of the Company's discontinued operations for the three and six months
ended April 30, 2003 are as follows:
Three Months Six Months
Ended Ended
April 30, 2003 April 30, 2003
------------------ -------------------
Net sales $ -- $ 170
Operating expenses -- (286)
Interest -- (85)
Other -- 127
Tax benefit -- 25
------------------ -------------------
Net loss $ -- $ (49)
================== ===================
15
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
4. FINANCING ARRANGEMENTS
UNITED
At April 30, 2004, United was not in compliance with financial covenants with
Huntington Capital Investment Company. Huntington Capital Investment Company
covenants require the Company to maintain a minimum level of fixed charge
coverage. Huntington waived their covenant violations and we are currently in
discussions regarding modifications to the covenants.
US Rubber Reclaiming, Inc.
At April 30, 2004 US Rubber Reclaiming, Inc. was not in compliance with certain
covenants with PNC Bank requiring a fixed charge coverage ratio of not less than
1.0 to 1.0 and maintaining maximum capital expenditures of $400. The Company
received a waiver with certain conditions to be met by July 31, 2004 including a
capital contribution of $242.
GUARANTEES OF PARTNERS
We have an agreement with Partners that gives us the right to mandate a capital
contribution from the Partners if the lenders to U.S. Rubber or United were to
declare a default. In either of those events, the Company has the right to
enforce a capital contribution agreement with Partners up to $1,370 on U.S.
Rubber and $1,000 on United to fund the respective subsidiary's shortfall. These
payments, if any, would be applied directly to reduce the respective
subsidiary's debt obligations to the lender.
5. MINORITY INTEREST IN AFFILIATE
As discussed in Note 1, DW Leasing and DC Investments Leasing, entities
controlled by the Company's Chairman are included in consolidated financial
statements and are subject to the provisions of FIN No. 46. Historically, these
entities generated negative operating results and the operating model did not
anticipate income in excess of losses previously recognized in the consolidated
financial statements. During 2003 and through the 2nd quarter of 2004, DC
Investments Leasing reported positive operating results. As a result, minority
interest related to the income of DC Investments Leasing in the amount of $24
has been recorded as a charge in the April 30, 2004 statement of operations and
has been recognized on the balance sheet. Future operating results of DC
Investments Leasing, if positive, will continue to be charged to minority
interest. In addition, should DW Leasing generate future income in excess of
previously recognized losses, such amounts would be charged to minority interest
in the consolidated statement of operations and recognized as minority interest
on the consolidated balance sheet. During the six months ended April 30, 2004,
DW Leasing recorded income of $17. As of April 30, 2004, accumulated losses of
DW Leasing recognized in consolidated statements of operations exceeded income
by approximately $318.
6. MANDATORY REDEEMABLE PREFERRED STOCK
On November 10, 2003, Markpoint exercised its remaining Put Option that was
assigned to Fair Holdings, as discussed in Note 3. Markpoint was paid $337 by
Fair Holdings and the exercise of the option resulted in a reduction in
mandatory redeemable preferred stock and an increase in additional paid-in
capital of $337.
16
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
7. STOCKHOLDERS' DEFICIT
On December 3, 2003, the Company's stockholders and Board of Directors approved
a 50-to-1 reverse stock split. The reverse stock split was effective for trading
purposes as of February 18, 2004. As a result of the reverse stock split and the
amendment to the Certificate of Incorporation, approximately 720,157 shares of
common stock were outstanding and the number of authorized shares of common
stock has been reduced to 10,000,000.
On March 12, 2004, the preferred shares for Series C and D were converted to
common, which increased common stock outstanding by 2,219,013 shares including
154,482 shares classified as mandatory redeemable stock. Preferred shares
authorized remain five million shares with no preferred shares issued or
outstanding as of April 30, 2004.
On December 31, 2003, the Company's Board of Directors approved the extension of
the expiration date of 4,000 fixed stock options, exercisable at $2.50. The
original expiration date of December 31, 2003 was extended to June 30, 2004. The
Company recognized $40 of compensation expense related to the extension of the
options during the three months ended January 31, 2004.
8. BUSINESS SEGMENT DATA AND GEOGRAPHIC DATA
The Company operates in three industry segments comprised of trailer and related
transportation equipment manufacturing (trailer manufacturing); coach leasing;
and butyl rubber reclaiming. All sales are in North and South America primarily
in the United States, Canada and Brazil. Selected information by segment
follows:
Three Months Ended April 30, 2004
------------------------------------------------------------------------------------------
Trailer Butyl Rubber
Manufacturing Coach Leasing Reclaiming Total Segments Corporate Consolidated
------------------------------------------------------------------------------------------
Sales:
Domestic $ 11,422 $ 974 $ 2,134 $ 14,530 $ -- $ 14,530
Foreign 1,108 -- 654 1,762 -- 1,762
------------------------------------------------------------------------------------------
Total $ 12,530 $ 974 $ 2,788 $ 16,292 $ -- $ 16,292
Cost of goods sold $ 11,858 $ 528 $ 2,803 $ 15,189 $ -- $ 15,189
Loss before taxes and $
minority interest (896) $ (296) $ (357) $ (1,549) $ (1,341) $ (2,890)
Identifiable assets $ 20,248 $ 13,714 $ 10,260 $ 44,222 $ 747 $ 44,969
Depreciation and
amortization expense $ 176 $ 226 $ 353 $ 756 $ 34 $ 789
Interest expense $ 421 $ 273 $ 125 $ 819 $ 163 $ 982
17
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
8. BUSINESS SEGMENT DATA AND GEOGRAPHIC DATA, CONTINUED
Three Months Ended April 30, 2003
------------------------------------------------------------------------------------------
Trailer Butyl Rubber
Manufacturing Coach Leasing Reclaiming Total Segments Corporate Consolidated
------------------------------------------------------------------------------------------
Sales:
Domestic $ 9,970 $ 1,419 $ 2,439 $ 13,828 $ -- $ 13,828
Foreign 876 -- 403 1,279 -- 1,279
------------------------------------------------------------------------------------------
Total $ 10,846 $ 1,419 $ 2,842 $ 15,107 $ -- $ 15,107
Cost of goods sold $ 10,034 $ 732 $ 2,550 $ 13,316 $ -- $ 13,316
Loss before taxes and
minority interest $ (865) $ (173) $ (129) $ (1,167) $ (143) $ (1,310)
Identifiable assets $ 21,271 $ 13,871 $ 10,363 $ 45,505 $ 756 $ 46,261
Depreciation and
amortization expense $ 189 $ 258 $ 311 $ 758 $ -- $ 758
Interest expense $ 342 $ 341 $ 116 $ 799 $ 105 $ 904
Six Months Ended April 30, 2004
------------------------------------------------------------------------------------------
Trailer Butyl Rubber
Manufacturing Coach Leasing Reclaiming Total Segments Corporate Consolidated
------------------------------------------------------------------------------------------
Sales:
Domestic $ 18,921 $ 2,014 $ 4,453 $ 25,388 $ -- $ 25,388
Foreign 2,088 -- 862 2,950 -- 2,950
------------------------------------------------------------------------------------------
Total $ 21,009 $ 2,014 $ 5,315 $ 28,338 $ -- $ 28,338
Cost of goods sold $ 19,746 $ 1,115 $ 5,307 $ 26,168 $ -- $ 26,168
Loss before taxes and
minority interest $ (1,717) $ (634) $ (664) $ (3,015) $ (2,093) $ (5,108)
Identifiable assets $ 20,248 $ 13,714 $ 10,260 $ 44,222 $ 747 $ 44,969
Depreciation and
amortization expense $ 355 $ 435 $ 705 $ 1,500 $ 68 $ 1,563
Interest expense $ 818 $ 601 $ 242 $ 1,661 $ 290 $ 1,951
18
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
8. BUSINESS SEGMENT DATA AND GEOGRAPHIC DATA, CONTINUED
Six Months Ended April 30, 2003
----------------------------------------------------------------------------------------
Trailer Coach Butyl Rubber
Manufacturing Leasing Reclaiming Total Corporate Consolidated
----------------------------------------------------------------------------------------
Sales:
Domestic $ 16,982 $ 2,526 $ 4,652 $ 24,160 $ -- $ 24,160
Foreign 1,223 -- 624 1,847 -- 1,847
----------------------------------------------------------------------------------------
Total $ 18,205 $ 2,526 $ 5,276 $ 26,007 $ -- $ 26,007
Cost of goods sold $ 16,754 $ 1,354 $ 4,948 $ 23,056 $ -- $ 23,056
Loss before taxes and
minority interest $ (1,867) $ (400) $ (478) $ (2,745) $ (242) $ (2,987)
Identifiable assets $ 21,271 $ 13,871 $ 10,363 $ 45,505 $ 756 $ 46,261
Depreciation and
amortization expense $ 378 $ 448 $ 620 $ 1,446 $ -- $ 1,446
Interest expense $ 674 $ 611 $ 239 $ 1,524 $ 164 $ 1,688
Obsidian Enterprises, Inc. (legal parent) allocates selling, general and
administrative expenses to the respective companies primarily based on a
percentage of sales. For the three and six months ended April 30, 2004 and 2003,
allocated corporate expenses by segment were as follows:
Three Months Ended Six Months Ended
---------------------------------------------
April 30, April 30, April 30, April 30,
2004 2003 2004 2003
---------------------------------------------
Trailer manufacturing $ 844 $ 339 $ 1,275 $ 657
Coach leasing 125 44 188 92
Butyl rubber reclaiming 213 90 323 189
-------------------------------------------
$ 1,182 $ 473 $ 1,786 $ 938
===========================================
19
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
9. RELATED PARTIES
The Company makes advances, receives loans and conducts other business
transactions with affiliates resulting in the following amounts for the periods
ended:
April 30, October 31,
2004 2003
------------------ ------------------
Balance sheet:
Current assets:
Accounts receivable, Obsidian Capital Partners $ 8 $ 8
Accounts receivable, DC Investments and Fair Holdings 13 --
Accounts receivable, other affiliated entities 56 44
------------------ ------------------
Total assets $ 77 $ 52
================== ==================
Current liabilities:
Accounts payable, Obsidian Capital Company $ 34 $ 275
Accounts payable, related parties -- 320
Accounts payable, DC Investments and Fair Holdings 721 221
Accounts payable, other affiliated entities 3 21
Long-term portion:
Accounts payable, related parties 556 --
Notes payable, DC Investments 700 700
Notes payable, Fair Holdings 7,557 7,192
Line of credit, Fair Holdings 7,814 6,045
------------------ ------------------
Total liabilities $ 17,385 $ 14,774
================== ==================
Three Months Ended Six Months Ended
-------------------------------------- -------------------------------------
April 30, 2004 April 30, 2003 April 30, 2004 April 30, 2003
------------------- ------------------ ------------------ ------------------
Statement of operations:
Interest expense, DC
Investments and Fair Holdings $ 338 $ 324 $ 840 $ 503
Rent expense, Obsidian Capital
Company $ -- $ 15 $ -- $ 30
Rent expense, Fair Holdings $ 13 $ 13 $ 26 $ 18
Related-party amounts classified as current reflect those portions of the total
receivable or payable that were currently due in accordance with the terms.
Amounts classified as long term represent amounts not currently due, amounts
that are expected to be converted to equity subsequent to April 30, 2004 and
October 31, 2003, respectively, or amounts converted to long-term debt
subsequent to April 30, 2004.
20
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and share data)
(unaudited)
10. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is liable for contract completion
and product performance. In the opinion of management, such obligations will not
significantly affect the Company's financial position or results of operations.
11. SUBSEQUENT EVENTS
As of the close of business on April 30, 2004, Obsidian Enterprises, Inc.
acquired all of the outstanding shares of capital stock of Classic
Manufacturing, Inc. a Michigan-based manufacturer of open and enclosed trailers,
for a purchase price of $2,250,000 in cash and 170,451 shares of the Company's
Common Stock.
21
OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
IMPORTANT NOTE ABOUT FORWARD-LOOKING STATEMENTS.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. The Company and its representatives may from time to
time make written or oral forward-looking statements, including statements
included in or incorporated by reference into this Quarterly Report on Form 10-Q
and the Company's other filings made with the Securities and Exchange
Commission. These forward-looking statements are based on management's views and
assumptions and involve risks, uncertainties and other important factors, some
of which may be beyond the control of the Company, that could cause actual
results to differ materially from those expressed or implied in the
forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in this Item 2.
Readers should carefully review the risks described in this and other documents
that the Company files from time to time with the Securities and Exchange
Commission. The forward-looking statements speak only as of the date that they
are made and the Company undertakes no obligation to update or revise any of the
forward-looking statements.
OVERVIEW
The Company operates in three industry segments, comprised of trailer and
related transportation equipment manufacturing, butyl rubber reclaiming, and
coach leasing. Trailer and related transportation equipment manufacturing
includes the operations of United and Danzer Industries. Butyl rubber reclaiming
includes the operations of U.S. Rubber and coach leasing includes the operations
of Pyramid, DW Leasing, Obsidian Leasing and DC Investments Leasing.
Champion is accounted for as a discontinued operation, therefore, its results of
operations and cash flow have been removed from the Company's continuing
operations for all periods presented.
RESULTS OF OPERATIONS
The Company's overall operating results and financial condition during the six
months ended April 30, 2004 compared to the six months ended April 30, 2003 were
adversely affected by the limited availability of raw materials in the butyl
reclaiming segment, significant increases in material costs in the trailer and
related transportation manufacturing segment primarily related to steel and
plywood. Also there was decrease in availability of freight carriers and adverse
weather conditions that affected the Company's ability to deliver orders in the
trailer and related transportation equipment manufacturing segment.
During the quarter ended April 30, 2004 we initiated price increases on our
products in the trailer and related transportation manufacturing segment ranging
form nine to eleven percent. These price increases were implemented to offset
the significant increases we experienced in material costs.
We commenced a strategy in late 2003 of pursuing strategic acquisition
opportunities that include targets both in our traditional, basic industries and
manufacturing sectors as well as targets that possessed assets (including cash)
that, while outside our traditional areas of focus, were available on terms that
our management believed to be attractive. During the six months ended April 30,
2004 we were active with respect to an exchange offer for Net Perceptions, Inc.
As of April 2, 2004 we withdrew our offer with respect to the exchange of
shares. We incurred expenses for the exchange offer which totaled $577 above our
normal administrative expenses. We anticipate that over the course of 2004 we
will pursue other acquisition opportunities that we deem attractive in a variety
of industry sectors. Ultimately, these acquisitions may (but can not be
guaranteed to) result in our qualifying for listing on the Nasdaq SmallCap
Market or a national securities exchange, having increased financial resources
and potentially a broader asset base and more diversified sources of revenue.
22
The following table shows net sales by product segment:
Three Months Ended Six Months Ended
------------------------------------------ -------------------------------------------
April 30, 2004 April 30, 2003 April 30, 2004 April 30, 2003
--------------------- -------------------- --------------------- ---------------------
Trailer manufacturing $ 12,530 $ 10,846 $ 21,009 $ 18,205
Butyl rubber reclaiming 2,788 2,842 5,315 5,276
Coach leasing 974 1,419 2,014 2,526
--------------------- -------------------- --------------------- ---------------------
Net Sales $ 16,292 $ 15,107 $ 28,338 $ 26,007
===================== ==================== ===================== =====================
The following is a discussion of the major elements impacting the Company's
operating results by segment for the three and six months ended April 30, 2004
compared to the three and six months ended April 30, 2003. The comments that
follow should be read in conjunction with the Company's condensed consolidated
financial statements and related notes contained in this Form 10-Q.
TRAILER AND RELATED TRANSPORTATION EQUIPMENT MANUFACTURING
The following table shows sales, cost of sales and gross profit for this segment
for the periods indicated:
Three Months Ended Six Months Ended
------------------------------------------ -------------------------------------------
April 30, 2004 April 30, 2003 April 30, 2004 April 30, 2003
--------------------- -------------------- --------------------- ---------------------
Net Sales $ 12,530 $ 10,846 $ 21,009 $ 18,205
Cost of Sales 11,858 10,034 19,746 16,754
--------------------- -------------------- --------------------- ---------------------
Gross Profit $ 672 $ 812 $ 1,263 $ 1,451
===================== ==================== ===================== =====================
Gross Profit % 5.4% 7.5% 6.0% 8.0%
===================== ==================== ===================== =====================
Three Months Ended April 30, 2004 Compared to The Three Months Ended April 30,
2003
Net sales in this segment for the three months ended April 30, 2004 as compared
to the three month period ended April 30, 2003 increased 15.5% in the amount of
$1,684. Sales in this segment were higher than the prior year due primarily to
two factors. First, a discount/rebate program was implemented in February 2003
for the cargo trailers to stimulate sales and remain competitive until a new
economy cargo trailer was introduced. The discounts totaled $600 for the three
months ended April 30, 2004 and no special discount programs have been offered.
Cargo trailer sales have also increased at our Hagerstown MD facility by $473
for the three months ended April 30, 2004. Sales of truck bodies continue to
lag, and are below 2003 and decreased $38 for the quarter ended April 30, 2004.
The Company does not anticipate any significant pick up in orders from this
segment's truck body customers in the near future.
The gross profit percentage decreased 2.1% for the three months ended April 30,
2004. The reduction in gross profit is attributable to the following factors.
First we have experienced significant price increases from our vendors for raw
materials, primarily for steel and plywood. The increases on average ranged from
20 to 55 percent. During our second quarter sales prices were increased by 9% to
realign our margins to offset the material cost increases.
Second, during the first quarter of 2003, the Company opened an additional cargo
trailer manufacturing facility. This facility did not obtain the level of
efficiency as anticipated and therefore was closed during March 2004. Production
from this facility was redirected to our other operating facilities.
23
Gross profit has also been negatively impacted by a reduction in sales of truck
bodies, which has reduced the ability to absorb overhead at the truck body
manufacturing facility in Hagerstown MD. The Company began manufacturing cargo
trailers in this facility to provide additional capacity and serve new markets.
Production levels are increasing but have not yet reached a level of efficiency
of existing cargo trailer facilities. Management is currently analyzing the use
of the truck body facility and considering options of continuing production of
truck bodies and cargo trailers, discontinuing one of these lines at this
facility or closing the facility.
In conjunction with the analysis of operations at the truck body manufacturing
facility, management is also analyzing any potential asset impairment at this
facility. Total assets of Danzer as of April 30, 2004 were $1,896 which
represents approximately 4% of consolidated total assets.
Six Months Ended April 30, 2004 Compared to The Six Months Ended April 30, 2003
Sales in this segment increased $2,804 or 15.4% over the comparable period of
2003. The increase was primarily related to the acceptance of our new product
introduction of the economy line trailer as well as a stronger order position
for our cargo trailers as compared to 2003. Additional capacity was obtained
through our Hagerstown MD facility as well as increased production at all other
operating facilities. The truck body line continues to be depressed as capital
spending in the telecommunications industries as remained low.
Looking ahead, for the trailer and related equipment manufacturing segment are
expected to grow in fiscal 2004 compared to fiscal 2003. Orders for our cargo
trailers remain strong and have increased approximately 43% and our new economy
line trailer is being well received by our customers. We believe sales of truck
bodies will continue at about the same level as 2003 unless a replacement market
can be developed.
The gross profit decrease of 2% was primarily a result of increased material
cost. The cost of plywood and steel, major components of our cargo trailers,
increased significantly starting in August 2003 and continued through April
2004. The increase in price on average ranged from 20 to 55%. We have and will
continue to evaluate alternative materials to replace the plywood and continue
to negotiate with new suppliers. We also believe gross profits will continue to
be adversely impacted by the lack of sales volume in truck bodies during 2004 at
the Hagerstown, Maryland, plant. Although the Hagerstown plant has increased its
production and sales of cargo trailers, the volume is currently below levels to
fully absorb its fixed overhead costs.
BUTYL RUBBER RECLAIMING
The following table shows sales, cost of sales and gross profit for this segment
for the periods indicated:
Three Months Ended Six Months Ended
------------------------------------------ -------------------------------------------
April 30, 2004 April 30, 2003 April 30, 2004 April 30, 2003
--------------------- -------------------- --------------------- ---------------------
Net Sales $ 2,788 $ 2,842 $ 5,315 $ 5,276
Cost of Sales 2,803 2,550 5,307 4,948
--------------------- -------------------- --------------------- ---------------------
Gross Profit $ (15) $ 292 $ 8 $ 328
===================== ==================== ===================== =====================
Gross Profit % (.5)% 10.3% .2% 6.2%
===================== ==================== ===================== =====================
Three Months Ended April 30, 2004 Compared To The Three Months Ended April 30,
2003
Net sales for the three months ended April 30, 2004 compared to same period for
2003 decreased $54 or 1.9%. Sales in this segment decreased due to the lack of
consistent sources of raw materials. In addition, harsher weather conditions
during the winter months slow the reclamation of butyl tubes in the North.
24
Gross profit decreased 10.8% for the three months ended April 30, 2004. The
primary reasons for this decrease are a lack of a consistent supply of raw
materials, increased energy costs and increased repairs and maintenance on
machinery and equipment. The Company's reclaim process is most efficient when
raw material consists of primarily road worn inner tubes with a mix of other
butyl rubber. As a result of having to use less than optimum raw material mix in
the reclaiming process, additional processing time is incurred to ensure
delivery of quality product.
Six Months Ended April 30, 2004 Compared To the Six Months Ended April 30, 2003
Net sales in this segment for the six months ended April 30, 2004 as compared to
the six-month period ended April 30, 2003 increased .7% in the amount of $39.
Sales in this segment were higher than the six months ended April 30, 2002
because of increased demand from Company's tire manufacturing customers as noted
above. While the Company experienced an increase in sales, management does not
anticipate a return to historic levels of sales of reclaimed butyl rubber to
tire manufacturers, due to the lack of consistent sources of raw materials.
Looking ahead, future sales growth will depend greatly on successful
implementation of our recycling program with the chapters of The National FFA
Organization and finding other sources of material. In addition, the continued
implementation of our fine grind process will increase the ability to utilize
some additional rubber products in our butyl reclaim process and add potential
new products.
Gross profit percentage decreased 6.0% for the six months ended April 30, 2004
compared to the six months ended April 30, 2003. As noted above, the primary
reasons for this decrease is a lack of a consistent supply of raw materials and
increasing energy costs and increased repairs and maintenance on machinery and
equipment. The Company's reclaim process is most efficient when raw material
consists of primarily road worn inner tubes with a mix of other butyl rubber.
Since the introduction of the tubeless tire for automobiles in the 1970s,
sources of material have declined substantially and the cost of available raw
materials has increased. As a result of having to use less than optimum raw
material mix in the reclaiming process, additional processing time is incurred
to ensure delivery of quality product. In addition, alternative sources of
material, including overseas sources, are being pursued to provide a consistent
supply of material in the future. Until such time that consistent sources of raw
materials are available, sales growth and gross profit in this segment will be
limited.
COACH LEASING
The following table shows sales, cost of sales and gross profit for this segment
for the periods indicated:
Three Months Ended Six Months Ended
------------------------------------------ -------------------------------------------
April 30, 2004 April 30, 2003 April 30, 2004 April 30, 2003
--------------------- -------------------- --------------------- ---------------------
Net Sales $ 974 $ 1,419 $ 2,014 $ 2,526
Cost of Sales 528 732 1,115 1,354
--------------------- -------------------- --------------------- ---------------------
Gross Profit $ 446 $ 687 $ 899 $ 1,172
===================== ==================== ===================== =====================
Gross Profit % 45.8% 48.4% 44.6% 46.4%
===================== ==================== ===================== =====================
Three Months Ended April 30, 2004 Compared To The Three Months Ended April 30,
2003
Sales for the three months ended April 30, 2004 decreased $445 or 31% from the
period April 30 2003. The decrease in sales relates to a lower utilization of or
fleet compared to the same period for 2003. Our management believes the lower
utilization is due to increased market competition. Tours which utilized our
coaches during the winter months of 2003 did not return in 2004. The seasonality
of the segment sales also have an impact and historically are stronger in the
spring, summer and fall.
25
The gross profit percentage decreased 2.6% for the three months ended April 30,
2004 compared to the period April 30, 2003. The reduction is attributable
primarily to the cost of maintaining a larger fleet and lower utilization of our
coaches for the three months ended April 30, 2004. Also additional coaches were
leased from unrelated third parties to meet current demand for newer coaches.
Third party leases reduce the overall gross margin of the segment.
Six Months Ended April 30, 2004 Compared To The Six Months Ended April 30, 2003
Sales for the six months ended April 30, 2004 decreased 20% in the amount of
$512 over the comparable six-month period ended April 30, 2003. The decrease in
sales is attributable to decreased utilization of the coach fleet due to
increased market competition. Our management believes utilization will increase
as a result from marketing efforts to specialized tour groups and corporate
customers through the remainder of 2004. These customers are in addition to the
traditional country and western performers who have traditionally been this
segment's primary customer base.
Looking ahead, the first half of the year is typically the segment's lowest
sales period due to seasonality. Business is historically stronger in the summer
and fall.
Gross profit for this segment was 44.6% for the six months ended April 30, 2004
compared to 46.4% for the comparable six-month period ended April 30, 2003. As
noted above, the reduction is attributable primarily to additional costs of
maintaining a larger fleet during the lower utilization period of the year and
the need to sublease newer coaches from third parties.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES
The Company's selling, general and administrative expenses increased $822 or 37%
for the three months ended April 30, 2004 compared to the three-month period
ended April 30, 2003 and $1,111 or 26% for the six months ended April 30, 2004
compared to the six-month period ended April 30, 2003. The increase in expenses
were primarily professional fees and other expenses related to the unsuccessful
exchange offer for Net Perceptions, Inc. These expenses are non recurring and
totaled $577 for the six months ended April 30, 2004. Other increases include
additional marketing expenses for website advertising and an increase in
amortization expense for the six months ended April 30, 2004.
INTEREST EXPENSE
Interest expense as a percentage of average borrowings is as follows:
Three Months Ended Six Months Ended
------------------------------------------ -------------------------------------------
April 30, 2004 April 30, 2003 April 30, 2004 April 30, 2003
--------------------- -------------------- --------------------- ---------------------
Average debt borrowings $ 41,960 $ 39,300 $ 41,663 $ 37,321
Interest expense as a
percentage of average debt
borrowings 2.3% 2.3% 4.7% 4.5%
Interest expense as a
percentage of average debt
borrowings, annualized 9.4% 9.2% 9.4% 9.0%
===================== ==================== ===================== =====================
The increase is primarily due to the variable rates and refinancing of debt at
higher rates.
26
INCOME TAX PROVISION
There was no income tax benefit recorded for the three- or six-month periods
ended April 30, 2004 as compared to $401 of tax benefit in the three-month
period ended April 30, 2003 and $559 for the six-month period ended April 30,
2003. Income tax benefits are created primarily through NOL carry forwards
recognized to the extent they are available to offset the Company's net deferred
tax liability. Operating losses during the quarter ended January 31, 2004 have
been reserved with a valuation allowance. Any quarterly tax benefits are based
on the estimated effective tax rate for the full year.
DISCONTINUED OPERATIONS
On October 30, 2002, the Company's Board of Directors agreed to sell
substantially all assets of Champion to an entity controlled by Messrs. Durham
and Whitesell in exchange for assumption of all liabilities of Champion, other
than its subordinated debt. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 144, Accounting for Impairment of Long-Lived Assets, the
operating results of Champion have been classified as discontinued operations.
The losses from discontinued operations for the six months ended April 30, 2003
represent the losses of Champion during this period, net of tax benefit of $97.
The loss from discontinued operations for the three and six months ended April
30, 2003 were $0 and $49, respectively.
Substantially all assets of Champion subject to its liabilities were sold on
January 30, 2003. No gain or loss was recognized in the consolidated statement
of operations due to the involvement of related parties. The benefit of
liabilities assumed by the purchaser in excess of assets sold in the amount of
$1,142 was recorded as additional paid-in capital.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
In June 2001, we purchased four new businesses and began operations as a
consolidated holding company with multiple operating subsidiaries. In the period
since June 2001, we have incurred losses and reductions in our equity. During
this period we have financed our losses and have been able to refinance certain
third-party obligations with DC Investments, LLC and its subsidiary, Fair
Holdings, and other third parties. Our borrowings from Fair Holdings have been
on terms that may not have been available from other sources. As of April 30,
2004, our total debt outstanding to DC Investments and Fair Holdings was
$16,792.
We are continuing to address our liquidity and working capital through various
means including operational changes and financing matters which are discussed
below. During the period these plans are put in place, we have continued to
receive financing, and have in place arrangements to receive additional
financial support, from Fair Holdings, if necessary.
WORKING CAPITAL
Our businesses are working capital intensive and require funding for purchases
of production inventory, capital expenditures and expansion and upgrading of
facilities. Each of our subsidiaries have separate revolving credit agreements
and term loan borrowings through which the subsidiary finances its operations
together with cash generated from operations. Our working capital position
(current assets over current liabilities) was negative at April 30, 2004 by
$3,198. At October 31, 2003, our working capital position was positive by
$6,045. The decrease in working capital is primarily attributable to a balloon
payment on our coach group debt of approximately $3,800 that is due in December
2004 and reclassification of approximately $4,000 of debt under revolving credit
lines that are due for renewal in November 2004. Other unfavorable changes
include increases in accounts payable.
27
WORKING CAPITAL, CONTINUED
We continue to address liquidity and working capital issues in a number of ways.
At April 30, 2004, net cash used in continuing operations was $1,501 compared to
$2,549 in 2003. The use of cash and working capital was primarily related to
operating losses and business seasonality. In 2004, we expect our operations to
generate positive cash and increase our overall working capital through improved
operations as follows:
o We continue to look for ways to strengthen our liquidity, equity and
working capital through ongoing evaluations of merger and acquisition
candidates.
o Discontinuing the cargo trailer discounting program that ended in July
2003 with the introduction of a new product line to replace the need
to provide discounts to maintain market share. The new product line
has a competitive price, while providing gross profits at historic
levels.
o Cost reduction and management initiatives for raw materials in the
trailer and related transportation manufacturing segment with the
implementation of alternative materials and additional discounts
through volume purchasing.
o Implementation of the new fine grind production process in the butyl
rubber reclaiming segment. The new process will maximize the use of
the existing raw materials in the existing butyl reclaim production
and also provide potential additional production of natural rubber.
o Capitalize on the trailer production line put in place in the fourth
quarter of 2002 that provides a new product line to the existing
customers of Danzer. This production line and related sales effort
have allowed us to enter a new market along the East coast of the U.S.
Our ability to capitalize on this opportunity will be a determining
factor on our ability to reduce this operation's use of working
capital resources. Management will continue to evaluate the operations
on a continuous basis.
o We secured an additional financial commitment from Fair Holdings to
provide, as needed, additional borrowings under a $15,000 line of
credit agreement, which expires on January 1, 2007. Currently,
approximately $7,186 is available to us under the agreement.
o We are actively working to refinance our current maturities on a
long-term basis. Approximately $7,800 of the current maturities of
long term debt is expected to be refinanced during fiscal 2004.
Management believes the steps taken to improve our operations will positively
impact our liquidity and working capital for fiscal 2004. However, success is
dependent on our ability to restore gross profits and capitalize on potential
new markets in the trailer and related transportation manufacturing segment,
obtain consistent material supply in the butyl rubber reclaiming segment and
continue to grow the coach leasing segment. If our operating results are less
than expected, the increased commitment from Fair Holdings will provide
additional liquidity in 2004.
FINANCIAL COVENANT WAIVERS
Significant financial covenants in our credit agreements are the maintenance of
minimum ratios, levels of earnings to funded debt and fixed charge coverage
rate. We did not meet requirements and covenants in certain debt agreements. At
April 30, 2004, United had violated financial covenants with Huntington Capital
Investment Company. Huntington Capital Investment Company waived their covenant
violations and we are currently in discussions regarding modifications to the
covenants.
US Rubber Reclaiming, Inc. did not meet its fixed charge coverage ratio covenant
with PNC Bank. PNC waived their covenant and are currently in process of
modifying the covenants and amending the loan agreement.
28
FUNDS AVAILABILITY
On a consolidated basis, as of April 30, 2004, the Company had approximately
$561 of cash and cash equivalents. Danzer Industries, U.S. Rubber, United and
Obsidian Enterprises each have revolving credit lines available for working
capital at each individual entity. Borrowings under the credit facilities are
available to the lesser of the maximum amount or the borrowing base as defined
in the credit agreement. At April 30, 2004, additional current availability
under these credit lines and maximum availability if supported by their
individual borrowing base are:
Company Current Availability Maximum Availability
Danzer Industries $ 28 $ 28
U.S. Rubber -- --
United -- --
Obsidian Enterprises 7,186 7,186
The Company generated negative net cash flow of $1,501 from operations during
the six months ended April 30, 2004. Cash used in operations is primarily due to
operating losses and increases in inventories offset by increases in accounts
payable. The Company has increased inventories primarily in the trailer and
related transportation equipment manufacturing segment. Inventories were
increased primarily due to the limited availability of freight carriers to
deliver the products. Funding during the period was provided through borrowings
on lines of credit and from related parties.
GUARANTEES OF PARTNERS
We have an agreement with Partners that gives us the right to mandate a capital
contribution from the Partners if the lenders to U.S. Rubber or United were to
declare a default. In either of those events, the Company has the right to
enforce a capital contribution agreement with Partners up to $1,370 on U.S.
Rubber and $1,000 on United to fund the respective subsidiary's shortfall. These
payments, if any, would be applied directly to reduce the respective
subsidiary's debt obligations to the lender.
CASH FLOWS
Cash flow and liquidity are discussed further below, and the footnotes to our
financial statements discuss cash flow, liquidity and the current classification
of debt.
We also have a commercial commitment as described below:
Other Commercial Total Amount Outstanding at Date of
Commitment Committed April 30, 2004 Expiration
------------------------------ ------------ -------------- ----------
Line of credit, related party $ 1,500 $ 1,472 April 1, 2006
Line of credit 4,000 4,000 February 1, 2005
Line of credit 4,000 2,172 October 1, 2005
Line of credit, related party 15,000 7,814 January 9, 2007
The Company's net cash used in operations for the six months ended April 30,
2004 was $1,501. This is comprised of a loss from continuing operations of
$5,132, offset by non-cash changes as follows: depreciation and amortization of
$1,563, accretion of interest expense of $137, minority interest of $24 and the
extension of stock options of $40. In addition, the Company had increases in
accounts receivable of $269, inventories of $629, and accounts payable of
$2,725, a decrease in accrued expenses and customer deposits of $172, and
decreases in other assets of $212.
29
Net cash flow provided from financing activities for the six months ended April
30, 2004 was $1,481. This is comprised of borrowings of long-term debt and net
borrowings of short-term debt of $358 and borrowings from related parties of
$2,410, offset by principal repayments of long-term debt of $1,287.
Cash flow used in investing activities for the six months ended April 30, 2004
was $567. This is comprised of purchases of equipment of $627 net of proceeds on
sale of equipment of $60.
The total decrease in cash is summarized as follows:
Six Months Ended
--------------------------------------
April 30, April 30,
2004 2003
------------------- ------------------
Net cash used in operations $ (1,501) $ (2,596)
Net cash used in investing activities (567) (296)
Net cash provided by financing activities 1,481 2,760
Net cash provided by (used in) discontinued operations -- (41)
------------------- ------------------
Decrease in cash and cash equivalents $ (587) $ (173)
=================== ==================
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are summarized in Note 2 to the consolidated
financial statements in the Annual Report on Form 10-K for the fiscal year ended
October 31, 2003 and describe the significant accounting policies and methods
used in the preparation of the consolidated financial statements. Some of the
most critical policies are also discussed below.
As a matter of policy, we review our major assets for impairment. Our major
operating assets are accounts receivable, inventory, intangible assets and
property and equipment. We have not historically experienced significant bad
debts expense, although the filing of Chapter 11 bankruptcy during 2002 of a
customer resulted in a bad debt charge of $379. We believe our reserve for
doubtful accounts of $506 should be adequate for any exposure to loss in our
April 30, 2004 accounts receivable. We have also established reserves for
slow-moving and obsolete inventories and believe the reserve of $307 is
adequate. We depreciate our property and equipment and amortize intangible
assets (except for goodwill) over their estimated useful lives. Property and
equipment is reviewed for impairment when events and circumstances indicate
potential impairment factors are present. In assessing the recoverability of the
Company's property and equipment, the Company must make various assumptions
regarding estimated future cash flows and other factors in determining the fair
values of the respective assets. If these estimates or their related assumptions
change in the future, the Company may be required to record impairment charges
for these assets in future periods. Any such resulting impairment charges could
be material to the Company's results of operations.
Goodwill and intangibles are reviewed annually for impairment as of the first
day of the fourth quarter or more frequently when events and circumstances
indicate potential impairment factors are present. The realization of the
goodwill of $5,784 is primarily dependent on the future operations of the
operating entity whether the goodwill is allocated (at United). Historical
operating results, current product demand and estimated future results indicate
the results of operations at United should be adequate to continue to realize
this amount. However, future results may not meet expectations due to economic
or other factors, and failure to meet expectations may result in the goodwill
not being fully realizable and accordingly result in impairment charges which
could be material to the Company's operating results.
30
The initial cost of coaches acquired is depreciated over a straight-line basis
over 15 years to a salvage value of 38% of original cost. Subsequent
enhancements and refurbishments of coaches are depreciated over five years using
the straight-line method. The age of coaches in our fleet range from less than
one year to ten years, with an average age of approximately four years. Actual
value of coaches after 15 years is dependent on several factors including the
level of maintenance and the market conditions at the time of disposal. We have
not disposed of a material number of coaches, and our estimate of depreciation
is based on information other than actual disposal experience. Accordingly, we
continue to evaluate our estimates with respect to the actual depreciation of
such vehicles based on market conditions and our experience in disposals when
they occur. Should future factors indicate the current depreciation policy is
not adequate, we will adjust the depreciation rates, and such adjustments may
have an adverse impact on our results of operations.
In conjunction with financing of the acquisition of United, the Company issued
386,206 shares of Series C preferred stock to Huntington Capital Investment
Corporation ("Huntington"). On March 12, 2004, these shares were converted to
154,482 shares of common stock. The conversion did not effect the repurchase
option described below. The note purchase agreement includes a provision that
gives Huntington the option to require the Company to repurchase these shares at
90% of market value upon the earlier of: a) fifth anniversary of issuance of
such shares, b) default under the subordinated debt agreement, c) other factors
related to a sale of substantially all assets of the Company as defined in the
agreement. Increases in the value of the Company's stock will result in a
corresponding increase to this repurchase requirement. Accordingly, a
substantial increase in stock price at the repurchase date may have an adverse
impact on the Company's liquidity. At April 30, 2004, the Company had violated
certain financial covenants defined in the subordinated debt agreement with
Huntington. The Company received a waiver of these violations as of April 30,
2004.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to interest rate changes. See the
discussion of market risk in Management's Discussion and Analysis of Financial
Condition and Results of Operations in Item 2, which discussion is incorporated
by reference herein.
ITEM 4 CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the reports we file pursuant
to the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms. Such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. The
Company's management recognizes that, because the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events and also is subject to other inherent limitations, any controls
and procedures, no matter how well designed and operated, can provide only
reasonable, and not absolute, assurance of achieving the desired objectives. The
Company's management believes, however, that the Company's disclosure controls
and procedures provide reasonable assurance that the disclosure controls and
procedures are effective.
The Company has carried out as of April 30, 2004, an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective. Effective November 1, 2003, the Company implemented
an enterprise wide, integrated accounting system that replaced the separate
accounting systems previously maintained by the several subsidiaries and since
that date has implemented an enhanced segregation of duties of various
accounting personnel and plans to physically inventory our United Expressline
operations on a quarterly basis. Management will continue to evaluate whether
additional steps are needed to improve our financial infrastructure. There have
been no other significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of the April 30, 2004 evaluation.
31
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to ordinary litigation incidental to its business. No
current pending litigation is expected to have a material adverse effect on
results of operations, financial condition or cash flows.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(a) At the Company's Annual Meeting of Stockholders held on December 3, 2003,
the stockholders approved amendments to the Company's Certificate of
Incorporation to implement a 50-to-1 reverse stock split and a reduction of the
Company's authorized shares of Common Stock from 40,000,000 to 10,000,000.
Holders of fractional shares subsequent to the reverse stock split received cash
payments for their fractional shares. On February 13, 2004, the Company filed
the Certificate of Amendment amending the Fourth Article of the Certificate of
Incorporation with the Delaware Secretary of State and the Certificate of
Amendment became effective on February 16, 2004.
(b) Not applicable
(c) As disclosed in the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 2003 (the "2003 10-K"), which disclosure is incorporated
herein by reference, on February 9, 2004, the Company received an extension of
the requirement to provide audited financial statements to debenture holders. In
exchange for this extension, the Company issued warrants to each of the
debenture holders to purchase up to 8,000 shares of the Company's common stock
at an exercise price of $10.00 per share. These warrants expire February 9,
2007. The issuances of the warrants were made in reliance upon the exemption
from the registration provisions of the Securities Act of 1933, as amended, set
forth in Section 4(2) thereof, for transactions by an issuer not involving any
public offering and other applicable exemptions. Copies of the February 9, 2004
warrant agreements were attached as exhibits to the 2003 Form 10-K.
As disclosed in a Current Report on Form 8-K filed on May 14, 2004, which
disclosure is incorporated herein by reference, on April 30, 2004, the Company
issued 170,451 shares of its Common Stock as partial consideration for the
acquisition of all of the outstanding shares of Classic Manufacturing, Inc., a
Michigan-based manufacturer of trailers. The issuances of the shares were made
in reliance upon the exemption from the registration provisions of the
Securities Act of 1933, as amended, set forth in Section 4(2) thereof, for
transactions by an issuer not involving any public offering and other applicable
exemptions.
(d) Not applicable.
(e) The following table presents information on the Company's purchases of
equity securities during the quarter ended April 30, 2004.
32
Issuer Purchases of Equity Securities
---------------------------- ---------------------- ----------------------- ---------------------- -------------------------
(d) Maximum Number (or
(c) Total Number of Approximate Dollar
Shares (or Units) Value) of Shares (or
(a) Total Number of (b) Average Price Purchased as Part of Units) that May Yet be
Shares (or Units) Paid per Share (or Publicly Announced Purchased Under the
Period Purchased Unit) Plans or Programs Plans or Programs
---------------------------- ---------------------- ----------------------- ---------------------- -------------------------
February 1, 2004- February
29, 2004* 328 $12.09 N/A N/A
---------------------------- ---------------------- ----------------------- ---------------------- -------------------------
March 1, 2004 -March 31,
2004 -- -- N/A N/A
---------------------------- ---------------------- ----------------------- ---------------------- -------------------------
April 1, 2004 to April 30,
2004 -- -- N/A N/A
---------------------------- ---------------------- ----------------------- ---------------------- -------------------------
Total 328 $12.09 N/A N/A
---------------------------- ---------------------- ----------------------- ---------------------- -------------------------
*On February 16, 2004, the Company repurchased fractional share interests in
connection with a 50-to-1 reverse stock split.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The exhibits filed as part of this Form 10-Q are listed in the Exhibit Index,
which is incorporated herein by reference.
REPORTS ON FORM 8-K
None.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OBSIDIAN ENTERPRISES, INC.
June 21, 2004 By: /s/ Timothy S. Durham
-------------- --------------------------------------
Date Timothy S. Durham, Chairman and
Chief Executive Officer
June 21, 2004 By: /s/ Rick D. Snow
-------------- --------------------------------------
Date Rick D. Snow, Executive Vice
President/Chief Financial Officer
34
EXHIBIT INDEX
------------------ --------------------------------------------------------------- --------------------------------
Exhibit No. Description
------------------ --------------------------------------------------------------- --------------------------------
3.1 Certificate of Amendment (effective February 16, 2004) Attached
------------------ --------------------------------------------------------------- --------------------------------
10.1 Stock Purchase Warrant, dated February 9, 2004, issued by Incorporated by reference to
Obsidian Enterprises, Inc. to HSBC Global Custody Nominee Exhibit 10.74 to the Company's
(UK) Limited, FBO BFS US Special Opportunities Trust PLC. Annual Report on Form 10-K for
the fiscal year ended October
31, 2003.
------------------ --------------------------------------------------------------- --------------------------------
10.2 Stock Purchase Warrant, dated February 9, 2004, issued by Incorporated by reference to
Obsidian Enterprises, Inc. to Frost National Bank, Custodian, Exhibit 10.75 to the Company's
FBO Renaissance US Growth Investment Trust PLC, Trust No. Annual Report on Form 10-K for
W00740100. the fiscal year ended October
31, 2003.
------------------ --------------------------------------------------------------- --------------------------------
31.1 Certification of Timothy S. Durham. Attached
------------------ --------------------------------------------------------------- --------------------------------
31.2 Certification of Rick D. Snow. Attached
------------------ --------------------------------------------------------------- --------------------------------
32.1 Statement Regarding Certification Pursuant to 18 U.S.C.ss. Attached
1350 by Timothy S. Durham, Chief Executive Officer.
------------------ --------------------------------------------------------------- --------------------------------
32.2 Statement Regarding Certification Pursuant to 18 U.S.C.ss. Attached
1350 by Rick D. Snow, Chief Financial Officer.
------------------ --------------------------------------------------------------- --------------------------------
35