SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2001 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
DANZER CORPORATION
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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 3680 46204
INDIANAPOLIS, INDIANA
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(Address of principal (Zip code)
executive offices
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 ___ No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKTUPCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ___ 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 July 31, 2001
$.0001 par value 36,007,855 shares
Introductory Note
This Amendment No. 1 amends the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 2001, to amend and restate Items 1 and 2 of
Part I to incorporate certain changes.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DANZER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
July 31, December 31,
2001 2000
----------------------------------
(as restated)
Assets
Current assets:
Cash and cash equivalents $ 58 $ 217
Marketable securities 297 --
Accounts receivable, net of allowance for doubtful accounts
of $95 for 2001 and $0 for 2000 4,186 1,746
Notes receivable, related party, current portion -- 1,098
Inventories, net 5,928 747
Prepaid expenses and other assets 1,196 868
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Total current assets 11,665 4,676
Property, plant and equipment, net 25,735 3,182
Other assets:
Accounts and notes receivable, related party, net of current
portion -- 1,770
Goodwill, not subject to amortization 5,829 --
Goodwill, net of accumulated amortization of $210 5,825 --
Other intangible assets, net of accumulated amortization of
$75 2,304 5
Other 661 --
----------------------------------
$ 52,019 $ 9,633
==================================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
DANZER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
July 31, December 31,
2001 2000
----------------------------------
(as restated)
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 12,129 $ 3,135
Accounts payable, trade 2,918 509
Accounts payable, related parties 2,777 --
Accrued expenses and customer deposits 2,426 168
----------------------------------
Total current liabilities 20,250 3,812
Long-term debt, net of current portion 23,470 711
Deferred income tax liabilities 1,910 171
Accounts payable, related parties 679 --
Commitments and contingencies -- --
Mandatory redeemable preferred stock 1,505 --
Stockholders' equity (deficit):
Common stock, par value $.0001 per share; 40,000,000 shares authorized,
36,007,855 shares outstanding 3 1
Preferred stock, 5,000,000 shares authorized; Class of Series C convertible
preferred stock, par value $.001, 4,600,000 authorized and 3,739,169 shares
issued and outstanding, 400,000 shares of undesignated Preferred
Stock authorized 4 --
Additional paid-in capital 5,612 --
Accumulated other comprehensive income 111 --
Retained earnings (accumulated deficit) (1,525) 4,938
----------------------------------
Total stockholders' equity 4,205 4,939
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$ 52,019 $ 9,633
==================================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
DANZER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended Seven Months Ended
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July 31, 2001 July 31, 2000 July 31, 2001 July 31, 2000
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Net sales $ 6,040 $ 3,033 $ 12,937 $ 6,847
Cost of sales 4,768 2,513 10,274 5,759
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Gross profit 1,272 520 2,663 1,088
Selling, general and administrative
expenses 1,258 663 2,614 996
Income (loss) from operations 14 (143) 49 92
Other income (expense):
Interest expense, net (690) (136) (1,570) (307)
Other income (expense) 11 110 (56) 251
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Loss before income taxes (665) (169) (1,577) 36
Income tax benefit (expense) 52 56 52 (29)
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Net income (loss) $ (613) $ (113) $ (1,525) $ 7
==========================================================================
Net income (loss) per share:
Basic $ (.02) $ -- $ (.07) $ --
==========================================================================
Diluted $ (.02) $ -- $ (.07) $ --
==========================================================================
Weighted average common and common equivalent shares outstanding:
Basic 26,184,890 -- 21,393,492 --
==========================================================================
Diluted 26,184,890 -- 21,393,492 --
==========================================================================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
DANZER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(dollars in thousands)
(unaudited)
Accumulated Retained
Additional Other Earnings
Comprehensive Common Stock Preferred Stock Paid-in Comprehensive (Accumulated
---------------------------------------
Income Shares Amount Shares Amount Capital Income Deficit) Total
-----------------------------------------------------------------------------------------------
(as (as restated)
restated)
Balance at December 31, 2000 $ -- $17,760,015 $1 $ -- $ -- $ -- $ -- $4,938 $4,939
Conversion of debt to
common stock -- 1,750,000 -- -- -- 355 -- -- 355
To record the effect of the
reverse merger June 21,
2001 -- -- 1 1,970,962 2 3,760 (103) (4,938) (1,278)
Conversion of Series C
Preferred Stock to common
stock -- 16,497,840 1 (824,892) (1) -- -- -- --
Issuance of 2,593,099
shares of Series C
Convertible Preferred
Stock associated with the
acquisition of United and
capital contribution -- -- -- 2,593,099 3 1,497 -- -- 1,500
Unrealized gain on
available-for-sale
marketable securities 214 -- -- -- -- -- 214 -- 214
2001 net loss (1,525) -- -- -- -- -- -- (1,525) (1,525)
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Total comprehensive loss $ (1,311)
=============
=============
$ $ $
Balance at July 31, 2001 36,007,855 $3$3,739,169 4 $ 5,612 111 $ (1,525) 4,205
==================================================================================
DANZER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Seven Months Seven Months
Ended July 31, Ended July 31,
2001 2000
--------------------------------
(as restated)
Cash flow from operating activities:
Net income (loss) $ (1,525) $ 7
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,374 307
Other 250 --
Changes in operating assets and liabilities net of effect of acquisitions:
Accounts receivable, net 231 (401)
Inventories 875 199
Other, net (985) 93
--------------------------------
Net cash provided by (used in) operating activities 220 205
--------------------------------
Cash flows from investing activities:
Capital expenditures (687) (683)
Payments to acquire U.S. Rubber (5,528) --
Payments to acquire United Expressline (12,040) --
Other 95 569
--------------------------------
Net cash used in investing activities (18,160) (114)
--------------------------------
The accompanying notes are an integral part of the
condensed consolidated financial statements.
DANZER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Seven Months Seven Months
Ended July 31, Ended July 31,
2001 2000
--------------------------------
(as restated)
Cash flows from financing activities:
Borrowings from and distributions to related parties, net $ 2,187 $ --
Net borrowings (payments) on lines of credit 3,346 (245)
Net borrowings (repayments) on long-term debt 10,092 --
Debt issuance cost (224) --
Proceeds from stock issuance and capital contribution of U.S. Rubber common stock 2,380 --
--------------------------------
Net cash provided by (used in) financing activities 17,781 (245)
--------------------------------
Decrease in cash and cash equivalents (159) (154)
Cash and cash equivalents, beginning of period 217 485
--------------------------------
Cash and cash equivalents, end of period $ 58 $ 331
================================
Interest paid $ 1,562 $ 307
================================
Taxes paid (refunded) $ (163) $ 83
================================
Supplemental disclosure of noncash operating, investing and financing
activities:
Advances to construct coaches funded by issuance of debt $ 292 $ --
Seller notes issued in acquisition of U.S. Rubber $ 2,573 $ --
Conversion of contributed amounts to equity $ 355 $ --
Seller note issued in acquisition of United Expressline $ 1,500 $ --
The accompanying notes are an integral part of the
condensed consolidated financial statements.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business:
Danzer Corporation, formerly named Global Environmental Corp., was
incorporated on October 6, 1987. Effective August 1, 1988, the Company acquired
all of the issued and outstanding common shares of Global Environmental
Holdings, Inc. ("Global Holdings"). On October 7, 1999, the Company changed its
name from Global Environmental Corp. to Danzer Corporation.
Danzer Corporation was reorganized 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 Danzer Corporation with
U.S. Rubber Companies (see Note 3, the "Acquisition and Plan of Reorganization")
was accounted for as a reverse acquisition as the shareholders of the U.S.
Rubber Companies owned a majority of the outstanding stock of Danzer subsequent
to the Acquisition and Plan of Reorganization.
For accounting purposes, U.S. Rubber Reclaiming, Inc. is deemed to have
acquired Danzer. Accordingly, the 2000 financial information presented herein
represents only the financial results of U.S. Rubber Reclaiming,
Inc.
Pursuant to the Plan of Acquisition and Reorganization, United Expressline,
Inc. was acquired July 31, 2001.
The accompanying financial data as of July 31, 2001 and for the three and
seven months ended July 31, 2001 and 2000 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 December 31,
2000 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.
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 July 31, 2001, results of operations for
the three and seven months ended July 31, 2001, and cash flows and stockholders'
equity for the seven months ended July 31, 2001 have been made. The results of
operations for the three and seven months ended July 31, 2001 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 Danzer Corporation (formerly Danzer) after
the Acquisition and Plan of Reorganization, are as follows:
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
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.
Danzer Corporation ("Danzer", the legal acquirer), a holding company.
Danzer Industries, Inc. ("Danzer Industries"), which is principally engaged
in the design, manufacture and sale of truck bodies.
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 financial
statements of Pyramid are presented on a combined basis. The combined financial
statements of Pyramid also include the assets, liabilities, equity and results
of operations of DW Leasing, LLC ("DW Leasing"). DW Leasing is controlled by
individuals which are also controlling shareholders of Danzer Corporation and,
accordingly, Pyramid. DW Leasing also owns substantially all coaches operated by
Pyramid. All intercompany transactions are eliminated in combination of this
entity.
Champion Trailer, Inc. ("Champion"), which manufactures and sells transport
trailers to be used primarily in the auto racing industry.
United Expressline, Inc. ("United") manufactures and sells general use
cargo trailers and specialty trailers used in the racing industry and for other
special purposes.
Significant Accounting Policies:
Principles of Consolidation:
The accompanying condensed consolidated financial statements as of and for
the three months and seven months ended July 31, 2001 present the accounts of
Danzer Corporation and its wholly owned subsidiaries described above, all of
which are treated for accounting purposes as purchases in a reverse merger more
fully described in Note 3. The entities are collectively referred to herein as
the "Company." All significant intercompany transactions and balances have been
eliminated in consolidation. The accompanying financial statements include the
operations of U.S. Rubber for all periods presented. Operations for all other
companies in the consolidated group are included from their respective dates of
acquisition as follows:
Champion January 1, 2001
Pyramid January 1, 2001
Danzer Corporation June 21, 2001
Danzer Industries June 21, 2001
United Expressline July 31, 2001
Financial statements as of July 31, 2000 and for the three months and seven
months then ended include only the accounts and results of operations of U.S.
Rubber.
Earnings Per Share:
Basic per-share amounts are computed, generally, by dividing net income or
loss 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 and conversion of
preferred stock, if dilutive.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
No common shares of the legal acquirer were issued in connection with the
acquisition which was accounted for as a reverse merger. Accordingly, there were
no common shares outstanding for the period ended July 31, 2000.
The Company's Series C Preferred Stock Preferred Stock, which has all the
rights and privileges of the Company's common stock, is convertible at rates of
20 to 1. The inclusion of these potential common shares in the calculation of
loss per share would have an antidilutive effect. However, pursuant to the
Acquisition Agreement and Plan of Reorganization entered into in connection with
the reorganization, these shares will be converted to common stock immediately
upon approval by the stockholders. Accordingly, we are presenting the following
pro forma information to indicate the effect on earnings per share had such
shares been converted to common shares for the periods presented.
Pro forma basic and diluted loss per share have been computed below as if
the Series C Preferred Stock was converted to common stock. For the three and
seven months ended July 31, 2001, respectively, the Series C Preferred Stock has
been reflected on a weighted average basis outstanding as common shares of
32,167,442 and 36,291,687 respectively. There were no Series C Preferred Stock
shares issued or outstanding during the three and seven months ended July 31,
2000.
Three Months Ended Seven Months Ended
--------------------------------------- --------------------------------------
July 31, 2001 July 31, 2000 July 31, 2001 July 31, 2000
------------------- ------------------- ------------------ -------------------
Pro forma weighted average common
shares outstanding, basic and diluted 58,352,332 39,419,240 57,685,179 39,419,240
=================== =================== ================== ===================
Pro forma net loss per share, basic and
diluted, attributable to common
shareholders $ (.01) $ .00 $ (.03) $ .00
=================== =================== ================== ===================
The pro forma net loss per share is presented for informational purposes only
and is not indicative of the weighted average common shares outstanding or net
loss per share presented in accordance with accounting principles generally
accepted in the United States of America.
As described in Note 5, at July 31, 2001, the Company has a note payable
agreement which is convertible by the holder to common stock totaling 5,000,000
shares at a conversion rate of $0.10 per share. In addition, and as described in
Note 7, the Company has options and warrants outstanding to purchase a total of
1,047,500 and 200,000 shares of common stock, respectively, at a weighted
average exercise price of $0.09 and $0.25, respectively, and has preferred stock
that has a conversion rate of 20 shares of common for each share of preferred.
However, because the Company incurred a loss for the period ended July 31, 2001,
the inclusion of those potential common shares in the calculation of diluted
loss per share would have an antidilutive effect.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
Recently Issued Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method. In addition, companies are
required to review goodwill and intangible assets reported in connection with
prior acquisitions, possibly disaggregate and report separately previously
identified intangible assets and possibly reclassify certain intangible assets
into goodwill. SFAS No. 142 establishes new guidelines for accounting for
goodwill and other intangible assets. In accordance with SFAS No. 142, goodwill
associated with acquisitions consummated after June 30, 2001 is not amortized.
The Company implemented the provisions of SFAS Nos. 141 and 142 when recording
the acquisition of United on July 31, 2001. The Company will implement the
remaining provisions of SFAS No. 142 effective November 1, 2001. Upon adoption
of these provisions, existing goodwill will no longer amortized but instead will
be assessed for impairment at least annually. The adoption of this pronouncement
will result in $5,829 of goodwill not being amortized and the elimination of
approximately $225 of amortization annually on an additional $3,381 of goodwill
previously being amortized. The Company is currently assessing the impact of the
impairment provisions of these standards.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company is currently assessing the impact of this new
standard.
In July 2001, the FASB issued SFAS No. 144, Impairment or Disposal of
Long-Lived Assets, which is effective for fiscal years beginning after December
15, 2001. The provisions of this statement provide a single accounting model for
impairment of long-lived assets. The Company is currently assessing the impact
of this new standard.
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company originally reported its financial position and results of
operations for the periods ended July 31, 2001 in September 2001 as part of its
filing under from 10-Q. That filing included accounting for the reverse merger
transaction and the acquisition of United Expressline on a preliminary basis.
Subsequently and in conjunction with the with the Company's annual report filed
on Form 10-K in February 2002 and as amended on Form 10-K/A filed in August
2003, certain preliminary accounting and reporting decisions were revised and
finalized. Accordingly, these condensed financial statements are being restated
to reflect such changes.
3. ACQUISITIONS AND PLAN OF REORGANIZATION
On June 21, 2001 ("Acquisition Date"), a change of control of the
Registrant occurred through an Acquisition Agreement and Plan of Reorganization
dated June 21, 2001 (the "Reorganization Agreement") by and among Danzer, Danzer
Industries, Inc., a wholly owned subsidiary of Danzer, and Obsidian Capital
Partners, LP ("OCP"), Timothy S. Durham (the newly elected Chairman of the Board
of Danzer), and other individual owners of Pyramid and Champion. On the
Acquisition Date, Danzer acquired: all of the outstanding capital stock of
Pyramid in exchange for 810,099 shares of Danzer Series C Convertible Preferred
Stock ("Danzer Preferred"); all of the outstanding capital stock of Champion for
135,712 shares of Danzer Preferred and all of the outstanding capital stock of
U.S. Rubber for 1,025,151 shares of Danzer Preferred. On July 31, 2001, Danzer
acquired all of the outstanding capital stock of United Acquisition, Inc.
("UAI"), the holding company formed to acquire assets of United, from OCP for
2,593,099 shares of Danzer Preferred.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
Pursuant to the Reorganization Agreement, Danzer issued 4,564,061 shares of
its preferred stock to OCP, Timothy Durham, and other individual owners of
Pyramid and Champion ("OCP Partners"). The Preferred Shares exchanged are Series
C Convertible Preferred Stock, designated $.001 par value per share, with voting
rights equal to common shareholders based upon the Preferred Shares conversion
rights of exchange of 20 common shares for each 1 preferred share owned. The
holders of the Danzer Preferred vote as a single class with the holders of
Danzer's common stock. After the series of transactions were completed on July
31, 2001, the OCP Partners owned 75.42% of the total voting, convertible capital
stock (Preferred) of Danzer. The preacquisiton Danzer shareholders and their
successors own the remaining capital stock representing 24.58% of the total
voting capital stock (Common). Since the U.S. Rubber Companies are so much
larger than Danzer, and the existing U.S. Rubber shareholders obtained a
majority interest in the stock of Danzer, they have been treated, for accounting
purposes, as the acquirer in the Reorganization (reverse merger). Although for
accounting purposes, U.S. Rubber has become the registrant, for all other
purposes, U.S. Rubber, Pyramid and Champion legally became subsidiaries of
Danzer on June 21, 2001. For purposes of this filing, the registrant's name
continues to be Danzer, subsequently changed to Danzer Corporation, and the U.S.
Rubber Companies will change their fiscal year to the fiscal year (October 31)
used by Danzer prior to the Reorganization. Therefore, the name Obsidian
Enterprises and Danzer Corporation are one and the same as used in this filing
and the financial statements attached as exhibits.
Pursuant to the Acquisition Agreement and Plan of Reorganization (the
"Acquisition Agreement") discussed above, UAI was created. On July 31, 2001,
OCP, through UAI, acquired substantially all of the assets of United, an
Indiana-based manufacturer of enclosed cargo and specialty trailers, for
approximately $15,358. The purchase price and purchase accounting has been
allocated to the assets and liabilities of United based on their fair values.
OCP exchanged 100% of its shares of UAI for shares of Series C Convertible
Preferred Stock of Danzer ("Series C Preferred Stock"). The consideration was
negotiated in arm's length discussions between the parties. As a result, UAI is
now a wholly owned subsidiary of Danzer. Danzer intends to continue the
operations of UAI under the name of "United Expressline, Inc."
The Reorganization (reverse merger) with Danzer, and subsequent acquisition
of United, were accounted for under the purchase method of accounting. U.S.
Rubber, the largest company owned by OCP Partners, was considered the acquirer
for accounting purposes and recorded Danzer's assets and liabilities based upon
their estimated fair values, under the purchase method of accounting for
business combinations. The operating results of Danzer have been included in the
accompanying consolidated financial statements from the date of acquisition.
Under the purchase method of accounting, the acquired assets and assumed
liabilities have been recorded at their estimated fair values at the date of the
acquisition.
The acquisition of Champion and Pyramid were also accounted for under the
purchase method of accounting; however, due to the related-party relationships
of the previous owners to the Company, the assets were recorded at net book
value similar to pooling-of-interest accounting, referred to as reorganization
of entities under common control. Accordingly, no additional goodwill was
recognized beyond that recorded during the original acquisition from unrelated
third parties.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
Acquisition of Danzer Corporation and Subsidiary:
Champion and Pyramid, originally acquired January 1, 2001 and part of the
Plan of Reorganization of June 21, 2001 as discussed above, were previously
owned by individuals who are also the members and managing directors of Obsidian
Capital Company, LLC ("OCC"), the General Partner of OCP. Purchase accounting
and a goodwill allocation of $2,600 were recorded on Champion when the managing
members of the OCC and others acquired those entities from unrelated third
parties.
The purchase price and purchase accounting was allocated to the assets and
liabilities of Danzer based on their fair values. The purchase price was based
on the value of Danzer's equity of $3,257 plus acquisition costs of $964.
The valuation allocation to tangible assets included $2,300 and $1,536 of
net liabilities assumed. The excess of the purchase price over the fair value of
the identifiable tangible and intangible net assets of $3,457 was allocated to
goodwill. Of this amount, $650 was allocated to Danzer and $2,807 was allocated
to Danzer Industries, its subsidiary.
The following schedule is a description of acquisition costs of Danzer and
Danzer Industries and the purchase price allocation (in thousands):
Purchase price:
Preferred stock $ 3,257
Acquisition costs, including amounts to related parties (see Note 15) 964
-------------------
Total purchase price $ 4,221
===================
Purchase Price Allocation:
Current assets, including accounts receivable and inventory $ 329
Land, property and equipment 2,300
Goodwill 3,457
Intangible assets --
Other assets 65
Less debt assumed (1,930)
-------------------
-------------------
Total allocation of purchase price $ 4,221
===================
Acquisition of United Expressline, Inc.:
The intangibles of United include existing brand name, noncompete, and the
customer base. The valuation of intangibles included $822 for brand name, $886
for noncompete, and $105 for the customer base. The excess of the purchase price
of $15,358 over the fair value of the identifiable tangible and intangible net
assets of $5,829 has been allocated to goodwill. The value assigned to tangible
assets totaled $7,563.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
The following schedule is a description of acquisition costs of United and
the purchase price allocation (in thousands):
Purchase Price:
Cash to seller $ 11,050
Seller note 1,500
Liabilities assumed 1,670
Acquisition costs, including amounts to related parties (see Note 15) 1,138
-------------------
Total Purchase Price $ 15,358
===================
Purchase Price Allocation:
Current assets, including accounts receivable and inventory $ 5,559
Land, property and equipment 2,004
Goodwill 5,829
Intangible assets 1,813
Other assets 153
-------------------
Total Purchase Price Allocation $ 15,358
===================
Pro Forma Information:
The unaudited condensed consolidated results of operations on a pro forma
basis as if the reorganization had occurred as of the beginning of the periods
projected are as follows (in thousands, except per share data):
The unaudited condensed consolidated results of operations shown below are
presented on a pro forma basis and represent the results of Danzer, Danzer
Industries, U.S. Rubber, Champion, Pyramid and DW Leasing on a combined basis.
In addition, United is treated as if the business combinations of these entities
occurred at the beginning of the periods presented. The schedule below includes
all depreciation, amortization and nonrecurring charges for all entities for the
periods shown.
Three Months Ended Seven Months Ended
July 31, 2000 July 31, 2000
------------------------------------------
------------------------------------------
Net sales $ 16,047 $ 45,518
Net loss $ (344) $ (1,632)
Net loss per share - basic and diluted $ (.02) $ (.09)
The pro forma financial information is presented for informational purposes
only and is not indicative of the operating results that would have occurred had
the Reorganization been consummated as of the above dates, nor are they
necessarily indicative of future operating results.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
4. INVENTORIES
Inventories are stated at the lower-of-cost (first-in, first-out method) or
market and are comprised of the following components (in thousands):
July 31, December 31, 2000
2001
------------------ -------------------
Raw materials $ 3,969 $ 1,649
Work-in-process 1,348 --
Finished goods 1,654 435
Valuation reserve (1,043) (1,338)
------------------ -------------------
Total $ 5,928 $ 747
================== ===================
The Company provides valuation reserves for inventory considered obsolete
or not currently available for use in production. Inventory reserves at U.S.
Rubber are related to excess scrap butyl rubber not currently available for use
without further processing; therefore, it has minimal value. Changes in the
valuation reserve are as follows (in thousands):
U.S. Rubber Total
------------------ -------------------
Balance at January 1, 2000 $ (1,818) $ (1,818)
Provision for losses, 2000 (120) (120)
Write-off of inventory, 2000 600 600
------------------ -------------------
Balance at December 31, 2000 (1,338) (1,338)
Write-off of inventory, first three quarters 2001 295 295
------------------ -------------------
Balance at July 31, 2001 $ (1,043) $ (1,043)
================== ===================
5. FINANCING ARRANGEMENTS
In connection with the Acquisitions described in Note 3 and to provide
working capital, the Company has incurred the following debt as of July 31, 2001
and December 31, 2000:
Debt Amount (in thousands)
-------------------------------------
July 31, December 31,
2001 2000**
------------------ ------------------
U.S. Rubber
Line of credit due, bearing interest at the prime rate plus .75% (7.50% at July
31, 2001), borrowings not to exceed the greater of $3,000 or the borrowing base
(80% of eligible accounts receivable and 50% of eligible
inventories), collateralized by substantially all assets of U.S. Rubber $ 2,160 $ 2,740
Note payable to a bank, interest payable monthly at prime rate plus 1% (7.75% at
July 31, 2001), monthly principal payments of $2 beginning January 2002,
collateralized by substantially all assets of U.S. Rubber 200 200
Note payable to a bank, due November 30, 2005, monthly principal payments of
$35, balloon payment and accrued interest due at maturity, accruing interest at
the prime rate plus 1% (7.75% at July 31, 2001), to be used to finance the
acquisition and capital expenditures, collateralized by substantially
all assets of U.S. Rubber* 2,240 --
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
5. FINANCING ARRANGEMENTS, CONTINUED
As part of the original acquisition described in Note 3, the Company issued a
note payable to former owner (SerVaas, Inc.) in the amount of $1,750. The note
requires interest payable monthly at fourteen percent (14%) from the date of
this note until March 31, 2001 and at a rate of twenty percent (20%)
thereafter. The former owner agreed to defer interest and principal payments
through May of 2001. The amounts accrued during this period will become part of
the balloon payment due December 28, 2005. The note is collateralized by a
Stock Pledge Agreement given by OCP. In addition, this note is
subordinated to the lines of credit and note payable described above. 1,750 --
Note payable to former owner, total payments of $930, with interest imputed
at 12%. Due in monthly installments of $39. Subordinate to bank debt and
collateralized by inventory. Matures December 2001. 599 --
Note payable to a bank, due November 30, 2005, monthly principal payments of $3,
balloon payment and accrued interest due at maturity, accruing interest at the
prime rate plus 1% (7.75% at July 31, 2001), to be used to finance
the acquisition, collateralized by substantially all assets of U.S. Rubber* 496 806
Other 98 100
------------------ ------------------
Subtotal U.S. Rubber 7,543 3,846
------------------ ------------------
* U.S. Rubber is in technical violation of certain financial loan covenants
with Bank One on its long-term debt. U.S. Rubber is working with Bank One
to obtain waivers of the covenant violations, but has not received a waiver
as of the date of this report filing. The noncurrent debt due Bank One in
the amount of $2,086 has been reclassified as current debt in the balance
sheet until such time as acceptable waivers or modifications have been
obtained.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
5. FINANCING ARRANGEMENTS, CONTINUED
Debt Amount (in thousands)
-------------------------------------
July 31, December 31,
2001 2000**
------------------ ------------------
Champion
Bank One, N.A. Facility 1--Line of Credit, maximum borrowing equal to $200,
interest payable monthly at prime plus .50% (7.25% at July 31, 2001) due March
15, 2002, collateralized by substantially all assets of Champion and
guaranteed by Messrs. Durham and Whitesell $ 200 $ --
Bank One, N.A. Facility 2--term loan, note payable $650, requires monthly
principal installments of $8 plus interest at prime plus .75% (7.50% at July
31, 2001), matures June 2005, collateralized by substantially all assets of
Champion and guaranteed by Messrs. Durham and Whitesell 541 --
Bank One, N.A. Facility 3 - term loan, note payable $1,118, requires monthly
principal installments of $31 plus interest at prime matures 1.50% (8.25% at
July 31, 2001), matures June 2003, paid off on January 8, 2002, collateralized
by substantially all assets of Champion and guaranteed by
Messrs. Durham and Whitesell 683 --
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
5. FINANCING ARRANGEMENTS, CONTINUED
Note payable to The Markpoint Company, $1,250, interest payable monthly at
13.50%, commencing June 1, 2000, balloon payment of outstanding principal
balance due May 2005, collateralized by substantially all assets of Champion
and subordinate to senior bank debt described above* 1,250 --
Other 42 --
------------------ ------------------
Subtotal Champion 2,716 --
------------------ ------------------
* Champion Trailer is in technical violation of certain financial loan
covenants with Markpoint on its long-term subordinated debt. Champion has
received quarterly waivers through June 30, 2001 of all defaults, but
remains in default for the classification of debt. The noncurrent debt due
Markpoint in the amount of $1,250 has been reclassified as current debt in
the balance sheet until such time as the waivers obtained are for a period
longer than 90 days.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
5. FINANCING ARRANGEMENTS, CONTINUED
Debt Amount (in thousands)
-------------------------------------
July 31, December 31,
2001 2000**
------------------ ------------------
Pyramid and DW Leasing
Various installment loans, $15,483 repayable in monthly installments totaling
$203 including interest ranging from 8.5% to 13.1% through November 2007 and
applicable balloon payments thereafter through December 2007, first lien on
assets financed (finance acquisition and asset purchases). Substantially all
borrowings guaranteed by the members of DW Leasing.* $ 13,109 $ --
Former shareholders of Pyramid and related companies installment loans, $928
repayable in monthly installments of interest at 9% through December 2002 with
a balloon payment in January 2003, collateralized by Security Agreements for
Pyramid, DW Leasing and the members of DW Leasing (finance
acquisition) 928 --
Line of credit bearing interest at prime rate plus 1% (7.5% at July 31, 2001),
borrowings not to exceed $200, collateralized by substantially all
assets of DW Leasing 200 --
Ford Motor Credit installment loan, $39 repayable in monthly installments of $1
including interest at .9% through October 2005, first lien on asset
(purchase asset) 33 --
------------------ ------------------
------------------ ------------------
Subtotal Pyramid and DW Leasing 14,270 --
------------------ ------------------
* DW Leasing is in technical violation of certain financial loan covenants
with two lenders, Regions Bank and Old National Bank. The lenders have
given waivers to DW Leasing for the quarter ended July 31, 2001. However,
since the Company continues to be in violation of the covenants, long-term
debt due Regions Bank and Old National Bank in the amount of $1,189 has
been classified as a current liability as of the quarter ended July 31,
2001.
5. FINANCING ARRANGEMENTS, CONTINUED
Debt Amount (in thousands)
-------------------------------------
July 31, December 31,
2001 2000**
------------------ ------------------
Danzer Industries
Revolving and term loans payable to Wells Fargo. Collateralized by equipment,
inventory, real estate and accounts receivable, refinanced in August 2001
(see Note 11) $ 564 $ --
Equipment loans payable--monthly payments currently aggregating $2 including
interest of 8.90% to 11.25% through September 2006. Collateralized by
equipment financed. 35 --
Term loans payable to US Amada, Ltd.--monthly payments currently aggregating $13
including interest at 10%, loans due January 2003, collateralized by
equipment financed 304 --
Other 11 --
------------------ ------------------
------------------ ------------------
Subtotal Danzer Industries 914 --
------------------ ------------------
------------------ ------------------
United
First Indiana Bank Revolving Line of Credit, maximum borrowing equal to $3,500,
with a base of 80% of eligible accounts receivable; plus 50% of raw material,
work-in-process and finished goods inventory. Interest payable monthly at prime
plus .75% (7.50% at July 31, 2001) due July 1, 2002, collateralized by
substantially all assets of United and guaranteed by
Danzer Corporation $ 2,888 $ --
First Indiana Term Loan I--note payable $291, requires monthly principal
installments of $5 plus interest at prime plus 1% (7.75% at July 31, 2001), due
July 1, 2006, collateralized by substantially all assets of United and
guaranteed by Danzer Corporation 291 --
First Indiana Term Loan II--note payable $1,116, requires monthly principal
installments of $6 plus interest at prime plus 1% (7.75% at July 31, 2001), due
July 1, 2006, collateralized by substantially all assets of United and
guaranteed by Danzer Corporation 1,116 --
First Indiana Term Loan III--note payable $1,750, requires monthly principal
installments of $73 plus interest at prime plus 2% (8.75% at July 31, 2001),
due July 1, 2003, collateralized by substantially all assets of United and
guaranteed by Danzer Corporation 1,750 --
Subordinated note payable to Huntington Capital Investment Company, $3,500,
interest payable quarterly at 14% per annum, balloon payment of outstanding
principal balance due July 26, 2006, less unamortized discount of $1,505.
Unsecured and subordinate to First Indiana debt. 1,996 --
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
5. FINANCING ARRANGEMENTS, CONTINUED
Debt Amount (in thousands)
-------------------------------------
July 31, December 31,
2001 2000**
------------------ ------------------
United, continued
Note payable to former shareholder $1,500, interest payable monthly at 9% per
annum, balloon payment of outstanding principal balance due July 27, 2006.
Unsecured and subordinate to First Indiana and Huntington debt. $ 1,500 $ --
Note payable to Renaissance (formerly parent Danzer Corporation), interest
payable monthly at 8% per annum, with monthly principal payments beginning July
2004 at a rate of $.01 for each $1 of outstanding principal, due July 2008.
Convertible at the option of the holder to common stock of Obsidian Enterprises
at a conversion price of $.10 per share. The loan agreement also
restricts dividend payments without the prior consent of the lender. 500 --
Other 115 --
------------------ ------------------
Subtotal United 10,156 --
------------------ ------------------
------------------ ------------------
Total all companies 35,599 3,846
Less current portion 12,129 3,135
------------------ ------------------
$ 23,470 $ 711
================== ==================
** The debt balances for December 31, 2000 reflect only those of U.S. Rubber.
While the other companies listed for October 31, 2001 did have 2000 debt
balances, U.S. Rubber becomes the accounting acquirer in a reverse merger.
Debt balances for December 31, 2000 and prior years are presented in the
financial statements of acquired businesses.
The Company has an agreement with OCP that gives it the right to mandate a
capital contribution from OCP if the lenders to U.S. Rubber and United were to
declare a default. In that event, the Company has the right to enforce a capital
contribution agreement with OCP up to $1,620 on U.S. Rubber and $1,000 on United
to fund the respective subsidiary's shortfall. Those payments, if any, would be
applied directly to reduce the respective subsidiary's debt obligations to the
lender.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
5. FINANCING ARRANGEMENTS, CONTINUED
Following are the maturities of long-term debt for each of the next five
years and thereafter (in thousands):
2002 $ 12,129***
2003 3,700
2004 1,947
2005 3,920
2006 8,772
Thereafter 5,131
------------------
$ 35,599
==================
*** Includes $4,525 of amounts in default due to technical violations and
classified as current.
6. MANDATORY PREFERRED STOCK
In conjunction with the United acquisition described in Note 3, the Company
issued 386,206 shares of Series C Preferred Stock to Huntington Capital
Investment Corporation ("Huntington"), the senior subordinated lender of United.
The note purchase agreement included a provision giving Huntington the option to
require the Company to repurchase the Series C Preferred Stock. Under the terms
of the agreement, Huntington has the option of requiring the Company to
repurchase these shares at 90% of market value at the date of redemption 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.
A portion of the note purchase agreement proceeds of $3,500 was allocated
to the stock issued based on the thirty day average closing value of the
Company's common stock prior to the transaction. As the redemption value is
variable, the Company recognizes changes in the estimated fair value each
quarter. Changes in fair value are adjusted through additional paid in capital.
At July 31, 2001, the estimated redemption requirement is $1,505 to be paid
July, 2006.
7. STOCKHOLDERS' EQUITY
Preferred Stock:
In conjunction with the merger and acquisitions (described previously) of
June 21, the Company issued 1,970,962 of Series C Preferred Stock. The
shareholders of Pyramid and Champion then converted 824,892 shares of preferred
stock to 16,497,840 of common stock. In addition, on July 5, 2001, the Company
increased the authorized shares of common stock by 20,000,000 to 40,000,000. On
July 31, 2001, the Company issued 2,593,099 shares of additional convertible
preferred stock related to the United acquisition.
The convertible preferred stock is convertible at the option of the holder
at any time, unless previously redeemed, into shares of common stock of the
Company at an initial conversion rate of 20 shares of common stock for each
share of convertible stock. However, the convertible preferred stock may not be
converted prior to the corporation filing a registration statement of such
shares. Holders of the convertible preferred stock have voting rights which
entitle them to cast on each matter submitted to a vote of the stockholders of
the Corporation the number of votes equal to the number of shares of common
stock into which such shares of Series C Preferred could be converted.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
These shares were offered and sold in transactions which were exempt from
Securities Act registration under Section 4(2) of the Securities Act, relating
to sales by an issuer not involving a public offering. No underwriters were
involved in the sale of these shares. The Corporation will use its best efforts
to file, as soon as reasonable practicable following the date of issuance of the
Series C Preferred, a registration statement ("Registration Statement") on Form
S-1, pursuant to the rules of the Securities and Exchange Commission ("SEC") or
on such other form promulgated by the SEC for which the Corporation then
qualifies, which is available to Corporation, and which counsel for the
Corporation shall deem appropriate for the registration under the Securities Act
of 1933.
Stock Options:
On May 7, 1990, Danzer's stockholders approved a stock option plan to issue
both "qualified" and "nonqualified" stock options. Under the plan, 800,000
options to purchase shares of the Company's common stock may be issued at the
discretion of the Company's Board of Directors. The option price per share is
determined by the Company's Board of Directors, but in no case will the price be
less than 85% of the fair value of the common stock on the date of grant.
Options under the plan will have a term of not more than ten years with
accelerated termination upon the occurrence of certain events.
In April 1998, Danzer granted 600,000 stock options, exercisable at $.10
per share, to its president. The options vest over two years and expire in April
2004. None of these options have been exercised as of July 31, 2001.
In September 1998, Danzer adopted a qualified incentive stock option plan
under Section 422 of the Internal Revenue Code. Options granted under the plan
will be granted at prices not less than fair value of the Company's stock at the
date of grant, have a term not more than ten years and have other restrictions
as determined by statute.
In September 1998, Danzer granted a total of 604,500 stock options,
exercisable at $.10 per share, to certain employees. The options expire November
2001. As a result of voluntary termination, 75,000 options expired in 1999 and
192,000 options expired in 2000. None of these options were exercised as of July
31, 2001.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation expense has been recognized for the
stock option plans.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
Stock Options and Warrants:
The following table summarizes the outstanding options and warrants at July
31, 2001:
Weighted
Average
Exercise
Shares Price
-------------- -------------
Total granted stock options outstanding 1,047,500 $ .09
============== =============
Fixed options:
Exercise price $.10 600,000 $ .10
Exercise price $.05 200,000 $ .05
============== =============
Warrants:
On June 21, 2001, Duncan-Smith Co. terminated warrants for 650,000 common
shares and was issued new warrant for 10,000 shares Series C Preferred
exercisable at $2.00 per
share, expiring August 31, 2002 200,000 $ .10
============== =============
Markpoint financing agreement expiring May 2008 associated with Champion Zero* $ .01
============== =============
* The number of warrants available under the agreement with Markpoint is
based on twenty-five percent of the fair market value of Champion to be
determined based on a formula including a multiple of EBITDA. No warrants
are currently available under this agreement based on the operating results
and stockholder's deficit of Champion.
Convertible Debt:
As described in Note 5, at July 31, 2001, the Company has a note payable
agreement which is convertible by the holder to common stock totaling 5,000,000
shares at a conversion rate of $0.10 per share at July 31, 2001.
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 (in thousands):
Three Months Ended July 31, 2001
------------------------------------------------------------------------------
Trailer Coach Leasing Butyl Rubber Total
Manufacturing Reclaiming
------------------------------------------------------------------------------
Sales:
Domestic $ 1,759 $ 1,467 $ 2,680 $ 5,906
Foreign -- -- 134 134
------------------------------------------------------------------------------
Total $ 1,759 $ 1,467 $ 2,814 $ 6,040
Cost of goods sold $ 1,633 $ 517 $ 2,618 $ 4,768
Income (loss) before taxes $ (435) $ 30 $ (260) $ (665)
Identifiable assets $ 26,844 $ 13,328 $ 11,197 $ 51,369*
Depreciation and amortization expense $ 102 $ 238 $ 266 $ 606
*Identifiable assets, as stated above $ 51,369
Corporate-level goodwill 650
--------------------
--------------------
Total assets $ 52,019
====================
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
Seven Months Ended July 31, 2001
------------------------------------------------------------------------------
Trailer Coach Leasing Butyl Rubber Total
Manufacturing Reclaiming
------------------------------------------------------------------------------
Sales:
Domestic $ 3,123 $ 2,646 $ 6,700 $ 12,469
Foreign -- -- 468 468
------------------------------------------------------------------------------
Total $ 3,123 $ 2,646 $ 7,168 $ 12,937
Cost of goods sold $ 2,816 $ 964 $ 6,494 $ 10,274
Income (loss) before taxes $ (739) $ (497) $ (341) $ (1,577)
Identifiable assets $ 26,844 $ 13,328 $ 11,197 $ 51,369*
Depreciation and amortization expense $ 210 $ 544 $ 620 $ 1,374
*Identifiable assets, as stated above $ 51,369
Corporate-level goodwill 650
--------------------
--------------------
Total assets $ 52,019
====================
Danzer Corporation (legal parent) allocates selling, general and administrative
expenses to the respective companies primarily based on a percentage of sales.
For the three and seven months ended July 31, 2000, the Company operated in only
one segment (butyl rubber reclaiming), which was the segment of the accounting
acquirer U.S. Rubber.
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 (in thousands):
July 31, December 31,
2001 2000
------------------ -----------------
Balance sheet:
Current assets:
Notes receivable, stockholder $ -- $ 1,098
Long-term portion:
Notes receivable, stockholder -- 1,770
Investment banking fees, purchase accounting* 1,960 --
------------------ -----------------
Total assets $ 1,960 $ 2,868
================== =================
Current liabilities:
Accounts payable, Obsidian Capital Company (OCC) $ 1,616 $ --
Accounts payable, Obsidian Capital Partners 1,161
Long-term portion:
Accounts payable, Obsidian Capital Company (OCC) 296
Accounts payable, stockholders 383 --
------------------ -----------------
------------------ -----------------
Total liabilities $ 3,456 $ --
================== =================
Three Months Ended Seven Months Ended
------------------------------------- -------------------------------------
July 31, 2001 July 31, 2000 July 31, 2001 July 31, 2000
------------------ ------------------ ------------------ ------------------
Statements of operations:
Interest income $ -- $ 110 $ -- $ 251
================== ================== ================== ==================
Related-party amounts classified as current reflect those portions of the
total receivable or payable that were currently due in accordance with the
terms, or were collected or paid subsequent to July 31, 2001. Amounts classified
as long term represent amounts not currently due.
The Company was obligated to the stockholders and certain employees (that
were formerly stockholders of subsidiary companies) under note payable
agreements acquired as part of the acquisitions. The details of these notes
payable are included in Note 5.
*Subsidiaries of the Company paid Obsidian Capital Company, an entity
controlled by Mr. Durham (Chairman of the Company), investment banking fees
associated with the acquisitions and related financing on the Danzer and U.S.
Rubber merger and the United acquisition. Amounts paid by U.S. Rubber, United,
and Danzer were $760, $600, and $600 respectively.
DANZER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per-share data and share data)
(unaudited)
10. COMMITMENTS AND CONTINGENCIES
The Company has a purchase commitment to purchase or lease three (3)
coaches within 60 days of completion, expected to be in the second quarter of
calendar 2002. The cost of these coaches will approximate $1,350.
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
On August 15, 2001, Danzer Industries entered into a new credit agreement
providing for a line of credit and term loan with Bank of America. The new
facilities replaced the existing outstanding debt with Wells Fargo. Terms of the
new facilities are:
Bank of America line of credit, maximum borrowing equal to $1,000, with a
base of 80% of eligible accounts receivable; plus 50% of raw material,
work-in-process and finished goods inventory. Interest payable monthly at the
LIBOR Daily Floating Rate plus 3.2%, due March 31, 2002, collateralized by
substantially all assets of Danzer Industries and guaranteed by Danzer
Corporation
Bank of America loan--note payable $1,000, requires monthly principal
installments of $6 plus interest at the LIBOR Daily Floating Rate plus 3.2%, due
August 15, 2006. Collateralized by substantially all assets of Danzer Industries
and guaranteed by Danzer Corporation
DANZER CORPORATION 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 Item 2.,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, in this Form 10-Q. 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 Prior to the reverse merger transaction, U.S. Rubber, United
Expressline, Pyramid and Champion reported on a calendar year basis. As of the
date of the reverse merger transaction, these companies changed their year end
to October, the year end of Danzer Corporation, the legal acquirer. Accordingly,
the year to date information presented includes seven months of activity as
further described below.
The reverse merger transactions, completed in June and July 2001, have been
treated for accounting purposes as an acquisition by U.S. Rubber. For this
reason, the results for the seven-month period July 31, 2000 represent only the
financial results of U.S. Rubber. Since the Company acquired a substantial
portion of its operations on or after January 1, 2001 and was not previously a
registrant, management's discussion and analysis includes a comparison of 2001
operating results with the three-month and seven-month periods ended July 31,
2000 only for the butyl rubber reclaiming segment.
The results for the seven-month period July 31, 2001 represent only the
financial results of U.S. Rubber, Champion Trailer, and the Pyramid Group for
seven months based on the January 1, 2001 acquisition date. The financial
results of Danzer Corporation and its wholly owned subsidiary, Danzer
Industries, acquired June 21, 2001, are included from the date of acquisition.
United Expressline was acquired July 31, 2001 and had no material operating
results for the periods presented.
Since the closing of the Acquisition and Plan of Reorganization on June 21,
2001. Management has focused on creating consistent reporting systems and
communication with each of its subsidiaries. In addition Management has begun to
address the transition of the subsidiaries from closely held mostly nonaudited
private companies to public entities. Each of the subsidiaries is wholly owned
by Danzer.
DANZER CORPORATION AND SUBSIDIARIES
The majority voting shareholder of Danzer, Obsidian Capital Partners, L.P.,
a Delaware limited partnership ("Obsidian") acquired U.S. Rubber in December of
2000, Champion in January 2001 and United in July 2001. Because the subsidiaries
are such recent acquisitions, Management has only begun the process of
operational integration of the subsidiaries under Danzer, as a holding company.
Management intends to focus on the identification and implementation of
manufacturing and administrative efficiencies as well as marketing and
cross-selling opportunities. Management has no prior history in effecting such
an integration of subsidiaries under a holding company and its ability to
successfully accomplish this task will have a substantial impact on future
Company revenues and profits.
RESULTS OF OPERATIONS 2001 COMPARED WITH 2000
The Company operates in three segments, trailer and related transportation
manufacturing, butyl rubber reclaiming, and coach leasing. Trailer and related
transportation manufacturing includes the operations of United, Danzer
Industries, and Champion. Butyl rubber reclaiming includes the operations of
U.S. Rubber and coach leasing includes the operations of Pyramid, DW Leasing,
and Obsidian Leasing.
Segment Sales
The following table shows net sales by segment:
Three Months Ended Seven Months Ended
------------------------------------------ -------------------------------------------
July 31, 2001 July 31, 2000 July 31, 2001 July 31, 2000
--------------------- -------------------- --------------------- ---------------------
Butyl rubber reclaiming $ 2,814 $ 3,033 $ 7,168 $ 6,847
Trailer manufacturing 1,759 -- 3,123 --
Coach leasing 1,467 -- 2,646 --
--------------------- -------------------- --------------------- ---------------------
Net Sales $ 6,040 $ 3,033 $ 12,937 $ 6,847
===================== ==================== ===================== =====================
The Company's operating results and revenue were less than expected for
each of its segments in the three months and seven months ended July 31, 2001.
This is primarily due to reduced capacity at the butyl rubber reclaiming
facility, lower than anticipated utilization in the coach fleet and a reduction
in repair business in the trailer manufacturing segment. Each of these factors
is further discussed below.
DANZER CORPORATION AND SUBSIDIARIES
Butyl Rubber Reclaiming
The following table shows sales, cost of sales and gross profit for this segment
for the periods indicated (in thousands):
Three Months Ended Seven Months Ended
------------------------------------------ ------------------------------------------
July 31, 2001 July 31, 2000 July 31, 2001 July 31, 2000
--------------------- -------------------- --------------------- --------------------
Net Sales $ 2,814 $ 3,033 $ 7,168 $ 6,847
Cost of Sales 2,618 2,513 6,494 5,759
--------------------- -------------------- --------------------- --------------------
Gross Profit $ 196 $ 520 $ 674 $ 1,088
===================== ==================== ===================== ====================
Gross Profit % 7.0% 17.1% 9.4% 15.9%
Three Months Ended July 31, 2001 Compared to The Three Months Ended July 31,
2000
Net sales in this segment for the three months ended July 31, 2001 as compared
to the comparable three-month period ended July 31, 2000 decreased 7.2% in the
amount of $219. The reduction in sales is a result of reduced capacity at the
butyl reclaiming facility due to the current renovation of the 12" extruder (a
key element of the manufacturing process). In the first half of 2001, U.S.
Rubber has expended over $850 in this and other major renovations and the 12"
extruder is expected to be fully operational by mid-September 2001.These
renovations have resulted in lower than normal production through the period
ended July 31, 2001. Demand for product has increased over the comparable period
because of the widespread tire recalls at Bridgestone/Firestone and Goodyear.
Gross profit percentage for the three months ended July 31, 2001 was 7.0%
compared to 17.1% for the three months ended July 31, 2000. The decrease in
gross profit percentage is the result of several factors. First, the decreased
volume of production as a result of the refurbishment of manufacturing equipment
discussed above. Second, the equipment refurbishment has also resulted in
inefficiencies in the production process. Gross profit has also been negatively
impacted by the cost and availability of raw material. U.S. Rubber obtains its
raw material inventory through an extensive collection system consisting of
small rubber collectors and large scrap tire recyclers. U.S. Rubber has
experienced competition for its raw material inventory from Korean buyers and
other overseas buyers. This competition will have the end result of higher raw
material costs. The competition for raw material inventory has also contributed
to the lower than expected production rates and gross margins.
Seven Months Ended July 31, 2001 Compared to The Seven Months Ended July 31,
2000
Net sales in this segment for the seven months ended July 31, 2001 as compared
to the seven-month period ended July 31, 2000 increased 4.7% in the amount of
$321. The increase in sales is due primarily to increased demand from tire
companies as the result of widespread tire recalls as discussed above.
Gross profit percentage for the seven months ended July 31, 2001 was 9.4%
compared to 15.9% for the seven months ended July 31, 2000 as a result of the
decreased volume, inefficiencies in production and raw material factors as
discussed above.
DANZER CORPORATION AND SUBSIDIARIES
Trailer And Related Transportation Equipment Manufacturing
The following table presents net sales, cost of sales, gross profit and
gross profit percentage for the seven months and three months ended July 31,
2001, for the trailer and related transportation equipment manufacturing
segment.
Three months Ended Seven Months Ended
July 31, 2001 July 31, 2000
--------------------- --------------------
Net Sales $ 1,759 $ 3,123
Cost of Sales 1,633 2,816
--------------------- --------------------
Gross Profit $ 126 $ 307
===================== ====================
Gross Profit % 7.2% 9.8%
Sales and gross profits were lower than expected in this segment due to a
reduction of its repair business at Champion. Management believes it must
recapture some if not all of its repair business in order to meet operating
expectations. Marketing efforts have been made to increase the repair business
to former levels. Future operating activity in this segment will increase
materially as a result of the acquisition of Danzer Industries on June 21, 2001
and United on July 31, 2001. Each of these acquisitions have historically
experienced sales in excess of those of Champion. Management anticipates this
segment will comprise in excess of 50% of the Company's consolidated revenue in
the future based on the current company structure.
Coach Leasing
The following table presents net sales, cost of sales, gross profit and
gross profit percentage for the seven months and three months ended July 31,
2001, for the coach leasing segment
Three months Ended Seven Months Ended
July 31, 2001 July 31, 2000
--------------------- --------------------
Net Sales $ 1,467 $ 2,646
Cost of Sales 517 964
--------------------- --------------------
Gross Profit $ 950 $ 1,682
===================== ====================
Gross Profit % 64.8% 63.6%
Pyramid is engaged in the leasing of luxury bus coaches with specialized
interior finishes, and used for travel by country and western and rock bands,
entertainment personalities, and other business enterprises for travel and
entertainment. The buses are leased on both short-term (weekly and monthly) and
long-term leases. Utilization for the first four months of 2001 was softer than
expected; however, beginning in April 2001, utilization has steadily increased
from 70.7% to 96.8% in July, and Pyramid's fleet has increased by seven new
luxury coaches. This increased utilization is both a factor of marketing and the
seasonality of this business segment. Historically, coach utilization is highest
in the summer and lowest in the winter. The financial information herein
includes the results of operations of D.W. Leasing, LLC ("DW Leasing") as well
as Pyramid. DW Leasing is owned by the former owners of Pyramid who are also
officers and shareholders of Danzer Corporation. At the time of the closing of
the Acquisition and Plan of Reorganization on June 21, 2001, Pyramid and DW
Leasing conducted cooperative operations through a management agreement,
cross-guarantees of debt and shared management. It is Management's intent to
transfer a substantial part of DW Leasing's asset and liabilities to Obsidian
Leasing Company, ("Obsidian Leasing", a proposed entity to be wholly owned by
Danzer Corporation), to complete the purchase of the Coach Leasing business
contemplated by the purchase transaction in June 2001. The planned transaction
is conditioned upon the consents of various lenders who have financed the luxury
coaches that are titled in DW Leasing. Management is currently seeking such
consents, and expects to close the above referenced agreements as soon as
possible.
DANZER CORPORATION AND SUBSIDIARIES
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES
Selling, general and administrative expenses for the three months and seven
months ended July 31, 2001 were $1,258 and $2,614 as compared to $663 and $996
for the three and seven months ended July 31, 2000. The increases over the prior
year are directly attributable to the acquisitions in January, June and July of
2001 as previously noted and to the fact that 2000 operating results include
only the operations of U.S. Rubber. These increases are partially offset by the
cost of litigation settlement in June 2000 of $409.
INTEREST EXPENSE
Interest expense for the three months and seven months ended July 31, 2001
was $690 and $1,570 as compared to $136 and $307 for the three and seven months
ended July 31, 2000. The increases over the prior year are directly attributable
to the acquisitions in January, June and July of 2001 as previously noted and to
the fact that 2000 operating results include only the operations of U.S. Rubber.
The Company's interest expense is a material amount and will continue to be high
as a percentage of sales as substantially all acquisitions were made on a highly
leveraged basis.
OTHER INCOME (EXPENSE)
Other income (expense) for the three months and seven months ended July 31,
2001 was $11 and $(56) as compared to $110 and $251 for the three and seven
months ended July 31, 2000. The decreases over the prior year are directly
attributable to interest income on shareholder notes receivable of U.S. Rubber
in 2000. These notes were paid in full in 2000.
INCOME TAX PROVISION
Income tax benefit (expense) for the three months and seven months ended
July 31, 2001 was $52 and $52 as compared to $56 and $(29) for the three and
seven months ended July 31, 2000. The income tax benefit is created primarily
through operating loss carryforwards recognized in the quarter to the extent
they are available to offset the Company's net deferred tax liability. Quarterly
tax benefits are based on the estimated effective tax rate for the full year.
LIQUIDITY AND CAPITAL RESOURCES
Each of the subsidiaries of Danzer have separate revolving credit agreements and
term loan borrowings through which each subsidiary finances its operations along
with cash generated from operations. The high principal balances of some of
these loans reflect the fact that Obsidian highly leveraged the acquisition of
each of Champion, U.S. Rubber, Pyramid, and United. Each of these subsidiaries
will utilize its excess cash in the foreseeable future to pay off this
acquisition financing.
DANZER CORPORATION AND SUBSIDIARIES
This high level of debt creates liquidity issues for the Company and the
stringent financial covenants that are common for this type of debt increase the
probability that the Company's subsidiaries will be in technical default under
loans. These risks are mitigated, in part, for the Company's United and U.S.
Rubber subsidiaries by the right described below under "Guarantees of OCP."
Certain subsidiaries have violated certain requirements and covenants in
their debt agreements relating to maintenance of certain minimum ratios and
levels of earnings to funded debt and fixed charge coverage rate. Management has
brought these violations to the attention of its lenders and, is working with
the lenders to obtain waivers or modifications to the credit agreements as
described below under "Financial Covenant Waivers."
The Company's working capital position (current assets over current
liabilities) was negative at July 31, 2001 by $8,585 in part because of $4,525
of the Company's debt is classified as a current liability due to debt covenant
violations.
The Company has been addressing these liquidity and working capital issues in a
number of ways. Management anticipates that the following steps currently in
process will improve the Company's working capital, strengthen its equity and
place the Company in a position to successfully address its liquidity issues.
These steps include:
o The transactions described below under "Partners Equity Transactions" which
converts approximately $2,170 of long-term liabilities to equity.
o The transactions described below under "Refinancing Activities" which
provides for additional equity and reduced interest cost.
There can be no assurance that these transactions will occur as projected. It
should be noted that even if these transactions do occur, there can be no
assurance that they will sufficiently address the Company's liquidity issues.
Management will continue to address the liquidity concerns as well as consider
any additional actions if the contemplated transactions either do not occur or
are insufficient.
FINANCIAL COVENANT VIOLATIONS
Certain subsidiaries of the Company have violated financial covenants in their
loan agreements as follows:
o Management is in discussions with Bank One in respect of the violations by
U.S. Rubber of the negative covenants of (i) fixed charge coverage ratio
and (ii) funded debt to EBITDA ratio. No waiver of these violations has
been received and discussions regarding these violations continue. As a
result, long-term debt due to Bank One in the amount of $2,086 has been
reclassified as a current liability.
o Pyramid is a guarantor of DW Leasing's debt to Regions Bank, Nashville,
Tennessee. DW Leasing and Pyramid have been in violation of the Funded Debt
to EBITDA ratio in the Regions Bank Credit Facility since the inception of
the loan. DW Leasing also has a violation of its credit facility with Old
National Bank. Regions Bank and Old National Bank have waived the
violations as of July 31, 2001. However, since the Company continues to be
in violation of the covenants, long-term debt due Regions Bank and Old
National Bank in the amount of $1,189 has been reclassified as a current
liability.
o Champion remains in default of its subordinated debt agreement.
Accordingly, $1,250 has been reclassified as a current liability due to the
default.
DANZER CORPORATION AND SUBSIDIARIES
FUNDS AVAILABILITY
On a consolidated basis, as of July 31, 2001, the Company had approximately
$58 of cash and cash equivalents.
Danzer Industries, U.S. Rubber, Champion and United 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 July 31, 2001, these
additional current availability under these credit facialities as supported by
the respective borrowing base calculations were approximately $532, $0, $0 and
$0 for Danzer Industries, U.S. Rubber, Champion and United, respectively.
The Company generated net cash flow from operations during the seven months
ended July 31, 2001 of $220. Operating losses year to date were funded primarily
through borrowings under existing lines of credit.
REFINANCING ACTIVITIES
o On August 15, 2001, the Company completed the refinancing of the existing
debt of Danzer Industries with Bank of America. Terms of the agreement
provide for a $1,000 term note and a $1,000 line of credit.
o U.S. Rubber has a subordinated debt obligation to SerVaas, Inc. (the
"Seller") in the amount of $1,750 and a subordinated raw material supply
agreement with the Seller with a remaining purchase obligation of $800.
Management has reached an agreement in principal with SerVaas, Inc. for the
company to acquire the Subordinated Note and Supply Agreement for $1,550.
Counsel for the Company is in the process of completing the documentation
of this purchase, the net effect of which will be to reduce U.S. Rubber's
liabilities by approximately $1,000.
PARTNERS EQUITY TRANSACTIONS
Obsidian Capital Partners, LP, the major shareholder of the Company, is
required under the Plan of Reorganization to fund through the purchase of
additional preferred stock certain ongoing administrative expenses of the
company to complete the Plan of Reorganization, complete all required current
and prior year audits to meet the regulatory filing requirements, and ensure all
annual and quarterly SEC filings are completed to enable the registration of the
preferred stock issued to Obsidian Capital Partners, LP. Such amount expended
through July 31, 2001 approximated $645. Management anticipates this and any
additional items incurred will be converted to equity.
Obsidian Capital Partners, LP has indicated that it is willing to convert
to Series C Preferred Stock of the Company $1,169 of advances from Partners to
the Company. Management anticipates this transaction will be concluded in 2002.
GUARANTEES OF OCP
The Company has an agreement with Obsidian Capital Partners, LP that gives
it the right to mandate a capital contribution from Obsidian Capital Partners,
LP 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 Obsidian Capital Partners, LP up to $1,620 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.
DANZER CORPORATION AND SUBSIDIARIES
RISK FACTORS
There are a number of risk factors related to the future results of the Company,
including those discussed in the following paragraphs.
Liquidity
The Company cannot be certain that it will have sufficient liquidity
available under existing lines of credit. Four of the Company's subsidiaries
were acquired in highly leveraged transactions. Also, three of the Company's
subsidiaries have been in violation of certain requirements and covenants in
their debt agreements relating to maintenance of specified minimum ratios and
levels of earnings to funded debt and fixed charge coverage. The Company cannot
be certain whether it will be able to meet covenant requirements contained in
debt agreements. Although the Company has been able to obtain waivers of certain
violations, the Company cannot be certain that it will be able to obtain waivers
of such covenants if waivers are needed in the future.
There is no assurance that lenders will continue to lend to the Company.
Lenders' criteria for loans change and, if there is a further general tightening
of credit standards, the Company may not qualify for credit. Further, if the
Company's financial performance continues to deteriorate from the manner in
which its various operations have historically performed, the Company's lenders
may declare defaults and refuse to advance funds under revolving credit lines.
Under these circumstances the Company may not be able to obtain credit on any
terms.
Integration Of Operations
The Company consists of a business combination of Obsidian Enterprises,
Inc. and various recently purchased manufacturing entities of Obsidian Capital
Partners, L.P. The management resources to date have been spent on purchasing,
continuing operations at preacquisition capability after the purchase, and
integrating subsidiary operations with the Obsidian management. The date of
purchase of each entity by the current management is:
Operating Entity Date of Purchase
U.S. Rubber Reclaiming, Inc. December 29, 2000
Pyramid Coach, Inc. December 20, 1999
Champion Trailer, Inc. May 2, 2000
Danzer Industries, Inc. June 21, 2001
United Expressline, Inc. July 31, 2001
The Company is still in the process of resolving issues relating to the
integration of the operations of these entities. The Company nay not be
successful in integrating these businesses or the integration may take longer or
be more costly than currently anticipated.
Market Risk
The Company is exposed to market risk related to changes in interest rates
on its debt. Approximately 36% of the Company's primary debt bears interest at a
variable rate. An interest rate increase of one percentage point would increase
the Company's interest expense over a one-year period by approximately $128 at
current debt levels.
DANZER CORPORATION AND SUBSIDIARIES
Ability To Attract And Retain Key Managers And Employees
The Company's ability to retain key subsidiary management and employees
will be a significant factor in the Company's success. The recent acquisitions
of the four subsidiary entities and the changes in the Company's management have
made it even more important for the Company to focus on retaining former
managers and employees. In addition, the Company continues to seek to obtain
skilled managers and employees and to provide efficient incentives for all of
the managers and employees of its subsidiary companies.
Competition
The Company faces strong competitors in its coach leasing segment and
trailer and related transportation equipment manufacturing segment. The
Company's coach leasing business competes with a number of other companies that
lease luxury coaches. The Company's success in the coach leasing segment is
dependent upon its ability to meet demand and match the quality and amenities
sought after by its target market at competitive prices. The Company's trailer
and related transportation equipment manufacturing segment competes with a
number of companies, including a number who are much larger than the Company and
have equal or greater technical and financial resources.
Butyl Rubber Reclaiming Segment
The Company's butyl rubber reclaiming segment is highly dependent upon the
availability of raw materials. The Company is facing increased competition for
raw materials from foreign manufacturers as the supply of the scrap butyl rubber
from inner tubes continues to decline. The success of this segment will depend
in large measure upon the Company's ability to successfully develop alternative
sources of raw materials. The demand for butyl rubber by some of the Company's
customers also is closely tied to the price of crude oil, with demand falling as
the price of crude oil falls.
Coach Leasing Segment
The Company's coach leasing segment leases luxury coaches primarily to
performers in the entertainment industry. This segment is highly dependent upon
the state of the general economy and its effect on entertainment spending.
Consumer spending on entertainment tends to decline during recessionary periods
when disposable income is low. The availability of quality contract drivers is
another factor that affects the success of the coach leasing segment.
Trailer And Related Transportation Equipment Manufacturing Segment
A majority of truck bodies manufactured by the Company are used in the
telecommunications industry. The success of the Company's trailer and related
transportation equipment manufacturing segment is dependent upon overall
economic conditions and in particular on the state of the telecommunications
industry. Slightly more than one-half of the Company's revenue from the
manufacture of service truck bodies, which is part of the Company's trailer and
related transportation equipment manufacturing segment, is derived from a single
customer. The Company's success in this segment is dependent to a large degree
upon the continued financial health of this one customer and the continued
strength of the Company's relationship with this customer. The loss of this or
another significant customer could have a material adverse effect on this
segment of the Company's business.
Other Factors
Management's attention to day-to-day operating issues and the solution of
such issues is ongoing due to the very recent dates of purchase. Management's
ability to successfully integrate the operating companies into a public
reporting and cohesive operations while attempting to attain profitable
operating results will be determinative of later success. Employee uncertainty
and lack of management focus during the initial stages of purchase and
continuing integration is disruptive to the business of each Company subsidiary.
Retention of employees through support of the Company's ongoing manufacturing
capability, ongoing sales and marketing efforts will be required, but is not
assured.
DANZER CORPORATION AND SUBSIDIARIES
The Company's ability to stabilize operations and to eventually achieve
growth of each of its segments will require it to implement and expand its
operating and financial systems. This implementation will carry a significant
disproportionate cost to the operations in the next twelve months which will
have a negative impact on revenues. The Company expects any significant growth
would place a strain on its operational resources and its financial systems.
Failure to effectively manage any growth would have a material adverse effect on
the Company's business, financial condition, results of operations and cash
flows.
DANZER CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
The exhibits listed in the Exhibit Index are incorporated herein by
reference.
REPORTS ON FORM 8-K
None
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.
August 25, 2003 By: /s/ Timothy S. Durham
Date --------------------------------------
Timothy S. Durham, Chairman and
Chief Executive Officer
EXHIBIT INDEX
Exhibit No. Description Location
31.1 Sarbanes-Oxley Act Section 302 Attached
Certification
31.2 Sarbanes-Oxley Act Section 302 Attached
Certification
32.1 Sarbanes-Oxley Act Section 906 Attached
Certification
32.2 Sarbanes-Oxley Act Section 906 Attached
Certification