================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 0-22375
____________
AMERICAN STONE INDUSTRIES, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 13-3704099
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) (Identification No.)
230 W. MAIN STREET, SOUTH AMHERST, OHIO 44001
(Address of Principal Executive Offices) (Zip Code)
(440) 986-4501
(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
N/A N/A
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, $.001 PAR VALUE PER SHARE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $2,228,170
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant as of February 28, 2004 was approximately $8,084,000 computed
on the basis of the last reported sale price per share of such stock on the OTC
Bulletin Board ($9.00 reported January 27, 2004). For purposes of this
information, shares of Common Stock that were owned beneficially by executive
officers, Directors and persons who may be deemed to own 10% or more of the
outstanding Common Stock were deemed to be held by affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
The number of shares of the Registrant's Common Stock outstanding as of
March 10, 2004 was 1,939,169.
DOCUMENTS INCORPORATED BY REFERENCE
FORM 10-KSB REFERENCE DOCUMENTS
--------------------- ---------
Part III (Items 9, 10, 11, 12 and 14) Portions of the Registrant's
Definitive Proxy Statement to be
used in connection with its Annual
Meeting of Stockholders to be held
on April 21, 2004.
Except as otherwise stated, the information contained in this Form
10-KSB is as of December 31, 2003.
Transitional Small Business Disclosure Format (check one)?
Yes [ ] No [X]
================================================================================
-1-
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General.
American Stone Industries, Inc. ("ASI" or the "Company") is a holding
company that conducts its business through its wholly-owned subsidiary, American
Stone Corporation ("ASC"). The Company quarries and sells stone for use in the
building construction industry. The Company produces two types of natural stone:
(1) dimensional stone, which is natural stone that is cut to size as specified
in architectural designs and is primarily used as architectural accents to
buildings, although dimensional stone is also used for funeral monuments,
landscape and ornamental objects; and (2) construction stone, which is natural
stone primarily used for road base, back fill and erosion control.
The Company was incorporated in the State of Delaware on November 11,
1992. The Company acquired the operating assets of Cleveland Quarries, L.P. in
February 1996, and thereafter began operating the 145-year old quarry situated
near Amherst, Ohio known as the "Cleveland Sandstone Quarries" (the "Cleveland
Quarries"). The Cleveland Quarries consist of estimated recoverable reserve
deposits in excess of 300 million cubic feet located on 975 acres of property.
Management of the Company ("Management") believes, based upon various industry
reports and surveys since the initial discovery in 1853, that the Cleveland
Quarries are among the world's largest sandstone quarries.
In January of 2001, the Company created Amherst Stone at Cleveland
Quarries, Inc. ("Amherst Stone"), a wholly-owned subsidiary, to act as a
distributor directly to northern Ohio builders and landscapers. The Company
intended Amherst Stone to act as a full-time supplier of Cleveland Quarries
sandstone and other natural stone products. In December 2002, the Company
decided to consolidate the activities of Amherst Stone into ASC.
Unless the context requires otherwise, references in this report to the
"Company" refer to the Company and its wholly-owned subsidiaries.
The Business.
The Company quarries and markets sandstone and manages the operation of
the Cleveland Quarries. The Cleveland Quarries produce a type of sandstone that
is known in the industry as "Berea Sandstone." For more than 100 years,
sandstone from the Cleveland Quarries has been utilized widely in the United
States and Canada in such projects as the following:
FACILITY/BUILDING LOCATION DATE
----------------- -------- ----
The John Hancock Building Boston, Mass. (U.S.A.) 1948
U.S. Post Office Cleveland, Ohio (U.S.A.) 1934
Parliament Building Ottawa, Ontario (Canada) 1865
(rebuilt 1917)
City Hall Buffalo, New York (U.S.A.) 1930
U.S. Bankruptcy Court Little Rock, Ark. (U.S.A.) 1918
Oberlin College Campus Oberlin, Ohio (U.S.A.) 1885-1943
Osgoode Hall -- Law courts of Toronto, Ontario (Canada) 1857
Upper Canada
NHL Hockey Hall of Fame Toronto, Ontario (Canada) 1885
County Courthouse Savannah, Ga. (U.S.A.) 1889
-2-
FACILITY/BUILDING LOCATION DATE
----------------- -------- ----
St. James Cathedral Toronto, Ontario (Canada) 1853
University of Pennsylvania Philadelphia, Penn. (U.S.A.) 1874-1910
Oberlin College Science Building Oberlin, Ohio (U.S.A.) 2001
Berea Sandstone has been used in the construction of numerous
additional facilities over the past 100 years, including government buildings,
banks, churches and prestigious private residential dwellings throughout the
United States and Canada. One of the most current personal residences of note is
that of Mr. William Gates in Seattle, Washington.
Industry Structure.
All natural stone products go through several stages prior to final
use. The various stages can be defined as follows: (1) quarrying, which is the
extraction of large blocks of stone; (2) primary processing, which involves
sawing the large blocks into smaller blocks or large slabs; (3) secondary
processing, which is the conversion of smaller blocks or slabs into finished
product; and (4) installation, which involves assembling and installing finished
product. The Company owns and operates its own quarries. The Company is also a
primary processor, as it owns and operates its own slabbing mills. In addition,
the Company has its own secondary processing mill. All three processes are
performed at the Company's South Amherst location in Ohio.
BLOCKS ARE TURNED BLOCKS ARE TURNED INTO
INTO SLABS TO MAKE SMALLER BLOCKS TO MAKE
------------------ ----------------------
Table Tops Coping
Tile Cut Stone
Patio Stone Grindstones
Garden Stone Curbing
Sills Building Stone
Step Treads Breakwater
House Ashlar Laboratory Samples
Landscape Pieces
Companies operate in diverse ways within the natural stone industry.
They are usually involved in more than one of these disciplines. Companies
operating at the ends of the process (i.e., the quarrying and installation) tend
to locate geographically. Quarry operations locate where the raw material is
found, and installers operate in the area in which the finished product is to be
installed. Primary processors often locate at or near the quarries. For this
reason, the same company is often involved in both the quarry and primary
processing segment. Similarly, secondary processors locate at or near the
installers' premises. Therefore, companies that do installation are also usually
capable of secondary processing. Management believes that few companies operate
in all segments of the industry.
The primary and secondary processing segments are the most mechanized
and therefore the most capital intensive. The machinery can be very
sophisticated and very expensive. There have been major advancements in quarry
technology, and these operations are also becoming very capital
-3-
intensive. These expenses have been a barrier to entry into these segments of
the industry for many and, for those that have failed to keep up, it has been a
factor creating adverse consequences.
This change is evidenced by the decline in the number of full-service
(primary and secondary) competitors in the domestic market. Most new capital
investment has occurred in Europe, India and China, with little occurring in
North America. The Company believes that its investment in high-tech equipment
will enable it to compete domestically with both domestic and foreign
competitors.
Marketing Structure.
The market for dimensional stone products is served by many more
companies than those involved in production and installation. They include
government agencies, distributors, marketing agencies, architectural and
engineering firms and designers. The company that has the closest contact with
the final consumer is often most responsible for the sale of stone products.
These other companies are often more important to the stone producer than the
stone itself. The illustration below indicates how many layers are potentially
between the end-user and the companies involved in the four levels of the stone
industry. The additional layers between end-user and producer require a
sophisticated marketing department capable of dealing with these companies. The
marketing department may use in-house employees for estimating and drafting
functions or form strategic alliances with outside companies that perform these
functions.
QUARRY TO END-USER
Quarry
Secondary Processor Primary Processor
Installer
General Contractor
Architect Distributor
Designer
Purchasing Agent
End-User
-4-
For the period from 1999 to 2003, the Company's annual production of
natural stone was as follows:
RAW STONE: (TONS)
----------
1999 13,662
2000 12,699
2001 16,855
2002 13,196
2003 11,588
Management currently intends to target the following segments:
Building Stone:
- Slabs
- Sills
- Steps
- Ashlar
- Patio Stone
- Wallstone
- Landscaping
- Tile
- Cutstone
- Swimming Pool Construction
- Restoration (Cut Stone)
Specialty Products:
- Cores (Oil & Gas Research)
- Breakwater Stone
- Grindstones
- Ornamental
Employees.
The Company has approximately 26 full-time employees, of which about 19
are hourly. The average hourly wage of the quarry personnel is approximately
$10.86 per hour. The quarries are situated in a geographic region that has a
large labor pool, and Management does not believe that securing additional labor
will be difficult or expensive. In Management's opinion, the Company has a
positive relationship with its employees.
Competition.
The Company competes in the natural dimensional stone market. More
specifically, the Company competes against limestones and other sandstones. The
Company's two biggest competitors consist of Briar Hill Stone Co. (Glenmont, OH
-- about 50 employees) and Indiana Limestone Company (Bedford, IN -- about 200
employees). When submitting proposals to provide Berea Sandstone to larger
commercial sites, the Company competes with quarries throughout the United
States and abroad.
The Company intends to compete within this environment utilizing a
strategy that embodies the following:
- Ownership of what Management believes to be one of the largest
sandstone reserves in the world, which provides the Company
with access to the raw material;
-5-
- Access to a large supply of fresh water which is required to
utilize diamond saw technology;
- A strategic geographic location from which the Company can
serve about 66% of the domestic United States market within a
500 mile radius from the quarries;
- Low cost of raw materials; and
- High quality, attributed to the skilled labor pool, and the
higher level of capital investment in equipment.
Marketing.
The marketing of the Company's products from Ohio is primarily done
through an in-house sales staff and outside sales representatives. In addition,
the Company is represented by distributors in the United States and Canada who
deal directly with the end user by purchasing products from the Company at
discounted rates and selling them to the end user at a markup.
The Company's historical market has been the United States and Canada.
Within the United States, the Midwest and Northeast regions have traditionally
accounted for more than 80% of the Company's sales in the United States. In
Canada, the Company's sales have occurred almost exclusively in the Provinces of
Ontario, Quebec and British Columbia.
Business Strategy.
The Company intends to expand its current market and financial base
through a business strategy that focuses on:
- Dedication to its core business, i.e., the Cleveland Quarries;
- Development of ancillary assets, i.e., the sale, lease or
joint venture of surplus or nonessential lands.
Backlog.
As of December 31, 2003, the Company's backlog of orders was $250,000
as compared to a backlog of $400,000 at December 31, 2002.
Seasonality.
The Company's sales are cyclical in nature. Historically, the Company's
sales have been highest during the second and third quarters, which usually
account for more than 60% of the fiscal year's sales. The first quarter
typically has the lowest sales due to inclement weather in the Northern Ohio
region and the difficulty of operating a quarry in such an environment.
-6-
Intellectual Property/Proprietary Rights.
The Company holds copyrights in marketing materials and owns various
trademarks. The Company does not believe that intellectual property is material
to the operation of its business.
Regulation.
The Company's operations are subject to a variety of statutes, rules
and regulations, which are applicable to any business operating in the United
States. These statutes, rules and regulations range from record keeping (e.g.,
the duty to maintain tax-related records for specific time periods as required
by the Internal Revenue Code of 1986, as amended) to employment (e.g., the duty
to comply with the Equal Employment Opportunity Act of 1972).
Due to its quarry operations, the Company is also subject to certain
more specific statutes, rules and regulations, the most significant of which
include:
- Mines Safety and Health Act ("MSHA"), which mandates certain
safety rules and regulations governing mining operations.
- Occupational Safety and Health Act of 1970 ("OSHA"), which
generally requires that the Company provide its employees with
a safe workplace.
- Resource Conservation and Recovery Act of 1976 ("RCRA"), which
prohibits the transportation and/or disposal of "hazardous
waste" except pursuant to certain standards.
- Regulations of the Department of Transportation, which governs
the safe transportation of goods over interstate highways.
In the opinion of Management, the Company is in compliance with all
applicable regulations. Material changes in these regulations in all material
respects or the adoption of new regulations could have a material impact on the
operations of the Company.
Research and Development.
In the fiscal years ended December 31, 2003 and 2002, the Company did
not make any research and development expenditures.
Methods of Distribution and Costs of Transportation.
All of the Company's stone is shipped via flatbed truck paid F.O.B. at
South Amherst.
-7-
ITEM 2. DESCRIPTION OF PROPERTY.
General.
The Company owns three separate parcels of land in the Counties of
Lorain and Erie, Ohio. These properties contain stone with a variety of colors
and properties. The Company holds permits for the two parcels that are used as
quarries and both permits are in good standing.
The parcel in Erie County is in Birmingham Township, consists of
approximately 186 acres, and contains the only Company quarry currently
operating. Stone from this quarry is suitable to all end purposes of the
Company's products and has a higher compressive strength than the stone quarried
from the other Company quarries. Stone from this quarry is suitable not only for
new projects but also for renovation, restoration or expansion of existing
buildings. The Birmingham property also contains a supply of natural gas, which
is leased to a local utility. There are no processing facilities on the
Birmingham property.
The Company's main parcel is in Amherst Township (Lorain County),
consists of approximately 979 acres, and is the site of six quarries, the mills
and offices. The main parcel fronts the Ohio State Turnpike approximately twenty
minutes west of downtown Cleveland. All of the quarries on the Lorain County
land are currently unused and dormant.
In December 2002, the Company purchased approximately 150 acres of land
in Lorain County, Ohio adjoining the Company's Lorain County parcel for
$500,000. The promissory note issued by the Company for the purchase price also
provides for a contingent payment described below under the caption
"Encumbrances." The 150 acre parcel was purchased in order to control all
contiguous properties.
In the opinion of management, all properties are adequately covered by
insurance.
Reserve Information.
From approximately 1960 to 1992 the reserves of Cleveland Quarries were
estimated by the then owner (Stancorp), which drilled samples of Berea Sandstone
on the Company-owned properties. The reserve estimates were then calculated
using the deposit area and observations of depth from the existing quarries. On
the basis of the reserve estimates obtained by the previous owner, Management
has estimated that dimensional stone reserves for the Birmingham property are
126 million recoverable cubic feet based on a deposit of at least 30 acres
indicated by topographic studies and that the Lorain County property contains
210 million recoverable cubic feet of dimensional stone and 21 million
recoverable cubic feet of construction stone. There are no reserves on the
parcel of property purchased in December 2002. In summary, Management believes
that the properties have a total estimated recoverable reserve in excess of 300
million cubic feet.
-8-
Usage for the past three years is as follows:
YEAR EXTRACTED CU. FT. SOLD CU. FT.
---- ------------------ -------------
2001 240,000 97,800
2002 272,000 111,000
2003 165,708 89,787
Differences between cubic feet extracted and cubic feet sold are primarily the
result of waste. The percentages of waste vary from year to year primarily
because of differences in product mix. At current usage rates, the reserves far
exceed any reasonable expectation of depletion.
Buildings.
The following is a list of the main buildings on the Lorain County
property:
BUILDING SIZE S.F. YEAR BUILT CURRENT USE FUTURE USE
-------- --------- ---------- ----------- ----------
Mill No. 3 18,175 1946 Processing Processing
Mill No. 6 45,000 1923 Vacant Vacant
Mill No. 8 44,165 1926 Gang Sawing Gang Sawing
Office & Showroom 11,305 1900 Office & Showroom Office & Showroom
Encumbrances.
The Company's main parcel and the parcel in Erie County are subject to
mortgages between the Company and Madison/Route 20 LLC in a loan amount of
$900,000.
In connection with the purchase of 150 acres of land in December 2002,
the Company granted a mortgage to the seller securing a promissory note due
November 21, 2007 in the original principal amount of $500,000 plus fifty
percent (50%) of the difference between the fair market value of the property
and the purchase price of $500,000.
Equipment.
The Company's equipment consists of saws, cranes, trucks, tow motors,
grinders, stone cutting equipment and haul tools. Older equipment is in the
process of being overhauled, upgraded and replaced with new equipment.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-9-
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
The Company's Common Stock is currently traded in the over-the-counter
market via the "Bulletin Board" maintained through the National Association of
Securities Dealers, Inc. The trading symbol of the Common Stock is AMST. The
following table shows the high and low daily closing prices for the Company's
Common Stock for each quarter of 2003 and 2002. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
YEAR ENDED DECEMBER 31, 2002 HIGH LOW
---------------------------- ---- ---
First Quarter.......................................... $ 8.50 $ 5.00
Second Quarter......................................... 9.00 5.00
Third Quarter.......................................... 9.00 6.90
Fourth Quarter......................................... 9.50 2.00
YEAR ENDED DECEMBER 31, 2003 HIGH LOW
---------------------------- ---- ---
First Quarter.......................................... $ 7.25 $ 3.40
Second Quarter......................................... 8.00 3.35
Third Quarter.......................................... 8.00 4.80
Fourth Quarter......................................... 9.50 5.25
Holders and Dividends
As of March 10, 2004, there were 85 holders of record of the Common
Stock of the Company. The Company has paid no dividends on the Common Stock and
it is the Company's present intention to reinvest earnings internally to finance
the expansion of its business. The Company's ability to pay dividends is limited
by the Company's credit facility and is directly related to the Company's future
profitability and need for capital to support its growth.
-10-
Securities Authorized for Issuance Under Equity Compensation Plans
The following table shows information with respect to each equity
compensation plan under which the Company's Common Stock is authorized for
issuance as of the end of fiscal year 2003.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF
SECURITIES
REMAINING
NUMBER OF AVAILABLE FOR FUTURE
SECURITIES TO BE ISSUANCE UNDER
ISSUED UPON WEIGHTED-AVERAGE EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION
OUTSTANDING OUTSTANDING PLANS (EXCLUDING
OPTIONS, WARRANTS OPTIONS, WARRANTS SECURITIES REFLECTED
AND RIGHTS AND RIGHTS IN COLUMN (a))
PLAN CATEGORY (a) (b) (c)
====================================================================================
Equity
compensation plans
approved by
security holders 182,904 $4.75 392,550
====================================================================================
Equity
compensation plans
not approved by
security holders -0- -0- -0-
====================================================================================
TOTAL 182,904 $4.75 392,550
====================================================================================
Recent Sales of Unregistered Securities
As previously disclosed, during the second quarter of 2003 the Company issued
Convertible Subordinated Promissory Notes totaling $220,000 to assist in its
cash flow needs. The notes were issued without general solicitation in a private
placement (in reliance on Section 4(2) of the Securities Act of 1933) to
individuals and entities, including Board members and entities affiliated with
Board Members. No underwriter was involved in the private placement, and no
underwriting discounts or commissions were charged. The notes bear interest at a
rate of 5% per annum and are convertible (at any time prior to payment of the
notes) into Common Stock of the Company at a conversion price of $3.50 per
share, subject to adjustment for certain dilutive events.
-11-
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
(all amounts in thousands)
Following is a discussion of the principal factors that affected the Company's
results of operations during each of the two most recent fiscal periods. This
discussion should be read in conjunction with the Company's Consolidated
Financial Statements included elsewhere in this report.
Company Overview and Outlook
American Stone Industries, Inc. is a holding company that mines and sells stone
primarily for the building stone market through its wholly-owned subsidiary,
American Stone Corporation. American Stone Corporation owns and operates the
Cleveland Quarries in Amherst, Ohio. We produce dimensional stone which is cut
to size as specified in architectural designs and primarily used as
architectural accents to buildings. We also produce construction stone which is
primarily used for road base, back fill and erosion control.
In January 2001, we created Amherst Stone at Cleveland Quarries, Inc., a
wholly-owned subsidiary, to distribute our stone and other natural stone
products directly to northern Ohio builders and landscapers. In December 2002 we
decided to close Amherst Stone and consolidate the remaining activities into
American Stone Corporation.
Looking forward, our immediate challenge is to increase our sales base and
continue to improve our operating efficiencies while controlling costs so we can
generate profitability and positive cash flow and strengthen our balance sheet.
Cash remains tight, but as a result of new credit disciplines we have
significantly reduced bad debt write-offs. 2004 started slowly due to the
weather, which prevented us from quarrying stone all winter. However, we have
ample saleable inventory on hand -- more than we have had in several years going
into the spring season. We also judiciously invested in new equipment for the
quarry in 2003 that we expect will improve productivity and reduce operating
costs. The market continues to be soft, but we are cautiously optimistic. With
some new marketing materials and a new sales team, we are now positioned to more
actively pursue new business. If architectural project opportunities materialize
as anticipated, we believe we can increase sales 25-30% over 2003 levels. We are
confident we could handle such an increase in volume without adding to staff,
assuming the workflow is reasonably spread out. At these higher volumes, we
should be able to produce a profit in 2004.
2003 compared to 2002
Sales decreased $2,254, or 50%, from 2002 due to the closure of the Amherst
Stone distribution business, unusually cold weather in early 2003 which
adversely impacted our ability to pull stone from the quarry for most of the
first quarter of 2003, being more selective in choosing jobs with higher profit
potential and focusing on selling products that we produce from our own raw
materials as opposed to reselling stone quarried by others.
-12-
Gross profit, as a percentage of sales, improved from a negative 10.9% in 2002
to a positive 22.1% in 2003 due choosing jobs with higher profit potential
combined with cost reduction and productivity improvement programs. Also
included in 2002 cost of goods sold was a $437 inventory write down.
Selling and administrative expenses decreased $715, or 58% in 2003 from 2002.
Included in 2003 selling and administrative expense was a $223 benefit from
forgiveness of debt from notes payable. Before this benefit, selling and
administrative expenses decreased $492, or 40%, primarily due to cost reduction
actions, the elimination of non-value added activities and the closure of our
Amherst Stone operation in December 2002.
Interest expense increased $22, or 17% in 2003 compared to 2002 due primarily to
increased average borrowing levels in 2003.
We did not record a benefit for income taxes in 2003. We have $6,500 of unused
net operating loss carryforwards that may be applied against future taxable
income. These carryforwards expire in various amounts from 2007 through 2023.
Our ability to use the carryforwards will depend upon generating taxable income
in the future. There are no assurances that we will be profitable in the future,
and as a result we did not reflect a tax benefit in 2003 from the net loss.
The net loss in 2003 of $186 was significantly less than the net loss in 2002 of
$1,860. The main drivers were significantly improved gross profit margins
combined with significantly lower selling and administrative expenses, as
previously discussed.
2002 compared to 2001
Sales increased $696, or 18% from 2001 due primarily from increased sales from
Amherst Stone.
Gross profit, as a percentage of sales, decreased from 12.1% in 2001 to a
negative 10.9% in 2002 due to under-pricing several restoration and
architectural projects, inefficient operating procedures and the negative effect
on operations of previously deferred maintenance. In addition, during the third
quarter of 2002 we determined that approximately $445 of inventory was scrap and
as a result we established a reserve of $437 for this inventory.
Selling and administrative expenses increased $252, or 25% due primarily to
increased overhead related to Amherst Stone, including additional sales
personnel, promotional materials and showroom expenses.
Interest expense declined by $7, or 5% due primarily to a decline in the prime
interest rate on our line of credit.
We did not record a benefit for income taxes in 2002 due to having significant
unused net operating loss carryforwards, as previously discussed.
The net loss in 2002 of $1,860 was significantly more than the net loss in 2001
of $665. The main drivers were lower gross profit margins combined with higher
selling and administrative expenses, as previously discussed.
-13-
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates,
judgments and assumptions in certain circumstances that affect amounts reported
in the accompanying consolidated financial statements. We evaluate the
accounting policies and estimates we use to prepare financial statements on an
ongoing basis. We base our estimates on historical experience and assumptions
believed to be reasonable under the relevant circumstances. In preparing these
financial statements, we have made our best estimates and judgments of certain
amounts included in the financial statements related to the accounting policies
and estimates described in the text that follows. The application of these
critical accounting policies involves the exercise of judgment and the use of
assumptions as to future uncertainties, and as a result, actual results could
differ from these estimates. For additional information regarding our accounting
policies, see Note 1 to the Consolidated Financial Statements for the fiscal
year ended December 31, 2003.
Goodwill
As of December 31, 2003, we had $26,661 of goodwill resulting from the
acquisition of businesses. Effective January 1, 2002, we adopted SFAS No. 142
"Goodwill and Other Intangible Assets," under which goodwill is no longer
amortized but is tested for impairment annually (we have selected November 15),
or more often, if an event or circumstance indicates that an impairment loss may
have occurred. In making goodwill impairment assessments, we compare the fair
value of the company with the company's carrying value. If the fair value of the
company exceeds its carrying value, goodwill is considered not to be impaired.
If the carrying value of the company exceeds its fair value, an impairment loss
is measured and recognized.
As of the close of business on November 15, our common stock's latest closing
value was $6.00 per share and we had 1,939,169 shares outstanding. Therefore,
our total market value, or fair value, was $11,635,014. The carrying value of
the company, represented by stockholders' equity, at September 30, 2003 (the
last information as filed under form 10-QSB) was $612,992. Since the fair value
exceeded the carrying value, we determined that goodwill was not impaired.
Land Depletion
Our estimate of land depletion is based on our estimate of remaining sandstone
as determined from current and historical information. We evaluated the key
factors and assumptions used to develop the land depletion estimate in
determining that it is reasonable in relation to the financial statements taken
as a whole.
Contingencies
We are subject to various investigations, claims, and legal and administrative
proceedings covering a wide range of matters that arise in the ordinary course
of business activities. Any liability that may result from these proceedings,
and any liability that is judged to be probable
-14-
and estimable, has been accrued. Any potential liability not accrued is not
currently expected to have a material adverse effect on our future financial
position, results of operations or cash flows.
CASH FLOWS
(all amounts in thousands)
Cash flows provided (used by): 2003 2002
------------------------------------------------------
Operating activities $(148) $(206)
Investing activities (50) (113)
Financing activities 477 296
Cash used by operating activities in 2003 was $148. The net loss of $186
included a non-cash gain on forgiveness of bank debt of $223, depreciation and
amortization of $418 and a loss on the sale of equipment of $58. Major uses of
cash were a $188 increase in inventory and a $306 decrease in payables and
accrued liabilities. Major sources of cash were a $228 decrease in accounts
receivable and a $44 decrease in prepaid expenses.
Cash used by operating activities in 2002 was $206. The net loss of $1,860
included depreciation and amortization of $434. Major sources of cash were a
$270 decrease in accounts receivable, a $672 decrease in inventory, a $32
decrease in prepaid expenses and a $236 increase in payables and accrued
liabilities.
Cash used by investing activities in 2003 was $50, which included $62 to
purchase equipment primarily to improve productivity.
Cash used by investing activities in 2002 was $113 to purchase equipment to
improve productivity and maintain current equipment.
Cash provided by financing activities in 2003 was $477. Cash was provided by
long term debt totaling $1,495 while $1,018 of cash was used to repay long term
debt and borrowings under the line of credit. Borrowings in 2003 included the
following:
- $220 unsecured notes payable to directors and officers of the company
- $200 unsecured note payable to bank
- $900 mortgage refinance loan payable to Madison/Route 20, LLC
- $175 drawn on an unsecured note payable to Roulston Venture Capital L.P., a
significant shareholder
Cash provided by financing activities in 2002 was $296. Cash was provided by
long term debt totaling $661 while $364 of cash was used to repay long term debt
and borrowings under line of credit arrangements. Borrowings in 2002 included
the following:
- $500 loan from an individual investor
- $150 unsecured note payable to Roulston Venture Capital L.P., a significant
shareholder
More information about Long Term Debt can be found in Note 4 to the Consolidated
Financial Statements.
-15-
LIQUIDITY AND CAPITAL RESOURCES
(all amounts in thousands)
As of December 31, 2003 we had cash and cash equivalents totaling $284. During
2003 we had a line of credit with maximum borrowings of $500. This line of
credit was paid off and closed before December 31, 2003.
As of December 31, 2003 our current portion of long-term debt was $1,506, which
represents the principal portion of our debt that is due to be repaid by
December 31, 2004. These debt maturities will need to be extended or refinanced
during 2004 in order for us to be able to continue to fund operations and meet
our obligations. Profitable operations in 2004 will be an important factor in
helping us to extend or refinance these obligations.
Capital spending in 2004 is currently estimated at between $50 and $100,
primarily for equipment needed to maintain operations.
At December 31, 2002 we were in violation of certain covenants of our bank line
of credit agreement, but we had obtained waivers from the bank. However, at
December 31, 2003 none of our borrowing arrangements contained covenants, and we
do not believe we were in default with respect to any other financial
arrangement, nor were we subject to any unsatisfied judgments, liens or
settlement obligations.
We have experienced significant operating losses over the previous three years.
As a result, we have had cash flow and liquidity problems. We have taken steps
to reduce administrative overhead, employment levels and other expenses, have
instituted strict controls over granting credit to customers and have put new
sales policies and procedures into place. There can be no assurances that these
measures will enable us to become profitable or achieve positive cash flow in
the foreseeable future. We are also currently exploring additional long term
funding sources, including debt placement, stock issuance and other
alternatives.
The following table summarizes our obligations related to long-term debt and
operating leases as of December 31, 2003:
Long
Term Operating
Debt Leases Total
------ --------- ------
Due in less than 1 year $1,506 $ 13 $1,519
1-3 years 1,300 4 1,304
------ --------- ------
Total $2,806 $ 17 $2,823
====== ========= ======
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
In this annual report, statements that are not reported financial results or
other historical information are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements give current expectations or forecasts of future events and are not
guarantees of future performance. They are based on management's expectations
that involve a number of business risks and uncertainties, any of
-16-
which could cause actual results to differ materially from those expressed in or
implied by the forward-looking statements. You can identify these statements by
the fact that they do not relate strictly to historic or current facts. Words
are used such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe" and other words and terms of similar meaning in connection
with the discussion of future operating or financial performance. In particular,
these include statements relating to future actions; prospective changes in
manufacturing costs, product pricing or product demand; future performance or
results of current and anticipated market conditions and market strategies;
sales efforts; expenses; the outcome of contingencies such as legal proceedings;
and financial results.
Factors that could cause actual results to differ materially include, but are
not limited to: (1) general economic, business and market conditions, (2)
actions by competitors, (3) the success of advertising or promotional efforts,
(d) trends within the building construction industry, (5) the existence or
absence of adverse publicity, (6) changes in relationships with the Company's
major customers or in the financial condition of those customers, (7) equipment
and operational problems, and (8) the adequacy of the Company's financial
resources and the availability and terms of any additional capital.
We cannot guarantee that any forward-looking statement will be realized,
although we believe we have been prudent in our plans and assumptions.
Achievement of future results is subject to risks, uncertainties and inaccurate
assumptions. Should known or unknown risks or uncertainties materialize, or
should underlying assumptions prove inaccurate, actual results could vary
materially from those anticipated, estimated or projected. Investors should bear
this in mind as they consider forward-looking statements.
We undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects
in our Form 10-QSB, 8-K and 10-KSB reports to the Securities and Exchange
Commission. You should understand that it is not possible to predict or identify
all risk factors. Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties.
-17-
ITEM 7. FINANCIAL STATEMENTS.
The following pages contain the Financial Statements and Supplementary
Data as specified by Item 7 of Form 10-KSB.
HOBE & LUCAS
CERTIFIED PUBLIC ACCOUNTANTS, INC.
4807 Rockside Road
Suite 510
Independence, Ohio 44131
Tel: (216) 524-8900
Fax: (216) 524-8777
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of American Stone Industries, Inc. and Subsidiaries
Amherst, Ohio
We have audited the consolidated balance sheets of American Stone
Industries, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American Stone
Industries, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the
results of its operations and its cash flows for the years then ended in
conformity with U.S. generally accepted accounting principles.
/s/ Hobe & Lucas
Certified Public Accountants, Inc.
Independence, Ohio
February 16, 2004
-18-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 284,238 $ 5,697
Accounts receivable, net of allowance for
doubtful accounts of $20,000 - 2003 and
$209,000 - 2002 160,303 388,206
Prepaid expenses 2,700 46,942
Inventory 837,438 649,913
----------- -----------
Total Current Assets 1,284,679 1,090,758
----------- -----------
Property, Plant and Equipment, Net 3,243,693 3,670,003
----------- -----------
Other Assets
Intangible assets 9,043 9,043
Goodwill 26,661 26,661
Restricted cash 7,521 13,504
Deposits 1,000 1,000
----------- -----------
44,225 50,208
----------- -----------
$ 4,572,597 $ 4,810,969
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank line of credit $ -0- $ 500,000
Current portion of notes payable 1,505,850 872,010
Accounts payable 516,345 695,749
Accrued and withheld payroll
and payroll taxes 44,991 53,639
Accrued liabilities 143,324 261,560
----------- -----------
Total Current Liabilities 2,210,510 2,382,958
----------- -----------
Long Term Liabilities
Notes payable 1,300,000 1,180,066
----------- -----------
Stockholders' equity
Common stock, $.001 par value 20 million
shares authorized, 1,939,169 shares issued
and outstanding 1,939 1,939
Additional paid-in capital 4,829,708 4,829,708
Accumulated deficit (3,769,560) (3,583,702)
----------- -----------
1,062,087 1,247,945
----------- -----------
$ 4,572,597 $ 4,810,969
=========== ===========
See notes to consolidated financial statements.
-19-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
Sales $ 2,228,170 $ 4,482,511
Cost of goods sold 1,735,270 4,970,967
----------- -----------
Gross profit (loss) 492,900 (488,456)
----------- -----------
Selling and administrative expenses 526,750 1,241,574
----------- -----------
(Loss) from operations (33,850) (1,730,030)
----------- -----------
Other Income/(Expense)
Interest income 36 204
Interest expense (152,044) (129,903)
----------- -----------
(152,008) (129,699)
----------- -----------
(Loss) before provision for income taxes (185,858) (1,859,729)
Provision for income taxes -0- -0-
----------- -----------
Net (loss) $ (185,858) $(1,859,729)
=========== ===========
Net (Loss)/Income per Common Share
Basic $ (.10) $ (.96)
=========== ===========
Diluted $ (.10) $ (.96)
=========== ===========
See notes to consolidated financial statements.
-20-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Common Stock
---------------------------
Total
Issued Paid-In Accumulated Stockholders'
Shares Par Value Capital Deficit Equity
----------- ----------- ----------- ----------- -------------
Balance, January 1, 2002 1,936,364 $ 1,936 $ 4,819,738 $(1,723,973) $ 3,097,701
Shares issued in stock
option exercise 2,805 3 9,970 -0- 9,973
Net Loss -0- -0- -0- (1,859,729) (1,859,729)
----------- ----------- ----------- ----------- -------------
Balance, December 31, 2002 1,939,169 1,939 4,829,708 (3,583,702) 1,247,945
Net Loss -0- -0- -0- (185,858) (185,858)
----------- ----------- ----------- ----------- -------------
Balance, December 31, 2003 1,939,169 $ 1,939 $ 4,829,708 $(3,769,560) $ 1,062,087
=========== =========== =========== =========== =============
See notes to consolidated financial statements.
-21-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
Net Loss $ (185,858) $(1,859,729)
Gain on forgiveness of bank debt (223,049)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation, amortization and depletion 417,917 433,957
Loss on sale of equipment 58,328 -0-
Non-cash option expense 9,973
Changes in assets and liabilities:
Decrease in accounts receivable 227,903 270,116
(Increase) decrease in inventory (187,525) 671,815
Decrease in prepaid expenses 44,242 31,869
(Decrease) increase in payables and accrued liabilities (306,288) 236,265
Other, net 5,983 85
----------- -----------
Net Cash Used in Operating Activities (148,347) (205,649)
----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of equipment 11,800 -0-
Purchase of property, plant and equipment (61,735) (112,611)
----------- -----------
Net Cash Used in Investing Activities (49,935) (112,611)
----------- -----------
Cash Flows from Financing Activities:
Net (payments) borrowings under line of credit arrangements (500,000) (194,245)
Proceeds from long term debt 1,495,000 660,850
Repayment of long term debt (518,177) (170,381)
----------- -----------
Net Cash Provided by Financing Activities 476,823 296,224
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 278,541 (22,036)
Cash and Cash Equivalents at Beginning of Year 5,697 27,733
----------- -----------
Cash and Cash Equivalents at End of Year $ 284,238 $ 5,697
=========== ===========
See notes to consolidated financial statements.
-22-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
Supplemental Disclosure of Cash Flows
Information:
Interest paid $ 150,000 $ 130,000
=========== ===========
Taxes paid $ -0- $ -0-
=========== ===========
Supplemental disclosures of non-cash financing activities:
During 2003, the Company recognized $223,049 as forgiveness of debt from
notes payable.
During the year ended December 31, 2002 the Company purchased land from a
related party for $500,000 in exchange for a note payable.
In 2002, the Company issued 2,805 shares of common stock in exchange for the
exercise of 4,546 directors stock options.
See notes to consolidated financial statements.
-23-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of American Stone
Industries, Inc. and Subsidiaries, (hereinafter "ASI" or the "Company") is
presented to assist in understanding the financial statements. The financial
statements and notes are representations of the Company's management, which is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Business Activity
American Stone Industries, Inc. (a Delaware corporation) is a
publicly-held company whose stock is traded on the OTC Bulletin Board. American
Stone Industries, Inc. ("ASI") is a holding company that mines and sells stone
predominantly for the building stone market through its wholly owned subsidiary,
American Stone Corporation ("ASC"). ASC owns and operates the Cleveland Quarries
in Amherst, Ohio.
In January of 2001, the Company created a wholly-owned subsidiary,
known as Amherst Stone at Cleveland Quarries, Inc. (Amherst Stone) to act as a
distributor directly to northern Ohio builders and landscapers. The Company
intended Amherst Stone to act as a full-time supplier of Cleveland Quarries
sandstone and other natural stone products. In December 2002, the Company
decided to consolidate the activities of Amherst Stone into its ASC operations.
Cash and Cash Equivalents
For purposes of financial reporting, the Company considers all
highly-liquid debt instruments purchased with an original maturity date of three
months or less to be cash equivalents.
Accounts Receivable
Credit is granted to only qualified domestic customers. The allowance
for doubtful accounts is calculated using the Company's prior bad debt
experience and current estimates of uncollectible accounts.
Revenue Recognition
Revenues are recorded when products are shipped to customers or, in
instances where products are configured to customer requirements, upon the
successful completion of the Company's final test procedures. The Company is
generally not contractually obligated to accept returns, except for defective
product. An allowance for such returns is reflected as a reduction to accounts
receivable when the Company expects to grant credits for such items; otherwise
it is reflected as a liability.
-24-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment - At Cost
Property, plant and equipment at December 31, 2003 and 2002 consisted of:
2003 2002
----------- -----------
Land $ 938,680 $ 939,979
Buildings and improvements 1,477,350 1,477,350
Equipment 2,793,440 2,838,808
Computers 62,175 62,175
Vehicle 10,650 38,837
----------- -----------
5,282,295 5,357,149
Less: Accumulated depreciation 2,038,602 1,687,146
----------- -----------
Net property, plant and equipment $ 3,243,693 $ 3,670,003
=========== ===========
Depletion is being calculated based on management's estimate of
sandstone reserves. There is no engineer's estimate available for such reserves.
Depletion amounted to $1,299 and $2,131 for the years ended December 31, 2003
and 2002, respectively.
The cost of depreciable property is being depreciated over the
estimated useful lives of the assets using the straight-line method for
financial reporting. Depreciation expense was $416,618 and $431,826 for the
years ended December 31, 2003 and 2002, respectively.
Routine maintenance and repairs are charged to operations when
incurred. Expenditures which materially increase value or extend lives are
capitalized.
Principles of Consolidation
The accompanying financial statements include the accounts of American
Stone Industries, Inc. and its wholly-owned subsidiary American Stone
Corporation for the year ended December 31, 2003. For the year ended December
31, 2002, the financial statements include the accounts of American Stone
Industries, Inc. and its wholly-owned subsidiaries American Stone Corporation
and Amherst Stone at Cleveland Quarries, Inc. As mentioned in Note 1 Business
Activity, in 2002 the Company decided to consolidate the activities of Amherst
Stone into ASC operations. All significant intercompany transactions have been
eliminated in consolidation.
-25-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill and Other Intangibles
The Company adopted the provisions of FASB Statement 142, Goodwill and
Other Intangible Assets, as of January 1, 2002. The standard provides that
goodwill and intangible assets with indefinite lives no longer be amortized. The
standards provide that goodwill be tested for impairment annually on November
15th. The Company recognized no impairment in 2003 or 2002.
The following is a summary of intangibles:
2003 2002
----------- -----------
Intangibles not subject to amortization
Trademarks 9,043 9,043
Goodwill 26,661 26,661
----------- -----------
$ 35,704 $ 35,704
=========== ===========
Stock Options
The Company uses the intrinsic-value method of accounting for
stock-based awards granted to employees and, accordingly, does not currently
recognize compensation expense for its stock-based awards to employees in the
Consolidated Statements of Income.
The Company maintains the 1998 Management Stock Option Plan (management
plan). Options granted under the management plan may be either incentive stock
options or non-statutory stock options. The options expire on the fifth
anniversary of the date of grant with remaining terms to be determined by the
sole discretion of a committee of members of the Company's Board of Directors.
The management plan provides that the Company may grant options (generally at
fair market value at the date of grant) for not more than 300,000 shares of
common stock to management employees. Options granted are generally exercisable
beginning one year after the date of grant. At December 31, 2003 and 2002,
70,000 and 10,000 options, respectively, with exercise prices ranging from $3.35
to $5.00 were outstanding. At December 31, 2003 and 2002, -0- and 10,000
options, respectively, were exercisable.
Additionally, the Company maintains the 1998 Non-Employee Director
Stock Option Plan (director plan). The director plan provides for the granting
of stock options to members of the Board of Directors who are not employees of
the Company. There are 300,000 shares available for grant under the plan. Each
option is exercisable one year after the date of grant and expires five years
after the date of grant. Each eligible director receives an option to purchase
1,500 shares (3,000 shares for the Board's Chairman) of common stock on the date
of the annual meeting and 150 shares (300 shares for the Board's Chairman) of
common stock for each Director or Committee meeting attended. Each option shall
be at fair market value on the date of the grant. At December 31, 2003, 112,904
shares with exercise prices ranging from $2.37 to $9.50 ($5.62 weighted average)
were outstanding, 96,554 of which were exercisable. At December 31, 2002,
110,954 shares with exercise prices ranging from $2.37 to $9.50 ($5.77 weighted
average) were outstanding, 88,200 of which were exercisable.
-26-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Options (Continued)
A summary of option activity under the plans follows:
Number of Weighted
Shares Under Average Exercise
Option Price
------------ ----------------
Outstanding at January 1, 2002 108,200 $ 4.85
Granted 27,300 8.48
Exercised (4,546) 3.58
Cancelled (10,000) 5.00
------------
Outstanding at December 31, 2002 120,954 5.59
Granted 86,350 3.61
Exercised -0- 0.00
Cancelled (24,400) 4.76
------------ ----------------
Outstanding at December 31, 2003 182,904 4.75
============ ================
Options exercisable at December 31, 2003 96,554 6.58
============ ================
Options exercisable at December 31, 2002 98,200 $ 4.78
============ ================
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APBO No. 25), and related
interpretations, in accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), requires use of highly subjective assumptions in
option valuation models. Under APBO No. 25, because the exercise price of the
Company's stock option granted is not less than fair market price of the shares
at the date of grant, no compensation is recognized in the financial statements.
Pro forma information regarding net income and earnings per share,
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS No. 123, is required by that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for all options granted: a
risk free interest rate of 1.02% and 1.24% for 2003 and 2002, respectively,
expected life of the options of five years, no expected dividend yield and a
volatility factor of 10%. Additionally, a marketability discount of 50% has been
assumed for 2003 and 2002, respectively.
-27-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Options (Continued)
2003 2002
----------- -----------
Net income (loss), as reported (185,858) (1,859,729)
Deduct: (Loss), Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of tax effects (45,675) (50,479)
----------- -----------
Pro forma net income (loss) $ (231,533) $(1,910,208)
=========== ===========
Earnings per share:
Basic - as reported $ (.10) $ (.96)
=========== ===========
Basic - pro forma $ (.12) $ (.99)
=========== ===========
Diluted - as reported $ (.10) $ (.96)
=========== ===========
Diluted - pro forma $ (.12) $ (.99)
=========== ===========
Reclassifications
Certain reclassifications have been made in the 2002 financial statements to
conform to the 2003 presentation.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration
of credit risk, principally consist of accounts receivable. The Company's
policies do not require collateral to support customer accounts receivables. No
concentrations existed for the years ended December 31, 2003 and 2002.
Income Per Common Share
Income per common share is based on the weighted average number of
shares outstanding which was 1,939,169 and 1,937,050 for the years ended
December 31, 2003 and 2002, respectively.
The Company has various notes payable that include conversion rights to
common stock. Total potential convertible shares were approximately 252,900
shares at December 31, 2003. Additionally, the Company has outstanding stock
options of 182,904 shares at December 31, 2003. As a result, the Company has the
potential of issuing approximately 435,804 of additional shares of common stock
at December 31, 2003.
-28-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory
The inventories which consist of sandstone are stated at the lower of
first-in, first-out (FIFO) cost or market.
Restricted Cash
The Company's certificate of deposit is assigned to the Ohio Department
of Natural Resources Division of Reclamation. The Ohio Department of Natural
Resources requires all companies engaged in mining activities in the state to
maintain an interest bearing certificate of deposit to qualify for a mining
permit.
Shipping and Handling Costs
The Company includes the cost of shipping and handling in its cost of
goods sold.
Accounting Standards
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142).
SFAS 142 addresses the financial accounting and reporting for acquired goodwill
and other intangible assets. As a result of adopting SFAS 142, goodwill and the
Company's intangible assets are no longer amortized. Pursuant to SFAS 142,
goodwill and other intangible assets must be tested for impairment on an annual
basis. As of November 15, 2003, the Company updated its impairment review, which
indicated that there was no impairment.
NOTE 2 - RELATED PARTIES
On October 1, 1999, the Company signed an interest-only note with
Roulston Ventures Limited Partnership (RVLP), a significant shareholder, for
$150,000. Repayment of principal is to be made on October 1, 2004. At any time
up to the maturity date, RVLP had the right to convert the debt into shares of
common stock at $5.00 per share.
On October 1, 2002, the Company signed an additional interest only note
with Roulston Venture Capital L.P. (RVCLP), a significant shareholder, for
$300,000, of which $300,000 was drawn at December 31, 2003. Repayment of the
principal is to be made on October 1, 2005. At anytime up to the maturity date,
RVCLP has to right to convert the debt into shares of common stock at $5.00 per
share.
In 2003, the Company signed unsecured notes payable to directors and
officers of the Company totaling $220,000. Interest only is payable quarterly at
5% per year. Principal is due between March 31, 2004 and May 15, 2004. At any
time up to the due dates, note holders have the right to convert the notes into
common stock at $3.50 per share.
-29-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2 - RELATED PARTIES (CONTINUED)
In 2002, the Company entered into a $500,000 note payable - Amherst
Quarry, Inc. (a related party). Principal and interest of 4.5% is due November
21, 2007 and is secured by land. The note was for the purchase of a 150-acre
piece of land adjacent to Company-owned parcels from Amherst Quarries, Inc.
Amherst Quarries is owned 20% by Enzo Costantino and 80% by Glen Gasparini, both
of whom are directors of the Company and both abstained from the vote by the
Board of Directors. The sale agreement contains terms that may call for certain
contingent payments as follows. If during the life of the five-year loan, the
property is sold for an amount in excess of $500,000, the previous owner is
entitled to payment of one half the difference of the selling price and
$500,000. If at the end of the loan period, the property has not been sold, the
fair market value will be determined by an independent appraisal. The previous
owner will be entitled to one-half the excess of the appraised value greater
than $500,000.
NOTE 3 - LINE OF CREDIT
During 2003, the Company had a line of credit with maximum borrowings
of $500,000. The Company paid off and closed the line of credit prior to
December 31, 2003. The note provided for borrowing with interest payable monthly
at a rate equivalent to the bank's prime lending rate of 4.25% at December 31,
2002. The debt was secured by substantially all real estate, inventory, and
equipment of the Company. The outstanding balance at December 31, 2003 and 2002
was $0 and $500,000, respectively.
NOTE 4 - LONG TERM DEBT
2003 2002
----------- -----------
Unsecured note payable to Roulston
Ventures L.P. (a significant shareholder). Interest
only payable quarterly at 6%. Balance due
October 1, 2004. Convertible to common stock
at note holders option on or before due date.
Convertible at $5.00 per share. $ 150,000 $ 150,000
8.52%, note payable to bank. Secured by
equipment payable in monthly installments of
principal and interest of $2,248. Final payment
due March 1, 2005. This loan was paid in full
during 2003. -0- 76,361
8.00%, note payable to bank. Payable in monthly
installments of $18,297 which includes principal
and interest. Final payment due June 1, 2006.
Secured by blanket lien on all real estate, inventory,
receivables and equipment of the Company. The loan
was paid in full during 2003. -0- 651,010
-30-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 4 - LONG TERM DEBT (CONTINUED)
2003 2002
----------- -----------
Balance Forward $ 150,000 $ 877,371
6.90%, note secured by equipment with payments
of $1,206 monthly which includes principal and
interest. This loan was paid in full during 2003. -0- 13,855
Unsecured note payable to lender. Interest only
payable quarterly at 6% per year. Balance due
January 15, 2007. Convertible to common
stock at note holders option on or before due
date. Convertible at $5.00 per share 500,000 500,000
Unsecured note payable to directors and officers of the
Company. Interest only payable quarterly at 5% per year.
Balance due between March 31, 2004 and May 15, 2004.
Convertible to common stock at note holders option on or
before due date. Convertible at $3.50 per share. 220,000 -0-
Unsecured note payable to bank. Interest payable in
monthly installments of prime plus 2%, 6% as of December
31, 2003. Final payment on January 5, 2004. As of this
report, the bank has agreed to renew said note for 90 days. 200,000 -0-
10% fixed rate commercial real estate loan payable to
Madison/Route 20, LLC. Interest only payable monthly.
Balance payable on October 13, 2004. Secured by land. 900,000 -0-
Unsecured note payable to Roulston Venture Capital L.P.
(a significant shareholder). Interest only payable
quarterly at 6%. Balance is due October 1, 2005.
Convertible to common stock at note holders option
on or before due date. Convertible at $5.00 per share. 300,000 125,000
Unsecured note payable to lender with interest
at 5% 35,850 35,850
-31-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 4 - LONG TERM DEBT (CONTINUED)
Balance Forward $ 2,305,850 $ 1,552,076
Note payable - Amherst Quarry, Inc. (a related party).
Principal and interest of 4.5% due November 21, 2007.
Secured by land. Note provides for certain additional
contingent payments (Note 2). 500,000 500,000
----------- -----------
2,805,850 2,052,076
Less: Current Portion 1,505,850 872,010
----------- -----------
$ 1,300,000 $ 1,180,066
=========== ===========
Following is a summary of future maturities of long term debt as of December 31,
2003:
2004 $ 1,505,850
2005 300,000
2006 1,000,000
2007 -0-
2008 -0-
------------
$ 2,805,850
============
NOTE 5 - FAIR VALUE OF FINANCIAL STATEMENTS
The carrying amounts of cash, accounts receivable, accounts payable,
and long-term debt approximate the fair value reported in the balance sheet. The
fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities.
NOTE 6 - FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY
The Company and its subsidiaries operated predominantly in one
industry, the design, quarrying and cutting of sandstone primarily used in the
construction and landscaping industries.
Following is the information regarding the Company's continuing
operations by geographic location.
2003 2002
----------- -----------
Net sales, including geographic transfers
United States $ 2,006,164 $ 3,744,567
Canada 222,006 737,944
----------- -----------
$ 2,228,170 $ 4,482,511
=========== ===========
-32-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 6 - FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY (CONTINUED)
Income (Loss) from operations:
United States $ (33,850) $(1,730,030)
Canada -0- -0-
----------- -----------
Loss from operations: (33,850) (1,730,030)
Interest expense (152,044) (129,903)
Interest income 36 204
----------- -----------
Loss from operations before income taxes $ (185,858) $(1,859,729)
=========== ===========
Identifiable assets:
United States $ 4,572,597 $ 4,810,969
Canada -0- -0-
----------- -----------
$ 4,572,597 $ 4,810,969
=========== ===========
NOTE 7 - LEASES
The Company has entered into operating lease agreements for trucks and
equipment. Lease payments in 2003 and 2002 amounted to $48,426 and $85,002,
respectively.
Below is a five-year schedule of minimum lease payments.
2004 $ 12,631
2005 3,892
2006 and thereafter -0-
------------
$ 16,523
============
NOTE 8- INCOME TAXES
Income taxes on continuing operations include the following:
2003 2002
----------- -----------
Currently payable $ -0- $ -0-
Deferred -0- -0-
----------- -----------
Total $ -0- $ -0-
=========== ===========
-33-
AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 8- INCOME TAXES (CONTINUED)
A reconciliation of the effective tax rate with the statutory U.S.
income tax rate is as follows:
2003 2002
------------------ -------------------
% of % of
Pretax Pretax
Income Amount Income Amount
Income taxes per
statement of income $ -0- 0% $ -0- 0%
Tax rate differences resulting from:
Income (loss) for financial reporting
purpose without tax expense or
benefit. Utilization of loss carry-
forward (unavailable for carryback
against prior income taxes paid) $(63,192) (34)% $(632,308) (34)%
-------- ------ --------- ------
Income taxes at statutory rate $(63,192) (34)% $(632,308) (34)%
======== ====== ========= ======
For United States tax purposes, the Company has available at December
31, 2003, unused operating loss carryforwards of approximately $6,500,000 that
may be applied against future taxable income and expires in various amounts from
2007 to 2023.
Utilization of the net operating loss carryforward is contingent upon
the Company having sufficient taxable income in the future.
The Company's deferred tax assets and liabilities at December 31, 2003
and 2002 consist of:
2003 2002
------------ ------------
Deferred tax asset $ 2,217,000 $ 2,687,000
Valuation allowance (2,080,000) (2,411,000)
Deferred tax liability (137,000) (276,000)
------------ ------------
$ -0- $ -0-
============ ============
Deferred taxes are provided for temporary differences in deducting
expenses for financial statement and tax purposes. The principal source for
deferred tax assets are different methods for recovering depreciation and net
operating loss carryforwards. No deferred taxes are reflected in the balance
sheet at December 31, 2003 and 2002 due to a valuation allowance. As of December
31, 2003, the Company recognized a $331,000 decrease in the valuation allowance
while the Company recognized a $1,964,000 increase in 2002, respectively.
NOTE 9 - PROFIT SHARING PLAN
American Stone Corporation has a 401(k) profit-sharing plan (the Plan)
offered to employees with more than one year of service. Contributions under the
Plan are discretionary and are determined annually by the Company's Board of
Directors. In addition, the Plan provides for a match of 50% of employee
contributions to the Plan up to 6% of employee wages. Company contributions to
the plan in 2003 and 2002 were $11,112 and $15,925, respectively.
-34-
PART III
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 8A. CONTROLS AND PROCEDURES
The Company's management, under the supervision and with the
participation of the Company's President and Chief Executive Officer have
concluded that the Company's disclosure controls and procedures (as defined in
Exchange Act Rule 13a - 14) were, as of December 31, 2003, sufficiently
effective to ensure that the information required to be disclosed by the Company
in the reports it files under the Exchange Act is gathered, analyzed and
disclosed with adequate timeliness, accuracy and completeness, based on an
evaluation of such controls and procedures completed on February 14, 2004.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of the evaluation referred to above.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item 9 as to the Directors of the
Company is incorporated herein by reference to the information set forth under
the caption "Election of Directors" in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on April 21, 2004.
OFFICERS OF THE COMPANY.
Information required by this Item 9 as to the executive officers of the
Company is set forth below:
The executive officers are elected each year and serve at the pleasure
of the Board of Directors. The following is a list of the executive officers of
the Company as of March 17, 2004.
NAME AGE POSITION
-------------------- --- -----------------------------------------------------------
Enzo Costantino 42 Enzo Costantino has served as Treasurer of the Company and
as a Director since 1996. Mr. Costantino has been Secretary
and Treasurer of Terrazo, Mosaic & Tile Company, Ltd.
("TMT") since 1994. Prior to joining TMT, Mr. Costantino
was the controller of Daicon Contractors, a general
contractor located in Toronto, Ontario, from 1989 to 1994,
and the cost accounting manager for Canada Packers, a meat
processor located in Toronto, Ontario, from 1983 to 1989.
-35-
Michael J. Meier 49 Michael J. Meier has served as Secretary of the Company and
as a Director since 1996. He has been the Corporate
Controller of PolyOne Corporation (NYSE: POL). PolyOne
Corporation, with 2003 revenues of $2 billion, is an
international polymer services company with headquarters in
Avon Lake, Ohio. From September 2002 until January 2004 he
was the Director of PolyOne's Electronics and Performance
Additives Group and from May 1999 until December 2002 he
was the Director of Finance of PolyOne Specialty Resins and
Formulators Group. Prior to that he was Vice President of
Finance, Chief Financial Officer, Secretary and Treasurer
of Defiance, Inc. (Nasdaq NM: DEFI) from 1990 until
February 1999. Defiance, a supplier of products and
services to the U.S. transportation industry, was purchased
by General Chemical Group Inc. (NYSE: GCG) in February
1999.
Russell Ciphers, Sr. 66 Russell Ciphers, Sr. has served as President and Chief
Executive Officer since October 23, 2002 and as Principal
Financial Officer since March 19, 2003. Mr. Ciphers was
previously the President and Chief Executive Officer of R.
B. MFG. Co., a material handling manufacturer from February
1996 until October 1, 2001.
AUDIT COMMITTEE FINANCIAL EXPERTS
The Board of Directors of the Company has determined that Michael J.
Meier, who is a member of the audit committee of the Board of Directors of the
Company, qualifies as an "audit committee financial expert" as defined in the
applicable regulation of the Commission and is "independent" as that term is
defined by listing standards of the Nasdaq.
REPORTING OF BENEFICIAL OWNERSHIP
Information required by Item 405 of Regulation S-B is incorporated by
reference to the information set forth under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on April 21, 2004.
CODE OF ETHICS.
The Company has adopted a code of ethics applicable to its principal
executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions (the "Code of Ethics"). A
copy of the Code of Ethics is filed with this report as Exhibit 14.1.
-36-
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item 10 is incorporated by reference to
the information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on April 21, 2004.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 11 is incorporated by reference to
the information set forth under the caption "Common Stock Ownership" in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on April 21, 2004.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 12 is incorporated by reference to
the information set forth under the caption "Certain Relationships and Related
Party Transactions" in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on April 21, 2004.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits
Reference is made to the Exhibit Index set forth herein beginning at page
39.
(b) Reports on Form 8-K.
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Certain information required by this Item 14 is incorporated by reference
to the information set forth under the caption "Audited Related Fees" in the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on April 21, 2004.
The audit committee of the Company approves in advance all audit,
audit-related and non-audit services provided by the independent auditors and
reviews all significant fees related to their services. None of services
provided by the independent accountants during fiscal year 2002 or fiscal year
2003 were approved after the fact pursuant to Rule 2.01(c)(7)(i)(C).
-37-
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN STONE INDUSTRIES, INC.
By: /s/ Russell Ciphers, Sr.
------------------------------------------
Russell Ciphers, Sr., President
and Chief Executive Officer
Date: March 22, 2004
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Russell Ciphers, Sr. By: /s/ Enzo Costantino
------------------------------------------ -----------------------------
Russell Ciphers, Sr., President and Enzo Costantino, Treasurer
Chief Executive Officer (Principal and Director
Executive Officer and Principal Date: March 22, 2004
Financial Officer)
Date: March 22, 2004
By: /s/ Thomas H. Roulston, II By: /s/ Michael J. Meier
------------------------------------------ -----------------------------
Thomas H. Roulston II, Chairman Michael J. Meier, Secretary
of the Board (Principal Accounting Officer) and Director
Date: March 22, 2004 Date: March 22, 2004
By: /s/ Glen Gasparini By: /s/ Timothy I. Panzica
------------------------------------------ -----------------------------
Glen Gasparini, Director Timothy I. Panzica, Director
Date: March 22, 2004 Date: March 22, 2004
By: /s/ John R. Male By: /s/ Louis Stokes
------------------------------------------ -----------------------------
John R. Male, Director Louis Stokes, Director
Date: March 22, 2004 Date: March 22, 2004
-38-
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- ---------------------------------------------------------------------
3.1 Certificate of Incorporation of the Company, dated November 13,
1992, as amended March 9, 1993, December 14, 1993, May 31, 1994,
August 1995, and June 24, 1998
3.7 By-laws of the Company (A)
10.1 Asset Purchase Agreement between American Stone Corporation and (A)
Cleveland Quarries L.P., dated February 1, 1996
10.2 Amendment to and Restatement of Asset Purchase Agreement of February, (A)
1996, between American Stone Corporation and Cleveland Quarries
L.P., dated December 20, 1996
*10.3 Share Purchase Agreement between David Tyrrell and the Company, (A)
dated May 22, 1996
10.4 Stock Purchase Agreement between Roulston Ventures Limited (A)
Partnership and the Company, dated August 27, 1996
10.5 Indemnification Agreement between Cleveland Quarries, L.P., (A)
Slate and Stone Corporation of America, and American Stone
Corporation, dated December 20, 1996
10.6 Share Purchase Option Agreement among TMT Masonry, Ltd., Roulston (A)
Ventures Limited Partnership and the Company
10.7 Share Purchase Option Agreement among TMT Masonry, Ltd., Roulston (C)
Ventures Limited Partnership and the Company, dated November 22, 1996
*10.8 American Stone Industries, Inc. 1998 Management Stock Option Plan (B)
*10.9 American Stone Industries, Inc. 1998 Non-Employee Director Stock (B)
Option Plan
10.10 FirstMerit Bank, N.A., Defined Contribution Master Plan and (E)
Trust Agreement
10.11 Promissory Note payable by American Stone Industries, Inc. to
Independence Bank dated January 5, 2004.
10.12 Convertible Subordinated Promissory Note Payable to Cost (G)
Controls, Inc.
-39-
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- ----------------------------------------------------------------------
10.13 6.00% Convertible Subordinated Note Due October 1, 2004, issued by the (H)
Company to Roulston Ventures Limited Partnership
10.14 6.00% Convertible Subordinated Note Due October 1, 2005, issued by (H)
the Company to Roulston Venture Capital, L.P.
10.15 $500,000 Promissory Note issued by the Company to Amherst Quarry, Inc. (H)
10.16 Mortgage Deed granted by the Company to Amherst Quarry, Inc. in (H)
consideration of $500,000 Promissory Note
10.17 Subordinated debenture issued to Fairport Finance Corp. on May 1, 2003 (I)
10.18 Subordinated debenture issued to Male Family Limited Partnership on (I)
May 1, 2003
10.19 Subordinated debenture issued to Michael J. Meier on April 1, 2003 (I)
10.20 Subordinated debenture issued to Timothy I. Panzica on April 1, 2003 (I)
10.21 Subordinated debenture issued to Louis B. Stokes on April 1, 2003 (I)
10.22 Subordinated debenture issued to Terrazzo Mosaic & Tile Co. on (I)
April 1, 2003
10.23 Promissory Note for Fixed Rate Commercial Real Estate Loan payable
to Madison/Route 20, LLC
14.1 Code of Ethics (February 2004)
21.1 Subsidiaries of the Company
23.1 Consent of Hobe & Lucas
31.1 Rule 13a-14a/15d-14(a) Certification
32.1 Section 1350 Certification
-----------------------------
* Management contract or compensatory plan or arrangement.
(A) Incorporated herein by reference to the appropriate exhibit to the
Company's registration statement on Form 10-SB filed on April 11, 1997.
-40-
(B) Incorporated herein by reference to the appropriate exhibit to the
Company's quarterly report on Form 10-QSB for the period ended September
30, 1998.
(C) Incorporated herein by reference to the appropriate exhibit to the
amendment filed on July 30, 1997 to Company's registration statement on
Form 10-SB filed on April 11, 1997.
(D) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-KSB for the period ended December 31,
1997.
(E) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-KSB for the period ended December 31,
1998.
(F) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-KSB for the period ended December 31,
1999.
(G) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-KSB for the period ended December 31,
2001.
(H) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-KSB for the period ended December 31,
2002.
(I) Incorporated herein by reference to exhibits 10.1 through 10.6 to the
Company's quarterly report on Form 10-QSB for the period ended September
30, 2003.
-41-