Item 1 - Business. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 - Properties. . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 14
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 15
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . 15
Item 6 - Selected Financial Data . . . . . . . . . . . . . . . . . . 15
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 8 - Financial Statements and Supplementary Data . . . . . . . . 18
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . 18
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 10 - Directors and Executive Officers of the Registrant. . . . . . . . . . . . . . . . . . . . . . . 18
Item 11 - Executive Compensation. . . . . . . . . . . . . . . . . . . 18
Item 12 - Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . 18
Item 13 - Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . . . . . . . 19
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 19
SIGNATURES 22
PART I
ITEM 1. BUSINESS
GENERAL
Praegitzer is a leader in the design, quick-turnaround, pre-production and volume production of complex, rigid multilayer printed circuit boards. Printed circuit boards perform critical functions in products in the data communications and telecommunications, instrumentation and industrial equipment, computers and peripherals and business systems and consumer segments of the broad electronics market. The Company pursues long-term relationships with rapidly growing OEM customers that are technology leaders in their industry segments and whose product requirements generally drive the advancement of electronic interconnect manufacturing technology. The Company's principal customers include Compaq, DSC Communications, Hewlett-Packard, Intel, Motorola, Solectron and Xerox. Praegitzer was incorporated under Oregon law in 1981.
In November 1995 Praegitzer acquired Circuit Technology, Inc. ("CTI"), a printed circuit board manufacturer with production facilities located in Redmond, Washington. The acquisition was accomplished by a merger of CTI with and into Praegitzer. In November 1995 Praegitzer also acquired Praegitzer Design, Inc. ("PDI"), a provider of schematic capture and printed circuit design services. The acquisition was accomplished by a merger of PDI with and into Praegitzer. In April 1996 the Company acquired from Praegitzer Property Group all of the real property and improvements on which the Company's Dallas and White City, Oregon manufacturing facilities are located.
In addition, in August 1996 Praegitzer completed the acquisition of Trend Circuits, Inc. ("Trend"), a printed circuit board manufacturer with production facilities located in Fremont, California. The acquisition was accomplished by a merger of Trend with and into Praegitzer. In 1996 the Company has also acquired four new design centers located in Irving, Texas, San Diego and San Jose, California, and Blue Bell, Pennsylvania.
FORWARD-LOOKING STATEMENTS
From time to time the Company may issue forward-looking statements that involve a number of risks and uncertainties. The following factors are among the factors that could cause actual results to differ materially from the forward- looking statements: business conditions and growth in the electronics industry and general economies, both domestic and international; lower than expected customer orders, delays in receipt of orders or cancellation of orders; competitive factors, including increased competition, new product offerings by competitors and price pressures; the availability of third party parts and supplies at reasonable prices; changes in product mix and the mix between product and service revenue; receipt of a significant portion of customer orders and products shipments in the last month of each quarter; and product shipment interruptions due to manufacturing problems. The forward-looking statements should be considered in light of these factors.
INDUSTRY OVERVIEW
Printed circuit boards are the basic platforms used to interconnect the integrated circuits and other essential components of electronic products and consist of interconnected layers of etched copper patterns of electrical circuitry that have been laminated to insulating material. According to The Institute for
Interconnecting and Packaging Electronic Circuits ("IPC"), the United States printed circuit board market totaled approximately $7.1 billion in sales in 1995. Multilayer printed circuit boards, which consist of more than two layers, accounted for approximately 70% of printed circuit board sales in 1995. The IPC estimates sales of standard and high performance multilayer printed circuit boards in the United States will increase at average annual rates of 9.6% and 24.3%, respectively, from 1994 through 1999.
The overall market for electronics products has grown steadily over the past 20 years as end users increasingly seek products with attractive price/performance characteristics and as technological advances have created new markets. To compete in the broader electronics market, OEMs require product components with increased functionality at lower cost per function. The interconnect densities, signal speeds and layer counts of printed circuit boards have increased to meet these requirements. Many of these increasingly complex printed circuit boards are manufactured using a variety of complex processes and equipment, further complicating the production process. Competitive pressures and rapid technological change have shortened product life cycles. As a result, time-to-market and time-to-volume have become increasingly important competitive factors.
To compete in the market for increasingly complex and technologically advanced printed circuit boards and to meet shorter time-to-market and time-to-volume requirements, printed circuit board manufacturers must make substantial capital investments and develop greater manufacturing specialization and expertise. These factors have resulted in two trends in the printed circuit board industry. As capital requirements have increased, the industry has consolidated. According to the IPC, the number of United States printed circuit board manufacturers has decreased from over 2,500 in 1976 to less than 700 in 1995. In addition, OEMs have increased the outsourcing of printed circuit board production to focus resources on their core strengths and have relied on outside suppliers to overcome increasingly complex manufacturing challenges. According to the IPC, the independent manufacturers' portion of the total printed circuit board market increased to 85% in 1995 from 66% in 1991. This market, however, remains highly fragmented. The IPC estimates that in 1994 the 18 largest independent manufacturers accounted for less than 34% of total printed circuit board sales by independent manufacturers.
DEFINITION OF PRODUCTS AND SERVICES
The design and manufacture of printed circuit boards progress in stages: schematic capture and circuit design, quick-turnaround prototype, pre-production and volume production.
SCHEMATIC CAPTURE AND CIRCUIT DESIGN. Schematic capture involves the input of an electronic schematic diagram into a high-performance computer workstation that generates a net list of the electronic components and interconnects required to design a printed circuit board. Circuit design is accomplished using specialized computer-aided design ("CAD") software programs. Computer-generated data describe the locations of holes and conductors (the "layout") which, along with manufacturing information, may be transmitted electronically from the designer to the manufacturer.
QUICK-TURNAROUND PROTOTYPE. Quick-turnaround is characterized by shorter than standard lead time requirements, typically one to 10 days, and involves producing a small quantity, usually fewer than 50 pieces. Prototype evaluation is critical to product development and frequently requires several iterations to finalize the design. Because time is critical, most prototypes are manufactured on a quick-turnaround basis. Consequently, high quality and timely delivery generally are the most important competitive factors.
PRE-PRODUCTION. Pre-production or pilot runs involve the manufacture of limited quantities of printed circuit boards during the transition from prototype to volume production. Pre-production may require quick-turnaround delivery because of overall time-to-market pressures and shorter product life cycles or as a temporary solution in the event of volume production delay. Accordingly, high quality and timely delivery continue to be the factors most important to the OEM or contract manufacturer, although price is also a significant factor.
VOLUME PRODUCTION. Volume production is characterized by longer lead times and increased emphasis on lower cost as the product moves to full-scale commercial production. At this stage of production, price, quality, on-time delivery and process capability are the factors most important to the OEM or contract manufacturer. As product life cycles grow shorter, the ability to meet shorter lead time requirements becomes an increasingly significant competitive factor.
Each stage of product development and production requires substantially different capabilities and as a result most printed circuit board suppliers specialize in only one stage. Consequently, OEMs and contract manufacturers typically use different suppliers at each stage, which requires costly and time consuming duplicative tooling and pre-production engineering. Accordingly, many OEMs and contract manufacturers are establishing strategic relationships with fewer electronic interconnect suppliers that provide a full range of services, including design consultation and quick-turnaround manufacturing, together with low to high volume production capability.
THE PRAEGITZER APPROACH
The Company is a leader in the design, quick-turnaround, pre-production and volume production of complex, rigid multilayer printed circuit boards. The Company concentrates its marketing efforts on segments of the broad electronics market characterized by high growth, rapid technological advances, short product development cycles and accelerated time-to-market and time-to-volume requirements and focuses on customers that require suppliers with advanced design and manufacturing capabilities. In response to these customers' broadening requirements, the Company has expanded its quick-turnaround capabilities through the recent acquisition of CTI, a quick-turnaround and low volume production facility. This strategic acquisition completed the Company's repositioning as an integrated solutions provider of electronic interconnect products and services for the rigid printed circuit board market. The Company believes its strong relationships with pre-production and volume production customers will assist its continued expansion into the quick-turnaround market. The Company believes larger manufacturers with the capability to supply a broad range of products with a diverse mix of performance characteristics will capture additional market share in the printed circuit board industry. The Company is one of a limited number of independent manufacturers that offers a range of integrated electronic interconnect solutions from schematic capture and circuit design services through high volume production. By offering this broad range of services, the Company can provide design and manufacturing solutions for its customers while reducing time-to-market, time-to-volume and product development costs.
BUSINESS STRATEGY
The Company's objective is to be the leading provider of electronic interconnect solutions ranging from schematic capture and circuit design through high volume production. The Company's strategy to achieve this objective includes the following elements:
PROVIDE INTEGRATED ELECTRONIC INTERCONNECT SOLUTIONS. The Company seeks to provide an integrated range of complex electronic interconnect solutions. The Company believes its broad range of services adds
significant value for its customers by shortening their product development cycles, lowering their costs through reduced custom tooling and other manufacturing expenses and providing concentrated expertise not otherwise generally available from a single supplier. The Company believes that by offering design services it gains early access to additional production sales opportunities and that its relationships with volume production customers create additional quick-turnaround and design sales opportunities.
PURSUE LONG-TERM RELATIONSHIPS WITH HIGH-GROWTH CUSTOMERS THAT NEED THE COMPANY'S ADVANCED CAPABILITIES AND SERVICES. The Company concentrates its marketing efforts on segments of the broad electronics market characterized by high growth, rapid technological advances, short product development cycles and accelerated time-to-market and time-to-volume requirements and focuses on customers that require suppliers with advanced design and manufacturing capabilities. The Company seeks to develop and expand long-term relationships with high-growth OEMs and contract manufacturers of advanced electronics products by communicating closely with these customers throughout the design and production process. These relationships assist the Company in meeting its customers' design and manufacturing requirements.
DEVELOP AND USE INDUSTRY LEADING PROCESS TECHNOLOGY. The Company seeks to be a process technology leader in the electronic interconnect industry by providing a broad range of high quality products cost-effectively and achieving production yields among the highest in the industry. The Company has contributed significantly to the development and implementation of industry leading process technologies, such as liquid inner layer resist, and has invested in precision drilling and advanced finishing technologies for dense packaging designs. The Company believes its process capabilities provide a competitive advantage in the manufacture of complex interconnect solutions.
INVEST IN STATE-OF-THE-ART FACILITIES AND EQUIPMENT. Since July 1, 1987 the Company and CTI have invested approximately $59.5 million in modern facilities and equipment, have made significant investments in production processes and intend to continue to make such investments to meet long-term market demands. Each of the Company's manufacturing facilities is ISO 9002 certified and Bellcore compliant. The Company has recently expanded its Redmond facility, is expanding its White City facility and is adding equipment in all manufacturing locations. The Company believes these investments will result in increased capacity, operating efficiencies, improved management control and more consistent product quality so it can satisfy the demanding delivery, time-to-market and time-to-volume requirements of its customers.
PURSUE ACQUISITION OPPORTUNITIES. The Company's growth strategy includes expansion through acquisition of complementary businesses. The Company believes that, by these acquisitions, it can capitalize on OEM outsourcing and consolidation trends within the interconnect industry. The Company has acquired two quick-turnaround production facilities and several strategically located circuit design facilities. The Company, however, has no understandings, commitments or agreements with respect to any acquisition, and there is no assurance that the Company will complete any acquisition in the future.
MARKETS AND MARKETING
The Company concentrates its marketing efforts on segments of the broad electronics market characterized by high growth, rapid technological advances, short product development cycles and accelerated time-to-market and time-to-volume requirements and focuses on customers that require suppliers with advanced design and manufacturing capabilities. In response to these customers' broadening requirements, the Company has expanded its quick-turnaround capabilities through the acquisition of CTI
in November 1995 and Trend Circuits in August 1996, both quick-turnaround and low volume production facilities. These strategic acquisitions completed the Company's repositioning as an integrated solutions provider of electronic interconnect products and services for the rigid printed circuit board market. The Company believes its strong relationships with pre-production and volume production customers will assist its continued expansion into the quick-turnaround market. The Company believes larger manufacturers with the capability to supply a broad range of products with a diverse mix of performance characteristics will capture additional market share in the printed circuit board industry. The Company is one of a limited number of independent manufacturers that offers a range of integrated electronic interconnect solutions from schematic capture and circuit design services through high volume production. By offering this broad range of services, the Company can provide design and manufacturing solutions for its customers while reducing time-to-market, time-to-volume and product development costs.
The Company pursues long-term relationships with rapidly growing OEM customers that are technology leaders in their industry segments. The Company's customers include a diverse group of leading OEMs of data communications and telecommunications equipment, instrumentation and industrial equipment, computers and peripherals and business systems and consumer electronics. These customers often use leading technologies, and their product requirements generally drive the advancement of electronic interconnect manufacturing technology. The Company also sells to leading contract manufacturers and electronics distributors that provide access to a large number of OEM customers.
The following table shows, for fiscal 1996, the Company's percentage of its net sales for the principal end-user markets it serves.
Markets June 30, 1996 ------- -------------
Instrumentation/Industrial 35% Data/Telecommunications 33% Computers and Peripheral 22% Business/Consumer 10%
Total Net Sales 100%
The Company markets its products primarily through direct sales personnel located in Washington, Oregon, California, Texas, Minnesota, Alabama, Florida and Massachusetts. The Company has expanded its direct sales force from nine to approximately 25 personnel in 1996. Direct sales efforts in the United States are supplemented by several independent sales organizations, each located in a region with a large geographical territory or large potential account base. Each division of the Company also has an experienced inside sales and customer service organization to support its outside sales personnel and to promote customer relationships.
Praegitzer is pursuing the international markets with the recent executive appointments of two individuals to pursue business development opportunities in Asia and Canada, and eventually to Europe and South America.
The Company is expanding its marketing activities to enhance awareness of its broad range of products and services. In addition to paid advertisements and promotional items, the marketing efforts include business and technical editorials for industry publications, participation in trade shows and industry conferences, customer newsletters and satisfaction surveys as well as scheduled press releases.
CUSTOMERS
The following table sets forth in alphabetical order the Company's largest customers during fiscal 1996:
DATA COMMUNICATIONS AND TELECOMMUNICATIONS
AT&T Motorola, Inc. ADTRAN, Inc. NEC Corporation Digidesign, Inc. Trimble Navigation, LTD. DSC Communications, Inc. Xylan Corporation (1)
INSTRUMENTATION AND INDUSTRIAL
Acuson Corporation (1) Nellcor Puritan Data I/O Corporation Bennet, Inc Hewlett-Packard Spectra-Physics, Inc. Imed Corporation
COMPUTERS AND PERIPHERALS
Compaq Intel Corporation Hewlett-Packard
BUSINESS SYSTEMS AND CONSUMER ELECTRONICS
In Focus Systems, Inc. Xerox Corporation
CONTRACT MANUFACTURERS AND ELECTRONICS DISTRIBUTORS (2)
AMP Packaging Systems, Inc. Micron Technology, Inc. Avnet, Inc. SCI Systems, Inc. Comptronix Corporation Solectron Corporation Marshall Industries, Inc.
(1) Includes sales of Company products sold through contract manufacturers or electronics distributors. (2) Because the Company serves some OEM customers through contract manufacturers and electronics distributors, some sales indicated in this segment are also included under sales in the other listed segments.
For fiscal 1996 and fiscal 1995, sales to Hewlett-Packard accounted for approximately 12.7% and 16.4% of the Company's revenue, respectively, and sales to Compaq accounted for approximately 10.0% and 12.5% of the Company's revenue, respectively. For fiscal 1996 and fiscal 1995, the Company's ten largest customers accounted for approximately 52.7% and 56.4% of the Company's revenue, respectively.
MANUFACTURING AND ENGINEERING PROCESSES
The Company believes its substantial capital investment and its manufacturing expertise in a number of specialized areas have contributed to its position as a leader in the production of complex, rigid multilayer printed circuit boards. To meet its customers' high density requirements, the Company can manufacture printed circuit boards with layer counts in excess of 24 layers, blind and buried vias, buried capacitance and designs using materials as thin as .0015(2). The Company believes its capabilities in the following areas are of special importance:
SCHEMATIC CAPTURE AND DESIGN SERVICES. The Company works closely with its customers to maximize design for manufacturability (DFM) to achieve cost savings. The Company creates state-of-the-art layouts using a broad range of advanced electronic design automation tools that are compatible with its customers' design systems.
MULTIPLE MANUFACTURING FACILITIES. The Company's three manufacturing facilities achieve efficiencies by specializing in different types of production runs. The Company can also shift production among facilities as demand warrants. Multiple facilities also reduce the risk of production delays.
CAD/CAM. Because the Company's state-of-the-art computer aided manufacturing (CAM) system is uniform throughout its three manufacturing facilities, it can reduce tooling and test fixture costs across the manufacturing process since they are incurred only once for each part number, rather than multiple times when a customer uses more than one supplier. The Company can receive CAD data by electronic data transmission and can use its communications system to distribute the data to a CAM system at any of the Company's facilities. The Company's CAM workstations perform design rule checks on the transmitted designs, incorporate any requested customer design modifications and perform manufacturability enhancements that increase printed circuit board quality.
ADVANCED FINISHING CAPABILITIES FOR DENSE PACKAGING DESIGNS. The Company provides a wide assortment of alternative surface finishes, including hot air solder leveling, electroless nickel immersion gold, palladium and Entek-Registered Trademark-, to address the complex requirements for attachment of high pin count interconnect devices such as ball grid array (BGA), Micro-BGA, Flip Chip, tape automated bonding ("TAB") and fine pitch surface mount technology (SMT).
LIQUID INNER LAYER RESIST. The Company has developed process expertise to implement a low cost liquid inner layer resist technology that produces high yields on fine geometries and tolerances, including line and space widths as small as .002(2). The Company is one of the few manufacturers worldwide that has successfully implemented this technology.
OTHER ADVANCED PROCESS CAPABILITIES. The Company's substantial investment in modern facilities and state-of-the-art equipment permits the high yield fabrication of dense multilayer printed circuit boards. The Company uses advanced drilling and plating equipment to produce technologically advanced products with extremely tight tolerance holes as small as .006(2) in diameter to interconnect printed circuit layers, including controlled depth holes for blind vias. The Company produces fine line circuitry in Class 10,000 and Class 1,000 clean room environments. In the past five years the Company has invested in automated optical inspection and electrical test systems, including dual-sided simultaneous testers and in-house fixturing processes, to verify the quality of these high density designs. The Company uses specialty materials such as GETEK-Registered Trademark-, cyanate ester and polyimide for high temperature, fast signal speed and other high-performance requirements.
The Company employs total quality management (TQM) techniques at all facilities. The Company's quality management systems at each of its manufacturing facilities have been ISO 9002
certified since 1994. This certification is based on successful implementation of quality assurance requirements and includes ongoing monitoring of the Company's business and periodic compliance audits conducted by an independent quality assessor. The Company is also Bellcore compliant, a requirement of many telecommunications OEMs.
The Company has received numerous awards recognizing its customer service and manufacturing excellence, including the United States Senate Productivity award in 1990. In 1994 the Company was recognized as the best in its class for responsiveness in the Service Excellence Award contest sponsored by Technology Forecasters, an independent market research firm, and PRINTED CIRCUIT FABRICATION, an industry trade journal, and CTI was recognized as the overall winner in this contest in the medium-sized company category. In 1995 the Company received awards for technology, quality and value in the Service Excellence Award contest. The Company also received customer awards for supplier excellence from Comptronix Corporation, Sequent Computer Systems, Inc., Trimble Navigation Limited, and Verilink Corporation in 1995.
MATERIALS AND SUPPLIES
The Company orders certain materials and supplies based on purchase orders received and seeks to minimize its inventory of other materials that are not identified for use in filling specific orders. For example, at the Company's request, a laminate supplier operates a warehouse near the Company's Dallas facility to store laminates previously shipped by the supplier from California. In addition, the Company works closely with certain of its suppliers to improve the raw materials used in the production of printed circuit boards. For example, the Company and Ciba-Geigy AG developed a liquid inner layer resist system to achieve significant cost and yield advantages, and the Company and LeaRonal, Inc. are developing chemical strategies with respect to plating, finishing processes and solder masks. Raw materials used in the Company's products consist primarily of inorganic chemicals, copper foil, copper-clad epoxy/glass laminate, epoxy glass prepreg and liquid and dry film resist.
To enhance its relationships with suppliers, in 1991 the Company implemented a STAR Supplier program to improve key supplier performance by measuring product quality, on-time delivery, technological support, sales support and other criteria. The Company believes it has realized significant benefits from the program, including lower costs of materials. The cost of various raw materials and supplies is determined in part by annual purchase volumes. As a result of the acquisition of CTI, the Redmond facility in particular has benefited from lower costs for certain materials and supplies associated with the Company's higher purchase volume.
Although the Company uses a select group of suppliers, the materials used to manufacture printed circuit boards generally are readily available from multiple suppliers. The Company has established strategic alliances and stocking arrangements with key suppliers to increase protection against shortages. Although adequate amounts of raw materials have been available in the past, there is no assurance that raw materials will continue to be available in the future.
COMPETITION
The printed circuit board industry is highly fragmented and characterized by intense competition, which the Company believes will increase. The Company competes principally in the market for complex, rigid multilayer printed circuit boards. The Company's competitors include large domestic manufacturers, offshore manufacturers located primarily in Asia, small or regional domestic manufacturers and captive printed circuit board operations of larger OEMs such as IBM. Some of the Company's competitors are
substantially larger and have substantially greater manufacturing, financial and marketing resources than the Company. During periods of recession in the electronics industry, increasingly price sensitive customers may place less value on the Company's competitive strengths, such as quick-turnaround manufacturing and responsive customer service. In addition, OEMs with captive printed circuit board manufacturing operations may seek open market orders to fill excess capacity, which increases price competition. The Company may be at a disadvantage in the lower technology segments of the printed circuit board market when competing with manufacturers with lower cost structures, particularly those with offshore facilities where labor and other costs may be lower. Although capital requirements are a significant barrier to entry for manufacturing technologically complex printed circuit boards, the basic interconnect technology is generally not protected by patents or copyrights. There is no assurance that the Company will be able to compete successfully against present or future competitors or that competitive pressures faced by the Company will not materially adversely affect the Company. The principal independent competitors of the Company are based in the United States and include Advanced Circuits, Inc., Hadco Corporation, Merix Corporation and Zycon Corporation.
The Company believes the primary competitive factors in the market for complex, rigid multilayer printed circuit boards are product quality, responsiveness to customers, on-time delivery, lead time, volume production capabilities, advanced manufacturing technology, engineering skills and price. The Company believes its primary competitive strengths include its ability to provide technologically advanced manufacturing services, respond to customers reliably and effectively and deliver finished products on a quick-turnaround through high volume basis while maintaining superior product quality. During periods of recession in the electronics industry, however, the Company's competitive advantages in these areas may be less significant to customers that may become more price sensitive. Many of the Company's actual and potential competitors have financial, technological and marketing resources significantly greater than those of the Company and may have established relationships with customers or potential customers that afford them a competitive advantage. There is no assurance that the Company will continue to be able to compete effectively in its markets or that competitive pressures will not materially adversely affect the Company.
BACKLOG
The Company's backlog at June 30, 1996 was approximately $16.3 million, compared to a backlog of approximately $15.2 million at June 30, 1995. The Company includes in its backlog all purchase orders scheduled for delivery within the next 12 months, although the majority of the backlog typically is scheduled for delivery within 60 days. For a variety of reasons, including the timing of orders, delivery intervals, customer and product mix and the possibility of customer changes in delivery schedules, backlog as of any particular date may not be a reliable measure of sales for any succeeding period. Cancellation charges generally vary depending upon the time of cancellation and, therefore, a significant portion of the Company's backlog may be subject to cancellation without significant penalty.
ENVIRONMENTAL MATTERS
Printed circuit board manufacturing requires the use of metals and chemicals. Water used in the manufacturing process must be treated to remove metal particles and other contaminates before it can be discharged into the municipal sanitary sewer system. The Company operates and maintains effluent water treatment systems and uses approved laboratory testing procedures at its manufacturing facilities. The Company operates these systems under effluent discharge permits issued by a number of governmental authorities. These permits must be renewed periodically and are subject to revocation in the event of violations of environmental laws. The Company believes the waste treatment systems at its facilities are in compliance with applicable environmental laws in all material respects. There is no assurance, however,
that violations will not occur in the future. The Company also is subject to environmental laws relating to the storage, use and disposal of chemicals, solid waste and other hazardous materials, as well as air quality regulations. Environmental laws could become more stringent over time, and the costs of compliance with more stringent laws could be substantial.
The Company eliminated all ozone depleting compounds from its manufacturing processes in December 1993. In 1993 the Company was also recognized by the United Nations as an environmentally conscious manufacturer. In 1994 the Environmental Protection Agency recognized the Company for its participation in the 33/50 Program, a voluntary initiative aimed at reducing emissions and disposals of toxic substances.
EMPLOYEES
At June 30, 1996, the Company had 1,114 full-time employees, including 950 in manufacturing, 70 in engineering and design services, 35 in marketing and sales, 19 in finance, accounting and information services and 40 in administration. None of the Company's employees is represented by a labor union, and the Company has never experienced a work stoppage, slowdown or strike. The Company believes it maintains good employee relations.
ITEM 1A.

ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, titles with Praegitzer Industries and principal occupations and employment for the last five years of the executive officers of Praegitzer Industries. The officers are appointed by the Board of Directors and serve at its discretion.
ROBERT L. PRAEGITZER founded the Company in 1981 and has been its President, Chief Executive Officer and Chairman of the Board since that time. He was also the founder and President of PDI, which merged into the Company in 1995, and Praegitzer Property Group, the assets of which will be acquired by the Company upon completion of this offering. Mr. Praegitzer is married to Sally Praegitzer, a director and Secretary of the Company.
MATTHEW J. BERGERON joined the Company in 1990, overseeing finance, administration and MIS. He became Senior Vice President in 1993 and a director in November 1995. Prior to joining the Company, Mr. Bergeron was an accountant at Johnson & Shute P.S., a public accounting firm. Mr. Bergeron is a certified public accountant.
ROBERT G. BALDRIDGE joined the Company as Senior Vice President and a director in November 1995 in connection with the merger of CTI into the Company. Prior to the merger, Mr. Baldridge was a co-president of CTI, which he co-founded in 1984.
CHARLES N. HALL joined the Company as Senior Vice President and a director in November 1995 in connection with the merger of CTI into the Company. Prior to the merger, Mr. Hall was a co-president of CTI, which he co-founded in 1984.
DANIEL J. BARNETT joined the Company as Senior Vice President and a director in August 1996 in connection with the merger of Trend into the Company. Prior to the merger, Mr. Barnett was the president of Trend.
SCOTT D. GILBERT joined the Company in August 1990 as Controller. In November 1995 Mr. Gilbert was appointed Vice President of Finance.
LESLIE J. ROWELL joined the Company in 1981 and served as a plating supervisor and later as materials manager. In 1994 Mr. Rowell was appointed Human Resources Manager, and in November 1995 he was appointed Vice President of Human Resources.
MARTY FILSINGER joined the Company in 1982 and served as national sales manager. In November 1995 he was appointed Vice President of Sales.
STEVEN M. SMITH served as operations manager of PDI since June 1988. Upon the merger of PDI into the Company in November 1995, Mr. Smith was appointed Vice President of Operations - Praegitzer Design Division.
WALTER E. BERRY joined the Company in January 1989 and served as operations manager of the Dallas facility until May 1993, when he was appointed director of strategic planning and technology, a position he held until January 1995, when Mr. Berry was reappointed operations manager of the Dallas facility. In November 1995, Mr. Berry was appointed Vice President of Operations - Dallas Division.
ALLEN G. BRODERICK joined the Company in January 1990 as operations co-manager of the White City facility and was appointed Vice President of Business Operations - White City Division in November 1995.
CARLETON THOMPSON joined the Company in January 1990 as operations co-manager of the White City facility and was appointed Vice President of Technical Operations - White City Division in November 1995.
KENNETH O. STOWERS, JR. joined CTI in March 1993 as operations manager and, upon the merger of CTI into the Company in November 1995, was appointed Vice President Operations - Redmond Division. From 1989 to March 1993 Mr. Stowers was technical director and regional sales manager of Multiline Technology, a printed circuit board equipment manufacturer.
ROBERT J. VERSIACKAS joined Trend in 1990 as Vice President of Operations and upon the merger of Trend into the Company in August 1996, was appointed Vice President of Operations - Fremont Division.
GREGORY F. BLOUNT joined the Company in 1986 as corporate quality manager and was appointed Vice President of Corporate Quality in November 1995.
ERIC M. ROGERS joined the Company in 1983 as facilities manager of the Dallas facility and was appointed Vice President of Facilities and Environmental Resources in November 1995.
SALLY PRAEGITZER has served as a director since November 1995. Ms. Praegitzer has served as Secretary of the Company since 1981. Ms. Praegitzer is married to Robert L. Praegitzer, the President, Chief Executive Officer and Chairman of the Board of the Company.
WILLIAM L. HEALEY is the President, Chief Executive Officer and Director of Smartflex Systems, Incorporated, a manufacturer of printed circuit boards. and was appointed to the Board of Directors of the Company in May 1996.
T.L. STEBBINS is the Managing Director of Adams, Harkness & Hill, an investment banking firm, and was appointed to the Board of Directors of the Company in May 1996.
ITEM 2.

ITEM 2. PROPERTIES
The Company owns or leases approximately 301,200 square feet of administrative, design, production, storage, and shipping space in eight facilities. Of this space, 209,000 square feet are dedicated to manufacturing. The Company's facilities are as follows:
___________
The Dallas manufacturing facility specializes in medium to high volume production of complex, rigid multilayer printed circuit boards. The White City facility specializes in medium volume production of complex, rigid multilayer printed circuit boards. The larger Redmond facility and the Fremont facility specialize in quick-turnaround prototype and low volume production. The smaller Redmond facility and the Beaverton, San Diego, San Jose and Irving facilities specialize in schematic capture and circuit design services.
The Dallas warehouse facility is subject to a month-to-month lease with total monthly lease costs of approximately $6,000. The Redmond facility is subject to two leases with total current monthly lease costs of approximately $39,000. Each lease expires in 2000, with an option to renew for an additional five-year period. The Fremont facility is subject to a monthly lease cost of approximately $30,000 which expires in 2002. The lease for the Beaverton facility provides for total current monthly lease costs of approximately $2,300 and expires in 2000. The lease for the San Jose facility provides for total current monthly lease costs of $5,400 and expires in 1998, with a five-year renewal option.
A $5 million expansion program is underway to increase the production capacity of the White City and Redmond facilities. The expansion programs at White City and Redmond are expected to increase production capacity by approximately 50% at both facilities. The Redmond and White City expansion programs are expected to be completed by the end of 1996.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
On April 6, 1993, Karl J. Tadsen, a former employee, filed a complaint in the Circuit Court of the State of Oregon for the County of Jackson against the Company for employment discrimination and wrongful discharge that resulted in a verdict against the Company in the amount of approximately $423,450. The Company appealed the verdict to the Oregon Court of Appeals and its appeal was denied. The Company appealed the verdict to the Oregon Supreme Court, which has accepted the case for review. The entire verdict amount was expensed in fiscal 1994.
On August 10, 1994, Virtual Vision, Inc., a former customer, filed an adversary proceeding in the United States Bankruptcy Court for the Western District of Washington against the Company and another creditor, D. Blech & Company Incorporated ("Blech"), each of which held a security interest in the customer's accounts receivable, inventory and equipment, to determine the extent, validity and priority of each party's security interest. On October 19, 1994 the court entered a default judgment in favor of the Company. Blech appealed the decision to the United States District Court for the Western District of Washington, which reversed the bankruptcy court's denial of a motion to vacate the default judgment. The Company intends to appeal this decision. If the district court's decision is upheld, a trial will be held on the merits, and the Company could be found liable to Blech for up to approximately $500,000, which represents the amount received by the Company as the result of its security interest.
On July 21, 1996, Pacific Communication Sciences, Inc. filed a claim in the San Diego County, California Superior Court against the Company on account of a written guaranty of indebtedness owing by Carillon Corporation in the amount of $500,740 plus interest and attorney fees. The Company believes the claim is without merit and intends to vigorously defend against the claim.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended June 30, 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock commenced trading on the Nasdaq National Market on April 4, 1996 under the symbol "PGTZ". The following table sets forth for the periods indicated, the highest and lowest closing sales prices for the Common Stock, as reported by the Nasdaq National Market.
Fiscal 1996 High Low
Fourth quarter (beginning April 4, 1996) $16.00 $8.125
Fiscal 1997
First quarter (through September 18, 1996) $11.625 $8.125
Based on a broker search performed by Allen Nelson and Company, Inc., there were approximately 2,200 shareholders as of September 20, 1996.
Since incorporation and through April 4, 1996, the Company was treated for state and federal income tax purposes as an S corporation. As a result, the Company's earnings from inception through April 4, 1996 were taxed directly to the Company shareholders rather than to the Company. In fiscal 1996 the Company paid cash dividends to its shareholders in the aggregate amount of $5.2 million, most of which was for the payment of the shareholders' income tax liabilities. No dividends have been paid since April 4, 1996.
The Company expects to retain any earnings to finance the expansion and development of its business and has no plans to pay cash dividends. The payment of dividends is within the discretion of the Company's Board of Directors and will depend on the earnings, capital requirements and operating and financial condition of the Company, among other factors.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of Praegitzer Industries. This historical data should be read in conjunction with the Financial Statements and the related notes thereto in Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's 1996 Annual Report to Stockholders.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to the Company's 1996 Annual Report to Stockholders as listed in Item 14 of Part IV of this Report.
ITEM 9.

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
None
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is included under "Election of Directors" in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders filed or to be filed not later than 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
For information concerning the executive officers of the Company, see "Executive Officers of the Registrant" under Part I of this report.
Information with respect to Section 16(a) of the Securities Exchange Act is included under "Compliance with Section 16(a) of the Exchange Act" in the Company's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders filed or to be filed not later than 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included under "Executive Compensation" in the Company's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders filed or to be filed not later than 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners and management is included under "Voting Securities and Principal Shareholders" in the Company's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders filed or to be filed not later than 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions with management is included under "Certain Relationships and Related Transactions" in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders filed or to be filed not later than 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. INDEX TO FINANCIAL STATEMENTS
1996 Annual Report To Stockholders -------------------
Independent Auditors' Report 16 Balance Sheets as of June 30, 1996 and 1995 17 Statements of Income for the years ended June 30, 1996, June 30, 1995 and June 30, 1994 18 Statements of Cash Flows for the years ended June 30, 1996, June 30, 1995 and June 30, 1994 19 Statements of Shareholders' Equity for the years ended June 30,1996, June 30, 1995 and June 30, 1994 20 Notes to Financial Statements 21
(a)2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since they are either not required or the information is otherwise included.
(a)3. EXHIBITS
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION NUMBER - ------
3(i) Restated Articles of Incorporation (Incorporated by reference to Exhibit 3(i) of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 3(i)(a) Form of Second Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3(i)(a) of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 3(ii) Bylaws (Incorporated by reference to Exhibit 3(ii) of the Company's Registration Statement on Form S-1)
4.1 See Article II of Exhibit 3(i)(a) and Articles II and V of Exhibit 3(ii) 10.1 1995 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.2 Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.3 Form of Nonstatutory Stock Option Agreement (Incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.4 Borrowing Agreement between the Registrant and Seattle-First National Bank dated November 17, 1995 (Incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.5 Loan Agreement between the Registrant and the State of Oregon Department of Energy ("DOE") dated April 13, 1988 (Incorporated by reference to Exhibit 10.6 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.6 Loan Agreement between the Registrant and DOE dated December 3, 1991 (Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.7 Promissory Note from the Registrant to Heller Financial, Inc. ("Heller") dated October 27, 1995 (Incorporated by reference to Exhibit 10.8 of the Company's Registration Statement of Form S-1, Registration No. 333-01228) 10.8 Promissory Note from the Registrant to Heller dated November 30, 1995 (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.9 Lease Agreement between CTI and Seapointe Development, Inc. dated April 1989 and amendments thereto (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.10 Lease between CTI and Redmond Quadrant Associates, LP dated June 15, 1995 (Incorporated by reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.11 Borrowing Agreement between the Registrant and Key Bank dated April 12, 1996 10.12 Lease between PDI and Amberjack, Ltd. dated July 13, 1994 and amendment thereto (Incorporated by reference to Exhibit 10.15 of the Company's Registration Statement on Form S-1, Registration No. 333- 01228) 10.13 Form of Property Transfer Agreement between the Registrant and Robert Praegitzer dated December 19, 1995 (Incorporated by reference to Exhibit 10.16 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.14 Form of Tax Indemnification Agreement (Incorporated by reference to Exhibit 10.17 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.15 Merger Agreement between the Registrant and CTI dated November 17, 1995 (Incorporated by reference to Exhibit 10.18 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.16 Merger Agreement between the Registrant and PDI dated November 14, 1995 (Incorporated by reference to Exhibit 10.19 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.17 Merger Agreement between the Registrant and Trend dated August 16, 1996 (Incorporated by reference to Exhibit 2.1 of the Company's Form 8-K dated August 28, 1996) 10.18 Employment Agreement between the Registrant and Robert L. Praegitzer dated November 17, 1995 (Incorporated by reference to Exhibit 10.20 of the Company's Registration Statement on Form S-1, Registration No. 333-01228)
10.19 Employment Agreement between the Registrant and Robert G. Baldridge dated November 17, 1995 (Incorporated by reference to Exhibit 10.21 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 10.20 Employment Agreement between the Registrant and Charles N. Hall dated November 17, 1995 (Incorporated by reference to Exhibit 10.22 of the Company's Registration Statement on Form S-1, Registration No. 333- 01228) 10.21 Employment Agreement between the Registrant and Daniel J. Barnett dated August 26, 1996 13 Annual Report to Shareholders 16.1 Letter on Changes in Certifying Accountant (Incorporated by reference to Exhibit 16.1 of the Company's Registration Statement on Form S-1, Registration No. 333-01228) 23.1 Consent of Deloitte & Touche LLP 24.1 Power of Attorney (see page 22) 27 Financial Data Schedule (Electronic Filing)
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
PRAEGITZER INDUSTRIES, INC.
BY: ___________________________________ Robert L. Praegitzer Chairman of the Board, President, Chief Executive Officer
Dated: September 25, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below appoints Matthew J. Bergeron as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ----
______________________ Chairman of the Board, September 25, 1996 Robert L. Praegitzer President, Chief Executive Officer
________________________ Senior Vice President, September 25, 1996 Matthew J. Bergeron Chief Financial Officer and Director
________________________ Senior Vice President September 25, 1996 Charles N. Hall Director
________________________ Senior Vice President September 25, 1996 Robert G. Baldridge Director
________________________ Senior Vice President September 25, 1996 Daniel J. Barnett Director
________________________ Director September 25, 1996 T.L. Stebbins
________________________ Director September 25, 1996 William Healey


ITEM 1. BUSINESS
(a) General Development of Business. The Company was formed under the laws of the state of Colorado on July 29, 1988. On October 26, 1989, the Company's Registration Statement on Form S-18 was declared effective by the United States Securities and Exchange Commission ("SEC"). The Company offered 60,000,000 Units, each consisting of one share of no par value Common Stock, one Class A Warrant, one Class B Warrant and Class C Warrant. On February 16, 1990, the Company closed the public offering described in the aforementioned registration statement and received gross proceeds of $300,010 from the sale of 30,001,000 Units. Net proceeds after deducting the costs of the offering were approximately $245,000.
From inception through July, 1991, the Company's primary focus was to attempt to acquire one or more business opportunities. During that period of time, management of the Company evaluated a number of business opportunities and conducted varying degrees of investigation into several business opportunities. While the Company continues to evaluate business opportunities as they present themselves, at this time the Company has not consummated an acquisition or entered into any agreement to do so with any business opportunity.
After considerable research, management of the Company elected to enter into the business of commercial accounts receivable financing as a "factor." This business is the purchase of commercial accounts receivable falling into the three categories of short term obligations rated as commercial accounts, i.e., those companies with Dun & Bradstreet credit ratings commensurate with the credit the Company proposed to extend; oil and gas receivables from similarly rated companies; and government invoices, i.e., the "net 30" invoices due business from federal, state and local government agencies. The use of funds from the Company's offering to enable the Company to enter into the factoring business was approved by the Company's shareholders in July, 1991. In September, 1991, the Company began its factoring business.
The Company is still in the development stage. Through April 1996, the Company purchased approximately $80,000 in accounts receivable in a limited number of transactions with a few customers. In doing so, the Company had limited success in these transactions and volume was insufficient to enable the Company to reach profitability. Therefore, management elected to no longer pursue the business of commercial accounts receivable financing and elected to enter into the business of buying, selling and managing commercial real estate. Through February 4, 1997, the Company has neither purchased nor sold any commercial real estate, but the Chairman of the Board of the Company has entered into a contract to purchase a medical office building on behalf of the Company. There can be no assurance that the transaction to purchase the medical office building will close or that the Company will be active in the investment, purchase and management of commercial real estate. Other business acquisitions or opportunities for the Company continue to be pursued by the management of the Company.
(b) Financial Information About Industry Segments. Not applicable.
(c) Narrative Description of Business.
(i) Products and Services. Until 1997, the Company was in the business of purchasing commercial accounts receivable at a discount from their face value and collecting a fee or "factoring charge" based upon the amount of time any single receivable remained unpaid. The primary marketing of the Company's factoring business was aimed directly at the business community via the existing business contacts of the Company's management and such referrals as are made available to the Company. These included the referral of business from other companies active in factoring and marketing presentations made to businesses and associations. The Company's factoring efforts were confined to the state of Colorado. The Company has elected to no longer pursue the factoring business but has elected to enter the commercial real estate market.
(ii) Status of Product. Not applicable.
(iii) Raw Materials. Not applicable.
(iv) Patents, Trademarks and Licenses. Not applicable.
(v) Seasonality. The management of the Company does not believe that the Company's business is seasonal.
(vi) Working Capital Items. Not applicable.
(vii) Customer Dependence. For the fiscal years ended April 30, 1996 and April 30, 1995, the Company received 69% and 30%, respectively, of its revenue from Zitzner Construction, Inc. and 31% and 35%, respectively, from Richard T. Wehrle, Esq. For the fiscal year ended April 30, 1995, the Company received 35% of its revenue from Reginald H. Martin, CPA. See Note 7 to Notes to Financial Statements.
(viii) Backlog of Orders. Not applicable.
(ix) Government Contracts. Not applicable.
(x) Competition. There is substantial competition in the investment, purchase and management of commercial real estate. The Company is relatively small with respect to other companies active in the commercial real estate market. Many of these competitors have been in business longer than the Company and have materially greater financial and personnel resources available to them than the Company. The Company is, therefore, at a competitive disadvantage when
compared directly to other larger businesses investing in, purchasing and managing commercial real estate. However, the existing business contacts of the Company's management have enhanced the initial efforts of the Company in entering into the commercial real estate market.
In the business of seeking business combinations, the Company is and will continue to be an insignificant participant in this industry for the foreseeable future. There are a large number of established and well financed entities active in business combinations and many are substantially larger and have more resources and many other factors that place them in a better position to finance the efforts required to locate, evaluate and consummate a business combination.
(xi) Research and Development. Not applicable.
(xii) Environmental Regulation. Not applicable.
(xiii) Employees. The Company currently has no employees.
(d) Financial Information About Foreign and Domestic Operations and Export Sales. Not applicable.
ITEM 2.

ITEM 2. PROPERTIES
The Company currently maintains its office in space subleased on a month-to-month basis from David J. Clamage, the Chairman of the Board of the Company, pursuant to terms requiring a monthly rental of approximately $571 plus the payment of direct expenses such as postage and long distance telephone charges.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the Company's fiscal quarters ended June 30, 1996 and June 30, 1995, respectively.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information. The Company's Common Stock has been publicly traded since February, 1990. There currently is no active trading market in the Common Stock.
(b) Holders. The number of shareholders of record of Common Stock of the Company as of January 31, 1997 was 96.
(c) Dividends. The Company has never paid a cash dividend and does not anticipate paying dividends in the foreseeable future. There are no current restrictions on the payment of dividends.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data which is qualified in its entirety by the more detailed financial information and notes thereto appearing elsewhere in this Annual Report.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of April 30, 1996, the Company had approximately $5,534 in cash and $9,501 in notes and other receivables, and had no long term notes receivable or liabilities. This represents a static portfolio of factoring activity and the conversion of several factored receivables to term notes.
The Company will seek to maintain the integrity of these assets to preserve its value as a business engaged in the investment, purchase and management of commercial real estate and seeking other business opportunities. The Company may incur significant capital expenditures in the purchase of commercial real estate. The Chairman of the Board of the Company has entered into a contract to
purchase a medical office building on behalf of the Company. There can be no assurance that the transaction to purchase the medical office building will close. The Company has no other material commitments for capital expenditures nor is it obligated to provide funds to any factoring relationship. As the growth of the Company's commercial real estate business continues and/or a business combination takes place, the Company's liquidity and commitments for capital expenditures could change materially.
Results of Operations
During the year ended April 30, 1996, the Company lost $11,665 on operating revenue of $2,882 and $1,338 in interest income derived from the conversion of several factored accounts receivable to term notes. During the years ended April 30, 1995 and 1994, the Company lost $23,877 and $51,770, respectively on operating revenues of $1,629 and $5,882 for the respective years then ended. Interest revenue for the years ended April 30, 1995 and 1994 was $7,879 and $9,779, respectively. The overall decrease in revenue and expense for the year ended April 30, 1996, as compared to the year ended April 30, 1995, resulted from a decrease in factoring activity and decline in expenses due to limited activity of the Company. The Company has limited working capital to enter into factoring arrangements. The same is applicable when comparing the fiscal years ended April 30, 1995 to April 30, 1994, generally recognizing the overall decrease in activities of the Company.
Net cash used in operations of $5,497 and $15,096 for the fiscal years ended April 30, 1996 and April 30, 1995 were the result of the net loss offset by advances effectively repaid by the affiliated entity, generally through application of rent payments to offset the advance. Net cash used in operations of $23,578 for the year ended April 30, 1994 was the result of a net loss of $51,770 plus non-cash net expense of $38,532 (comprised of amortization and depreciation, contribution of consulting services, and bad debt expense) and increases in operating assets and liabilities totaling $12,406 (primarily an increase in other receivable).
Net cash provided by (used in) investing activities by the Company was $9,796, $11,052 and $22,523 in fiscal years ended April 30, 1996, 1995 and 1994, respectively. The Company used cash in investing activities for capital expenditures of $913 in fiscal 1994, but did not use cash in investing activities for capital expenditures during fiscal 1996 and 1995. The Company used $5,450, $24,121 and $17,935 to purchase factored receivables and received $15,246, $35,173 and $41,371 from maturing factored receivables in fiscal years ended April 30, 1996, 1995 and 1994, respectively.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All financial statements required to be filed hereunder are listed under Item 14 and are attached hereto following the signature page.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a),(b) and (e) Identification and Business Experience of Directors and Executive Officers.
The following table sets forth the name, age and position of each officer and director of the Company:
All directors of the Company will hold office until the next annual meeting of shareholders and until their successors have been elected and qualified or until their death, resignation or removal. The bylaws of the Company provide that the number on the Board of Directors shall be determined by resolution of the Board of Directors which currently provides that there shall be five directors.
The officers of the Company are elected at the annual meeting of the Board of Directors and hold office until their successors are chosen and qualified or until their death, resignation or removal.
The following tabulates information regarding the principal occupations of the directors and executive officers of the Company for at least the last seven years.
David J. Clamage. Mr. Clamage has been the President of Saulsbury Hill Financial, a commercial and government finance sole proprietorship, since 1976. Mr. Clamage has also been a partner in The Advisory Group, a financial consulting practice for businesses and institutional lenders, since April 1988, and the President of TBC Aviation/Logistic Services, a company that provides acquisition and lease/finance services for corporate and transport category aircraft and provides computer software services, since 1976. Mr. Clamage is a member of the Western Association of Equipment Lessors and served as the Regional Chairman for Colorado in 1986, 1987 and 1988.
John Hawley Atkinson, Jr. Mr. Atkinson was the President of Atkinson & Associates, Inc., a business consulting firm, from June 1985 to February 1989, and has been the President of Atkinson & Associates since May 1992. From February 1989 to May 1992, Mr. Atkinson was a Senior Manager or Manager with KPMG Peat Marwick, an accounting firm. Mr. Atkinson has also been a partner of The Advisory Group, a financial consulting practice for businesses and national lenders, since April 1988. From 1982 to 1985, Mr. Atkinson was Executive Vice President and Chief Financial Officer of Velocity Software Corporation, a software development and computer retailing firm. From 1978 to 1982, Mr. Atkinson was a consultant or senior consultant with Peat, Marwick Mitchell & Co., an accounting firm. Mr. Atkinson received a Bachelor of Science degree in General Business from Arizona State University and a Master of Business Administration degree from the University of Chicago. Mr. Atkinson is a Certified Management Accountant.
Dennis C. Haynes. Mr. Haynes is currently an independent consultant in the business of lease financing and has served as a partner in Saulsbury Hill Financial since 1993. Mr. Haynes was Regional Manager for Northern California with Bell Atlantic Tricon, an equipment leasing firm, from 1987 through 1993. From 1982 to 1987, Mr. Haynes was the president of ELF Enterprises, Inc., an equipment leasing firm. From 1979 to 1982, Mr. Haynes was Regional Manager for the equipment leasing division of United California Banks (subsequently First Interstate Banks). Mr. Haynes has also been a partner in The Advisory Group, a financial consulting practice for businesses and institutional lenders, since 1984. Mr. Haynes received a Bachelors degree in business administration from the University of Colorado.
Kenneth R. Shwayder. Mr. Shwayder has been a real estate broker with Keller Williams Realty of Denver since 1994. From 1990 to 1994, Mr. Shwayder was a real estate broker with Re/Max Southeast. From 1987 to 1989, Mr. Shwayder was on the faculty of The Center for Management and Development of the University of Denver. In January 1987, Mr. Shwayder revised the course materials and relocated a program with Denver Public Schools through the Emily Griffith Opportunity School. Mr. Shwayder currently functions as a director and a teacher of that program. From 1980 through 1987, Mr. Shwayder owned and operated the Shwayder Real Estate Academy which trained persons to become real estate salesmen and brokers. Prior thereto, Mr. Shwayder had various real estate teaching and sales positions. Mr. Shwayder is a Colorado licensed real estate broker and has had many positions with various real estate organizations, including memberships in the National Association of Realtors, the Colorado Association of Realtors and the Denver Board of Realtors. Mr. Shwayder is a past President and a past director of the Colorado Real Estate Educators Advisory Committee and a past member of the University of Denver Real Estate Construction Management Advisory Board.
(c) Identification of Certain Significant Employees.
Not applicable.
(d) Family Relationships.
No family relationships exist between any directors or executive officers of the Company that are not more remote than first cousins.
(f) Involvement in Certain Legal Proceedings.
Kenneth Shwayder filed personal bankruptcy in October, 1991. The filing has had and will have no impact whatsoever on the Company. Mr. Shwayder's bankruptcy was necessitated by losses incurred as a result of investing most of his liquid assets in what he believes was a fraudulent "hedge fund."
(g) Promoters and Control Persons.
Not applicable.
(h) Compliance With Section 16(a) of the Securities Exchange Act of 1934.
Not applicable.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
(a)(1) and (2) Cash Compensation and Bonuses and Deferred Compensation.
Since September, 1991, the officers and directors of the Company have foregone any compensation. Consulting fees may be reinstated and salaries may commence in the future. All officers and directors are reimbursed at cost for any accountable expenses incurred on behalf of the Company. During the Company's fiscal years ended April 30, 1996 and April 30, 1995, no services were contributed by members of management.
(b) Summary Compensation Table.
No compensation was paid to officers during the Company's fiscal years ended April 30, 1996 and April 30, 1995.
(c) Option/SAR Grants Table.
Not applicable.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table.
Not applicable.
(e) Long-Term Incentive Plan ("LTIP") Awards Table.
Not applicable.
(f) Defined Benefit or Actuarial Plan Disclosure.
Not applicable.
(g) Compensation of Directors.
No compensation was paid to directors during the fiscal years ended April 30, 1996 and April 30, 1995.
(h) Employment Contracts and Termination of Employment and Change-in- Control Arrangements.
Not applicable.
(i) Report on Repricing of Options/SARs.
Not applicable.
(j) Additional Information with Respect to Compensation Committee Interlocks and Insider Participating in Compensation Decisions.
Not applicable.
(k) Board Compensation Committee Report on Executive Compensation.
Not applicable.
(l) Performance Graph.
Not applicable.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) and (b) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of January 31, 1997, the number of shares of the Company's Common Stock and percentage of the outstanding shares of the Company's Common Stock owned beneficially (1) by each executive officer and director of the Company; (2) by all executive officers and directors of the Company as a group; and (3) by all persons who are known to the Company to own 5% or more of the Company's outstanding Common Stock.
Name and Address of Number of Shares Percentage Beneficial Owner Beneficially Owned of Class - - ------------------- ------------------ ----------
David J. Clamage 6,650,000 11.4% 1614 15th Street, 2nd Floor Denver, Colorado 80202
John Hawley Atkinson, Jr. 1,075,000 1.8% 16002 South 13th Place Phoenix, Arizona 85048
Dennis C. Haynes 2,000,000 3.4% 3064 E. Stella Lane Phoenix, Arizona 85016
Kenneth R. Shwayder 2,500,000 4.3% 7454 East Jefferson Drive Denver, Colorado 80237
All officers and directors 13,150,000 22.5% as a group (4 persons)
Elwood B. Bredell, Jr. 5,000,000 8.5% 1756 Martingale Avenue Las Osos, California 93402
- - -----------------------
(c) Changes in Control.
There are presently no arrangements of any kind which may at a subsequent date result in a change in control of the Company.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) and (b) Transactions With Management and Others and Certain Business Relationships.
The Company has entered into an oral agreement with David J. Clamage, an officer and director of the Company, pursuant to which the Company subleases office space from Mr. Clamage for $571 per month on a month-to-month basis and reimburses Mr. Clamage for expenses incurred by Mr. Clamage on behalf of the Company. The Board of Directors of the Company believes that the terms of this rental arrangement with David J. Clamage are fair and reasonable to the Company and are at least as favorable as those which could have been negotiated with an unaffiliated party.
For the fiscal years ended April 30, 1996 and 1995, the Company has a receivable with a related entity owned by David J. Clamage for payments made on behalf of the related entity for rental and expense obligations incurred. Repayment will be an offset against future rental and administrative expenses which the related entity will pay on the Company's behalf. The amounts owed by that related entity total $5,869 as of April 30, 1996.
(c) Indebtedness of Management.
Not applicable.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements:
The following is a list of financial statements which, along with the Independent Auditor's Report, accompany this Form 10-K.
Balance Sheets as of April 30, 1996 and 1995. Statements of Operations for the years ended April 30, 1996, 1995 and 1994. Statements of Cash Flows for the years ended April 30, 1996, 1995 and 1994. Notes to Financial Statements.
(a)(2) Financial Statement Schedules.
None.
(a)(3) List of Exhibits Required by Item 601 of Regulation S-K.
(3.1) Articles of Incorporation.*
(3.2) Bylaws.*
* These exhibits are incorporated by reference to exhibits filed with the annual report on Form 10-K for the fiscal year ended April 30, 1994.
(b) 8-K Reports:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant duly has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 24, 1997
COMMERCIAL ACQUISITIONS CORPORATION
By /s/ David J. Clamage ----------------------------------------- David J. Clamage, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act f 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Date Name and Title Signature - - ---- -------------- ---------
February 24, 1997 Chief Executive Officer, Principal Executive Officer, /s/ David J. Clamage Chairman of the Board and ---------------------------- Director David J. Clamage
February 24, 1997 President, Treasurer, Principal Financial Officer, Principal /s/ John Hawley Atkinson, Jr. Accounting Officer and ----------------------------- Director John Hawley Atkinson, Jr.
February 24, 1997 /s/ Dennis C. Haynes Director ----------------------------- Dennis C. Haynes
February 24, 1997 /s/ Kenneth R. Shwayder Director and Secretary ----------------------------- Kenneth R. Shwayder
PAGE ---- Independent Auditor's Report...................................................2
Balance Sheets - April 30, 1996 and 1995.......................................3
Statements of Operations- For the Years Ended April 30, 1996, 1995, and 1994 and from July 29, 1988 (Inception) Through April 30, 1996.................4
Statement of Stockholders' Equity - From July 29, 1988 (Inception) Through April 30, 1996............................................................5
Statements of Cash Flows - For the Years Ended April 30, 1996, 1995, and 1994 and from July 29, 1988 (Inception) Through April 30, 1996........6
Notes to Financial Statements..................................................7
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Directors Commercial Acquisitions Corporation Denver, Colorado
We have audited the accompanying balance sheets of Commercial Acquisitions Corporation (a development stage company) as of April 30, 1996 and 1995, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended April 30, 1996 and for the period from July 29, 1988 (inception) to April 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 Commercial Acquisitions Corporation as of April 30, 1996 and 1995, and the results of its opera tions and its cash flows for each of the three years in the period ended April 30, 1996 and for the period from July 29, 1988 (inception) to April 30, 1996, in conformity with generally accepted accounting principles.
/s/ HEIN + ASSOCIATES LLP HEIN + ASSOCIATES LLP
Denver, Colorado September 9, 1996
See accompanying notes to these financial statements.
See accompanying notes to these financial statements.
See accompanying notes to these financial statements.
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Conversion of certain factored receivables into notes is described in Note 2.
See accompanying notes to these financial statements.
COMMERCIAL ACQUISITIONS CORPORATION (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations - Commercial Acquisitions Corporation (the Company) was incorporated in Colorado in 1988, for the purpose of obtaining capital to seek potentially profitable business opportun ities. In 1991, the Company's stockholders authorized the Company to enter into the factoring business, in which the Company purchases accounts receivable with and without recourse at a discount, and earns income based on contractual percentages over the number of days the receivable is outstanding. Although these operations commenced in September 1991, the Company is still considered to be in the development stage, due to the concentration of fees with a relatively few customers and the insignificant amount of fees to date. Most of the Company's factored receivables have been with persons in the legal and accounting profession.
Property and Equipment - Property and equipment are stated at cost. Depreciation is computed by the straight-line method over estimated useful lives ranging generally from three to five years. Maintenance and repairs are charged to expense when incurred. Property replacements and betterments which extend the life of assets are capitalized and subsequently depreciated.
Revenues - Factoring revenue is recognized when collection of such amount can be reasonably assured. When factored receivables are converted to notes, the related factoring income is recognized as interest income over the term of the note.
Income Taxes - Income taxes are accounted for under the liability method, whereby current and deferred tax assets and liabilities are determined based on tax rates and laws enacted as of the balance sheet date. Deferred tax expense represents the change in the deferred tax asset/liability balance.
Net Loss Per Common Share - Net loss per common share is computed based upon the weighted aver age number of shares outstanding. Outstanding warrants were not included as their effect is anti- dilative.
Concentration of Credit Risks - Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly effected by changes in economic or other conditions. The Company has factored receivables with a limited number of customers as identified in Note 7, who are in similar professions.
Use of Estimates - The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires the Company's management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.
COMMERCIAL ACQUISITIONS CORPORATION (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Fair Value of Financial Instruments -The estimated fair value for financial instruments under SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of the Company's notes receivables approximate the carrying recorded amount in the financial statements.
Impact of Recently Issued Accounting Standards - In March 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Impairment of Long-Lived Assets." This new standard is effective for years beginning after December 15, 1995 and would change the Company's method of determining impairment of long-lived assets. Although the Company has not performed a detailed analysis of the impact of this new standard on the Company's financial statements, the Company does not believe that adoption of the new standard will have a material effect on the financial statements.
In October 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Stock-Based Compensation" (FAS 123). The new statement is effective for fiscal years beginning after December 15, 1995. FAS 123 encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on fair value. Companies that do not adopt the fair value accounting rules must disclose the impact of adopting the new method in the notes to the financial statements. Transactions in equity instruments with non-employees for goods or services must be accounted for on the fair value method. The Company currently does not intend to adopt the fair value accounting prescribed by FAS 123, and will be subject only to the disclosure requirements prescribed by FAS 123. However, the Company intends to continue its analysis of FAS 123 and may elect to adopt its provisions in the future.
2. LIQUIDITY AND CONTINUING OPERATIONS:
As of April 30, 1996, the Company has limited working capital and has incurred losses since its inception. The lack of working capital will inhibit future factoring activities or other operations unless additional capital is raised. The Company has no significant continuing obligations and is pursuing potential merger opportunities with other entities, however, no formal arrangements have been entered into. Unless the Company successfully negotiates a merger or raises additional capital, its ability to continue operations will be impaired.
3. NOTES AND OTHER RECEIVABLES:
During 1994, two notes receivables totaling approximately $18,800 with a major customer, who also provided contract services, became impaired due to a disagreement. In fiscal 1995, in an informal agreement, the chairman/director/major stockholder of the Company agreed to assume and pay to the Company the outstanding balances of these notes with payments and interest of 7.5% beginning July 1, 1995. As the notes were considered impaired at April 30, 1994, they have been fully reserved, and the resulting bad debt expense was included in general and administration expense in 1994 for financial statement presentation. No payments have been made on the impaired notes by the major stockholder.
COMMERCIAL ACQUISITIONS CORPORATION (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
4. STOCKHOLDERS' EQUITY:
In 1990, the Company completed the sale of 30,001,000 units at $.01 per unit in its initial public offering. Each unit consists of one share of common stock, one Class A Warrant, one Class B Warrant and one Class C Warrant.
The Class A Warrants are exercisable by the holder to purchase one share of common stock of the Company at an exercise price of $.02 per share. The Class B Warrants are exercisable to purchase one share of Common Stock of the Company at an exercise price of $.04 per share. The Class C Warrants are exercisable to purchase one share of common stock of the Company at an exercise price of $.055 per share. The Company's Board of Directors has extended, and continues to have the right to extend, the exercise periods and has the right to reduce the exercise prices of the Warrants with the Warrants currently set to expire in October 1996. During the exercise period of the Warrants, the Company may call the Warrants for redemption on 20 days prior notice at a redemption price of $.0001 per Warrant.
5. INCOME TAXES:
The Company has net operating loss carryforwards (NOL's) of approximately $248,000, which results in a deferred tax asset of approximately $93,000. A valuation allowance has been established for the full amount of the deferred tax assets. The NOL's expire in the years 2004 through 2009.
6. RELATED PARTY TRANSACTIONS:
The Company rents office space on a month-to-month basis from the chairman/director/major shareholder. Rent expense for the years ended April 30, 1996, 1995, and 1994 was $6,850 for each year.
For the fiscal years ended 1996 and 1995, the Company has a receivable with a related entity owned by the chairman/director/major stockholder, for payments made on behalf of the related entity for rental and expense obligations incurred. Repayment will be an offset against future rental and administrative expenses which the related entity will pay on the Company's behalf. The amounts owed by that related entity total $5,869 as of April 30, 1996.
COMMERCIAL ACQUISITIONS CORPORATION (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
7. MAJOR CUSTOMERS:
Customers accounting for 10% or more of revenues were as follows:
YEARS ENDING APRIL 30, ------------------------------ Customer 1996 1995 1994 -------- ---- ---- ----
A 31% 35% 84% B 69% 30% 16% C -% 35% -%
EXHIBIT INDEX
Exhibit Description Page No. - - ------- ----------- --------
3.1 Articles of Incorporation.* N/A
3.2 Bylaws.* N/A


ITEM 1. Business
Registrant is not engaged in any business operations and has not been so engaged since 1968.
ITEM 2.

ITEM 2. Properties
Registrant does not have an interest in any properties.
ITEM 3.

ITEM 3. Legal Proceedings
None.
PART II.
ITEM 5.

ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters
Increase and Decrease in Outstanding Securities Indebtedness
None.
Changes in Securities and Changes in Securities for Registered Securities
None.
Defaults Upon Senior Securities
None.
Approximate Number of Equity Security Holders
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Number of Record Holders Title of Class As of July 31, 1996 -------------- ---------------------
Common Stock 785
Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 6.

ITEM 6. Selected Financial Data
Five Year Summary of Operations
The numerical note referred to above is included in the Notes to Financial Statements. Registrant has not conducted any business operations during its last five (5) fiscal years, except that during the above fiscal years it has incurred expenses necessary to keep its good standing in its state of residence.
ITEM 7.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Refer to notes and financial statements.
ITEM 8.

ITEM 8. Financial Statements and Supplementary Data
The financial statements of Registrant are attached hereto as Exhibit 14(a).
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PART III.
ITEM 10.

ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11.

ITEM 11. Management Remuneration and Transaction
No officer or director of Registrant receives any remuneration.
ITEM 12.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Leonard M. Ross owns 400,955 shares of the issued and outstanding stock of Registrant which constitutes approximately 89% of such stock. Registrant does not have any subsidiaries.
Indemnification of Directors and Officers
The by-laws of the Corporation provide that the Corporation shall indemnify each of its officers and directors, whether or not then in office, to the extent permitted by the California General Corporation Law against all reasonable expenses actually and necessarily incurred by such individuals in connection with the defense of any litigation to which he or she may have been made a party because he or she is or was a director or officer of the Corporation. Directors and officers have no right to reimbursement in relation to any matter in which such officer or director has been adjudged liable to the Corporation for gross negligence or comparable misconduct in the performance of his or her duties.
PART IV
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ITEM 14.

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The Registrant's financial statements are attached hereto.
(b) No materially important events occurred during the fiscal year of Registrant that would require filing of Form 8-K.
(c) The Exhibits listed in the accompanying Exhibit Index on Page 12 are filed as part of this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duty authorized.
(Registrant) JILCO INDUSTRIES, INC.
By: /s/ Martha J. Kretzmer ----------------------------- Martha J. Kretzmer President
Date: August 7, 1997
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JILCO INDUSTRIES, INC.
List of Financial Statements
The following financial statements of Jilco Industries, Inc. are included in Item 8:
Balance sheets -- Years ended July 31, 1996 and 1995.
Statements of operations -- Years ended July 31, 1996, 1995 and 1994.
Statements of cash flows -- Years ended July 31, 1996, 1995 and 1994.
Notes to financial statements -- July 31, 1996.
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JILCO INDUSTRIES, INC. BALANCE SHEETS AS OF JULY 31, (UNAUDITED)
ASSETS
The accompanying notes are an integral part of these financial statements.
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JILCO INDUSTRIES, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE YEARS ENDED JULY 31, (UNAUDITED)
The accompanying notes are an integral part of these financial statements.
- 8 -
JILCO INDUSTRIES, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 31,
The accompanying notes are an integral part of these financial statements.
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NOTE 1 - THE COMPANY
The Company has been inactive since April 2, 1968 when it was discharged from bankruptcy under its previous name of Sportways, Inc. The expenses the Company has incurred represent those necessary to keep the Company in good standing in its state of residence.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of the Company's financial instruments, including cash, accounts payable, and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts shown as notes payable also approximate fair value because current interest rates offered to the Company for notes payable of similar maturities are substantially the same.
Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2 - LOSS PER SHARE
All per share computations are based on 449,991 shares outstanding. There are no common stock equivalents.
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NOTE 3 - NOTES PAYABLE TO SHAREHOLDER
Notes payable to shareholder consist of the following:
(A) Accrued interest at 9% per annum. Principal and accrued interest due on demand.
(B) Accrued interest at 11% per annum. Principal and accrued interest due on demand.
(C) Accrued interest at 10% per annum. Principal and accrued interest due on demand.
NOTE 4 - NOTE PAYABLE
Revolving demand note due on demand or December 31, 1997. Interest accrues at 8% per annum and is payable on December 31 of each year.
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EXHIBIT INDEX
- 12 -