1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 14, 1997
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-25634 87-0365268
- ----------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
755 Boardman-Canfield Road
South Bridge Executive Center
Building G West
Boardman, Ohio 44512
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 965-9910
---------------------
Forte Computer Easy, Inc
1350 Albert Street
Youngstown, Ohio 44505
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
2
THE CURRENT REPORT ON FORM 8-K OF THE REGISTRANT PREVIOUSLY FILED
ON MARCH 31, 1997 IS HEREBY AMENDED TO ADD THERETO THE FOLLOWING
FINANCIAL STATEMENTS AND EXHIBITS:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements relating to the transaction contemplated by
the Share Purchase Agreement dated March 14, 1997 pursuant to which Forte
Computer Easy, Inc. (now known as American Architectural Products Corporation)
acquired all the issued and outstanding common stock of Western Insulated Glass,
Co. are filed herewith:
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Pro forma condensed consolidated balance sheet as of December 31,
1996, and pro forma condensed consolidated statement of operations for the year
ended December 31, 1996
WESTERN INSULATED GLASS, CO.
Audited balance sheet as of October 31, 1996, and audited
statements of operations and retained earnings and of cash flows for the year
ended October 31, 1996
Unaudited balance sheet as of January 31, 1997, and unaudited statements of
operations and retained earnings and of cash flows for the three months ended
January 31, 1997 and 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Date: September 8, 1997 /s/ Frank J. Amedia
-----------------------------
Frank J. Amedia
President
3
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On October 25, 1996, Forte Computer Easy, Inc. (Forte) entered into an Agreement
and Plan of Reorganization (the Agreement) with AAP Holdings, Inc. (AAPH). The
closing of transactions contemplated by the Agreement occurred on December 18,
1996. Pursuant to the Agreement, Forte acquired all of the issued and
outstanding shares of capital stock of American Architectural Products, Inc.
(AAP) in exchange for 1,000,000 shares of Series A Convertible Preferred Stock
of Forte (the Series A Preferred). Under terms of the Agreement and the Series A
Preferred, AAPH obtained 60% of the voting control of Forte.
Because AAPH obtained a controlling interest in Forte and due to the relative
size of AAP compared to Forte, this transaction was accounted for as an
acquisition of Forte by AAP (a reverse acquisition in which AAP is considered
the acquirer for accounting purposes). Accordingly, the financial statements of
the registrant for the periods prior to December 18, 1996 are those of AAP, the
assets and liabilities of Forte were recorded at fair values, and the results of
Forte's operations from the date of acquisition (December 18, 1996) were
included in the consolidated financial statements. Forte subsequently changed
its name to American Architectural Products Corporation (AAPC).
AAP was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired two companies, Eagle Window and Door, Inc. (Eagle) and
Taylor Building Products Company (Taylor), from MascoTech, Inc. on August 29,
1996. The acquisition of Eagle and Taylor was accounted for as a purchase, with
the assets acquired and liabilities assumed recorded at fair values and the
results of the Eagle and Taylor operations included in AAP's consolidated
financial statements from the date of acquisition.
Additionally, AAPH's ultimate controlling stockholder, an individual, acquired
100% ownership of two other companies, Mallyclad Corp. (Mallyclad) and Vyn-L
Corp. (Vyn-L) on June 25, 1996. On December 18, 1996, Mallyclad and Vyn-L were
merged into AAP in connection with the Forte transaction. Since this individual
was ultimately the controlling shareholder of AAP, Mallyclad and Vyn-L, the
merger was considered a transaction among companies under common control and,
accordingly, was accounted for at historic cost (ie: the individual's June 25
acquisition cost) in a manner similar to a pooling of interests. The operating
results of Mallyclad and Vyn-L from the date of their acquisition by AAPH's
majority stockholder are included in the consolidated financial statements.
On March 14, 1997, AAPC acquired the stock of Western Insulated Glass, Co.
(Western). The acquisition was accounted for as a purchase, with the purchase
price allocated among the assets acquired and liabilities assumed based on their
estimated fair market values. The results of Western's operations will be
included in the consolidated financial statements of AAPC from the acquisition
date.
4
The accompanying pro forma condensed consolidating financial statements
illustrate the effects of the Forte acquisition of AAP; the AAP acquisition of
Eagle and Taylor; the acquisition of Mallyclad and Vyn-L by the AAPH majority
stockholder and the merger of Mallyclad and Vyn-L into AAP; and the acquisition
of Western (collectively the Transactions). The pro forma condensed consolidated
balance sheet as of December 31, 1996 assumes that the acquisition of Western
took place on that date and is based on the historical consolidated balance
sheet of AAPC at that date and the historical balance sheet of Western at
October 31, 1996. The pro forma condensed consolidated statement of operations
for the year ended December 31, 1996 is based on the historical statements of
operations of Mallyclad and Vyn-L for the seven months ended June 30, 1996, of
Eagle and Taylor for the eight months ended August 29, 1997, of AAPC for the
period from June 19, 1996 (date of inception) to December 31, 1996, of Forte for
the period from January 1, 1996 to December 18, 1996, and Western for the year
ended October 31, 1996. The pro forma condensed consolidated statement of
operations assumes that the Transactions occurred on January 1, 1996.
The pro forma condensed consolidated financial statements may not be indicative
of the actual results of the Transactions. In particular, the pro forma
condensed consolidated financial statements are based on management's current
estimate of the allocations of purchase price, the actual allocation of which
may differ. Further, as discussed in the Notes to the pro forma condensed
consolidated financial statements, the pro forma condensed consolidated
statements of operations reflect only those adjustments that are "factually
supportable" as defined in the rules of the Securities and Exchange Commission.
Accordingly, they do not reflect certain changes in the operating cost structure
of the companies acquired which were made in connection with the Transactions.
The accompanying pro forma condensed consolidated financial statements should be
read in conjunction with the historical financial statements of AAPC, Forte,
Eagle and Taylor, Mallyclad and Vyn-L, and Western.
5
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited; dollars in thousands)
AAPC
AAPC Western Adjustments Pro Forma
---- ------- ----------- ---------
ASSETS
------
Cash $964 $296 $ 1,260
Accounts receivable 6,303 665 6,968
Inventories 10,971 865 11,836
Prepaid expenses and other
current assets 1,128 18 1,146
---------------------------------------- -------
Total current assets 19,366 1,844 0 21,210
---------------------------------------- -------
Property, plant and equipment - net 16,139 205 907 (1) 17,251
Cost in excess of net assets acquired 6,850 6,850
Other 389 36 35 (1) 460
---------------------------------------- -------
Total assets $42,744 $2,085 $942 $45,771
======================================== =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Current portion of long term debt and
capital lease obligations $1,986 $1,246 ($342)(1) $ 2,890
Revolving line of credit 5,477 419 (1) 5,896
Accounts payable 5,767 259 6,026
Accrued expenses 3,398 616 (296)(1) 3,718
Current portion of warranty obligations 1,100 1,100
Other current liabilities 1,462 150 (1) 1,612
---------------------------------------- -------
Total current liabilities 19,190 2,121 (69) 21,242
---------------------------------------- -------
Long term debt and capital lease
obligations, less current portion 15,546 975 (1) 16,521
Warranty obligations, less current portion 3,281 3,281
Other 450 450
---------------------------------------- -------
Total liabilities 38,467 2,121 906 41,494
---------------------------------------- -------
Shareholders' equity 4,277 (36) 36 (1) 4,277
---------------------------------------- -------
Total liabilities and shareholders' equity $42,744 $2,085 $942 $45,771
======================================== =======
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
6
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1996
(Unaudited; dollars in thousands except per share amounts)
Mallyclad Eagle &
& Vyn-L Taylor AAPC Forte
7 months 8 months Inception Jan 1, 1996
ended ended through through
Jun 30, 1996 Aug 29, 1996 Dec 31, 1996 Dec 18, 1996 Adjustments
------------ ------------ ------------ ------------ -----------
Sales $1,916 $39,971 $25,249 $3,263
Cost of sales 1,597 33,833 19,027 3,218 (1,682)(2)(3)
------------------------------------------------------------------------------
Gross profit 319 6,138 6,222 45 1,682
Selling, general and administrative 350 7,090 4,060 1,333 244 (2)(3)(4)
------------------------------------------------------------------------------
Operating income (loss) (31) (952) 2,162 (1,288) 1,438
Interest expense 0 1,143 756 374 398 (5)
Other (income) expense - net (19) 499 5 (195)
------------------------------------------------------------------------------
Income (loss) before income taxes (12) (2,594) 1,401 (1,467) 1,040
Income tax provision (benefit) (908) 640 (411) 679 (6)
------------------------------------------------------------------------------
Income (loss) from continuing operations ($12) ($1,686) $761 ($1,056) $361
==============================================================================
Earnings (loss) per share
Weighted average number of
shares outstanding
AAPC Western
Pro Forma year
before ended AAPC
Western Oct 31, 1996 Adjustments Pro Forma
------- ------------ ----------- ---------
Sales $70,399 $5,821 $76,220
Cost of sales 55,993 3,868 27 (8) 59,888
--------------------------------------- ------------
Gross profit 14,406 1,953 (27) 16,332
Selling, general and administrative 13,077 1,304 89 (8)(10) 14,470
--------------------------------------- ------------
Operating income (loss) 1,329 649 (116) 1,862
Interest expense 2,671 16 211 (9) 2,898
Other (income) expense - net 290 (8) 282
--------------------------------------- ------------
Income (loss) before income taxes (1,632) 641 (327) (1,318)
Income tax provision (benefit) 0 228 (228)(6) 0
--------------------------------------- ------------
Income (loss) from continuing operations ($1,632) $413 ($99) ($1,318)
======================================= ============
Earnings (loss) per share ($0.13) ($0.10)
=========== ============
Weighted average number of
shares outstanding 12,581,053 (7) 12,581,053 (7)
=========== ============
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
7
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED; DOLLARS IN THOUSANDS)
(1) To reflect the acquisition of Western and the allocation of purchase
price on the basis of fair values of the assets acquired and liabilities
assumed. The components of the purchase price and the related allocation to the
assets and liabilities of Western are as follows:
Components of purchase price:
Cash from Bank Revolving Line of Credit $ 419
Cash from Bank Term Debt 1,100
Unsecured Promissory Notes from Seller 779
Cash from affiliate 150
---------
Total purchase price 2,448
=========
Allocation of purchase price:
Elimination of stockholders' equity of acquired company 36
Elimination of debt of acquired company (1,246)
Elimination of accrued interest relating to
debt of acquired company (340)
Adjustment to other assets including deferred
finance costs incurred in acquisition (35)
Increase in property, plant and equipment (907)
Adjustment to accrued expenses including
estimate of acquisition costs 44
---------
Total purchase price allocated ($2,448)
=========
8
8 Months ended
(2) Adjustments for AAP depreciation and amortization: Aug 29, 1996
--------------
Depreciation and amortization in cost of sales based
on asset bases resulting from acquisitions $347
Eliminate depreciation and amortization in historical
cost of sales (2,334)
---------
Reduction in cost of sales for depreciation and amortization ($1,987)
=========
Depreciation and amortization in selling, general and
administrative expenses based on asset bases resulting
from acquisitions $294
Eliminate depreciation and amortization in historical selling,
general and administrative expenses (364)
---------
Reduction in selling, general and administrative expenses ($70)
=========
Year ended
(3) Adjustments for FCEI depreciation and amortization: Dec 31, 1996
------------
Depreciation and amortization in cost of sales based
on asset bases resulting from acquisitions $552
Eliminate depreciation and amortization in historical
cost of sales (247)
---------
Incremental cost of sales for depreciation and amortization $305
=========
Depreciation and amortization in selling, general and
administrative expenses based on asset bases resulting
from acquisitions $116
Eliminate depreciation and amortization in historical selling,
general and administrative expenses (52)
---------
Incremental selling, general and administrative expenses $64
=========
(4) In connection with the December 18, 1996 transaction, the Company entered
into an agreement whereby an annual management fee in the amount of
$250,000 is to be paid by AAP to AAP Holdings, Inc.
9
8 months
ended
(5) Adjustments to AAP interest expense: Aug 29,1996
-----------
Interest on term loans at
rate of 9.75% $202
Interest on revolving credit facility
at rate of 9.75% 729
Interest on subordinated note at
rate of 10% 533
Increase in amortization of
debt issue costs 77
Eliminate historical interest (1,143)
--------
$398
========
(6) To eliminate tax provision (benefit) in determining pro forma loss from
continuing operations. Management believes that sufficient evidence would
not have existed to recognize a deferred tax asset relating to these
losses.
(7) Pursuant to an Agreement and Plan of Reorganization dated October 25,
1996, between Forte and AAPH, Forte acquired all of the issued and
outstanding shares of capital stock of AAP in exchange for 1,000,000
shares of the Series A Convertible Preferred Stock of Forte (the Series A
Preferred). The Series A Preferred was convertible into an aggregate
number of shares of the common stock of Forte equal to 60 percent of the
issued and outstanding shares of Forte on the closing date (subject to
certain adjustments set forth in the Agreement). Because the Series A
Preferred (a) voted the same as if it were converted to common stock, (b)
was only labeled as preferred stock because sufficient shares of common
stock were not authorized to enable Forte to issue common stock to AAPH,
(c) carries no preferential dividend or liquidation rights, and (d) was
subsequently converted into common shares pursuant to a plan when the
number of authorized shares of common stock was increased, it is
considered in substance to be common stock and is treated as such for
purposes of computing the pro forma loss per share.
The Series A Preferred was converted to common stock on April 1, 1997.
Additionally, a 10-for-1 reverse stock split of the Company's common
stock was effected on that date. The computation of pro forma net loss
per share gives retroactive recognition to the conversion and reverse
stock split.
10
Year
ended
(8) Adjustments for Western depreciation and amortization: Oct 31,1996
-----------
Depreciation and amortization in cost of sales based
on asset bases resulting from acquisition $75
Eliminate depreciation and amortization in historical
cost of sales (48)
--------
Incremental cost of sales for depreciation and amortization $27
========
Depreciation and amortization in selling, general and
administrative expenses based on asset bases resulting
from acquisition $25
Eliminate depreciation and amortization in historical selling,
general and administrative expenses (21)
--------
Incremental selling, general and administrative expenses $4
========
Year
ended
Oct 31,1996
-----------
(9) Adjustments to AAPC interest expense
relating to acquisition of Western:
Interest on Western term loans at
weighted average rate of 10.8% $100
Interest on Western revolving credit facility
at rate of 9.5% 40
Interest on AAPC unsecured
promissory notes at rate of 10% 70
Increase in amortization of
debt issue costs 17
Eliminate historical interest (16)
--------
$211
========
(10) In connection with the AAPC acquisition of Western, AAPC entered
into an employment agreement with the President of Western. Under
the terms of the employment agreement and based on the operating
results of Western for the fiscal year ended October 31, 1996,
selling, general and administrative expenses for that period
would have included additional compensation to the President of
approximately $85,000.
11
WESTERN INSULATED GLASS, CO.
FINANCIAL STATEMENTS
For The Year Ended
October 31, 1996
12
INDEPENDENT AUDITORS' REPORT
To The Stockholder and Board of Directors of
Western Insulated Glass, Co.
We have audited the accompanying balance sheet of Western Insulated Glass, Co.
as of October 31, 1996, and the related statements of operations and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 our audit of the financial statements provides 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 Western Insulated Glass, Co. as
of October 31, 1996, in conformity with generally accepted accounting
principles.
/s/ SEMPLE & COOPER, LLP
Certified Public Accountants
Phoenix, Arizona
June 3, 1997
13
WESTERN INSULATED GLASS, CO.
BALANCE SHEET
October 31, 1996
ASSETS
Current Assets:
Cash (Note 2) $ 296,387
Accounts receivable, less allowance for
doubtful accounts of $2,105 (Note 6) 664,163
Inventory (Note 1) 865,392
Prepaid expenses 18,112
----------
Total Current Assets 1,844,054
----------
Property, Plant and Equipment: (Note 1)
Building improvements 185,899
Furniture and fixtures 185,036
Machinery and equipment 546,075
Vehicles 240,840
----------
1,157,850
Less: accumulated depreciation (953,367)
----------
204,483
----------
Other Assets:
Deposits 12,171
Cash surrender value of life insurance, net
(Note 5) 23,819
----------
35,990
----------
Total Assets $2,084,527
==========
The Accompanying Notes are an Integral Part
of the Financial Statements
-2-
14
WESTERN INSULATED GLASS, CO.
BALANCE SHEET (Continued)
October 31, 1996
LIABILITIES
Current Liabilities:
Notes payable - related parties (Note 3) $1,245,707
Accounts payable (Note 6) 259,194
Accrued expenses 25,797
Accrued payroll 230,207
Interest payable (Note 3) 339,857
Income taxes payable (Note 1) 20,584
----------
Total Current Liabilities 2,121,346
----------
Commitments and Contingencies (Notes 3 and 7) --
Stockholder's Equity:
Preferred stock, no par value; 2,000,000
shares authorized, 1,620,000 shares issued,
none outstanding 426,099
Common stock, no par value; 1,000,000
shares authorized, 180,000 shares issued
and 90,000 shares outstanding 47,344
Retained earnings 1,199,738
----------
1,673,181
Less: treasury stock, at cost (Notes 3 and 4) (1,710,000)
----------
Total Stockholder's Equity (36,819)
----------
Total Liabilities and Stockholder's Equity $2,084,527
==========
The Accompanying Notes are an Integral Part
of the Financial Statements
-3-
15
WESTERN INSULATED GLASS, CO.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
For The Year Ended October 31, 1996
Sales $5,820,726
Cost of Sales 3,867,411
----------
Gross Profit 1,953,315
Selling, General and Administrative Expenses 1,304,102
----------
Income from Operations 649,213
----------
Other Income (Expense):
Interest income 7,871
Interest expense (15,985)
----------
(8,114)
----------
Income before Income Taxes 641,099
Provision for Income Taxes 228,584
----------
Net Income 412,515
Retained Earnings at October 31, 1995 787,223
----------
Retained Earnings at October 31, 1996 $1,199,738
==========
The Accompanying Notes are an Integral Part
of the Financial Statements
-4-
16
WESTERN INSULATED GLASS, CO.
STATEMENT OF CASH FLOWS
For The Year Ended October 31, 1996
Increase in Cash:
Cash flows from operating activities:
Cash received from customers $5,710,401
Cash paid to suppliers and employees (5,003,650)
Interest paid (15,985)
Income taxes paid (208,000)
Interest received 7,871
----------
Net cash provided by operating
activities 490,637
----------
Cash flows for investing activities:
Purchase of property and equipment (106,821)
----------
Net cash used by investing
activities (106,821)
----------
Cash flows for financing activities:
Repayment of notes payable - related parties (222,338)
----------
Net cash used by financing
activities (222,338)
----------
Net increase in cash 161,478
Cash at beginning of year 134,909
----------
Cash at end of year $ 296,387
==========
The Accompanying Notes are an Integral Part
of the Financial Statements
-5-
17
WESTERN INSULATED GLASS, CO.
STATEMENT OF CASH FLOWS (Continued)
For The Year Ended October 31, 1996
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net Income $ 412,515
----------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 68,933
Changes in Assets and Liabilities:
Accounts receivable (110,325)
Inventory (40,237)
Prepaid expenses (5,413)
Deposits 5,935
Cash surrender value of life insurance (4,048)
Accounts payable (34,055)
Accrued expenses 3,911
Accrued payroll 172,837
Income taxes payable 20,584
----------
78,122
----------
Net Cash Provided by Operating Activities $ 490,637
==========
The Accompanying Notes are an Integral Part
of the Financial Statements
-6-
18
WESTERN INSULATED GLASS, CO.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Use of Estimates:
Operations:
Western Insulated Glass, Co. (the Company) is a Corporation duly formed
and organized under the laws of Arizona. The Company is engaged in the
manufacturing and retail sales of luxury residential and light
commercial windows.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventory:
Inventory is stated at the lower of cost or market. Inventory costs are
stated at last invoice cost, which approximates cost using the first-in,
first-out method. At October 31, 1996, inventory consisted of the
following:
Raw materials $ 744,073
Work in process 61,411
Finished goods 59,908
----------
$ 865,392
==========
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost. Depreciation is
provided for using the accelerated and straight-line methods over the
estimated useful lives of the assets. Maintenance and repairs that
neither materially add to the value of the property nor appreciably
prolong its life are charged to expense as incurred. Betterments or
renewals are capitalized when incurred. For the year ended October 31,
1996, depreciation expense was $68,933.
-7-
19
WESTERN INSULATED GLASS, CO.
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies and Use of Estimates:
(Continued)
Income Taxes:
For financial accounting and tax reporting purposes, the Company reports
revenues and costs on the accrual basis of accounting. The financial
reporting basis of the Company's assets and liabilities approximates the
tax basis. Accordingly, no deferred taxes are recorded for the future
tax consequences of differences in bases, and income tax expense is
computed by applying statutory rates to pretax earnings.
2. Concentration of Credit Risk:
The Company maintains cash at three (3) financial institutions. Deposits
not to exceed $100,000 at each financial institution are insured by the
Federal Deposit Insurance Corporation. At October 31, 1996, the Company
had uninsured cash in the amount of $254,171.
3. Related Party Transactions:
Notes Payable - Related Parties:
At October 31, 1996, notes payable - related parties consist of the
following:
10% note payable to the stockholder, due
on demand; secured by treasury stock. $1,215,707
Two (2) 6% notes payable to an officer of the
Company, with interest only payments due
quarterly, principal due October, 1997. 30,000
----------
$1,245,707
==========
At October 31, 1996, accrued interest payable of $339,857 relates to the
aforementioned notes payable - related parties.
-8-
20
WESTERN INSULATED GLASS, CO.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Related Party Transactions: (Continued)
Lease Commitment:
The Company is currently leasing its manufacturing facility in Phoenix,
Arizona from an officer of the Company under a non-cancellable operating
lease. Rent expense under the lease agreement for the year ended October
31, 1996, was $192,000.
A schedule of future minimum lease payments due under the
non-cancellable operating lease agreement at October 31, 1996, is as
follows:
Year Amount
---- ------
1997 $ 192,000
1998 192,000
1999 192,000
2000 192,000
2001 192,000
Subsequent 80,000
----------
$1,040,000
==========
4. Treasury Stock:
Treasury stock is shown at cost and consists of 1,620,000 shares of
preferred stock, and 90,000 shares of common stock.
5. Cash Surrender Value of Life Insurance:
The Company is a beneficiary of insurance policies on the life of a
corporate officer. The cash surrender value at October 31, 1996 is net
of 8% notes payable in the amount of $50,000, which were collateralized
by the cash value of the policies.
6. Economic Dependency:
The Company purchases a substantial portion of its product from three
(3) suppliers. During the year ended October 31, 1996, purchases from
these suppliers approximated seventy percent (70%) of total purchases.
At October 31, 1996, amounts due to the suppliers included in accounts
payable were $161,554.
During the year ended October 31, 1996, sales to a single customer were
approximately ten percent (10%) of total sales. At October 31, 1996, the
amount due from the customer, included in accounts receivable was
$94,234.
-9-
21
WESTERN INSULATED GLASS, CO.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Commitments and Contingencies:
Leases:
The Company leases various pieces of equipment under non-cancellable
operating lease agreements expiring through June, 2000. Rent expense
under the operating lease agreements for the year ended October 31, 1996
was $18,270.
As of October 31, 1996, a schedule of future minimum lease payments due
under the non-cancellable operating lease agreements, is as follows:
Year Ending
December 31, Amount
------------ ------
1997 $ 16,608
1998 15,696
1999 12,960
2000 7,940
----------
$ 53,204
==========
Employment Contract:
The Company has entered into an employment contract with its president
through March, 2000 that provides for a minimum annual salary and
incentives based on the Company's attainment of specified levels of
earnings. In connection with the acquisition of the Company by American
Architectural Products Corporation (See Note 9), this agreement was
revised so that as of October 31, 1996, the total future commitment,
excluding incentives, was $285,000.
8. Employee Benefit Plan:
The Company maintains a 401(K) plan for all eligible employees, which
includes provisions for Company matching contributions. Expense relating
to the Company matching contributions was $10,538 for the year ended
October 31, 1996.
9. Subsequent Events:
On March 14, 1997, one hundred percent (100%) of the Company's
outstanding stock was acquired by American Architectural Products
Corporation, in exchange for cash and the assumption of certain
liabilities, in the approximate amount of $2,400,000. The financial
statements do not give effect to this transaction.
-10-
22
WESTERN INSULATED GLASS, CO.
BALANCE SHEET
UNAUDITED
JANUARY 31, OCTOBER 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash $265,150 $296,387
Accounts receivable 579,818 664,163
Inventory 824,402 865,392
Prepaid expenses and other current assets 13,585 18,112
------------- -------------
Total Current Assets 1,682,955 1,844,054
NONCURRENT ASSETS:
Deposits and other noncurrent assets 16,920 12,171
Cash surrender value of life insurance, net 24,711 23,819
Property, plant & equipment, net 211,207 204,483
------------- -------------
Total Noncurrent Assets 252,838 240,473
------------- -------------
Total Assets $1,935,793 $2,084,527
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - related parties $1,245,707 $1,245,707
Accounts payable 221,594 259,194
Accrued expenses 1,800 25,797
Accrued payroll 55,804 230,207
Interest payable 340,857 339,857
Income taxes payable 47,166 20,584
------------- -------------
Total Current Liabilities 1,912,928 2,121,346
STOCKHOLDER'S EQUITY:
Preferred stock, no par value; 2,000,000 shares
authorized, 1,620,000 shares issued, none outstanding 426,099 426,099
Common stock, no par value; 1,000,000 shares
authorized, 180,000 shares issued and 90,000
shares outstanding 47,344 47,344
Retained earnings 1,259,422 1,199,738
------------- -------------
1,732,865 1,673,181
Less: Treasury stock at cost (1,710,000) (1,710,000)
------------- -------------
Total Stockholder's Equity 22,865 (36,819)
------------- -------------
Total Liabilities & Stockholder's Equity $1,935,793 $2,084,527
============= =============
The accompanying notes are an integral part of the financial statements.
23
WESTERN INSULATED GLASS, CO.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
UNAUDITED
THREE MONTHS ENDED
JANUARY 31, JANUARY 31,
1997 1996
---- ----
Sales $1,331,549 $1,259,184
Cost of Sales 950,287 899,839
-------------- -----------
Gross Profit 381,262 359,345
Selling, General and Administrative Expenses 283,281 290,099
-------------- -----------
Income from Operations 97,981 69,246
Other Income (Expense):
Interest Income (Expense), net 1,119 (4,088)
Other Expense (5,843) (6,827)
-------------- -----------
(4,724) (10,915)
-------------- -----------
Income Before Income Taxes 93,257 58,331
Provision for Income Taxes 33,573 20,999
-------------- -----------
Net Income 59,684 37,332
Retained earnings, beginning 1,199,738 787,223
-------------- -----------
Retained earnings, ending $1,259,422 $824,555
============== ===========
The accompanying notes are an integral part of the financial statements.
24
WESTERN INSULATED GLASS, CO.
STATEMENT OF CASH FLOWS
UNAUDITED
THREE MONTHS ENDED
JANUARY 31, JANUARY 31,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $59,684 $37,332
Adjustment to reconcile net income to cash from
operating activities-
Depreciation 17,674 11,892
Changes in operating assets and liabilities:
Accounts receivable, net 84,345 50,999
Inventories 40,990 (31,693)
Prepaid expenses and other current assets 4,527 0
Accounts payable (36,600) (49,508)
Accrued expenses (198,400) (16,869)
Income taxes payable 26,582 20,995
Other (5,641) 14,614
-------- --------
Net cash from operating activities (6,839) 37,762
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (24,398) (16,095)
-------- --------
Net cash from investing activities (24,398) (16,095)
Net (Decrease) Increase in Cash (31,237) 21,667
Cash, Beginning Balance 296,387 154,680
-------- --------
Cash, Ending Balance $265,150 $176,347
======== ========
The accompanying notes are an integral part of the financial statements.
25
WESTERN INSULATED GLASS, CO.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements include the accounts of Western
Insulated Glass, Co. In the opinion of management, all adjustments (consisting
only of recurring adjustments) necessary for a fair presentation of financial
position and results of operations have been made. Operating results for the
period ended January 31, 1997 are not necessarily indicative of the results for
a full fiscal year. These unaudited interim financial statements should be read
in conjunction with the financial statements and notes thereto of the Company
for the fiscal year ended October 31, 1996.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from these estimates.
2. Inventories
At January 31, 1997, inventory consisted of the following:
Raw materials $708,821
Work in process 58,533
Finished goods 57,048
--------
$824,402
========
3. Subsequent event
On March 14, 1997, all of the Company's outstanding stock was acquired by
American Architectural Products Corporation in exchange for cash and the
assumption of certain liabilities. The accompanying financial statements do not
give effect to this transaction.