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) July 18, 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, Building G West, Boardman, Ohio 44512
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (330) 965-9910
--------------------
Not applicable
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
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THE CURRENT REPORT ON FORM 8-K OF THE REGISTRANT PREVIOUSLY FILED ON
AUGUST 4, 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 Agreement and Plan of Reorganization dated July 18, 1997 pursuant to which
American Architectural Products Corporation acquired all of the issued and
outstanding common stock of Thermetic Glass, Inc. are filed herewith:
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Pro forma condensed consolidated balance sheet as of June 30,
1997, and pro forma condensed consolidated statements of
operations for the six months ended June 30, 1997 and for the
year ended December 31, 1996
THERMETIC GLASS, INC.
Audited balance sheet as of December 31, 1996, and audited
statements of operations and accumulated deficit and of cash
flows for the year ended December 31, 1996
Unaudited balance sheet as of June 30, 1997, and unaudited
statements of operations and accumulated deficit and of cash
flows for the six months ended June 30, 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: October 3, 1997 /s/ Frank J. Amedia
-------------------
Frank J. Amedia
President & Chief Executive Officer
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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 AAPC consolidated financial statements from the acquisition
date.
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On July 18, 1997, AAPC acquired the stock of Thermetic Glass, Inc. (Thermetic).
The acquisition was accounted for as a purchase, with the purchase price
allocated among the assets acquired and the liabilities assumed based on their
estimated fair market values. The results of Thermetic's operations will be
included in the consolidated financial statements of AAPC from the acquisition
date.
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 VynL into AAP; and the acquisitions
of Western and Thermetic (collectively the Transactions). The pro forma
condensed consolidated balance sheet as of June 30, 1997 assumes that the
acquisition of Thermetic took place on that date and is based on the historical
consolidated balance sheets of AAPC and Thermetic at that date. The pro forma
condensed consolidated statement of operations for the six months ended June
30, 1997 is based on the historical statement of operations of AAPC for that
period, of Western for the period January 1, 1997 to March 14, 1997, and
Thermetic for the six months ended June 30, 1997. 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, 1996, 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, of Western for the fiscal year ended October 31, 1996,
and of Thermetic for the year ended December 31, 1996. The pro forma condensed
consolidated statements 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, Western and Thermetic.
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AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1997
(Unaudited; dollars in thousands)
AAPC
AAPC Thermetic Adjustments Pro Forma
---- --------- ----------- ---------
ASSETS
Cash $387 $0 ($100)(1) $287
Accounts receivable 8,589 697 9,286
Inventories 12,404 1,013 13,417
Prepaid expenses and other
current assets 2,391 55 2,446
---------------------------------------------- -----------
Total current assets 23,771 1,765 (100) 25,436
---------------------------------------------- -----------
Property, plant and equipment, net 16,946 1,661 589 (1) 19,196
Cost in excess of net assets acquired 6,676 4,088 (1) 10,764
Other 627 7 634
---------------------------------------------- -----------
Total assets $48,020 $3,433 $4,577 $56,030
============================================== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current portion of long term debt and
capital lease obligations $3,586 $1,583 $915 $6,084
Revolving line of credit 9,660 9,660
Accounts payable 5,937 229 6,166
Accrued expenses 4,024 9 192 (1) 4,225
Current portion of warranty obligations 1,100 1,100
---------------------------------------------- -----------
Total current liabilities 24,307 1,821 1,107 27,235
---------------------------------------------- -----------
Long term debt and capital lease
obligations, less current portion 14,910 1,636 2,500 (1) 19,046
Warranty obligations, less current portion 3,287 3,287
Other 658 6 664
---------------------------------------------- -----------
Total liabilities 43,162 3,463 3,607 50,232
---------------------------------------------- -----------
Shareholders' equity 4,858 (30) 970 (1) 5,798
---------------------------------------------- -----------
Total liabilities and shareholders' equity $48,020 $3,433 $4,577 $56,030
============================================== ===========
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
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AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Six months ended June 30, 1997
(Unaudited; dollars in thousands except per share amounts)
Western AAPC Thermetic
Jan 1, 1997 Pro Forma six months
to before ended
AAPC Mar 14, 1997 Adjustments Thermetic Jun 30, 1997 Adjustments
---- ------------ ----------- --------- ------------ -----------
Sales $39,610 $1,382 $40,992 $2,305
Cost of sales 31,014 939 8 (8) 31,961 1,937 (27)(11)
---------------------------------- -------------------------------------
Gross profit 8,596 443 (8) 9,031 368 27
Selling, general and administrative 7,113 257 26 (8)(10) 7,396 340 104 (11)(13)
---------------------------------- -------------------------------------
Operating income (loss) 1,483 186 (34) 1,635 28 (77)
Interest expense 1,396 2 66 (9) 1,464 131 130 (12)
Other (income) expense - net (41) 2 (39) 0
---------------------------------- -------------------------------------
Income (loss) before income taxes 128 182 (100) 210 (103) (207)
Income tax provision (benefit) 47 0 37 (6) 84 0 (84)(6)
---------------------------------- -------------------------------------
Income (loss) from continuing operations 81 182 (137) 126 (103) (123)
Dividends on Preferred Stock (71) (71)
---------------------------------- -------------------------------------
Income (loss) available to common shares $10 $182 ($137) $55 ($103) ($123)
================================== =====================================
Earnings (loss) per common share $0.00
===========
Weighted average number of
shares outstanding 12,667,785 (7) 384,000 (7)
=========== ========
AAPC
Pro Forma
---------
Sales $43,297
Cost of sales 33,871
-----------
Gross profit 9,426
Selling, general and administrative 7,840
-----------
Operating income (loss) 1,587
Interest expense 1,725
Other (income) expense - net (39)
-----------
Income (loss) before income taxes (100)
Income tax provision (benefit) 0
-----------
Income (loss) from continuing operations (100)
Dividends on Preferred Stock (71)
-----------
Income (loss) available to common shares ($171)
===========
Earnings (loss) per common share ($0.01)
===========
Weighted average number of
shares outstanding 13,051,785 (7)
===========
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
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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 Western
7 months 8 months Inception Jan 1, 1996 year
ended ended through through ended
Jun 30, 1996 Aug 29, 1996 Dec 31, 1996 Dec 18, 1996 Oct 31, 1996 Adjustments
------------ ------------ ------------ ------------ ------------ -----------
Sales $1,916 $39,971 $25,249 $3,263 $5,821
Cost of sales 1,597 33,833 19,027 3,218 3,868 (1,655)(2)(3)(8)
-----------------------------------------------------------------------------
Gross profit 319 6,138 6,222 45 1,953 1,655
Selling, general and administrative 350 7,090 4,060 1,333 1,304 333 (2)(3)(4)(8)(10)
-----------------------------------------------------------------------------
Operating income (loss) (31) (952) 2,162 (1,288) 649 1,322
Interest expense 0 1,143 756 374 16 609 (5)(9)
Other (income) expense - net (19) 499 5 (195) (8)
-----------------------------------------------------------------------------
Income (loss) before income taxes (12) (2,594) 1,401 (1,467) 641 713
Income tax provision (benefit) (908) 640 (411) 228 451 (6)
-----------------------------------------------------------------------------
Income (loss) from continuing
operations ($12) ($1,686) $761 ($1,056) $413 $262
=============================================================================
Earnings (loss) per share
Weighted average number of
shares outstanding
AAPC Thermetic
Pro Forma year
before ended AAPC
Thermetic Dec. 31, 1996 Adjustments Pro Forma
--------- ------------- ----------- ---------
Sales $76,220 $4,967 $81,187
Cost of sales 59,888 $4,190 ($27)(11) 64,051
------------------------------------------------ -----------
Gross profit 16,332 777 27 17,136
Selling, general and administrative 14,470 $823 $207 (11)(13) 15,500
------------------------------------------------ -----------
Operating income (loss) 1,862 (46) (180) 1,636
Interest expense 2,898 $243 $260 (12) 3,401
Other (income) expense - net 282 ($24) 258
------------------------------------------------ -----------
Income (loss) before income taxes (1,318) (265) (440) (2,023)
Income tax provision (benefit) 0 $677 ($677)(6) 0
------------------------------------------------ -----------
Income (loss) from continuing
operations ($1,318) ($942) $237 ($2,023)
================================================ ===========
Earnings (loss) per share ($0.10) ($0.16)
========== ===========
Weighted average number of
shares outstanding 12,581,053 (7) 384,000 (7) 12,965,053 (7)
=========== ======== ===========
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
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AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; dollars in thousands)
(1) To reflect the acquisition of Thermetic 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 Thermetic are as follows:
Components of purchase price:
AAPC common shares issued $ 940
AAPC common shares to be issued 915
AAPC convertible debentures 2,500
Cash 100
------
Total purchase price 4,455
Allocation of purchase price:
Elimination of Stockholders' equity
of acquired company 30
Increase in property, plant and equipment (589)
Adjustment to accrued expenses including
estimate of acquisition costs 192
------
Cost in excess of net assets acquired $4,088
======
(2) Adjustments for AAP depreciation and amortization (relating to 8 Months
Eagle & Taylor and Mallyclad & Vyn-L for periods prior ended
to their acquisitions and inclusion in the Company's Aug 29, 1996
consolidated financial statements): ------------
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)
=======
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(3) Adjustments for Forte depreciation and amortization (relating
to Forte for period prior to acquisition and inclusion in Jan. 1 to
the Company's consolidated financial statements): Dec. 18, 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.
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(5) Adjustments to AAP interest expense 8 months
(relating to Eagle & Taylor and Mallyclad ended
& Vyn-L for periods prior to their acquisition Aug 29,1996
and included in the Company's consolidated -----------
financial statements):
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) In situations in which income before income taxes is presented,
adjustment is made to provide for income taxes at the effective rate
of 40 percent in determining proforma income from continuing
operations. In situations in which a loss before income taxes is
presented, adjustment is made 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.
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(7) The number of shares outstanding at June 30, 1997 is used as the weighted
average number of shares outstanding for purposes of computing the pro
forma earnings (loss) per share. This number of shares is increased for
the number of shares issued in connection with the acquisition of
Thermetic.
(8) Adjustments for Western depreciation and amortization Year Year
(relating to Western for the periods prior to its acquisition and ended ended
inclusion in the Company's consolidated financial statements): Oct 31,1996 Mar 14, 1997
----------- ------------
Depreciation and amortization in cost of sales based
on asset bases resulting from acquisition $75 $22
Eliminate depreciation and amortization in historical
cost of sales (48) (14)
--- ---
Incremental cost of sales for depreciation and amortization $27 $8
=== ===
Depreciation and amortization in selling, general and
administrative expenses based on asset bases resulting
from acquisition $25 $7
Eliminate depreciation and amortization in historical selling,
general and administrative expenses (21) (6)
--- ---
Incremental selling, general and administrative expenses $4 $1
=== ===
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(9) Adjustments to AAPC interest expense
relating to acquisition of Western: Year Jan 1, 1997
ended to
Oct 31,1996 Mar 14, 1997
----------- ------------
Interest on Western term loans at
weighted average rate of 10.8% $100 $32
Interest on Western revolving credit
facility at rate of 9.5% 40 12
Interest on AAPC unsecured
promissory notes at rate of 10% 70 20
Increase in amortization of
debt issue costs 17 4
Eliminate historical interest (16) (2)
---- ---
$211 $66
==== ===
(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. Under terms of
the employment agreement and based on the operating results of Western
for the period January 1, 1997 to March 31, 1997, selling, general and
administrative expenses for that period would have included additional
compensation to the President of approximately $25,000.
13
(11) Adjustments for Thermetic depreciation and amortization
(relating to Thermetic for the periods prior to its Year Six months
acquisition and inclusion in the Company's consolidated ended ended
financial statements): Dec 31, 1996 June 30, 1997
------------ -------------
Depreciation and amortization in cost of sales based
on asset bases resulting from acquisition $178 $89
Eliminate depreciation and amortization in historical
cost of sales (205) (116)
---- ----
Incremental cost of sales for depreciation and amortization ($27) ($27)
==== ====
Depreciation and amortization in selling, general and
administrative expenses based on asset bases resulting
from acquisition $163 $82
Eliminate depreciation and amortization in historical selling,
general and administrative expenses 0 0
---- ---
Incremental selling, general and administrative expenses $163 $82
==== ===
(12) Interest on additional debt relating to the Year Six months
Thermetic acquisition: ended ended
Dec. 31, 1996 June 30, 1997
------------- -------------
$2,500,000 Convertible Debenture, interest payable
quarterly at 7%, principal due in 5 equal annual
installments commencing July 17, 1999 $175 $88
Interest expense relating to the obligation to issue additional
shares of common stock on the first anniversary date
of the Thermetic acquisition 85 42
---- ----
Total incremental interest expense $260 $130
==== ====
(13) In connection with the AAPC acquisition of Thermetic, AAPC entered into
an employment agreement with the President of Thermetic. Under the terms
of the employment agreement and based on the operating results of
Thermetic for the year ended December 31, 1996 and for the six months
ended June 30, 1997, selling, general and administrative expenses would
have included additional compensation to the President of approximately
$44,000 and $22,000, respectively.
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INDEPENDENT AUDITOR'S REPORT
Board of Directors
Thermetic Glass Inc.
Toluca, Illinois
We have audited the accompanying balance sheet of Thermetic Glass Inc. as of
December 31, 1996, and the related statements of operations and accumulated
deficit 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 that our audit 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 Thermetic Glass Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Clifton Gunderson L.L.C.
Peoria, Illinois
October 3, 1997
1
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THERMETIC GLASS INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
Cash $ 4,948
-----------
Accounts and notes receivable 710,025
Less allowance for doubtful accounts (116,000)
-----------
594,025
-----------
Inventories 846,008
Prepaid expenses 67,143
-----------
Total current assets 1,512,124
-----------
PROPERTY, PLANT, AND EQUIPMENT 2,757,213
Less accumulated depreciation and amortization (1,086,926)
-----------
Net property, plant, and equipment 1,670,287
-----------
OTHER ASSETS
Patent and trademark (less accumulated amortization
of $27,721) 7,940
Returnable containers and racks 97,645
Other 2,000
-----------
Total other assets 107,585
-----------
$ 3,289,996
===========
2
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to employees $ 6,000
Notes payable to bank 460,000
Note payable to shareholder 350,000
Notes payable to others 60,000
Current installments of long-term debt 157,026
Current installments of obligations under
capital leases 13,547
Accounts payable 173,518
Accrued expenses:
Interest 49,661
Salaries 51,141
Payroll and sales tax 31,234
-----------
Total current liabilities 1,352,127
LONG-TERM DEBT, excluding current installments 1,774,338
OBLIGATIONS UNDER CAPITAL LEASES, excluding
current installments 92,409
-----------
Total liabilities 3,218,874
-----------
STOCKHOLDERS' EQUITY
Common stock of no par value; authorized 500,000
shares; issued and outstanding 1,000 shares 1,000
Additional paid-in capital 2,300,000
Accumulated deficit (2,229,878)
-----------
Total stockholders' equity 71,122
-----------
$ 3,289,996
===========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to financial statements.
3
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THERMETIC GLASS INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED DECEMBER 31, 1996
NET SALES $ 4,966,666
COST OF GOODS SOLD 4,190,384
-----------
Gross profit 776,282
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 822,785
-----------
Operating loss (46,503)
-----------
OTHER INCOME (EXPENSE)
Interest income 7,799
Interest expense (242,861)
Miscellaneous income 16,350
-----------
(218,712)
-----------
Loss before income taxes (265,215)
INCOME TAXES 677,124
-----------
NET LOSS (942,339)
ACCUMULATED DEFICIT AT BEGINNING
OF YEAR (1,287,539)
-----------
ACCUMULATED DEFICIT AT END OF YEAR $(2,229,878)
===========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to financial statements.
4
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THERMETIC GLASS INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(942,339)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 204,517
Increase in allowance for doubtful accounts 31,159
Increase in accounts and notes receivable (53,538)
Increase in inventories (119,684)
Decrease in prepaid expenses 9,901
Increase in returnable containers and racks (13,200)
Increase in accounts payable 63,343
Increase in accrued expenses 41,388
Deferred tax expense 677,124
---------
Net cash used in operating activities (101,329)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (97,933)
---------
Net cash used in investing activities (97,933)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 750,000
Principal payments on notes payable (390,000)
Proceeds from issuance of long-term debt 30,000
Principal payments on long-term debt (191,464)
Principal payments on obligations under capital leases (3,938)
---------
Net cash provided by financing activities 194,598
---------
NET DECREASE IN CASH (4,664)
CASH AT BEGINNING OF YEAR 9,612
---------
CASH AT END OF YEAR $ 4,948
=========
ADDITIONAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 227,259
=========
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred when the Company
entered into leases for new trucks $ 109,894
=========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to financial statements.
5
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THERMETIC GLASS INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1996
DESCRIPTION OF BUSINESS
Thermetic Glass Inc. is a manufacturer of vinyl windows and doors with sales
concentrated mainly in the Midwest and is dependent upon the Midwest economy.
The Company's products are readily available, and the Company is not dependent
on a single supplier or only a few suppliers.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
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.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation on plant and
equipment is calculated using straight-line or accelerated methods over the
estimated useful lives of the assets. Equipment held under capital leases is
amortized straight line over the shorter of the lease term or estimated useful
life of the asset.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced by a
valuation allowance if it is deemed more likely than not that some or all of
the deferred tax assets will not be realized.
6
20
THERMETIC GLASS INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1996
PATENT AND TRADEMARK
These assets are amortized over the estimated useful lives of the respective
assets using the straight-line method.
This information is an integral part of the accompanying financial statements.
7
21
THERMETIC GLASS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment at December 31, 1996 follows:
Land $ 10,800
Buildings 1,030,516
Machinery and equipment 1,407,256
Vehicles 243,533
Furniture and fixtures 65,108
----------
$2,757,213
==========
Depreciation expense for 1996 was $202,297.
Certain property and equipment is pledged as collateral on notes payable and
long-term debt as described in Notes 2 and 5 to the financial statements.
NOTE 2 - NOTES PAYABLE TO BANK
Notes payable to bank consist of the following at December 31, 1996:
9 percent, $200,000 limit, due September 20, 1997; secured by $90,000
certificate of deposit of major shareholder and $110,000 personal
guarantee of major shareholder. $200,000
Prime plus 1 percent, $100,000 limit, due April 3, 1997; secured by
accounts receivable, machinery and equipment, and inventories. 100,000
Prime plus 1 percent, $250,000 limit, due August 9, 1997; secured by
accounts receivable, machinery and equipment, and inventories. 160,000
--------
$460,000
========
8
22
THERMETIC GLASS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - NOTES PAYABLE TO SHAREHOLDERS
Unsecured notes payable at December 31, 1996 are payable to shareholders and
are due as follows:
10 percent, due on demand $100,000
8.5 percent, due on demand 100,000
8.5 percent, due on demand 50,000
8.5 percent, due on demand 50,000
8.5 percent, due on demand 50,000
--------
$350,000
========
NOTE 4 - NOTES PAYABLE TO EMPLOYEES AND OTHERS
Other unsecured notes payable at December 31, 1996 are payable to employees and
others and are due as follows:
8 percent, due on demand $ 6,000
8 percent, due on demand 20,000
8 percent, due on demand 20,000
7 percent, due on demand 20,000
-------
$66,000
=======
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
Note payable to major shareholder, secured by substantially
all assets of the Company, is due as follows:
June 1, 2024 at 8.5 percent, payable in monthly
installments of $12,920, including interest. $ 1,644,154
8.0 percent note payable to bank, due in monthly installments of $3,393,
including interest, through January, 1997; secured by
accounts receivable, machinery and equipment, and inventories. 3,353
7.5 percent note payable to bank, due in monthly installments of $2,302,
including interest, through March, 1997; secured by accounts
receivable, machinery and equipment, and inventories. 6,841
9
23
THERMETIC GLASS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 - LONG-TERM DEBT (CONTINUED)
6.5 percent note payable to bank, due in monthly installments of
$651, including interest, through November, 1997; secured by a van. $ 6,936
7.5 percent note payable to bank, due in monthly installments of $1,377,
including interest, through January, 1998; secured by
accounts receivable, machinery and equipment, and inventories. 17,125
8.25 percent note payable to bank, due in monthly installments of $1,229,
including interest, through June, 1998; secured by accounts
receivable, machinery and equipment, and inventories. 20,774
7.5 percent note payable to bank, due in monthly installments of $1,607,
including interest, through September, 1998; secured by accounts receivable,
machinery and equipment, and inventories.
31,520
8.25 percent note payable to bank, due in monthly installments of $945,
including interest, through September 1999; secured by accounts
receivable, machinery and equipment, and inventories. 27,775
Prime plus 1 percent note payable to bank, due in monthly installments of
$6,614, including interest, through July, 1999; secured by accounts receivable,
machinery and equipment, and inventories. 172,886
----------
Total long-term debt 1,931,364
Less current installments 157,026
----------
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS $1,774,338
==========
The aggregate maturities of long-term debt for each of the years subsequent to
December 31, 1996 are as follows:
Year ending December 31:
1997 $ 157,026
1998 122,045
1999 59,449
2000 20,212
2001 21,999
2002-2024 1,550,633
----------
$1,931,364
==========
10
24
THERMETIC GLASS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 6 - INCOME TAXES
Income tax expense amounted to $677,124 for 1996. The actual expense for 1996
differs from the "expected" tax expense (computed by applying the applicable
U.S. federal corporate income tax rate of 34 percent to loss before income
taxes) as follows:
Computed "expected" tax benefit $(90,173)
Surtax 3,489
State income taxes, net of federal benefit 67,851
Nondeductible expenses 5,091
Prior year underaccrual 59,894
Change in beginning of the year balance of the
valuation allowance for deferred tax assets
allocated to income tax expense 634,058
Other, net (3,086)
--------
$677,124
========
The components of income tax expense for 1996 are as follows:
CURRENT DEFERRED TOTAL
------- -------- -----
Federal $ -- $574,320 $574,320
State -- 102,804 102,804
---------- -------- --------
$ -- $677,124 $677,124
========== ======== ========
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at December 31, 1996 are presented below:
Deferred tax assets:
Net operating loss carryforwards $ 841,153
Vacation accrual 7,243
Accounts receivable, due to allowance for doubtful
accounts 46,400
Interest not currently deductible 11,678
Inventories, due to additional costs inventoried for
tax purposes 15,493
Depreciation 14,855
---------
Total gross deferred tax assets 936,822
Less valuation allowance (935,087)
---------
Net deferred tax assets 1,735
Deferred tax liabilities:
Capital leases (1,735)
---------
NET DEFERRED TAX ASSETS $ --
=========
11
25
THERMETIC GLASS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 6 - INCOME TAXES (CONTINUED)
The valuation allowance for deferred tax assets as of January 1, 1996 was
$97,320. The net change in the valuation allowance for the year ended December
31, 1996 was an increase of $837,767.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. In order to
fully realize the deferred tax asset, the Company will need to generate future
taxable income of approximately $2,400,000. The Company has recorded a
valuation allowance to reflect the estimated amount of deferred tax assets
which may not be realized due to the expiration of net operating loss
carryforwards and other deferred assets that may not be realized.
At December 31, 1996, the Company has the following net operating loss and
investment tax credit carryforwards for income tax purposes:
YEAR OF NET OPERATING INVESTMENT
EXPIRATION LOSSES TAX CREDITS
---------- ------ -----------
1998 $ -- $1,430
1999 -- 195
2000 175,160 --
2001 52,793 --
2002 811,470 --
2003 450,222 --
2004 204,743 --
2006 1,513 --
2010 174,295 --
2011 232,687 --
======== ======
12
26
THERMETIC GLASS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company is obligated to repurchase outstanding common stock from its
minority shareholders in the event of death or other termination of employment
with the Company. The terms of the agreement indicate the repurchase price per
share to be the greater of $1.00 per share or the book value per share ($71 at
December 31, 1996). (The minority shareholders own 180 shares of the
outstanding common stock.) In the event the Company cannot finance the
repurchase, the Company's major shareholder is obligated to purchase the
minority shareholder's common stock.
NOTE 8 - CAPITAL LEASES
In November and May of 1996, the Company entered into two capital leases for
vehicles that expire in November 2001 and May 2002, respectively. At December
31, 1996, the gross amounts recorded under the capital leases were as follows:
Vehicles $151,113
Less accumulated amortization 49,495
--------
$101,618
========
Amortization for the year ended December 31, 1996 was $8,276 and is included in
depreciation expense.
The present value of future minimum capital lease payments, exclusive of
certain assessments which are also payable by the Company, as of December 31,
1996 is:
1997 $ 31,920
1998 31,920
1999 31,920
2000 31,920
2001 30,572
2002 6,560
--------
Total minimum lease payments 164,812
Less amount representing interest 58,856
--------
Present value of net minimum capital lease payments 105,956
Less current installments of obligations under capital leases 13,547
--------
OBLIGATIONS UNDER CAPITAL LEASES, EXCLUDING CURRENT INSTALLMENTS $ 92,409
========
13
27
THERMETIC GLASS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 9 - BUSINESS AND CREDIT CONCENTRATIONS
Most of the Company's customers are located in the Midwest. The Company had no
customers that accounted for more than 10 percent of the Company's sales in
1996. The Company had thirty-four customers in 1996, each of whom had an
accounts receivable balance which exceeded 5 percent of the Company's total
stockholders' equity at December 31, 1996. Accounts receivable from these
customers totaled approximately $564,000 at December 31, 1996.
NOTE 10 - 401(k) PLAN
In 1996, the Company adopted a 401(k) plan covering all employees who have
completed one year of service by January 1 and attained age 21. The Company
matches 25 percent of the employees' contributions up to 6 percent of their
income. The expense for 1996 was $10,317.
NOTE 11 - SUBSEQUENT EVENT
On July 18, 1997, all of the stock of Thermetic Glass Inc. was acquired by
American Architectural Products Corporation (AAPC) in exchange for cash, AAPC
stock, convertible secured debentures payable to the seller, and the assumption
of certain liabilities. The accompanying financial statements do not give
effect to this transaction.
14
28
THERMETIC GLASS, INC.
BALANCE SHEET
UNAUDITED
JUNE 30, DECEMBER 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash $0 $4,948
Accounts receivable 697,358 594,025
Inventory 1,013,359 846,008
Prepaid expenses and other current assets 54,817 67,143
---------- ----------
Total Current Assets 1,765,534 1,512,124
NONCURRENT ASSETS:
Deposits and other noncurrent assets 110,445 107,585
Property, plant & equipment, net 1,557,892 1,670,287
---------- ----------
Total Noncurrent Assets 1,668,337 1,777,872
---------- ----------
Total Assets $3,433,871 $3,289,996
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - current $1,442,761 $1,046,573
Accounts payable 380,368 305,554
---------- ----------
Total Current Liabilities 1,823,129 1,352,127
LONG-TERM LIABILITIES:
Notes payable - long-term 1,636,482 1,866,747
Other liabilities 6,074 0
---------- ----------
Total Long-Term Liabilities 1,642,556 1,866,747
---------- ----------
Total Liabilities 3,465,685 3,218,874
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock of no par value; authorized 500,000
shares; issued and outstanding 1,000 shares 1,000 1,000
Additional paid in capital 2,300,000 2,300,000
Accumulated deficit (2,332,814) (2,229,878)
---------- ----------
Total Stockholders' Equity (Deficit) (31,814) 71,122
---------- ----------
Total Liabilities & Stockholders' Equity (Deficit) $3,433,871 $3,289,996
========== ==========
The accompanying notes are an integral part of the financial statements.
29
THERMETIC GLASS, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
UNAUDITED
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
---- ----
Sales $2,305,029 $1,888,909
Cost of Sales 1,936,713 1,664,490
----------- -----------
Gross Profit 368,316 224,419
Selling Expenses 179,227 170,690
General and Administrative Expenses 161,356 205,499
----------- -----------
Income from Operations 27,733 (151,770)
Other Income (Expense):
Interest Income (Expense), net (126,315) (116,484)
Other Expense (4,354) 22,448
----------- -----------
(130,669) (94,036)
----------- -----------
Income (loss) Before Income Taxes (102,936) (245,806)
Provision for Income Taxes 0 0
----------- -----------
Net Income (loss) (102,936) (245,806)
Accumulated Deficit, beginning (2,229,878) (1,287,539)
----------- -----------
Accumulated Deficit, ending ($2,332,814) ($1,533,345)
=========== ===========
The accompanying notes are an integral part of the financial statements.
30
THERMETIC GLASS, INC.
STATEMENT OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($102,936) ($245,806)
Adjustment to reconcile net income (loss) to cash from
operating activities-
Depreciation 114,750 108,254
Amortization 1,110 1,110
Changes in operating assets and liabilities:
Accounts receivable, net (103,333) (38,903)
Inventories (167,351) 12,832
Prepaid expenses and other current assets 12,326 22,904
Accounts payable 74,814 23,117
Deferred tax asset 0 0
Other 3,214 4,785
--------- ---------
Net cash from operating activities (167,406) (111,707)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,465) (111,755)
--------- ---------
Net cash from investing activities (3,465) (111,755)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from additional debt 165,923 213,850
--------- ---------
Net cash from financing activities 165,923 213,850
Net (Decrease) Increase in Cash (4,948) (9,612)
Cash, Beginning Balance 4,948 9,612
--------- ---------
Cash, Ending Balance $0 $0
========= =========
The accompanying notes are an integral part of the financial statements.
31
THERMETIC GLASS
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements include the accounts of
Thermetic Glass, Inc. 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 June 30, 1997 are not necessarily indicative of the results for a
full year. These unaudited interim financial statements should be read in
conjunction with the financial statements and notes thereto of the Company for
the year ended December 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 June 30, 1997, inventory consisted of the following:
Raw materials $904,929
Work in process 0
Finished goods 108,430
----------
$1,013,359
==========
3. Subsequent Event
On July 18, 1997, all of the stock of Thermetic Glass, Inc. was acquired by
American Architectural Products Corporation (AAPC) in exchange for cash, AAPC
stock, convertible secured debentures payable to the seller, and the assumption
of certain liabilities. The accompanying financial statements do not give
effect to this transaction.