1
FORM 10-Q/A
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For
the transition period from ____________________to_____________________.
Commission file number: 0-25634
----------
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(Exact name of business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.) 87-0365268
755 BOARDMAN-CANFIELD ROAD, BOARDMAN, OHIO 44512
(Address of principal executive offices)
(330) 965-9910
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, $.001 par value, 13,073,864 shares outstanding at September 30,
1997
2
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
FORM 10-Q/A
INDEX
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
American Architectural Products Corporation
- For the three and nine months ended September 30, 1997 and for the
three months ended September 30, 1996
Eagle Window & Door, Inc. and Subsidiaries
and Taylor Building Products Company
- For the two and eight months ended August 29, 1996
Mallyclad Corp. and Vyn-L Corporation
- For the seven month period ended June 30, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
3
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
Unaudited
September 30 December 31
1997 1996
-------------- --------------
ASSETS
CURRENT ASSETS
Cash $ 1,266,992 $ 964,062
Accounts receivable, net 10,389,186 6,302,694
Inventories 13,525,627 10,971,144
Prepaid expenses and other current assets 1,446,196 1,128,151
-------------- ------------
Total Current Assets 26,628,001 19,366,051
NONCURRENT ASSETS
Cost in excess of net assets acquired, net 10,593,510 6,850,059
Property, plant & equipment, net 18,901,673 16,138,844
Deposits and other assets 925,690 388,937
-------------- ------------
Total Noncurrent Assets 30,420,873 23,377,840
-------------- ------------
Total Assets $ 57,048,874 $ 42,743,891
============== ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,624,115 $ 7,229,303
Accrued expenses 3,982,829 3,397,618
Accrued warranty obligations, current portion 1,500,000 1,100,000
Current maturities of long-term debt 2,857,398 1,497,653
Note payable, bank 9,931,452 5,476,759
Current portion of capital lease obligations 499,879 488,984
-------------- ------------
Total Current Liabilities 26,395,673 19,190,317
LONG-TERM LIABILITIES
Long-term debt, less current maturities 19,134,260 14,478,317
Long-term capital lease obligations, less current portion 952,657 1,067,616
Accrued warrant obligations, less current portion 2,871,411 3,281,079
Other liabilities 1,481,180 450,000
-------------- ------------
Total Long-Term Liabilities 24,439,508 19,277,012
-------------- ------------
Total Liabilities 50,835,181 38,467,329
STOCKHOLDERS' EQUITY
Preferred stock, Series A convertible, $.01 par, 20,000,000
shares authorized; 1,000,000 shares outstanding at
December 31, 1996 -- 10,000
Preferred stock, Series B convertible, $.01 par, 30,000 shares
authorized; no shares outstanding at September 30, 1997 -- --
Common stock, $.001 par, 100,000,000 shares authorized:
13,073,864 AND 4,860,579 shares outstanding at
September 30, 1997 and December 31, 1996, respectively 13,074 4,861
Additional paid-in-capital 5,301,413 3,670,612
Retained earnings 899,206 591,089
-------------- ------------
Total Stockholders' Equity 6,213,693 4,276,562
-------------- ------------
Total Liabilities & Stockholders' Equity $ 57,048,874 $ 42,743,891
============== ============
The accompanying notes are an integral part of the financial statements.
4
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
UNAUDITED
Three Nine
Months Ended Months Ended
September 30 September 30
1997 1996 1997
---------------------------------------------
Net sales $ 25,410,114 $ 6,883,399 $ 65,019,846
Cost of sales 19,964,345 5,229,435 50,977,914
----------------------------- ------------
Gross profit 5,445,769 1,653,964 14,041,932
Selling expense 1,744,528 464,700 4,928,532
General and administrative expenses 2,326,425 668,558 6,255,760
----------------------------- ------------
Income from operations 1,374,816 520,706 2,857,640
Interest expense, net 916,746 181,307 2,313,057
Other Income (54,854) (3,100) (95,674)
----------------------------- ------------
Income before taxes 512,924 342,499 640,257
Provision for Income taxes 210,389 186,400 256,928
----------------------------- ------------
Net income 302,535 156,099 383,329
Retained earnings, beginning 601,083 - 591,089
Dividends on preferred stock, Series B (4,412) - (75,212)
----------------------------- ------------
Retained earnings, ending $ 899,206 $ 156,099 $ 899,206
============================= ============
Net income per share $ 0.02 $ 0.06 $ 0.02
Weighted average shares outstanding 12,990,585 2,731,497 12,742,665
The accompanying notes are an integral part of the financial statements.
5
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS CASH FLOWS
UNAUDITED
Nine Three
Months Ended Months Ended
September 30 September 30
1997 1996
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 383,329 $ 156,099
Adjustment to reconcile net income to cash from
operating activities-
Depreciation 1,512,557 28,255
Amortization 453,422 44,122
Deferred income taxes - 186,400
Gain on sale of fixed assets (67,616) -
Changes in operating assets and liabilities:
Accounts receivable, net (2,824,970) 896,264
Inventories (492,620) 167,004
Prepaid expenses and other curent assets (224,288) (290,526)
Accounts payable 1,211,487 1,497,612
Accrued expenses 693,000 579,823
Other (417,590) 175,571
---------------------------
Net cash from operating activities 226,711 3,440,624
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired (3,167,687) (12,768,965)
Purchase of plan and equipment (918,708) (141,274)
Proceeds from the sale of equipment 127,350 -
Payments for acquisition costs (203,193) -
---------------------------
Net cash used in investing activities (4,162,238) (12,910,239)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, Series B 495,800 -
Proceeds from issuance of common stock - 605,000
Proceeds from issuance of long-term debt 1,844,806 3,003,000
Payments on long-term debt and capital lease obligations (1,930,952) (34,082)
Payments for debt issue costs (165,890) -
Net borrowings under lines of credit 3,994,693 5,916,369
---------------------------
Net cash from financing activities 4,238,457 9,490,287
Net increase in cash 302,930 20,672
Cash, beginning of period 964,062 -
---------------------------
Cash, end of period $ 1,266,992 $ 20,672
============================
The accompanying notes are an integral part of the financial statements.
6
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
American Architectural Products Corporation (AAPC or the Company - formerly
known as Forte Computer Easy, Inc.) is principally engaged in the business of
manufacturing residential, commercial and architectural windows and doors
through its wholly owned subsidiaries, Eagle & Taylor Company (formerly known as
American Architectural Products, Inc. - AAP), Forte, Inc. (Forte), Western
Insulated Glass, Co. (Western) and Thermetic Glass, Inc. (Thermetic).
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for the fair presentation of financial position
and results of operations have been made. Operating results for interim periods
are not necessarily indicative of results that may be expected for a full year.
The information included in this Form 10-Q should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and notes thereto of Forte Computer
Easy, Inc. and Subsidiaries from the date of inception (June 19, 1996) to
December 31, 1996 included in the Company's annual report on Form 10-K.
2. Recapitalization and Acquisitions
Prior to December 18, 1996, Forte Computer Easy, Inc. (FCEI) had a single
wholly-owned operating subsidiary, Forte, based in Youngstown, Ohio. On December
18, 1996, pursuant to an Agreement and Plan of Reorganization dated October 25,
1996 between FCEI and AAP Holdings, Inc. (the Agreement) , FCEI acquired all of
the issued and outstanding shares of capital stock of AAP in exchange for
1,000,000 shares of Series A Convertible Preferred Stock of FCEI (the Series A
Preferred). Under the terms of the Agreement and the Series A Preferred, AAP
Holdings, Inc. obtained 60 percent of the voting control of FCEI. Although FCEI
was the parent of AAP following the transaction, the transaction was accounted
for as a recapitalization of AAP and a purchase by AAP of FCEI because the
stockholders of AAP obtained a majority of the voting rights in FCEI as a result
of the transaction. The consideration exchanged in this transaction was recorded
at estimated fair value which was determined based on the estimated fair value
of the securities of AAP which were obtained by the FCEI stockholders in the
reverse acquisition, an assessment to the trading prices of FCEI stock preceding
the reverse acquisition and the appraised value of the FCEI assets acquired.
At a special shareholders' meeting held on April 1, 1997, the Company's
shareholders approved the Forte Computer Easy, Inc. 1996 Stock Option Plan and
approved the reincorporation of the Company in Delaware. Consequences of the
reincorporation plan included the change of the Company's name to American
Architectural Products Corporation; an increase in the authorized common stock
of the Company to 100,000,000 shares; a 10 for 1 reverse stock split of the
Company's common stock; the conversion of 1,000,000 shares of Series A Preferred
held by AAP Holdings, Inc. into 7,548,632 shares of common stock; and the
issuance of 171,842 shares of common stock to an officer to satisfy a commitment
of the Company. The reincorporation did not result in any substantive change to
the Company's business, assets, liabilities, net worth or operations, nor did it
result in any change in the ownership interest of any stockholder of the
Company. The number of shares and per share amounts give retroactive recognition
to the change in capital structure for all periods presented.
7
AAP was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired Eagle Window and Door, Inc. (Eagle) and Taylor Building
Products Company (Taylor) on August 29, 1996. Eagle is based in Dubuque, Iowa
and manufactures and distributes aluminum clad and all wood windows and doors.
Taylor is based in West Branch, Michigan and manufactures entry and garage
doors. AAP subsequently changed its name to Eagle & Taylor Company.
On June 25, 1996, AAP's ultimate controlling stockholder acquired ownership of
Mallyclad Corp. (Mallyclad) and Vyn-L Corporation (Vyn-L). Mallyclad and Vyn-L
are based in Madison Heights, Michigan and process and manufacture vinyl clad
steel and aluminum coils and cut-to-length sheets. On December 18, 1996,
Mallyclad and Vyn-L were merged into AAP. Based on the control maintained by
this stockholder over AAP, Mallyclad and Vyn-L, the merger was considered to be
a transaction among companies under common control and was accounted for at
historical cost in a manner similar to a pooling of interests.
On March 14, 1997, the Company acquired all of the stock of Western. Western is
based in Phoenix, Arizona and manufactures custom residential aluminum windows
and doors. The acquisition was accounted for as a purchase. The purchase price
approximated $2,400,000 and was allocated to net assets acquired based on
estimated fair market values including current assets of $1,976,000, property
and equipment and other noncurrent assets of $961,000, and current liabilities
of $537,000. Notes to sellers approximating $779,000 and term notes to banks in
the amounts of $200,000 and $900,000 were used to finance this acquisition. The
accounts of Western are included in the accompanying financial statements from
the March 14, 1997 acquisition date.
On July 18, 1997, the Company acquired all of the stock of Thermetic Glass,
Inc., a Toluca, Illinois manufacturer of residential vinyl windows. The
acquisition was accounted for as a purchase. The purchase price approximated
$4,500,000 and was allocated to net assets acquired based on estimated fair
market values including current assets of $1,700,000, net property and equipment
of $2,300,000, current liabilities of $1,400,000 and long-term liabilities of
$2,100,000. The Company recorded costs in excess of net assets acquired in the
amount of $4,000,000. The Thermetic acquisition was financed through the
issuance of $2,500,000 in convertible secured debentures to the seller, the
issuance of 384,000 shares of the Company's common stock and a commitment to
issue an aggregate number of additional shares of the Company's common stock
eighteen months after closing having a market price of $1,000,000 when issued.
The convertible debentures are secured by substantially all of the assets of
Thermetic, mature in equal installments over the next five years, bear annual
interest at 7% payable quarterly and allow the holder to convert the debt into
common stock of the Company based on the average closing price ten days prior to
conversion.
The following pro forma information for the nine months ended September 30, 1996
has been prepared assuming that the acquisitions of FCEI, Eagle and Taylor,
Mallyclad and Vyn-L, Western and Thermetic had occurred at the beginning of that
period. The following pro forma information for the nine months ended September
30, 1997 has been prepared assuming that the acquisitions of Western and
Thermetic had occurred at the beginning of that period. The pro forma
information includes adjustments to interest expense for acquisition funding,
depreciation expense based on the fair market value of the property and
equipment acquired and amortization of cost in excess of net assets acquired
arising from the acquisition. The pro forma earnings per share information
reflects the effects of the recapitalization described above as well as the
reverse stock split described above.
8
Nine months ended September 30
------------------------------
1997 1996
---- ----
(In thousands, except per share data)
Sales $ 68,989 $ 58,439
Net income (loss) 211 (1,751)
Net income (loss) per share .01 (.36)
3. Redeemable Preferred Stock
In the third quarter of 1997, the Company received proceeds of $25,000 from the
private placement of 250 shares of Series B Cumulative Redeemable Convertible
Preferred Stock (the Series B Preferred). Through September 30, 1997, all shares
of the Series B Preferred have been converted to common stock and no shares
remain outstanding.
4. Net Income Per Share
Net income per share is based on the weighted average number of common shares
outstanding, adjusted to reflect the number of shares issued upon the conversion
of all Series A Preferred, the number of shares that the Company issued to an
officer to satisfy a commitment and, where dilutive, common stock equivalents
outstanding during each period. The computations of net income per share give
retroactive recognition to the change in capital structure for all periods
presented.
5. Inventories
Inventories at September 30, 1997 consisted of the following:
Raw materials $10,565,055
Work-in-process 1,318,522
Finished goods 1,642,050
-----------
$13,525,627
===========
6. Subsequent Event
The Company has entered into a definitive agreement to purchase all of the
assets of an aluminum window manufacturer and an agreement in principle to
merge with a vinyl window and aluminum storm door manufacturer. The total
purchase price of these two acquisitions will approximate $49,100,000. These
agreements are subject to customary closing conditions, including completion of
the Company's due diligence and financing.
9
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
Combined Balance Sheet
August 29, 1996
ASSETS
CURRENT ASSETS
Cash $ 395,859
Accounts receivable, net 7,736,517
Inventories 8,483,224
Prepaid expenses and other current assets 314,240
------------
Total Current Assets 16,929,840
NONCURRENT ASSETS
Property, plant & equipment, net 6,966,340
Deposits and other assets 93,376
------------
7,059,716
------------
Total Assets $ 23,989,556
============
LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 2,429,053
Accrued expenses 453,459
Payable to affiliates 19,441,656
Accrued warranty obligations, current portion 1,479,000
Other 2,346,756
------------
Total Current Liabilities 26,149,924
LONG-TERM LIABILITIES
Accrued warranty obligations, less current portion 3,148,400
------------
Total Liabilities 29,298,324
STOCKHOLDERS' DEFICIT
Capital stock 211,851
Additional paid-in capital 27,224,456
Accumulated deficit (32,745,087)
------------
Total Stockholders' Deficit (5,308,780)
------------
Total Liabilities & Stockholders' Deficit $ 23,989,544
============
The accompanying notes are an integral part of the financial statements.
10
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
Combined Statements of Operations and Accumulated Deficit
UNAUDITED
TWO MONTHS EIGHT MONTHS
ENDED ENDED
AUGUST 29, 1996 AUGUST 29, 1996
--------------- ---------------
Net sales $ 12,699,366 $ 39,971,058
Cost of sales 9,844,883 33,832,799
------------ ------------
Gross profit 2,854,483 6,138,259
Selling expense 1,045,466 3,948,778
General and administrative expenses 831,595 3,141,852
------------ ------------
Income (loss) from operations 977,422 (952,371)
Interest expense 285,629 1,142,519
Loss on sale of assets 773,866 773,866
Other income (26,765) (274,661)
------------ ------------
Income (loss) before taxes (55,308) (2,594,095)
Benefit for income taxes (19,270) (907,933)
------------ ------------
Net loss (36,038) (1,686,162)
Accumulated deficit, beginning (32,709,049) (31,058,925)
------------ ------------
Accumulated deficit, ending $(32,745,087) $(32,745,087)
============ ============
The accompanying notes are an integral part of the financial statements.
11
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
Combined Statement of Cash Flows
Eight months ended August 29, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,686,162)
Adjustment to reconcile net income to cash from
operating activities-
Depreciation 2,661,961
Loss on sale of fixed assets 773,866
Interest expense contributed to capital
by Parent Company 1,142,519
Changes in operating assets and liabilities:
Accounts receivable (781,687)
Inventories (152,631)
Prepaids and other 134,186
Deposits and other (38,005)
Accounts payable (430,203)
Accrued expenses 72,539
Other 828,870
Payables to affiliates (1,040,998)
Accrued warranty reserve (197,388)
-----------
Net cash from operating activities 1,286,867
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from the sale of assets 37,289
Purchase of plant and equipment (1,678,658)
-----------
Net cash used in investing activities (1,641,369)
Net Decrease in Cash (354,502)
Cash, beginning of period 750,361
-----------
Cash, end of period $ 395,859
===========
The accompanying notes are an integral part of the financial statements.
12
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited combined financial statements include the accounts of
Eagle Window & Door, Inc. and Subsidiaries and Taylor Building Products Company,
wholly owned subsidiaries of MascoTech, Inc. (the Companies). All significant
intercompany accounts and transactions have been eliminated. 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 periods ended August 29, 1996 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 Companies for the year ended December 31, 1995 and for
the eight month period ended August 29, 1996.
On August, 29, 1996, the Companies were acquired by American Architectural
Products, Inc. (AAP). On December 18, 1996, American Architectural Products
Holdings, Inc. (AAPH, parent of AAP) consummated transactions contemplated under
an Agreement and Plan of Reorganization dated October 25, 1996. Under terms of
this Agreement, all of the capital stock of AAP was exchanged by AAPH for a 60
percent interest in Forte Computer Easy, Inc. The financial statements do not
give effect to these transactions.
2. Inventories
Inventories at August 29, 1996 consisted of the following:
Raw materials $5,643,511
Work-in-process 1,366,212
Finished goods 1,473,501
----------
$8,483,224
==========
13
MALLYCLAD CORP. AND VYN-L CORPORATION
Combined Balance Sheet
June 30, 1996
Unaudited
ASSETS
CURRENT ASSETS
Cash $ 229,615
Accounts receivable, net 358,731
Inventories 285,635
Prepaid expenses and other current assets 44,896
----------
Total Current Assets 918,877
NONCURRENT ASSETS
Property, plant & equipment, net 117,237
Deposits and other assets 32,896
----------
Total Noncurrent Assets 150,133
----------
Total Assets $1,069,010
==========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 158,039
Accrued expenses 127,001
----------
Total Liabilities 285,040
STOCKHOLDERS' EQUITY
Capital stock 88,000
Retained earnings 695,970
----------
Total Stockholders' Equity 783,970
----------
Total Liabilities & Stockholders' Equity $1,069,010
==========
The accompanying notes are an integral part of the financial statements.
14
MALLYCLAD CORP. AND VYN-L CORPORATION
Combined Statement of Operations and Retained Earnings
Unaudited
SEVEN MONTHS
ENDED
JUNE 30, 1996
-------------
Net sales $ 1,915,620
Cost of sales 1,596,753
-----------
Gross profit 318,867
Selling, general and administrative expenses 349,671
-----------
Loss from operations (30,804)
Other, net 19,133
-----------
Net loss (11,671)
Retained earnings, beginning 707,641
-----------
Retained earnings, ending $ 695,970
===========
The accompanying notes are an integral part of the financial statements.
15
MALLYCLAD CORP. AND VYN-L CORPORATION
Combined Statement of Cash Flows
Seven months ended June 30, 1996
Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (11,671)
Adjustment to reconcile net income to cash from
operating activities-
Depreciation 35,800
Changes in operating assets and liabilities:
Accounts receivable 171,679
Inventories 145,267
Prepaids and other 30,702
Accounts payable (122,698)
Accrued expenses (26,091)
---------
Net cash from operating activities 222,988
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of plant and equipment (3,972)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Repayment of revolving line of credit (100,000)
---------
Net Decrease in Cash 119,016
Cash, beginning of period 110,599
---------
Cash, end of period $ 229,615
=========
The accompanying notes are an integral part of the financial statements.
16
MALLYCLAD CORP. AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited combined financial statements include the accounts of
Mallyclad Corp. and Vyn-L Corporation, entities under common ownership (the
Companies). All significant intercompany accounts and transactions have been
eliminated. 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 periods
ended June 30, 1996 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 Companies for the year
ended November 30, 1995.
On June 25, 1996, all of the issued and outstanding stock of the Companies was
purchased by an individual. On December 18, 1996 the Companies were merged into
American Architectural Products, Inc. (AAP), a company controlled by this same
individual. Also on December 18, 1996, American Architectural Holdings, Inc.
(AAPH, parent of AAP) consummated transactions contemplated under an Agreement
and Plan of Reorganization dated October 25, 1996. Under the terms of this
Agreement, all of the capital stock of AAP was exchanged by AAPH for a 60
percent interest in Forte Computer Easy, Inc. The financial statements do not
give effect to these transactions.
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 and the 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 may differ from these estimates.
2. Inventories
Inventories at June 30, 1996 consisted of the following:
Raw materials $198,605
Finished goods 87,030
--------
285,635
========
17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
BACKGROUND
American Architectural Products Corporation (AAPC or the Company), formerly
known as Forte Computer Easy, Inc., (FCEI) is principally engaged in the
business of manufacturing residential, commercial and architectural windows and
doors through its wholly-owned subsidiaries Eagle & Taylor Company, Forte, Inc.
(Forte), Western Insulated Glass, Co. (Western) and Thermetic Glass, Inc.
(Thermetic).
On April 1, 1997, the Company's shareholders approved a reincorporation plan.
The reincorporation plan changed the Company's name from Forte Computer Easy,
Inc. to American Architectural Products Corporation. The Company revised its
name to more accurately reflect the current nature of its business. The
reincorporation plan also organized the Company under the laws of Delaware. The
Company was previously organized under the laws of Utah. The shareholders also
approved the Company's incentive stock option plan.
Additionally, the reincorporation plan included a 10 for 1 reverse stock split
and an increase in the number of authorized shares. Each share of common stock
of FCEI was converted into one-tenth (0.1) of a share of common stock of AAPC.
The Series A Convertible Preferred Stock of FCEI was converted into 7,548,632
shares of common stock of AAPC.
Immediately prior to December 18, 1996, FCEI had a single wholly-owned operating
subsidiary, Forte, Inc. based in Youngstown, Ohio. On December 18, 1996,
pursuant to an Agreement and Plan of Reorganization dated October 25, 1996
between FCEI and AAP Holdings, Inc. (AAP Holdings), FCEI acquired all of the
issued and outstanding shares of capital stock of AAP Holdings wholly-owned
subsidiary, American Architectural Products, Inc. (AAP) in exchange for
1,000,000 shares of Series A Convertible Preferred Stock of FCEI (the Series A
Preferred). Under the terms of the Agreement and the Series A Preferred, AAP
Holdings obtained 60 percent of the voting control of FCEI. Accordingly,
although FCEI was the parent of AAP following the transaction, the transaction
was accounted for as a recapitalization of AAP and a purchase by AAP of FCEI (a
reverse acquisition in which AAP is considered the acquiror for accounting
purposes), because the shareholders of AAP obtained a majority of the voting
rights in FCEI as a result of the transaction. Accordingly, the financial
statements of the Company for the periods prior to December 18, 1996 are those
of AAP, the assets and liabilities of FCEI are recorded at their estimated fair
values and the accounts of FCEI are included in the consolidated financial
statements from the date of acquisition (December 18, 1996). Therefore, the 1996
quarterly and nine month results include the results of AAP but exclude the
results of FCEI.
AAP was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired Eagle Window and Door, Inc. (Eagle) and Taylor Building
Products Company (Taylor) on August 29, 1996. Eagle is based in Dubuque, Iowa
and manufactures and distributes aluminum clad and all wood windows and doors.
Taylor is based in West Branch, Michigan and manufactures entry and garage
doors.
On June 25, 1996, AAP's ultimate controlling shareholder, an individual,
acquired ownership of
18
Mallyclad Corp. (Mallyclad) and Vyn-L Corporation (Vyn-L). Mallyclad and Vyn-L
are based in Madison Heights, Michigan and process and manufacture vinyl clad
steel and aluminum coils and cut-to-length sheets. On December 18, 1996,
Mallyclad and Vyn-L were merged into AAP. Based on the control maintained by
this shareholder over AAP, Mallyclad and Vyn-L, the merger was considered to be
a transaction among companies under common control and was accounted for at
historical cost in a manner similar to a pooling of interests.
As a result of the acquisitions discussed above, and the related differences in
cost bases of the assets and liabilities of the Company after the acquisitions
and the cost bases of the predecessors, the results of the operations for 1996
and 1997 are not comparable. Such lack of comparability is explained in the
discussion below.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Three months ended September 30
1997(1) 1996(2)
--------------------------------------------
(Dollars in Thousands, Except Footnotes)
Net Sales $ 25,410 100.0% $ 19,583 100.0%
Cost of sales 19,964 78.6% 15,087 77.0%
--------------------------------------------
Gross profit 5,446 21.4% 4,496 23.0%
Selling, general and administrative expenses 4,071 16.0% 2,999 15.3%
--------------------------------------------
Operating income 1,375 5.4% 1,497 7.7%
Interest expense 917 3.6% 485 2.5%
Other (income) expense (55) -0.2% 744 3.8%
--------------------------------------------
Income before income taxes 513 2.0% 268 1.4%
Income tax provision (benefit) 210 .8% 167 .9%
--------------------------------------------
Net income $ 303 1.2% $ 101 .5%
============================================
<FN>
- ----------------------
(1) Financial data for the three months months ended September 30, 1997 were
derived from the consolidated financial statements of American Architectural
Products Corporation for that period.
(2) Financial data for the three months months ended September 30, 1996 are that
of the predecessors for the two months ended August 29, 1996 (derived from the
combined financial statements of Eagle and Taylor for that period) and the
Company for the three month period ended September 30, 1996. Because the
financial data of the predecessors are presented on cost bases different from
that of the Company after the acquisitions, the September 30, 1996 financial
data are not comparable to the 1997 financial data.
Revenues
Revenues increased 29.8% to $25,410,000 for the three months ended September 30,
1997 as compared to $19,583,000 for the same period of the previous year. The
$5,827,000 increase was attributable to higher volume levels at the Company's
wood and aluminum clad window and door manufacturer and the Company's steel
entry and garage door manufacturer. Additionally, the increase reflects
$3,555,000 of sales of acquired subsidiaries including Forte, a manufacturer of
aluminum commercial windows and aluminum screen and storm doors; Western, a
custom manufacturer of aluminum residential windows; and Thermetic, a
manufacturer of vinyl residential windows. None of these companies were included
in the three month period ended September 30, 1996.
19
Gross Profit
Gross profit increased $950,000, or 21.1%, to $5,446,000 for the quarter ended
September 30, 1997 as compared with $4,496,000 for the quarter ended September
30, 1996 mainly as a result of higher sales volumes. The Company's gross margin
as a percent of sales decreased to 21.4% for the quarter from 23.0% for the same
period of the previous year mainly as a result of the contributions from the
Company's acquired subsidiaries. The negative margin of Forte, the Company's
commercial aluminum window manufacturer, was offset by higher margins at the
Company's other acquisitions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,072,000 to $4,071,000
for the three month period ended September 30, 1997 as compared to $2,999,000
for the three month period ended September 30, 1996. The increase resulted from
the increased business activity, the inclusion of the Forte, Western and
Thermetic operating units, and administrative costs related to the addition of
corporate management for the three month period ended September 30, 1997.
Selling, general and administrative expenses as a percent of sales was 16.0% for
the third quarter of 1997 as compared with 15.3% for the comparable 1996 period.
Interest Expense
Interest expense for the three month periods ended September 30, 1997 and 1996
was $917,000 and $485,000, respectively. The $432,000 increase is attributable
to interest expense on the debt associated with the acquisition of the Eagle and
Taylor operating units and the interest expense of Forte, Western and Thermetic,
which was $247,000 for the third quarter of 1997. The previous parent of Eagle
and Taylor allocated interest expense to the entities during the two month
period ended August 29, 1996 (predecessor period), and accordingly, interest for
the third quarter of 1997 is not comparable with the same period in 1996.
Provision for Income Taxes
The Company has recorded a provision for income taxes of $210,000 in the second
quarter on income before income taxes of $513,000, resulting in an effective tax
rate of 40.9%. Prior to their acquisitions, Eagle and Taylor were included in
the consolidated tax return of their former parent and, accordingly, the
provision for income taxes for the three month period ended September 30, 1996
is not indicative of the amounts that would have been recorded on a separate
basis and are not comparative.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Nine months ended September 30,
1997 (1) 1996(2)
--------------------------------------------
(Dollars in Thousands, Except Footnotes)
Net Sales $ 65,020 100.0% $ 48,497 100.0%
Cost of sales 50,978 78.4% 40,444 83.4%
--------------------------------------------
Gross profit 14,042 21.6% 8,053 16.6%
Selling, general and administrative expenses 11,184 17.2% 8,513 17.5%
--------------------------------------------
Operating income (loss) 2,858 4.4% (460) -0.9%
Interest expense 2,313 3.6% 1,342 2.8%
Other (income) expense (95) -0.2% 512 1.1%
--------------------------------------------
Income (loss) before income taxes 640 1.0% (2,314) -4.8%
Income tax provision (benefit) 257 0.4% (722) -1.5%
--------------------------------------------
Net income (loss) $ 383 0.6% ($ 1,592) -3.3%
============================================
20
(1) Financial data for the nine months ended September 30, 1997 were derived
from the consolidated financial statements of American Architectural Products
Corporation for that period.
(2) Financial data for the nine months months ended September 30, 1996 are that
of the predecessors for the eight months ended August 29, 1996 (derived from the
combined financial statements of Eagle and Taylor for that period), the six
months ended June 30, 1996 (derived from the combined financial statements of
Mallyclad and Vyn-L for that period) and the Company for the three month period
ended September 30, 1996. Because the financial data of the predecessors are
presented on cost bases different from that of the Company after the
acquisitions, the September 30, 1996 financial data are not comparable to the
1997 financial data.
Revenues
Revenues increased 34.1% to $65,020,000 for the nine months ended September 30,
1997 as compared to $48,497,000 for the same period of the previous year. The
$16,523,000 increase was attributable to higher volume levels at Eagle, a wood
and aluminum clad window and door manufacturer, and Taylor, a steel entry and
garage door manufacturer. Additionally, the increase reflects $6,991,000 of
sales contribution from acquired subsidiaries including Forte, a manufacturer of
aluminum commercial windows and aluminum screen and storm doors; Western, a
custom manufacturer of aluminum residential windows; and Thermetic, a
manufacturer of vinyl residential windows. None of these companies were included
in the nine month period ended September 30, 1996.
Gross Profit
Gross profit increased $5,989,000, or 74.4%, to $14,042,000 for the nine months
ended September 30, 1997 as compared with $8,053,000 for the nine months ended
September 30, 1996 mainly as a result of higher sales volumes. The Company's
gross margin as a percent of sales increased to 21.6% for the period from 16.6%
for the same period of the previous year mainly as a result of a sales volume
increases in relation to fixed costs. The negative margin of Forte, the
Company's commercial aluminum window manufacturer, was offset by higher margins
at the Company's other acquisitions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2,671,000 to $11,184,000
for the nine month period ended September 30, 1997 as compared to $8,513,000 for
the nine month period ended September 30, 1996. The increase resulted from the
increased business activity, the inclusion of the Forte, Western and Thermetic
operating units, and additional administrative costs related to the addition of
corporate management for the three month period ended September 30, 1997.
Selling, general and administrative expenses as a percent of sales were 17.2%
for the nine months ended September 30, 1997 as compared with 17.5% for the
comparable 1996 period.
Interest Expense
Interest expense for the nine month periods ended September 30, 1997 and 1996
was $2,313,000 and $1,342,000, respectively. The $971,000 increase is
attributable to interest expense on the debt associated with the acquisition of
the Eagle and Taylor operating units and the interest expense of Forte, Western
and Thermetic, which was $542,000 for the nine months ended September 30, 1997.
The previous parent of Eagle and Taylor allocated interest expense to the
entities during the eight month period ended August 29, 1996 (predecessor
period), and accordingly, interest for the nine months ended September 30, 1997
is not comparable with the same period in 1996.
21
Provision for Income Taxes
The Company has recorded a provision for income taxes of $257,000 in the nine
months ended September 30, 1997 on income before income taxes of $640,000,
resulting in an effective tax rate of 40.2%. Prior to their acquisitions, Eagle
and Taylor were included in the consolidated tax return of their former parent
and, accordingly, the provision for income taxes for the nine month period ended
September 30, 1996 is not indicative of the amounts that would have been
recorded on a separate basis and are not comparative.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased $303,000 for the first nine months of the year to $1,267,000 at
September 30, 1997 from $964,000 at December 31, 1996. Cash generated in
operating activities was approximately $227,000 and reflects increases in
working capital which are directly related to sales volume increases throughout
1997 as compared to 1996. Accounts receivable and inventories were up $2,825,000
and $492,000, respectively, for the nine month period ended September 30, 1997,
exclusive of acquired businesses.
Cash used in investing activities amounted to $4,162,000 for the nine months
period ended September 30, 1997 and resulted primarily from the acquisitions of
Western and Thermetic. Additionally, the Company purchased approximately
$919,000 in property and equipment during the period.
Cash from financing activities in the nine month period ended September 30, 1997
amounted to $4,238,000. This resulted primarily from the issuance of 4,250
shares of the Series B Preferred Stock of the Company, the issuance of
$1,100,000 in term notes associated with the Western acquisition and net
activity under the Company's line of credit facilities.
The Company will continue to pursue a combination of debt and equity to improve
its liquidity and position the Company for future growth. There can be no
assurance that additional financing will be available or that, such financing
will be on terms favorable to the Company.
SEASONALITY
The Company's business is seasonal since its primary revenues are driven by
residential construction. Certain geographical areas where the Company's sales
activity are significant, particularly in the Northeast and Midwest regions of
the United States, experience inclement weather during the winter months which
usually reduces the level of building and remodeling activity in both the home
improvement and new construction markets. Traditionally, the Company's lowest
sales levels occur in the first and fourth quarters which is generally
consistent with cycle of the building products industry. Because a high
percentage of the Company's manufacturing overhead and operating expenses are
relatively fixed throughout the year, operating income has historically been
lower in quarters with lower sales. Working capital, and borrowings to satisfy
working capital requirements, are usually at their highest level during the
second and third quarters.
22
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) The Company filed the following reports on Form 8-K during the period from
January 1, 1997 to September 30, 1997.
- - January 2, 1997 Form 8-K was filed reporting the completion of the merger
between AAP Holdings, Inc. and FCEI which was consummated on December 18,
1996.
- - February 21, 1997 Form 8-K was filed reporting the resignation of Semple &
Cooper, P.L.C. as independent auditors.
- - February 21, 1997 Form 8-K was filed reporting BDO Seidman LLP as
independent auditors for the fiscal year 1997.
- - March 31, 1997 Form 8-K was filed reporting the acquisition of Western
Insulated Glass, Co.
- - July 18, 1997 Form 8-K was filed reporting the acquisition of Thermetic
Glass, Inc.
23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Date: November 19, 1997 /s/ Frank J. Amedia
-----------------------------------
Frank J. Amedia
President & Chief Executive Officer
/s/ Richard L. Kovach
-----------------------------------
Richard L. Kovach
Chief Financial Officer