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) December 18, 1996
---------------------------
FORTE COMPUTER EASY, INC.
(Exact name of registrant as specified in its charter)
Utah 0-25634 87-0365268
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1350 Albert Street, Youngstown, Ohio 44505
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 746-3311
Not applicable.
(Former name or former address, if changed since last report.)
2
THE CURRENT REPORT ON FORM 8-K OF THE REGISTRANT PREVIOUSLY FILED ON JANUARY 2,
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 transactions contemplated by
that certain Agreement and Plan of Reorganization dated October 25, 1996 between
the Registrant and AAP Holdings, Inc. are filed herewith:
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
Pro forma condensed consolidated balance sheet as of
September 30, 1996, and pro forma condensed consolidated
statements of operations for the nine months ended
September 30, 1996, and for the year ended December 31, 1995
AMERICAN ARCHITECTURAL PRODUCTS, INC.
Unaudited balance sheet as of August 28, 1996, and unaudited
statement of operations and accumulated deficit and
statement of cash flows for the two months ended August 28,
1996
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND TAYLOR BUILDING
PRODUCTS COMPANY
Unaudited condensed combined balance sheet as of August 29,
1995, and unaudited condensed combined statements of
operations and accumulated deficit and of cash
flows for the eight months ended August 29, 1996 and 1995
Audited combined balance sheets as of December 31, 1995 and
1994, and audited combined statements of operations and
accumulated deficit and of cash flows for the years ended
December 31, 1995 and 1994, and unaudited combined statements
of operations and accumulated deficit and of cash flows for
the year ended December 31, 1993
2
3
MALLYCLAD CORP.
Unaudited condensed balance sheets as of June 30, 1996 and
1995, and unaudited condensed statements of operations and
retained earnings and of cash flows for the seven months ended
June 30, 1996 and 1995
Unaudited balance sheets as of November 30, 1995 and 1994, and
unaudited statements of operations and retained earnings and
of cash flows for the years ended November 30, 1995, 1994 and
1993.
3
4
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 hereunto duly authorized.
FORTE COMPUTER EASY, INC.
Date: February 28, 1997 By /s/ Joseph Dominijanni
-------------------------
Joseph Dominijanni
Treasurer
5
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
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.
Based on the controlling interest in Forte obtained by AAPH as a result of this
transaction, and due to the relative size of AAP compared to Forte, this
transaction will be 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 will be those of AAP, the assets and liabilities of Forte will
be recorded at their estimated fair values, and the results of Forte's
operations from the date of acquisition (December 18, 1996) will be included in
the consolidated financial statements.
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 will be accounted for as a purchase,
with the assets acquired and liabilities assumed recorded at their estimated
fair values and the results of the Eagle and Taylor operations included in AAP's
consolidated financial statements from the date of acquisition.
On June 25, 1996, AAPH's ultimate controlling stockholder, an individual,
acquired 100% ownership of two other companies, Mallyclad Corp. (Mallyclad) and
Vyn-L Corp. (Vyn-L). On December 18, 1996, Mallyclad and Vyn-L were merged into
AAP in connection with the Forte transaction. Based on the control maintained by
this shareholder over AAP, Mallyclad and Vyn-L, the merger is considered a
transaction among companies under common control and, accordingly, will be
accounted for at historical cost (i.e., the individual's June 25 acquisition
cost, which approximated the seller's historical cost basis) 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 will be included in the
consolidated financial statements.
The accompanying pro forma condensed consolidated financial statements
illustrate the effects of the Forte acquisition of AAP; the AAP acquisition of
Eagle and Taylor; and the acquisition of Mallyclad and Vyn-L by the AAPH
majority stockholder and the merger of Mallyclad and Vyn-L into AAP
(collectively "the Transactions"). The pro forma condensed consolidated balance
sheet as of September 30, 1996 assumes that the Transactions took place on that
date and is based on the historical balance sheet of Forte as of September 30,
1996; the historical combined
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balance sheet of Eagle and Taylor as of August 29, 1996; and the historical
balance sheet of AAP (including Mallyclad and Vyn-L) as of August 28, 1996. The
pro forma condensed consolidated statement of operations for the year ended
December 31, 1995 is based on the historical statements of operations of Forte
and Eagle and Taylor for that period, and of Mallyclad and Vyn-L for the fiscal
years ended November 30, 1995, and February 28, 1996, respectively. The pro
forma condensed consolidated statement of operations for the nine months ended
September 30, 1996 is based on the historical statements of operations of Forte
for that period, of Eagle and Taylor for the nine months ended August 29, 1996,
and of Mallyclad and Vyn-L for the seven months ended June 30, 1996, and of AAP
for the period June 30, 1996 to August 28, 1996. The pro forma condensed
consolidated statements of operations assume that the Transactions occurred on
January 1, 1995.
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.
The accompanying pro forma condensed consolidated financial statements should be
read in connection with the historical financial statements of Forte, Eagle and
Taylor, AAP and Mallyclad.
7
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1996
(Unaudited; dollars in thousands)
Eagle & AAP
Taylor AAP Adjustments Pro Forma
------ --- ----------- ---------
ASSETS
------
Cash 396 69 465
Accounts receivable 7,737 517 145 (1) 8,399
Inventories 8,483 264 55 (1) 8,802
Prepaid expenses and other
current assets 314 30 (7) (1) 337
----------------------------------------------------- -----------------
Total current assets 16,930 880 193 18,003
----------------------------------------------------- -----------------
Property, plant and equipment - net 6,966 209 (161) (1) 7,014
Cost in excess of net assets acquired 6,785 (1) 6,785
Other 93 253 (1) 346
----------------------------------------------------- -----------------
Total assets 23,989 1,089 7,070 32,148
===================================================== =================
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Current portion of long-term debt 147 601 (1) 748
Revolving line of credit 11,218 (1)(2) 11,218
Accounts payable 2,429 225 357 (1) 3,011
Accrued expenses 2,800 106 (1,375) (1) 1,531
Accrued liabilities relating to
discontinued operations 0
Current portion of warranty reserve 1,479 (27) (1) 1,452
Billings in excess of costs and estimated
earnings on uncompleted contracts 0
Other current liabilities 19,842 (19,842) (1) 0
----------------------------------------------------- -----------------
Total current liabilities 26,550 478 (9,068) 17,960
----------------------------------------------------- -----------------
Long-term debt, net of current portion 731 9,824 (1)(2) 10,555
Warranty reserve, net of current portion 3,148 3,148
Deferred taxes 0
Other 0
----------------------------------------------------- -----------------
Total liabilities 29,698 1,209 756 31,663
----------------------------------------------------- -----------------
Shareholders' equity (5,709) (120) 6,314 (1) 485
----------------------------------------------------- -----------------
Total liabilities and shareholders' equity 23,989 1,089 7,070 32,148
===================================================== =================
Forte &
Subsidiaries
Forte Adjustments Pro Forma
----- ----------- ---------
ASSETS
------
Cash 256 721
Accounts receivable 198 8,597
Inventories 1,782 10,584
Prepaid expenses and other
current assets 58 395
----------------------------------- -----------------
Total current assets 2,294 0 20,297
----------------------------------- -----------------
Property, plant and equipment - net 4,021 11,035
Cost in excess of net assets acquired 319 (278) (6) 6,826
Other 33 379
----------------------------------- -----------------
Total assets 6,667 (278) 38,537
=================================== =================
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Current portion of long-term debt 242 990
Revolving line of credit 108 11,326
Accounts payable 354 3,365
Accrued expenses 53 1,584
Accrued liabilities relating to
discontinued operations 210 210
Current portion of warranty reserve 1,452
Billings in excess of costs and estimated
earnings on uncompleted contracts 17 17
Other current liabilities 18 18
----------------------------------- -----------------
Total current liabilities 1,002 0 18,962
----------------------------------- -----------------
Long-term debt, net of current portion 4,430 14,985
Warranty reserve, net of current portion 3,148
Deferred taxes 92 92
Other 10 10
----------------------------------- -----------------
Total liabilities 5,534 0 37,197
----------------------------------- -----------------
Shareholders' equity 1,133 (278) (6) 1,340
----------------------------------- -----------------
Total liabilities and shareholders' equity 6,667 (278) 38,537
=================================== =================
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
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FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine months ended September 30, 1996
(Unaudited; dollars in thousands except per share amounts)
Eagle &
Mallyclad Vyn-L Taylor AAP
7 months 7 months 9 months Inception
ended ended ended through
Jun 30, 1996 Jun 30, 1996 Aug 29, 1996 Aug 28, 1996 Adjustments
------------ ------------ ------------ ------------ -----------
Sales 1,889 107 44,548 562
Cost of sales 1,577 99 39,315 383 (2,302)(4)
------------ ------------ ------------ ------------ -----------
Gross profit 312 8 5,233 179 2,302
Operating costs and expenses
Selling, general and administrative 333 17 8,254 207 (53)(4)
------------ ------------ ------------ ------------ -----------
Operating income (loss) (21) (9) (3,021) (28) 2,355
Interest expense 0 0 1,317 16 348(3)
Other (income) expense - net (17) (2) (130) 0
------------ ------------ ------------ ------------ -----------
Income (loss) before income taxes (4) (7) (4,208) (44) 2,007
Income tax provision (benefit) 0 (1,515) (17) 1,532(5)
------------ ------------ ------------ ------------ -----------
Income (loss) from continuing operations (4) (7) (2,693) (27) 475
============ ============ ============ ============ ===========
Forte
9 months Forte &
AAP ended Subsidiaries
Pro Forma Sep 30, 1996 Adjustments Pro Forma
----------- ----------- ----------- -----------
Sales 47,106 2,635 49,741
Cost of sales 39,072 2,087 (38)(7) 41,121
----------- ----------- ----------- -----------
Gross profit 8,034 548 38 8,620
Operating costs and expenses
Selling, general and administrative 8,758 497 (8)(7) 9,247
----------- ----------- ----------- -----------
Operating income (loss) (724) 51 46 (627)
Interest expense 1,681 286 1,967
Other (income) expense - net (149) (158) (307)
----------- ----------- ----------- -----------
Income (loss) before income taxes (2,256) (77) 46 (2,287)
Income tax provision (benefit) 0 (29) 29(5) 0
----------- ----------- ----------- -----------
Income (loss) from continuing operations (2,256) (48) 17 (2,287)
=========== =========== =========== ===========
Earnings (loss) per share $(0.03) $ (0.02)
=========== ===========
Weighted average number of
shares outstanding 72,908,691(8) 48,605,794 121,514,485
========== =========== ===========
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
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FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1995
(Unaudited; dollars in thousands except per share amounts)
Eagle &
Mallyclad Vyn-L Taylor Adjustments
------------ ------------ ------------ ------------
Sales 3,942 200 72,963
Cost of sales 3,506 164 65,840 (2,558)(4)
------------ ------------ ------------ ------------
Gross profit 436 36 7,123 2,558
Operating costs and expenses
Selling, general and
administrative 618 32 12,334 70(4)
Restructuring charges 2,643
------------ ------------ ------------ ------------
Operating income (loss) (182) 4 (7,854) 2,488
Interest expense 1 1,755 545(3)
Other (income) expense - net (38) 336
------------ ------------ ------------ ------------
Income (loss) before income taxes (145) 4 (9,945) 1,943
Income tax provision (benefit) (21) (3,557) 3,578(5)
------------ ------------ ------------ ------------
Income (loss) from
continuing operations (124) 4 (6,388) (1,635)
============ ============ ============ ============
Earnings (loss) per share
Weighted average number of
shares outstanding
Forte &
AAP Subsidiaries
Pro Forma Forte Adjustments Pro Forma
------------ ------------ ------------ ------------
Sales 77,105 5,426 82,531
Cost of sales 66,952 4,541 (122)(7) 71,371
------------ ------------ ------------ ------------
Gross profit 10,153 885 122 11,160
Operating costs and expenses
Selling, general and
administrative 13,054 748 (10)(7) 13,792
Restructuring charges 2,643 2,643
------------ ------------ ------------ ------------
Operating income (loss) (5,544) 137 132 (5,275)
Interest expense 2,301 352 2,653
Other (income) expense - net 298 (109) 189
------------ ------------ ------------ ------------
Income (loss) before income taxes (8,143) (106) 132 (8,117)
Income tax provision (benefit) 0 (55) 55(5) 0
------------ ------------ ------------ ------------
Income (loss) from
continuing operations (8,143) (51) 77 (8,117)
============ ============ ============ ============
Earnings (loss) per share $ (0.11) $ (0.07)
============ ============
Weighted average number of
shares outstanding 72,908,691(8) 48,605,794 121,514,485
============ ============ ============
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
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FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED; DOLLARS IN THOUSANDS)
(1) To reflect the acquisition of Eagle and Taylor and the allocation of
purchase price based on the estimated 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 Eagle and Taylor are as follows:
Components of purchase price:
Proceeds from Revolving Line of Credit $ 10,640
Proceeds from Term Debt 3,003
Subordinated Notes payable to Seller 8,000
Equity contribution 605
--------
Total purchase price 22,248
Allocation of purchase price:
Stockholders' equity of acquired company 5,709
Increase in accounts receivable (145)
Increase in inventories (55)
Decrease in prepaid assets 7
Adjustment to other assets including deferred
finance costs incurred in acquisition (253)
Decrease in property, plant and equipment 161
Eliminate intercompany balances between
Eagle & Taylor and their parent and affiliates (19,842)
Increase in accounts payable 357
Adjust accrued expenses including items
retained by seller (1,375)
Adjust estimate of warranty reserve (27)
--------
Cost in excess of net assets acquired $ 6,785
========
(2) In connection with the merger of Mallyclad and Vyn-L into AAP, the debt
incurred in the acquisition of Mallyclad and Vyn-L was replaced with debt under
the AAP loan facility as follows:
Additional Term Debt under AAP facility $ 300
Additional Revolving Line of Credit under
AAP facility 578
Total Mallyclad and Vyn-L debt refinanced --------
in connection with their merger into AAP $ 878
========
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Year ended 9 months
December 31, ended
1995 Sept. 30, 1996
---- --------------
(3) Adjustments to interest expense:
Interest on term loans at
rate of 9.75% $ 292 $ 177
Interest on revolving credit facility
at rate of 9.75% 1,094 820
Interest on subordinated notes at
rate of 10% 800 600
Increase in amortization of
debt issue costs 115 87
Eliminate historical interest (1,756) (1,336)
------- -------
$ 545 $ 348
======= =======
The AAP term loans are payable in 60 consecutive equal monthly
installments and bear interest at prime plus 1.5 percent. The AAP
revolving credit facility provides for loans up to $13 million, is
payable on the third anniversary and bears interest at prime plus 1.5
percent. The subordinated notes payable to the seller are payable on
the third anniversary date and bear interest at 10 percent.
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Year ended
December 31, 9 Months
(4) Adjustments for AAP depreciation and amortization: 1995 ended Sept 30, 1996
------------ -------------------
Depreciation in cost of sales related to adjusted
asset bases resulting from acquisitions $ 490 $ 368
Eliminate depreciation and amortization from historical
cost of sales (3,048) (2,670)
------- -------
Change in cost of sales ($2,558) ($2,302)
======= =======
Depreciation and amortization in selling, general and
administrative expenses related to adjusted asset bases
resulting from acquisitions $ 414 $ 311
Eliminate depreciation and amortization from historical selling,
general and administrative expenses (344) (364)
------- -------
Change in selling, general and administrative expenses $ 70 ($ 53)
======= =======
Goodwill relating to the acquisitions of Eagle and Taylor by AAP will be
amortized over 25 years.
(5) To eliminate tax benefits in determining pro forma income (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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(6) To reflect the acquisition of Forte and the allocation of purchase
price on the basis of fair values of the assets acquired and liabilities
assumed. The purchase price and the required adjustment to the assets and equity
of Forte are as follows:
Purchase price $ 855
Net assets of Forte at September 30, 1996 1,133
Book value of Forte net assets in excess of -------
the purchase price at estimated fair market value ($ 278)
=======
The above purchase price was based on an assessment of the value of the interest
in AAP which was obtained by the Forte stockholders in the transaction. The fair
value of AAP was determined based on the value of the recent acquisitions of
Eagle, Taylor, Mallyclad and Vyn-L and adjusted for post acquisition equity
transactions and operating results.
The adjustment to record the Forte assets at the purchase price noted above is a
reduction to Forte equity with a corresponding reduction to goodwill. No
adjustment to amortization expense is made in the accompanying pro forma
consolidated condensed statements of operations as such adjustment would not be
significant.
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(7) Adjustments for Forte depreciation:
Year ended 9 Months
December 31, 1995 ended Sept. 30, 1996
----------------- ---------------------
Depreciation in cost of sales related to adjusted
asset bases resulting from acquisition $ 212 $ 150
Eliminate depreciation in historical cost of sales (334) (188)
----- -----
Change in cost of sales ($122) ($ 38)
===== =====
Depreciation in selling, general and administrative expenses
related to adjusted asset bases resulting from acquisition $ 29 $ 31
Eliminate depreciation in historical selling, general and
administrative expenses (45) (39)
----- -----
Change in selling, general and administrative expenses ($ 16) ($ 8)
===== =====
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(8) 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 is convertible into an aggregate
number of shares of the common stock of Forte which will equal 60 percent
of the issued and outstanding shares of Forte on the closing date
(subject to certain adjustments as set forth in the Agreement). Because
the Series A Preferred (a) votes 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) will convert into common shares pursuant to a plan to
increase the number of authorized common shares, it is considered in
substance to be common stock, and is treated as such for purposes of
computing the pro forma loss per share.
16
AMERICAN ARCHITECTURAL PRODUCTS, INC.
BALANCE SHEET
AS OF AUGUST 28, 1996
UNAUDITED
ASSETS
CURRENT ASSETS:
Cash $ 68,658
Accounts receivable 516,580
Inventory 264,428
Prepaids and other assets 30,479
-----------
Total Current Assets 880,145
NONCURRENT ASSETS:
Property and equipment, net 209,007
-----------
Total Noncurrent Assets 209,007
-----------
Total Assets $ 1,089,152
===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 224,505
Accrued expenses 106,207
Current portion of long-term debt 146,878
-----------
Total Current Liabilities 477,590
LONG-TERM LIABILITIES:
Long-term note payable 730,683
-----------
Total Long-Term Liabilities 730,683
-----------
Total Liabilities 1,208,273
STOCKHOLDERS' EQUITY:
Capital Stock 77,473
Accumulated Deficit (196,594)
-----------
Total Equity (119,121)
-----------
Total Liabilities & Stockholders' Equity $ 1,089,152
===========
The accompanying notes are an integral part of the financial statements.
17
AMERICAN ARCHITECTURAL PRODUCTS, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE TWO MONTHS ENDED AUGUST 28, 1996
UNAUDITED
Net Sales $ 562,469
Cost of Goods Sold 383,258
---------
Gross Profit 179,211
Selling, General & Administrative Expense 206,866
---------
Loss from Operations (27,655)
Interest Expense, net 15,939
---------
Loss Before Income Taxes (43,594)
Income Tax Benefit (17,000)
---------
Net Loss (26,594)
Accumulated deficit, beginning 0
Distributions (170,000)
---------
Accumulated deficit, ending $(196,594)
=========
The accompanying notes are an integral part of the financial statements.
18
AMERICAN ARCHITECTURAL PRODUCTS, INC.
STATEMENT OF CASH FLOWS
FOR THE TWO MONTHS ENDED AUGUST 28, 1996
UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (26,594)
Adjustment to reconcile net loss to cash from
operating activities-
Depreciation 4,303
Changes in operating assets and liabilities:
Accounts receivable 18,857
Inventories 21,207
Prepaid expenses (11,744)
Accounts payable 45,090
Accrued expenses (11,637)
---------
Net cash from operating activities 39,482
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,000)
Purchase of Mallyclad and Vyn-L, net of cash acquired (747,858)
---------
Net cash from investing activities (755,858)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution 77,473
Proceeds from term notes 900,000
Repayment of term notes (22,439)
Distribution (170,000)
---------
Net cash from financing activities 785,034
Net Increase in Cash 68,658
Cash, Beginning Balance 0
---------
Cash, Ending Balance $ 68,658
=========
The accompanying notes are an integral part of the consolidated financial
statements.
19
AMERICAN ARCHITECTURAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Description of Business:
American Architectural Products, Inc. (the Company) was incorporated on
June 19, 1996 and is a wholly owned subsidiary of AAP Holdings, Inc.
(AAPH). The Company's controlling stockholder, an individual, acquired
ownership of two businesses, Mallyclad Corp. (Mallyclad) and Vyn-L
Corporation (Vyn-L) on June 25, 1996 (See Note 2.) Mallyclad and
Vyn-L were merged into the Company on December 18, 1996. The merger is
considered to be a transaction among companies under common control
since this individual controlled each of the companies. Accordingly,
the accompanying financial statements reflect only the combined
financial position and the combined results of operations of Mallyclad
and Vyn-L for the period June 25, 1996 through August 28, 1996. The
Company had no other operations prior to August 28, 1996.
Mallyclad manufactures vinyl clad steel and aluminum coils and
cut-to-length sheets. The Company's primary markets are the
construction, appliance and automotive industries. Products are
marketed through manufacturers representatives located throughout the
United States. Vyn-L is a steel and aluminum processor, performing
shearing and forming functions for its customers.
20
AMERICAN ARCHITECTURAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
2. Acquisitions:
On June 25, 1996, all of the issued and outstanding stock of Mallyclad
and Vyn-L was purchased by an individual for $977,473. The allocation
of the purchase price to the assets acquired and liabilities assumed is
as follows:
Assets Acquired:
Cash $ 229,615
Accounts receivable 365,437
Inventories 285,635
Prepaid expenses 18,735
Property, plant and equipment 205,310
Other assets 196,160
----------
Assets acquired 1,300,892
----------
Liabilities Assumed:
Accounts payable 179,415
Accrued expenses 144,004
----------
Liabilities assumed 323,419
----------
Purchase price $ 977,473
==========
Notes payable in the amount of $900,000 were incurred in connection
with the acquisition. Noncash distributions of $170,000 were made
subsequent to the acquisition.
21
AMERICAN ARCHITECTURAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Summary of Significant Accounting Policies:
Accounts Receivable:
There was no allowance for uncollectible accounts receivable at August
28, 1996.
Inventories:
Inventory is stated at the lower of actual cost or market value
determined on the first-in, first-out (FIFO) basis. Inventories are
reviewed annually for obsolescence and written down to net realizable
value (See Note 4).
Property and Equipment:
Property and equipment are stated at cost. Depreciation is provided for
using the straight line method 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. Depreciation expense for the two months ended August 28,
1996, was $4,303. Assets are being depreciated over their estimated
useful lives as follows:
Years
------
Machinery and equipment 7 - 15
Office equipment 5 - 10
Income Taxes:
Income taxes are provided based on financial reporting income.
4. Inventories:
Inventory consisted of the following at August 28, 1996:
Raw materials $152,328
Finished goods 112,100
--------
$264,428
========
- 3 -
22
AMERICAN ARCHITECTURAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
5. Property and Equipment:
Property and equipment consisted of the following at August 28, 1996:
Machinery and equipment $194,260
Office equipment 19,050
--------
213,310
Less: accumulated depreciation (4,303)
--------
$209,007
========
6. Long-Term Debt:
The term debt incurred in connection with the acquisition of the
Company consists of a $900,000 note with interest payable at 10%,
collateralized by all of the assets of Mallyclad. The note matures on
July 1, 2001 and requires equal monthly installments of principal and
interest in the amount of $19,189.
7. Commitments:
The Company leases certain office and manufacturing space in Madison
Heights, Michigan under a non-cancelable operating lease agreement
which expires January 1, 2001. The terms of the lease provide for
monthly payments of $14,295. Rent expense under the operating lease
agreement was $28,590 for the two months ended August 28, 1996.
8. Retirement Plan:
The Company sponsors a defined contribution retirement plan for
salaried employees. Employees are eligible to participate in the Plan
one year after their date of hire. Company contributions are required
in the amount of 4.3 percent of the participants' total compensation
plus 4.3 percent of the participants' compensation in excess of
$30,000. Contributions were $5,000 for the two months ended August 28,
1996.
- 4 -
23
AMERICAN ARCHITECTURAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
9. Subsequent Events:
On August 29, 1996, the Company acquired Eagle Window and Door, Inc.
(Eagle) and Taylor Building Products Company (Taylor) for approximately
$22 million. The Company incurred $13.4 million of bank debt and $8
million of subordinated notes due to the seller in connection with the
acquisition. The acquisition of Eagle and Taylor will be accounted for
as a purchase, with the assets acquired and liabilities assumed
recorded at fair values, and the results of operations from the date of
the acquisition included in the Company's consolidated financial
statements.
On October 25, 1996, AAPH, the Company's parent, entered into an
Agreement and Plan of Reorganization with Forte Computer Easy, Inc.
(Forte). The closing of transactions contemplated by the Agreement
occurred on December 18, 1996. Pursuant to the Agreement, AAPH
exchanged all of the issued and outstanding shares of capital stock of
the Company for 1,000,000 shares of Series A Convertible Preferred
Stock of Forte. Under the terms of the Agreement and the Series A
Preferred Stock, AAPH obtained 60 percent of the voting control of
Forte. This transaction will be accounted for as an acquisition of
Forte by the Company since AAPH obtained voting control of Forte.
Accordingly, the assets and liabilities of Forte will be recorded at
fair values, and the results of operations from the date of the
acquisition will be included in the Company's consolidated financial
statements.
The accompanying financial statements have not been adjusted for the
effects of the transactions described above.
- 5 -
24
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
August 29, 1996
ASSETS
Current Assets:
Cash $ 395,859
Accounts receivable, net 7,736,517
Inventory 8,483,224
Prepaids and other 314,240
------------
Total Current Assets 16,929,840
------------
Property, Plant and Equipment, Net 6,966,340
------------
Other Assets:
Deposits and other 93,376
------------
Total Assets $ 23,989,556
============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 2,429,053
Accrued wages and payroll taxes 453,459
Payable to affiliates 19,841,537
Other accrued expenses 2,346,756
Accrued warranty reserve - short-term portion 1,479,000
------------
Total Current Liabilities 26,549,805
------------
Long-Term Liabilities:
Accrued warranty reserve - long-term portion 3,148,412
------------
Commitments and Contingencies: --
Stockholder's Equity (Deficit):
Common stock 211,851
Additional paid-in capital 26,081,937
Accumulated deficit (32,002,449)
------------
Total Stockholder's Equity (Deficit) (5,708,661)
------------
Total Liabilities and Stockholder's
Equity (Deficit) $ 23,989,556
============
The Accompanying Notes are an Integral Part
of the Condensed Combined Financial Statements
25
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
CONDENSED COMBINED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT (UNAUDITED)
For The Eight Month Periods Ended
August 29, 1996 and 1995
1996 1995
---- ----
Revenues $ 39,971,058 $ 49,279,325
Cost of Revenues 33,832,799 45,687,243
------------ ------------
Gross Profit 6,138,259 3,592,082
Selling Expense 3,948,778 4,935,699
General and Administrative Expenses 3,141,852 3,497,374
------------ ------------
Loss from Operations (952,371) (4,840,991)
------------ ------------
Other Income (Expense):
Loss on sale of assets (773,866) (127,936)
Other 274,661 79,892
Interest expense -- (1,167,661)
------------ ------------
(499,205) (1,215,705)
------------ ------------
Loss before Income Tax Benefit (1,451,576) (6,056,696)
Income Tax Benefit 508,052 2,011,743
------------ ------------
Net Loss (943,524) (4,044,953)
Accumulated Deficit, Beginning of Period (31,058,925) (24,670,847)
------------ ------------
Accumulated Deficit, End of Period $(32,002,449) $(28,715,800)
============ ============
The Accompanying Notes are an Integral Part
of the Condensed Combined Financial Statements
26
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
For The Eight Month Periods Ended
August 29, 1996 and 1995
1996 1995
---- ----
Cash Flows from Operating Activities:
Cash received from customers $ 39,462,693 $ 47,331,732
Cash paid to suppliers and employees (38,177,166) (45,970,684)
Interest received 1,340 --
------------ ------------
Net cash provided by operating
activities 1,286,867 1,361,048
------------ ------------
Cash Flows from Investing Activities:
Cash received from sale of assets 37,289 37,775
Purchase of assets (1,678,658) (1,105,484)
------------ ------------
Net cash used by investing
activities (1,641,369) (1,067,709)
------------ ------------
Net increase (decrease) in cash (354,502) 293,339
Cash at beginning of period 750,361 212,332
------------ ------------
Cash at end of period $ 395,859 $ 505,671
============ ============
The Accompanying Notes are an Integral Part
of the Condensed Combined Financial Statements
27
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)
For The Eight Month Periods Ended
August 29, 1996 and 1995
1996 1995
---- ----
Reconciliation of Net Loss to Net Cash
Provided by Operating Activities:
Net Loss $ (943,524) $(4,044,953)
----------- -----------
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Depreciation 2,661,961 2,589,573
Loss on sale of assets 773,866 127,936
Changes in Assets and Liabilities:
Accounts receivable (781,687) (2,027,320)
Inventory (152,631) 7,258,906
Prepaids and other 134,186 (59,438)
Deposits and other (38,005) (182,101)
Accounts payable (430,203) (998,580)
Accrued wages and payroll taxes 72,539 74,468
Other accrued expenses 828,870 694,837
Payable to affiliates (641,117) (1,572,280)
Accrued warranty reserve (197,388) (500,000)
----------- -----------
2,230,391 5,406,001
----------- -----------
Net cash provided by operating
activities $ 1,286,867 $ 1,361,048
=========== ===========
The Accompanying Notes are an Integral Part
of the Condensed Combined Financial Statements
28
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
1. Summary of Significant Accounting Policies and Use of Estimates:
Basis of Presentation:
The combined financial statements include the financial position,
results of operations and cash flows of Eagle Window & Door, Inc. and
Subsidiaries and Taylor Building Products Company (the Companies). All
material intercompany transactions, accounts and balances have been
eliminated.
Each Company was a wholly-owned subsidiary of MascoTech, Inc. Because of
these relationships, the financial statements of the Companies have been
prepared on a combined format as if they were a single entity. In
addition, MascoTech, Inc. provided the Companies' treasury function, and
allocated various expenses, including a charge for interest expense. In
contemplation of the sale of the Companies, Mascotech did not charge
interest expense to the Companies in the eight months ended August 29,
1996.
Condensed Combined Interim Financial Information:
The unaudited interim financial statements include all adjustments
(consisting of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation of the results of the
interim periods. The results of operations for the eight month period
ended August 31, 1996 are not necessarily indicative of the results for
the entire year. These financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X, and do not contain certain
information required by generally accepted accounting principles. These
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual financial
statements for the fiscal year ended December 31, 1995, as included
elsewhere herein.
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.
Earnings Per Share:
Historical earnings per share data has not been presented in the
accompanying financial statements due to the subsequent acquisition of
the two (2) Companies by American Architectural Products, Inc. and its
reverse merger with a public reporting company.
29
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (Continued) (UNAUDITED)
2. Restructuring Charge:
In September, 1995, Taylor's management adopted a restructuring plan to
address recurring operating losses. The goal of the plan was to reduce
overhead through a plan of business consolidation and simplification.
The major components to the plan were: (1) closure of its satellite
locations in Florida and Texas; (2) elimination of its "non-core"
product lines; and (3) improve the proficiency of its entry and garage
door lines. As a result of the restructuring plan, the Company incurred
costs for liquidation of inventory, loss on the sale and abandonment of
fixed assets, severance pay, and other related costs.
A restructuring charge in the approximate amount of $2,600,000 was
recorded subsequent to August 29, 1995.
3. Inventories:
As of August 29, 1996, inventories consisted of the following:
Raw materials $ 6,118,026
Work in process 1,366,212
Finished goods 1,473,501
-----------
8,957,739
Less: provision for obsolete inventories (474,515)
-----------
$ 8,483,224
===========
4. Subsequent Events:
Acquisition:
Effective August 29, 1996, the Companies were acquired by American
Architectural Products, Inc. (AAP). On December 18, 1996, AAP Holdings,
Inc. (AAPH, parent of AAP) consummated transactions contemplated by an
Agreement and Plan of Reorganization dated October 25, 1996. Under terms
of this Agreement, all of the capital stock of AAP was acquired from
AAPH by Forte Computer Easy, Inc. (FCEI) in exchange for a sixty percent
(60%) interest in FCEI. The financial statements do not give effect to
these transactions.
30
To The Board of Directors and Stockholders of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited the accompanying combined balance sheets of Eagle Window & Door,
Inc. and Subsidiaries and Taylor Building Products Company (Wholly-Owned
Subsidiaries), as of December 31, 1995 and 1994, and the related combined
statements of operations and accumulated deficit, and cash flows for the years
then ended. These combined financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Eagle
Window & Door, Inc. and Subsidiaries and Taylor Building Products Company
(Wholly-Owned Subsidiaries) as of December 31, 1995 and 1994, and the results of
their combined operations and cash flows for the years then ended in conformity
with generally accepted accounting principles.
Phoenix, Arizona Semple & Cooper, P.L.C.
January 31, 1997
31
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
---- ----
Current Assets:
Cash (Note 2) $ 750,361 $ 212,332
Accounts receivable, net (Note 1) 6,954,830 7,901,250
Inventory (Notes 1 and 3) 8,330,593 18,234,183
Prepaids and other 448,426 569,385
------------ ------------
Total Current Assets 16,484,210 26,917,150
------------ ------------
Property, Plant and Equipment,
Net (Notes 1 and 4) 8,760,799 10,844,153
------------ ------------
Other Assets:
Deposits and other 55,370 132,269
------------ ------------
Total Assets $ 25,300,379 $ 37,893,572
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 2,859,256 $ 3,342,794
Accrued wages and payroll taxes 371,510 567,118
Payable to affiliates (Note 10) 20,482,654 25,427,638
Other accrued expenses 1,527,296 1,783,282
Accrued warranty reserve - short-term
portion (Note 9) 1,566,000 1,740,000
------------ ------------
Total Current Liabilities 26,806,716 32,860,832
------------ ------------
Long-Term Liabilities:
Accrued warranty reverse - long-term
portion (Note 9) 3,258,800 3,409,800
------------ ------------
Commitments and Contingencies: (Note 5) -- --
Stockholder's Equity (Deficit): (Note 6)
Common stock 211,851 211,851
Additional paid-in capital 26,081,937 26,081,937
Accumulated deficit (31,058,925) (24,670,848)
------------ ------------
Total Stockholder's Equity (Deficit) (4,765,137) 1,622,940
------------ ------------
Total Liabilities and
Stockholder's Equity (Deficit) $ 25,300,379 $ 37,893,572
============ ============
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
32
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
For The Years Ended December 31, 1995, 1994 and 1993
(Unaudited)
1995 1994 1993
---- ---- ----
Revenues $ 72,962,690 $ 92,644,635 $ 113,741,486
Cost of Revenues 65,839,633 83,387,571 100,655,248
------------- ------------- -------------
Gross Profit 7,123,057 9,257,064 13,086,238
Selling Expense 6,619,136 9,166,868 12,406,431
General and Administrative
Expenses 5,714,966 5,084,716 7,327,844
Restructuring Charge
(Note 7) 2,642,939 -- --
------------- ------------- -------------
Loss from Operations (7,853,984) (4,994,520) (6,648,037)
------------- ------------- -------------
Other Income (Expense):
Interest expense (Note 10) (1,755,177) (2,040,067) (2,028,034)
Gain (Loss) on sale of
assets (375,325) (23,293) 4,923
Other 38,984 69,440 149,816
------------- ------------- -------------
(2,091,518) (1,993,920) (1,873,295)
------------- ------------- -------------
Loss before Income Tax
Benefit (9,945,502) (6,988,440) (8,521,332)
Income Tax Benefit (Note 1) 3,557,425 2,550,020 2,987,040
------------- ------------- -------------
Net Loss (6,388,077) (4,438,420) (5,534,292)
Accumulated Deficit,
Beginning of Year (24,670,848) (20,232,428) (14,698,136)
------------- ------------- -------------
Accumulated Deficit,
End of Year $ (31,058,925) $ (24,670,848) $ (20,232,428)
============= ============= =============
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
33
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1995, 1994 and 1993
(Unaudited)
1995 1994 1993
---- ---- ----
Cash Flows from Operating
Activities:
Cash received from
customers $ 73,112,175 $ 97,443,508 $ 111,509,790
Cash paid to suppliers
and employees (70,132,913) (95,570,911) (110,644,441)
Interest paid (3,686) (8,711) (7,622)
Interest received 4,504 20,548 31,898
Restructuring costs (423,909) -- --
------------- ------------- -------------
Net cash provided by
operating activities 2,556,171 1,884,434 889,625
------------- ------------- -------------
Cash Flows from Investing
Activities:
Cash received from sale
of equipment 558,265 278,139 49,653
Purchase of equipment (2,576,407) (1,885,382) (1,246,623)
------------- ------------- -------------
Net cash used by
investing activities (2,018,142) (1,607,243) (1,196,970)
------------- ------------- -------------
Cash Flows from Financing
Activities:
Repayment of debt -- (64,859) (6,569)
------------- ------------- -------------
Net cash used by
financing activities -- (64,859) (6,569)
------------- ------------- -------------
Net increase (decrease)
in cash 538,029 212,332 (313,914)
Cash at beginning of year 212,332 -- 313,914
------------- ------------- -------------
Cash at end of year $ 750,361 $ 212,332 $ --
============= ============= =============
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
34
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED STATEMENTS OF CASH FLOWS
(Continued) For The Years Ended December 31, 1995, 1994 and 1993
(Unaudited)
1995 1994 1993
---- ---- ----
Reconciliation of Net Loss
to Net Cash Provided by
Operating Activities:
Net Loss $(6,388,077) $(4,438,420) $(5,534,292)
----------- ----------- -----------
Adjustments to Reconcile Net
Loss to Net Cash Provided
by Operating Activities:
Depreciation 3,310,040 3,926,218 4,033,723
(Gain) Loss on sale of
assets 375,325 23,293 (4,923)
Abandonment of fixed
assets in
restructuring 416,131 -- --
Changes in Assets and
Liabilities:
Accounts receivable 946,420 5,319,036 (1,204,657)
Inventory 9,903,590 2,577,426 (1,094,874)
Prepaids and other 120,959 88,377 (123,221)
Deposits and other 76,899 674 447,827
Accounts payable (483,538) (806,796) (1,423,265)
Accrued wages and
payroll taxes (195,608) (31,983) 166,563
Other accrued expenses (255,986) (1,457,456) (647,164)
Payable to affiliates (4,944,984) (3,364,082) 6,722,045
Accrued warranty reserve (325,000) 48,147 (448,137)
----------- ----------- -----------
8,944,248 6,322,854 6,423,917
----------- ----------- -----------
Net cash provided by
operating activities $ 2,556,171 $ 1,884,434 $ 889,625
=========== =========== ===========
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
35
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Use of Estimates:
Basis of Presentation:
The combined financial statements include the financial position,
results of operations and cash flows of Eagle Window & Door, Inc. and
Subsidiaries and Taylor Building Products, Inc. (the Companies). All
material intercompany transactions, accounts and balances have been
eliminated.
Each Company was a wholly-owned subsidiary of MascoTech, Inc. Because of
these relationships, the financial statements of the Companies have been
prepared on a combined format as if they were a single entity. In
addition, MascoTech, Inc. provided the Companies' treasury function, and
allocated various expenses (See Note 10).
Eagle Window & Door, Inc. and Subsidiaries (Eagle) are engaged in the
manufacture of aluminum clad and all wood windows and doors. The
Company's primary market is the construction industry. Products are
marketed through various distributors located throughout the United
States and Pacific Rim. Eagle's wholly-owned subsidiaries, Eagle Window
& Door of Bellevue, Inc. and Eagle Service Company, are engaged in the
sale and distribution of windows and doors throughout the United States.
The accompanying combined financial statements include the consolidated
accounts of Eagle Window & Door, Inc. and its wholly-owned subsidiaries
, Eagle Window & Door of Bellevue, Inc. and Eagle Service Company. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
Taylor Building Products Company (Taylor) is engaged in the manufacture
of entry and garage doors. The Company markets entry doors under the
brand names of Perma Door and Taylor Door. The Perma Door brand is
primarily marketed through millwork distributors and the Taylor Door
brand is primarily marketed through installing dealers. The Company
markets garage doors under the Taylor Door brand name throughout the
United States.
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.
36
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies and Use of Estimates:
(Continued)
Earnings Per Share:
Historical earnings per share data has not been presented in the
accompanying financial statements due to the subsequent acquisition of
the two (2) Companies by American Architectural Products, Inc. and its
reverse merger with a public reporting company (See Note 13).
Accounts Receivable:
As of December 31, 1995 and 1994, allowances have been established for
potentially uncollectible accounts receivable in the amounts of $445,418
and $648,385, respectively.
Inventories:
Inventory is stated at the lower of cost, first-in, first-out method, or
market. Inventories are reviewed for obsolescence periodically, and an
allowance is established to record potentially obsolete inventory at net
realizable value (See Note 3).
Property and Equipment:
Property and equipment are stated at cost. Depreciation is provided for
using the straight-line method 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.
Depreciation expense for the years ended December 31, 1995, 1994 and
1993, was $3,310,040, $3,926,218 and $4,033,723 (unaudited),
respectively. Assets are being depreciated over their estimated useful
lives, as follows:
Years
-----
Buildings and improvements 40
Machinery and equipment 6-15
Computer and office equipment 10
Tools, dies and fixtures 3
Income Taxes:
The Companies file their income tax returns on a consolidated basis with
their parent company. All provisions for federal and state income taxes,
including provisions for deferred income taxes, are provided for through
the intercompany accounts.
37
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies and Use of Estimates:
(Continued)
Advertising:
The cost of advertising is expensed as incurred. Advertising expense was
$1,192,915, $1,426,021 and $890,780 (unaudited), respectively, for the
years ended December 31, 1995, 1994 and 1993.
2. Concentration of Credit Risk:
The combined Companies maintain cash balances at various financial
institutions. At December 31, 1995 and 1994, the combined Companies have
uninsured cash in the approximate amounts of $670,000 and $734,000,
respectively.
3. Inventories:
As of December 31, 1995 and 1994, inventories consisted of the
following:
1995 1994
---- ----
Raw materials $ 7,106,775 $ 8,213,917
Work in process 1,215,724 3,873,183
Finished goods 1,631,594 7,702,083
------------ ------------
9,954,093 19,789,183
Less: provision for obsolete inventories (1,623,500) (1,555,000)
------------ ------------
$ 8,330,593 $ 18,234,183
============ ============
Included in the allowance for obsolete inventory as of December 31, 1995
is approximately $1,260,000 for future losses from Taylor Building
Products Company's restructuring plan (See Note 7).
38
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
4. Property, Plant and Equipment:
As of December 31, 1995 and 1994, property, plant and equipment
consisted of the following:
1995 1994
---- ----
Land and improvements $ 407,523 $ 388,690
Buildings and improvements 7,996,419 7,693,066
Machinery and equipment 10,807,526 12,322,099
Computer and office equipment 3,238,291 2,875,659
Tools, dies and fixtures 1,962,048 2,535,934
------------ ------------
24,411,807 25,815,448
Less: accumulated depreciation (15,651,008) (14,971,295)
------------ ------------
$ 8,760,799 $ 10,844,153
============ ============
5. Commitments and Contingencies:
Commitments:
The Companies are currently leasing certain office and manufacturing
space in Dubuque, Iowa and West Branch, Michigan under non-cancellable
operating lease agreements which expire through July, 1997. The terms of
the combined leases provide for monthly payments totalling approximately
$12,000. The lease terms also require the Companies to pay common area
maintenance, taxes, insurance and other costs. The Companies are also
leasing equipment under various non-cancellable operating lease
agreements which expire through July, 2000. Rent expense under the
operating lease agreements was $817,418, $927,916 and $837,934
(unaudited), respectively, for the years ended December 31, 1995, 1994
and 1993.
A schedule of future minimum lease payments due under the
non-cancellable operating lease agreements, is as follows:
Year Ended
December 31, Amount
1996 $ 595,370
1997 330,465
1998 221,577
1999 88,472
2000 4,729
----------
$1,240,613
==========
39
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
5. Commitments and Contingencies: (Continued)
Contingencies:
Environmental Issue:
Based on an evaluation of Eagle Window & Door, Inc.'s operating
facilities, asbestos-containing materials were located in various
sections of the facility. No provision or accrual has been made to
provide for any potential future costs for abatement because, in
management's opinion, they should not have a material adverse effect
upon the combined financial position of the Companies. In connection
with the sale of the Companies to AAP, the former parent of the
Companies agreed to bear certain abatement costs relating to this
matter.
Litigation:
At December 31, 1995, the Companies were a party to several lawsuits.
The Companies believe that the lawsuits are without merit and intend to
vigorously defend their position. Therefore, no provision for any
potential losses has been made in the accompanying financial statements,
except for the following:
Subsequent to the balance sheet date, December 31, 1995, a lawsuit was
settled for approximately $165,000. Accordingly, a provision for the
loss has been charged to operations in the accompanying financial
statements for the year ended December 31, 1995.
6. Stockholders' Equity:
The stock of Taylor Building Products Company consists of 1,000 shares
of $1 par value common stock authorized, issued and outstanding. The
stock of Eagle Window & Door, Inc. consists of 500,000 shares of $1 par
value common stock authorized, 210,851 shares issued and outstanding.
7. Restructuring Charge:
In September, 1995, Taylor's management adopted a restructuring plan to
address recurring operating losses. The goal of the plan was to reduce
overhead through a plan of business consolidation and simplification.
The major components to the plan were: (1) closure of its satellite
locations in Florida and Texas; (2) elimination of its "non-core"
product lines; and (3) improve the proficiency of its entry and garage
door lines. As a result of the restructuring plan, the Company incurred
costs for liquidation of inventory, loss on the sale and abandonment of
fixed assets, severance pay, and other related costs.
40
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
7. Restructuring Charge: (Continued)
The restructuring charge for the year ended December 31, 1995, consisted
of the following:
Realized loss on inventory $1,802,897
Loss on sale and abandonment of
fixed assets 416,131
Severance pay 281,012
Other 142,899
----------
$2,642,939
==========
As of December 31, 1995, an accrual in the approximate amount of
$1,260,000 has been made for the remaining costs to complete the
restructuring plan. The restructuring plan was completed during the
first quarter of 1996.
8. Statements of Cash Flows:
Non-Cash Investing and Financing Activities:
During the year ended December 31, 1995, the Companies recognized an
investing activity that affected equity, but did not result in cash
receipts or payments. This non-cash activity consisted of the write off
of notes receivable deemed uncollectible in the amount of $344,473.
During the year ended December 31, 1994, the Companies recognized an
investing activity that affected assets and liabilities, but did not
result in cash receipts or payments. This non-cash activity was a
devaluation of fixed assets assigned to the Companies by the parent
company, offset against amounts due to the parent company.
9. Warranty Reserve:
The Companies sell the majority of their products with limited
warranties of two (2) to twenty-five (25) years. At December 31, 1995
and 1994, the accompanying financial statements include a reserve of
$4,824,800 and $5,149,800, respectively, for estimated warranty claims
based on the Companies' experience of prior claims.
41
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
10. Related Party Transactions:
As of December 31, 1995 and 1994, the Companies had amounts payable to
affiliates of $20,482,654 and $25,427,638, respectively. These
affiliates consisted primarily of the parent company and subsidiaries of
the parent company. Various shared expenses were charged to the
Companies through the payable to affiliate account. These expenses
included items such as general insurance, health insurance, and workers
compensation insurance, which were charged based on specific
identification of the expense. For the years ended December 31, 1995,
1994 and 1993, total expenses charged to the Companies through specific
identification were $3,588,020, $4,357,726 and $4,527,768 (unaudited),
respectively.
In addition, MascoTech, Inc., the parent company, charged the Companies
a management fee based on budgeted sales for the various operating
subsidiaries. For the years ended December 31, 1995, 1994 and 1993 total
management fees charged to the Companies were $1,314,700, $1,481,200 and
$1,619,400 (unaudited), respectively.
MascoTech, Inc. also provided cash management services for the
Companies. As of December 31, 1995, 1994 and 1993, the Companies had
recorded interest expense in relation to these amounts payable to
affiliates of $1,755,177, $2,040,067 and $2,020,414 (unaudited),
respectively.
11. Benefit Plans:
401K Profit Sharing Plan and Pension Plan:
The Companies' former parent sponsored the MascoTech, Inc. Salaried
Savings Plan. All salaried employees of the Company with three (3)
months of service, were eligible to participate in the Plan. The Plan
operates as a 401K Savings Plan. The Plan does not provide for a
discretionary matching or profit sharing contribution. As such, no
expense has been recorded for contributions in the accompanying
financial statements.
The Companies' former parent sponsored the MascoTech, Inc. Master Hourly
Employees' Pension Plan. All hourly employees of the Companies were
eligible to participate in the Plan with participation commencing on the
date of hire. Benefits in the Plan are vested and based on the number of
years of credited service.
Pursuant to the sale of the Companies to American Architectural
Products, Inc., in August, 1996, and in accordance with Section 7.03 of
the Stock Purchase Agreement, coverage under these plans ceased. The
seller agreed to fully vest all participants and pay benefits in the
normal course of the plans. As such, no liability has been reported in
the accompanying combined financial statements for any potential
unfunded liabilities.
42
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
11. Benefit Plans: (Continued)
Health Care Plan:
Eagle sponsors the Eagle Window & Door, Inc. Employee Health Care Plan
for all full-time employees who work at least thirty (30) hours per
week. An employee shall be eligible the first month coincident with, or
next, following completion of sixty (60) working days. The Plan is
funded with contributions made by Eagle and the participating employee.
As of December 31, 1995 and 1994, a provision has been made in the
amounts of $170,200 and $187,000, respectively, for future benefits.
Post-Retirement Benefits:
Taylor Building Products Company sponsors a post-retirement health
benefit program pursuant to its collective bargaining contract. Under
the principal terms of the contract, the Company will pay a retired
employee with a minimum of ten (10) years service, a benefit of $100 per
month after retirement at age 62. As of the date of the financial
statements, no material post-retirement benefit obligation has been
incurred.
Labor Force:
Most of the hourly employees of Taylor Building Products Company,
comprising approximately eighty-five percent (85%) of the total labor
force, are covered under a collective bargaining agreement. The contract
expired in February, 1997, and was renegotiated for an additional five
(5) years.
12. Economic Dependency:
For the years ended December 31, 1995, 1994 and 1993 (unaudited), Eagle
Window & Door, Inc. purchased approximately thirty-eight percent (38%),
twenty-four percent (24%), and twenty-five percent (25%) (unaudited),
respectively, of their materials from two (2) suppliers. At December 31,
1995 and 1994, amounts due to the suppliers included in accounts payable
were $254,584 and $628,768, respectively.
For the years ended December 31, 1995, 1994 and 1993 (unaudited), Taylor
Building Products Company purchased approximately sixteen percent (16%),
fourteen percent (14%) and ten percent (10%), respectively of their
materials from one (1) supplier. At December 31, 1995 and 1994, amounts
due to the supplier included in accounts payable were approximately
$452,000 and $434,000, respectively.
43
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
13. Subsequent Events:
Acquisition:
Effective August 29, 1996, the Companies were acquired by American
Architectural Products, Inc. (AAP). On December 18, 1996, AAP Holdings,
Inc. (AAPH, parent of AAP) consummated transactions contemplated by an
Agreement and Plan of Reorganization dated October 25, 1996. Under terms
of this Agreement, all of the capital stock of AAP was acquired from
AAPH by Forte Computer Easy, Inc. (FCEI) in exchange for a sixty percent
(60%) interest in FCEI. The financial statements do not give effect to
these transactions.
44
MALLYCLAD CORP.
CONDENSED BALANCE SHEETS
UNAUDITED
6/30/96 6/30/95
------- -------
ASSETS
CURRENT ASSETS:
Cash $ 202,218 $ 81,521
Accounts receivable 382,176 522,116
Inventory 284,205 518,686
Prepaids and other assets 18,783 9,602
---------- ----------
Total Current Assets 887,382 1,131,925
NONCURRENT ASSETS:
Property and equipment, net 109,297 165,209
Other assets 0 24,000
---------- ----------
Total Noncurrent Assets 109,297 189,209
---------- ----------
Total Assets $ 996,679 $1,321,134
========== ==========
LIABILITIES & STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 146,574 $ 376,569
Accrued expenses 106,299 52,376
Revolving line of credit 0 70,000
---------- ----------
Total Current Liabilities 252,873 498,945
LONG-TERM LIABILITIES:
Other liabilities 0 5,300
---------- ----------
Total Long-Term Liabilities 0 5,300
---------- ----------
Total Liabilities 252,873 504,245
STOCKHOLDER'S EQUITY:
Capital Stock 50,000 50,000
Retained Earnings 693,806 766,889
---------- ----------
Total Equity 743,806 816,889
---------- ----------
Total Liabilities & Stockholder's Equity $ 996,679 $1,321,134
========== ==========
The accompanying note is an integral part of the financial statements.
45
MALLYCLAD CORP.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
UNAUDITED
FOR THE SEVEN MONTHS ENDED
------------------------------
6/30/96 6/30/95
----------- -----------
Net Sales $ 1,888,966 $ 2,391,534
Cost of Goods Sold 1,577,182 2,089,095
----------- -----------
Gross Profit 311,784 302,439
Selling, General & Administrative Expense 332,938 384,761
----------- -----------
Loss from Operations (21,154) (82,322)
Interest Expense, net 440 (710)
Other Income (17,167) (25,315)
----------- -----------
Net Loss (4,427) (56,297)
Retained earnings, beginning 698,233 823,186
----------- -----------
Retained earnings, ending $ 693,806 $ 766,889
=========== ===========
The accompanying note is an integral part of the financial statements.
46
MALLYCLAD CORP.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
FOR THE SEVEN MONTHS ENDED
--------------------------
6/30/96 6/30/95
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,427) $ (56,297)
Adjustment to reconcile net loss to cash from
operating activities-
Depreciation 35,000 56,000
Changes in operating assets and liabilities:
Accounts receivable 170,155 203,979
Inventories 146,697 8,789
Prepaid expenses 1,518 9,322
Other assets 24,000 0
Accounts payable (145,530) (130,831)
Accrued expenses (14,422) (104,621)
--------- ---------
Net cash from operating activities 212,991 (13,659)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,737) (44,691)
--------- ---------
Net cash from investing activities (1,737) (44,691)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 0 70,000
Repayment of revolving line of credit (100,000) 0
--------- ---------
Net cash from financing activities (100,000) 70,000
Net Increase in Cash 111,254 11,650
Cash, Beginning Balance 90,964 69,871
--------- ---------
Cash, Ending Balance $ 202,218 $ 81,521
========= =========
The accompanying note is an integral part
of the financial statements.
47
MALLYCLAD CORP.
NOTE TO CONDENSED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting principles.
They do not include all of the information and footnotes required by
generally accepted accounting principles for audited year-end financial
statements. In the opinion of management, all adjustments for recurring
accruals considered necessary to present fairly the Company's
statements for all periods presented have been made. Operating results
for the seven month period ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended
November 30, 1996. These unaudited financial statements should be read
in conjunction with the financial statements and footnotes thereto of
the Company for the years ended November 30, 1995 and 1994.
48
MALLYCLAD CORP.
BALANCE SHEETS
UNAUDITED
11/30/95 11/30/94
ASSETS
CURRENT ASSETS:
Cash $ 90,964 $ 69,871
Accounts receivable 552,331 726,095
Inventory 430,902 527,475
Prepaids and other assets 20,301 18,924
---------- ----------
Total Current Assets 1,094,498 1,342,365
NONCURRENT ASSETS:
Property and equipment, net 142,560 176,518
Other assets 24,000 24,000
---------- ----------
Total Noncurrent Assets 166,560 200,518
---------- ----------
Total Assets $1,261,058 $1,542,883
========== ==========
LIABILITIES & STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 292,104 $ 507,400
Accrued expenses 120,721 156,997
Revolving line of credit 100,000 0
---------- ----------
Total Current Liabilities 512,825 664,397
LONG-TERM LIABILITIES:
Other liabilities 0 5,300
---------- ----------
Total Long-Term Liabilities 0 5,300
---------- ----------
Total Liabilities 512,825 669,697
STOCKHOLDER'S EQUITY:
Capital Stock 50,000 50,000
Retained Earnings 698,233 823,186
---------- ----------
Total Equity 748,233 873,186
---------- ----------
Total Liabilities & Stockholder's Equity $1,261,058 $1,542,883
========== ==========
The accompanying notes are an integral part of the financial statements.
49
MALLYCLAD CORP.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
UNAUDITED
FISCAL YEAR ENDED
---------------------------------------------------
11/30/95 11/30/94 11/30/93
----------- ----------- -----------
Net Sales $ 3,941,989 $ 4,501,396 $ 2,867,878
Cost of Goods Sold 3,506,447 3,769,320 2,441,525
----------- ----------- -----------
Gross Profit 435,542 732,076 426,353
Selling, General & Administrative Expense 617,302 642,344 457,854
----------- ----------- -----------
Income (Loss) from Operations (181,760) 89,732 (31,501)
Interest Expense, net 798 (6,804) (5,402)
Other (Income) Expense (37,919) (40,108) (37,151)
----------- ----------- -----------
Income (Loss) Before Income Taxes (144,639) 136,644 11,052
Provision (Benefit) for Income Taxes (20,686) 41,629 12,200
----------- ----------- -----------
Net Income (Loss) (123,953) 95,015 (1,148)
Retained earnings, beginning 823,186 729,171 731,319
Dividends declared (1,000) (1,000) (1,000)
----------- ----------- -----------
Retained earnings, ending $ 698,233 $ 823,186 $ 729,171
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
50
MALLYCLAD CORP.
STATEMENTS OF CASH FLOWS
UNAUDITED
FISCAL YEAR ENDED
---------------------------------------------
11/30/95 11/30/94 11/30/93
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($123,953) $ 95,015 ($ 1,148)
Adjustment to reconcile net income (loss) to cash
from operating activities-
Depreciation 79,284 46,778 100,236
Changes in operating assets and liabilities:
Accounts receivable 173,764 (217,541) 92,278
Inventories 96,573 (198,249) (50,297)
Prepaid expenses (1,377) 3,377 1,756
Accounts payable (215,296) 211,780 104,346
Accrued expenses (41,576) 56,648 (6,345)
--------- --------- ---------
Net cash from operating activities (32,581) (2,192) 240,826
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (45,326) (104,117) 0
--------- --------- ---------
Net cash from investing activities (45,326) (104,117) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 100,000 0 0
Repayment of revolving line of credit 0 (46,719) (107,073)
Dividends paid (1,000) (1,000) (1,000)
--------- --------- ---------
Net cash from financing activities 99,000 (47,719) (108,073)
Net Increase (Decrease) in Cash 21,093 (154,028) 132,753
Cash, Beginning Balance 69,871 223,899 91,146
--------- --------- ---------
Cash, Ending Balance $ 90,964 $ 69,871 $ 223,899
========= ========= =========
The accompanying notes are an integral part
of the financial statements.
51
MALLYCLAD CORP.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Description of Business:
Mallyclad Corp. (the Company) manufactures vinyl clad steel and
aluminum coils and cut-to-length sheets. The Company's primary markets
are the construction, appliance and automotive industries. Products are
marketed through manufacturers representatives located throughout the
United States.
2. Summary of Significant Accounting Policies:
Accounts Receivable:
As of November 30, 1995 and 1994, there were no allowances for
uncollectible accounts receivable.
Inventories:
Inventory is stated at the lower of actual cost or market value
determined on the first-in, first-out (FIFO) basis. Inventories are
reviewed annually for obsolescence and written down to net realizable
value (See Note 3).
Property and Equipment:
Property and equipment are stated at cost. Depreciation is provided for
using accelerated 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. Depreciation expense for the years ended November 30, 1995,
1994 and 1993, was $79,284, $46,778 and $100,236, respectively. Assets
are being depreciated over their estimated useful lives as follows:
Years
-----
Machinery and equipment 7 - 15
Leasehold improvements 7 - 31
Computers and office equipment 5 - 10
Income Taxes:
Income taxes are provided based on financial reporting income.
52
MALLYCLAD CORP.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Inventories:
As of November 30, 1995 and 1994, inventory consisted of the following:
1995 1994
---- ----
Raw materials $355,670 $422,175
Finished goods 75,232 105,300
-------- --------
$430,902 $527,475
======== ========
4. Property and Equipment:
As of November 30, 1995 and 1994, property and equipment consisted of
the following:
1995 1994
---- ----
Machinery and equipment $ 2,103,680 $ 2,066,550
Leasehold improvements 123,456 118,931
Computers and office equipment 79,789 76,119
----------- -----------
2,306,925 2,261,600
Less: accumulated depreciation (2,164,365) (2,085,082)
----------- -----------
$ 142,560 $ 176,518
=========== ===========
- 2 -
53
MALLYCLAD CORP.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
5. Revolving Line of Credit:
The Company had a $400,000 revolving line of credit based on a blanket
lien against all assets of the Company. The outstanding borrowings on
the line were $100,000 and $0 respectively, for the years ended
November 30, 1995 and 1994. The interest rate on the line was prime
plus 1/2 percent. Interest expense was $5,086, $467, and $6,926,
respectively, for the years ended November 30, 1995, 1994 and 1993.
6. Commitments:
The Company leases certain office and manufacturing space in Madison
Heights, Michigan from the Company's owner under a non-cancelable
operating lease agreement which expires January 1, 2001. The terms of
the lease provide for monthly payments of $14,295. Rent expense under
the operating lease agreement was $140,250 for each of the years ended
November 30, 1995, 1994 and 1993.
7. Stockholder's Equity:
The stock of Mallyclad Corp. consists of 50,000 shares of $1 par value
common stock authorized, issued and outstanding.
8. Retirement Plan:
The Company sponsors a defined contribution retirement plan for
salaried employees. Employees are eligible to participate in the Plan
one year after their date of hire. Company contributions are required
in the amount of 4.3 percent of the participants' total compensation
plus 4.3 percent of the participants' compensation in excess of
$30,000. Contributions were $30,974, $31,641 and $29,456, respectively,
for the years ended November 30, 1995, 1994 and 1993.
9. Subsequent Event:
On June 25, 1996, all of the issued and outstanding stock of Mallyclad
Corporation was purchased by an individual for $951,604. The financial
statements are not adjusted for the effects of this transaction.
- 3 -