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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934
Date of earliest event reported: December 31, 2004
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GLOBAL MATRECHS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
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(STATE OR OTHER JURISDICTION OF INCORPORATION OF ORGANIZATION)
0-29204 58-2153309
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(COMMISSION FILE NUMBER) (I.R.S. ID)
90 GROVE STREET, SUITE 201, RIDGEFIELD, CT 06877
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 431-6665
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Check the appropriate box below if the FORM 8-K/A filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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GENERAL EXPLANATION
The purpose of this report is to amend the Registrant's Current Report on Form
8-K dated December 31, 2004 that was filed with the Securities and Exchange
Commission on January 6, 2005, (the "Initial Report") which reported on the
acquisition of True To Form Ltd. This report amends the Initial Report so as to
provide the information required under Item 9.01(a) and 9.01(b) of Form 8-K.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
Financial Statements of True To Form Ltd.
Independent Auditors' Report
Balance Sheets Dated as of December 31, 2004 and December 31, 2003
Statements of Operations for the Years ended December 31, 2004 and
December 31, 2003.
Statement of Stockholders' Deficit for the Years ended December 31,
2004 and December 31, 2003.
Statements of Cash Flows for the Years ended December 31, 2004 and
December 31, 2003.
Notes to Financial Statements for the Years ended December 31, 2004
and December 31, 2003.
(b) Pro Forma Financial Statements of Business Acquired
Unaudited Pro Forma Combined Financial Statements of Global Matrechs,
Inc.
Unaudited Pro Forma Statements of Operations for the year ended
December 31, 2004.
Consolidated Statements of Operations for the three months ended March
31, 2005.
Page 2
(a) Financial Statements of Business Acquired
FINANCIAL STATEMENTS OF DEVELEMENTS, INC.
INDEX TO FINANCIAL STATEMENTS
Independent auditors' report ........................... 4
Balance sheets .......................................... 5
Statements of operations ............................... 6
Statement of changes in stockholders' deficit ........... 7
Statements of cash flows ................................ 8
Notes to financial statements ........................... 9
Page 3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
True to Form Ltd.
We have audited the accompanying consolidated balance sheet of True to Form Ltd.
as of December 31, 2004 and 2003, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
2004 and 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amount and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of True to Form Ltd. as of
December 31, 2004 and 2003, and the results of their operations and their cash
flows for the years ended December 31, 2004 and 2003, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company had net losses and cash used in operations of
$277,067 and $117,367 respectively, for the year ended December 31, 2004. This
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Sherb & Co., LLP
Certified Public Accountants
New York, New York
April 20, 2005
Page 4
True To Form Ltd
BALANCE SHEETS
12/31/2004 12/31/2003
---------- ----------
Current assets:
Accounts receivable ............................... $ 94,551 $ 70,419
Inventories ....................................... 67,906 101,407
--------- ---------
Total current assets .............................. 162,457 171,826
Property and equipment:
Computers and equipment ........................... 8,548 8,548
Furniture and fixtures ............................ 7,199 7,199
Vehicles .......................................... 32,160 32,160
Less: Accumulated depreciation ......................... (19,477) (11,236)
--------- ---------
Total property and equipment ........................... 28,430 36,671
Other assets:
Deposits........................................... 2,575 4,782
Other assets ...................................... -- 395
--------- ---------
Total other assets ..................................... 2,575 5,177
--------- ---------
Total assets ........................................... $ 193,462 $ 213,674
--------- ---------
Liabilities and stockholders' equity (deficit)
Current liabilities:
Bank overdraft .................................... 3,482 4,063
Line of credit .................................... 179,302 60,000
Current maturities of long-term debt .............. 6,860 6,336
Accounts payable .................................. 178,330 59,206
Accrued expenses .................................. 31,985 11,621
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Total current liabilities .............................. 399,959 141,226
Other liabilities:
Due to shareholder ................................ 147,309 142,859
Long-term debt - other, net of current maturities. 15,302 21,630
--------- ---------
Total other liabilities ................................ 162,611 164,489
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Total Liabilities: 562,570 305,715
Stockholders' deficit:
Common Stock, no par value; 200,000 shares
authorized; 100 shares issued and outstanding
at December 31, 2004 and December 31, 2003,
respectively) .......................................... 5,642 5,642
Retained earnings (accumulated deficit) ................ (374,750) (97,683)
--------- ---------
Total stockholders' deficit ............................ (369,108) (92,041)
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Total liabilities and stockholders' deficit ............ $ 193,462 $ 213,674
--------- ---------
The accompanying notes are an integral part of these financial statements.
Page 5
True To Form Ltd
STATEMENTS OF OPERATIONS
Year ended Year ended
12/31/2004 12/31/2003
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Sales ....................... $ 1,014,810 $ 1,608,202
Cost of goods sold:
Materials and labor ....... 647,407 755,549
Freight and packaging ..... 115,011 107,662
Other ..................... 11,733 8,490
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Total cost of goods sold .... 774,151 871,701
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Gross Profit ................. 240,659 736,501
Operating expenses:
Selling expenses .......... 118,524 191,407
General and administrative 373,197 325,780
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Total operating expenses. 491,721 517,187
Income (loss) from operations (251,062) 219,314
Other income (expense)
Interest expense ............ (26,005) (38,372)
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Net income (loss) ............. $ (277,067) $ 180,942
----------- -----------
The accompanying notes are an integral part of these financial statements.
Page 6
True To Form LTD
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Retained
Earnings
Common Stock (Accumulated
Shares Amount Deficit) Total
------ ------- ----------- ---------
Balance at December 31, 2002 ........ 100 $ 5,642 $(278,625) $(272,983)
Net income .......................... -- -- 180,942 180,942
------ ------- --------- ---------
Balance at December 31, 2003......... 100 5,642 (97,683) (92,041)
Net loss ............................ -- -- $(277,067) $(277,067)
------ ------- --------- ---------
Balance at December 31, 2004 ........ 100 $ 5,642 $(374,750) $(369,108)
====== ======= ========= =========
The accompanying notes are an integral part of these financial statements.
Page 7
True To Form Ltd
STATEMENTS OF CASH FLOWS
Year ended Year ended
12/31/2004 12/31/2003
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CASH FLOWS FROM OPERATIONS:
Net income (loss) .............................. $(277,067) $169,483
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization .................. 8,241 4,939
Changes in operating assets and liabilities:
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Accounts receivable ............................ (24,132) (35,956)
Inventories .................................... 33,501 (57,518)
Deposits ....................................... 2,207 (1,444)
Other .......................................... 395 --
Accounts payable ............................... 119,124 (88,368)
Accrued expenses ............................... 20,364 (14,549)
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Total adjustments .................................. 159,700 (192,896)
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NET CASH USED IN OPERATING ACTIVITIES .............. (117,367) (23,413)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment ......... -- (38,938)
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NET CASH USED IN INVESTING ACTIVITIES ............. -- (38,938)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft ................................. (581) 4,063
Net borrowings - line of credit ................ 119,302 9,755
Net advances from (repayments to) shareholder .. 4,450 (15,000)
Borrowings - long-term debt .................... - 35,000
Principal payments on long-term debt ........... (5,804) (7,034)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 117,367 26,784
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS ............... -- (35,567)
CASH AND EQUIVALENT- beginning of year ............. -- 35,567
--------- ---------
CASH AND EQUIVALENT- end of year.................... $ -- $ --
--------- ---------
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 18,760 $ 25,000
--------- ---------
Income taxes $ -- $ --
--------- ---------
The accompanying notes are an integral part of these financial statements.
Page 8
(1) BUSINESS OPERATIONS
True To Form Limited (the Company) was incorporated in April 2000 under the
laws of the Commonwealth of Massachusetts and is engaged in the
manufacture, fabrication and distribution of lighting products. The Company
sells mainly to commercial customers and is headquartered in Braintree,
Massachusetts.
As reflected in the accompanying financial statements, the Company had an
accumulated deficit of $374,750, a stockholders' deficit of $369,108, a
working capital deficit of $237,502 at December 31, 2004, net losses for
the year ended December 31, 2004 of $277,067 and cash used in operations
during the year ended December 31, 2004 of $117,367.
While the Company is attempting to increase sales, the growth has not been
significant enough to support the Company's daily operations. While the
Company believes in the viability of its strategy to improve sales volume
there can be no assurances to that effect. The Company's limited financial
resources have prevented the Company from aggressively advertising its
product to achieve consumer recognition. The ability of the Company to
continue as a going concern is dependent on the Company's ability to
further implement its business plan and generate increased revenues. The
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. Management
believes that the actions presently being taken to further implement its
business plan and generate additional revenues provide the opportunity for
the Company to continue as a going concern.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Company follows the guidance of the Securities and Exchange
Commission's Staff Accounting Bulletin 104 for revenue recognition. In
general, the Company records revenue when persuasive evidence of an
arrangement exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable, and
collectibility is reasonably assured.
The Company's revenues from the sale of products are recorded when the
goods are shipped, title passes, and collectibility is reasonably assured.
(b) Property And Equipment
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
Furniture and fixtures 5 years
Computers and equipment 5 years
Vehicles 5 years
The Company leases certain of its office equipment under capital lease
agreements. The assets and liabilities under capital leases are recorded at
the lesser of the present value of aggregate future minimum lease payments
or the fair value of the assets under the lease. Assets under capital lease
are depreciated over the shorter of their estimated useful lives or the
lease term.
Depreciation expense for the years ended December 31, 2004 and 2003 was
$8,241 and $4,939 respectively.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market and consist of Finished goods.
(d) Use 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 revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
(e) Compensated Absences
Employees of the company are entitled to paid vacation, sick, and personal
days off, depending on job classification, length of service and other
factors. It is impractical to estimate the amount of compensation for
future absences, and accordingly, no liability has been recorded in the
accompanying financial statements. The Company's policy is to recognize the
cost of compensated absences when actually paid to employees.
Page 9
(g) Cash and Cash Equivalents
The Company considers all unrestricted deposits and highly liquid
investments, readily convertible to known amounts, with an original
maturity of three months or less, to be cash equivalents.
(h) Income Taxes
As an "S" corporation, the Company is not required to pay any Federal or
Massachusetts State income taxes. Income taxes are the responsibility of
the individual shareholder.
(I) Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for accounts
receivables, inventories, accounts payable, note payable and accrued
expenses approximate their fair market value based on the short-term
maturity of these instruments.
(j) Impairment of long-lived assets
Management evaluates the recoverability and carrying value of long-lived
assets at each balance sheet date, based on guidance issued in SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
Among other factors considered in such evaluation is the historical and
projected operating performance of business operations, the operating
environment and business strategy, competitive information and market
trends. At December 31, 2004, the Company had no assets that were
considered to be impaired.
(k) Concentrations of Credit Risk
Financial assets that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company's investment policy is to
invest in low risk, highly liquid investments. The Company does not believe
it is exposed to any significant credit risk in its cash investments.
The Company maintains its cash balances at financial institutions that are
insured by the Federal Deposit Insurance Corporation or the Securities
Investor Protection Corporation up to $100,000 per institution. At December
31, 2004, the Company's cash balances did not exceed the insured limits.
The Company has not experienced any losses in such accounts and believes it
is not exposed to any significant credit risk on cash on deposit.
The Company performs on-going credit evaluations of its customer base
including those that represent its accounts receivable at December 31,
2004. The Company maintains reserves for potential credit losses and such
losses historically have been within management's expectations.
(m) Shipping and Handling Costs
Shipping and handling costs are included in cost of goods sold in
accordance with guidance established by the Emerging Issues Task Force,
issue No. 00-10, "Accounting for Shipping and Handling Costs."
(3) NOTE PAYABLE
The Company has entered into a revolving line of credit facility, due on
demand, with Sovereign Bank (the Bank).
o The revolving line of credit facility provides for, among other
things:
o Maximum credit limit of $185,000.
o Interest at the lenders prime rate plus 1.0%, which was 6.50% as of
December 31, 2004.
o Security interest in all assets of the Company.
o Guaranteed by the shareholder of the Company.
As of December 31, 2004 and 2003 the outstanding balance under this
arrangement was $179,302 and $60,000, respectively.
Page 10
(4) LONG TERM DEBT
As of December 31, 2004 and 2003 long-term debt consisted of:
2004 2003
------- -------
Note payable to GMAC payable in monthly installments
of principal of $528 through May 2008, 0% interest.
Secured by vehicle and guaranteed by the shareholder $22,162 $27,966
Less - current maturities (6,860) (6,336)
------- -------
Net long term debt $15,302 $21,630
======= =======
The expected principal payments of long-term debt are as follows:
Year Ending
December 31, Amount
------------ ------
2004 $ 6,860
2005 6,336
2006 6,336
2007 2,630
--------
$ 22,162
========
(5) RELATED PARTY TRANSACTIONS
The Company has entered into a revolving line of credit arrangement with the
shareholder. Under this arrangement the Company will borrow funds and repay them
at will, up to a maximum of $200,000. The outstanding balances under this
arrangement bear interest at twelve percent per annum (12%). The balance
outstanding as of December 31, 2004 and 2003 was $147,309 and $142,859,
respectively. Interest paid under this arrangement totaled $15,000 and $18,043
for the years ended December 31, 2004 and 2003, respectively.
(6) CONCENTRATIONS
1 (a) Trade Accounts
In the normal course of business the company extends unsecured credit to
customers, principally in the United States. The Company's management
performs periodic credit evaluations of customers and will write any losses
on a current basis against income. Such losses have not exceeded
management's expectations.
The largest customer in each of the years ended December 31, 2004 and 2003
accounted for 42% and 38% of total sales respectively.
The top five customers accounted for 86% and 96% of the total sales for the
years ended December 31, 2004 and 2003 respectively.
2 (d) Suppliers
The Company purchased 53% and 78% of its components and raw materials from
five suppliers in the years ended December 31, 2004 and 2003 respectively.
(7) COMMITMENTS
Facility Leases:
The Company leases its warehouse and administrative offices located in
Braintree, Massachusetts under a lease arrangement, which provides for, among
other things, monthly base rental payments of approximately $3,500 through
February 28, 2005 plus real estate taxes and insurance. The total rent expense
under this arrangement was $61,063 and $58,850 for the years ended December 31,
2004 and 2003 respectively.
Commencing in July 2003 and ending in July 2004 the Company contracted for
additional warehouse and light manufacturing space located in Slymar, California
under a lease, which provides for, among other things, monthly rental payments
of approximately $875. The total lease expense under this arrangement for the
year ended December 31, 2003 was $8,450. As of July 16, 2004 the Company had not
renewed the lease but was continuing to occupy the space on a month to month
basis.
Page 11
Operating Leases:
The Company has entered into various operating leases for equipment, which
expire at different times through May 2006; these leases call for, among other
things, monthly rental payment of approximately $407.
The total equipment lease expense for the years ended December 31, 2004 and 2003
was $5,547 and $8,751, respectively.
The minimum future rental payments, in the aggregate, under non-cancelable
facility and operating leases having remaining terms in excess of one year as of
December 31, 2004 are as follows:
Year Ending
December 31, Amount
------------ ------
2005 $ 4,884
2006 2,035
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$ 6,919
========
(8) INCOME TAXES
The Company, with the consent of its shareholder, has elected under the Internal
Revenue Code to be an S corporation. In lieu of corporation income taxes, the
shareholder of an S corporation is taxed on the Company's taxable income.
Therefore, no provision or liability for federal or state income taxes has been
included in these financial statements.
(9) STOCKHOLDER'S EQUITY
On December 31, 2004, the sole stockholder of the Company sold his shares to
Global Matrechs, Inc. whereas the Company then became a wholly owned subsidiary
of Global Matrechs, Inc.
(b) Pro Forma Financial Statements of Business Acquired
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Financial Statements of Global
Matrechs, Inc. and True To Forms Ltd. gives effect to the acquisition of assets
and assumption of liabilities of True To Form Ltd., under the purchase method of
accounting prescribed by Accounting Principles Board Opinion No. 16, Business
Combinations. These pro forma statements are presented for illustrative purposes
only. The pro forma adjustments are based upon available information and
assumptions that management believes are reasonable. The Unaudited Pro Forma
Combined Financial Statements do not purport to represent what the results of
operations or financial position of Global Matrechs, Inc. would actually have
been if the acquisition had in fact occurred on January 1, 2004 nor do they
purport to project the results of operations or financial position of Global
Matrechs, Inc. for any future period or as of any date, respectively.
These Unaudited Pro Forma Combined Financial Statements do not give effect to
any restructuring costs or to any potential cost savings or other operating
efficiencies that could result from the merger between Global Matrechs, Inc. and
True To Form, Ltd.
You should read the financial information in this section along Global Matrechs,
Inc. historical financial Form 10-KSB.
Page 12
GLOBAL MATRECHS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
Pro Forma Adjustments
Global True To ---------------------
Matrechs Form Ltd Debit Credit Pro Forma
----------- ----------- --------- ---------- ------------
Sales ...................................... $ 620 $ 1,014,810 $ 1,015,430
Cost of goods sold:
Materials and labor .................... 558 647,407 647,965
Freight and packaging .................. -- 115,011 115,011
Other .................................. -- 11,733 11,733
----------- ----------- ------------
Total cost of goods sold ................... 558 774,151 774,709
----------- ----------- ------------
Gross Profit ............................... 62 240,659 240,721
Operating expenses:
Selling expense -- 118,524 118,524
General and administrative expenses 1,471,173 373,197 1,844,370
----------- ----------- ------------
Total operating expenses ................... 1,471,173 491,721 1,962,894
----------- ----------- ------------
Loss from operations ....................... (1,471,111) (251,062) (1,722,173)
Other income (expense):
Other income, net .......................... 210,940 -- 210,940
Interest expense ........................... (1,340,868) (26,005) (1,366,873)
----------- ----------- ------------
Total other income (expense) ............... (1,129,928) (26,005) (1,155,933)
----------- ----------- ------------
Loss from continuing operations. ........... $(2,601,039) $ (277,067) (2,878,106)
----------- ----------- ------------
Income from discontinued operations ........ 94,363 -- 94,363
Gain on disposal of business segment ....... (124,385) -- (124,385)
----------- ----------- ------------
Net loss $(2,631,061) $ (277,067) $ (2,908,128)
----------- ----------- ------------
Page 13
GLOBAL MATRECHS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
Eliminating Adjustments
Global True To -----------------------
Matrechs Form Ltd Debit Credit Consolidated
----------- ----------- --------- ---------- ------------
Sales ...................................... $ -- $ 369,681 $ 369,681
Cost of goods sold:
Materials and labor .................... -- 103,381 103,381
Freight and packaging .................. -- 38,410 38,410
Other .................................. -- 6,412 6,412
----------- ----------- ------------
Total cost of goods sold ................... -- 148,203 148,203
----------- ----------- ------------
Gross Profit ............................... -- 221,478 221,478
Operating expenses:
Selling expense -- 42,686 42,686
General and administrative expenses 502,226 118,967 621,193
----------- ----------- ------------
Total operating expenses ................... 502,226 161,653 663,879
----------- ----------- ------------
Income (loss) from operations .............. (502,226) 59,825 (442,401)
Other income (expense):
Other income, net .......................... 3,633 -- (1) 2,408 1,225
Interest expense ........................... (1,196,827) (9,840)(1) 2,408 (1,204,259)
----------- ----------- ------------
Total other income (expense) ............... (1,193,194) (9,840) (1,203,034)
----------- ----------- ------------
Net income (loss) .......................... $(1,695,420) $ 49,985 $ (1,645,435)
----------- ----------- ------------
(1) Eliminate interest on intercompany loans
Page 14
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.
Global Matrechs, Inc.
Dated: June 1, 2005 By: /s/ Michael Sheppard
------------ --------------------------
Michael Sheppard,
President, CEO and acting CFO
Page 15