<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------
FORM 8-KA
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 27, 1997
The American Materials & Technologies Corporation
(Exact name of registrant as specified in its charter)
Delaware 001-11835 33-0659916
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification No.)
5915 Rodeo Road, Los Angeles, CA 90016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 841-5200
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 33 Pages
Exhibit Index Located on Page 33
The registrant hereby amends its Current Report on Form 8-K,
filed March 5, 1997, for an event occurring on February 27, 1997.
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 27, 1997, The American Materials & Technologies Corporation
(the "Company"), entered into an Asset Purchase Agreement (the "Asset Purchase
Agreement") by and among the Company, Grafalloy Acquisition Corporation, a
wholly-owned subsidiary of the Company, Grafalloy L.P. ("Grafalloy") and
Grafalloy, Inc., the general partner of Grafalloy. Pursuant to the Asset
Purchase Agreement, the Company acquired all of the assets and business, and
assumed certain liabilities, of Grafalloy.
The purchase price of approximately $9.2 million included a cash
payment to the Seller of approximately $6.4 million, and acquisition costs of
approximately $315,000. In addition, the Company issued 179,492 shares of common
stock to the seller, and issued three notes to the Seller in the aggregate
principal amount of approximately $1.7 million, of which $747,254 bears interest
at the rate of 12% and the remainder bears interest at the rate of 7%. An
$800,000 note is due 13 months after the date of acquisition. A $747,254 note is
due as follows: $300,000 is due in May, 1997 and the balance is due in equal
installments 9 and 18 months after the date of the acquisition, respectively. A
$175,000 note is due as follows: $5,000 is due per month, with a final balloon
payment due 6 months after the date of the acquisition.
To pay for the acquisition, the Company used all of its available cash
and borrowed approximately $2.3 million under the revolving line of credit
maintained by its subsidiary, Culver City Composites Corporation, with LaSalle
Business Credit, Inc. As a result, the Company's remaining availability under
the revolving line of credit was approximately $1.2 million following the
acquisition.
The terms of the Asset Purchase Agreement resulted from an arms-length
negotiation between representatives of the Seller and the Company. Among the
factors considered by both parties in establishing the terms, including the
consideration to be paid, were the financial and operating performance and
prospects of the two companies.
To the knowledge of the Company, prior to the acquisition no director,
officer or affiliate of the Company, or any associates of any such director,
officer or affiliate had any material relationship with the Seller.
The assets acquired from Grafalloy were used by Grafalloy to
manufacture composite golf club shafts. The Company intends to continue such use
of the acquired assets.
-2-
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
CONSENT OF INDEPENDENT ACCOUNTANTS
The American Materials & Technologies Corporation
We hereby consent to the use in the form 8-KA to be filed with the Securities
and Exchange Commission of our reports dated February 6, 1997 and February 23,
1996, relating to the financial statements of Grafalloy L.P. as of December 31,
1996 and December 31, 1995 and the related statements of income, partner's
capital and cash flows for the years then ended.
Please note that our engagement was solely with Grafalloy L.P. and was entered
into prior to their acquisition by The American Materials & Technologies
Corporation. Accordingly, our consent should not be construed in anyway as an
extension of our contract with Grafalloy L.P. to other third parties, including
The American Materials & Technologies Corporation and its subsidiaries.
/s/ Jassoy, Graff & Douglas LLP
San Diego, California
April 30, 1997
-3-
<PAGE> 4
INDEPENDENT AUDITOR'S REPORT
To the Partners of
Grafalloy L.P.
San Diego, California
We have audited the accompanying balance sheet of Grafalloy L.P. (a limited
partnership) as of December 31, 1996, and the related statements of income,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Grafalloy L.P. as of December
31, 1996, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Jassoy, Graff & Douglas LLP
February 6, 1997
San Diego, CA
-4-
<PAGE> 5
Grafalloy L.P.
BALANCE SHEET
December 31, l996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 208,033
Accounts receivable, net of allowance
for doubtful accounts of $48,654 377,584
Due from affiliate 3,676
Inventories (Note 2) 1,040,335
Prepaid expenses 97,207
-----------
Total current assets 1,726,835
-----------
PROPERTY, PLANT AND EQUIPMENT
Construction in progress 53,649
Furniture and fixtures 250,290
Leasehold improvements 195,383
Machinery and equipment 1,438,093
-----------
1,937,415
Accumulated depreciation (512,265)
-----------
Net property, plant and equipment 1,425,150
-----------
OTHER ASSETS
Other assets, primarily deposits 14,824
Acquisition costs, net of accumulated
amortization of $18,373 10,627
Goodwill, net of accumulated
amortization of $23,420 87,514
Organization costs, net of accumulated
amortization of $13,300 7,700
-----------
Total other assets 120,665
-----------
Total assets $ 3,272,650
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-5-
<PAGE> 6
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 691,808
Accrued expenses (Note 3) 382,218
Current portion of long-term debt (Note 4) 186,774
Line of credit (Note 5) 96,263
Shareholders' loans (Note 6) 175,000
----------
Total current liabilities 1,532,063
----------
LONG-TERM LIABILITIES
Accrued interest, less current portion (Note 4) 112,093
Long-term debt, less current portion (Note 4) 373,548
----------
Total long-term liabilities 485,641
----------
Total liabilities 2,017,704
----------
COMMITMENTS (Notes 4, 5, 6, 7 and 9)
PARTNERS' CAPITAL 1,254,946
----------
Total liabilities and partners' capital $3,272,650
==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-6-
<PAGE> 7
Grafalloy L.P.
STATEMENT OF INCOME
Year ended December 31, 1996
<TABLE>
<S> <C>
SALES $ 10,669,587
COST OF SALES 6,843,320
------------
GROSS PROFIT 3,826,267
------------
OPERATING EXPENSES
General and administrative 911,830
Research and development 513,228
Selling and marketing 1,237,610
------------
Total operating expenses 2,662,668
------------
OPERATING INCOME 1,163,599
------------
OTHER INCOME (EXPENSE)
Interest income 7,509
Interest expense (224,092)
------------
Total other income (expense) (216,583)
------------
NET INCOME $ 947,016
============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-7-
<PAGE> 8
Grafalloy L.P.
STATEMENT OF PARTNERS' CAPITAL
Year ended December 31, 1996
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- ---------- ----------
<S> <C> <C> <C>
BALANCE - DECEMBER 31, 1995 $(4,883) $ 312,813 $ 307,930
Net income 4,883 942,133 947,016
------- ---------- ----------
BALANCE - DECEMBER 31, 1996 $ 0 $1,254,946 $1,254,946
======= ========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-8-
<PAGE> 9
Grafalloy L.P.
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 11,437,513
Cash paid to suppliers and employees (9,870,475)
Interest paid (205,064)
Interest received 7,509
Income taxes paid (800)
------------
Net cash provided by operating activities 1,368,683
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (46l,616)
------------
Net cash used by investing activities (461,616)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on line of credit 11,437,069
Payments on line of credit (11,832,520)
Payments for short-term debt (98,500)
Retirement of long-term debt (168,659)
------------
Net cash used by financing activities (662,610)
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 244,457
CASH (OVERDRAFT) AND CASH EQUIVALENTS - BEGINNING OF YEAR (36,424)
------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 208,033
============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-9-
<PAGE> 10
Grafalloy L.P.
STATEMENT OF CASH FLOWS (Continued)
Year ended December 31, 1996
<TABLE>
<S> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
NET INCOME $ 947,016
-----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 221,801
Amortization 17,398
Decrease in accounts receivable 767,602
Decrease in accounts receivable - other 1,500
Increase in inventories (153,690)
Increase in due from affiliate (1,176)
Increase in prepaid expenses (64,773)
Increase in other assets (7,789)
Decrease in accounts payable (575,125)
Increase in accrued expenses, excluding accrued interest 196,891
Increase in accrued interest 19,028
-----------
Total adjustments 421,667
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,368,683
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-10-
<PAGE> 11
Grafalloy L.P.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Statement presentation: Grafalloy L.P. (the Company),
is a Delaware limited partnership formed in
September of 1993. The Company's business is
to manufacture golf club shafts in San Diego
County, California. The general partner is
Grafalloy, Inc., which is a Delaware S
corporation formed in September of 1993.
Accounting method: The Company maintains its records on the
accrual basis of accounting.
Acquisition costs: Closing costs and appraisal costs in
connection with the Company's acquisition of
the assets and liabilities of Prince
Sports Group, Inc. in October, 1993 have
been capitalized and are being amortized
over a five year period. Amortization
charged to operations in 1996 was $5,800.
Allocations: The Fourth Amended and Restated Limited
Partnership Agreement requires that any net
income be allocated first to the general
partner to the extent of its previously
allocated special losses, and any remaining
amount of net income is allocated to the
limited partners to the extent of their
previously allocated losses. Future profits
and losses will be allocated in various
tiered allocations in accordance with the
Fourth Amended and Restated Limited
Partnership Agreement.
Allowance for
doubtful accounts: The Company uses the reserve method in
providing for uncollectible accounts. The
allowance for doubtful accounts as of
December 31, 1996 was $48,654.
Credit risk
concentration: Financial instruments which subject the
Company to concentrations of credit risk
consist principally of temporary cash
investments. The Company had temporary cash
investments which exceeded the $100,000
federally insured limit at December 31,
1996.
Income taxes: No provision has been made for federal and
state income taxes since they are the
responsibility of the individual partners.
Intangible assets: Goodwill represents the excess of cost over
the fair value of net assets at date of
acquisition. Goodwill is being amortized on
the straight-line method over 15 years.
Amortization charged to operations in 1996
was $7,395.
Inventories: Inventories are stated at moving weighted
average using standard costs.
Organization costs: Costs incident to the creation of the
partnership for negotiating and preparing
the Limited Partnership Agreement and
various accounting fees have been
capitalized and are being amortized over a
five year period. Amortization charged to
operations in 1996 was $4,200.
-11-
<PAGE> 12
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------------
Property, plant
and equipment: Property, plant and equipment are stated at
cost. Maintenance and repairs are expensed
when incurred; renewals and replacements
which extend the useful life of plant and
equipment are capitalized. Generally when
assets are retired or otherwise disposed of,
the cost and accumulated depreciation are
eliminated from the accounts and any gain or
loss is included in operations.
Construction in progress consisted primarily
of equipment either under construction or
not placed in service as of December 31,
1996.
Depreciation is calculated on a
straight-line method over the estimated
useful lives of the related assets;
machinery and equipment 5 to 10 years and
furniture and fixtures 5 to 10 years.
Leasehold improvements are amortized on the
straight-line method over the shorter of the
remaining lease term or the useful life.
Statement of cash flows: For the purpose of the statement of cash
flows, the Company considers all highly
liquid instruments purchased with a maturity
of three months or less to be cash
equivalents. At December 31, 1996, cash
equivalents amounted to $100,000.
Use of estimates: The preparation of financial statements in
conformity with generally accepted
accounting principles requires management to
make estimates and assumptions that affect
certain reported amounts and disclosures,
Accordingly, actual results could differ
from those estimates.
Warranties: The Company's products are generally under
warranty against defects in material and
workmanship. At December 31, 1996, the
estimated liability for warranty expense on
prior sales was $2,100.
NOTE 2 - INVENTORIES
- --------------------
Inventories consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Raw materials $ 235,600
Work in process 268,261
Finished goods 645,507
-----------
1,149,368
Allowance for obsolete inventories (109,033)
-----------
Total inventories $ 1,040,335
===========
</TABLE>
-12-
<PAGE> 13
NOTE 3 - ACCRUED EXPENSES
- -------------------------
Accrued expenses consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Accrued bonuses $ 180,581
Accrued compensation 45,964
Accrued 401(k) match and employee withholdings 4,598
Accrued interest, current portion (Note 4) 65,609
Accrued payroll and property taxes 21,412
Accrued vacation 36,382
Accrued warranties 2,100
Accrued income taxes 800
Accrued other expenses 24,772
----------
Total accrued expenses $ 382,218
==========
</TABLE>
NOTE 4 - LONG-TERM DEBT
- -----------------------
At December 31, 1996 long-term debt consisted of the following:
Note payable for the purchase of assets on November 1, 1993 bearing
interest at prime (8.25% at December 31, 1996) plus 2%, $186,774 annual
principal payments, each due in May, 1997, 1998 and 1999 and
collateralized by all the assets of the Company
<TABLE>
<S> <C>
Total long-term debt $ 560,322
Less current portion 186,774
---------
Long-term portion $ 373,548
=========
</TABLE>
Principal payments on long-term debt for the years subsequent to December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 $ 186,774
1998 186,774
1999 186,774
---------
$ 560,322
=========
</TABLE>
Per the note agreement, accrued interest payments are to be separately
calculated for each principal payment, and the interest is payable at the time
the corresponding amount of principal is due. Total accrued interest was
$177,702 at December 31, 1996. Accrued interest has been separated between
current ($65,609) and non-current liabilities ($112,093). The current portion of
$65,609 was recorded in accrued expenses (see Note 3).
-13-
<PAGE> 14
NOTE 5 - LINE OF CREDIT
The Company had a $500,000 line of credit limited to 75% of the Company's
eligible accounts receivable. Interest is payable monthly at prime (8.25% at
December 31, 1996) plus 6%. The principal is due on demand and is
collateralized by substantially all of the Company's assets. Advances on the
line of credit at December 31, 1996 were $96,263.
NOTE 6 - SHAREHOLDERS' LOANS
During the year ended December 31, 1995, the Company secured $175,000 in
debt financing from certain limited partners. Proceeds from this note
offering were used to fund working capital requirements.
The structure of this debt financing was as follows:
Unsecured Promissory Notes: Seven $25,000 notes were issued, bearing
interest at prime plus 4%, with interest accrued and payable on the
last day of each quarter during which the note was outstanding,
expiring at various dates in 1997.
Warrants: Warrants to purchase 9.4 Limited Partnership units were
attached to each $25,000 note. Those warrants granted the holder the
right to purchase Limited Partnership units at a price of $1,329.79 per
unit, or at a valuation for the company of $3.0 million. Warrants were
subject to cancellation if all principal and interest due on the
Unsecured Promissory Note was paid within six months of the date of the
individual notes.
At December 31, 1996, all notes were outstanding and unpaid beyond the six
month period. Therefore, there are warrant options representing the option
to purchase 65.8 Limited Partnership units outstanding at year-end.
Future maturities of shareholders' loans for the next five years are as
follows:
<TABLE>
<CAPTION>
Year ending
December 31, 1997
<S> <C>
$ 175,000
---------
$ 175,000
=========
</TABLE>
-14-
<PAGE> 15
NOTE 7 - COMMITMENTS
- --------------------
The Company leases certain building space and equipment under
noncancelable operating lease agreements expiring at various dates
through 1999.
Future minimum lease payments, by year and in the aggregate under these
noncancelable operating leases consisted of the following at December
31, 1996:
<TABLE>
<S> <C>
1997 $ 115,538
1998 31,932
1999 15,046
-----------
Total future minimum lease payments $ 162,516
===========
</TABLE>
Total rent expense for the operating lease was $97,200 for the year
ending December 31, 1996.
NOTE 8 - DEFINED CONTRIBUTION PLAN
- ----------------------------------
The Company has a 401(k) plan covering substantially all employees meeting
minimum eligibility requirements. Company matching contributions are to be
determined annually by the Board of Directors in an amount not to exceed
the maximum allowed under current income tax regulations or subject to
certain tax law limitations. Participants are entitled, upon termination or
retirement, to their vested portion of retirement fund assets which are
held by a corporate trustee. Charges to pension expense for the year ended
December 31, 1996 amounted to $13,113.
NOTE 9 - SUBSEQUENT EVENT
- -------------------------
The Company has entered into an agreement to sell substantially all its
assets and business, as a going concern, to an unrelated company on or
before February 28, 1997. The parties have not finalized all the details of
the transaction. Accordingly, there can be no assurance that this
transaction will be consummated.
-15-
<PAGE> 16
INDEPENDENT AUDITOR'S REPORT
To the Partners of
Grafalloy L.P.
San Diego, California
We have audited the accompanying balance sheet of Grafalloy, L.P. (a limited
partnership) as of December 31, 1995, and the related statements of income,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Grafalloy, L.P. as of December
31, 1995, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Jassoy, Graff & Douglas LLP
February 23, 1996
San Diego, CA
-16-
<PAGE> 17
Grafalloy L.P.
BALANCE SHEET
December 31, l995
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Accounts receivable, net of allowance
for doubtful accounts of $15,862 $ 1,145,186
Accounts receivable - other 1,500
Due from affiliate 2,500
Inventories (Note 2) 886,645
Prepaid expenses 32,434
-----------
Total current assets 2,068,265
-----------
PROPERTY, PLANT AND EQUIPMENT
Construction in progress 7,901
Furniture and fixtures 201,183
Leasehold improvements 192,252
Machinery and equipment 1,074,462
-----------
1,475,798
Accumulated depreciation (290,463)
-----------
Net property, plant and equipment 1,185,335
-----------
OTHER ASSETS
Other assets, primarily deposits 7,035
Acquisition costs, net of accumulated
amortization of $12,571 16,429
Goodwill, net of accumulated
amortization of $16,024 94,910
Organization costs, net of accumulated
amortization of $9,100 11,900
-----------
Total other assets 130,274
-----------
Total assets $ 3,383,874
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-17-
<PAGE> 18
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
<TABLE>
<S> <C>
CURRENT LIABILITIES
Cash overdraft $ 36,424
Accounts payable 1,266,933
Accrued expenses (Note 3) 165,670
Current portion of long-term debt (Note 4) 168,659
Line of credit (Note 5) 491,714
Short-term debt (Note 6) 98,500
------------
Total current liabilities 2,227,900
------------
LONG-TERM LIABILITIES
Accrued interest, less current portion (Note 4) 112,722
Long-term debt, less current portion (Note 4) 560,322
Shareholders' loans (Note 7) 175,000
------------
Total long-term liabilities 848,044
------------
Total liabilities 3,075,944
------------
COMMITMENTS (Notes 8)
PARTNERS' CAPITAL (Note 7) 307,930
------------
Total liabilities and partners' capital $ 3,383,874
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-18-
<PAGE> 19
Grafalloy L.P.
STATEMENT OF INCOME
Year ended December 31, 1995
<TABLE>
<S> <C>
SALES $ 6,084,223
COST OF SALES 4,889,791
-----------
GROSS PROFIT 1,194,432
-----------
OPERATING EXPENSES
General and administrative 755,892
Research and development 381,920
Selling and marketing 1,117,004
-----------
Total operating expenses 2,254,816
-----------
OPERATING LOSS (1,060,384)
-----------
OTHER INCOME (EXPENSE)
Interest income 5,496
Gain on disposal of fixed assets 2,407
Interest expense (159,895)
-----------
Total other income (expense) (151,992)
-----------
NET LOSS $(1,212,376)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-19-
<PAGE> 20
Grafalloy L.P.
STATEMENT OF PARTNERS' CAPITAL
Year ended December 31, 1995
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE - DECEMBER 31, 1994 $ 0 $ 1,020,306 $ 1,020,306
Capital contributions 0 500,000 500,000
Net loss (4,883) (1,207,493) (1,212,376)
----------- ----------- -----------
BALANCE - DECEMBER 31, 1995 $ (4,883) $ 312,813 $ 307,930
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-20-
<PAGE> 21
Grafalloy L.P.
STATEMENT OF CASH FLOWS
Year ended December 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 5,017,217
Cash paid to suppliers and employees (5,923,539)
Interest paid (65,958)
Interest received 5,496
Income taxes paid (1,600)
-----------
Net cash used by operating activities (968,384)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of property, plant and equipment 24,800
Acquisition of property, plant and equipment (318,610)
-----------
Net cash used by investing activities (293,810)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on line of credit 1,955,410
Payments on line of credit (1,463,696)
Proceeds from issuance of short-term debt 130,000
Payments for short-term debt (31,500)
Proceeds from issuance of long-term debt 175,000
Retirement of long-term debt (204,889)
Partner contributions 500,000
-----------
Net cash provided by financing activities 1,060,325
-----------
NET DECREASE IN CASH (201,869)
CASH - DECEMBER 31, 1994 165,445
-----------
CASH OVERDRAFT - DECEMBER 31, 1995 $ (36,424)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-21-
<PAGE> 22
Grafalloy L.P.
STATEMENT OF CASH FLOWS (Continued)
Year ended December 31, 1995
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<S> <C>
NET LOSS $(1,212,376)
-----------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 205,858
Amortization 17,398
Loss on disposal of fixed assets (2,407)
Increase in accounts receivable (1,068,229)
Decrease in accounts receivable - other 2,023
Decrease in inventories 361,147
Increase in due from affiliate (800)
Increase in prepaid expenses (12,282)
Increase in accounts payable 875,744
Decrease in accrued expenses, excluding accrued interest (228,397)
Increase in accrued interest 93,937
-----------
Total adjustments 243,992
-----------
NET CASH USED BY OPERATING ACTIVITIES $ (968,384)
===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-22-
<PAGE> 23
Grafalloy L.P.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Statement presentation: Grafalloy, L.P. (the Company) is a Delaware limited
partnership formed in September of 1993. The
Company's business is to manufacture golf club
shafts in San Diego County, California. The general
partner is Grafalloy, Inc. which is a Delaware S
Corporation formed in September of 1993.
Accounting method: The Company maintains its records on the accrual
basis of accounting.
Acquisition costs: Closing costs and appraisal costs in connection
with the Company's acquisition of the assets and
liabilities have been capitalized and are being
amortized over a five year period. Amortization
charged to operations in 1995 was $5,800.
Allocations: Generally, per the Partnership Agreement, any net
loss is allocated first to the general partner to
the extent of its capital contributions, and the
remaining amount of net loss is allocated to the
limited partners to the extent of their capital
contributions. Future profits and losses will be
allocated in various tiered allocations in
accordance with the Partnership Agreement.
Allowance for
doubtful accounts: The Company uses the reserve method in providing
for uncollectible accounts. The allowance for
doubtful accounts as of December 31, 1995 was
$15,862.
Income taxes: No provision has been made for federal and state
income taxes since they are the responsibility of
the individual partners.
Intangible assets: Goodwill represents the excess of cost over the
fair value of net assets at date of acquisition.
Goodwill is being amortized on the straight-line
method over 15 years.
Inventories: Inventories are stated at the lower of cost
(first-in, first-out) or market.
Organization costs: Costs incident to the creation of the partnership
for negotiating and preparing the Partnership
Agreement and various accounting fees have been
capitalized and are being amortized over a five
year period. Amortization charged to operations in
1995 was $4,200.
-23-
<PAGE> 24
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ------------------------------------------------------
Property, plant
and equipment: Property, plant and equipment are stated at cost.
Maintenance and repairs are expensed when incurred;
renewals and replacements which extend the useful
life of plant and equipment are capitalized.
Generally when assets are retired or otherwise
disposed of, the cost and accumulated depreciation
are eliminated from the accounts and any gain or
loss is included in operations.
Construction in progress consisted primarily of
equipment either under construction or not placed
in service as of December 31, 1995.
Depreciation is calculated on a straight-line
method over the estimated useful lives of the
related assets; machinery and equipment 5 to 10
years and furniture and fixtures 5 to 10 years.
Leasehold improvements are amortized on the
straight-line method over the shorter of the
remaining lease term or the useful life.
Statement of cash flows: For the purpose of the statement of cash flows, the
Company considers all highly liquid instruments
purchased with a maturity of three months or less
to be cash equivalents. No cash equivalents were
held by the Company at December 31, 1995.
Warranties: The Company's products are generally under warranty
against defects in material and workmanship. At
December 31, 1995, the estimated liability for
warranty expense on prior sales was $2,100.
NOTE 2 - INVENTORIES
- --------------------
Inventories consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Raw materials $ 172,894
Work in process 496,036
Finished goods 363,715
-----------
1, 032,645
Allowance for obsolete inventories (146,000)
-----------
Total inventories $ 886,645
===========
</TABLE>
-24-
<PAGE> 25
NOTE 3 - ACCRUED EXPENSES
- -------------------------
<TABLE>
<S> <C>
Accrued expenses consisted of the following at December 31, 1995:
Accrued compensation $ 21,572
Accrued employment expense 13,969
Accrued 401(k) match and employee withholdings 10,615
Accrued interest, current portion (Note 4) 45,952
Accrued payroll and property taxes 9,512
Accrued royalties 1,153
Accrued vacation 38,766
Accrued warranties 2,100
Accrued workers' compensation insurance 11,500
Accrued income taxes 800
Accrued other expenses 9,731
--------
Total accrued expenses $165,670
========
</TABLE>
NOTE 4 - LONG-TERM DEBT
- -----------------------
At December 31, 1995 long-term debt consisted of the following:
<TABLE>
<S> <C>
Note payable for the purchase of assets on
November 1, 1993 bearing interest at prime
(8.50% at December 31, 1995) plus 2%, $186,747
annual principal payments, due in May, per
the schedule below, collateralized
by all the assets of the Company $ 728,981
---------
Total long-term debt 728,981
Less current portion 168,659
---------
Long-term portion $ 560,322
=========
</TABLE>
Principal payments on long-term debt for five years subsequent to December 31,
1995 are as follows:
<TABLE>
<S> <C>
1996 $ 168,659
1997 186,774
1998 186,774
1999 186,774
---------
$ 728,981
=========
</TABLE>
Per the note agreement, accrued interest payments are to be separately
calculated for each principal payment, and the interest is payable at the time
the corresponding amount of principal is due. Total accrued interest was
$158,674 at December 31, 1995. Accrued interest has been separated between
current and non-current liabilities. The current portion of $45,952 was recorded
in accrued expenses (see Note 3).
-25-
<PAGE> 26
NOTE 5 - LINE OF CREDIT
- -----------------------
The Company had a $750,000 line of credit limited to 75% of the Company's
eligible accounts receivable. Interest is payable monthly at prime (8.50% at
December 31, 1995) plus 6%. The principal is due on demand and is
collateralized by substantially all of the Company's assets. Advances on the
line of credit at December 31, 1995 were $491,714.
NOTE 6 - SHORT-TERM DEBT
- ------------------------
During the year, the Company acquired equipment under a short-term loan
payable to a financing company in the amount of $130,000 bearing interest at
prime (8.5% at December 31, 1995) plus 15.25%. The loan is personally
guaranteed by the two officers of Grafalloy, Inc., the general partner, and
was due on January 28, 1996. However, the Company has obtained a twelve month
extension from the financing company and is currently renegotiating the
renewal of the agreement. At December 31, 1995, the outstanding balance for
the loan was $98,500.
NOTE 7 - SHAREHOLDERS' LOANS
- ----------------------------
During the year ended December 31, 1995, the Company secured $175,000 in debt
financing from certain limited partners. Proceeds from this note offering were
used to fund working capital requirement.
The structure of this debt financing was as follows:
Unsecured Promissory Notes: Seven $25,000 notes were issued, bearing
interest at prime plus 4%, with interest accrued and payable on the
last day of each quarter during which the note was outstanding,
expiring at various dates in 1997.
Warrants: Warrants to purchase 9.4 Limited Partnership units were
attached to each $25,000 note. These warrants granted the holder the
right to purchase Limited Partnership units at a price of $1,329.79
per unit, or at a valuation for the company of $3.0 million. Warrants
were subject to cancellation if all principal and interest due on the
Unsecured Promissory Note was paid within six months of the date of
the individual notes.
At December 31, 1995, all notes were outstanding and unpaid beyond the six
month period. Therefore, there are warrant options representing the option to
purchase 65.8 Limited Partnership units outstanding at year-end.
Future maturities of shareholders' loans for the next five years are as
follows:
<TABLE>
<CAPTION>
Year ending
December 31,
<S> <C>
1996 $ 0
1997 175,000
---------
$ 175,000
=========
</TABLE>
-26-
<PAGE> 27
NOTE 8 - COMMITMENTS
- --------------------
The Company leases certain building space under a noncancelable
operating lease agreements which expires at December 31, 1997.
Future minimum lease payments, by year end in the aggregate under these
noncancelable operating leases consisted of the following at December
31, 1995:
<TABLE>
<S> <C>
1996 $ 97,200
1997 97,200
---------
Total future minimum lease payments $ 194,400
=========
</TABLE>
Total rent expense for the operating lease was $95,800 for the year
ending December 31, 1995.
NOTE 9 - DEFINED CONTRIBUTION PLAN
- ----------------------------------
The Company has a 401(k) plan covering substantially all employees meeting
minimum eligibility requirements. Company matching contributions are to be
determined annually by the Board of Directors in an amount not to exceed the
maximum allowed under current income tax regulations or subject to certain
tax law limitations. Participants are entitled, upon termination or
retirement, to their vested portion of retirement fund assets which are held
by a corporate trustee. Charges to pension expense for the year ended
December 31, 1995 amounted to $15,981.
-27-
<PAGE> 28
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma financial information
The American Materials & Technologies Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
The Grafalloy Adjustments
Account Company L.P. Dr Cr Final
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash & short term investments $ 4,655 $ 208 (5)$ 4,637 $ 226
Accounts receivable, net of
allowance for doubtful accounts
of $123 3,825 378 4,203
Inventories 1,456 1,040 2,496
Prepaid expenses and other
current assets 520 101 621
------------ ----------- ------------ ---------- -----------
Total current assets 10,456 1,727 4,636 7,546
Property plant & equipment, net 4,359 1, 425 5,784
of accumulated
depreciation of $642
Goodwill 517 - (5) 7,540 (2) 264 7,793
Other assets 363 121 (5) 168 316
------------- ------------ ------------- ----------- ------------
Total assets $ 15,695 $ 3,273 $ 7,540 $ 5,068 $ 21,439
============= ============ ============= =========== ============
Current liabilities $ $
Accounts payable $ 1,957 $ 692 $ 2,649
Accrued liabilities 1,394 382 1,776
Current portion of term loan-bank 112 112
Taxes payable 218 - (9) 105 323
Grafalloy loans - existing 458 (5) 458 -
Grafalloy loans-new - - - (5) 689 689
------------- ------------ ------------- ----------- ------------
Total current liabilities 3,681 1,532 458 794 5,549
Term loan - bank 336 336
Revolving credit facility - (1) 118 (5) 2,235 2,328
- - (4) 224 (3) 419 -
(7) 59 (6) 115
(8) 40
Grafalloy loans - existing 486 (5) 486 -
Grafalloy loans - new - - - (5) 1,024 1,024
------------- ------------ ------------- ----------- ------------
Total liabilities 4,017 2,018 1,385 4,587 9,237
------------- ------------ ------------- ----------- ------------
Minority interest 70 70
Commitments & contingencies
Stockholders' equity
Preferred stock -
Common stock 41 - - 41
Additional paid in capital 10,910 - - (5) 986 11,896
Partner's capital 1,255 (5) 1,255 - -
Retained earnings 657 - (1)-(4), 462 - 195
(6)-(8)
------------- ------------ ------------- ----------- ------------
Total stockholders' equity 11,608 1,255 1,717 986 12,132
------------- ------------ ------------- ----------- ------------
Total liabilities &
stockholders' equity 15,695 $ 3,273 $ 3,102 $ 5,573 $ 21,439
============= ============ ============= =========== ============
</TABLE>
-28-
<PAGE> 29
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma financial information. (cont.)
The American Materials & Technologies Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
The Grafalloy Adjustments
Company L.P. Total DR CR Pro forma
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 22,411 $ 10,670 $ 33,081 $ 33,081
Materials 11,175 4,540 15,715 15,715
Manufacturing costs 5,575 2,303 7,878 (7) 59 7,701
Selling, general and (1) $ 118
administrative costs 3,621 2,149 5,770 (8) 40 5,730
Research & development 535 513 1,048 1,048
Goodwill amortization (2) $ 264 264
------------ ------------ ------------- --------- ------- ---------------
Total costs 20,906 9,505 30,411 264 217 30,458
------------ ------------ ------------- --------- ------- ---------------
Operating income 1,505 1,165 2,670 264 217 2,623
Interest income 131 8 139 (6) 115 24
Interest expense $ 434 $ 224 $ 658 (3) $ 419 (4) $ 224 $ 853
------------ ------------ ------------- --------- ------- ---------------
Profit before taxes and 1,202 949 2,151 798 441 1,794
extraordinary item
Provision for income taxes $ 239 $ $ 239 (9) $ 105 $ $ 344
------------ ------------ ------------- --------- ------- ---------------
Income (loss) before 963 949 1,912 903 441 1,450
extraordinary item
Extraordinary loss 29 29 29
------------ ------------ ------------- --------- ------- ---------------
Net income $ 934 $ 949 $ 1,883 $ 903 $ 441 $ 1,421
============ ============ ============= ========= ======= ===============
</TABLE>
<TABLE>
<CAPTION>
Earnings Per Share 1996 1996 1996
(Numbers in 000's except EPS) The Company Pro forma Shares
Outstanding
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 934 $ 1,421 $ 1,421
Weighted average number of common shares 2,956 3,135 4,318
Earnings per share $ 0.32 $ 0.45 $ 0.33
</TABLE>
-29-
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated balance sheet at December 31, 1996 and the
unaudited pro forma consolidated statement of operations for the year then
ended have been prepared to reflect the acquisition of Grafalloy L.P. as if it
had occurred on January 1, 1996. The acquisition was accounted for under the
purchase method of accounting.
The following is a summary of adjustments reflected in the accompanying
unaudited pro forma consolidated balance sheet at December 31, 1996 and the
unaudited pro forma consolidated statement of operations for the year then
ended:
1. Represents the elimination of the salary of certain employees
whose services were terminated after the acquisition.
2. Represents the adjustment to increase goodwill amortization.
3. Represents the adjustment to increase interest expense for
increased debt.
4. Represents the adjustment to remove prior interest on replaced
debt.
5. Represents the purchase price adjustment accounting to APB16.
6. Represents the adjustment to reduce interest income on funds
used to purchase Grafalloy and Carbon Design.
7. Represents the adjustment to reduce depreciation expense for
change in basis of assets.
8. Represents the adjustment to reduce selling, general and
administrative costs to reflect replacement of a consultant
with a full time employee.
9. Represents the tax effect of the previous adjustments.
10. Represents the full number of common shares that would be
outstanding at December 31, 1996 assuming:
a) All shares from the Initial Public Offering were
outstanding the entire year.
b) The Grafalloy management shares were outstanding the
entire year, and
c) The outstanding warrants and options were computed
into shares in accordance with APB15 and were issued
at the beginning of the year.
-30-
<PAGE> 31
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
Exhibit Number Description
2.1* Asset Purchase Agreement dated as of February 27, 1997 by
and among the Company, Grafalloy L.P., Grafalloy, Inc., and
Grafalloy Acquisition Corporation
20.1* Press release of The American Materials and Technologies
Corporation, dated March 3, 1997
Pursuant to Item 601(b)(2) of Regulation S-B, the Company hereby undertakes to
furnish to the Commission, upon request, copies of the exhibits and schedules
listed in the Exhibit Index accompanying this report, but omitted from
Exhibit 2.1.
- ------------------
* Previously filed.
-31-
<PAGE> 32
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 hereto duly authorized.
THE AMERICAN MATERIALS &
TECHNOLOGIES CORPORATION
/s/ Paul L. Pendorf
------------------------
Date: April 30, 1997 Paul L. Pendorf
President and
Chief Executive Officer
-32-
<PAGE> 33
Exhibit Index
Exhibit
Number Description
- ------ -----------
2.1* Asset Purchase Agreement dated as
of February 27, 1997 by and among
the Company, Grafalloy L.P.,
Grafalloy, Inc., and Grafalloy
Acquisition Corporation
Schedules and Exhibits Omitted From 2.1
Disclosure Schedule
Exhibit A - January 1997 Financial Statements
Exhibit B - Environmental Law Definitions
Exhibit C1 - Note in the principal amount of $800,000
Exhibit C2 - Note in the principal amount of $747,254
Exhibit C3 - Note in the principal amount of $175,000
Exhibit D - Form of Subscription Agreement
Exhibit E - Form of Non-Competition Agreement
Exhibit F - Form of Employment Agreement
Exhibit G - Form of Tax Allocation Agreement
Exhibit H - Form of Security Agreement
Exhibit I - Form of Escrow Agreement
20.1* Press release of The American
Materials & Technologies Corporation,
dated March 3, 1997
- ------------
* Previously filed.
-33-
