U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
TOLLYCRAFT YACHT CORPORATION
(Name of Small Business Issuer in its charter)
Minnesota 91-1642325
State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
2200 Clinton Avenue, Kelso, Washington 98626
Address of principal executive offices) (Zip Code)
Registrant's telephone number 360-423-5160
Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
<PAGE>
PART I
Item 1. Description of Business.
Background
TOLLYCRAFT YACHT CORPORATION (the "Company" and "Tollycraft") is a
public corporation which was incorporated on in December 1992 in
the State of Minnesota. The Company changed it's name in January
1996 from Childguard Corporation having acquired, in a reverse
merger transaction, Tollycraft Acquisition Corporation ("TAC")
effective January 31, 1996. The Tollycraft Acquisition Corporation
had, on June 6, 1994, purchased substantially all of the operating
assets of Tollycraft Yachts Corporation, which was in Chapter 11
bankruptcy, through a confirmed plan of reorganization. Tollycraft
Acquisition Corporation is now a subsidiary of the Company.
History
Through it's predecessors, the Company has manufactured and sold
high quality motor yachts since 1936. Today, the Company offers
nine models, from a 48' Pilothouse Motor Yacht to the 82'
Pilothouse Motor Yacht, ranging in price from $595,000 to
$3,100,000.
R.M. Tollefson, the founder of Tollycraft, played an active role in
the Company's operations until 1987. Mr. Tollefson's commitment to
reliable engineering and quality craftsmanship continues at the
Company today. His commitment has positioned Tollycraft as premier
manufacturer of luxury motor yachts and provides the opportunity to
capitalize on expected growth within the luxury yacht industry.
"Listen to your customers, give them what they want and don't
compromise your standards,' Tollefson often said. Each and every
Tollycraft built today reflects this same philosophy.
Tollefson's business career began in the early 1930's as the owner
of a small manufacturing operation, Central Lumber Company,
producing fine furniture and cabinetry. As an adjunct to his
normal business, Mr. Tollefson produced several custom yachts for
friends and himself.
As the reputation of his boat building talents spread, Mr.
Tollefson began building more boats than cabinets or furniture.
Eventually, a demand allowed him to direct his attentions solely to
building boats. With a dedicated group of proficient cabinet
makers and his own expert knowledge of yacht design, Mr. Tollefson
launched a complete line of wooden cruisers. During this time, Mr.
Tollefson developed a close personal relationship with noted Naval
Architect Ed Monk Sr., and later with his son, R.E. "Ed" Monk Jr.
Utilizing their talents, they generated a continuing supply of
innovative designs which were then built by Mr. Tollefson.
Tollycraft was originally incorporated in the State of Washington
in 1936 under the name of Central Lumber Company ("CLC"). CLC was
wholly owned by Mr. Tollefson. Mr. Tollefson subsequently
transferred the assets of his pleasure boat manufacturing
operations, Tollycraft, to CLC in 1955. Concurrently, the name of
CLC was changed to Tollycraft Corporation.
For more than fifty years Mr. Tollefson actively designed and built
timeless pleasure cruisers and yachts to meet the needs of the
cruising enthusiasts. Mr. Tollefson's understanding of the demands
of extended voyages came from personal experiences on the water
cruising yachts which bear his name. Gathering input from fellow
boater's, Tollefson incorporated their many comments and
suggestions into new or existing models.
A chronological synopsis of Tollycraft operations during Mr.
Tollefson's helm is as follows:
1932 Mr. Tollefson, while involved in the cabinets business,
started building boats for himself.
1936 Tollycraft commenced pleasure boat manufacturing as a
sole proprietorship in Kelso, Washington, after building
and selling the first boat which exhibited the quality he
demanded.
1941 World War. 11 interrupted boat building while Mr.
Tollefson served in the U.S. Coast Guard.
1946 Central Lumber Company was incorporated in the State of
Washington.
1952 A fire destroyed Central Lumber Company's plant and
equipment; after that the company narrowed the scope of
its business activities to boat manufacturing.
1955 The assets of the sole proprietorship boat manufacturing
operations were transferred to Central Lumber Company,
Mr. Tollefson's wholly-owned company; concurrently the
name was changed to Tollycraft Corporation.
1958 Tollycraft built the existing plant in the Kelso
Industrial Park on 14 acres of land and commenced
operations in the new 65,000 square foot building in
1959.
1967 Tollycraft Yachts began manufacturing fiberglass huffs,
starting with the conversion of the 24, 28', 3(Y and 34'
wooden hull designs to fiberglass.
1970 The last wooden hull boat was built. The very successful
34' Sedan was the first 'keel up' fiberglass design, sold
194 units in 11 years, and set the Tollycraft design
trend for the 1970's.
In 1987, Mr. Tollefson decided it was time to take a more relaxed
role in the marine industry by selling the company he founded and
directed for more than fifty years. He served as Chairman Emeritus
of Tollycraft Yachts Corporation, cruising his personal 48'
Tollycraft Motor Yacht. Tollycraft, a then public company, was
taken private and merged through a leveraged buyout ('LBO'), into
Olympic Equities, Inc. Thereafter, Olympic Equities, Inc. changed
its name to Tollycraft Yachts Corporation. As with many leveraged
buyouts of the 1980's, the transaction was ill-fated and threatened
the long-term financial stability of the Company.
In 1989, a group of investors purchased Tollycraft and brought in
a new board of directors and a new management team. The investor
group provided capital to reduce debt and provided working capital
for ToIIycraft's continued operations. However, the economic
downturn and the passage of the 10 percent luxury tax caused
Tollycraft, as well as every other luxury boat builder in the
United States, to sustain substantial operating losses. The
Company subsequently filed for protection under Chapter 11 of the
U.S. Bankruptcy Code on November 5,1993.
In February of 1994, a group of investors formed Tollycraft
Acquisition Corporation ("TAC") and purchased substantially all of
the operating assets of the old company, effective June 6, 1994.
Subsequently, the Company has made significant progress in the
marketing & operating and finance arenas and is looking ahead to
further improvements.
In January of 1996, TAC was acquired, in a reverse merger
transaction, by Childguard Corporation which concurrently changed
it's name to Tollycraft Yacht Corporation.
(b) Business of Issuer. Briefly describe the business and
include, to the
extent material to an understanding of the issuer:
(1) Principal products or services and their markets;
MOTOR YACHTS
PRODUCTS
Tollycraft, through it's TAC subsidiary, is a builder of high
quality cruising motor yachts. These yachts are well equipped and
built with the highest structural integrity to ensure safe, long
range cruising. The current line of yachts consists of the
following:
48 Pilothouse Motor Yacht
48 Cockpit Motor Yacht
57 Pilothouse Walkaround Motor Yacht
57 Pilothouse Widebody Motor Yacht
65 Pilothouse Motor Yacht
Under development are the following yachts:
48' Convertible Sedan Motor Yacht
52' Pilothouse Motor Yacht
54' Convertible Sedan Motor Yacht
76-82' Pilothouse Motor Yacht
These yachts are well equipped and built with the highest
structural integrity to ensure safe, long range cruising. A
Tollycraft has a 15-year Transferable Hull warranty, the longest
and most comprehensive warranty in the industry. To date,
Tollycraft has never had a manufacturing related hull failure.
Although many features are standard, Tollycraft will provide
additional options to customer specifications for an additional
charge. Tollycraft Yachts are designed for owner convenience and
overall functionality. The electrical and mechanical systems are
designed and installed so that everything works well together and
is accessible for maintenance. No-nonsense engineering and quality
craftsmanship are standard, thus ensuring to Tollycraft customers
a truly seaworthy yacht. . Tollycraft incorporates "Intelligent
Engineering "Manufacturing Integrity" and the patented "Quadralift
Hull' construction into all its vessels.
Intelligent Engineering
Great strides have been made in controls, steering engines and
gears. While Tollycraft exercises due caution in adopting new
systems until they are thoroughly tested and proven, the most
reliable of these are now offered.
State of the art components such as MMC electronic controls, custom
AC/ DC electrical, central chilled water heating and air
conditioning vacuumed bagged divinycell cored hull and deck
structures, fully integrated electrical panels and switches,
Hynautic hydraulic steering fuel distribution manifolds and oil
lubricated shaft stuffing boxes are but a few of the advanced
systems offered.
Modern systems are of little benefit however, if they are
improperly integrated into the complete yacht. That is why
Tollycraft engineers are careful to match technology with function.
Critical components, such as engines and generator sets (gensets)
are matched to the specific needs of each vessel and each owner.
Engine selections include MAN, Caterpillar, Detroit Diesel and MTU
products. Gensets are either ONAN or Northern Lights.
All fiberglass lay-up schedules are verified by an outside
consulting engineer, approved by ABS and then tested by an
independent laboratory. All lamination takes place in a controlled
environment. Temperature and humidity conditions am continuously
monitored, then recorded to ensure materials are applied within the
manufacturer's specifications. Core materials are vacuum bagged to
the laminate to ensure proper bonding and structural integrity.
Tollycraft's engineering team uses the latest CAD technology to
design new components.
Analysis programs enable Tollycraft engineers to test and prove
computer models before the actual parts are built.
Wiring systems have been redesigned and simplified. Wire harnesses
have been developed which meet or exceed all industry standards.
Plug type connectors, designed to withstand the marine environment,
have been incorporated to ease installation and minimize owner
maintenance. All Tollycraft wire harnesses are color coded in
accordance with NMMA and ABYC specifications.
New products are ergonomically designed. Line of sight, ease of
passage and mobility restriction are just a few of the human
factors Tollycraft s designers consider on every new project.
Primary consideration is given to safety and functionality.
Tollycraft's engineering department is committed to product
excellence. Every aspect of the final product must function as
well as it looks.
Every phase of the production process is scrutinized by engineering
staff and production personnel. New techniques and processes are
developed and implemented to achieve cost savings, quality and
product integrity. Cooperative efforts maximize the efficiency of
both departments.
Product standardization and documentation ensure Tollycraft's
ability to purchase and manufactured accurately and efficiently.
Whenever possible, common parts and processes are employed
throughout the various models to minimize training and maximize
productivity.
New Tollycraft yachts feature an impressive list of standard
equipment. In addition, many standard options are available for
the customer to choose from. If owners wish to further personalize
their yacht, Tollycraft s design department will work with them to
create the exact look and feel they are after. Custom options are
not inexpensive, but they afford the owner an opportunity to create
a truly unique and personal yacht while maintaining the advantages
and savings of a standardized production process.
Manufacturing Integrity
New ideas and designs are worth little if they do not stand up to
the structural mechanical and electrical integrity that is the
foundation for Tollycraft cruising yachts' Tollycraft's
manufacturing integrity gives the owner justifiable confidence in
his vessel. Over 60 years of building cruising yachts has taught
us it takes more than words to instill confidence in a skipper who
invests his money and the safety of his crew in a yacht.
Tollycrafts are known as seaworthy yachts. Everyday cruising takes
a Tollycraft into waters that test a hull incessantly. Tollycraft
knows that it takes more than a tough hull to survive sea
conditions. Accordingly, every stringer must be encapsulated into
the hull every bulkhead fiberglassed to the hull, every wood
component is glued together (reinforced with screws) wiring and
plumbing fastened every few inches, and any component, whether
purchased or manufactured by Tollycraft, must be proven to
withstand the rigors of the marine environment.
Dry rot, once the bane of wooden boats, still attacks modern yachts
if precautions are not taken. For this reason, Tollycraft uses
premium straight-grained mahogany for deck, cabinet and bulkhead
framing. This rot-resistant wood is then encapsulated with
fiberglass wherever it might be exposed to bilge water.
Engines, generators and other mechanical equipment are securely
installed, with special strengthening given to areas of extra
stress such as rudder posts and shaft logs. The entire mechanical
structure is electronically bonded with a heavy copper strap that
employs a shaft sweep to make positive electrical contact to
external metal parts.
For strength and waterproofing, the hull deck and cabin structures
are bonded and screwed through overlapping fiberglass. Specially
designed window frames overlap their cabinside openings which
eliminates the possibility of leakage.
Decks are cored with closed cell foam for stiffening and to
eliminate any feeling of resilience underfoot. Even shower stalls
are laid up of heavy fiberglass so they don't creak or bend when
used by a normal-sized adult.
Integrity is much more than a slogan at Tollycraft. It is the
foundation of our customers' confidence in our vessels.
The Quadralift Hull
Editors of boating magazines have been exposed to every claim about
hull design that the mind can dream up. Naturally they are
skeptical while sea trialing any new hull. However, almost without
exception, editors who have tested Tollycraft's have reported that
the Quadralift hull works.
Naval Architect Ed Monk Jr., who designed the original Quadralift"
hull for the Tollycraft 61' Motor Yacht, won't call his design
"revolutionary", but rather the "latest in hull technology ... the
culmination of everything we've learned about hulls over the
years.'
While Quadralift varies from model to model its cupped dual chine
separates this hull from others. With the waterline midway between
the two chines, the Quadralift acts as an effective spray knocker,
throwing spray horizontally away from the hull. Deflecting the
spray not only delivers a dry ride, but increases efficiency by
reducing the amount of wetted surface (drag) along the hull.
The design of the Quadralift provides extra buoyancy at the bow,
permitting a finer entry and reducing the tendency to broach in a
following sea. In a chop, or at anchor, the Quadralift has a roll
dampening effect, and with this extra stability comes extra
comfort.
But the most dramatic demonstration of this remarkable hull comes
when you ease the throttles forward and feel your Tollycraft rise
effortlessly onto plane and handle smoothly at any speed. A nearly
full-length keel aids the tracking through turns and gives you
excellent control during slow-speed maneuvering.
Product Line Enhancements
Tollycraft management believes that improvement is a process, not
a project and should be accomplished on an incremental basis.
Accordingly, key tactics supporting this strategy focus on
developing and maintaining a process which empowers Tollycraft
employees, contractors, vendors, dealers and customers to provide
input for product improvement on a continuous basis.
Dealer Advisory Board - The Dealer Advisory Board is being
formed to help with product development for new and existing
products.
Market Surveys - Faxes are sent to dealers before any changes
or improvements are made to a product.
Tollycraft has developed a relationship with Jack Sarin, a
noted Naval Architect, who is designing the 52' and 82' lines
and reviewing the designs of our other vessels,
Naval Architect Gregory C. Marshall has been retained to
design the new 48' Pilothouse. His expertise will revamp the
popular existing 45' model into an updated product with a
higher profit margin.
The Company is currently exploring opportunities to expand its
existing product line with new, complementary products and by
redesigning existing products to update exterior and interior
styling while lowering manufacturing costs. These include the
following:
The Pilothouse Motor Yacht has become noticeably popular. The
East Coast area, particularly Florida, is showing strong
demand for the Pilothouse yacht. The Pilothouse may be used
to fish as well as cruise and it offers an escape from the
weather with a full lower station. Design is nearing
completion on new a 52' planing hull, pilothouse motor yacht
and sports sedan which will include three staterooms, two
heads, and is convenient to dock and travel port to port..
These yachts will retail at $795,000. They will use
Tollycraft's new fiberglass/wood liner system which will also
replace existing manufacturing techniques on other products.
The boats will be lighter, have a significantly improved ride,
and performance levels while simultaneously lowering material
and labor costs in the manufacturing process. Tollycraft's
new 50' Pilothouse will fill a gap in the Tollycraft line as
well as meet customer demand. There are hundreds of 44' and
45' Tollycraft owners currently without the upgrade option
that this yacht will make available to them. The 50' offers
three staterooms
Due to numerous customer requests, the Company also plans to
begin building yachts between 76' and 82' called the
"Champagne Series." This semi-custom program will be
implemented within 12 months and the Company anticipates its
first sales in fiscal year 1996. These boats retail between
$2.7 million and $3.1 million each, and the Company expects to
produce between two and six per year.
Tollycraft's existing 40' Sports Sedan has been discontinued
and a new 48' Convertible Sedan is being developed. This boat
will incorporate many of the popular features of the previous
40' model but the additional 8' in length will allow the yacht
to have an enlarged galley and a spacious master stateroom.
Command bridges and radar arches of all the existing models
are being restyled to more contemporary fines. This redesign
will also significantly reduce the labor cost to install these
items and will be designed with preformed wire chases and
mechanical runs.
A professional yacht design firm has updated Tollycraft's
standard interiors to meet customer demand for upscale, modem
interior styles, layouts and materials.
INDUSTRY ANALYSIS AND COMPETITION
The U.S. market for pleasure boats has undergone many changes over
the last decade. In 1986, 1987 and 1988 sales of pleasure boats
skyrocketed by 18.7%, 28.5%, and 14.9%, respectively. Consumer
confidence was high and U.S, exports of pleasure boats were
booming. In total, manufacturers' sales of pleasure boats expanded
by over 75% in those three years.
Manufacturers' sales of inboard/outdrive boats finished out a six-
year growth surge with total growth of close to 160% between 1984
and 1988, Outboard and inboard motorboats were not far behind, with
total manufacturers' sales growth of 87.9% and 96.3%, respectively,
during the same period. The only pleasure boats that did not
benefit from this prosperity were sailboats, a market which
continued to suffer from declining demand.
The last cyclical downturn in the economy (the recession of 1989-
1991) hit the industry hard, as a number of factors combined to set
the stage for a severe slump in manufacturers' sales. Among the
factors significantly impacting the market for pleasure boats in
the U.S. were the collapse of the financing structure of the
industry, savings and loan crisis, changing consumer confidence in
the economy, and fluctuating U.S. pleasure boat exports,
Many floor plan companies and banks began calling back all of their
retail and floor boat loans. Dealers could not come up with the
money to pay the fidl amount of the floor plan loans, which forced
many of them to fold.
Manufacturers were now faced with an enormous number of boats they
had to buy back from boat dealers to fulfill the obligations of
their repurchase contracts with floor plan companies. Many
manufacturers could not cover these new expenses, and a great
number were forced to close their doors during this crisis.
Making matters worse for pleasure boat manufacturers, in 1991
Congress passed a 10% luxury tax on all pleasure boats costing more
than $100,000. Although this tax was repealed in 1993, the damage
was already done,
Manufacturers' sales of pleasure boats began slipping in 1989 when
they fell by 5.0%, and proceeded to plummet by 18.4% and 27. 1%
during 1990 and 1991, respectively. Inboa,rd/outdrive boats were
the hardest-hit, as manufacturers' sales of pleasure boats dropped
to $2,8 billion in 1991, a level which had last been seen in 1985.
In 1992 the positive effects of the recovering U. S. economy
reached the pleasure boat industry, Consumer confidence in the
economy was starting on its upward climb towards a significant
height in 1993, and banks began to loosen the credit restraints on
boat loans as interest rates continued to decline.
Consumers began to buy new boats again, Disposable income was up,
the luxury tax was repealed, and consumers had a rosier outlook on
the economy. The market for pleasure boats embarked on its
recovery as manufacturers' sales increased by 9.8% to $3.1 billion
during 1992. Two more good years followed in 1993 and 1994, when
sales rose by 11.8% and 9.4%, respectively. Business Trend
Analysts pegs the total pleasure boat market at $3.8 billion in
1994, with an estimated 1995 sales volume of $4.1 Source:The U.S.
Market for Pleasure Boats, C Business Trend Analysts Inc,, 1995
Overall growth in manufacturers' sales of pleasure boats over the
next ten years is projected at 6.9% annually. Business Trend
Analysts expects the total manufacturers' market for pleasure boats
to climb just above $7.4 billion by 2004. The following table
shows the annual sales of such boats:
U.S. MANUFACTURERS'SALES OF PLEASURE BOATS ($ Millions)
Year Value
1986 $3,406
1987 $4,378
1988 $5,029
1989 $4,775
1990 $3,894
1991 $2,840
1992 $3,118
1993 $3,487
1994 $3,813
1995E $4,124
2004P $7,450
E - Estimate
P - Projection
Source:The U.S. Market for Pleasure Boats, @ Business Trend
Analysts Inc., 1995
Competition
Primary Competitors
Tollycraft's primary competition can be divided into the East and
West Coasts of the United States.
West Coast: On the West Coast, Tollycraft's main competition is
from the Taiwanese 'knock-offs': Ocean Alexander and, to a lesser
extent, American Marine (Grand Banks). These competitors have
built a reputation for emulating Tollycraft's products using
extremely cheap labor and trying to underprice and undercut
Tollycraft's market on the West Coast. The offshore competitors
basically sell a lower quality product for a lower price. In
addition, Canadian competition has begun to appear because of the
weakness of the Canadian dollar. These include Sunship by Westbay,
and Queenship. Tollycraft competes well against all these
competitors and dominates the West Coast cruiser market.
East Coast: On the East Coast, Tollycraft has a great deal more
competition from Viking, Hatteras and, to a lesser extent,
Bertram, Sea Ray, Ocean and Carver. Hatteras is the perceived
market leader, on the East Coast (including the Great Lakes and
Gulf of Mexico) and its dealer network is very strong. Although
exact data is unavailable, their sales are at least double
Tollycraft's and they have a full line of boats both in the cruiser
and yacht fisher segments. Tollycraft has been able to bite into
their market share very slowly over the last three years.
Hatteras' product is priced anywhere from 10-20 percent over
Tollycraft's on the East Coast.
Viking is, likewise, a leader on the East Coast but does not have
the same strength in the dealer network that Hatteras does. Viking
is very strong in Europe and in the international market. Viking
has gone through serious financial reorganization.
Ocean Yachts and Carver Yachts are both high volume, low cost
producers of lower quality yachts. Although both have a great deal
of customer loyalty to their product, the differences between
Tollycraft and Carver or Ocean products is dramatic. Carver's and
Ocean's are priced somewhat below Tollycraft's. Both products are
perceived to be of a lesser quality and are a market tier below
Tollycraft.
Very few of the offshore knock-off competitors have found
acceptance on the East Coast and because of the lack of longevity
in their product line, Tollycraft fares very well against them.
Tollycraft Yachts present a true alternative to the 'East Coast'
products and its gains in market share are directly related to its
effort in seizing the East Coast marketplace.
TOLLYCRAFT'S MARKET POSITION
Competitive Advantage
Tollycraft's primary competitive advantage results from the high
quality of its product. The Company has never had a manufacturing-
related hull failure and customers have shown themselves willing to
pay a premium for this quality. Tollycraft's products have
historically had a high resale value and have proven to be a good
investment for customers.
Tollycraft Yacht Resale Values
1989 Model Year
December 1994 Resale Value
Model Sales Price Dealer Cost* Percentage
(NADA Average)*
30' Sport Cruiser $77,275 60,700 79%
34' Sport Sedan 126,420 112,750 89
34' Sundeck Cruiser 124,327 117,300 94
40' Sundeck Motor Yacht 174,649 137,500 79
40' Sport Sedan 186,347 144,100 77
44' Cockpit Motor Yacht 201,753 224,500 111
48' Cockpit Motor Yacht 320,000 275,000 86
53' Motor Yacht 464,312 370,550 80
57' Cockpit Motor Yacht 535,475 451,850 84
61' Pilothouse MotorYacht 687,454 551,300 80
Average resale value as a percentage of
original sales price after 5 years 86%
*Source: NADA Appraisal Guide
Tollycraft's Prospects Within the Industry
Tollycraft's sales have rebounded significantly since the repeal of
the luxury tax. If present sales levels continue, they represent
an annual pace of $25,000,000. Tollycraft is well-positioned for
this continued growth. Changing U.S. demographics will help expand
the customer base for Tollycraft yachts (see the Tollycraft
Customer profile section which follows). The Company expects to do
more than maintain its share of the growing market. Tollycraft
plans to triple its share of the yacht market in the next three to
five years. Tollycraft's plant will have the capacity to support
the anticipated growth of up to $40,000,000 in revenue after
completion of the current expansion and modernization project..
The May 1993 issue of Powerboat Reports, 'The Consumer Resource for
the Powercraft Owner", reported in its feature article that
Tollycraft is tops in owner satisfaction: "Tollycraft scored an A+
in overall satisfaction and a 90 percent would-buy again index ...
The highest marks so far in Powerboat Reports Ownership Survey ...
Not one Tollycraft owner was dissatisfied enough to say he wouldn't
consider buying another... This is unmatched in other surveys.
Tollycraft managed to show itself a winner in both quality and
value categories." Overall satisfaction scored an impressive A+,
easily outranking all other boats in Powerboat Reports' survey.
Current Backlog
The current order backlog of Tollycraft includes orders for current
models in excess of $10 million, plus commitments for it's new 48 -
52' Pilothouse model of $14.5 million. In addition, Tollycraft has
serious potential orders from dealers of approximately $14 million.
Customer Profile
Tollycraft's customers typically have an annual income of $150,000
or higher, with a net worth of $500,000 or more. Based on these
figures, the average potential Tollycraft customer, nationwide, has
the following profile (Mendelsohn Media Research, Inc., New York,
1991 annual survey of affluent households.):
Age:48.4 years old Number of homes owned:1.8
Value of principal residence:$363,200
Value of other real estate owned:$223,000
In addition, 45 percent have assets in their business or
profession, with the mean value of their equity being $312,303.
Only 12 percent of the homeowners have a home mortgage. (U.S.
Department of Commerce Survey of Income and Program Participation,
1988, households with net worth over $500,000)
Changing U.S. demographics mean that the large "baby boom"
generation is entering the average age of Tollycraft's customers -
resulting in a greater number of qualified, potential customers in
the coming decade.
Customer financing needs will vary greatly, depending on the yacht
price, whether it is a lease or purchase transaction, and other
variables. But one fact remains constant- the financial strength
of these individuals provides an outstanding opportunity for a
strong secure investment for financial supporters of Tollycraft.
MARKETING
Distribution Network
Tollycraft is currently represented by 6 United States dealers in
13 locations: Seattle (Washington), Portland (Oregon), Vancouver,
B.C., California, Virginia (2) and Florida (7). Representation is
still being targeted in Toronto, San Francisco, Cape Cod, Chicago,
Jersey/New York and Annapolis.
The Company will be seeking international representation for its
product lines in the near future. This effort will begin once the
domestic dealer network is performing at the projected levels. The
Company has been contacted by several firms who are interested in
representing Tollycraft. The areas of the world currently under
consideration are: England, Scandinavia, Spain, France, Italy,
Middle East, Japan, Southeast Asia, Mexico and Brazil.
Tollycraft takes a great deal of pride in its dealer network. Its
dealers are recognized as some of the strongest in the industry.
The process to become a Tollycraft dealer includes a review of at
least the following items regarding each prospect:
1. Financial stability
2. Sales ability
3. Geographic and aesthetic attributes of location
4. Years in the industry
5. Reputation in the industry
6. Other lines carried (competitive and noncompetitive)
7. The dealer's desire to fit within the Tollycraft family
Market Promotion
Company tactics designed to help achieve a strategy of promoting
Tollycraft include the following:
Dealer Manual - These have been designed to include policies
and procedures, as well as a selling reference for brokers.
Dealer bulletins are issued as needed to keep manuals current.
Plant Tours - A periodic open house with all staff on hand for
customers and dealers.
New Display - A portable display for all major boat shows has
been developed.
Trade Shows and Conventions - The Company is an attendee at
major nonsponsored yacht and boat shows including Superyachts
Northwest, and Ft. Lauderdale, St. Petersburg, Seattle, and
Miami International.
Videos - Promotional videos are complete for the 57 and 82'
series along with a complete plant tour. The Company is
currently working on a video for the new 57' and 65' lines.
Communication with Dealers - Sales staff are providing at east
weekly updates to each dealer, building relationships and
helping to sell our products.
Dealer Meeting (Spring 97) - This initiative is focused on
creating enthusiasm for our organization and building
relationships.
Tolly University --Each year in August, a two-day training
seminar will be held to educate our dealers and brokers on
Tollycraft products. The 1995 meeting covered ABS
certification, comparison to other products, broker motivation
and promoting new products.
Advertising
The advertising strategy is targeted at new buyers. Key tactics
include:
Specification Sheets - These have been recently reconfigured
and now contain new designs with current 1996 options and new
standard equipment pricing.
Brochures - New brochures have been developed for all lines
and are easily updated.
Line Drawings - New computer-generated line drawings for
brokers and advertising have been completed
Newsletter - A Tollycraft-sponsored quarterly newsletter
promoting Tollycraft and informing readers of current events
has been introduced. Production cost is fully paid for by
trade advertising.
PR/Media Kits - These are released quarterly to help promote
the ToIIycraft image, inform the press, and generate editorial
commentary.
Advertising Campaign - This is designed to involve dealers in
co-op advertising and increase advertising exposure.
Internet: The Company also has an address on the Internet at
"http://usa.nia.com/tollycraft."
Customer Support
Tollycraft believes it is imperative to support existing and past
Tollycraft owners. They tend to upgrade their boats periodically
and their personal recommendation is one of the Company's most
effective sales tools.
Rendezvous - The factory participates in regional Tolly
Rendezvous: Northern California, Portland, Seattle and the
Great Lakes
Factory Visits - Prospective clients are encouraged to tour
our facilities and meet our staff.
Mail List - The Company is currently updating the last five
years of Tollycraft Owners by hull number and plans to market
directly to them.
Show Leads - Computerized input of prospective clients is sent
to dealers across the country during and after each boat show
with active follow up by the Company's marketing staff.
INTELLECTUAL PROPERTY AND ROYALTIES
The Company has the following trademarks:
TOLLYCRAFT (Stylized), U. S. Trademark Registration No.
855,456
QUADRALIFT and Design, U. S. Trademark Registration No.
1,514,520
T and Design, U. S. Trademark Registration No. 855,455
The Company has the following patent: Yacht, Serial No. 444,604,
Filing Date: April 2, 1991, Patent No. D315,892; Expires: April 2,
2005. The loss of said patent, at the time of it's expiration,
would not have a significant impact on the business of the Company.
The Company has granted to Pinacle Clothiers in Seattle a license
to produce the Tollycraft Clothing Line in return for a five
percent royalty.
OPERATIONS
Overview
Tollycraft has a reputation for superior fiberglass laminations,
woodworking craftsmanship and highly reliable mechanical systems.
The work force, all members of the International Woodworkers Union,
is divided into seven major craft groups, each specializing in
their field of expertise. Most employees have been trained cross
functionally and have gained working knowledge in every phase of
the yacht manufacturing process.
The production time for yachts ranging from 48 to 65 feet in length
is from 12 to 20 weeks. The larger yachts will take up to 12
months for the standard models with custom work taking I to 2
months longer. The production time can be reduced by adding to the
shifts currently in operation.
The three major components of the boat (hull deck and interliners)
are all manufactured at the same time and then are assembled for
final finishing and systems runout. During each phase of the
manufacturing process, each component is team inspected before it
is transferred to the next operation. This ensures a high degree
of conformance to construction standards and improves production
efficiencies through department interaction. Quality inspection
sheets for each phase of the operation are signed off by the
craftsmen and are spot checked by our Quality Assurance staff.
Tollycraft has also identified several key components of its
product line, currently manufactured in-house, which have the
potential to be subcontracted to third parties. This will enable
the Company to increase production capacity, while achieving
overall quality improvements and reduction of costs. Electrical
layout and harnessing has already been outsourced. To date, this
has resulted in an electrical material savings of 30 percent and
labor savings of approximately 50 percent. Improved upholstery
products have been secured at a lower cost through external
sources. Other areas identified for outsourcing include: small
fiberglass parts, liner components, plugs for molds, and prewired
electrical panels.
Tollycraft meets all environmental and safety regulations through
a regular program of self inspections. All hazardous material is
removed from the facility on a regular basis with the appropriate
documentation. Continuing efforts are being made to reduce the use
of potentially hazardous or unsafe materials. The Company is not
aware of any material capital expenditures required to be in
compliance with the laws for the protection of the environment.
The manufacturing facility is regularly inspected by the Washington
State Department of Ecology at their discretion.
In order to maintain a highly qualified crew, Tollycraft balances
production manpower requirements by transferring crews between
crafts. This ensures that each employee has a full understanding
of all construction phases, thereby giving the employee a sense of
contribution to the overall manufacturing process.
Manufacturing Focus
Tollycraft management believes that a key factor which will
ultimately effect its long-term profitability relates to
engineering efforts. Areas of primary focus are:
Reengineering yacht designs for more efficient
manufacturability. This is expected to significantly reduce
labor hours and total production costs.
Continuing to lead the industry in the quality of its hull
design and overall structural integrity. These quality issues
are focused on improving Tollycraft s position as the quality
leader in the market.
New molds and tooling are being developed. Over the past
year, the Company has spent over $600,000 in fiberglass rework
because of the poor condition and inefficiency of existing
molds.
Completed engineering and product development projects in the year
1995 are::
Consolidated the 53', 55' and 57' lines into two 57' models,
resulting in increased pricing, better standardization and
reduction of overall costs
State-of-the-art painting process on the 48' and 65' line,
saving significant patching and repair time
Standardized interior designs and materials
Standardized mechanical components across boat models
Current projects in process include:
Customer documentation on all boats
Manufacturing and sequence improvements to all boats
Building the tooling for the 46' pilothouse and convertible
sedan
Creating a boat documentation and numbering system
Creating all new owners manuals for all lines
Administrative Improvements
D.R. Cooley was appointed President and Chief Operating Officer
in 1994. The Company, through D. R Cooley, has successfully
negotiated with the Union to reduce production inefficiencies.
Engineering design improvements are also helping to solve
production inefficiencies and the Company has adopted a more
"hands-on" approach to operations management. The Company has
downsized the total labor force while significantly improving
production per labor hour. The Company currently operates with
approximately half the total number of employees from prior
years.
Mr. Cooley has also implemented a program to establish new
standards for production. In addition, a new bill of materials
process and task-driven work assignment and construction sequence
system has been developed.
Mr. Cooley has combined the best of the old Tollycraft management
with new hires that together form the core of the Tollycraft
management team. New production management personnel have been
hired who have extensive production boat building experience. A
new engineering staff is being hired that has a diverse set of
skills ranging from ergonomic design, custom yacht building to
high output production boat manufacturing. New accounting and
cash control systems are being implemented and spearheaded by a
new Controller. Production supervision has been streamlined and
Bargaining Unit members are becoming part of the management team.
Mr. Cooley believes that Tollycraft now has the core management
that is capable of meeting and exceeding the Company's
projections and goals.
RAW MATERIALS AND MAJOR SUPPLIERS
The Company s major suppliers and the type of products which they
supply are listed below:
Composite Materials Resin, gelcoats, lamination
supplies
Hardwoods, Inc. Dimensional lumber
NC Machinery Marine engines
ONAN Corporation Marine generators
Barrett Enclosures Furniture, enclosures
Aqua Air Air conditioning, heaters, defrosters
All raw materials currently used are available from domestic
suppliers and manufacturers. All parts and components of the
yachts are available from more than one source or reasonable
substitutions can be made with comparable products. The Company
is not dependent on any single source for items to produce its
products.
Employee Relations
The Company has 206 employees, 180 of which are in the
manufacturing department and represented by the International
Woodworkers Association. Labor contracts are negotiated
annually. Recent negotiations have resulted in relaxed work
rules creating increased flexibility of the work force.
Relationships between the union representatives and management
are positive. There appears to be no potential for strike. The
personnel in the remaining departments of the Company are non-
union. All employees are full time.
THE CHILD GUARD SYSTEM
The Company, incorporated as Childguard Corporation, was
formed to engage in the business of developing and marketing
consumer products for small children, especially products
concerned with the safety and care of infants and young children.
The initial product was an electronic child monitoring system
known as Child Guard, which will enable parents and others caring
for infants and small children to continually monitor and keep in
touch with them. Research and design of this Child Guard system
had been completed, and there are working prototypes. Certain
promotional and marketing activities directed toward introducing
its product to the marketplace had begun.
The Child Guard System is an electronic safety monitoring
system which will enable parents and other persons to keep in
constant touch with infants, toddlers or young children under
their care or supervision, and it has been designed to provide
effective child monitoring protection both indoors and outdoors.
However, the Company did not have sufficient financing to
continue with it's plan.
Although the Company believes it has developed unique and
proprietary technology incident to design of its Child Guard
product, it does not expect to obtain any significant patent
protection since its products are based on state-of-the-art
established technology available to the general public. The
Company is not aware of any infringement of patents or other
proprietary property belonging to others, however, no
infringement searches have been made and thus Child Guard makes
no representation with respect to matters of infringement.
In the January 1996 reverse merger the Company acquired TAC
and has changed the direction of it's business. The Company no
longer intends develop the Child Guard product line. All activities
with respect to the manufacture and marketing of the Child Guard
products have ceased. Rather the Company will to sell, exchange for stock
in another company, or form a wholy owned subsidiary in which to transfer,
the assets and patent rights of the Child Guard System. If a
subsidiary is formed for this purpose, it would then be
structured as spinoff to the shareholders of the Company and thus
become a publicly-held corporation separate from the Company.
Currently, the Company has received informal indications of
interest from sources outside of the United States for the
manufacturing of the Child Guard System products.
Item 2. Management's Discussion and Analysis or Plan of
Operation.
Tollycraft Acquisition Corporation was formed in 1994 to
capitalize on the 60 year history of Tollycraft Yachts and
reestablish the Company as an industry leader in the production
of large luxury yachts,
Characteristic of the boating industry, the Original Tollycraft
Yacht Corporation had to endure some difficult periods in the
recent past. During the late eighties, the then public company
was taken private with an ill-fated leveraged buyout. in 1989
with the passage of the disastrous 10 percent luxury tax and the
accompanying economic downturn, the industry and the Company
sustained substantial operating losses.
When Tollycraft was reorganized, the new stockholders formed a
new management group and developed a plan to restore the
Company's reputation and lay the groundwork for future success.
A key part of the plan was the commitment to maintain customer
and dealer relationships by completing all unfinished yacht
contracts even though it meant the new Tollycraft would absorb
substantial losses. Just as important was the decision to shape
maximum customer Confidence by obtaining certification through
inspection programs offered by the American Bureau of Shipping
(ABS). A significant investment was required to implement the
stiff certification process, As the prior commitments have been
completed the Company has also invested heavily in updating and
redesigning its current product line, planned for future growth
with the development of a new series of yachts, streamlined
management, and expanded its dealer network.
Results of Operations
Current operations reflect the costs of the ongoing plan for
improvement and expansion that has beer implemented by the
Company since its reorganization. For the first quarter of 1995,
the gross margin was -17%. Many factors have contributed to the
negative gross margin an sales. In order to Comply with ABS
requirements additional materials have been incorporated into the
yachts and manufacturing processes were modified to meet specific
procedural criteria. To update the previously neglected product
line and enable the new Company to meet customer expectations and
standards, the existing product line of yachts were redesigned
with more luxurious interiors. More expensive materials have
been selected with an emphasis or quality and manufacturing
efficiency. The resulting higher material costs and an increase
in direct labor caused by retraining new and existing employees
and developing new manufacturing procedures has had a significant
impact on gross margins. In addition, it was necessary to
schedule high levels of direct labor overtime wages during the
first quarter in order to accelerate the production schedules to
complete specific yachts for their debut at the winter season
international boat shows Previous pricing commitments to the
existing dealers also contributed to a lack of profitability in
the first quarter.
Management has taken the following steps to improve the
operations of the Company:
1. Increased basic pricing on current models an average
24% for greater profit margins to reflect the higher
quality products being manufactured.
2. Selected new materials to upgrade the quality of
interiors on existing yachts while emphasizing
production efficiency.
3. Obtained American Bureau of Shipping certification to
build customer confidence and validate the goal of
producing a superior yacht.
4. Designed a new line of yachts to augment the current
models offered. The new yachts are engineered for more
efficient production and priced at greater profit
margin
5. Established relationships with dealers that are capable
of providing their own inventory financing,
6. Increased the dealer network for nationwide marketing
capability to increase sales volume and reach economies
of scale.
7. Redesigned manufacturing processes to make production
more efficient.
8. Modernize the manufacturing plant for increased
capacity and efficiency of material flow,
9. Developed a labor tracking system to monitor and reduce
direct labor costs.
The Company's leased manufacturing facility has recently
undergone a $1,500,000 renovation and expansion which was
financed by the owner of the real estate. Company expenditures
for the improvements were not material. From a management
standpoint, the main focuses have been to introduce new
engineering ideas and construction techniques to reduce direct
manufacturing costs, and streamline its management structure.
The enlarged facility and new management techniques make it
possible to double production with very little increases in fixed
costs,
Financial Condition:
Implementing the plan of reorganization and making all of the
improvements has been an expensive proposition. Many one time
costs in training and manufacturing modifications to improve
quality control and improve plant efficiency have been paid
through current operations. In addition, the yachts have been
extensively marketed at trade shows to establish Tollycraft as a
legitimate competitor in the east coast yacht market. These
circumstances have resulted in large operating losses since the
reorganization in 1994, the impact of which can be seen in the
current financial condition of the Company.
At March 31, 1996, the Company had a negative net worth of -
$6,185,000 resulting from the ongoing operations of the Company
since its reorganization in 1994. The cumulative losses of the
Company have been financed through current liabilities, Current
liabilities of $10,946,451 exceed current assets of $3,159.683
resulting in a current ratio of .29. The Company has a revolving
credit facility of $3,000,000 from a marine engine supplier to
assist financing of work-in-process inventories, The remaining
current liabilities are trade payables, another working capital
loan, deposits from customers, and accrued payroll related
expenses and undeposited payroll taxes.
The Company has not been able to make timely payments to trade
suppliers and various taxing authorities. Deferred payment terms
have been negotiated with the taxing authorities and the vast
majority of trade vendors, Material suppliers continue to provide
the Company with its raw material needs on a COD basis and no
orders have been canceled.
Long-term debt including current maturities of $1,405,033 is
composed of obligations assumed by the Company as part of its
reorganization plan, In exchange for the debt, the Company
acquired miscellaneous machinery and equipment as well as the
molds and tooling necessary to manufacture the current line of
yachts. Management believes the book value of these assets is
significantly understated when considering replacement cost
values and the potential earnings capability of the tooling.
Capital expenditures during the first quarter of 1996 were
$40,000 adding to a total investment in equipment and tooling of
$506,343 since the reorganization. Funds for these capital
expenditures have been provided through current operations with a
corresponding increase in current debt, In order to establish the
Company as a viable competitor in the industry, management has
established an aggressive time schedule to upgrade existing molds
and tooling and manufacture additional molds and tooling for the
newly designed line of yachts. Total capital expenditures
necessary for completion of the product line upgrade and
expansion is $2,650,000, The Company is dependent an external
sources of funding to complete the plan,
The Company is considering various alternatives to improve its
financial position, meet ongoing trade obligations, pay
delinquent tax balances, and fund capital expenditure
requirements Present plans include converting current debt to
equity through the issuance of common shares, and the sale of
common shares to raise working capital. The Company has engaged
the services of professional advisors to perform These investment
activities. In addition, another supplier of marine engines has
expressed an interest in providing working capital funding for
projects that contain its products.
The significant expenses that have been absorbed by the Company
were necessary to reposition Tollycraft within the industry and
prepare it for the future. With the redesigning of existing
yachts and the announcement of new designs, the Company's yachts
have been regularly featured in trade magazines and journals
including receiving very favorable reviews from industry
insiders. Increased market exposure has enabled the Company to
recruit and expand its dealer network. With the recent addition
of the largest yacht dealer on the east coast Tollycraft also
received the largest single production order (approximately $8
million wholesale) in its history. With this new relationship
and order, the Company now has dealer representation nationwide.
Industry experts are seeing steady increases in the sale of large
luxury yachts. Many are optimistic that yacht sales will
continue to cruise along into the 21st century. According to a
recent article in tire San Diego Union, there are significant
reasons for this steady increase: Baby boomers are now turning 50
and are buying more expensive luxury items,, consumer attitudes
have improved over the past few years, lower interest rates; and
the repeal of the luxury tax. This trend in the industry is
clearly reflected in Tollycraft's production order backlog. With
a current wholesale value of approximately $25 million, it is the
highest ever.
In order to increase production to a profitable level, the
Company is in need of additional capital to build production
tooling, finance inventory and provide working capital. The
Company is dependent on external sources of liquidity until
projected levels of production and improvements in direct costs
are achieved which will return the Company to profitability A
material commitment for capital expenditures and working capital
is necessary to meet the projected goals. The expected source
for a majority of the funds is from a private placement stock
offering closely followed by a public stock offering.
With an expanded dealer network, increased pricing, updated and
improved product lines, new yacht designs under development, and
significant improvements in manufacturing and management
techniques, Tollycraft Yachts is positioned for the future, A
future that capitalizes on the 60 year history of the Company and
a future that looks very bright.
<PAGE>
Item 3. Description of Property.
All of the Company's physical facilities are located at 2200
Clinton Avenue, Kelso, Washington 98626 and are leased at an
annual rate of $368,940.
The manufacturing facility of 170,000 square feet consists of two
major buildings. The smaller of the two buildings, comprising
40,000 square feet, houses the fiberglass operation and is
equipped with overhead cranes to facilitate easy movement of
fiberglass components. The second building of 130,000 square
feet houses the boat manufacturing lines, several subassembly
areas, parts warehouse and administrative offices. Each boat
assembly area is equipped with overhead cranes, air and
electrical systems, and deck level work areas. Plant layout
allows for full production line capability and can support custom
work without affecting production efficiencies.
The current facilities are adequate, Tollycraft has just
completed a $1,500,000 renovation and expansion of its Kelso
facility which was paid for by its landlord. This will assist
the Company in achieving its manufacturing goals and give the
Company the capacity to expand its product lines to support over
$40 million in annual revenue.
Item 4. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth, as of January 31, 1996, certain
information regarding the holding of the Officers, Directors and
beneficial owners of more than five percent of the Company's
common shares:
Name and Amount and Percent of Class
Address of Nature of
Beneficial Beneficial
Owner Owner
Edward O. Tulleners 4,389,187 8.78
4747 S.W. Kelly Ave. Direct
Portland, OR 97201
Thomas L. Eden 3,291,890 6.58
8621 Scarsdale Dr.. Direct
Las Vegas, NV 89193
Paul Leverkuehn 3,291,890 6.58
PO Box 93775 Direct
Las Vegas, NV 89193
Tracy Eden 3,730,808 7.46
5901-C Peachtree- Direct
Dunwoody Rd. #100
Atlanta, GA 30328
Aja Lesh 3,730,808 7.46
Cliff Drive. Direct
Pasadena, CA
Roy G. Getty (1) 2,896,863 5.79
1440 Nixon Ave. Direct
West Linn, OR
A.P. Tulleners (1) 4,608,645 9.21
2567 Palmera Dr.. Direct
Las Vegas, NV 89121
Dale Buteyn Jr. 4,301,402 8.60
1609 W. Magnolia Blvd. Direct
Burbank, CA 91506
David Tubbs 3,730,808 7.46
130 Andover Park Direct
East #101
Seattle, WA 98188
James O'Keefe 2,501,836 5.00
5005 West 81st Place Direct
#b-50
Westminster, CO 80030
Officers and directors
as a group 7,505,508 15.01
Total Outstanding 50,000,000 100.00
(1) Director and/or officer and deemed a "Promoter". (See
"MANAGEMENT.")
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control
Persons.
Directors, Officers and Key Personnel
Name Position Age
D.R. Coolly President/Chief Executive Officer,
Director 41
A.P. Tulleners Director 52
Roy Getty Secretary/Treasurer/Director 56
William Lee Controller 44
D.R. Coolly
D.R. Cooley has been the President and Chief Executive Officer of
the Company since June 1994.. Mr. Cooley is 40 years old and
has been involved in investment banking, financing and management
of closely held businesses. He has held positions in business
and finance since 1977, including Bank of America Business
Credit, Executive Vice President of Moody Trust Company, and
Contract Finance Director of Hanna Car Wash International.
Mr. Cooley has manufacturing experience from working with
Willamette Valve Co. of Oregon, Inc., where he was President and
Chief Operating Officer, and successfully took the predecessor
company through a Chapter 11 proceeding a management buyout and
turn around activities. While at Moody's, Mr. Cooley's primary
function was in the special asset management of manufacturing
businesses.
A.P. "Tonny" Tulleners
Mr. Tulleners has been a Director of the Company since January
1996. He was born in Rotterdam Holland in 1944 and imigrated to
the United States in 1955. He graduated from Pasadena city
Colleg with a degree in Business Administration. Mr. Tulleners
owned and operated three Martial Arts studios from 1964 to 1974.
From 1965 - 1969 Mr. Tulleners also worked as an undercover
police officer in the vice/narcotics division of the Pasadena
Police Department in Pasadena California. In late 1974, with
another individual Mr. Tulleners started Riviera Finance of the
North Valley, a company specializing in accounts receivable
financing and factoring. Since that time Mr. Tulleners has been
involved with others as either a partner or as a consultant in
establishing similar entities in most major cities in the United
States.
Roy Getty
Roy Getty has been Secretary/Treasurer of the Company since
January 1996 and a Director since June 1996. Mr. Getty is
currently the president and 100% stockholder of Direction 20/'20
Construction an Oregon corporation ) located at 18440 Nixon
Avenue, West Linn, Oregon. Direction 20/20 Construction is a
builder of small commercial buildings and single family homes.
They also specialize in remodeling existing dwellings and home
additions and improvements.
Mr. Getty has35 years of experience in the construction industry
as a general contractor. Prior to becoming president of
Direction 20/20 Construction in 1996 Mr. Getty operated Getty
Construction Company in California and Oregon.
William Lee, Controller
William Lee, Controller, is a recent addition to the Tollycraft
management team, arriving in November 1995. Prior to joining the
Company, Bill was the Controller and Systems Manager for a
division of an international manufacturing company. He brings a
wealth of accounting experience in custom contract and production
manufacturing information systems. He has a BS in Accounting and
is a CPA licensed in the State of Oregon.
<PAGE>
Item 6. Executive Compensation.
SUMMARY COMPENSATION TABLE
Long Term Compensation
- -------------------------------------------------
Annual Compensation Awards Payouts
- -----------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Name Annual Restricted Under- All Other
and Compen Stock lying LTIP Compen-
Principal sation Award(s) Options/ Payout sation
Position Yr Salary Bonus($) $) ($)SARs(#) ($) ($)
- -----------------------------------------------------------------
D.R. Cooley
CEO 1995 $96,000
1996 $96,000 3,000,000(1) 1,000,000
No options or SAR's were granted or were outstanding in the last
fiscal year 1995.
Option/SAR Grants in Current Fiscal Year - 1996
Individual Grants
- ------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Expiration
Name Granted (#) Fiscal Year Base Price($/Sh) Date
---- ------------ -------------- ---------------- ----------
D.R. Cooley 3,000,000 50 $.37 variable(1)
1,000,000 50 $.37 (2) 12-31-99(2)
Notes
(1) Expires 24 months after the debt owed by the Company to Vera
Corporation is fully paid and no longer outstanding or is
bargained, sold, assigned, transferred or conveyed to a third
party, and written notice form the Company of such payoff or
transfer is given to the Optionee.
(2) Exercisable as follows: 1.1 Up to 250,000 shares at $.37 per
share, which is the fair value at the time this option is
granted, on or before 12-31-96; 1.2 Any unexercised shares
issuable pursuant to Section 1.1 herein and up to 250,000
additional shares, all at $.50 per share on or before 12-31-97;
1.3 Any unexercised shares issuable pursuant to Sections 1.1 and
1.2 herein and up to 250,000 additional shares, all at 50% of the
bid price of the stock as quoted at the time notice of exercise
is given, on or before 12-31-98; 1.4 Any unexercised shares
issuable pursuant to Sections 1.1, 1.2, and 1.3 herein and up to
250,000 additional shares, all at 50% of the bid price of the
stock as quoted at the time notice of exercise is given, on or
before 12-31-99
Outside Directors are not currently receiving any compensation
from the Company. Officers and Directors may be reimbursed for
expenses incurred in attending board and shareholder meetings.
All future compensation, if any, to be paid to the Company's
Officers or Directors will be established by the Board of
Directors.
The Company provides a medical and dental insurance plan at no
cost to all union and non-union employees. Company costs for the
first year of operations was $355,000. Projected costs for the
second year of operations are $425,000.
A 401(k) plan exists for union and non-union employees. The
Company contributes $.05 per hour worked for union employees.
First year costs were $7,500. Projected second year costs are
$8,500. There is currently no contribution requirement to the
non-union employees plan.
Item 7. Certain Relationships and Related Transactions.
D.R. Cooley, President of the Company, has a $5,000 line of
credit advance from the Company which is repayable at $500 per
month with no interest thereon.
Item 8. Description of Securities.
Common Stock
The Company is authorized to issue 100,000,000 shares of Common
Stock, no par value per share. All outstanding shares of common
stock, when validly issued, are fully paid and nonassessable. A
holder of common stock is entitled to one vote per share on all
matters submitted for action by the stockholders. All shares of
common stock are equal to each other with respect to the election
of directors and cumulative voting is not permitted; therefore,
the holders of more than 50% of the outstanding common stock can,
if they choose to do so, elect all of the directors. The terms
of the directors are not staggered. Directors are elected
annually to serve until the next annual meeting of shareholders
and until their successor is elected and qualified. There are no
preemptive rights to purchase any additional common stock or
other securities of the Company. In the event of liquidation or
dissolution, holders of common stock are entitled to receive, on
a pro rata basis, the assets remaining after creditors and
holders of any class of stock having liquidation rights senior to
holders of common stock have been paid in full.
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.
Market information.
The Company's common stock has been traded in the over-the-
counter market since 1993 and is currently listed on the NASDAQ
Bulletin Board under the symbol TLLY.
The following table sets forth the high and low bid prices for
the Company's common stock as reported by NASDAQ during the past
two fiscal years and the current year. The prices reflect inter-
dealer quotations, without retail mark-up, mark-down or
commissions and may not represent actual transactions:
Low High
Bid Bid
1994
March 31 1/8 1/4
June 30 1/4 1/4
September 30 1/8 1/4
December 31 1/16 1/4
1995
March 31 1/16 1/16
June 30 1/16 3/8
September 30 1/4 3/8
December 31 1/4 3/8
1996
March 31 3/8 1
As of June 30, 1996, the closing bid price of the Company's
common shares was $ 5/8. As of March 31, 1996 there were 200
holders of record of the Company's common shares.
Dividends
No dividends have been declared with respect to the Company's
common shares since inception. It is not likely the Company will
pay any dividends in the foreseeable future. The Company intends
to reinvest earnings, if any, in its operations.
Item 2. Legal Proceedings.
Except those which are listed hereinbelow, there are no legal
proceedings to which the Company (or any officer or director of
the Company, or any affiliate or owner of record or beneficially
of more than five percent of the common stock to management's
knowledge, which is adverse to the Company) is a party, or to
which the property of the Company is subject, are pending, or
threatened:
Tollycraft Yachts Corp., Bankruptcy Case No. 93-34273T, United
States Bankruptcy Court for the Western District of Washington at
Tacoma - Litigation surrounding payment of claim for attorney
fees allegedly incurred by Transamerica Commercial Financial
Corp. in the bankruptcy case involving the predecessor company.
Ruling in favor of Transamerica has been appealed to the 9th
circuit Bankruptcy appellate Panel. The parties are finalizing a
recently negotiated settlement.
Tollycraft Yachts Corp./California Factors & Finance and
Tollycraft Acquisition Corporation v. Frederick Paulsell, Michael
Coe, Thomas Cable, Nick Schmitt, et al., Bankruptcy Adversary No.
93-34595T, United States Bankruptcy Court of the Western District
of Washington at Tacoma - Complaint for breach of contract and
interference with contractual relationship. The parties are
finalizing a settlement.
Christine Marie Trujillo v. Tollycraft Yachts, Threatened
litigation in Superior Court of Washington for Cowlitz County -
Claim for sexual harassment and wrongful termination. Complaint
asks for unspecified sum in special damages for lost wages,
benefits and expenses and general damages for emotional distress
and attorney fees. The parties are negotiating a resolution of
the matter.
Item 3. Changes in and Disagreements with Accountants.
NONE.
Item 4. Recent Sales of Unregistered Securities.
The following sets forth information relating to all previous
sales of Common Stock by the Registrant and it's subsidiary which
sales were not registered under the Securities Act of 1933.
The number of shares have been adjusted to account for the
exchange of Tollycraft Acquisition Corporation shares for
Tollycraft Yacht Corporation shares
Date of
Sale Purchaser No. Shares Purchase Price Consideration
12-8-92 Glenn Sherburne 1,266,664 $ 18,182 Assets
12/92 Various 150,000 $ 30,000 Cash
12/92 Various 83,336 $ 25,000 Cash
1993 Various 500,000 $ 159,789 Cash
1/94 40,000 $ 6,000 Cash
4/94 350,000 $ 66,183 Cash
4/94 337,500 $ 55,000 Cash
4/94 180,000 $ 45,000 Cash
9/94 100,000 $ 10,000 Cash
12/15/94 Edward Tulleners 4,389,186 $ 64,000 Cash
12/15/94 Thomas Eden 3,291,890 $ 48,000 Cash
12/15/94 Paul Leverkuehn 3,291,890 $ 48,000 Cash
12/15/94 R.M. Morgan $ 37,084 Converted Debt
12/15/94 Thomas Eden 3,291,890 $ 52,212 Converted Debt
12/15/94 Tracy Eden 3,730,808 $ 88,998 Converted Debt
12/15/94 Aja Lesh 3,730,808 $ 88,998 Converted Debt
12/15/94 Peter Rapid Corp $ 44,504 Converted Debt
12/15/94 Playco, Inc. $ 44,504 Converted Debt
12/15/94 Roy G. Getty 2,896,863 $ 69,117 Converted Debt
12/15/94 A.P. Tulleners 4,608,645 $ 110,062 Converted Debt
12/15/94 Dale Buteyn, Jr.4,301,402 $ 102,348 Converted Debt
12/15/94 David Tubbs 3,730,808 $ 88,998 Converted Debt
12/15/94 James O Keefe 2,501,836 $ 59,332 Converted Debt
7/95 50,001 $ 15,000 Cash
10/95 250,000 $ 25,000 Cash
10/95 799,560 $ 79,956 Cash
12/95 2,000,000 $ 100,000 Cash
Total
With respect to the issuance of the aforementioned shares, the
Registrant relied on the exemptions from registration provided by
Section 4(2) of the Securities Act of 1933. No advertising or
general solicitation was employed in offering the stock. The
securities were offered to officers, directors, a corporation
which had access to information by virtue of its' relationship
with officers and directors of the Company, and the Company's
legal counsel. The securities were offered for investment only
and not for the purpose of resale or distribution. All of the
shares issued to the aforementioned persons bear or shall bear
restrictive legends preventing their transfer except in
accordance with the Act and the regulations promulgated
thereunder.
Item 5. Indemnification of Directors and Officers.
The Company intends to enter into Indemnification Agreements with
each Director of the Company, in consideration for service as a
member of the Board of Directors. Generally, such an agreement
will provide that the Company may indemnify any person who was or
is a party to any threatened, pending, or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative, except for an action by or in right of the
Company, by reason of the fact that he is or was a director,
officer, employee or agent of the Company. It must be shown that
he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Company. Generally, no indemnification may be made where the
person has been determined to be negligent or guilty of
misconduct in the performance of his duty to the Company.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing
provisions, or otherwise, the Company has been informed that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being offered, the Company will, unless in the opinion
of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
PART F/S
The information required in this Item is included on pages
immediately following and is incorporated herein:
Tollycraft Yacht Corporation Balance Sheet for January 31, 1996
Notes to Financial Statements
Accountants Report for Child Guard Corporation
Financial Statements for the Period Ending December 31, 1995 and
1994
Notes to Financial Statements
Independent Auditor's Report for Tollycraft Acquisition
Corporation
Financial Statements for the Period Ending May 31, 1995
Notes to Financial Statements
<PAGE>
TOLLYCRAFT YACHT CORPORATION
TOLLYCRAFT ACQUISITION CORPORATION
Balance Sheet
January 31, 1996
ASSETS
Current assets:
Cash $ (350,351)
Accounts receivable 23,038
Raw material inventories 450,000
Costs incurred and income recognized in excess
of billings on uncompleted contracts 2,058,323
Total current assets 2,219,917
Net deferred tax assets 37,325
Equipment, net 2,747,900
Total assets $ 5,005,142
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Notes payable 6,093,665
Accounts payable 896,740
Accrued payroll and payroll related liabilities
1,952,498
Other accrued liabilities 225,615
Long-term debt, due within one year - 140,000
Total current liabilities 9,308,517
Long-term debt 1,311,080
Stockholders' equity (deficit):
Common stock, no par value, 100,000,000 shares
authorized, 50,000,000 issued and outstanding 786,157
Additional paid-in capital 160,000
Retained deficit (7,195,721)
Total stockholders' equity (deficit) (5,614,454)
Total liabilities and stockholders' equity
(deficit) $ 5,005,142
See accompanying notes to financial statement.
TOLLYCRAFT YACHT CORPORATION
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Consolidated Balance Sheet
January 31, 1996
Note 1 Summary of Significant Accounting Policies
Merger
Tollycraft Acquisition Corporation (the "Company") was
incorporated under the laws of the State of Minnesota on December
7, 1992. The Company changed its name from Child Guard
Corporation in January 1996. Also in January 1996 the Company
acquired all of the outstanding common stock of Tollycraft
Acquisition Corporation ("TAC"), a Washington corporation
incorporated on February 4, 1994.
The acqusition by the Company of TAC has been accounted for as a
pooling of interests, and, accordingly the historical bassis of
the assets and liabilities has been carried forward and
retroactive effect has been given to the acquisition in the
accompanying financial statements. Except where otherwise
indicated, references to the Company in these financial
statements and notes thereto include the activities of TAC.
Inventories
Inventories are valued at the lower of average cost or market
Equipment
Equipment is valued at cost. Depraciation of equipment is
provided using the straight line method over the estimated useful
lives of the assets. Additions and improvements, including
patterns and molds for yacht production which have been produced
in house are capitalized at cost.
Estimated Warranties
The Company records an accrual at the time of sale of each yacht
for estimated warranty claims- There is a general one year pats
and labor warranty to the original owner for defects in material
and workmanship. In addition, there is a 15 year transferable
limited warranty for structural defects in all Tollyr-raft built
hulls, deck bridges, stringers, and bulkheads-
Note 2 Revenue Recoanition
Revenue is recognized using the percentage-of-completion method.
The Percentage of Completion method is measured by the percentage
of costs incurred to date compared to the estimated total cost
for each finished yacht. Yacht costs include all direct material
costs, direct labor costs, and indirect manufacturing costs such
as indirect labor, supplies, small tools, and other indirect
manufacturing overhead costs. Selling, general and
administrativecosts, and interest on indebtedness are charged to
expense as incurred. Changes in job performance, job conditions,
and estimated profitability may result in revisions to estimated
costs and income, which are recognized in the period in which the
revisions are determined.
The current asset "Costs incurred and income recognized in excess
of billings on uncompleted contracts," represents costs and
estimated contract profits for yachts in process.
TOLLYCRAFT YACHT CORPORATION
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Consolidated Balance Sheet (Cont.)
Note 3 Long-term Assets
Equipment consists of the following:
Molds and patterns $2,559,410
Machinery and equipment 354,480
Office Fumiture and equipment 381,120
3,294,967
Less accumulated depreciation 547,067
Product rights
During 1994 the Company re-purchased specific rights to a child
monitoring system. The re-purchase included $22,000 for product
and patent pending rights which have been capitalized.
SAMUEL T. KANTOS & ASSOCIATES
Certified Public Accountants
1080 West County Road E
Shoreview, Minnesota 55126
Phone (612) 482-9994
FAX (612) 482-9532
ACCOUNTANTS' REPORT
To the Board of Directors
Child Guard Corporation
441 Crescent Drive
Albert Lea, MN 56007
We have audited the accompanying balance sheets of
CHILD GUARD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
as of December 31, 1995 and 1994, and the related statements of
income, stockholders, equity, and cash flows for the years 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 audits.
We conducted our audits 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
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 Child
Guard Corporation as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the years ended
December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
SAMUEL T. KANTOS & ASSOCIATES
January 22, 1996
CHILD GUARD CORPORATION
BALANCT SHEETS
(A DEVELOPMENT STAGE COMPANY)
AS OF DECEMBER 31, 1995 AND 1994
1995 1994
ASSETS
CURRENT ASSETS
Cash $ 144 $6,618
Accounts Receivable 0 133
TOTAL CURRENT ASSETS 144 6,751
PROPERTY AND EQUIPMENT
Office Equipment 4,800 4,800
Less Accumulated Depreciation 1,785 1,100
NET PROPERTY AND EQUIPMENT 3,015 3,700
OTHER ASSETS
Development Costs 0 73,422
Product Rights 22,000 42,000
Product Distribution Rights 0 13,000
TOTAL OTHER ASSETS 22,000 128,422
TOTAL ASSETS $ 25,159 $ 139,873
<PAGE>
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $3,494 $16,500
Product Rights Payable 0 5,700
Loan Payable - Stockholder 0 42,000
TOTAL CURRENT LIABILITIES 3,494 64,200
LONG-TERM LIABILITIES
Debentures Payable 17,000 17,000
STOCKHOLDERS' EQUITY
Common Stock, no par value,
authorized 40,000,000 in
1995 and 10,000,000 in 1994;
6,107,061 and 3,007,500 shares
issued and outstanding in 1995
and 1994 respectively 635,110 415,154
Retained Deficit (630,445) (357,481)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,665 57,673
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 25,159 138,873
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
CHILD GUARD CORPORATION
STATEMENT OF INCOME
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
1995 1994
INCOME $ 0 $663
OPERATING EXPENSES
Cost of Goods Sold 0 2,859
Advertising 0 1,024
Auto Expenses 6,046 3,600
Depreciation 685 595
Freight and Delivery 0 87
Interest 4,750 7,463
Legal and Accounting 9,842 18,095
License and Permits 0 25
Loss on Product Rights 20,000 0
Loss on Product Distribution Rights 131,000 0
Meals and Entertainment 2,396 865
Miscellaneous 2,146 3,921
Office Supplies 896 1,167
Payroll Taxes 0 2,793
Postage 186 783
Printing and Production 238 100
Research and Development 73,922 69,183
Salary and Consultants 20,345 30,182
Secretarial Services 325 265
Supplies 1,901 1,482
Telephone 7,242 5,745
Travel Costs 9,044 6,974
` ---------- ----------
TOTAL OPERATING EXPENSES 172,964 157,208
---------- ----------
LOSS FROM OPERATIONS (172,964) (156,545)
---------- --------
OTHER INCOME AND (EXPENSES)
Cancelled Distribution Rights 0 10,000
Merger Services (100,000) 0
---------- ----------
TOTAL OTHER INCOME AND (EXPENSES) (100,000) 10,000
---------- ----------
NET LOSS $(272,964) $(146,545)
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
CHILD GUARD CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
Common Stock Retained
Shares Amount Earnings Total
Balance December 7
1992 (Date of Incor-
poration) 0 $ 0 $ 0 $ 0
Common Stock, issued
for assets on
December 8, 1992 1,266,664 18,182 0 18,182
Common Stock, issued
for cash at $ .20
per share 150,000 30,000 0 30,000
Common Stock, issued
for cash at $ .30
per share 83,336 25,000 0 25,000
Balance as of
December 31, 1992 1,500,000 73,182 0 73,182
Common Stock, issued
for cash at $ .40
per share less offering
costs 500,000 159,789 0 159,789
Net (Loss) for the year
ended December 31, 1993 0 0 (210,936) (210,936)
Balance as of
December 31, 1993 2,000,000 $ 232,971 $(210,936) $22,035
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
CHILD GUARD CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
STATEMENT OF STOCKHOLDERS'
EQUITY (CONTINUED)
Common Stock Retained
Shares Amount Earnings Total
Common Stock, issued
for services at $ .15
per share in January
1994. 40,000 $6,000 0 $6,000
Common Stock, issued for
services at $ .19 per
share in April 1994. 350,000 66,183 0 66,183
Common Stock, issued
for cash at $ .15 per
share in April 1994. 337,500 55,000 0 55,000
Common Stock, issued for
convertable debentures at
$ .25 per share in April
1994. 180,000 45,000 0 45,000
Common Stock, issued
for services at $ .10 per
share in September 1994.
100,000 10,000 0 10,000
Net (Loss) for the year
ended December 31, 1994
0 0 (146,545) (146,545)
Balance as of
December 31, 1994 3,007,500 $ 415,154 $(357,481) 57,673
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
CHILD GUARD CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
STATEMENT OF STOCKHOLDERS'
EQUITY (CONTINUED)
Common Stock Retained
Shares Amount Earnings Total
Common Stock, issued
for cash at $ .30 per
share in July, 1995. 50,001 $15,000 $ 0 15,000
Common Stock, issued
for cash at $ .10 per
share in October 1995. 250,000 25,0000 0 25,000
Common Stock, issued
for services and debt
at $ .10 per share in
October, 1995. 799,560 79,956 0 79,956
common stock, issued
for services at $ .05
per share in December,
1995. 2,000,000 100,000 0 100,000
Net (Loss) for the Year
ended December 31, 1995 0 0 (272,964) (272,964)
Balance as of
December 31, 1995 6,107,061 635,110 $(630,445) $4,665
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
CHILD GUARD CORPORATION
STATEMENT OF CASH FLOWS
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
1995 1994
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES':
Net Loss $ (272,964) (146,545)
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation 685 595
Capitalized Development Costs Expensed 73,422 0
XP
Product Distribution Rights Written Off 13,000 0
Product Rights Written off 20,000 0
Issuance of Common . Stock for Services 137,956 824,183
(Increase) Decrease in:
Accounts Receivable 133 (133)
Increase (Decrease) in-.
Accounts Payable (13,006) 11,341
Product Rights Payable (5,700) (12,000)
Advance Received for Purchase
of Specific Product Rights 0 (10,000)
---------- ----------
NET CASH USED BY
OPERATING ACTIVITIES (46,474) (74,559)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment 0 (1,263)
Purchase of Product Rights 0 (22,000)
NET CASH USED BY
INVESTING ACTIVITIES $ 0 $ (23,263)
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
CHILD GUARD CORPORATION
STATEMENT OF CASH FLOWS
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
STATEMENT OF CASH FLOWS (CONTINUED) 1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Debentures $ 0 $5,000
Proceeds from Sale of Common Stock 40,000 55,000
New Borrowings - Short Term 0 42,000
NET CASH PROVIDED BY
FINANCING ACTIVITIES 40,000 102,000
INCREASE (DECREASE) IN CASH (6,474) 4,178
CASH AT BEGINNING OF PERIOD 6,618 2,440
CASH AT END OF PERIOD $144 $6,618
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Year for:
Interest Paid $4,185 $3,663
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of Common Stock
for Debentures $ 0 $45,000
Issuance of Common Stock for Debt 42,000 0
Issuance of Common Stock for Services 137,956 82,183
Write Off of Product Rights 20,000 0
Write Off of Product
Distribution Rights 13,000 0
Expense Capitalized Research and
Development Costs $73,422 $ 0
SEE ACCOMPANYING NOTES AND ACCOUNTANTS' REPORT
WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS
CHILD GUARD CORPORATION
NOTES TO FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Development Stage operations
Child Guard Corporation was incorporated on December 7, 1992 for
the purpose of development manufacturing and distribution of
products to the general public.
B. Common Stock
The Company issued 1,266,664 shares of its common stock to acquire
product research and development work done by Glenn Sherburne
prior to incorporation. The fair market value of the aquired
assets is Mr. Sherburne's actual costs of $18,182 which are
included in development costs.
C. Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful
life of the assets which is seven years. Depreciation expense for
the years ended December 3@, 1995 and 1994 was $ 685 and $ 595.
D. Development costs
Research and Development costs for new products are expensed
'until feasibility for a product is established. After
technological feasibility has been established, costs of producing
a marketable product are capitalized and amortized over the
estimated life of the product beginning with commencement of
production. Research and development costs expensed for the years
ended December 31, 1995 and 1994 were $ 73,922 and $ 69,183. The
1995 amount included previously capitalized amounts which are
being expensed because product production and feasibility have not
been established.
CHILD GUARD CORPORATION
NOTES TO FINANCIAL STATEMENTS
A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Product Rights
The company has purchased all rights to a new landscaping product,
known as "The Brick" from its inventor which is the Company's
majority shareholder ' (see note 3) Development of the product has
not been pursued., while the product is technologically feasible
and possibly marketable, management feels the value of these
rights to the Company has significantly decreased and the cost has
been written off.
During 1994' the Company re-purchased from a bankruptcy court
specific rights to a child monitoring system it had sold as part
of a development agreement in 1993. The re-purchase included $ 22
' 000 for product and patent pending rights which has been
capitalized and $ 68,000 for engineering costs incurred during the
bankruptcy which were expensed as research and development costs.
F. Product Distribution Rights
Non exclusive product distribution rights to a product line named
"SIP-TOP" were purchased by the Company from a corporation owned
100% by the Company's majority shareholder. (see note 3) The
product distribution rights are exclusive as to specific retail
outlets. Distribution of this product has not been pursued,
management feels the value to the Company has significantly
decreased and therefore the cost of the distribution rights has
been written off.
G. 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 revenues and expenses during the reported
period. Actual results could differ from those estimates.
CHILD GUARD CORPORATION
NOTES TO FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
2. LONG-TERM DEBT
Debentures Payable - requiring
semi-annual payments of interest
at 10% for five years. The 1995 1994
debentures are convertible to ------ ------
common stock of the Company
at a rate of $ .75 per share $ 17,000 $ 17,000
3. RELATED PARTY TRANSACTIONS
The Company has entered into agreements with its majority
shareholder or a company 100% owned by the majority shareholder
for the purchase of product and product distribution rights as
disclosed in note 1. The company's remaining liability under these
agreements is $ 0 and $ 5,700 as of December 31, 1995 and 1994.
4. LOAN PAYABLE STOCKHOLDER
The Company had a loan payable to a stockholder requiring payment
in full on or before December 31, 1995 including 10% interest.
This loan was paid through the issuance of common stock in.1995.
5. ADVANCE FOR DISTRIBUTION OF RIGHTS
In 1993 the Company entered into an agreement for the distribution
of specific products in which it received an advance payment of $
10,000. The agreement was mutually cancelled during 1994 with the
Company retaining the advance.
6. INCOME TAXES
As of December 31, 1995t the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $ 630,000 that may be used in future years to offset
taxable income. Utilization of the Company's net operating loss
carryforwards are subject to the Company's future income. To the
extent not utilized, the net operating loss carryforwards will
begin to expire in the year 2008.
CHILD GUARD CORPORATION
NOTES TO FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
7. SUBSEQUENT EVENTS
The Company has entered into merger negotiations with a company on
the west coast of the United States. The terms of the merger have
been agreed to and are penting approval! by the shareholders. The
Company incurred merger service costs during 1995 of $ 100,000
which was paid through the issuance of common stock.
<PAGE>
January 29, 1996
To the Stockholders
Tollycraft Acquisition Corporation
Kelso, Washington
We have audited the accompanying balance sheet of Tollycraft
Acquisition Corporation, as of May 31, 1995 and the related
statements of operations, stockholders' equity (deficit), and cash
flows for the period from inception (June 6, l994) to May 31,
1995, 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
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
Tollycraft Acquisition Corporation as of May 31, 1995, and the
results of its operations and its cash flows for the initial
period then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As described
in Note 2 to the financial statements, the Company has a not loss
for the initial period, a working capital deficit, and a net
capital deficiency that raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The
accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
lsler & Co., L.L.C.
Portland, Oregon
TOLLYCRAFT ACQUISITION CORPORATION
Balance Sheet
May 31, 1995
ASSETS
Current assets:
Cash $ l,8l2
Accounts receivable 323,562
Raw material inventories 511,310
Costs incurred and income recognized in excess
of billings on uncompleted contracts 1,766,721
Total current assets 2,603,406
Net deferred tax assets 15,325
Equipment, net 2,729,576
Total assets $ 5,348,306
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Checks issued in excess of bank deposits $ 3,623
Notes payable 3,992,533
Accounts payable 711,836
Accrued payroll and payroll related liabilities 909,816
Other accrued liabilities 269,122
Billings in excess of costs incurred and income
recognized on uncompleted contracts 56,101
Long-term debt, due within one year - 783,009
Total current liabilities 6,726,040
Long-term debt 809,403
Stockholders' equity (deficit):
Common stock, no par value, 1,000,000 shares
authorized, issued and outstanding 786,157
Additional paid-in capital 160,000
Retained deficit (3,133,294)
Total stockholders' equity (deficit) (2,187,137)
Total liabilities and stockholders' equity (deficit) $ 5,348,306
'See accompanying notes to financial statements.
TOLLYCRAFT ACQUISITION CORPORATION
Statement of operations
For the period from inception (June 6, 1994) to May 31, 1995
Net sales $ 9,704,505
Cost of -sales 9,273,953
Gross margin 430,552
Selling expenses 597,828
General and administrative expenses 2,587,071
Loss from operations (2,754,347)
Other income (expenses):
Interest, net (410,098)
Other 15,826
Total other income (expenses) (394,272)
Loss before benefit for income taxes (3,148,619)
Benefit for income taxes-deferred 15,826
Net losS $ (3,133,294)
Net loss per share $ (3.13)
See accompanying notes to financial statements.
TOLLYCRAFT ACQUISITION CORPORATION
Statement of Stockholders' Equity (Deficit)
For the period from inception (June 6, 1994) to May 31, 1995
Additional Total
Common stock paid-in Retained stockholders
Shares Amount capital deficit equity(deficit)
Common stock issued
in exchange for notes
payable 1,000,000 $786,157 $ $ $786,157
Capital contributed 160,000 160,000
Net loss (3,133,294) (3,133,294)
Balance,
May 31, 1995 1,000,000 $786,157 160,000 $(3,133,294) $(2,187,137)
See accompanying notes to financial statements.
TOLLYCRAFT ACQUISITION CORPORATION
Statement of Cash Flows
For the period from inception (June 8, 1994) to May 31, 1995
Cash flows from operating activities,
Net loss $ (3,133,294)
Adjustments to reconcile net income to net
cash (used in) operating activities:
Depreciation and amortization 313,568
Change in assets and liabilities net of effects from
purchase of Tollycraft Yacht Corporation:
Accounts receivable (323,582)
Inventories (83,668)
Costs incurred and income recognized
In excess of billings on uncompleted
contracts 460,973
Checks issued in excess of bank deposits 3,623
Accounts payable and accrued liabilities 1,890,774
Billings in excess of costs incurred and
income recognized on uncompleted
contracts 56,101
Deferred income tax (15,325)
Cash flows from investing activities-.
Purchases of equipment (251,277)
Payment for purchase of Tollycraft Yacht Corporation,
net of cash acquired 88,417
--------------
(162,860)
Cash flows from financing activities:
Additional paid-in-capital 160,000
Proceeds from notes payable 11,428,204
Proceeds from long-term debt 48,775
Repayment of notes payable (8,724,516)
Repayment of long-term debt (1,916,981)
---------------
995,482
Cash, May 31, 1995 $ 1,912
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 245,654
Supplemental disclosure of noncash financing activities:
Conversion of notes payable to affiliates to common stock
$ 786,157
See accompanying notes to financial statements.
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Financial Statements
For the period from inception (June 6, 1994) to May 31, 1995
Note 1 - Summary of significant accounting policies
Nature of business. Tollycraft Acquisition Corporation, "the
Company", is engaged in the manufacture and distribution of luxury
motor yachts.
Fiscal Year. The Company operates on a fiscal year ending May 31
for financial reporting and income tax purposes.
Cash. The Company periodically throughout the period maintained
balances in its bank account in excess of federally insured
limits.
Inventories. Inventories are valued at the lower of average cost
or market.
Equipment. Equipment is carried at cost. Depreciation of
equipment is provided using the straight-line method over the
estimated useful lives of the assets. Additions and improvements,
including jigs, patterns and molds, are capitalized.
The estimated useful lives of the equipment is as follows:
Years
Manufacturing equipment 5-7
Office furniture and equipment 5-7
Molds and patterns 10
Revenue recognition. Revenue is recognized on the
percentage-of-completion method. The percentage-completion method
is measured by the percentage of cost incurred to date to
estimated total cost for each hull. Hull costs include all direct
material and labor costs and indirect costs, such as Indirect
labor, supplies, tools, repairs, and depreciation. Selling,
general, and administrative Costs are charged to expense as
incurred, Provisions for estimated losses on uncompleted contracts
are made.
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Financial Statements (Continued)
For the period from inception (June 6, 1994) to May 31, 1995
Note 1 - Summary of significant accounting policies(continued)
Revenue [Rcognition (continued) in the period in which such losses
are determined. Changes in job performance, job conditions,
and estimated profitability may result in revisions to cost and
income, which are recognized in the period in which the revisions
are determined.
The assets, "Costs incurred and income recognized in excess
of billings on uncompleted contracts," represent costs and
contract revenues recognized in excess of amounts billed. The
liability, "billings in excess of costs incurred and income
recognized on uncompleted contracts", represent billings in excess
of cost and contract revenues recognized.
Estimated warranties. The Company records a warranty accrual at
the time of sale for estimated claims, based on actual claims
experience. There is a general one year parts and labor warranty
to the original owner for defects in material and workmanship. In
addition, there Is a 15 year transferable limited warranty for
structural defects in all Tollycraft built hulls, deck bridges,
stringers, and bulkheads.
Pension and profit sharing plans. Union employees of the Company
participate in a pension plan which qualifies under Section 401
(k) of the Internal Revenue Code. The Company is required by
the union contract to make annual contributions of $.05 per labor
hour. The expense for the plan from inception (June 6, 1994) to
May 31, 1995 was $7,503.
Non-union employees of the Company also participate in a
pension plan which qualifies under Section 401(k) of the Internal
Revenue Code. The Company is not required and has not
made any contributions to the non-union plan.
Net loss per share. Net loss per share is computed by dividing
net loss by the weighted average number of common shares
outstanding during the period. The weighted average number of
common shares outstanding was 1,000,000 for the period from
inception (June 6, 1994) to May 31, 1995.
<PAGE>
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Financial statements (Continued)
For the period from inception (June 6, 1994) to May 31, 1 995
Note 2 Continued operations
The Company incurred a net, loss of $3,133,294 during the
period from inception (June 6, 1994) to May 31, 1995, and, as of
that date,-the Company's current liabilities exceeded its current
assets by $4,122,635 and b total liabilities exceeded its total
assets by $2,187,137. These factors, among others, indicate that
the Company may be unable to continue Its operations without the
procurement of alternative financing and ultimately the successful
marketing of the Company's products.
As further discussed in Note 12, the Company is in the
process of raising additional equity capital. A portion of the
equity capital will be used to enhance working capital, gain
operating efficiencies, and expand the Company's product lines.
The accompanying financial statements have been prepared on a
basis of going concerned, which basis contemplates the realization
of assets through continuing operations, No adjustments have been
made to reflect potentially lower realizable values of assets
should the Company be unable to continue its operations as the
outcome of the above matters is not currently determinable.
Note 3 Business combination
On June 6, 1994, the Company acquired the assets of
Tollycraft Yacht Corporation in a business combination accounted
for as a purchase. The Company assumed liabilities in connection
with the purchase aggregating $5,535,620. The results of
operations of Tollycraft Yacht Corporation is included in the
accompanying financial statements since the date of acquisition.
Cash required, net of cash acquired, for the purchase of
Tollycraft Yacht Corporation was as follows:
Fair value of net tangible assets acquired:
Inventories $ 427,842
Equipment 2,791,867
Costs incurred in excess of
billings and income recognized
on uncompleted contracts 2,227,694
Liabilities assumed (5,535,620)
Cash paid, net of cash acquired $(88,417)
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Financial Statements (Continued)
For the period from inception (June 6, 1994) to May 31, 1995
Note 4 -Uncompleted contracts
Costs incurred and billings on uncompleted contracts
consisted a( the following:
Costs incurred on uncompleted contracts $ 2,301,236
(Income) loss recognized 19,696
Less billings to date 610,312
$ 1,710,620
Included in the accompanying balance sheet under the
following captions:
Costs incurred and income recognized
in excess of billings on uncompleted
contracts $ 1,766,721
Billings in excess of costs incurred and
income recognized on uncompleted
contracts 56,101
Note 5 Equipment and leasehold improvements
Equipment consisted of the following:
Manufacturing equipment $ 395,690
Office furniture and equipment 21,692
Molds and patterns 2,625,762
3,043,144
Less accumulated depreciation (313,568)
$ 2,729,576
Depreciation expense was $313,568 for the period from inception
(June 6, 1994) to May 31, 1995.
Note 6 - Other accrued liabilities
Other accrued liabilities consisted of the following:
Advance payments from customers $ l00,000
Estimated liabilities for warranties 54,393
Interest 73,287
Excise taxes 41,442
$ 269,122
<PAGE>
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Financial Statements (Continued)
For the period from inception (June 6, 1994) to May 31, 1995
Note 7 - Notes Payable
The Company has available a $ 2,000,000 line-of-credit with
Caterpillar Financial Services Corporation for the manufacture of
yachts. Under the terms of the agreement, borrowings are limited
to 75% of the dealer net price of each particular yacht, and are
advanced 1/3 upon commencement of hull lamination, 1/3 upon
commencement of assembly and 1/3 upon completion of engine
installation. Interest on borrowings are payable monthly at a
variable rate (which was II% per annum at May 31, 1995).
Borrowings are collateralized by substantially all assets.
Outstanding borrowings as of May 3l, 1995 were $1,411,805.
The Company is also required to maintain a minimum level of
stockholders' equity and a ratio of total liabilities to
stockholders' equity. At May 31, 1995, the Company was in
violation of these minimum requirements.
The Company also has a line-of-credit with Vera Corporation
for working capital purposes. Interest on borrowings are payable
monthly at a rate of 12% per annum. Borrowings are collateralized
by substantially all assets. Outstanding borrowings at May 31,
1995 were $2,580,728.
Note 8 - Long-term debt
Long-term debt at May 31, 1995 consisted of the following
Non-interest bearing note payable to supplier,
due June 1996,secured by inventories $ 19,090
8% note payable to the Internal Revenue Service,
payable in semi-annual installments of $70,646
including interest, due July 1996 314,503
8% note payable to the State of Washington, payable in
semiannual installments of $406 including interest,
due July 1996 1,799
8% note payable to the Washington State Unemployment
Division, payable in semi-annual Installments
of $12,333, including interest, due July 1996 54,902
8% note payable to the Washington State Labor and
Industries Division, payable in -semi-annual payments
of $2,219 including interest, due July 1996 9,878
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Financial Statements (Continued)
For the period from inception (June 6, 1994) to May 31, 1995
Note 8 - Long-term debt (continued)
8% note payable to Transamerica, payable in
monthly installments of $3,500 Including interest,
due July 1996, secured by personal property,
inventories and accounts receivable $ 97,110
Non-interest bearing note payable to
supplier, due July 1996 12,500
8% note payable to the Washington State
Department of Labor, payable in semi-annual
installments of $10,702 including interest,
due December 1996 47,690
Non-interest bearing note payable to supplier, payable in
monthly installments of $1,032, due June 1999, secured
by inventories 50,884
8% note payable to Cowlitz County, payable in
monthly installments of $160 including interest,
due June 1999 7,874
Non-interest bearing notes payable to suppliers,
due July 1999, discounted at an interest rate of 8% 410,253
Non-interest bearing advance payments from customers,
due July 1999 383,013
Non-interest bearing unsecured note payable to vendor,
due July 1 999, discounted at an interest rate of 8% 105,029
Non-interest bearing unsecured note payable to a related
party, due July 1999 discounted at an interest rate of 8% 77,887
----------
1,592,412
Less amount due within one year 783,009
809,403
Following are maturities of long-term debt for each of the
years ending subsequent to May 31, 1996.
Years ending May 31
1997 $ 129,317
1998 19,679
1999 828,148
2000 32,259
809,403
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Financial Statements (Continued)
For the period from inception (June 31, 1994) to May 31, 1995
Note 9 - Operating lease commitments
The Company leases its facilities and certain vehicles under
non-cancelable operating leases. ,Subsequent to year end, the
Company entered into a new operating lease for its facilities.
The new monthly lease payment is $29,500. Minimum future rental
payments under these operating leases are as follows:
Years ending May 31:
1996 $ 19,836
1997 19,836
1998 6,612
Total minimum future rental payments 46,284
Rent expense for the period from inception (June 6, 1994) to
May 31, 1995, was $239,908.
Note 10 - Major customers
The Company distributes its yachts through a select group of
dealers nationwide. Sales to the four largest dealers represented
46%, 15%, 14% and 10% of net sales for the period from inception
(June 8, 1994) to May 31, 1996.
Note 11 - Provision for income taxes
Deferred income taxes are recognized for all significant
temporary differences between the tax and financial statement
basis of assets and liabilities. The classification of the
resulting deferred tax assets and liabilities is based upon the
classification of the related balance sheet asset or liability.
Deferred tax asset and liabilities result principally from the
Company's net operating loss carry forwards, differences in
depreciation methods for tax purposes, and other temporary
differences. A valuation allowance has been created for purpose
of financial reporting.
TOLLYCRAFT ACQUISITION CORPORATION
Notes to Financial Statements (Continued)
For the period from inception (June 6,1994) to May 31,1905
Note 11- Provision for income taxes (continued)
Net deferred tax assets as of May 31, 1995 consisted of the
following:
Deferred tax asset:
Net operating loss carryover $ 972,075
Other 18,737
990,812
Deferred tax liability:
Depreciation (3,412)
Valuation allowance for deferred tax asset (972,075)
Net deferred tax asset $ 15,325
As of May 31, 1995, the Company had net operating loss
carryovers of approximately $3,083,000 available to offset future
federal taxable income, if any. In, the event of ownership
changes aggregating fifty percent or more in any three-year
period, the amount of loss carryovers that become available for
utilization in any year may be limited. The tax loss carryovers,
if not utilized against taxable income, expire in the year 2010.
Note 12 - Subsequent events
Effective January 1, 1996, the Company exchanged 1,000,000
shares of its outstanding common stock for 43,891,664 shares of
common stock of Child Guard Corporation, which is publicly traded.
As a result, the Company became a subsidiary of Child Guard
Corporation. Concurrent with the exchange, Child Guard
Corporation changed its name to Tollycraft Yacht Corporation.
Tollycraft Yacht Corporation has issued and is currently offering
in a private placement $2,000,000 of promissory notes convertible
into common stock. Additionally, the Company has signed a Letter
of Intent with a financing consultant to provide investment
banking and advisory services in connection with a Secondary
Offering of $9,000,000 of common stock.
<PAGE>
PART III
EXHIBITS
Item 1. Index to Exhibits.
The following exhibits are filed with this Registration Statement:
Exhibit Number Exhibit Name
(2) Articles of Incorporation & amendments
(3) Instruments defining the rights
of security holders
POWER OF ATTORNEY
The Registrant and each person whose signature appears below
hereby authorizes D.R. Cooley, the agent for service named in this
Registration Statement, with full power to act alone, to file one
or more amendments to this Registration Statement, which
amendments may make such changes in this Registration Statement as
such agent for service deems appropriate, and the Registrant and
each such person hereby appoints such agent for service as
attorney-in-fact, with full power to act alone, to execute in the
name and in behalf of the Registrant and any such person,
individually and in each capacity stated below, any such
amendments to this Registration Statement.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized.
TOLLYCRAFT YACHT CORPORATION (Registrant)
By: Date: 7-17-96
D.R. Cooley, President, Chief Executive Officer, Director
(Signature)
By: Date: 7-17-96
Roy G. Getty, Secretary, Treasurer, Director, Chief Financial Officer
(Signature)
By: Date: 7-17-96
A. P. Tulleners, Chairman, Director
(Signature)
EXHIBIT (2)
ARTICLES OF
OF
CHILDGUARD CORPORATION
For the Purpose of forming a corporation pursuant to the
Provisions of Chapter 302A of Minnesota Statutes, the following
Articles of Incorporation are hereby adopted:
ARTICLE I
The name of this corporation is Child Guard Corporation.
ARTICLE II
The registered office of this corporation is located in the County
of Freeborn at 441 Crescent Drive, Albert Lea, Minnesota
ARTICLE III
This corporation is authorized to issue up to an aggregate total
of 10,000,000 shares of capital stock, all of the same class of
common stock of no par value.
ARTICLE IV
The name and address of the sole Incorporator of this corporation
is Robert O. Knutson, 9372 Creekwood Drive, Eden Prairie,
Minnesota 55344.
ARTICLE V
The shareholders of this corporation shall have no right to
cumulate votes for the election of directors; and also they shall
have no preemptive right or rights to subscribe for any issue of
shares of any class of this corporation now or hereafter made, or
for any options, warrants or conversion rights for any such
securities.
ARTICLE VI
The Board of Directors of this corporation shall have the
authority!
a) to allot and authorize the issuance of the authorized but
unissued shares of this corporation, including the declaration of
dividends payable in shares of any class to shareholders of any
other class;
b) to accept or reject subscriptions for shares of any class made
after incorporation;
c) to fix the terms, conditions and provisions of and authorize
the issuance of rights to convert, any securities of this
corporation into shares of any class or classes, including the
conversion basis or bases; and to fix the terms, provisions and
conditions of and authorize the issuance of options or warrants to
purchase or, subscribe for shares of any class or classes,
including the option price or prices at which shares may be
purchased or subscribed for; and
d)to make and alter the bylaws of this corporation subject to the
power of the shareholders to repeal or change such bylaws.
ARTICLE VII
No director of this corporation shall be personally liable to the
corporation or its shareholders for monetary damages for a breach
of fiduciary duty as a director; provided, however, that this
Article VII shall not limit or eliminate the liability of a
director to the extent provided by applicable law for (i) breach
of the directors duty of loyalty to the corporation or its
shareholders; (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law,
(iii) violations of Section 302A, 559 or 80A.23 of the Minnesota
Statutes; (iv) any transaction from which a director derived any
improper personal benefit,, or (V) any act or omission occurring
prior to the date when this provision becomes effective.
The provisions of this Article VII shall not be deemed to limit or
preclude indemnification of a director by this corporation for any
liability of a director which has not been eliminated by the
Provisions of this Article VII.
If the Minnesota Statutes hereinafter are amended to authorize the
further, elimination or limitation of the liability of directors,
then the liability of a director of the corporation in addition to
what is provided herein, shall be further eliminated or limited to
the fullest extent permitted by the Minnesota Statutes as so
amended.
Any amendment or repeal of this Article VII shall be prospective
only and shall not adversely affect any limitation on the personal
liability of a director Of the corporation existing at the time of
such repeal or modification.
IN WITNESS WHEREOF, the undersigned incorporator has executed
these Articles of Incorporation on this 7th day of December, 1992.
signed
Robert O. Knutson
STATE OF MINNESOTA
COUNTY OF HENNEPIN
On December 7. 1992, before me, a Notary Public personally
appeared Robert 0. Knutson, to me known to be the person named as
Incorporator, and who executed the foregoing Articles of
Incorporated, and he acknowledged that he executed tile same as
his free act and deed.
STATE
JOEL B.
BOMNENSIINGL
DEC
NOTARY PUBLIC-
MINNESOTA
HENNEPIN
COUNTY
Cmin@@fi Exoirei
Jan 24,1997
,y Of St ate
<PAGE>
STATE OF MINNESOTA
Office of the Secretary of State
CHILD GUARD CORPORATION
AMENDMENT OF ARTICLES OF INCORPORATION
For the purpose of amending the Articles of Incorporation of Child
Guard Corporation Minnesota corporation, pursuant to the
provisions of Chapter 302A of Minnesota Statutess, the following
amendments to such Articles of Incorporation are hereby adopted
pursuant to resolution of the Shareholders of Child Guard
Corporation adopted at a Special Meeting of Shareholders held on
November 10, 1995.
ARTICLE III is amended as follows:
"This corporation is authorized to issue up to an aggregate of
40,000,000 shares of capital stock, all of which shall be common
shares of no par value."
This amendment has been approved pursuant to Chapter 302A,
Minnesota Statutes.
The undersigned certifies that he is authorized to execute this
amendment on behalf of Child Guard Corporation, and further
certifies that he understands that by signing this Amendment, he
is subject to the penalties of perjury as set forth in Section
609.48 of Minnesota Statutes as if he signed this amendment under
oath.
- -Tob-e@t- 0 Secre-Ca
Child Guard Corporation
p MINNESOTA
STATE 0
FILED-DUPLICATE Copy
NOV 1 4 1995<PAGE>
STATE OF MINNESOTA
Office of the Secretary of State
AMENDMENT OF ARTICLES OP INCORPORATION
For the purpose of amending the Articles of Inprorationon of Child
Guard Corporation, a Minnesota corporation, pursuant to the
provisions of Chapter 302A of Minnesota Statutes, the following
Amendments to such Articles of Incorporation are hereby adopted
pursuant to resolutions of the Shareholders of Child Guard
Corporation adopted at an Annual Meeting of Shareholders held on
January 29, 1996.
ARTICLE I is amended as follows:
ARTICLE I
The name of this corporation is Tollycraft Yacht Corporation.
ARTICLE III is amended as follows:
ARTICLE III
This corporation is authorized to issue up to an aggegate total of
105,000,000 shares of capital stock, consisting of:
i) 100,000;000 common shares of no par value stock; and
ii) 5,000,000 shares of preferred stock in whatever series and
terms are deemed proper from time to time by the Board of
Directors of the corporation at their discretion. Including
different par or stated values for different series of preferred
shares.
This Amendment of Articles of Incorporation has been approved
pursuant to Chapter 302A. Minnesota Statutes.
The undersigned certifies that he is authorized to execute this
amendment and further certifies that he understands that by
signing this amendment, he is subject to penalties of perjury as
set forth in Section 609.43 of Minnesota Statutes as If he signed
this amendment under oath.
r t 6. Knuts5-n,-T cretary
STATE OF IN@llo
FILED _DU
PLICA JAN 3o i996 y<PAGE>
EXHIBIT (5)
STOCK CERTIFICATE
Number Shares
____________ _______________
Tollycraft Yacht Corporation
Incorporated under the laws of the State of Minnesota
Common Stock
this certifies that: _______________________________ is the
registered holder of _______________________________ shares
transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate
properly endorsed.
In Witness Whereof, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and its
/corporate Seal to be hereundto affixed this ____ day of
_______________ A.D. _________.
_______________________ ______________________
President Secretary
