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Previous: TARCYN CORP, 8-K, 1998-05-12 |
Next: MEMBERS MUTUAL FUNDS, 497, 1998-05-12 |
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 ON
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 27, 1998
-----------------
COMPASS PLASTICS & TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-23027 95-4611994
- ------------------------------ ------------ ------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
15730 South Figueroa Street, Gardena, California 90248
- ------------------------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 770-8771
--------------
<PAGE>
AMENDMENT NO. 1 TO
CURRENT REPORT ON FORM 8-K/A
COMPASS PLASTICS & TECHNOLOGIES, INC.
February 27, 1998
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired.
The financial statements of M.O.S. Plastics, Inc.
("M.O.S.") are attached hereto beginning on page F-2.
(b) Pro Forma Financial Information.
The pro forma financial information of Compass Plastics
& Technologies, Inc. and M.O.S. are attached hereto beginning on page F-17.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPASS PLASTICS & TECHNOLOGIES, INC.
Date: May 11, 1998 By: /s/ Michael A. Gibbs
-----------------------------------------
Michael A. Gibbs
President
3
<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
M.O.S. PLASTICS, INC.
Report of Independent Certified Public Accountants F-2
Balance Sheets F-3 - F-4
Statements of Income F-5
Statements of Changes in Stockholders Equity F-6
Statements of Cash Flows F-7 - F-8
Notes to Financial Statements F-9 - F-16
COMPASS PLASTICS AND TECHNOLOGIES, INC.
PROFORMA CONDENSED COMBINED FINANCIAL
STATEMENTS (UNAUDITED)
Introduction F-17
Balance Sheet as of January 25, 1998 (Compass) and
December 31, 1997 (M.O.S.) F-18 - F -19
Statement of Income for the Year Ended October 26,
1997 (Compass) and December 31, 1997 (M.O.S.) F-20
Statement of Income for the Three Months Ended
January 25, 1998 (Compass) and December 31, 1997
(M.O.S.) F-21
Notes to Pro Forma Condensed Consolidated Financial
Statements
F-22 - F-23
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors of
M.O.S. Plastics, Inc.
We have audited the accompanying balance sheets of M.O.S. Plastics, Inc. as of
December 31, 1997 and 1996, and the related statements of income, changes in
stockholder's 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 M.O.S. Plastics, Inc. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Woodbury, New York Marcum & Kliegman LLP
April 3, 1998
F-2
<PAGE>
M.O.S. PLASTICS, INC.
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
-------- --------
CURRENT ASSETS
Cash $273,029 $716,459
Accounts receivable, less allowance for doubtful
accounts of $12,000 in both years 1,762,612 2,553,906
Inventory, net 2,769,794 2,012,129
Prepaid expenses and other receivables 121,245 97,037
Other current assets 12,543 121,263
--------- ---------
Total Current Assets 4,939,223 5,500,794
PROPERTY AND EQUIPMENT, Net 3,279,943 3,566,822
OTHER ASSETS 92,202 116,444
--------- ---------
TOTAL ASSETS $8,311,368 $9,184,060
========== ==========
F-3
<PAGE>
M.O.S. PLASTICS, INC.
BALANCE SHEETS
December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDER'S EQUITY
1997 1996
---- ----
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,912,092 $2,105,116
Billings in excess of costs and estimated loss on
uncompleted contracts 84,519 302,153
Loan payable, stockholder -0- 400,000
Current portion of capital lease obligations 288,610 290,480
Current portion of long term debt 1,818,664 1,689,849
Deferred compensation 107,530 105,720
--------- ---------
Total Current Liabilities 4,211,415 4,893,318
--------- ---------
OTHER LIABILITIES
Capital leases obligations, net of current portion 229,954 519,453
Long term debt, net of current portion 1,809,914 2,437,516
Due to customer 132,780 -0-
Deferred compensation, net of current portion -0- 107,530
--------- ---------
Total Other Liabilities 2,172,648 3,064,499
--------- ----------
TOTAL LIABILITIES 6,384,063 7,957,817
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, no par value, 150,000 authorized
shares, 1,250 issued and outstanding shares 17,910 17,910
Retained earnings 1,909,395 1,208,333
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 1,927,305 1,226,243
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $8,311,368 $9,184,060
========== ==========
F-4
<PAGE>
M.O.S. PLASTICS, INC.
STATEMENTS OF INCOME
For the Years Ended December 31, 1997 and 1996
1997 1996
---- ----
SALES $18,003,811 $16,292,458
COST OF SALES 13,749,136 12,583,627
----------- -----------
GROSS PROFIT 4,254,675 3,708,831
----------- -----------
OPERATING EXPENSES
Selling expenses 80,607 38,866
Administrative expenses 1,666,492 1,443,449
----------- -----------
TOTAL OPERATING EXPENSES 1,747,099 1,482,315
----------- -----------
OPERATING INCOME 2,507,576 2,226,516
----------- -----------
OTHER (INCOME) EXPENSES
Other expense 29,747 38,506
Interest expense 443,865 538,544
Interest income (7,505) (9,935)
----------- -----------
TOTAL OTHER EXPENSES 466,107 567,115
----------- -----------
INCOME BEFORE INCOME TAXES 2,041,469 1,659,401
INCOME TAXES 26,000 22,434
----------- -----------
NET INCOME $2,015,469 $1,636,967
========== ==========
F-5
<PAGE>
M.O.S. PLASTICS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Total
------------ Retained Stockholder's
Shares Amount Earnings Equity
------ ------ -------- ------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 1,250 $17,910 $761,569 $779,479
Net income 1,636,967 1,636,967
Stockholder distribution (1,190,203) (1,190,203)
----- ------- ----------- -----------
Balance, December 31, 1996 1,250 17,910 1,208,333 1,226,243
Net income 2,015,469 2,015,469
Stockholder distribution (1,314,407) (1,314,407)
----- ------- ----------- -----------
Balance, December 31, 1997 1,250 $17,910 $1,909,395 $1,927,305
===== ======= ========== ==========
</TABLE>
F-6
<PAGE>
M.O.S. PLASTICS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,015,469 $1,636,967
---------- ----------
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 802,230 773,895
Loss on disposal of equipment 1,473 37,478
Changes in assets - (increase) decrease
Accounts receivable, net 791,294 (533,983)
Inventory (757,665) 237,257
Prepaid expenses and other receivables (24,208) 48,620
Other current assets 108,720 (17,309)
Other assets 24,241 (43,258)
Changes in liabilities - increase (decrease)
Accounts payable and accrued expenses (193,024) 88,225
Billings in excess of costs and estimated loss on uncompleted (217,634) 302,153
contracts
Deferred compensation (105,720) (58,393)
Other liabilities -0- (138,110)
--------- ---------
TOTAL ADJUSTMENTS 429,707 696,575
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,445,176 2,333,542
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 3,000 8,000
Purchases of property and equipment (387,043) (231,094)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (384,043) (223,094)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt 700,456 2,670,094
Principal repayments of loans payable, stockholder (400,000) -0-
Principal repayments of long term debt (1,199,243) (3,103,431)
Principal repayments on capital lease obligations (291,369) (254,301)
Stockholder distribution (1,314,407) (1,190,203)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES $(2,504,563) $(1,877,841)
----------- ------------
</TABLE>
F-7
<PAGE>
M.O.S. PLASTICS, INC.
STATEMENTS OF CASH FLOWS, Continued
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
NET (DECREASE) INCREASE IN CASH $(443,430) $232,607
CASH - Beginning 716,459 483,852
------- -------
CASH - Ending $273,029 $716,459
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for :
Interest $450,670 $545,844
Income taxes $31,016 $12,000
Noncash investing and financing activities:
Equipment acquired with debt and capital lease obligations. $132,780 $46,168
</TABLE>
F-8
<PAGE>
M.O.S. PLASTICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Nature of Business
M.O.S. Plastics, Inc. (the "Company"), a California "S" Corporation,
was incorporated on December 28, 1977. The Company manufactures
injection molding and tool making for a full range of plastic components
and products used by manufacturers.
Revenue Recognition
Revenue from sales of products is recognized when products are shipped to
the customer. Revenue from short-term tooling contracts is recognized
under the completed contract method.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment is stated at cost. Maintenance and repairs are
charged to expense as incurred; costs of major additions and betterments
are capitalized. When property and equipment is sold or otherwise
disposed of, the cost and related accumulated depreciation are eliminated
from the accounts and any resulting gain or loss is reflected in income.
Depreciation and Amortization
Depreciation is provided for using the straight-line and accelerated
methods over the estimated useful lives of the related assets. The cost
of leasehold improvements is amortized over the lesser of the estimated
useful lives of the assets or the length of the related leases.
Cash
The Company has cash balances in a bank in excess of the maximum amount
insured by the FDIC as of December 31, 1997 and 1996.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
The Company, with the consent of its stockholder, has elected under the
Internal Revenue Code to be "S" corporations. In lieu of corporate income
taxes, the stockholder of an "S" corporation is taxed on his
proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements. However, a provision for California state income
tax is included in the financial statements.
F-9
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies, continued
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable and
accounts payable. Due to the short-term nature of these instruments, the
fair value of these instruments approximate their recorded value. The
Company has long-term debt which it believes is stated at estimated fair
market value.
NOTE 2 - Inventory
Inventory at December 31, 1997 and 1996 consists of the following:
1997 1996
---- ----
Materials and supplies $1,333,522 $1,367,796
Finished goods 1,436,272 1,246,639
---------- ----------
2,769,794 2,614,435
Less: Reserves -0- 602,306
---------- ----------
Total $2,769,794 $2,012,129
========== ==========
During the year ended December 31, 1997, the Company wrote off obsolete
and slow moving inventory in the amount of $605,305.
NOTE 3 - Property and Equipment
Property and equipment at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
Estimated
1997 1996 Useful Lives
---- ---- ------------
<S> <C> <C> <C>
Machinery and equipment $6,132,380 $5,769,583 5 - 7 years
Vehicles 44,198 34,698 5 - 7 years
Office furniture and equipment 152,652 113,153 5 - 7 years
Leasehold improvements 835,609 816,136 Life of lease
Computer equipment 311,505 236,908 5 years
--------- ----------
(Forward) $7,476,344 $6,970,478
---------- ----------
</TABLE>
F-10
<PAGE>
NOTE 3 - Property and Equipment, continued
1997 1996
---- -----
Less: accumulated depreciation
and amortization 4,196,401 3,403,656
--------- ---------
Property and Equipment, net $3,279,943 $3,566,822
========== ==========
Depreciation and amortization expense for the years ended
December 31, 1997 and 1996 was $802,230 and $773,895, respectively.
NOTE 4 - Billings in Excess of Cost and Estimated Loss on Uncompleted Contracts
The Company recognizes revenues and reports profits from short-term
tooling contracts under the completed contract method. These contracts
generally extend for periods less than one year. Contract costs and
billings are accumulated during the tooling process, but no revenues or
profits are recognized until completion of the contract. The aggregate of
costs of uncompleted contracts in excess of related billings is shown as
a current asset, and the aggregate of billings on uncompleted contracts
in excess of related costs is shown as a current liability. Losses
expected to be incurred on contracts in process are charged to operations
in the period such losses are determined. For the year ended December 31,
1997 expected losses amounted to $28,274.
NOTE 5 - Loan Payable, Stockholder
The president and stockholder of the Company advanced $400,000 to the
Company with interest at 8% payable quarterly. This loan had been paid
off in 1997. In addition, the loan was subordinated to the bank's credit
line (see Note 7).
NOTE 6 - Capitalized Lease Obligations
The Company is the lessee of equipment under six capital leases expiring
through the year 1999. The capitalized lease obligations are
collateralized by the underlying equipment. The assets and liabilities
are recorded at fair-market value. The assets are being depreciated over
their estimated useful lives. Depreciation of assets under capital leases
charged to expense for the years ended December 31, 1997 and 1996 was
$223,180 and $227,718. The following is a summary of property held under
capital leases included in equipment:
1997 1996
---- -----
Equipment $1,520,919 $1,520,919
Less accumulated depreciation (757,613) (534,433)
--------- ---------
$763,306 $986,486
======== ========
F-11
<PAGE>
NOTE 6 - Capitalized Lease Obligations, continued
Minimum future lease payments under capital leases as of December 31,
1997 for each of the next two years, and in the aggregate, are as
follows:
Year Ending Amount
December 31,
------------
1998 $326,560
1999 248,720
--------
Total minimum lease payments 575,280
Less: amount representing (56,716)
--------
interest
Present Value of Minimum
Lease Payments $518,564
========
Current portion $288,610
Long-term portion 229,954
--------
$518,564
========
Interest rates on capitalized leases vary from 10.4% to 16.9% and are
imputed based on the lessor's implicit rate of return.
F-12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NOTE 7 - Long Term Debt
1997 1996
----- -----
Equipment Loan - Payable in monthly installments of $4,697 plus interest
at 8.64% per annum through October 2001. The loan is collateralized by
the underlying equipment. (Forward)
$216,060 $ -0-
Revolving line of credit with a bank (the "Bank") in the amount of up to
$2,500,000 with interest payable at the Bank's base rate plus .25%. The
line is collateralized by substantially all of the assets of the Company.
The Company is required to maintain certain restrictive and financial
covenants. In addition, the stockholder's loan is subordinated to this
line (see Note 5).
975,000 899,810
Term Loan - Payable in monthly installments of $20,833 plus interest at
the bank's base rate plus .75% through December 1999.
1,104,173 1,354,169
Equipment Loan - Payable in monthly installments of $3,548 plus interest
at 9.01% per annum through October 2000. The loan is collateralized by
the underlying equipment. 120,618 163,189
Equipment Loan - Payable in monthly installments of $18,325 including
interest at 9.1% through December 2000, collateralized by the
underlying equipment. 575,448 735,009
Loan - Payable in weekly installments of $5,000 including interest
adjusted semi-annually through March 2000. The loan is secured by the
Company's common stock. 426,417 641,482
Equipment Loan - Payable in monthly installments of $963 including
interest at 10.5% through December 1999, collateralized by the
underlying equipment. 20,766 29,630
Equipment Loan - Payable in monthly installments of $11,288 including
interest at 8.5% through June 1999, collateralized by the underlying
equipment. 190,096 304,076
------- -------
Total Long Term Debt 3,628,578 4,127,365
Less: Current portion 1,818,664 1,689,849
---------- ---------
Total Long Term Debt, net of current portion $1,809,914 $2,437,516
========== ==========
</TABLE>
F-13
<PAGE>
NOTE 7 - Long-Term Debt, continued
As of December 31, 1997, the Company was in violation of certain
covenants related to the revolving line of credit. As a result of the
violation, the entire balance under the credit line should be classified
as a current liability to conform with generally accepted accounting
principles. Such reclassification has been made in the accompanying
financial statements. In addition, the credit line has been paid in full
in February 1998 from the proceeds of the sale of the Company (see Note
12).
Maturities of long-term debt at December 31, 1997 are as follows:
Year Ending
December 31, Amount
------------ ----------
1998 $1,818,664
1999 814,358
2000 594,403
2001 296,964
2002 104,189
----------
Total $3,628,578
==========
NOTE 8 - Profit Sharing Plan
The Company has a profit sharing plan for the benefit of its eligible
employees. The optional annual contribution by the employer to the plan
is 0% to 15% of the gross earnings of the qualified employees.
Contributions to the plan for the years ended December 31, 1997 and 1996
were $225,000 for both years.
The plan does not provide a fixed and determinable retirement benefit to
the employees. The actual retirement benefit will depend on the amount of
the employee's account balance at the time of retirement.
NOTE 9 - Income Taxes
The provision for income taxes for the years ended December 31, 1997
and 1996 consists of the following:
1997 1996
------- ----
Current $21,000 $800
Deferred 5,000 21,634
------ ------
Total $26,000 $22,434
======= =======
F-14
<PAGE>
NOTE 10 - Commitments and Contingencies
Lease Arrangements
The Company is presently obligated under two noncancelable operating
leases for buildings, expiring June 30, 2000 and November 30, 2002,
respectively. In addition to minimum rental payments, the Company is
responsible for its shares of property taxes and other operating costs
related to the leased properties.
The following is a schedule of future minimum rental payments subject to
cost of living increases:
Year Ending
December 31, Amount
------------ ------
1998 $427,000
1999 427,000
2000 360,000
2001 294,000
2002 257,000
-------
Total $1,765,000
==========
Rent expense for the years ended December 31, 1997 and 1996 was $313,069
and $228,378, respectively.
Deferred Compensation
The Company has deferred compensation agreements with two key employees
which are being paid in bi-monthly installments of $10,000 each including
interest through June 1, 1998. Interest is calculated at the base rate of
a local commercial lending bank (8.5% at December 31, 1997 and 1996)
which is adjusted quarterly. Interest expense for deferred compensation
for the years ended December 31, 1997 and 1996 was $14,280 and $21,607,
respectively.
NOTE 11 - Economic Dependency
Major Customers
During the year ended December 31, 1997, the Company sold a substantial
portion of its products to two customers. The sales to these customers
totaled $3,850,742 (21%) and $1,839,179 (10%). At December 31, 1997, the
amounts due from these customers included in accounts receivable were
$376,192 and $238,493, respectively.
F-15
<PAGE>
NOTE 11 - Economic Dependency, continued
Major Customers, continued
During the year ended December 31, 1996, the Company sold a substantial
portion of its products to three customers. The sales to these customers
totaled $4,162,856 (26%), $3,200,811 (20%) and $2,053,574 (13%). At
December 31, 1996, the amounts due from these customers included in
accounts receivable were $341,627, $216,760 and $439,248, respectively.
Major Suppliers
During the year ended December 31, 1997, the Company purchased a
substantial portion of its raw material from four suppliers. Purchases
from these suppliers were $756,681 (18%), $721,510 (17%), $509,615 (12%)
and $458,267 (11%). At December 31, 1997, the amounts due these suppliers
included in accounts payable were $173,989, $65,466, $5,445 and $10,852,
respectively.
During the year ended December 31, 1996, the Company purchased a
substantial portion of its raw material from four suppliers. Purchases
from these suppliers were $821,264 (22%), $577,784 (15%), $438,428 (12%)
and $407,699 (11%). At December 31, 1996, the amounts due these suppliers
included in accounts payable were $59,552, $66,587, $43,831 and $117,013,
respectively.
NOTE 12 - Subsequent Event
On February 27, 1998 the Company entered into a stock purchase agreement
with Compass Plastics & Technologies, Inc., whereby the Company agreed
to sell all its issued and outstanding common stock for approximately
$17.4 million. The purchase price is subject to adjustments based upon
step-up value of net assets acquired. This transaction is accounted for
as a purchase.
F-16
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Balance Sheet as of January 25, 1998
reflects the financial position of Compass Plastics & Technologies, Inc.
("Compass") as if the acquisition of M.O.S. Plastics, Inc. (the "Acquisition")
had occurred on January 25, 1998. The Unaudited Pro forma Combined Statements of
Income for the year ended October 26, 1997 and for the three months ended
January 25, 1998 present the Company's results of operations as if the
Acquisition had been consummated as of October 27, 1996. The Unaudited Pro Forma
Combined Statements reflect the Acquisition using the purchase method of
accounting. The Pro Forma operating results are not necessarily indicative of
the operating results that would have been achieved had the Acquisition actually
occurred on October 26, 1996 nor do they purport to indicate the results of
future operations.
The Pro Forma Combined Statements are based on the historical financial
statements of the Company and M.O.S. Plastics, Inc. ("M.O.S.") for the fiscal
periods indicated in the statements.
The accompanying Unaudited Pro Forma Combined Financial Statements are based on
the assumptions set forth in the notes and should be read in conjunction with
the related financial statements and notes thereto included elsewhere in Form
8-K, as well as the Company's annual report on Form 10-K and quarterly report on
Form 10-Q.
F-17
<PAGE>
<TABLE>
<CAPTION>
Compass Plastics & Technologies, Inc.
Pro Forma Combined Balance Sheet
(unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Compass M.O.S. Pro Forma Pro Forma
January 25, 1998 December 31, 1997 Ref# Adjustments Combined
---------------- ----------------- ----- ------------ ---------
ASSETS
Current Assets
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 661 $ 273 [1] 27,273 $ 706
[2] (27,501)
Accounts receivable, net 11,643 1,763 13,406
Inventories 4,547 2,770 7,317
Other current assets, net 994 133 1,127
------------- --------- ------------ ------------
Total Current Assets 17,845 4,939 (228) 22,556
------------- --------- ------------ ------------
Property, Plant and Equipment 19,769 3,280 - 23,049
------------- --------- ------------ ------------
Other Assets
Goodwill, net 1,781 [4] 15,521 17,302
Investment in Subsidiary [2] 17,448 -
[4] (17,448)
Deposits 246 246
Other assets, net 244 92 [2] 409 634
[3] 5
[8] (116)
------------- --------- ------------ ------------
Total Other Assets 2,271 92 15,819 18,182
------------- --------- ------------ ------------
Total Assets $ 39,885 $ 8,311 $ 15,591 $ 63,787
============= ========= ============ ============
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
Compass Plastics & Technologies, Inc.
Pro Forma Combined Balance Sheet
(unaudited)
(dollars in thousands)
Compass M.O.S. Pro Forma Pro Forma
January 25, 1998 December 31, 1997 Ref# Adjustments Combined
---------------- ----------------- ----- ------------ ---------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 10,260 $ 1,912 $ 12,172
Current portion of Capitalized lease
obligations 123 289 412
Current portion of long-term debt 907 1,819 {1] 5,473 6,289
[2] (1,910)
Other current liabilities 642 191 833
-------------- -------------- --------- ---------------
Total current liabilities 11,932 4,211 3,563 19,706
-------------- -------------- --------- ---------------
Other Liabilities
Capitalized lease obligation, 566 230 796
Long - term debt, net 11,634 1,810 [1] 21,800 27,015
[2] 300
(2) (8,034)
[5] (495)
Other liabilities 1,862 133 1,995
-------------- -------------- --------- ---------------
Total other liabilities 14,062 2,173 13,571 29,806
-------------- -------------- --------- ---------------
Total liabilities 25,994 6,384 17,134 49,512
-------------- -------------- --------- ---------------
Stockholders' Equity
Common Stock 1 18 [4] (18) 1
Additional paid in capital 12,083 [5] 495 12,583
[3] 5
Notes receivable from issuance of stock (707) (707)
Retained earnings 2,514 1,909 [4] (1,909) 2,398
[8] (116)
-------------- -------------- --------- ---------------
Total Stockholders' Equity 13,891 1,927 (1,543) 14,275
-------------- -------------- --------- ---------------
Total Liabilities and Stockholders' Equity $ 39,885 $ 8,311 $ 15,591 $ 63,787
============== ============== =========== ===============
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
Compass Plastics & Technologies, Inc.
Pro Forma Combined Statement of Income
(Unaudited)
(dollars in thousands)
(in thousands, except for per share and share data)
Compass M.O.S.
Year Ended Year Ended Pro Forma Pro Forma
October 26, 1997 December 31, 1997 Ref# Adjustments Combined
---------------- ----------------- ---- ----------- -------------
<S> <C> <C> <C> <C> <C>
Sales $ 43,980 18,004 61,984
Cost of Sales 35,759 13,749 49,508
------------ ---------- -------------
Gross Profit 8,221 4,255 12,476
------------ ---------- -------------
Operating expenses
Selling 685 81 766
Administrative 2,091 1,666 [7] 776 4,533
------------ ---------- ------------ -------------
Total operating expense 2,776 1,747 776 5,299
------------ ---------- ------------ -------------
Operating Income 5,445 2,508 (776) 7,177
------------ ---------- ------------ -------------
Other expenses (income)
Other income (16) (16)
Interest expense [9] 126
994 436 [6] 1,521 3,077
Other expense 30 30
------------ ---------- ------------ -------------
Total other expense 978 466 1,647 3,091
------------ ---------- ------------ -------------
Income before incomes taxes 4,467 2,042 (2,423) 4,086
Income tax expense (benefit) 1,749 26 [11] 770 1,600
[12] (945)
------------ ---------- ------------- -------------
Net Income $ 2,718 $ 2,016 $ (2,248) $ 2,486
============ ========== ============= ============
Per Share Data
Net Income per share (Basic and Diluted) $ 0.64
============
Weighted Average of Shares Outstanding
3,876,353
=============
</TABLE>
F-20
<PAGE>
Compass Plastics & Technologies, Inc.
Pro Forma Combined Statement of Income
(Unaudited)
(dollars in thousands)
(in thousands, except for per share and share data)
<TABLE>
<CAPTION>
Compass M.O.S.
Three Months Three Months
Ended Ended Pro Forma Pro Forma
January 25, 1998 December 31, 1997 Ref# Adjustments Combined
----------------- ----------------------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales $ 10,788 $ 3,973 $ 14,761
Cost of Sales 9,435 3,283 12,718
----------- -------------- -------------
Gross Profit 1,353 690 2,043
----------- -------------- -------------
Operating expenses
Selling 170 21 191
Administrative 618 509 [7] 194 1,321
----------- -------------- ------------- -------------
Total operating expense 788 530 194 1,512
----------- -------------- ------------- -------------
Operating Income 565 160 (194) 531
----------- -------------- ------------- -------------
Other expenses (income)
Other income (16) (2) (18)
Interest expense [9] 32
220 [6] 380 632
Other expense 2 2
----------- -------------- ------------- -------------
Total other expense 204 - 412 616
----------- -------------- ------------- -------------
Income (loss) before incomes taxes 361 160 (606) (85)
Income tax expense (benefit) 145 10 [11] 52 (29)
[12] (236)
---------- -------------- ------------- -------------
Net Income (loss) $ 216 $ 150 $ (422) $ (56)
========== ============= ============= =========
Per Share Data
Net Income (loss) (Basic and Diluted) $ (0.01)
=========
Weighted Average of Shares Outstanding 4,883,750
=============
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
Compass Plastics & Technologies, Inc.
Notes to Pro Forma Financial Statements
(Unaudited)
(dollars in thousands)
1 & 2 Reflects the sources and uses of funds for the M.O.S. acquisition and the payment of debt:
<S> <C> <C>
Sources of Funds:
Term Loan (Sumitomo) $ 14,000
Revolving Line of Credit (Sumitomo) 4,273
Debenture (Sirrom) 7,000
Debenture (Pine Creek) 2,000
---------------
Total sources of funds $ 27,273
================
Uses of Funds:
Cash paid for M.O.S. Stock $ 16,920
Repayment of existing Compass and M.O.S. debt 9,944
Deferred financing costs 409
Additional cash paid for I.R.C. Section 338 adjustment 228
----------------
Total cash outflows $ 27,501
================
Note: In addition to the cash consideration a note payable of
$300 is due to former stockholder of M.O.S.
3 To record the issuance of warrants to purchase 50,000 shares of
common stock at an exercise price of $10.80 per share in connection
with Stock purchase agreement. Warrants have been valued at $0.916
per warrant.
4 The estimated purchase price and preliminary adjustments to
historical book value of M.O.S. as a result of the transaction is as
follows:
Purchase Price
Estimated value of cash and note payable $ 17,220
Additional consideration for the step-up adjustment 228
Book value of net assets acquired (1,927)
----------------
Purchase price in excess of net assets acquired allocated to goodwill $ 15,521
================
</TABLE>
Note: The actual recording of the transaction will be finalized
when the appraisal and valuations are completed. The actual
allocation of purchase price and the resulting effect on
income from operations may differ from Pro Forma amounts
included herein.
5 Reflects the issuance of warrants to purchase 540,000 shares of
common stock at an exercise price of $6.75 per share in connection
with debenture agreements as follows:
<TABLE>
<CAPTION>
# of Value per Total
Warrants Warrant Value
-------------- ------------ ------------
(in dollars)
<S> <C> <C> <C>
Sirrom 420,000 0.9160 $ 385
Pine Creek 120,000 0.9160 $ 110
---------
Totals $ 495
=========
</TABLE>
In the event that any portion of the debentures remain outstanding on
February 27,2000, and on each anniversary thereof, the Company has
agreed to issue, on each such date, to Sirrom an additional warrant
for 140,000 shares of common stock of the Company, and to Pine Creek
an additional warrant for 40,000 shares of common stock of the
Company, in each case at an exercise price equal to the greater of
$7.00 per share or 75% of the average closing bid price of the
Company's common stock for the 20 trading days preceding the required
date of issuance of such additional warrants.
F-22
<PAGE>
Compass Plastics & Technologies, Inc.
Notes to Pro Forma Financial Statements
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
6 To record interest expense on new term loan, line of credit, and
subordinated debentures, less interest expense on the paid-off debt.
7 To amortize goodwill resulting from the preliminary purchase price allocation over 20 years.
8 To write off deferred financing costs on Compass and M.O.S. loans which are paid off in connection
with the acquisition.
9 To amortize deferred financing and discount costs over the term of the related debt, less
amortization on old deferred financing costs.
10 To reflect tax effect on extraordinary item resulting from the write-off of the old deferred
financing costs.
11 To record the tax effect on conversion of MOS tax status from "S" corporation to "C" corporation.
12 To record the tax effect on all the pro forma adjustments except extraordinary item.
</TABLE>
NOTE: Does not reflect extraordinary loss of $71 (net of
applicable tax benefit of $45) resulting from the write-off
of loan fees in connection with repayment of debt.
F-23
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