<PAGE> 1
--------------------------------
This filing is made pursuant to
Rule 424(b)(4) under the Securities
Act of 1933 in connection with
Registration No. 333-43793
--------------------------------
2,000,000 SHARES
LOGO
FLOUR CITY INTERNATIONAL, INC.
COMMON STOCK
All 2,000,000 shares of Common Stock offered hereby (the "Offering") are
being issued and sold by Flour City International, Inc. The Common Stock is
currently traded on the OTC Bulletin Board under the symbol "FCIND." On May 20,
1998, the closing bid price for the Common Stock was $9.00 per share. Trading in
the Common Stock has been very limited. See "Underwriting" for a discussion of
the factors considered in determining the public offering price of the Common
Stock offered hereby. The Common Stock has been approved for listing on the
Nasdaq National Market upon commencement of the Offering under the symbol
"FCIN."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 6 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------
Per Share................................. $8.00 $0.60 $7.40
- ------------------------------------------------------------------------------------------------------------
Total (3)................................. $16,000,000 $1,200,000 $14,800,000
============================================================================================================
</TABLE>
(1) Excludes a non-accountable expense allowance payable to the Representative
of the Underwriters and the value of a warrant to be issued to the
Representative to purchase up to 150,000 shares of Common Stock. The Company
has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $1,175,000.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
300,000 additional shares of Common Stock solely to cover over-allotments,
if any (the "Over-Allotment Option"). If the Over-Allotment Option is
exercised in full, the total Price to Public, Underwriting Discounts and
Proceeds to Company will be $18,400,000, $1,380,000 and $17,020,000,
respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the certificates representing such shares will be made
against payment therefor at the offices of Van Kasper & Company, in San
Francisco, California, on or about May 28, 1998.
VAN KASPER & COMPANY
MAY 21, 1998
<PAGE> 2
DESCRIPTION OF GRAPHICS
The inside front cover contains photographs of three of the Company's
projects with the following captions: Citicorp Center New York, NY, First
Interstate Tower Los Angeles, CA, and Rock and Roll Hall of Fame Cleveland, OH.
The two page gatefold at the front contains photographs of five of the
Company's projects with the following captions: Bausch & Lomb Headquarters
Rochester, NY, Empire Towers Bangkok, Thailand, JFK Airport Terminal One New
York, NY, United Airlines Terminal at O'Hare Airport Chicago, IL, and Shaklee
Building San Francisco, CA.
The inside back cover contains photographs of four of the Company's
projects with the following captions: G.T. International Tower Manila,
Philippines, Key Tower Cleveland, OH, IDS Building Minneapolis, MN, and
Chapultepec Tower Mexico City, Mexico.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT AND STABILIZING TRANSACTIONS AND
THE PURCHASE OF COMMON STOCK TO COVER SHORT POSITIONS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. See "Underwriting."
THE COMPANY
Flour City International, Inc. ("Flour City" or the "Company") is a
worldwide leader in the design, fabrication and installation of custom exterior
wall systems (known as "curtain wall") used in the construction of a wide range
of commercial and governmental buildings. The Company works closely with
architects, general contractors and owners/developers in the development and
construction of highly recognizable mid-rise and high-rise office buildings,
public-use buildings such as courthouses and airport terminals, and other
well-known landmark buildings and uniquely designed structures.
Founded in 1893, the Company is known within the construction industry as a
high quality provider of custom curtain wall systems. As one of the few
remaining full-service custom curtain wall providers following an industry
downsizing during the early 1990's, Flour City is invited to submit proposals on
a significant portion of the building projects which require custom curtain
wall. The Company selectively bids on only those projects which best utilize its
management, design and production capabilities, which, in turn, has enabled the
Company to generate strong financial performance.
The Company is poised to capitalize on the emerging growth trends in the
U.S. office building and governmental construction markets. As the United States
economy has grown, metropolitan commercial vacancy rates have declined sharply
from 18.9% in 1991 to 9.9% at the end of 1997. In certain metropolitan areas,
such as San Francisco, Washington, D.C., Boston, Seattle and Minneapolis,
vacancy rates have dropped below 9% as of the end of the second quarter of 1997.
Nationwide office lease rates are increasing and many new mid-rise and high-rise
office building construction projects are in the development pipeline. In
addition, many public authorities have increased spending on public-use
structures as a result of the aging of many facilities and the growth in tax
receipts generated by an improving domestic economy. The Company will use a
portion of the proceeds of the Offering to increase its project bonding
capabilities, which will allow the Company to undertake more and larger
projects.
The Company participates in projects worldwide and has multiple sales
offices and fabrication facilities strategically located in the United States,
Asia and Mexico. Flour City has several key relationships with major
international architects, developers and general contractors which promote the
Company's participation in desirable projects. These relationships include
alliances with Turner Construction Company ("Turner Construction"), Lehrer
McGovern Bovis, Inc. ("LMB"), Morse Diesel International ("Morse Diesel"), New
World Group ("New World Group"), Pei Cobb Freed and Partners ("Pei Cobb"),
Skidmore Owings & Merrill and Kohn Pedersen & Fox. In addition the Company is
involved in a number of projects on which Bechtel International, Inc.
("Bechtel") serves as a project manager. The Company has bids outstanding in the
United States, Hong Kong, the People's Republic of China (the "PRC"), Israel,
Saudi Arabia and the Philippines.
The Company intends to build on its reputation as a world-wide leader in
the custom curtain wall industry to support continued growth and increased
profitability. The key elements of the Company's strategy to accomplish these
goals are to: (i) selectively target high margin projects; (ii) maintain and
develop key relationships; (iii) exploit its full service, custom capabilities;
(iv) enhance and exploit its position as a low cost manufacturer; and (v)
capitalize on its global presence.
The Company's management and design staff is comprised of some of the most
experienced and knowledgeable personnel in the business. Flour City's current
management team assumed control of the Company's United States operations in
mid-1994, when operations were experiencing losses as a result of the decline in
construction activity which occurred during the early 1990's. Management
refocused the business and instituted cost containment measures and key elements
of its business strategy which returned the operations to profitability in late
fiscal 1996.
Well-known projects for which Flour City has designed, manufactured and
installed custom curtain wall systems include the Citicorp Center and JFK
Airport Terminal One in New York City, the Rock and Roll Hall of Fame in
Cleveland, the First Interstate Tower in Los Angeles, the Allied Bank Tower
(Fountain Place) in Dallas, the United Airlines Terminal and the International
Terminal at O'Hare Airport in Chicago,
3
<PAGE> 4
the Empire Towers in Bangkok and the IDS Building in Minneapolis. The Company is
currently engaged in several pending curtain wall projects, including the G.T.
International Tower in Manila, Chapultepec Tower in Mexico City, Sotheby's
Expansion in New York, and Cathay Pacific Terminal in Hong Kong.
RECENT DEVELOPMENTS
The Company has reported preliminary unaudited operating results for the
second quarter and six months ended April 30, 1998. The Company earned net
income of $1.3 million on revenues of $6.9 million, or $0.31 per diluted share
for the second quarter ended April 30, 1998, compared to net income of $1.9
million on revenues of $9.0 million, or $0.44 per diluted share for the prior
year period. For the six months ended April 30, 1998, the Company reported net
income of $2.1 million on revenues of $13.4 million, or $0.50 per diluted share,
compared to net income of $2.3 million on revenues of $12.7 million, or $0.52
per diluted share for the prior year period.
As of January 31, 1998 and January 31, 1997, the Company had over $43.8
million and $44.8 million in project backlog, respectively. Since January 31,
1998 the Company has been awarded six project contracts with a combined value of
approximately $55.2 million. At April 30, 1998, the Company had submitted bids
on projects with an aggregate contract value of over $150 million. There can be
no assurance that the Company will be successful in securing any contracts as a
result of these bids, that the projects will be awarded in a timely manner or
that the Company will recognize as revenue the amounts reflected as backlog.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered....................................... 2,000,000 shares
Common Stock outstanding after the Offering................ 6,124,468 shares(1)
Use of proceeds............................................ For the acquisition of and capital
expenditures at curtain wall fabrication
facilities in the PRC, Mexico and the
U.S.; to increase the Company's bonding
facilities; and for working capital and
other general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market Symbol..................... FCIN
</TABLE>
- ---------------
(1) Excludes 500,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1997 Stock Incentive Plan, of which options to purchase
200,000 shares will be granted to employees and directors of the Company
upon the closing of the Offering at an exercise price per share equal to
the initial public offering price. See "Management -- Stock Incentive Plan"
and "Shares Eligible For Future Sale."
Unless otherwise noted (i) all share amounts, per share data and other
information set forth in this Prospectus have been adjusted to reflect a 1 for 7
reverse stock split to be effected prior to consummation of the Offering, and
assumes no exercise of the Underwriter's Over-Allotment Option and (ii) the
number of shares of Common Stock outstanding after the Offering reflects the
repurchase by the Company of 127,912 shares from a former employee to be
effected prior to the closing of the Offering. Unless otherwise indicated by the
context, references herein to the "Company" and "Flour City" include the
consolidated operations of Flour City International, Inc. and its predecessors
and subsidiaries. Historical financial information of the Company herein
presents consolidated results of operations and financial position of the
following entities on and after the dates indicated: Flour City Architectural
Metals (Pacific) Limited, a British Virgin Islands corporation ("FCAM Pacific"),
from May 4, 1993; Flour City Architectural Metals, Inc., a Delaware corporation
("FCAM"), from January 1, 1997; Flour City International, Inc., a Nevada
corporation ("FCI"), from January 17, 1997; and International Forest Industries,
Inc., a Nevada corporation ("IFI"), from May 16, 1997. See "The Company,"
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 1 of Notes to Consolidated
Financial Statements and the Unaudited Pro Forma Financial Information and the
Notes thereto included elsewhere in the Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's strategies, plans, objectives, expectations and
intentions. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of any number of
factors, including the risk factors set forth below and elsewhere in this
Prospectus. The cautionary statements made in this Prospectus should be read as
being applicable to all related forward-looking statements wherever they appear
in this Prospectus.
4
<PAGE> 5
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following financial data present historical information for the Company
for the years ended October 31, 1996 and 1997 and the three months ended January
31, 1997 and January 31, 1998 and pro forma data reflecting consummation of the
acquisitions by the Company of FCAM and FCAM Pacific (the "Business
Combination") and the merger of FCI with IFI (the "Public Merger") as if such
transactions had occurred November 1, 1996. See "The Company," "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," Notes 1 and 13 of Notes to Consolidated Financial
Statements and the Unaudited Pro Forma Financial Information and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, THREE MONTHS ENDED JANUARY 31,
------------------------------ ------------------------------
ACTUAL ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL
1996 1997 1997 1997 1997 1998
------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues............................ $ 6,684 $31,875 $35,229 $ 3,717 $ 7,071 $ 6,461
Gross profit........................ 3,018 13,845 14,495 1,411 2,062 3,120
Selling, general and administrative
expenses......................... 1,353 6,165 6,646 968 1,498 1,397
Operating income.................... 1,665 7,986 8,169 474 657 1,815
Other income (expense), net......... (96) (967) (951) 21 37 (720)
Income before minority interest and
income taxes..................... 1,569 7,019 7,218 495 694 1,095
Net income.......................... $ 1,411 $ 5,273 $ 5,471 $ 351 $ 550 $ 809
======= ======= ======= ======= ======= =======
Net income per share:
Basic............................ $ 0.36 $ 1.33 $ 1.38 $ 0.09 $ .14 $ 0.21
======= ======= ======= ======= ======= =======
Diluted.......................... $ 0.32 $ 1.21 $ 1.26 $ 0.08 $ .13 $ 0.19
======= ======= ======= ======= ======= =======
Weighted average shares outstanding:
Basic............................ 3,960 3,960 3,960 3,960 3,960 3,870
Diluted.......................... 4,359 4,359 4,359 4,359 4,359 4,270
OTHER DATA:
Backlog(1).......................... $15,939 $44,956 $44,956 $44,804 $44,804 $43,787
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1998
---------------------
AS
ACTUAL ADJUSTED(2)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ 8,570 $ 22,195
Total assets.............................................. 18,848 32,473
Total long-term debt...................................... 0 0
Stockholders' equity...................................... 7,792 21,417
</TABLE>
- ---------------
(1) Represents revenue anticipated to be recognized in the future on awarded
projects, as evidenced by receipt of a contract executed by the owner or
developer or an executed letter of intent, but on which (i) work has not yet
been initiated or (ii) work is currently in progress. There can be no
assurance that the Company will recognize as revenue the amounts reflected
as backlog. See "Business -- Backlog."
(2) Adjusted for the sale of 2,000,000 shares of Common Stock offered hereby and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
5
<PAGE> 6
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus is
speculative and involves a high degree of risk. In addition to the other
information contained in this Prospectus, the following risk factors should be
considered carefully in evaluating an investment in the Common Stock. This
Prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's strategies, plans,
objectives, expectations and intentions. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of any number of factors, including the risk factors set forth below
and elsewhere in this Prospectus. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus.
RISKS RELATING TO THE BUSINESS OF THE COMPANY
Absence of Combined Operating History. In January 1997, FCI acquired FCAM
and FCAM Pacific. Prior to January 1997, FCAM on the one hand, and FCAM Pacific,
on the other, operated as independent entities. There can be no assurance that
the Company will successfully integrate their operations or institute the
necessary controls, systems, and procedures, including accounting and financial
reporting systems, to manage on a profitable basis, any of the operations
individually or collectively, the Asian Companies' (as defined below) operations
collectively, or the entire combined enterprise. While each of the Company's
officers and directors has substantial business experience, they have no
experience in managing all of the different business operations in which the
Company is now engaged. Accordingly, there can be no assurance that the
Company's management group will be able to effectively manage the combined
entity or to effectively implement the Company's internal growth strategy. The
pro forma financial data contained herein cover, in part, periods when the
Company, FCAM and FCAM Pacific were not under common control or management and
may not be indicative of the Company's future financial or operating results.
The inability of the Company to integrate FCAM and FCAM Pacific successfully
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "The Company," "Business -- Strategy,"
"Management" and "Certain Transactions."
Real Estate Development and Construction Industries. The Company's business
is affected by the risks generally inherent to the real estate development and
construction industries, including, without limitation, general market, economic
and political conditions, availability of financing, interest rates, government
regulation, land use, inflation, employment levels, environmental regulations
and fiscal policies and the level of tax collection and disbursement. The real
estate development industry is subject to fluctuations in office and commercial
lease rates, vacancy rates, real estate values and building prices. In addition,
there is a limited amount of land available for commercial mid-rise, high-rise
or campus style development in certain key markets. The foregoing factors (and
thus the commercial development business) have tended to be highly cyclical in
nature. Any economic downturn in the real estate development or construction
industries in markets where the Company is engaged, particularly in the U.S.,
Asia or Latin America or substantial changes in any of the foregoing factors may
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business -- Industry Background."
Fluctuations in Quarterly Results. The Company has experienced, and in the
future expects to continue to experience, substantial variations in its
quarterly results of operations as a result of a number of factors, many of
which are outside the Company's control. The Company's operating results may
vary because of downturns in one or more segments of the construction industry,
changes in economic conditions, the Company's failure to obtain, or delays in
awards of, major projects, the cancellation of or delays in the progress of
major projects for any reason, including the loss of project financing, the
Company's failure to timely replace projects that have been completed or are
nearing completion, or declines in the amount of the Company's billings in
excess of costs and recognized earnings on uncompleted projects. Any of these
factors could cause the Company's results of operations to fluctuate
significantly from period to period, including on a quarterly basis. The
Company's projects are, and in the foreseeable future will continue to be,
awarded by private or governmental entities in a competitive bidding process.
Due to the nature of the bidding and award process, the Company has experienced,
and in the future expects to experience, significant delays in project awards.
These delays have caused and will continue to cause substantial variations in
quarterly results. In
6
<PAGE> 7
addition, no assurance can be given that the timing of a project award will be
consistent with the Company's expectations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Fixed Price Contracts. A substantial portion of the Company's projects are
currently performed on a fixed-price basis. The Company attempts to cover
increased costs of anticipated changes in labor, material and service costs of
long-term contracts either through an estimation of such changes, which is
reflected in the original bid price, or through price adjustment clauses.
Despite these attempts, however, the revenue, expense and gross profit realized
from performance of a fixed-price contract will often vary from the estimated
amounts because of unforeseen conditions or changes in job conditions and
variations in labor and equipment rates and productivity over the term of the
contract. These variations and the risks generally inherent in custom curtain
wall manufacturing and installation may result in gross profits realized by the
Company being different from those originally estimated and may result in the
Company experiencing reduced profitability or losses on projects. Depending on
the size of a project, these variations from estimated contract performance
could have a significant effect on the Company's operating results for any
reporting period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Percentage-of-Completion Accounting. The Company recognizes contract
revenues using the percentage-of-completion method. Under this method, estimated
contract revenues generally are accrued based on the percentage that costs to
date bear to total estimated costs. Estimated and actual contract losses are
recognized in full when determined. Accordingly, contract revenues and total
cost estimates are reviewed and revised periodically as work progresses and as
change orders are approved, and adjustments based upon the percentage of
completion are reflected in contract revenues in the period when such estimates
are revised. To the extent that these adjustments result in a reduction or an
elimination of previously reported contract revenues, the Company would
recognize a charge against current earnings, which could be material to the
Company's results of operations. FCAM recognized a charge against current
earnings in the amount of $1.5 million in fiscal 1996 based upon a revision of
estimated costs for two project contracts. There can be no assurance the Company
will not be required to recognize similar charges in future periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Concentration of Revenues. The Company has in the past derived, and expects
to continue to derive, a substantial portion of its revenues in any reporting
period from a relatively small number of major projects. On a pro forma basis,
the Company's five largest engagements accounted for 33.4%, 31.3%, 10.7%, 5.4%
and 3.5% of total revenues in fiscal 1997 and 20.2%, 18.9%, 11.7%, 11.6% and
6.1% of total revenues in fiscal 1996. The termination of one or more of the
Company's key projects could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Projects."
Delays in Completion of Construction Projects. Pursuant to the terms of its
custom curtain wall manufacturing and installation agreements, the Company is
required to complete substantially all of its projects by predetermined dates
(subject to limited exceptions). Project contracts often provide that if a
project does not proceed in accordance with a specified schedule due to the
Company's performance, the Company may be required to make penalty payments
according to the extent and timing of the delay or the contract may be
terminated. The Company is also subject to various delay risks, including delays
by general contractors or other subcontractors in obtaining, or their inability
to obtain, zoning and other approvals, unavailability of materials and labor,
possible difficulties with labor unions, ability of general contractors or other
subcontractors to complete work competently and on schedule, surface and
subsurface condition of the land underlying construction sites and other
ordinary risks of construction or force majeure occurrences that may hinder or
delay the successful completion of a particular project. The failure to complete
a particular project on schedule may delay, reduce or eliminate the Company's
projected gross profit or cause losses on a particular project.
Dependence Upon Senior Management and Other Key Personnel. The success of
the Company depends in large part upon the continued efforts, ability and
experience of the Company's management team and other key personnel such as
project managers. The Company has entered into employment agreements with
Messrs. Russo, Tang, and Ulbricht. The loss of any of their services could have
a materially adverse
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<PAGE> 8
effect on the Company's business, results of operations and financial condition.
The Company does not currently maintain key-man life insurance on any of its
senior management or other key personnel. See "Management." The success of the
Company is also dependent upon its ability to locate and hire qualified project
managers who are willing and able to relocate to a particular project site. Any
delay or difficulty in the Company's hiring of qualified project managers could
impair the Company's ability to perform its obligations under existing project
contracts and its ability to secure or undertake new projects. See "Business --
Operations - Project Management."
The Company's acting Chief Financial Officer resigned on April 26, 1998 in
order to pursue other opportunities. Thomas P. Scully assumed the position of
Interim Chief Financial Officer of the Company on April 27, 1998. Mr. Scully has
not previously worked with current management. The Employment Agreement between
the Company and Mr. Scully contains a six month term which ends on October 26,
1998 with a renewal option for additional one month periods. No assurances can
be given that the Company will be successful in finding a permanent replacement
for Mr. Scully prior to the expiration of Mr. Scully's Employment Agreement. The
competition for qualified financial employees is intense and the Company must
compete with other companies with greater resources in order to attract and
retain a qualified candidate. The Company's failure to locate a permanent
replacement could be disruptive to the Company's ability to satisfy its
financial reporting obligations and could have a material adverse effect upon
the Company's business, results of operations and financial condition. See
"Management."
Dependence Upon Subcontractors and General Contractors. At many of its job
sites, the Company relies upon third party subcontractors for its installation
activities through the use of fixed-price agreements. The Company does not have
any long-term arrangements with subcontractors and there can be no assurance
that the Company will be successful in entering into subcontracting arrangements
in the future on terms acceptable to the Company or at all. The Company also
relies upon each general contractor, and its selected subcontractors, to ensure
timely construction build-out and quality control. The Company's reliance upon
general contractors and subcontractors subjects the Company to a number of other
risks, such as performance delays, inadequacy of installation or construction
undertaken by third parties, financial difficulties of general contractors or
subcontractors, and increased costs if delays or inadequacies occur or
subcontractors need to be replaced. As a result, the Company's business, results
of operations and financial condition is significantly dependent on the
performance of third parties. See "Business -- Operations - Project Execution."
Dependence on Suppliers and Raw Materials. The custom curtain wall business
may, from time to time, experience fluctuating prices and supplies with respect
to raw materials. Aluminum, glass and stone are the principal raw materials
utilized in the construction of the Company's custom curtain walls. In the past,
there have been shortages, and consequently, significant price fluctuations, of
some or all of these supplies in certain markets where the Company manufactures
its products. There can be no assurance that material delays will not occur due
to lack of raw materials or suppliers in the future. The Company's supplier
relationships are typically non-exclusive, and generally terminable by either
party on short notice. The loss or deterioration of the Company's relationship
with a major supplier, an increase in demand by third parties for a particular
supplier's products or materials or delays in obtaining materials could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business -- Operations - Project Execution."
Competition. The custom curtain wall industry is highly competitive. There
are a limited number of monumental custom curtain wall projects that are
available for bidding by the Company at any given time. Custom curtain wall
manufacturers compete not only for desirable projects, but also in many
instances for subcontractors, raw materials and labor. A majority of the
Company's projects are obtained through a blind bidding process which is
generally subject to intense competition. Some of the Company's competitors have
greater financial, marketing and sales resources than the Company. There can be
no assurance that the Company will be successful in winning projects for which
it submits bids or that its growth strategy will be successful. See
"Business -- Competition."
Labor Shortages. The Company has been affected by cyclical trends and other
shortages in labor supply in the U.S. and abroad. There can be no assurance that
the Company will continue to have access to sufficient labor supplies to support
its existing or planned operations. In addition, for approximately two weeks
each year there are labor shortages in the PRC and Hong Kong as a result of the
Chinese New Year during which time
8
<PAGE> 9
the Company follows the customary practice of temporarily discontinuing
operations in these regions. In Mexico, manufacturing operations generally cease
from December 15 until January 3, at a minimum. Any failure to secure adequate
labor supplies could have a material adverse effect on the Company's business,
results of operation and financial condition. See
"Business -- Operations - Project Execution."
Need for Additional Financing; Bonding. The custom curtain wall business is
capital intensive and requires substantial up-front expenditures for materials
and production costs. There can be no assurance that the Company will not need
additional financing, particularly to pursue new projects. The Company may be
required to seek additional funds, directly or through subsidiaries, in the form
of equity or debt financing from a variety of sources, including bank financing.
The availability and terms upon which such financing may be obtained are
material to the Company's operations, and there can be no assurance that such
financing, if available, will be on terms acceptable to the Company. The amount
and sufficiency of the Company's capital is the primary component in the
Company's ability to obtain bonding which is often a prerequisite to securing
and performing custom curtain wall construction contracts. If the Company were
unable to secure sufficient additional financing or bonding facilities, it may
not be able to undertake additional or larger custom curtain wall projects,
which could have a material adverse effect on the Company's ability to pursue
its growth strategy. See "Business -- Strategy."
Management of Growth and Expansion. The Company's growth and expansion will
depend on a number of factors not entirely within the Company's control
including, among others, the risk factors described herein. There can be no
assurance that the Company will be able to effectively manage its expanding
operations (including the much larger number and scale of certain pending or
future projects) or that such growth will materialize or continue, especially in
the recently volatile economies in Asia and Latin America. Failure to
effectively manage the growth of its business could have a material adverse
effect on the Company's results of operations and financial condition.
Interest Rate Fluctuations. The availability and cost of financing has a
direct effect on the construction industry, including the custom curtain wall
segment. Fluctuations in interest rates, therefore, may have a negative impact
on the number of construction projects, particularly those requiring custom
curtain wall. In addition, fluctuations in interest rates may materially
adversely affect the terms of any debt financing available from banks or other
lenders. Higher interest rates could significantly increase the Company's debt
service, if any, and have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Potential Liability and Insurance. Substantially all of the Company's
contracts with its customers provide that the Company is responsible for
supervising the installation of its projects at each construction site. As a
result, the Company may be liable for property damage or personal injury which
is directly or indirectly attributable to the actions or omissions of the
Company or its designated subcontractors. The occurrence of such an event could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company is generally required to maintain
insurance, including insurance for property damage, personal injury and
employer's liability, under its contracts. Although the Company believes that it
currently maintains adequate third party liability and employer's liability
insurance for each of its projects, successful claims against the Company could
exceed the limits of the Company's insurance and could have a material adverse
effect on the Company's business, financial condition and operating results. In
addition, there can be no assurance that the Company will be able to obtain
insurance for itself or its subcontractors on commercially reasonable terms in
the future. See "Business -- Operations - Project Execution" and
"Business -- Legal Proceedings."
Management's Discretion as to Use of Proceeds. A majority of the net
proceeds of the Offering have not been allocated for any specific purpose.
Management of the Company, therefore, may exercise its discretion as to the use
of approximately $5.6 million from a total of $13.6 million in estimated net
proceeds, excluding proceeds from the Underwriters' Over-Allotment Option. See
"Use of Proceeds."
Government Regulations. Many aspects of the Company's operations are
subject to government regulations in the countries in which the Company
operates, including those relating to currency conversion and repatriation,
trade restrictions, taxation of its earnings and earnings of its personnel,
national or regional environmental policies, work-place safety and the Company's
use of local employees and suppliers. In addition, the Company depends on the
demand for its services from the commercial construction industry and,
therefore, is affected by changing taxes, price controls and laws and
regulations relating to the commercial
9
<PAGE> 10
construction industry generally. While the Company believes it is currently in
material compliance with applicable laws and regulations, including those
relating to environmental protection and occupational safety, the Company cannot
determine to what extent future operations and earnings of the Company may be
affected by new legislation, new regulations or changes in, or new
interpretations of, existing regulations. See "Business."
Litigation. The Company is involved in certain pending environmental and
other litigation. With respect to some of these claims, the Company has a
contractual right of indemnification from Armco, the former parent corporation
of FCAM. No liability has been recorded on the Company's financial statements
with respect to the claims covered thereby. There can be no assurance, however,
that in the event the Company is found liable under these claims that the
indemnities will be sufficient to cover the Company's liability. See "The
Company" and "Business -- Legal Proceedings."
Environmental Matters. The Company's operations are generally subject to
federal, state and local laws and regulations in the countries where it has
established manufacturing facilities which relate to storage, handling,
generation, treatment, emissions, release, discharge and disposal of certain
materials, substances and wastes. U.S. federal and state environmental statutes
impose responsibility on the Company for the clean-up of hazardous materials
that have been generated, stored or disposed of by prior owners or operators of
the Company's facilities. In addition, modifications of existing laws and
regulations or the future adoption of new laws and regulations relating to
environmental matters could require expenditures that may have a material
adverse effect on the Company's financial condition or results of operations.
Union Relations. The Company engages workers on a subcontract basis
throughout the U.S. to perform installation services, the majority of whom are
members of the Architectural & Ornamental Ironworkers Union, the International
Union of Operating Engineers and the Glaziers Union (the "Unions"). Although the
Company has historically maintained good relations with the Unions, no assurance
can be given that the Company's satisfactory labor relations will continue or
that its relations will continue without picketing, walk-outs, sit downs,
slow-downs, strikes or the threat of such actions by the Unions. Any such action
could have a materially adverse effect on the Company's business, results of
operations and financial condition.
Adverse Weather and Other Natural Conditions. The Company's timely
performance of its project obligations, including installation, depend in
significant part upon favorable weather conditions. Adverse weather conditions,
including rain, flooding, earthquakes, tornadoes or other natural conditions,
may cause project delays or failures which could materially adversely affect the
Company's operations by reducing productivity in the field installation phase of
a project which could result in a material adverse effect on the Company's
business, results of operations and financial condition.
Adverse Publicity From Failure or Delay. Because many of the Company's
engagements are high-profile, marquee projects, a failure or inability to meet a
project's requirements or a client's expectations with respect to a major
project could damage the Company's reputation and affect its ability to attract
new business. Such a failure could also result in significant financial exposure
to the Company. The inability of the Company to meet a project's requirements,
satisfy client expectations or attract new business could have a materially
adverse effect on the Company's business, results of operations and financial
condition. See "Business -- Operations - Project Execution."
RISKS RELATED TO THE COMPANY'S INTERNATIONAL OPERATIONS
In addition to the risks described above, the Company is subject to the
following risks of doing business in locations outside the U.S.:
Recent Volatility in Asian Economies and Financial and Currencies
Markets. The recent volatility in the Southeast Asian economies and financial
and currencies markets may have a material adverse effect on the Company's
operations and expansion plans in the region. For example, recent interest rate
volatility in Hong Kong and other regional financial markets could negatively
impact Asian real estate property developers who depend upon Asian financial
institutions to finance new construction. In the event of a prolonged economic
crisis, the real estate development and construction industries in which the
Company operates could be disproportionately affected. Continued volatility in
the Southeast Asian economies and financial and
10
<PAGE> 11
currencies markets could have a material adverse effect on the Company's
business, results of operation and financial condition. See
"Business -- Industry Background."
Foreign Exchange Risks. On a pro forma basis, approximately 36% of the
Company's revenues in fiscal 1997 were derived from projects outside the U.S.
Consequently, changes in the value of foreign currencies could significantly
affect the Company's financial condition and results of operations. For example,
in July 1997 the Thai Baht was devalued and allowed to float against the U.S.
dollar and other currencies. As a result, the Company recognized exchange losses
of approximately $1.3 million for its 1997 fiscal year ended October 31, 1997
and approximately $874,000 for its first quarter ended January 31, 1998 in
connection with an ongoing project in Thailand. The Company generally attempts
to mitigate foreign exchange risk by entering into contracts providing for
payment in U.S. dollars instead of the local currency where possible, except for
local currency necessary to pay locally-sourced labor, raw materials or other
costs of operations. Erection services are typically denominated in local
currency. In certain instances aluminum extrusion, glass and other materials may
also be denominated in local currency. To the extent that foreign currencies
weaken against the U.S. dollar, the Company may experience translation losses
due to revaluation of accounts payable, accounts receivable and other asset and
liability accounts. There can be no assurance that the Company will be
successful in securing payments in U.S. dollars, or that fluctuations in foreign
currencies and other risks will not have a material effect on the Company's
financial condition or results of operations for any fiscal period. See
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business -- Industry Background" and
Notes 3 and 16 of Notes to Consolidated Financial Statements.
Empire Towers Project. The Company has a contract for work to be performed
on the Empire Towers project located in Bangkok, Thailand (the "Empire Towers
Contract") which is denominated in Thai baht. Pursuant to a clause in the Empire
Towers Contract which provides protection for changes in government policy, the
Company has filed claims for change orders to recoup losses resulting from the
devaluation of the baht and has reflected approximately $3.0 million of such
claim as a receivable at January 31, 1998. In January 1998, the counterparty to
the contract did not pay the amount billed on the scheduled payment date and
requested that it be included in the final claim settlement. In March 1998, the
counterparty acknowledged liability for the baht-equivalent of $2.3 million, and
agreed to pay such amount in installments beginning in March 1998 through June
1998. On April 2, 1998, management received an additional acknowledgment from
the counterparty for an additional $686,000 to be paid by July 31, 1998. At
January 31, 1998 the total amounts due to the Company under the Empire Towers
Contract (including exchange loss claims) are the baht-equivalent of $4.2
million. There can be no assurances that the Company will successfully collect
such amounts in a timely manner, if at all. In the event of non-payment, the
Company may be required to seek recourse through legal or other proceedings in
Thailand or other non-U.S. jurisdictions, which could be a lengthy and costly
process. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview" and Note 16 of Notes to Consolidated
Financial Statements.
Political Uncertainties. One of the Company's key manufacturing facilities
is located in the PRC, and the Company intends to increase its manufacturing
base elsewhere in Asia. As a result, the Company's operations and assets are
subject to material political, economic, legal and other uncertainties. Changes
in policies by the PRC or other governments resulting in changes in laws,
regulations, or the interpretation thereof, high rates of inflation, taxation,
restrictions on imports and sources of supply, currency devaluations or the
expropriation of private enterprise could materially adversely affect the
Company. Economic development in such countries may be limited as well by the
imposition of measures intended to control economic conditions, the inadequate
development of an infrastructure and the potential unavailability of adequate
transportation, adequate power and water supplies, satisfactory roads and
communications and raw materials and parts. If for any reason the Company were
required to move its Asian manufacturing operation outside of the PRC, where it
enjoys beneficial labor wage rates, the Company's gross margin and results of
operations could be adversely effected.
Uncertain Legal System and Application of Laws. The legal system of the PRC
and many other Asian nations relating to foreign investments is both new and
continually evolving, and there can be no certainty as to the application of its
laws and regulations in particular instances. The PRC does not have a
comprehensive
11
<PAGE> 12
system of national laws. Enforcement of existing laws or agreements may be
sporadic and implementation and interpretation of laws inconsistent. Even where
adequate law exists, it may not be possible to obtain swift and equitable
enforcement of that law.
The PRC's Recent Turbulent Relations with the U.S. The U.S. in recent years
has considered revocation of the PRC's most favored nation ("MFN") trade status,
which provides the PRC with the trading privileges available generally to
trading partners of the U.S. The U.S. and the PRC have recently been involved in
controversies over the protection in the PRC of foreign intellectual property
rights which threatened to interrupt trade between the countries in 1997.
President Clinton extended the PRC's most favored nation status, and the U.S.
and the PRC reached an agreement that averted a possible trade war and a U.S.
embargo against the importation of certain products manufactured in the PRC.
There can be no assurance that future controversies will not arise that again
threaten the status quo involving trade between the U.S. and the PRC, or that
the U.S. will not revoke or refuse to extend the PRC's MFN status. Any such
action could have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS RELATING TO THE COMMON STOCK.
Control by Existing Stockholders. Upon completion of this Offering, the
Company's executive officers, directors and significant existing stockholders
will beneficially own approximately 58.8% of the outstanding Common Stock. These
persons, if acting in concert, will be able to determine the outcome of any
matter submitted to a vote of the stockholders, including the election of
directors. See "Principal Stockholders."
Dilution; Dividends. Purchasers of the shares offered hereby will suffer
immediate and substantial dilution of $4.30 per share from the initial public
offering price. See "Dilution." The Company currently anticipates paying cash
dividends on the Common Stock as determined by the Board of Directors and to the
extent the Company has funds legally available therefor. However, no assurance
can be made that the Company will pay such dividends in the foreseeable future.
See "Dividend Policy."
Volatility of Trading Market; Potential Volatility of Stock Price. There
can be no assurance that an active trading market will develop or be maintained
after this Offering. The initial public offering price of the shares offered
hereby has been determined by negotiations between the Company and the
Representative and may not be indicative of the market price of the shares in
the future. See "Underwriting." The market price of the Company's shares is
likely to be highly volatile. Factors such as fluctuations in the Company's
quarterly operating results, general economic, political and market conditions
in the U.S., Asia and the other markets in which the Company sells or
manufactures, or military conflicts, may have a materially adverse impact on the
price and marketability of the shares. Furthermore, stock markets historically
have experienced systemic volatility which has adversely affected the market
prices of securities of many companies without regard to the operating
performances of such companies. Accordingly, no assurance can be given that the
market price for the shares will not fall below the initial public offering
price. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Shares Eligible for Future Sale. Upon completion of this Offering, the
Company will have 6,124,468 issued and outstanding shares of Common Stock. Of
these shares, the shares offered hereby will be freely tradeable without
restriction or limitation under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by "affiliates" of the
Company, as such term is defined under the Securities Act. The remaining shares
held by affiliates of the Company will be "restricted securities" within the
meaning of Rule 144 adopted under the Securities Act. Sales of such restricted
shares in the public market, or the availability of such shares for sale, could
have a materially adverse effect on the market price of the shares purchased in
this Offering. The Company has reserved 500,000 shares of Common Stock for
issuance under its 1997 Stock Incentive Plan. In connection with the Offering,
the Company is issuing to Van Kasper & Company (the "Representative") a warrant
to purchase 150,000 shares of Common Stock (the "Representative's Warrant"). The
Company intends (and in the case of the Representative's Warrant, is obligated)
to file registration statements under the Securities Act to register the shares
subject to such options and warrant and, upon effectiveness thereof, such shares
will be freely tradeable in the open market (subject to Rule 144 limitations
applicable to affiliates).
12
<PAGE> 13
Subject to certain exceptions, the Company, its officers and directors and
certain existing stockholders who, in the aggregate, hold 3,869,322 shares of
Common Stock have agreed not to, directly or indirectly, offer, sell, contract
to sell, grant an option for the sale of, or otherwise dispose of any shares or
rights to purchase shares (except for issuances by the Company of options to
purchase shares pursuant to the Company's Stock Incentive Plan) for a period of
180 days from the date of this Prospectus (the "Lock-up Period") without the
prior written consent of the Representative. Following expiration of the Lock-up
Period, the shares subject to such lock-up will be eligible for sale, subject to
the conditions and restrictions of Rule 144 (unless such securities are
registered under the Securities Act, in which case the conditions and
restrictions of Rule 144 would be applicable only to affiliates). The sale of
substantial shares into the public market in the future could adversely affect
the market price of the Company's stock. See "Shares Eligible for Future Sale"
and "Underwriting."
13
<PAGE> 14
THE COMPANY
Flour City Architectural Metals, Inc., a Delaware corporation ("FCAM"), was
formed in 1893 under the name Flour City Ornamental Iron Company as a specialty
metals fabricator for the architectural industry. Immediately prior to January
1997, FCAM was a wholly-owned subsidiary of Armco, Inc., a publicly traded U.S.
corporation ("Armco"). Effective January 1, 1997, Armco sold all of the stock of
FCAM (the "Armco Sale") to Flour City International, Inc., a Nevada corporation
("FCI"). On January 17, 1997, FCI entered into a share exchange agreement with
the stockholders of Hockley International Limited (which later changed its name
to Flour City Architectural Metals (Pacific) Ltd. ("FCAM Pacific")) pursuant to
which FCAM Pacific became a wholly-owned subsidiary of FCI (the "FCAM Pacific
Acquisition"). The Armco Sale and the FCAM Pacific Acquisition are referred to
herein as the "Business Combination." FCAM Pacific currently serves as a holding
company for the Asian Companies (as defined below). On May 16, 1997, FCI
effected the Public Merger (as defined below).
As used herein, (i) the "Asian Companies" means FCAM Pacific and its
subsidiaries, Wall Art Design & Engineering Co., Ltd., a Hong Kong corporation,
and Mario & Mario (L) Limited, a Labuan, Malaysia corporation ("MMC"), MMC's
wholly-owned subsidiaries Flour City Architectural Metals (Asia) Ltd., a Hong
Kong corporation ("FCAM Asia"), and Kasion International, Inc., a Texas
corporation ("Kasion International"), Kasion International's wholly-owned
subsidiary, Kasion F.C. Ltd., a Thailand corporation ("KFC") and FCAM Asia's
minority interest in Foshan Weidu Aluminum Window Manufacturing Co., Ltd., a PRC
corporation, and Foshan Weidu Decoration Engineering Co., Ltd., a PRC
corporation, and (ii) the "Public Merger" means the merger on May 16, 1997 of
FCI with and into International Forest Industries, Inc., a Nevada corporation
("IFI"), which had its shares quoted on the National Association of Securities
Dealers, Inc. Over-the-Counter ("OTC") Bulletin Board. IFI was the surviving
corporation following the Public Merger and, in connection therewith, changed
its name to Flour City International, Inc.
FCAM Pacific was incorporated on May 4, 1993 under the laws of the British
Virgin Islands. IFI was incorporated in 1987 under the laws of the State of
Nevada and was formerly known as M.M. Cork Enterprises, Inc. FCI was
incorporated on January 16, 1997 under the laws of the State of Nevada. The
Company's principal executive offices are located at 915 Riverview Drive, Suite
One, Johnson City, Tennessee 37601, and its telephone number is (423) 928-2724.
14
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2.000,000 shares of
Common Stock offered hereby are estimated to be $13.6 million ($15.8 million if
the Underwriters' Over-Allotment Option is exercised in full), after deducting
underwriting discounts and estimated offering expenses. The Company intends to
use the net proceeds as follows: approximately $5.0 million to establish or
acquire an interest in a curtain wall fabrication facility in the PRC;
approximately $3.0 million for capital expenditures in connection with its joint
venture with Grupo IMSA in Monterrey, Mexico and at its Johnson City, Tennessee
fabrication facility; and the balance of approximately $5.6 million for working
capital and general corporate purposes. In addition, the increased stockholder's
equity resulting from the Offering will allow the Company to secure more and
larger bonding facilities. Pending application of the net proceeds as described
herein, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment grade securities.
CAPITALIZATION
The following table summarizes as of January 31, 1998 the actual
capitalization of the Company and the capitalization of the Company as adjusted
to reflect the sale of 2,000,000 shares of Common Stock in the Offering and
application of the net proceeds thereof. See "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1998
------------------
AS
ACTUAL ADJUSTED
------ --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current portion of long term debt........................... $ -- $ --
====== =======
Long-term debt.............................................. -- --
------ -------
Stockholders' equity:
Common Stock, $.0001 par value, 50,000,000 shares
authorized; 4,252,380 shares issued and outstanding,
6,252,380 shares issued and outstanding, as adjusted... $ -- $ --
Additional paid-in capital................................ 344 13,969
Retained earnings......................................... 7,633 7,633
Unearned compensation..................................... (269) (269)
Cumulative translation adjustment......................... 84 84
Total stockholders' equity............................. 7,792 21,417
------ -------
Total capitalization.............................. $7,792 21,417
====== =======
</TABLE>
DIVIDEND POLICY
The Company currently intends to pay annual cash dividends on the Common
Stock in the amount of $0.02 per share. Future policy with respect to payment of
dividends on the Common Stock will be determined by the Board of Directors based
upon conditions then existing, including the Company's earnings and financial
condition, capital requirements and other relevant factors. See "Risk
Factors -- Dilution; Dividends."
15
<PAGE> 16
PRICE RANGE OF COMMON STOCK
The following table sets forth the range of high and low bid quotations per
share for the Company's Common Stock for the periods indicated as reported by
the OTC Bulletin Board, where the stock trades under the symbol "FCIN." Such
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. The
following prices have been adjusted to reflect the 1 for 7 reverse stock split
expected to be effected prior to consummation of the Offering. See "Prospectus
Summary."
<TABLE>
<CAPTION>
YEAR CALENDAR PERIOD HIGH LOW
- ---- --------------- ------ -----
<S> <C> <C> <C>
1997 Second Quarter (from May 16, 1997)(1)..................... $14.00 $7.00
Third Quarter............................................. 8.75 6.13
Fourth Quarter............................................ 8.75 3.50
1998 First Quarter............................................. 6.56 2.63
Second Quarter (through May 20, 1998)..................... 10.00 4.38
</TABLE>
- ---------------
(1) The effective date of the Public Merger. See "The Company."
On May 20, 1998 the closing bid price of the Common Stock as reported on
the OTC Bulletin Board was $9.00 per share. As of March 27, 1998, there were
approximately 106 holders of record of the Common Stock.
DILUTION
The net tangible book value per share of the Common Stock as of January 31,
1998 was approximately $2.23. Net tangible book value per share is equal to the
total tangible assets of the Company, less total liabilities plus negative
goodwill, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of 2,000,000 shares of Common Stock offered hereby and
the application of the net proceeds therefrom, the net tangible book value per
share of the Common Stock would have been approximately $3.70. This represents
an immediate increase in net tangible book value of $1.47 per share to the
existing stockholders and an immediate dilution of $4.30 per share to new
investors purchasing Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $ 8.00
Net tangible book value per share as of January 31,
1998................................................... $2.23
Increase per share attributable to new investors.......... 1.47
-----
Net tangible book value per share after the Offering........ 3.70
------
Dilution per share to new investors......................... $ 4.30
======
</TABLE>
The following table summarizes, for the existing stockholders and new
investors, a comparison of the number of shares of Common Stock acquired from
the Company, the percentage ownership of those shares, the total consideration,
the percentage of total consideration and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 4,124,468 67.3% $ 100 0.0% $ 0.00
New investors.............. 2,000,000 32.7 16,000,000 100.0 $ 8.00
--------- ----- ----------- -----
Total............ 6,124,468 100.0% $16,000,100 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Excludes 200,000 shares of Common Stock subject to options to be granted to
employees and directors of the Company upon the closing of the Offering at
an exercise price per share equal to the initial public offering price, and
reflects the repurchase by the Company of 127,912 shares from a former
employee to be effected prior to the closing of the Offering. See
"Management -- Stock Incentive Plan" and "Shares Eligible For Future Sale."
16
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The historical statement of income and balance sheet data below set forth
the consolidated financial data of the Company as of October 31, 1997, and for
the year ended October 31, 1997, and are derived from the consolidated financial
statements audited by Deloitte & Touche LLP which appear elsewhere in this
Prospectus. The historical statement of income and balance sheet data below set
forth the consolidated financial data of the Company as of October 31, 1996, and
for each of the two years ending October 31, 1995, and October 31, 1996, and are
derived from the consolidated financial statements audited by Deloitte Touche
Tohmatsu which appear elsewhere in this Prospectus. The historical balance sheet
data as of October 31, 1994 and 1995 and statement of income data for the year
ended October 31, 1994 below have been derived from audited consolidated
financial statements of the Company which do not appear herein. The historical
statement of income and balance sheet data below set forth as of and for the
year ended October 31, 1993 are unaudited. The statement of income data for the
three months ending January 31, 1997 and 1998 and the consolidated balance sheet
data as of January 31, 1998 were derived from the unaudited consolidated
financial statements of the Company which, in the opinion of management, include
all adjustments (which consist of only normal, recurring adjustments) necessary
for a fair presentation of the financial condition and results of operations of
the Company. The unaudited pro forma statement of income data for the year ended
October 31, 1997 and three months ended January 31, 1997 present certain
consolidated financial information for the Company as adjusted for the Business
Combination and the Public Merger as if each had occurred on November 1, 1996.
The following data should be read in conjunction with "The Company,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto and the
Unaudited Pro Forma Financial Information and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
------------------------------------------------------- ----------------------------
ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL
1993 1994 1995 1996 1997 1997 1997 1997 1998
------ ------ ------ ------ ------- --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues.............................. $ 354 $3,921 $4,806 $6,684 $31,875 $35,229 $3,717 $ 7,071 $ 6,461
Gross profit.......................... 161 1,440 2,034 3,019 13,845 14,495 1,411 2,062 3,120
Selling, general and administrative
expenses............................ 238 532 1,006 1,353 6,165 6,646 968 1,498 1,397
Non-cash stock compensation expense... -- -- -- -- 57 57 6 6 17
Amortization of negative goodwill..... -- -- -- -- (364) (377) (36) (99) (109)
------ ------ ------ ------ ------- ------- ------ ------- -------
Operating Income (loss)............... (77) 908 1,028 1,666 7,987 8,169 473 657 1,815
Other Income (expense), net........... 0 (42) 65 (97) (967) (951) 21 37 (720)
Income (loss) before minority interest
and income taxes.................... (77) 866 1,093 1,569 7,020 7,218 494 694 1,095
Net Income (loss)..................... ($ 77) $ 818 $ 938 $1,411 $ 5,273 $ 5,471 $ 351 $ 550 $ 809
====== ====== ====== ====== ======= ======= ====== ======= =======
Net Income (loss) per share:
Basic............................... ($0.02) $ 0.21 $ 0.24 $ 0.36 $ 1.33 $ 1.38 $ 0.09 $ .14 $ 0.21
====== ====== ====== ====== ======= ======= ====== ======= =======
Diluted............................. ($0.02) $ 0.19 $ 0.22 $ 0.32 $ 1.21 $ 1.26 $ 0.08 $ .13 $ 0.19
====== ====== ====== ====== ======= ======= ====== ======= =======
Weighted Average Shares outstanding:
Basic............................... 3,960 3,960 3,960 3,960 3,960 3,960 3,960 3,960 3,870
Diluted............................. 4,359 4,359 4,359 4,359 4,359 4,359 4,359 4,359 4,270
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
OCTOBER 31, 1998
------------------------------------------ ------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(1)
----- ------ ------ ------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................................... ($230) $ 792 $ 50 $1,104 $ 8,511 $ 8,570 $22,195
Total assets.......................................... 473 1,190 4,350 7,571 21,083 18,848 32,473
Total long-term debt.................................. 0 0 0 0 0 0 0
Stockholders' equity.................................. (77) 743 370 1,661 7,674 7,792 21,417
</TABLE>
- ---------------
(1) Adjusted for the sale of 2,000,000 shares of Common Stock offered hereby and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto and the other
financial information included elsewhere in this Prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of any number of factors, including those
set forth under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Until January 1997, the Company's subsidiary, FCAM, was a wholly-owned
subsidiary of Armco. In January 1997, Armco sold all of the stock of FCAM to FCI
(the "Armco Sale") and FCI acquired FCAM Pacific (the "FCAM Pacific
Acquisition") as a wholly owned subsidiary. The Armco Sale and the FCAM Pacific
Acquisition are collectively referred to herein as the "Business Combination."
On May 16, 1997, FCI effected the Public Merger pursuant to which it merged with
and into IFI, with IFI being the surviving corporation. See "The Company" and
"Risk Factors -- Absence of Combined Operating History."
The following discussion sets forth the historical results of operations
and financial condition of the Company for all periods presented as well as the
pro forma operating results of the Company reflecting the results of the
Business Combination as if it had occurred on November 1, 1995. The FCAM Pacific
Acquisition and the Public Merger have both been accounted for as
recapitizations. The Armco Sale was accounted for as a purchase acquisition. As
a result, historical financial information of the Company herein presents
combined results of operations and financial position of the following entities
on and after the date indicated: FCAM Pacific from November 1, 1994; FCAM from
January 1, 1997; FCI from January 17, 1997; and IFI from May 16, 1997. Pro forma
results are not necessarily indicative of the results the Company would have
obtained had these events actually occurred or of the Company's future results.
See "The Company," "Selected Financial Data," "Risk Factors -- Absence of
Combined Operating History," Notes 1 and 13 of Notes to Consolidated Financial
Statements and the Unaudited Pro Forma Financial Information and notes thereto
included elsewhere herein.
From 1992 to 1994, FCAM's operations experienced losses as a result of
industry overcapacity. At the end of 1994, Armco appointed the current
management team, which implemented business practices designed to restore FCAM's
operations to profitability, including overhead cost reductions, project cost
control measures, a more selective approach to project bidding and improvements
in the accuracy of cost estimates for project bids. Management successfully
restored FCAM to profitability in the second half of 1996. See Note 11 of Notes
to Financial Statements of FCAM for information on restructing charges relating
to the FCAM restructuring.
The Company has experienced in the past, and expects to experience in the
future, substantial variations in its results of operations in any quarterly or
annual reporting period as a result of numerous factors, many of which are out
of the Company's control. In particular, the Company's operating results may
vary because of downturns in one or more segments of the construction industry,
changes in economic conditions, the Company's failure to obtain or delays in
awards of major projects, the cancellation or delay of major projects, the
Company's failure to timely replace projects that have been completed or are
nearing completion, or declines in the amount of the Company's billings in
excess of costs and recognized earnings on uncompleted projects. Any of these
factors could cause the Company's results of operations to fluctuate
significantly from period to period, including on a quarterly basis. The
Company's projects are, and in the foreseeable future will continue to be,
awarded by private or governmental entities in a competitive bidding process.
Due to the nature of the bidding and award process, the Company has experienced,
and in the future expects to experience, significant delays in project awards.
These delays have caused and will continue to cause substantial variations in
quarterly results. In addition, no assurance can be given that the timing of a
project award will be consistent with the Company's expectations. During fiscal
1997, the Company had two customers, Morse Diesel and THK Real Estate Limited
(the counterparty to the Empire Towers Contract),
18
<PAGE> 19
which each accounted for more than 10% of its consolidated revenues the loss of
either of which would have a material adverse effect on the Company and its
subsidiaries taken as a whole. The Company has a long-standing alliance with
Morse Diesel which promotes the Company's participation in desirable projects,
although no written agreement exists which memorializes this alliance. See "Risk
Factors -- Fluctuations in Quarterly Results."
The Company's results of operations are affected primarily by (i) the level
of commercial and government sponsored building construction in its principal
markets, (ii) the Company's ability to win project contracts and its accuracy in
project cost estimating, (iii) the Company's success in utilizing its resources
efficiently, (iv) the Company's ability to complete contracts in a timely and
cost-effective manner and (v) the mix of domestic and international operations.
The level of commercial building construction activity is affected by several
factors, including local, regional, national and international economic and real
estate conditions; interest rates; availability of financing; and office
building occupancy rates in metropolitan areas in which the Company markets its
services. The level of government sponsored construction activity is influenced
by the levels of tax revenues, the need for new or upgraded public facilities
such as airports or courthouses and government spending policies and initiatives
designed to stimulate local or regional economies. The Company expects publicly
funded projects will continue to provide a significant portion of its revenues
for the foreseeable future. Due to economic and currency volatility, the Company
anticipates that fewer projects will become available for bid internationally;
however, the Company has submitted several bids on projects, which if awarded
and completed would result in significant revenue over the next two to three
years.
The Company generally obtains projects at a fixed price through competitive
bidding or negotiation. The Company must estimate its costs, including projected
increases in labor and material service contracts. Typically, the Company spends
between $50,000 and $150,000 in the preparation and submission of each project
bid, regardless of the success of winning the bid. This cost is expensed as
incurred. Project duration, when installation is included, generally lasts from
18 to 30 months. See "Risk Factors -- Fixed Price Contracts."
The Company recognizes contract revenues attributable to its design,
fabrication and installation and project management using the
percentage-of-completion method. Under this method, estimated contract revenues
are accrued based on a comparison of total costs incurred to date to total
estimated costs. Estimated contract losses are recognized in full when
determined. Accordingly, contract revenues and total cost estimates are reviewed
and revised periodically as work progresses and as change orders are approved.
Adjustments are based upon the percentage of completion and are reflected in
contract revenues in the period when such estimates are revised. In fiscal 1996,
FCAM had estimate revisions which resulted in additional income of $1.4 million
on one project contract and a charge against current earnings in the aggregate
amount of $1.5 million on two other project contracts primarily resulting from
cost overruns charged to the Company by a then-affiliate. See "Risk
Factors -- Percentage-of-Completion Accounting."
Costs of revenues consist of the cost of the materials, equipment, direct
labor, fringe benefits and indirect costs associated with engineering,
fabrication and installation, including supervisory labor. Other costs not
associated with specific projects including costs associated with sales,
accounting services, project management, estimating, administration, management
information systems and material and supply procurement are included in selling,
general and administrative expenses. Selling, general and administrative
expenses include those expenses incurred for preparation of contract bids,
estimating, sales and marketing, office facilities, project management and
support services. The Company believes that it currently has sufficient
management and administrative resources to support continued growth in revenues
without a proportionate increase in selling, general and administrative
expenses.
Gross profit margins can be positively affected by the level of competitive
bidding, aggressive purchasing of component parts necessary for the fabrication
of the products, the number and scope of contract modifications, and
improvements in operating efficiencies. Generally, margins are not affected by
the mix of private and public sector funded projects. Internationally,
comparatively low labor rates often result in higher gross profit margins than
those realized for projects in the U.S. Gross profit margins can be adversely
affected by a wide range of factors, including construction delays, inefficient
or under-utilization of the Company's resources and weather and construction
site conditions. See "Risk Factors."
19
<PAGE> 20
Backlog increases as contract commitments are obtained, decreases as
revenues are recognized, and increases or decreases to reflect modifications in
the work to be performed under the contract. The timing of contract commitments,
the size of projects and other factors beyond the Company's control can cause
fluctuation in backlog outstanding on any given date.
Historically, a significant portion of the Company's revenues have been
earned in jurisdictions with no income taxes or lower income tax rates than
those in the U.S. As revenues from U.S. projects increase relative to revenues
from international projects, the Company's overall tax rate will increase.
The Company generally attempts to mitigate foreign exchange risk by
entering into contracts providing for payment in U.S. dollars instead of the
local currency where possible, except for local currency necessary to pay local
for labor, raw materials or other costs of operations. However, the Company
currently has contracts denominated in the Hong Kong dollar, Thai baht and
Philippine peso. Materials and services to perform project contracts are
procured globally. Aluminum extrusion is typically the largest material cost and
is generally denominated in U.S. dollars. Glass purchases are generally
denominated in U.S. dollars unless sourced locally in a foreign locale. The
expenses associated with erection services are generally denominated in local
currency. To the extent that foreign currencies weaken against the U.S. dollar,
the Company will experience translation losses due to the revaluation of
accounts payable, accounts receivable and other asset and liability accounts.
The Company generally attempts to contract to secure compensation for
devaluation of local currencies relative to the U.S. dollar. In these instances,
although the Company may incur translation losses, the Company seeks to offset
such losses by increases in the amount payable to the Company under contract.
There can be no assurance that the Company will be successful in securing such
offset payments, or that fluctuations in foreign currencies and other risks will
not have a material effect on the Company's financial condition or results of
operations for any quarterly or annual reporting period. To the extent the
Company is required to enter into contracts denominated in foreign currencies,
the Company's financial condition and results of operations may be adversely
affected by volatility in such foreign currencies. See "Risk Factors -- Foreign
Exchange Risk."
RESULTS OF OPERATIONS
QUARTER ENDED JANUARY 31, 1998 COMPARED TO QUARTER ENDED JANUARY 31, 1997
Revenues. Revenues increased by 73.8% to $6.5 million in the first quarter
ended January 31, 1998 from $3.7 million in the first quarter ended January 31,
1997. This increase was primarily attributable to the Business Combination.
On a pro forma basis, revenues decreased by 8.6% to $6.5 million in the
first quarter of fiscal 1998 from $7.1 million in the first quarter of fiscal
1997. This decrease was due, predominantly, to the delay in the award of
projects for which the Company had outstanding bids during the last half of
fiscal 1997 combined with a delay in the start of one of the Company's projects
in backlog; the project commenced during the first quarter of 1998. The Company
anticipates that because of the aforementioned delays in project awards, its
fiscal 1998 second quarter revenues will be similarly affected. Since January
31, 1998, the Company has added $55.2 million in new backlog. The Company
anticipates that these recent backlog additions should result in more favorable
revenue comparisons during the fiscal 1998 third and fourth quarters.
Revenues generated from projects located in Asia increased 22.8% to $2.7
million in the first quarter of fiscal 1998 from $2.2 million in the first
quarter of fiscal 1997. This increase was driven primarily by an increase in the
revenue generated under the Empire Towers Contract which is expected to be
substantially complete by the end of the third quarter of fiscal 1998.
Revenues generated from projects located in North America increased by
149.7% to $3.7 million in the first quarter of fiscal 1998 from $1.5 million in
the first quarter of fiscal 1997, primarily as a result of the Business
Combination. On a pro forma basis, revenues generated from projects located in
North America decreased by 23.1% to $3.7 million in the first quarter of fiscal
1998 from $4.8 million in the first quarter of fiscal 1997. This reduction of
revenues was primarily attributable to the substantial completion of a number of
North American projects during 1997 combined with the delays in project awards
in 1997.
20
<PAGE> 21
Gross Profit. Gross profit increased by 121.1% to $3.1 million in the first
quarter of fiscal 1998 from $1.4 million in the first quarter of fiscal 1997.
This increase resulted from the Business Combination, higher margins for
recently awarded North American projects and the realization of the full
benefits of cost controls and selective bidding practices implemented by the
Company prior to 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 44.2% to $1.4 million in the first quarter
of fiscal 1998 from $968,000 in the first quarter of fiscal 1997. This increase
was primarily attributable to the Business Combination.
Other income (expense), net. Other income (expense), net decreased to an
expense of ($720,000) in the first quarter of fiscal 1998 from income of $21,000
in the first quarter of 1997. This decrease resulted primarily from an exchange
rate loss of approximately $874,000 realized as a result of the devaluation of
the Thai baht, which amount was partially offset by change orders submitted by
the Company to compensate for the devaluation of the baht.
Backlog. The Company's backlog decreased to $43.8 million as of January 31,
1998 from $44.8 million at January 31, 1997. At January 31, 1998, roughly 35.2%
of the Company's backlog was associated with projects in the U.S. while 64.8%
was associated with projects in the Philippines, Thailand and Hong Kong. At
January 31, 1998, five project contracts accounted for 76.2% of the Company's
total backlog. Since January 31, 1998, the Company has been awarded six project
contracts with a combined value of approximately $55.2 million.
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
Revenues. Revenues increased by 376.9% to $31.9 million in fiscal 1997 from
$6.7 million in fiscal 1996. The increase was primarily attributable to the
Business Combination. Revenues generated from projects located in Asia increased
91.8% to $12.8 million in fiscal 1997 from $6.7 million in fiscal 1996. This
increase was driven primarily by an increase in the revenue generated by a
single project which increased to $11.0 million from $4.9 million in fiscal 1997
and 1996, respectively. During fiscal 1996, the Company did not generate any
revenue from North American projects since it had not yet acquired FCAM.
Revenues generated by U.S. projects in fiscal 1997 were $19.1 million, as a
result of the inclusion of FCAM from January 1997 forward.
On a pro forma basis, revenues increased by 45.1% to $35.2 million in
fiscal 1997 from $24.3 million in fiscal 1996. This increase was driven
primarily by an increase in the revenue generated by a single project which
increased to $11.0 million from $4.9 million for fiscal 1997 and 1996,
respectively. In fiscal 1997, pro forma revenues generated from Asian projects
were 36.4% of total pro forma revenues while pro forma revenues generated from
Asian projects for the same period in fiscal 1996 accounted for 27.5% of total
pro forma revenues. Pro forma revenues generated by domestic projects increased
to $22.4 million in fiscal 1997, from $17.6 million in fiscal 1996.
Gross profit. Gross profit increased by 358.6% to $13.8 million in fiscal
1997 from $3.0 million in fiscal 1996. The increase was primarily attributable
to the increase in revenues. As a percentage of revenues, gross profit margin
declined to 43.4% in fiscal 1997 from 45.2% in fiscal 1996 primarily because the
Company derived a significant portion of its revenues in fiscal 1996 from one
high-margin project in fiscal 1996 which generated a smaller percentage of
revenues in fiscal 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 355.5% to $6.2 million in fiscal 1997 from
$1.4 million in fiscal 1996. This increase was primarily a result of the
Business Combination. Selling, general and administrative expenses as a percent
of sales decreased to 19.3% in fiscal 1997 from 20.2% in fiscal 1996 due to an
increase in revenues for the period without a proportionate increase in selling,
general and administrative expenses.
Other operating items. Other operating items include increased operating
income of $306,500 in fiscal 1997 which relates principally to negative goodwill
amortization which resulted from the Business Combination. No such income was
recorded in 1996.
21
<PAGE> 22
Other income (expense) net increased to ($967,000) in fiscal 1997 from
($96,000) in fiscal 1996. This increase in other expense was caused primarily by
the effect of the devaluation of the Thai Baht that caused a combination of
realized and unrealized exchange losses on payables of KFC denominated in
currencies other than the Thai baht in July 1997. See "Risk Factors -- Foreign
Exchange Risk."
Income taxes. Income taxes increased to $1.8 million in fiscal 1997 from
approximately $150,000 in fiscal 1996. The increase was primarily attributable
to an increase in U.S. income tax as a result of taxation on income earned in
the U.S. as well as U.S. taxation of a portion of the income generated in Asia.
Prior to the Business Combination, the Company was not subject to U.S. income
tax and earned most of its income in jurisdictions with no or relatively low
income tax rates. The Company believes that it will continue to earn a
significant portion of its income outside of the U.S. and that the majority of
its offshore income will not be subjected to U.S. income tax. As revenue from
U.S. projects increases relative to revenues from international projects, the
Company's overall tax rate will increase.
Backlog. The Company's backlog at October 31, 1997 increased to $45.0
million from $16.0 million at October 31, 1996. The increase in backlog was
primarily attributable to the Business Combination. At October 31, 1997, 37.6%
of the Company's backlog was associated with projects in the U.S. while 62.4%
was associated with projects in the Philippines, Thailand and Hong Kong. At
October 31, 1997, five project contracts accounted for 79.9% of the Company's
total backlog.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
Revenues. Revenues increased by 39.1% to $6.7 million in fiscal 1996 from
$4.8 million in fiscal 1995. The increase was primarily attributable to
increased work performed on a single large project. Revenues from this project
totaled $4.9 million and $3.4 million during fiscal 1996 and 1995, respectively.
Pro forma revenues decreased by 14.5% to $24.3 million in fiscal 1996 from
$28.4 million in fiscal 1995. On a pro forma basis, the decrease in revenues
resulted from FCAM's implementation of a more selective approach to bidding and
accepting projects.
Gross profit. Gross profit increased by 48.4% to $3.0 million in fiscal
1996 from $2.0 million in fiscal 1995. The increase was attributable to the
increase in revenues along with a more profitable mix of project contracts. As a
percentage of revenues, gross profit margin increased to 45.2% in 1996 from
42.3% in fiscal 1995 because the Company derived a significant portion of its
revenues from one high-margin project in fiscal 1996 which generated a smaller
percentage of revenues in fiscal 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 34.5% to $1.4 million in fiscal 1996 from
$1.0 million in fiscal 1995. Selling, general and administrative expenses as a
percent of sales decreased slightly to 20.2% in fiscal 1996 from 20.9% in fiscal
1995.
Backlog. The Company's backlog at October 31, 1996 was $16.0 million
compared to $22.7 million at October 31, 1995. In both fiscal 1996 and 1995, the
majority of the Company's backlog was associated with one project in Thailand.
The decline in backlog for such period was primarily driven by the progress made
during the 1996 fiscal year on the Thailand project.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained a $1.3 million line of credit with a commercial bank
that expired on April 30, 1998. This line of credit was primarily used to
provide letters of credit in connection with the importation of goods and
overdraft facilities. Interest on the overdraft facility is charged on daily
balances at 1.75% per annum over the lender's best lending rate, which was
10.25% as of January 1998 and is payable monthly in arrears. In addition, a
committment fee of 0.25% per annum is charged on the undrawn balance of the
overdraft facility and is also payable in arrears. Interest on the import
facility varies depending upon the currency. Interest on the import facility
denominated in Hong Kong dollars is charged on a daily basis at 1.50% over the
lender's best lending rate and is payable monthly in arrears. Interest on the
import facility in other currencies is charged on a daily basis at the board
rate published by the Bank. The credit line is secured
22
<PAGE> 23
by a pledge of Company assets and personal guarantees of certain officers. Upon
completion of the Offering, the Company intends to attempt to secure a larger
line of credit under more favorable terms.
The Company attempts to structure payment arrangements with its customers
to match costs incurred under the project. To the extent the Company is not able
to match costs, it relies on its cash reserves and its credit facility to meet
its working capital needs. As of January 31, 1998, the Company had approximately
$75,000 in borrowings under its line of credit. As of January 31, 1998, the
Company had working capital (current assets less current liabilities) of $8.6
million. The Company believes that it has sufficient liquidity through its
present resources to meet its financial needs for the short term and currently
foreseeable future.
The Company's short term cash needs are primarily for working capital to
support operations including receivables and to pay costs incurred in performing
its contracts. Operating activities for such quarter provided cash flows of $2.2
million in the first quarter ended January 31, 1998. In the first quarter,
operating cash flows were higher than net income due to substantial decreases in
accounts receivable and costs, estimated earnings and billings on uncompleted
contracts along with restricted deposits. These cash inflows were partially
offset by an increase in claims receivable and by decreases in accounts payable
and income taxes payable. Investing activities required $418,000 for the quarter
ended January 31, 1998. Financing activities provided cash of approximately
$388,000 from short-term draws on credit facilities during the first quarter.
For certain financial information with respect to the Company's foreign
operations, see Note 9 of Notes to Consolidated Financial Statements.
YEAR 2000 COMPLIANCE
Management of the Company believes that the software packages currently in
use and expected to be in use prior to the year 2000 are year 2000 compliant.
Management does not expect the financial impact of required modifications to
such software, if any, will be material to the Company's financial position,
cash flows or results of operations in any given year.
EFFECT OF INFLATION
During the past three years, the rate of inflation in many of the Southeast
Asian countries in which the Company operates significantly exceeded that of the
U.S. However, the Company generally has been able to reduce the impact of
inflation on profitability by increasing the prices of its products and reducing
operating costs. No assurance can be given that the Company will be able to
minimize the impact of inflation on profitability in the future.
RECENTLY ISSUED ACCOUNTING STANDARDS
Segment information -- In June 1997, the FASB issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
supersedes portions of SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS No. 131 is effective for the Company commencing in its
year ending October 31, 1999. Company management has not completely assessed the
effects of SFAS No. 131 on its segment reporting, however, it does not currently
believe that there will be significant changes from the information currently
being reported.
Comprehensive income -- In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income, which becomes effective for the Company
commencing in its year ending October 31, 1999. Company management does not
believe, based on current activities, that adoption of this statement will have
a significant effect on its financial statements except to the extent that
cumulative foreign currency translations are included in comprehensive income.
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<PAGE> 24
BUSINESS
The following Business section contains forward-looking statements that
inherently involve risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of any number of factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus.
COMPANY OVERVIEW
Flour City is one of the world's leading full-service providers of custom
curtain wall in commercial and monumental high-rise construction. The Company
and its predecessors have been involved in the design, fabrication and
installation of custom curtain wall systems in the U.S. since the modern
high-rise emerged over 50 years ago. Some of the most prestigious buildings in
the world are accented by custom curtain wall systems designed, fabricated, and
installed by the Company including: Citicorp Center, JFK Airport Terminal One
and 320 Park Avenue (Mutual of America) in New York City; First Interstate Bank
Tower in Los Angeles; the Rock and Roll Hall of Fame and Key Tower in Cleveland;
Empire Towers in Bangkok; the Allied Bank Tower (Fountain Place) in Dallas; the
United Airlines Terminal and International Terminal at O'Hare Airport in
Chicago; G.T. International Tower in Manila and the IDS Building in Minneapolis.
The Company offers a complete range of custom curtain wall services
including in-house design, engineering, manufacturing, assembly, installation
and project management. The Company actively participates in the architectural
design stage of its projects, and it has excellent marketing and working
relationships with major international architects, including Skidmore Owings &
Merrill, Kohn Pedersen & Fox and Pei Cobb. The Company also has strategic
relationships with several of the most respected international and domestic
developers and project managers, including New World Group, Mitsui, Turner
Construction, LMB and Morse Diesel. In addition, the Company is involved in a
number of projects on which Bechtel serves as a project manager. These
relationships serve to promote the Company's participation in bidding on
desirable projects and allow the Company to leverage its management and
technological expertise with low-cost, localized labor and market knowledge. As
a result, the Company is able to offer a complete range of services, from
initial design through final installation, for unique and sophisticated custom
curtain wall projects.
The decline of activity in the U.S. construction market in the early 1990's
reduced the number of companies that provide a full range of services in
connection with the design and installation of custom curtain wall. After this
industry contraction, the Company remained as one of the few full-service custom
curtain wall companies in the U.S. As a result, the Company is invited to bid on
a large percentage of the commercial custom curtain wall projects which come to
market in the U.S. and overseas. This position allows the Company to target
projects which best utilize the Company's management and production capabilities
which offers the greatest opportunities for attractive margins.
INDUSTRY BACKGROUND
The term "curtain wall" is used to describe the non-load bearing external
walls of modern mid-rise and high-rise buildings, which consist of a combination
of glazing, cladding elements and supports to attach the custom curtain walls to
the main building structure. The curtain wall market is composed of standard and
custom segments. Standard curtain wall typically consists of stock components
which can be manufactured with minimal design and engineering at relatively low
cost and corresponding low margins. Alternatively, custom curtain wall often
includes unique and irregular designs manufactured according to site-specific
requirements, typically at higher margins.
Custom curtain wall defines high-rise and monumental buildings from an
aesthetic and architectural perspective. Custom curtain wall systems also serve
a wide range of practical purposes, including protecting the building interior
from the elements and allowing for cost savings through more efficient heating
and ventilation. The custom curtain wall component of a typical high rise
building will represent between 5% and 15% of the overall cost of the project.
The types of structures which utilize custom curtain wall systems include
mid-rise and high-rise buildings, campus-style buildings, hotels and airport
terminals. Glass and
24
<PAGE> 25
glazing technologies utilized in the custom curtain wall industry also have
applications in other structures such as bus and telephone enclosures.
Custom curtain wall panels are produced and assembled in a factory setting
with minimal on-site operation, as opposed to the hand-cladded method of using
bricks and cement to constitute the facade of a building. Custom curtain wall
construction requires expertise in various external building materials,
including marble, granite and other stone, aluminum, steel and precast concrete,
sealed and operable window systems, and systems for securely attaching outside
panels to building superstructures. Custom curtain walls allow repair work to be
carried out to the facade of the building by the replacement of a damaged wall
panel without affecting the entire external facade of the building. The
deterioration and failure of older curtain wall systems have also created demand
for the repair or installation of new custom curtain wall systems to modernize
or refurbish existing buildings and structures.
U.S. DOMESTIC MARKET
Based on estimates by F.W. Dodge, a unit of McGraw-Hill Construction
Information Group ("F.W. Dodge"), the value of the 1997 U.S. construction market
was $125 billion. Based on the Company's internal estimates, the Company
believes that the U.S. custom curtain wall construction segment of the market
had an approximate value in 1997 of $830 million.
The custom curtain wall segment of the construction industry is driven by
several factors. The need for and development of mid-rise, campus style and
high-rise buildings, which drives demand for custom curtain wall systems, is
influenced by the supply and demand of premium office space as well as
industrialization, urbanization, suburbanization and population growth. The
Company believes that decreasing vacancy rates often lead to increased rents,
which in turn contribute to increased private sector construction spending, a
portion of which will utilize custom curtain wall systems.
The U.S. has seen an increased use of custom curtain wall systems in public
sector buildings and buildings with heavy public use, such as the JFK Airport
Terminal One in New York City, the United Airlines Terminal and the
International Terminal at O'Hare Airport in Chicago and the Boston and
Minneapolis Courthouses. The construction of public sector projects is usually
supported by taxation or the need for new or upgraded public facilities. Public
sector buildings tend to be designed for a longer life cycle, which in turn
requires a curtain wall system that can provide superior performance with
limited maintenance. Contracts for installation of custom curtain wall systems
in public sector buildings have presented an area of growth for the Company.
The following table sets forth for the years indicated U.S. office vacancy
rates based upon data from C.B. Commercial Real Estate Group ("CB Commercial")
and the concomitant construction spending based upon data from the U.S. Commerce
Department:
<TABLE>
<CAPTION>
NON-RESIDENTIAL
CONSTRUCTION SPENDING
YEAR VACANCY RATE (IN BILLIONS)
- ---- ------------- ---------------------
<S> <C> <C>
1991 18.9% $164
1992 18.7 156
1993 17.0 163
1994 15.8 174
1995 14.1 194
1996 12.1 201
1997 9.9 207(1)
</TABLE>
- ---------------
(1) Projected for 1997.
CB Commercial has predicted that overall domestic office vacancy rates for 1998
will remain in the single digits. In some metropolitan areas such as San
Francisco, Washington, D.C., and Boston, vacancy rates have approached a
five-year low and several new development projects have commenced.
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<PAGE> 26
INTERNATIONAL MARKETS
Southeast Asia. The World Bank forecasts 1998 growth rates for Hong Kong at
4.1%, the Philippines at 3.8%, and Indonesia at 2.0%. Despite the recent
economic volatility, demand for taller, premium office buildings in selected
regions remains strong. For example, according to Richard Ellis Ltd., well-known
international property consultants, as of December 1997 the office vacancy rate
in Manila was 6%, with prime office space remaining tight through December 1997
as the expected completion of a number of buildings failed to materialize.
Richard Ellis Ltd. also estimated that as of December 1997 that the vacancy rate
in Hong Kong's most prestigious location, Core Central, was 1.7%. The Company
believes that this continued demand for premium office space will continue to
support increased demand for construction of buildings which utilize custom
curtain wall. While the Company does not believe that all nations in Southeast
Asia will continue to build their infrastructure at the rates seen in the recent
past, the Company believes that the PRC, Hong Kong, and the Philippines may
continue to be significant markets in the coming years. See "Risk
Factors -- Risks Related to International Operations."
Latin America. The increase in economic activity in Latin America, which
started in mid-1996, continues to accelerate, especially in Mexico, Argentina,
Brazil and Peru. The OECD forecasts that economic activity should remain strong
across the region with larger countries likely to experience output growth
through 1998 from 3% to 6%. The Company intends to pursue projects in Latin
America. The stabilization of the Mexican peso and the Company's strategic
alliance with Grupo IMSA should assist the Company in securing custom curtain
wall projects in the growing Latin American construction industry.
Middle East. The Company has recently experienced an increase in bid
activity throughout the Middle East, in particular Israel and Saudi Arabia. To
the extent the demand for custom curtain wall intensifies, the Company's
activity in the region may also increase.
BUSINESS STRATEGY
The Company intends to build on its reputation as a world-wide leader in
the custom curtain wall industry to support continued growth and increased
profitability. The key elements of the Company's strategy to accomplish these
goals are to: (i) selectively target high margin projects; (ii) maintain and
develop key relationships; (iii) exploit its full service, custom capabilities;
(iv) enhance and exploit its position as a low cost manufacturer; and (v)
capitalize on its global presence.
Selectively target high margin projects. The Company's unique mix of
management and technical expertise, familiarity with overseas markets and key
relationships has positioned the Company as one of the few remaining
full-service providers of custom curtain wall systems. As a result, the Company
is invited to bid on a large percentage of the commercial curtain wall projects
which come to market in the U.S. and overseas. This position allows the Company
to target projects which best utilize the Company's management and production
capabilities, offering the greatest opportunity for attractive margins.
Maintain and develop key relationships. The Company has established several
strategic relationships to secure and complete domestic and international
projects. The Company has established relationships worldwide with several of
the world's most respected architects, developers and project managers,
including New World Group, Mitsui, Turner Construction, LMB Morse Diesel,
Skidmore Owings & Merrill, Kohn Pedersen & Fox and Pei Cobb. The Company is
involved in several projects on which Bechtel serves as a project manager. The
Company believes that these strategic relationships enhance its participation in
the bidding process for the most desirable projects worldwide and help to
facilitate smooth project execution.
Exploit full-service, custom capabilities. As one of the few full-service
custom curtain wall companies, the Company provides the entire range of custom
curtain wall services including in-house design, engineering, manufacturing,
assembly, installation and project management. The Company applies its design
expertise to adapt systems to a wide variety of custom curtain wall
applications. General contractors and developers often prefer to limit the
number of subcontractors on a particular project and favor full-service
providers due to the greater responsibility and accountability they can provide.
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<PAGE> 27
Minimize cost structure. The Company's technological expertise developed
through 50 years of U.S. experience in custom curtain wall applications combined
with the use of local project management and labor allow the Company to minimize
its cost structure and reduce the risk of project delays. During the design
phase, the Company uses proprietary advanced computer aided design ("CAD")
software to decrease design time and minimize raw materials expense. During the
fabrication and installation phases the Company uses local labor and overseas
manufacturing in the most cost-efficient locales. These efficiencies serve to
lower the Company's project costs and to maximize the likelihood of completing
projects with attractive margins.
Capitalize on global presence. With offices in Hong Kong, New York, Dallas,
Chicago and Manila, the Company is positioned to participate in the most active
construction markets in the world, including the U.S., Asia and Latin America.
The Company combines its technological expertise developed in the U.S. with
local management teams to both secure projects and realize cost savings through
design innovation, unique manufacturing strategies and management of local
labor. The Company believes that the international composition of its management
team provides a significant competitive advantage over its largest U.S.
competitors who typically rely on expatriates for senior level project
management.
SALES AND MARKETING
The fostering of strategic relationships in the construction industry
constitutes a key element in marketing the Company's services and products. The
Company seeks to build on its relationships with architects in the early design
phase of projects. By having designs it assisted in creating included in the
project specifications, the Company's prospects of being invited to bid on a
project are maximized and the Company gains a competitive advantage through
familiarity with a project's design. The Company also uses its relationships
with significant developers, contractors and consultants to secure invitations
to bid on monumental custom curtain wall projects worldwide. The Company's
history as one of the oldest custom curtain wall companies in the industry,
combined with its reputation and capabilities as a full service provider of
custom curtain wall systems, enhances its opportunities to selectively bid on
global projects.
The Company's projects are, and in the foreseeable future will continue to
be, awarded by private or governmental entities in a competitive bidding
process. Due to the nature of the bidding and award process, the Company has
experienced, and in the future expects to experience, significant delays in
project awards. These delays have caused and will continue to cause substantial
variations in quarterly results. In addition, no assurance can be given that the
timing of a project award will be consistent with the Company's expectations.
See "Risk Factors -- Fluctuations in Quarterly Results" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's management expertise is extremely valuable in the preparation
of a successful and profitable bid. Management's expertise allows it to
incorporate cost-saving techniques into the manufacturing and installation
phases of projects. After receiving tender documents from the project developer
or general contractor, the Company is typically given four to six weeks to
prepare a bid for the project. After developing a project-specific design, the
Company critiques the design for cost and technical performance. At this stage,
the Company is often able to use its expertise to develop a design that is not
only cost effective but also efficiently manufactured and installed, thereby
reducing the overall custom curtain wall cost to the developer or general
contractor. After finalizing the design, the Company develops comprehensive
material requirements, engineering, manufacturing and installation labor
analysis that is initially reviewed by a department manager and then by senior
management, prior to submission of the Company's project bid.
The selection of a winning bid usually occurs four to six weeks after
submission of the custom curtain wall design bid. Bid price, reputation,
completion schedule and system design are the primary factors considered in
awarding the custom curtain wall contract to the prevailing bidder. The Company
believes that its reputation for providing high quality, technically proficient
products is an invaluable factor in being considered for project awards because
it distinguishes the Company from certain competitors who compete for projects
solely on price. The typical cost incurred by the Company to submit a
comprehensive bid with system design ranges from approximately $50,000 to
$150,000, regardless of whether the Company's bid is selected as the winning
bid.
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<PAGE> 28
OPERATIONS
From the moment a custom curtain wall project contract is awarded, the
Company employs a structured process to attain the highest levels of efficiency
and quality. The Company employs a multi-discipline process to maximize project
success.
Project Management. Upon execution of a letter of intent, the Company
establishes a project management team led by a senior project manager. Design
personnel meet with the production engineering group to review the custom
curtain wall system design. The senior project manager, generally located on
site, maintains direct contact with the general contractor, coordinates the
Company's different departments and oversees the Company's subcontractors. An
engineering job captain supervises the project team engineering staff, maintains
the engineering schedule and communicates with fabrication, assembly, and site
personnel to ensure a "user friendly" design. On site, a superintendent oversees
assembly and installation and provides status reports to the project manager.
Senior management's close involvement in the Company's projects is an integral
component for timely project execution. A typical custom curtain wall project
for the Company lasts approximately 18 to 30 months from commencement through
completion, depending upon size and complexity.
Engineering. The Company's engineering process begins upon the Company's
receipt of architectural drawings for a project for which the Company intends to
bid. Composed of experienced engineers and draftsman, the Company's engineering
group designs a custom curtain wall system that will provide the desired
aesthetic qualities inherent in the architectural drawings, together with the
performance capabilities required by the project specifications, including water
penetration, air filtration and seismic capabilities. During the system design
stage, the Company utilizes its expertise to design a system that not only meets
or exceeds the project specifications, but that can also be efficiently
manufactured and installed. Once the Company has been awarded a project, the
Company's drafters prepare drawings detailing each of the separate unit types
and conditions for the various custom curtain wall systems which are sent to the
architect, general contractor and owner for review and approval. After these
drawings are approved, an independent laboratory procures and tests mock-up
materials. This testing process is designed to ensure that the custom curtain
wall will meet the required performance criteria. Drafting of construction shop
drawings commences immediately after the submission of mock-up drawings, and all
drawings are then submitted to the main contractor. The Company submits
structural design calculations, thermal modeling and other technical information
as part of the shop drawing program and then finalizes fabrication papers,
assembly drawings, and bills of materials. These documents provide the
instructions for the production of a final custom curtain wall and the blueprint
for the procurement process.
To support its engineering and design functions the Company has established
engineering departments in both the U.S. and Asia with experienced technical
staff. The Company is committed to using modern technology and is equipped with
CAD hardware and software to improve the efficiency of the engineering process
and to provide technologically superior designs.
Project Execution. Upon completion and approval of the final curtain wall
design, the Company purchases the necessary raw materials, such as granite,
glass and aluminum. Thereafter, the raw materials are sent to one of the
Company's three fabrication facilities located in Johnson City, Tennessee,
Foshan, PRC or Monterrey, Mexico for fabrication and assembly of the individual
modules comprising the custom curtain wall system. The Company selects the
fabrication facility for any given project based on the location of the project
and its proximity to the particular fabrication facility. If the curtain wall
contract mandates performance testing, the Company will schedule the performance
test to be conducted at an independent third party testing facility. Typical
tests include the use of static and dynamic pressure, air infiltration, water
penetration and proof tests to prove the effectiveness of the materials used for
structural performance against design loads. The Company makes modifications and
the independent laboratory retests materials whenever necessary to ensure that
the specified performance is achieved. The Company then includes all changes
required to ensure that the specified performance criteria are satisfied.
Thereafter, the Company fabricates and assembles the modules comprising the
custom curtain wall system and prepares the modules for delivery to the project
site.
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<PAGE> 29
Once the modules arrive at the project site, they are installed under the
oversight of the Company's project managers and engineers. In the U.S., the
Company often utilizes members of the Architectural and Ornamental Ironworkers
Union or the International Union of Operating Engineers to install the
individual curtain wall modules. Internationally, the Company usually contracts
with third party installation companies for installation services. If third
party installation companies are unavailable, the Company has the ability to
provide its own installation workforce for a given project. Variations in the
scope of work as a project progresses result in additive and deductive work and
changes, thereby changing the amount owed under the contract.
PROJECTS
Recently Completed and Pending Projects. The Company has successfully
completed a considerable number of projects in the U.S. and Asia. Some of the
Company's major completed and pending projects are set forth below (* denotes
pending projects), grouped according to the estimated contract value for the
project:
ESTIMATED CONTRACT VALUE IN EXCESS OF $15 MILLION
<TABLE>
<CAPTION>
COMPLETION
PROJECT LOCATION DATE(1) OWNER/DEVELOPER GENERAL CONTRACTOR
------- -------- ---------- --------------- ------------------
<S> <C> <C> <C> <C>
G.T. International Manila, Philippines 4th Quarter 1999 Philippines Securities C.E. Construction
Tower* Corporation
Empire Towers* Bangkok, Thailand 3rd Quarter 1998 Silom Tower Ltd. Bechtel
Foley Square New York, NY 4th Quarter 1995 Bechtel Park Tower Realty Lehrer McGovern Bovis
Courthouse
Rockwell International Chantilly, VA 3rd Quarter 1995 Rockwell International Clark Construction
</TABLE>
ESTIMATED CONTRACT VALUE BETWEEN $5 TO 15 MILLION
<TABLE>
<CAPTION>
COMPLETION
PROJECT LOCATION DATE(1) OWNER/DEVELOPER GENERAL CONTRACTOR
------- -------- ---------- --------------- ------------------
<S> <C> <C> <C> <C>
Cathay Pacific Hong Kong 4th Quarter 1999 Cathay Pacific Airways Ltd. Dragages et Travaux Publics
Terminal* (Hong Kong) Ltd.
Swiss Reinsurance Armonk, NY 3rd Quarter 1998 Swiss Re Company Turner Construction
America Headquarters*
Cleveland Health Cleveland, OH 3rd Quarter 1998 Cleveland Clinic Foundation Turner Construction
Services Center*
New York Psychiatric New York, NY 1st Quarter 1998 State of NY HRH/Hill Construction
Institute* Dormitory Authority
U.C. Davis Medical Davis, CA 4th Quarter 1997 The Regents of the Centex Golden
Center University of California
JFK Terminal One New York, NY 4th Quarter 1997 Terminal One Group Assoc. Morse Diesel International
New York Hospital* New York, NY 2nd Quarter 1997 The New York Hospital Lehrer McGovern Bovis
Minneapolis Courthouse Minneapolis, MN 4th Quarter 1996 Bechtel Park Tower Realty Turner Construction
Courthouse Associates, L.P.
320 Park Avenue New York, NY 3rd Quarter 1996 Mutual Life Insurance Turner Construction
Company
Asian Terminal Hong Kong 4th Quarter 1995 New World Group Hip Hing Construction
Building Company Ltd.("Hip Hing")
</TABLE>
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<PAGE> 30
ESTIMATED CONTRACT VALUE LESS THAN $5 MILLION
<TABLE>
<CAPTION>
COMPLETION
PROJECT LOCATION DATE(1) OWNER/DEVELOPER GENERAL CONTRACTOR
------- -------- ---------- --------------- ------------------
<S> <C> <C> <C> <C>
Sotheby's Expansion* New York, NY 1st Quarter 2000 Sotheby's Barney Skanska USA
Tai Kok Tsui Hong Kong 3rd Quarter 1998 Sino Land Development Ty International
Metro Station* Construction Company Ltd.
Boston Courthouse* Boston, MA 1st Quarter 1998 Bechtel Park Tower Realty Clark Construction
Military Hospital Hong Kong 1st Quarter 1997 Architectural Services China Overseas
Department
Ersha Island Guangzhou, China 4th Quarter 1996 Ultra Metro Consultants Ltd. Guangdong Construction
Company Ltd.
MM Dow World Kansas City, MO 2nd Quarter 1996 Marion Merrell Dow, Inc. Turner Construction
Headquarters Company
Dongguan New World Dongguan, China 1st Quarter 1996 Dongguan New World Garden & Guangdong Construction
Garden & Club Club Company Ltd.
Bausch & Lomb Rochester, NY 1st Quarter 1996 Bausch & Lomb, Inc. Le Chase Construction, Inc.
Headquarters
Arnoff Center for the Cincinnati, OH 4th Quarter 1995 State of Ohio Messer Cargille Associates
Arts Building Commission
Rock and Roll Cleveland, OH 4th Quarter 1995 Rock & Roll Hall of Fame Turner Construction
Hall of Fame Museum, Inc.
Shue Yan College Hong Kong 4th Quarter 1995 Shue Yan College Hip Hing
Bank of China Building Ching Yuan, China 4th Quarter 1995 Bank of China Guangdong Construction
Po Lin Temple Hong Kong 3rd Quarter 1995 Po Lin Temple Hip Hing
Progressive Campus Cleveland, OH 3rd Quarter 1995 Progressive Casualty Whiting-Turner Contracting
East and West Insurance Company Company
Discovery Bay Hong Kong 2nd Quarter 1995 New World Group Hip Hing
IV and V
Sony Plaza New York, NY 1st Quarter 1995 Sony Corp. Structuretone, Inc.
Li Chit Street Hong Kong 1st Quarter 1995 New World Group Hip Hing
</TABLE>
- ---------------
(1) Completion Date means (i) for completed projects, the calendar, as opposed
to fiscal, date on which the Company's employees leave the job site and (ii)
for pending projects, the estimated practical completion date according to
the project contract. Actual completion date may vary from the estimated
practical completion date. See "Risks Factors -- Delays in Completion of
Construction Projects."
STRATEGIC RELATIONSHIPS
The Company has established relationships worldwide with several of the
most respected companies in the construction industry. The Company actively
participates in the architectural design stage of its projects and has excellent
marketing and working relationships with major international architects,
including Skidmore Owings & Merrill, Kohn Pedersen & Fox and Pei Cobb. The
Company also has strategic relationships with several of the most respected
international and domestic developers and project managers, including New World
Group, Mitsui, Turner Construction, LMB and Morse Diesel. These relationships
serve to promote the Company's participation in bidding on desirable projects
and allow the Company to leverage its sophisticated management and technological
expertise with low-cost, localized labor and market knowledge. As a result, the
Company is able to offer a complete range of services, from initial design
through final installation.
Bechtel is one of the largest construction companies in the world and is
playing an active role as construction manager and developer on numerous major
construction projects. The Company has worked with Bechtel on several projects
including the construction of Bechtel's worldwide headquarters in San Francisco,
California and is currently working with Bechtel on the Empire Towers project in
Thailand. See "-- Projects."
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<PAGE> 31
The Company has worked with New World Group on several projects in Hong
Kong and the PRC and intends to build on this relationship in the future. New
World Group is a subsidiary of New World Development. New World Development is
one of the largest real estate developers in Hong Kong and owns one of the
largest land banks in the PRC.
The Company recently established a joint venture with Grupo IMSA for the
fabrication of custom curtain wall in Monterrey, Mexico. Grupo IMSA of Mexico is
a large industrial company involved in the aluminum and construction products
industries. The Company believes that this joint venture will reduce its custom
curtain wall fabrication costs for North American projects and increase its
ability to selectively target and obtain projects throughout Latin America.
COMPETITION
The U.S. and international markets for custom curtain wall construction are
cyclical and dependent on changes in general economic conditions. The curtain
wall industry remains highly competitive with numerous contractors typically
bidding on each available project. The Company encounters competition in the
U.S. and abroad from Benson Industries, Inc., Cupples Products, Glassalum,
Harmon Ltd., a subsidiary of Apogee Enterprises, Inc. and other curtain wall
contractors. The Company's primary competitors in Asia include: Far East
Aluminum Works Co., Ltd., Nippon Light Metals Hong Kong Ltd., Builder's Federal
Hong Kong Ltd., Permasteelisa Holdings Ltd., Tostem Hong Kong Ltd., YKK Hong
Kong Ltd. and Josef Gartner & Co. Ltd. (Hong Kong). The Company regularly faces
competitive bids from one or more of these competitors when bidding for custom
curtain wall contracts. Some of the Company's competitors have greater financial
resources than the Company. Although the level and nature of competition differs
between markets and among products, the Company believes that it competes on the
basis of cost, the quality of its design and workmanship, and on its reputation.
The Company expects its markets to remain highly competitive.
A limited amount of custom curtain wall projects are in development or
under construction at any given time. The Company competes for desirable
projects, financing, subcontractors, and other resources. A significant number
of the Company's projects are obtained through a bidding process, which is
subject to intense competition. There can be no assurance that the Company will
be successful in winning projects or that it will successfully complete future
or existing projects on a profitable basis. See "Risk Factors -- Competition."
BACKLOG
As of January 31, 1998 and January 31, 1997, the Company had over $43.8
million and $44.8 million in project backlog, respectively. Since January 31,
1998, the Company has been awarded six project contracts with a combined value
of approximately $55.2 million. Project backlog represents revenue anticipated
to be recognized in the future on projects awarded, as evidenced by a letter of
intent or contract, but on which (i) work has not yet been initiated or (ii)
work is currently in progress. The typical duration of a project from
commencement to completion ranges from 18 to 30 months depending upon the size
and complexity of a specific project. At April 30, 1998, the Company had
submitted bids on projects with an aggregate contract value of over $150
million. There can be no assurance that the Company will be successful in
securing any contracts as a result of these bids, that the projects will be
awarded in a timely manner or that the Company will recognize as revenue the
amounts reflected as backlog.
BONDING
The Company is dependent upon bonding facilities to obtain custom curtain
wall projects. Domestically, the Company is typically required to provide
payment and performance bonds equal to 100% of the project contract value
awarded. Internationally, the Company is typically required to provide
performance bonds in the amount of 10% of the contract value. Additionally,
international projects often include a 10% to 20% advance payment which is
payable upon execution of the project contract. In these instances, the Company
is also required to provide an advance payment bond equal to the amount of the
advance payment. While there are a limited number of bonding companies qualified
to provide both international and domestic bonding
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<PAGE> 32
facilities, a majority will only provide either domestic or international
bonding. Thus, the Company typically seeks domestic and international bonds from
different sources. The availability and terms of bonding facilities are largely
dependent upon the Company's financial condition and in particular its equity
position. If the Company were unable to secure sufficient bonding facilities
required to satisfy its contractual bonding obligations under existing and
future project contracts it could have a material adverse effect on the
Company's business, financial condition and results of operation. See "Risk
Factors -- Need for Additional Financing; Bonding."
WARRANTIES
The Company typically provides a one to five year material and workmanship
warranty in addition to the pass-through warranties provided by material
suppliers and other vendors on items such as glass and sealant. Historically,
warranty expenses have not had a material impact on the Company's operations or
its financial condition. There can be no assurances that this will continue to
be the case or that disputes over materials or workmanship will not arise in the
future.
EMPLOYEES
As of March 31, 1998, the Company employed approximately 174 people, of
whom approximately 64 were hourly employees and approximately 110 were salaried.
The Company contracts with union labor for curtain wall erection services in the
U.S. The Company considers its relations with its employees to be good. See
"Risk Factors -- Union Relations."
LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation in
the ordinary course of its business. The Company does not believe that it is
involved in any litigation, including the proceedings described below, that
will, individually or in the aggregate, have a material adverse effect on its
financial condition, results of operations or cash flow.
During the period FCAM was owned and operated by Armco, FCAM operated
facilities which allegedly generated hazardous substances. Lawsuits involving
these operations have been brought by certain parties, including the U.S.
Environmental Protection Agency ("EPA") and various state agencies, and Armco
and FCAM each have been identified as a potentially responsible party ("PRP") in
connection with certain hazardous waste sites. Pursuant to the terms of the
Armco Sale, Armco agreed to defend, indemnify and hold harmless the Company in
connection with certain lawsuits, including environmental claims associated with
any property owned or operated by, or which constituted a disposal area of,
Armco or FCAM prior to January 1, 1997 (the "Indemnification Agreement"). The
Company believes that to the extent the Company incurs any loss or liability in
connection with any such action, it will be fully compensated therefor pursuant
to the terms of the Indemnification Agreement which has not been contested to
date. No liability has been recorded on the Company's financial statements with
respect to the claims covered thereby because such claims, if any, cannot be
reasonably estimated. There can be no assurance, however, that in the event the
Company is found liable under these claims that the indemnities will be
sufficient to cover the Company's liability.
In January 1994, E.G. Smith and Armco were served with a request for
information in connection with an enforcement action for the cleanup of
hazardous waste at a facility located in Granville, Ohio. E.G. Smith and Armco
were each identified as a PRP in connection with this proceeding. The
Indemnification Agreement provides that Armco will defend, indemnify and hold
harmless the Company for any damages, fines, or penalties in connection with
this matter.
On February 28, 1993, FCAM filed a lawsuit in the Supreme Court of the
State of New York against Sky Lift Corporation ("Skylift") after Skylift
allegedly refused to complete work at a job site and abandoned the project.
Skylift filed a counterclaim seeking $1.7 million plus interest, alleging the
right to compensation for extra work, breach of contract, and other theories of
recovery.
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<PAGE> 33
PROPERTIES
The Company leases approximately 15,000 square feet of space in Johnson
City, Tennessee, which includes its corporate headquarters and engineering
facilities. The lease expires on December 31, 2002. The Company leases 41,000
square feet of space in Piney Flats, Tennessee which is used for fabrication.
The lease expires on May 30, 1998, and the Company intends to exercise its
option to extend this lease for an additional six month period upon expiration.
The Company has the option to renew the lease for two additional six month
terms. The Company leases 2,500 square feet of office space in Jericho, New
York. The lease expires on May 31, 2002. The Company has a 45% interest in a
fabrication facility located in Monterrey, Mexico, which is a joint venture with
Grupo IMSA, S.A. de C.V. The Company has a 30% interest in a fabrication
facility located in Foshan, PRC.
The Company also leases 2,000 square feet of space in Hong Kong which is
the principal executive and administrative office for Asia and is used by the
accounting, purchasing, design departments and by project managers. The lease
expires in January 1999. The Company leases 1,400 square feet of office space in
Hong Kong which is used by the design and engineering departments. The lease
expires in January 1999. The Company leases 2,900 square feet of space in
Bangkok, Thailand which is used as an administrative office. This lease is on a
month to month basis. The Company leases 3,300 square feet of space in Bangkok,
Thailand which serves as a warehouse. This lease is on a month to month basis.
The Company intends to use a portion of the proceeds from the Offering to
establish or acquire a modern fabrication facility in the PRC to meet the
demands of the Asian market for quality curtain wall systems and to satisfy
anticipated future capacity demands. See "Use of Proceeds."
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<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
directors, executive officers and certain other significant employees of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W.Y. Tang.................. 45 Chairman of the Board and Secretary
Michael J. Russo................ 37 President, Chief Executive Officer and Director
Thomas P. Scully................ 57 Interim Chief Financial Officer
Roger Ulbricht.................. 58 Vice President Business Development and
Technical Service
John M. Sonnenburg.............. 43 Vice President Operations
Michael Kaisersatt.............. 39 Vice President Purchasing and Estimating
Michael Logan................... 55 National Sales Manager
Johnson K. Fong................. 38 Director
Eugene M. Armstrong............. 79 Director*
Paul D. Lynam................... 63 Director*
</TABLE>
- ---------------
* Indicates a Director who has agreed in writing to assume his directorship
concurrently with the closing of the Offering.
John W. Y. Tang has been the Chairman of the Board of Directors and
Secretary of the Company since January 1997 and has over 10 years in the custom
curtain wall industry. From 1992 to 1997, he was a director of FCAM Asia. From
1990 to 1992, he was a Senior Structural Engineer with Ove Arup & Partners, a
U.K.-based engineering consulting firm. Between 1987 and 1990 he was the
managing director of Brinkley Holding Co., Ltd. a property development company
doing business in Canada. Mr. Tang is a registered professional engineer in
California and the U.S., a registered professional engineer in the Province of
Alberta, Canada, a chartered engineer in the United Kingdom, and a member of the
Institution of Structural Engineers in the United Kingdom. He received his
Masters Degree in Civil Engineering from the University of California at
Berkeley.
Michael J. Russo has been the President and Chief Executive Officer and a
Director of the Company since January 1997 and has over 12 years in the custom
curtain wall industry. Between 1994 and 1997, Mr. Russo served as the President
and Chief Executive Officer of FCAM. From 1991 to 1994, he was the Vice
President of Sales and Marketing of FCAM. Mr. Russo received a Bachelor's Degree
in Mass Communications from Lycoming College.
Thomas P. Scully became the Interim Chief Financial Officer of the Company
in April 1998. Mr. Scully is the founder and President of The Beta Group, Inc.,
a business consulting firm. Over the last 19 years, Mr. Scully has provided
consulting services to more than 75 companies in a variety of industries. Mr.
Scully has over 35 years of experience in finance, marketing and management. Mr.
Scully received a Bachelor's of Science degree and Masters in Business
Administration from the University of Southern California.
Roger Ulbricht has been the Vice President of Business and Technical
Services of the Company since January 1997. From 1980 to 1997, he served as Vice
President of Engineering for FCAM and has over 35 years of work experience with
FCAM.
John Sonnenburg has been the Vice President of Operations since January
1997 and has over 20 years in the custom curtain wall industry. From 1995 to
1997, he served as Vice President of Operations for FCAM. From 1992 to 1995, he
was Vice President of Operations for Apex Curtainwalls. He is also a registered
professional engineer in Texas, Louisiana and Tennessee. Mr. Sonnenburg received
a Bachelor's Degree in Civil Engineering from Purdue University.
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<PAGE> 35
Michael Kaisersatt has been the Vice President of Purchasing and Estimating
since January 1997 and has over 15 years in the custom curtain wall industry.
From 1995 to 1997 he was the Vice President of Purchasing and Estimating of
FCAM. From 1989 to 1995 he was the Manager of the Glass Department of FCAM.
Michael Logan has been the National Sales Manager of the Company since July
1997 and has over 25 years of experience in the custom curtain wall industry.
From January to July 1997, he was Manager of Business Development of the
Company. From 1994 to 1996, he was Regional Sales Manager for FCAM. From 1992 to
1994, Mr. Logan was Vice President of Sales of Frame Engineering, a privately
held curtain wall company.
Johnson K. Fong became a Director of the Company in January 1997. Mr. Fong
has been a partner of the accounting and consulting firm of Anderson & Schwartz
McGuire LLP since 1988. He is a licensed Certified Public Accountant and member
of the American Institute of Certified Public Accountants, California Society of
Certified Public Accountants and the Hong Kong Society of Accountants. Mr. Fong
received a Bachelor's Degree from the University of California at Berkeley.
Paul D. Lynam will become a Director of the Company upon the closing of the
Offering. Mr. Lynam was the Vice President -- Director of Purchasing of Turner
Construction Company from 1987 until his retirement in 1996. Mr. Lynam received
a Bachelor's Degree from Bentley College.
Eugene M. Armstrong will become a Director upon the closing of the
Offering. Mr. Armstrong was the Executive Vice President of Morrison-Knudsen
Company, Inc. from 1979 until his retirement in 1983. Mr. Armstrong received a
Bachelor's of Science degree from Western State College of Colorado and
completed graduate studies in aeronautical engineering and industrial management
at the University of California at Los Angeles.
The officers of the Company serve at the discretion of the Board. Each
director of the Company serves until such director's successor is elected and
qualified or until the director's death, retirement, resignation or removal.
The Company intends to appoint two additional independent directors to its
Board of Directors within three months of the consummation of the Offering.
Directors who are also employees of the Company or one of its subsidiaries will
not receive additional compensation for serving as directors. Each director who
is not an employee of the Company or one of its subsidiaries are paid $5,000 per
year, plus $500 for each Board of Directors' meeting and each committee meeting
they attend (unless a committee meeting is held on the same day as a Board of
Directors' meeting), reimbursement for out-of-pocket expenses incurred in
attending Board and committee meetings and stock options. See
"Management -- Stock Option Plan."
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. Following the Offering, the Board of Directors intends to
establish an audit committee (the "Audit Committee") to make recommendations to
management concerning the engagement of independent public accountants, review
with the independent public accountants the plans and results of the audit
engagement, approve professional services provided by the independent public
accountants, review independence of the independent public accountants, consider
the range of audit and non-audit fees and review the adequacy of the Company's
internal accounting controls.
Compensation Committee. Following the Offering, the Board of Directors
intends to establish a compensation committee (the "Compensation Committee") to
determine compensation of the Company's executive officers and to administer the
Company's 1997 Stock Incentive Plan (the "Plan"). The current executive officer
salaries were set by the Board.
The Company has not determined those individuals who shall serve on either
the Audit or Compensation Committee.
35
<PAGE> 36
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation paid by the Company to the Company's Chief Executive Officer in
fiscal 1997 (the "Named Executive Officer"). During fiscal 1997, the Company had
no other executive officers whose salary exceeded $100,000. The compensation
numbers below reflect compensation paid by the Company after the consummation of
the Armco Sale and do not reflect compensation paid to Mr. Russo by Armco in
connection with his services to FCAM prior to the Armco Sale.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- OTHER ANNUAL
NAME AND PRINCIPAL POSITION(S) SALARY BONUS COMPENSATION
------------------------------ --------- ------- ------------
<S> <C> <C> <C>
Michael J. Russo........................................... $108,334 $ -- $8,000
President, Chief Executive Officer
and Director
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Tang, Russo and Ulbricht have entered into employment agreements
with the Company providing for an annual base salary of $160,000, $130,000 and
$105,000, respectively. Each employment agreement is for a term of five years
commencing on January 1, 1997, with the exception of Mr. Tang's which commenced
on December 15, 1997. Each of these agreements provides that, in the event of a
termination of employment by the Company without cause, the employee will be
entitled to receive his then current salary and benefits for a period of six
months following date of termination and shall be entitled to retain all of his
Purchase Shares (as defined below) that have vested prior to the effective date
of termination. Each employment agreement contains a covenant not to compete
with the Company and not to solicit business away from the Company during the
term of employment and for one year thereafter. If the Company undergoes a
"change in control," then, under certain circumstances, the Company may
terminate its Repurchase Rights (as defined below) in their entirety as of the
date of the "change in control."
Each employment agreement, other than Mr. Tang's, provides for a stock
purchase right ("Stock Purchase Right") with respect to shares of Common Stock
of the Company in conjunction with a vesting schedule therefor which restricts
any transfers or dispositions of such shares ("Purchase Shares"). Pursuant to
the employment agreements, Messrs. Russo and UIbricht have exercised their Stock
Purchase Rights and purchased 199,861, and 39,972 shares of Common Stock of the
Company, respectively, at an exercise price of $0.00025 per share. Subject to
continued employment by the Company, such shares vest five years after date of
grant and have provisions for accelerated vesting if certain earnings targets
are met. Upon termination of employment, the Company may repurchase any unvested
shares at the exercise price of $0.00025 per share (the "Repurchase Rights").
On April 27, 1998, Mr. Scully entered into an employment agreement with the
Company to become its Interim Chief Financial Officer providing for a base
monthly salary of $25,000 for a six month term, with a renewal option for
additional one month periods on the same terms and conditions as the original
term.
STOCK INCENTIVE PLAN
In December 1997, the Company and its stockholders adopted the Company's
1997 Stock Incentive Plan (the "Plan"). The Plan provides a means to attract,
motivate, retain and reward key employees, directors and consultants of the
Company and its subsidiaries and promote the success of the Company. The Plan
provides that the maximum number of shares of Common Stock that may be issued
pursuant to outstanding grants and awards and are available for future grants
and awards under the Plan shall be equal to 500,000 shares plus 10% of any
increase in outstanding shares that occur after December 15, 1997. The maximum
number of shares that may be subject to all awards granted to any individual in
any calendar year is limited to 100,000 shares.
36
<PAGE> 37
Administration and Eligibility. The Plan provides that it will be
administered by the Board of Directors or a committee appointed by the Board of
Directors. The Board of Directors intends to appoint the Company's Compensation
Committee to administer the Plan after the Offering. The Plan empowers the
Compensation Committee, among other things, to interpret the Plan, to make all
determinations deemed necessary or advisable for the administration of the Plan
and to award to officers and other key employees, directors and consultants of
the Company and its subsidiaries ("Eligible Employees"), as selected by the
Compensation Committee, options, including incentive stock options ("ISOs") as
defined in the Code, stock appreciation rights ("SARs"), shares of restricted
stock, performance shares and other awards valued by reference to Common Stock,
based on the performance of the participant, the performance of the Company or
its Common Stock and/or such other factors as the Compensation Committee deems
appropriate.
Transferability. Generally speaking, options under the Plan are not
transferable other than by will or the laws of descent and distribution, are
exercisable only by the participant, and may be paid only to the participant or
the participant's beneficiary or representatives. However, the Compensation
Committee may establish conditions and procedures under which exercise by and
transfers and payments to certain third parties are permitted, to the extent
permitted by law.
Payment. The Plan permits optionees, with certain exceptions, to pay the
exercise price of options in cash, Common Stock (valued at its fair market value
on the date of exercise), a combination thereof or, if an option award so
provides, by delivering irrevocable instructions to a stockbroker to promptly
deliver the exercise price to the Company upon exercise (i.e., a so-called
"cashless exercise"). Cash received by the Company upon exercise will constitute
general funds of the Company and shares of Common Stock received by the Company
upon exercise will return to the status of authorized but unissued shares.
Term and Exercise Period of Options. The Plan provides that options may be
granted for such terms as the Compensation Committee may determine but not
greater than ten years after the date of the Option. The Plan does not impose
any minimum vesting period, post-termination exercise period or pricing
requirement, although in the ordinary course, customary restrictions such as
vesting periods, exercise periods and repurchase provisions will likely be
imposed. Options will generally be exercisable during the holder's employment by
the Company or by a related company. Generally speaking, options which have
become exercisable prior to termination of employment will remain exercisable
for ninety days thereafter (180 days in the case of disability or death). Such
periods, however, cannot exceed the expiration dates of the Options. The
Committee has the authority to accelerate the exercisability of Options or
(within the maximum ten-year term) extend the exercisability periods.
Non-employee Directors. Under the Plan, each director who is not an
employee (a "Non-Employee Director") will be granted stock options to purchase
20,000 shares of Common Stock upon becoming a director at an exercise price
equal to the market price of the Common Stock on that date. Non-Employee
Directors on the date of the Offering will each be granted stock options to
purchase 20,000 shares of Common Stock on the date of the Offering at the public
offering price. In addition, at the close of trading on the day of the annual
stockholders meeting in each calendar year beginning in the fourth year
following the initial grant, each Non-Employee Director on such date will be
granted stock options to purchase 5,000 shares of Common Stock at an exercise
price equal to the market price of the Common Stock on that date. All
Non-Employee Director options have a 10-year term and will vest in equal annual
installments over a four-year period commencing on the first anniversary of the
grant date. If a Non-Employee Director's services are terminated for any reason
other than the director's death, disability or retirement, any portion of stock
options held by such director that are exercisable will remain exercisable for
three months after such termination of services or until the expiration of the
term of such option, whichever occurs first. If the Non-Employee Director dies,
becomes disabled or retires, stock options held by such director will become
exercisable immediately and remain exercisable for one year after the date of
such termination of services or until the expiration of the term of such option,
whichever first occurs.
Termination, Amendment and Adjustment. The Plan may be terminated by the
Compensation Committee or by the Board of Directors at any time. In addition,
the Compensation Committee or the Board may amend the Plan from time to time,
without the authorization or approval of the Company's stockholders,
37
<PAGE> 38
unless that approval is required by law, agreement or the rules of any exchange
upon which the stock of the Company is listed. No Option may be granted under
the Plan after December 14, 2007, although options previously granted may
thereafter be amended consistent with the terms of the Plan.
Upon the occurrence of a Change in Control Event (as defined in the Plan),
in addition to acceleration of vesting, an appropriate adjustment to the number
and type of shares or other securities or property subject to an option and the
price thereof may be made in order to prevent dilution or enlargement of rights
under options.
Individual awards may be amended by the Compensation Committee in any
manner consistent with the Plan, including amendments that effectively reprice
options without changes to other terms. Amendments that adversely affect the
holder of an option, however, are subject to his or her consent.
The Plan is not exclusive and does not limit the authority of the Board of
Directors or the Compensation Committee to grant other awards, in stock or cash,
or to authorize other compensation, under any other plan or authority.
Compensation Committee Interlocks and Insider Participation
Prior to the Offering, the Company had no compensation committee or other
committee of the Board performing similar functions. Decisions concerning
compensation of executive officers were made by the Company's Board. No officer
or employee of the Company, other than Mr. Tang and Mr. Russo, participated in
deliberations concerning such compensation matters.
CERTAIN TRANSACTIONS
Since November 1, 1994, the Chairman of the Board, Mr. Tang has been
indebted to FCAM (Asia), a subsidiary of the Company, in amounts in excess of
$60,000 under certain loans. Such loans were made in connection with the
start-up and capitalization of the Asian Companies. There are no maturity dates
for these loans and they are not evidenced by a written instrument. The
following table sets forth the largest amount of indebtedness outstanding during
such period, the interest rate and the outstanding balance of such indebtedness
as of January 31, 1998:
<TABLE>
<CAPTION>
LARGEST OUTSTANDING
AMOUNT BALANCE
NAME OF INDEBTEDNESS INTEREST RATE AT JANUARY 31, 1998
---- --------------- ------------- -------------------
<S> <C> <C> <C>
John W.Y. Tang $646,107 0% $127,327
</TABLE>
Since November 1, 1994, Ng Ching Ching Rowena, Mr. Tang's wife, has been
involved in a series of transactions with FCAM (Asia) in which the amount
involved exceeded $60,000. Such transactions consisted of a series of loans from
Ms. Ng to FCAM (Asia) which were used to supplement cash flow since much of FCAM
(Asia)'s cash was used to secure banking facilities in connection with certain
projects, including the Empire Towers project. There are no maturity dates for
these loans and none are evidenced by a written instrument. The following table
sets forth, the largest amount of indebtedness incurred by FCAM (Asia) to Ms. Ng
during this period, the interest rates and the outstanding balance as of January
31, 1998:
<TABLE>
<CAPTION>
LARGEST OUTSTANDING
AMOUNT BALANCE
NAME OF INDEBTEDNESS INTEREST RATE AT JANUARY 31, 1998
---- --------------- ------------- -------------------
<S> <C> <C> <C>
Rowena Ching Ching Ng $282,291 10% $270,667
</TABLE>
In connection with the FCAM (Pacific) Acquisition in January 1997, FCI
issued 1,142,857 shares to the FCAM (Pacific) stockholders in exchange for 100%
of the issued and outstanding shares of FCAM (Pacific). As a result of the FCAM
(Pacific) Acquisition, Mr. Tang received 719,503 shares of common stock of FCI.
At the time of the FCAM Pacific Acquisition, FCI was a newly formed corporation
with no assets or liabilities. The FCAM Pacific Acquisition was structured so
that FCAM Pacific and FCAM Management owned ninety percent and ten percent of
FCI, respectively.
All future transactions with affiliates of the Company will be on terms no
more favorable to the affiliate than those available from unaffiliated third
parties and must be approved by a majority of the disinterested members of the
Company's Board of Directors.
38
<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of the Common Stock as of March 31, 1998 by (i) each person who is known to the
Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) the Named Executive Officer, and
(iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES ----------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) OWNED OFFERING OFFERING
--------------------------- ------------ -------- --------
<S> <C> <C> <C>
John W.Y. Tang(2)...................................... 2,638,176 62.0% 41.5%
Michael J. Russo....................................... 199,861 4.7 3.1
Johnson Fong........................................... -- -- --
Cynthia Lam............................................ 479,668 11.3 7.5
Gold Manor Ltd.
P.O. Box 957
Offshore Corporations Centre
Road Town
Tortola, British Virgin Islands
Mak Yim Hung
Dynamic Choice Enterprises, Inc...................... 479,668 11.3 7.5
Wickams Cay
Road Town
Tortola, British Virgin Islands
All officers and directors as a group (4 persons)...... 2,870,014 67.5% 46.9%
</TABLE>
- ---------------
(1) Unless otherwise indicated, all persons listed have an address c/o the
Company's principal executive offices and have sole voting and investment
power with respect to their shares of Common Stock, except to the extent
authority is shared by spouses under applicable law.
(2) Includes 1,918,674 shares held by Wilson International Ltd., a British
Virgin Islands corporation, of which Mr. Tang is the sole beneficial owner.
39
<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Company's Amended and Restated
Articles of Incorporation (the "Articles") and by the provisions of applicable
law. A copy of the Articles is included as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $0.0001 per share (the "Common Stock"), and 5,000,000
shares of Preferred Stock with a par value of $0.0001 per share (the "Preferred
Stock"). Upon completion of the Offering, the Company will have outstanding
6,124,468 shares of Common Stock (6,424,468 shares if the Underwriter's
Over-Allotment Option is exercised in full) and no shares of Preferred Stock.
All of the currently issued and outstanding shares of Common Stock are validly
issued, fully paid and nonassessable under the Nevada Revised Statutes ("NRS").
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. There is no cumulative voting.
Holders of Common Stock are entitled to receive ratably any dividends that may
be declared by the Board of Directors of the Company out of legally available
funds. Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company after payment of all debts and liabilities and liquidation preferences
of any outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights.
PREFERRED STOCK
Shares of unissued Preferred Stock may be issued in one or more series from
time to time with such designations, rights, preferences and limitations as the
Board of Directors may determine. The rights, preferences and limitations of
separate series of Preferred Stock may differ with respect to such matters as
may be determined by the Board of Directors including without limitation, the
rate of dividends, method or nature of payment of dividends, terms of
redemption, amounts payable on liquidation, sinking fund provisions, conversion
rights and voting rights. Such undesignated shares could also be used as an
anti-takeover device by the Company. For example, they could be issued with
"super-voting rights" and placed in the control of parties friendly to the
current management.
CERTAIN PROVISIONS OF NEVADA LAW
The Company is a Nevada corporation and is subject to certain anti-takeover
provisions of the NRS. NRS Sections 78.411 through 78.444 (the "Combination with
Interested Stockholders Statute") prohibit an "interested stockholder," under
certain circumstances, from entering into a "combination" with a Nevada
corporation, unless certain conditions are met. A "combination" includes (a) any
merger or consolidation with an "interested stockholder," or any other
corporation which is or after the merger or consolidation would be, an
"affiliate" or "associate" of the "interested stockholder," (b) certain sales,
leases, exchanges, mortgages, pledges, transfers or other dispositions of assets
of the corporation or of its subsidiary in one transaction or a series of
transactions, to or with an "interested stockholder," or any "affiliate" or
"associate" thereof, having an aggregate market value of 5% or more of the
aggregate market value either of all the assets of the corporation or
representing 10% or more of the earning power or net income of the corporation,
(c) any issuance or transfer, in one transaction or a series of transactions, of
shares of the corporation or its subsidiaries, by the corporation or its
subsidiary to stockholders, having an aggregate market value equal to 5% or more
of the aggregate market value of all the outstanding shares of the corporation,
(d) the adoption of any plan or proposal for the liquidation or dissolution of
the corporation proposed by the "interested stockholder," or any "affiliate" or
"associate" thereof, (e) certain transactions with the "interested stockholder"
or "affiliate" or "associate" thereof which would have the effect of increasing
the proportionate share of outstanding shares of the corporation or of its
subsidiary owned by the "interested stockholder," or any
40
<PAGE> 41
"affiliate" or "associate" thereof, (f) the receipt of benefits by an
"interested stockholder" or any "affiliate" or "associate" thereof, except
proportionately as a stockholder, of any loans, advances, guarantees, pledges or
other financial benefits provided by the corporation. An "interested
stockholder" is a person who is the beneficial owner of 10% or more of the
voting power of the outstanding voting shares of the corporation or is an
"affiliate" or "associate" of the corporation, that beneficially owns (or within
the prior three years, did beneficially own) 10% or more of the voting power of
the then outstanding shares of the corporation. A corporation to which the
statute applies may not engage in a "combination" within three years after the
"interested stockholder" acquired its shares, unless the "combination" or the
"interested stockholder's" acquisition of shares was approved by the board of
directors before the "interested stockholder" acquired the shares. Generally,
the "combination" may be consummated after the three-year period expires unless
the "combination" meets all requirements imposed by the corporation's articles
of incorporation and either (i) the board of directors of the corporation
approved the "combination" prior to the "interested stockholder's" date of
acquiring or purchasing shares (ii) the "combination" is approved by the
affirmative vote of holders of a majority of voting power not beneficially owned
by the "interested stockholder" or any "affiliate" or associate" thereof at a
meeting called no earlier than three years after the "interested stockholder's"
date of acquiring shares.
NRS Sections 78.378 through 78.3793 (the "Control Share Acquisition
Statute") prohibit an acquirer, under certain circumstances, from voting shares
of a target corporation's stock after crossing certain threshold ownership
percentages, unless the acquirer obtains the approval of the target
corporation's stockholders. The Control Share Acquisition Statute only applies
to Nevada corporations that (i) had 200 or more stockholders of record, 100 of
whom are residents of Nevada and (ii) do business directly or indirectly in
Nevada. The Company does not currently meet the requirements for application of
the Control Share Acquisition Statute. Therefore, it is unlikely that the
Control Share Acquisition Statute will apply to the Company.
LIMITATION OF LIABILITY
The NRS provides that a Nevada corporation may include in its articles of
incorporation a provision indemnifying officers and directors against expenses
including attorney's fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with the suit,
action or proceeding if such person acted in good faith and in a manner he or
she reasonably believed to be in the best interests of the corporation and with
respect to any criminal action or proceeding had no reasonable basis to conclude
that his or her conduct was unlawful. A Nevada corporation may also indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by reason of the fact that such
a person was an officer or director of the corporation if such person acted in
good faith and in a manner which he or she believed to be in the best interests
of the corporation.
To the fullest extent allowable under NRS, the Company's Articles and
Bylaws provide that the Company shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action or suit whether criminal, civil, administrative or investigative, by
reason of the fact that such a person, his testator or intestate was an officer,
director, of the corporation, or a predecessor of the corporation.
TRANSFER AGENT OR REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Jersey Transfer
and Trust Company, Verona, New Jersey.
41
<PAGE> 42
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering 6,124,468 shares of Common Stock of the
Company will be outstanding (6,424,468 shares upon exercise of the Underwriters'
Over-Allotment Option). Of these shares, 2,148,000 will be available for
unrestricted trading in the public market. None of the remaining outstanding
shares of Common Stock will have been registered under the Securities Act, which
means that they may be resold publicly only upon registration under the
Securities Act or in compliance with an exemption from the registration
requirements of the Securities Act, including the exemption provided by Rule 144
thereunder.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from an affiliate, the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of (i) 1% of the then outstanding shares of the Common Stock
(approximately 61,245 shares) or (ii) the average weekly reported volume of
trading of the Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain requirements pertaining to the
manner of such sales, notices of such sales and the availability of current
public information concerning the Company. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to any holding period.
Under Rule 144(k), if a period of at least two years has elapsed between the
later of the date on which restricted securities were acquired from the Company
and the date on which they were acquired from an affiliate, a holder of such
restricted securities who is not an affiliate at the time of the sale and has
not been an affiliate for at least three months prior to the sale is entitled to
sell the shares immediately without regard to volume limitations and other
conditions described above.
The Company has reserved 500,000 shares of Common Stock for issuance under
the Plan. Upon consummation of the Offering, the Company intends to grant
options to purchase 200,000 shares of Common Stock under the Plan to employees
and directors of the Company at an exercise price per share equal to the initial
public offering price on the cover hereof. In addition, in connection with this
Offering, the Company is issuing to the Representatives a warrant to purchase a
number of shares of Common Stock equal to 10% of the shares sold in this
Offering (the "Underwriters"). The Company intends (and in the case of the
Underwriter Warrant, is obligated) to file registration statements under the
Securities Act to register the shares subject to such options and warrant and,
upon effectiveness thereof, such shares will be freely tradeable in the open
market (subject to Rule 144 limitations applicable to affiliates).
The Company and its officers, directors and certain stockholders, who
beneficially own at least 61,245 shares of Common Stock in the aggregate, have
agreed not to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days from the date of this Prospectus without the prior written
consent of the Representative, except that the Company may issue shares of
Common Stock offered hereby, shares of Common Stock issued pursuant to the
exercise of outstanding options and warrants, shares of Common Stock issued
(subject to certain conditions) in connection with acquisitions and options
granted under the Company's stock option plans, so long as none of such options
become exercisable during such period.
No prediction can be made as to the effect, if any, the sale of shares or
the availability of shares for sale will have on the market price for the Common
Stock prevailing from time to time. Nevertheless, sales, or the availability for
sale of, substantial amounts of the Common Stock in the public market could
adversely affect prevailing market prices and the future ability of the Company
to raise equity capital and complete acquisitions for Common Stock.
42
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representative, Van
Kasper & Company (the "Representative"), have severally agreed to purchase from
the Company the number of shares of Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Van Kasper & Company...................................... 980,000
BT Alex.Brown Incorporated................................ 55,000
CIBC Oppenheimer Corp. ................................... 55,000
Cowen & Company........................................... 55,000
A.G. Edwards & Sons, Inc. ................................ 55,000
Furman Selz LLC........................................... 55,000
Hambrecht & Quist LLC..................................... 55,000
Lehman Brothers Inc. ..................................... 55,000
NationsBanc Montgomery Securities LLC..................... 55,000
PaineWebber Incorporated.................................. 55,000
Advest, Inc. ............................................. 35,000
D.A. Davidson & Co., Inc. ................................ 35,000
Suntrust Equitable Securities Corporation................. 35,000
EVEREN Securities, Inc. .................................. 35,000
First of Michigan Corporation............................. 35,000
Friedman, Billings, Ramsey & Co., Inc. ................... 35,000
Gaines, Berland Inc. ..................................... 35,000
Gilford Securities Corporation............................ 35,000
John G. Kinnard & Company, Incorporated................... 35,000
Morgan Keegan & Company, Inc. ............................ 35,000
Pacific Crest Securities.................................. 35,000
Sanders Morris Mundy Inc. ................................ 35,000
Stephens Inc. ............................................ 35,000
Sutro & Co. Incorporated.................................. 35,000
Tucker Anthony Incorporated............................... 35,000
---------
Total........................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby
(other than those subject to the Underwriters' Over-Allotment Option described
below) if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the price to public set forth on the cover page of this Prospectus
and to certain dealers at this price less a concession not in excess of $0.31
per share. The Underwriters may allot and these dealers may reallot a concession
not in excess of $0.10 per share to certain other dealers. After the initial
offering, the offering price and other selling terms may be changed by the
Representative.
Prior to this offering, there has been no active public market for the
Common Stock. Consequently, the initial public offering price will be determined
through negotiation among the Company and the Representative. Factors to be
considered in making such determination include the prevailing market
conditions, the Company's financial and operating history and condition, its
prospects and the market prices of securities for companies in businesses
similar to that of the Company.
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<PAGE> 44
The Company has granted to the Underwriters an option (the "Over-Allotment
Option"), exercisable no later than 45 days after the date of this Prospectus,
to purchase up to 300,000 additional shares of Common Stock at the initial
public offering price, less the Underwriting Discounts and Commissions set forth
on the cover page of this Prospectus, solely to cover over-allotments. To the
extent that the Representative acts to exercise Over-Allotment Option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof as the number of shares of Common Stock to be purchased by it
shown in the above table bears to the total offering, and the Company will be
obligated, pursuant to the option, to sell such shares of Common Stock to the
Underwriters.
In connection with the offering made hereby, the Company has agreed to sell
to the Representative, for nominal consideration, the Representative's Warrant,
which entitles the Representative to purchase from the Company 150,000 shares of
Common Stock. The Representative's Warrant is exercisable, in whole or in part,
at an exercise price of 120% of the initial public offering price at any time
during the four-year period commencing one year after the date of issuance
(which will be on or after the effective date of the Registration Statement of
which this Prospectus is a part), and cannot be transferred for a period of one
year from the date of issuance except to the Underwriters, selling group members
and their officers or partners. The warrant agreement pursuant to which the
Representative's Warrant will be issued will contain provisions providing for
adjustment of the exercise price and the number and type of securities issuable
upon exercise of the Representative's Warrant should any one or more of certain
specified events occur. The Representative's Warrant grants to the holders
thereof certain rights of registration for the securities issuable upon exercise
thereof. The exercise price of the Representative's Warrant is subject to
adjustment in the following circumstances: (i) in the case of stock dividends,
splits or reclassifications; (ii) special dividends payable by the Company in
securities other than capital stock, evidences of indebtedness, assets, or
rights, options, warrants or convertible or exchangeable securities of the
Company, or (iii) if the Company shall issue Common Stock without consideration
or for consideration per share less than the Current Market Price (as defined in
the Warrant Agreement).
At the closing of the Offering, the Company will also pay to the
Representative a non-accountable expense allowance equal to 1.5% of the total
price to public of the shares sold in the Offering.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Representative
has informed the Company that the Underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.
In connection with the Offering, the Representative may engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, the Representative may reduce that short position
by purchasing Common Stock in the open market. The Representative may also elect
to reduce any short position by exercising all or part of the Over-Allotment
Option. In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
underwriters will engage in such transaction or that such transactions, once
commenced, will not be discontinued without notice.
The Company, all of its executive officers and directors, and certain
beneficial owners of the Common Stock have agreed not to, directly or
indirectly, offer to sell, contract to sell, sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable for
shares of Common Stock or any rights to purchase or acquire Common Stock for the
180-day period from the date of this Prospectus without the prior written
consent of Van Kasper & Company. Van Kasper & Company may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements. In
44
<PAGE> 45
addition, the Company has agreed that for a period of 180 days after the date of
this Prospectus, it will not, without the prior written consent of Van Kasper &
Company, issue, offer, sell, grant options to purchase or otherwise dispose of
any equity securities or securities convertible into or exchangeable for equity
securities except for shares of Common Stock offered hereby, shares of Common
Stock issued pursuant to the exercise of outstanding options and warrants and
options granted under the Company's existing stock option plans so long as none
of such options become exercisable during said 180-day period. Sales of such
shares in the future could adversely affect the market price of the Common
Stock. See "Shares Eligible for Future Sale."
As discussed above, the Representative may, under certain circumstances,
decide to release the Company and the Company's officers, directors, employees
and certain other stockholders from the 180 day lock-up period on sales of
Common Stock as set forth in the lock-up agreements. In making such a
determination, the Representative would consider prevailing market factors and
conditions at the time of receipt of a request for release from the 180-day
restriction period. The granting of any such release would be conditioned, in
the judgment of the Representative, on such sale not materially adversely
impacting the prevailing trading market for the Common Stock on the Nasdaq
National Market. Specifically, factors such as average trading volume, recent
price trends, and the need for additional public float in the market for the
Common Stock would be considered in evaluating such a request.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Manning Marder & Wolfe, Los Angeles, California. Certain legal
matters related to the Offering will be passed on for the Underwriters by
Preston Gates & Ellis LLP, Seattle, Washington.
EXPERTS
The consolidated financial statements and related financial statement
schedule of Flour City Architectural Metals (Pacific) Limited as of and for each
of the two years in the period ending October 31, 1996 included elsewhere in
this Prospectus and elsewhere in the registration statement have been audited by
Deloitte Touche Tohmatsu, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement and are included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements and related financial statement
schedule of Flour City International, Inc. as of and for the year ended October
31, 1997 included elsewhere in this Prospectus and elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors as
stated in their reports appearing herein and elsewhere in the registration
statement, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Flour City Architectural Metals, Inc. as of and
for each of the two years in the period ending December 31, 1996, included
elsewhere in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and are
included in reliance upon the report of such firm given their authority as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement (which
term shall encompass any and all amendments thereto) on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the shares of
Common Stock offered by this Prospectus. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the SEC.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is hereby made to the exhibit for a more
45
<PAGE> 46
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. For further information with
respect to the Company, reference is hereby made to the Registration Statement
and such exhibits and schedules filed as a part thereof, which may be inspected,
without charge, at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The SEC maintains a web site that contains
reports, proxy and information statements regarding registrants that file
electronically with the SEC. The address of this web site is
(http://www.sec.gov). Copies of all or any portion of the Registration Statement
may be obtained from the Public Reference Section of the SEC, upon payment of
the prescribed fees.
46
<PAGE> 47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Flour City International, Inc. and Predecessor
Flour City Architectural Metals (Pacific) Limited:
Independent Auditors' Report.............................. F-2
Independent Auditors' Report.............................. F-3
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Income......................... F-5
Consolidated Statements of Shareholders' Equity........... F-6
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-8
Flour City Architectural Metals, Inc.:
Independent Auditors' Report.............................. F-19
Balance Sheets............................................ F-20
Statements of Operations.................................. F-21
Statements of Stockholders' Deficit....................... F-22
Statements of Cash Flows.................................. F-23
Notes to Financial Statements............................. F-24
Unaudited pro forma financial information:
Introduction to Unaudited Pro Forma Financial
Information............................................ F-27
Unaudited Pro Forma Statement of Income................... F-28
Notes to the Unaudited Pro Forma Statements of Income..... F-29
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Flour City International, Inc.:
We have audited the accompanying consolidated balance sheet, as restated,
of Flour City International, Inc. (the "Company") as of October 31, 1997, and
the related consolidated statements of income, cash flows and shareholders'
equity for the year ended October 31, 1997, as restated. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements, as restated,
present fairly, in all material respects, the financial position of Flour City
International, Inc. at October 31, 1997, and the results of its operations and
its cash flows for the year ended October 31, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
December 5, 1997
(April 2, 1998 with respect to notes 2 and 15)
F-2
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Flour City Architectural Metals (Pacific) Ltd.:
We have audited the accompanying consolidated balance sheet as restated, of
Flour City Architectural Metals (Pacific) Ltd. and subsidiaries ("FCAM Pacific")
as of October 31, 1996, and the related consolidated statements of income, cash
flows and shareholders' equity for each of the two years in the period ended
October 31, 1996, as restated. These financial statements are the responsibility
of FCAM Pacific's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements, as restated,
present fairly, in all material respects, the financial position of Flour City
Architectural Metals (Pacific) Ltd. and subsidiaries at October 31, 1996, and
the results of their operations and their cash flows for each of the two years
in the period ended October 31, 1996 in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE TOUCHE TOHMATSU
Hong Kong
June 26, 1997
(April 2, 1998 with respect to Note 2)
F-3
<PAGE> 50
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1997 AND JANUARY 31, 1998
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
------------------------ -----------
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $1,401,249 $ 341,825 $ 605,691
Restricted deposits................................. 2,357,346 3,045,817 2,598,106
Accounts receivable, net of allowance for doubtful
accounts of $153,846, $777,625 and $527,188 in
1996, 1997 and 1998............................... 2,317,900 13,401,603 8,840,378
Claims receivable (note 16)......................... -- -- 2,965,859
---------- ----------- -----------
Costs and estimated earnings in excess of
billings on uncompleted contracts................. 258,649 773,537 437,190
Inventories......................................... 563,076 -- --
Note receivable (note 13)........................... -- 1,395,000 1,395,000
Deferred income taxes (note 4)...................... -- 697,285 568,546
Other current assets................................ 108,119 445,116 504,445
---------- ----------- -----------
Total current assets........................... 7,006,339 20,100,183 17,915,215
Property, plant and equipment, net (note 5).............. 170,614 455,027 508,045
Receivable from joint venture corporations (note 8)...... 192,305 177,084 --
Investment in joint venture corporations (notes 2,3 and
6)..................................................... 201,792 193,453 125,546
Other assets............................................. -- 157,344 299,170
---------- ----------- -----------
Total assets................................... $7,571,050 $21,083,091 $18,847,976
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 21,155 $ 3,261,864 $ 2,159,048
Bank borrowings (note 10)........................... 166,141 462,993 75,273
Accrued expenses.................................... 145,626 770,277 603,602
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... 4,711,361 5,856,524 5,923,149
Advance from shareholders and directors (note 8).... 42,843 148,339 143,341
Other current liabilities........................... 397,965 285,187 170,734
Income taxes payable (note 4)....................... 56,410 506,530 245,692
Joint venture corporation capital contribution
payable (note 6).................................. 361,246 297,142 23,971
---------- ----------- -----------
Total current liabilities...................... 5,902,747 11,588,856 9,344,810
Minority interests....................................... 7,545 -- --
Negative goodwill (note 13).............................. -- 1,820,642 1,711,403
Commitments and contingencies (note 7)
Stockholders' equity:
Common Stock par value $.0001; authorized 50,000,000
shares; issued 100, 30,516,667 and 4,252,380
shares at October 31, 1996 and 1997 and January
31, 1998.......................................... 100 3,052 425
Additional paid-in capital (note 2)................. -- 528,648 343,775
Retained earnings................................... 1,660,658 6,824,003 7,633,385
Unearned compensation (note 13)..................... -- (286,670) (269,471)
Cumulative translation adjustment (note 3).......... -- 792,060 83,649
Stock subscription receivable (note 13)............. -- (187,500) --
---------- ----------- -----------
1,660,758 7,673,593 7,791,763
---------- ----------- -----------
Total liabilities and shareholders' equity..... $7,571,050 $21,083,091 $18,847,976
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 51
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997
AND THREE MONTHS ENDED JANUARY 31, 1997 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................... $4,805,853 $6,684,230 $31,875,264 $3,717,362 $ 6,461,245
Cost of revenues........... 2,772,145 3,665,358 18,030,449 2,305,899 3,341,139
---------- ---------- ----------- ---------- -----------
Gross profit............... 2,033,708 3,018,872 13,844,815 1,411,463 3,120,106
Selling, general and
administrative
expenses................. (1,006,122) (1,353,437) (6,165,380) (968,433) (1,396,898)
Non-cash stock compensation
expense (note 13)........ -- -- (57,330) (5,733) (17,199)
Amortization of negative
goodwill (note 3)........ -- -- 363,865 36,408 109,239
---------- ---------- ----------- ---------- -----------
Operating income........... 1,027,586 1,665,435 7,985,970 473,705 1,815,248
Other income (expense):
Exchange loss (note 3)... -- -- (1,336,678) (12,946) (874,401)
Interest expense......... (1,379) (8,835) (52,131) -- --
Equity in loss of joint
venture corporations
(note 2 and 6)........ (57,935) (234,983) (8,342) -- (67,907)
Interest income.......... -- 66,822 104,494 -- 8,171
Other income............. 124,538 80,537 326,070 33,896 214,023
---------- ---------- ----------- ---------- -----------
Income before minority
interest and income
taxes.................... 1,092,810 1,568,976 7,019,385 494,655 1,095,134
Income taxes (note 4)...... 154,835 148,813 1,752,496 150,000 285,752
---------- ---------- ----------- ---------- -----------
Income before minority
interests................ 937,975 1,420,163 5,266,889 344,655 809,382
Minority interests......... -- (8,974) 5,956 5,895 --
---------- ---------- ----------- ---------- -----------
Net income (note 2)........ $ 937,975 $1,411,189 $ 5,272,845 $ 350,550 $ 809,382
========== ========== =========== ========== ===========
Net income per share (note
2 and 3):
Basic.................... $ .24 $ .36 $ 1.33 $ .09 $ .21
========== ========== =========== ========== ===========
Diluted.................. $ .22 $ .32 $ 1.21 $ .08 $ .19
========== ========== =========== ========== ===========
Weighted Average Shares
Outstanding (note 3):
(in thousands)
Basic.................... 3,960 3,960 3,960 3,960 3,870
========== ========== =========== ========== ===========
Diluted.................. 4,359 4,359 4,359 4,359 4,270
========== ========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 52
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE STOCK
-------------------- PAID-IN RETAINED UNEARNED TRANSLATION SUBSCRIPTION
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION ADJUSTMENT RECEIVABLE
----------- ------ ---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31,
1994................... 100 $ 100 $ -- $ 728,133 $ -- $ -- $ --
Net income............. -- -- -- 937,975 -- -- --
Dividend of $12,966 per
share................ -- -- -- (1,296,601) -- -- --
----------- ------ ---------- ----------- --------- -------- ---------
Balance at October 31,
1995................... 100 100 -- 369,507 -- -- --
Net income for the
year................. -- -- -- 1,411,189 -- -- --
Dividend of $1,200 per
share................ -- -- -- (120,038) -- -- --
----------- ------ ---------- ----------- --------- -------- ---------
Balance at October 31,
1996................... 100 100 -- 1,660,658 -- -- --
Dividend of $1,095 per
share................ -- -- -- (109,500) -- --
Recapitalization in
connection with FCI's
acquisition of FCAM
Pacific (notes 1 and
13).................. 8,999,900 800 (800) -- -- -- --
Employee stock grant
(note 13)............ 1,000,000 100 343,900 -- (344,000) -- --
Compensation expense
(note 13)............ -- -- -- -- 57,330 -- --
Issuance of shares and
recapitalization in
connection with the
Public Merger (notes
1 and 13)............ 20,516,667 2,052 185,548 -- -- -- (187,500)
Net income............... -- -- -- 5,272,845 -- -- --
Translation adjustment... -- -- -- -- -- 792,060 --
----------- ------ ---------- ----------- --------- -------- ---------
Balance at October 31,
1997................... 30,516,667 3,052 528,648 6,824,003 (286,670) 792,060 (187,500)
One for seven reverse
stock split (note
15).................... (26,157,144) (2,616) 2,616 -- -- -- --
Repurchase of shares
(note 13).............. (107,143) (11) (187,489) -- -- -- 187,500
Net income (unaudited)... -- -- -- 809,382 -- -- --
Translation adjustment
(unaudited)............ -- -- -- -- -- (708,411) --
Compensation expense
(unaudited)............ -- -- -- -- 17,199 -- --
----------- ------ ---------- ----------- --------- -------- ---------
Balance at January 31,
1998 (unaudited)....... 4,252,380 $ 425 $ 343,775 $ 7,633,385 $(269,471) $ 83,649 $ --
=========== ====== ========== =========== ========= ======== =========
<CAPTION>
TOTAL
-----------
<S> <C>
Balance at October 31,
1994................... $ 728,233
Net income............. 937,975
Dividend of $12,966 per
share................ (1,296,601)
-----------
Balance at October 31,
1995................... 369,607
Net income for the
year................. 1,411,189
Dividend of $1,200 per
share................ (120,038)
-----------
Balance at October 31,
1996................... 1,660,758
Dividend of $1,095 per
share................ (109,500)
Recapitalization in
connection with FCI's
acquisition of FCAM
Pacific (notes 1 and
13).................. --
Employee stock grant
(note 13)............ --
Compensation expense
(note 13)............ 57,330
Issuance of shares and
recapitalization in
connection with the
Public Merger (notes
1 and 13)............ 100
Net income............... 5,272,845
Translation adjustment... 792,060
-----------
Balance at October 31,
1997................... 7,673,593
One for seven reverse
stock split (note
15).................... --
Repurchase of shares
(note 13).............. --
Net income (unaudited)... 809,382
Translation adjustment
(unaudited)............ (708,411)
Compensation expense
(unaudited)............ 17,199
-----------
Balance at January 31,
1998 (unaudited)....... $ 7,791,763
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 53
FLOUR CITY INTERNATIONAL, INC., AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997
AND THREE MONTHS ENDED JANUARY 31, 1997 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
-------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 937,975 $1,411,189 $ 5,272,845 $ 350,550 $ 809,382
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation and amortization.......... 12,251 43,213 (227,321) (15,200) (32,912)
Non-cash stock compensation............ -- -- 57,330 5,733 17,199
Deferred income taxes.................. -- -- 802,715 150,000 128,739
Minority interests..................... -- 7,545 (7,545) (7,545) --
Equity in loss of joint venture
corporations......................... 57,935 234,983 8,340 -- 67,907
Changes in operating assets and liabilities
net of effects of acquisition:
Restricted deposits.................... -- (2,357,346) (688,471) (896) 447,711
Accounts receivable.................... (934,959) (935,746) (2,033,806) (2,722,526) 4,884,687
Claims receivable...................... -- -- -- -- (2,965,859)
Receivable from affiliates............. (30,210) 77,418 -- -- --
Costs, estimated earnings and billings
on uncompleted contracts, net........ 3,519,081 1,413,163 (6,856,725) 1,147,612 402,972
Inventories............................ -- (563,076) 562,812 70,193 --
Other assets........................... (34,405) (37,529) (291,107) 139,818 (131,400)
Receivable from joint venture.......... -- (192,305) 15,221 (9,488) 177,083
Accounts payable and accrued
expenses............................. (118,796) 80,768 1,909,221 1,304,044 (1,269,491)
Amounts due to joint venture
corporations......................... (58,133) -- -- -- --
Other current liabilities.............. 323,954 (175,738) 136,514 174,405 (114,453)
Income taxes payable................... -- -- 450,120 (56,410) (260,838)
Amounts due to directors............... 65,732 42,843 105,496 (42,843) (4,998)
----------- ---------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities............................... 3,740,425 (997,650) (784,361) 487,447 2,155,729
----------- ---------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment.............................. (87,715) (109,252) (372,242) 67,635 (77,065)
Investment in joint venture
corporations........................... -- (150,346) (64,104) 54,018 (341,078)
Purchase of subsidiary net of cash and
cash equivalent acquired............... -- -- 100 100 --
----------- ---------- ----------- ----------- -----------
Net cash used in investing activities...... (87,715) (259,598) (436,246) 121,553 (418,143)
----------- ---------- ----------- ----------- -----------
Cash flows from financing activities:
Increase in bank borrowings.............. 86,800 328,633 533,670 93,296 387,720
Cash dividends paid...................... (1,296,601) (120,038) (109,487) (109,375) --
----------- ---------- ----------- ----------- -----------
Net cash (used in) provided by financing
activities............................... (1,209,801) 208,595 424,183 202,671 387,720
----------- ---------- ----------- ----------- -----------
Effect of exchange rate changes on cash.... -- -- (263,000) -- (1,086,000)
----------- ---------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.............................. 2,442,909 (1,048,653) (1,059,424) 163,223 263,866
Cash and cash equivalents, beginning of
period................................... 6,993 2,449,902 1,401,249 1,401,249 341,825
----------- ---------- ----------- ----------- -----------
Cash and cash equivalents, end of period... $ 2,449,902 $1,401,249 $ 341,825 1,564,472 $ 605,691
=========== ========== =========== =========== ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest............................... $ 1,379 $ 8,835 $ 52,132 $ 8,465 17,215
Income taxes........................... 154,835 148,813 477,496 -- 361,441
Significant non-cash financing activities:
Non-cash stock compensation.............. $ -- $ -- $ 344,000 $ 344,000 $ --
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 54
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Flour City Architectural Metals (Pacific) Limited ("FCAM Pacific") is
incorporated in the British Virgin Islands and operates through four partly and
wholly owned subsidiaries.
On January 17, 1997, FCAM Pacific was acquired by Flour City International,
Inc. ("FCI"), a Nevada corporation with no assets or operations, in an exchange
of stock. The previous owners of FCAM Pacific became shareholders of 90% of the
common stock of FCI, with the remaining 10% held by management of Flour City
Architectural Metals, Inc. ("FCAM") pursuant to employment agreements.
On January 24, 1997, effective January 1, 1997, FCI acquired FCAM from
Armco, Inc. ("Armco") for $100 (the "Armco Sale").
Effective May 16, 1997, International Forest Industries, Inc. ("IFI"), a
Nevada corporation with nominal assets and operations, acquired FCI in an
exchange of stock with the previous shareholders of FCI acquiring approximately
92% of the common stock of IFI and the existing shareholders of IFI retaining 8%
of its common stock. IFI then changed its name to Flour City International, Inc.
and FCI was merged into it. Flour City International, Inc. and its subsidiaries
and its historical accounting predecessor is herein referred to as the
"Company."
The acquisition of FCAM Pacific by FCI on January 17, 1997 and the
acquisition of FCI by IFI on May 16, 1997 have both been treated as
recapitalizations and the acquisition of FCAM by FCI effective January 1, 1997
has been accounted for as a purchase acquisition. As a result, these financial
statements present FCAM Pacific as the predecessor and continuing entity for
accounting purposes and utilize the FCAM Pacific historical basis of accounting.
The financial statements present results of operations and financial position of
the following entities from the date indicated to January 31, 1998:
<TABLE>
<S> <C>
FCAM Pacific...................................... November 1, 1994
FCAM.............................................. January 1, 1997
</TABLE>
The principal activities of the Company are design, supply and installation
of curtain wall. It operates through subsidiaries and joint venture corporations
principally in the United States ("U.S."), Hong Kong, Thailand, Malaysia and the
Peoples' Republic of China (the "PRC").
The financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") which differ from those used in the statutory accounts of its
subsidiaries. There are no material differences between the U.S. GAAP amounts
and the amounts used in the statutory accounts of the subsidiaries.
2. RESTATEMENT FOR PUBLIC MERGER AND JOINT VENTURE ACCOUNTING
The Company has restated the accompanying financial statements to reflect
the merger of IFI and FCI as a recapitalization versus a reverse purchase
acquisition as previously reported. Additionally, the Company had previously
accounted for investments in the two 30% owned joint ventures under the cost
method and the accompanying financial statements have been restated to account
for these investments under the equity method.
F-8
<PAGE> 55
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the impact of this restatement on the financial statements as
of October 31, 1996 and 1997 and for the years ended October 31, 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
PREVIOUSLY REPORTED AS RESTATED
OCTOBER 31, OCTOBER 31,
------------------------ ------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investments in joint venture
corporations............................ $ 410,725 $ 410,725 $ 201,792 $ 193,453
Goodwill.................................. -- 1,268,286 -- --
Stockholders' equity...................... 1,869,691 9,159,151 1,660,758 7,673,593
</TABLE>
<TABLE>
<CAPTION>
PREVIOUSLY REPORTED AS RESTATED
YEAR ENDED YEAR END
OCTOBER 31, OCTOBER 31,
------------------------------------ ----------------------------------
1995 1996 1997 1995 1996 1997
-------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Amortization of
goodwill............... $ -- $ -- $ (103,885) $ -- $ -- $ --
Equity in loss of joint
venture corporations... -- (98,535) -- (57,935) (234,983) (8,342)
Net income 995,910 1,547,637 5,226,031 937,975 1,411,189 5,272,845
Net income per share(1):
Basic.................. .28 .43 1.28 .24 .36 1.33
Diluted................ .28 .43 1.28 .22 .32 1.21
</TABLE>
- ---------------
(1) The previously reported EPS reflects the Company's one for seven reverse
stock split, effected April 7, 1998.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -- The consolidated financial statements
include the assets, liabilities, revenues and expenses of all material
subsidiaries. All material intercompany transactions and balances have been
eliminated.
"Investments in joint venture corporations" are accounted for on the equity
method.
Revenue and cost recognition -- The Company is engaged in various types of
construction under long-term construction contracts. The accompanying financial
statements have been prepared using the percentage-of-completion method of
accounting and, therefore, take into account the cost, estimated earnings and
revenue to date on contracts not yet completed.
The amount of revenue recognized at statement date is the portion of the
total contract price that the cost expended to date bears to the anticipated
final total cost, based on current estimates of cost to complete. Contract cost
includes all direct labor and benefits, materials unique to or installed in the
project, subcontract costs, and allocated indirect construction costs. From time
to time the Company makes claims for additional billings to its customers
because of owner-caused delays, incomplete specifications or similar reasons.
Such claims involve negotiations and sometimes litigation. No revenue is
included for claims until agreement is obtained that such amount is owed.
As the long-term contracts extend over one or more years, revisions in
estimates of cost and earnings during the course of the work are reflected in
the accounting period in which the facts that require the revision become known.
At the time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss is recognized in the financial statements.
Cash and cash equivalents -- Cash and cash equivalents include cash on
hand, cash accounts, interest bearing savings accounts, and time certificates of
deposit with an original maturity of three months or less.
F-9
<PAGE> 56
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Restricted deposits -- Restricted deposits represent funds set aside to
collateralize performance bonds. They represent interest bearing securities
maturing within twelve months from date of purchase. The market value of such
securities approximates cost.
Trade accounts receivable -- In accordance with terms of long-term
contracts, certain percentages of billings are withheld by customers until
completion and acceptance of the contracts. Final payments of all such amounts
withheld which might not be received within a one-year period from October 31,
1997 are $2,825,353. In conformity with trade practice, however, the full amount
of accounts receivable has been included in current assets.
Inventory -- Inventory, consisting principally of aluminium ingots, is
stated at the lower of cost, determined by the weighted average method, or
market.
Property, plant and equipment -- Property, plant and equipment is stated at
cost.
Depreciation and amortization -- Depreciation is provided to write off the
cost of property, plant and equipment over their estimated useful lives, using
the straight line method, at the following rates per annum:
<TABLE>
<S> <C>
Office equipment............................................ 25%
Furniture and fixtures...................................... 20%
Leasehold improvements...................................... 20%
Motor vehicles.............................................. 25%
</TABLE>
Negative goodwill -- Negative goodwill is being amortized over 5 years on
the straight-line method.
Income taxes -- The Company uses an asset and liability approach in
providing for income taxes on all transactions that have been recognised in the
financial statements, in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
deferred taxes be adjusted to reflect the tax rates at which future taxable
amounts will be settled or recognised. The effects of tax rate changes on future
deferred tax liabilities and deferred tax benefits, as well as other changes in
income tax laws, are recognised in net earnings in the period such changes are
enacted. No provision has been made for taxes on undistributed earnings of
foreign subsidiaries to the extent that it is management's intent to permanently
reinvest such earnings and their current taxability is not reasonably foreseen.
Provision for taxes is made on such unremitted earnings to the extent that
management believes they will be taxed at the parent company level.
Foreign currency translation -- The consolidated financial statements of
the Company are presented in U.S. dollars. The majority of the Company's
operations outside the United States are conducted in Hong Kong dollars or Thai
baht.
On consolidation, the financial statements of subsidiaries outside the
United States are translated from the local functional currency into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Accordingly, all assets and liabilities are
translated at the exchange rate prevailing at the balance sheet date and all
income and expenditure items are translated at the average rates for each of the
years. Gains or losses from foreign currency transactions are included in net
income.
On July 2, 1997 the Thai Baht was effectively devalued and allowed to float
against the U.S. dollar and other currencies. As a result, an exchange loss of
the equivalent of $1,336,676 was realized and reflected in the statement of
income for the year ended October 31, 1997. The translation of the financial
statements of the Company's Thai subsidiary has resulted in a cumulative
translation adjustment of $792,060 at October 31, 1997.
F-10
<PAGE> 57
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Employee benefits -- The Company does not provide any retirement or
postretirement benefits other than a defined contribution 401k plan.
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 disclosures 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.
Asset impairment -- The Company assesses impairment of long-lived assets,
in accordance with criteria consistent with the provisions of Financial
Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of.
Earnings per share -- Earnings per share have been determined pursuant to
the provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share," for all periods presented. Retroactive effect has been
given for the merger and recapitalizations described in note 1 and the one for
seven reverse stock split declared February 24, 1998, as described in Note. 15.
Below is a reconciliation for the three years in the period ended October
31, 1997 and the three months ended January 31, 1997 and 1998, of the difference
between basic weighted average shares outstanding and diluted weighted average
shares outstanding:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
----------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average shares -- basic......... 3,959,714 3,959,714 3,959,714 3,959,714 3,870,429
Effect of dilutive employee stock
grants................................. 399,714 399,714 399,714 399,714 399,714
--------- ---------- ---------- --------- ---------
Weighted average shares -- diluted....... 4,359,428 4,359,428 4,359,428 4,359,428 4,270,143
--------- ---------- ---------- --------- ---------
</TABLE>
Unaudited interim information -- The unaudited interim financial statements
include all adjustments, consisting only of normal recurring adjustments, which
management considers necessary for a fair presentation of the financial position
and results of operations. The results of operations for the three months ended
January 31, 1998 are not necessarily indicative of the results that may be
expected for a full year.
4. INCOME TAXES
The Company is not taxed in the British Virgin Islands where FCAM Pacific
is incorporated. The Company's subsidiaries incorporated in Hong Kong are
subject to Hong Kong taxation on their activities conducted in Hong Kong. As
described in Note 1, on January 17, 1997, FCAM Pacific became a subsidiary of a
United States corporation and, as a consequence, became subject to provisions of
the United States income tax code. As a result, the taxing jurisdiction of the
consolidated group changed to the United States effective as of January 17,
1997.
Income is subject to taxation in the various countries in which the Company
and its subsidiaries operate. The components of income before income taxes are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Hong Kong...................................... $ (660,354) $ (713,567) $ (385,235)
Malaysia and Thailand.......................... 1,753,164 2,282,543 3,706,548
United States.................................. -- -- 3,698,072
---------- ---------- ----------
$1,092,810 $1,568,976 $7,019,385
========== ========== ==========
</TABLE>
F-11
<PAGE> 58
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Current:
Hong Kong....................................... $ -- $ -- $ --
Malaysia and Thailand........................... 154,835 148,813 252,496
United States................................... -- -- 697,285
-------- -------- ----------
154,835 148,813 949,781
Deferred -- United States......................... -- -- 802,715
-------- -------- ----------
$154,835 $148,813 $1,752,496
======== ======== ==========
</TABLE>
Deferred taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net operating loss carryforwards in Hong Kong...... $ -- $ 58,696 $ 52,850
Valuation allowance................................ -- (58,696) (52,850)
Basis difference in contracts in process........... -- -- 400,000
Allowance for doubtful accounts.................... -- -- 150,000
Other.............................................. -- -- 147,285
-------- -------- --------
$ -- $ -- $697,285
======== ======== ========
</TABLE>
A valuation allowance has been established for deferred tax assets related
to net operating loss carryforwards in Hong Kong as management believes it is
more likely than not such amounts will not be realized. At October 31, 1997, no
valuation allowance related to other deferred tax assets was recorded as
management believes it is more likely than not such assets will be realized.
The effective tax rate of the Company varied from the statutory rate (the
Hong Kong statutory rate is used through October 31, 1996 and the United States
rate is used thereafter) for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------
1995 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
Statutory tax rate............................... 16.5% 16.5% 34%
======== ========= ==========
Statutory tax rate applied to income before
taxes.......................................... $180,314 $ 258,881 $2,386,591
State income taxes............................... -- -- 218,576
Profits in foreign subsidiaries taxed at less
than the statutory rate........................ (25,479) (110,068) (658,945)
Negative goodwill amortization................... -- -- (124,000)
Other............................................ -- -- (69,726)
-------- --------- ----------
Income tax provision............................. $154,835 $ 148,813 $1,752,496
======== ========= ==========
</TABLE>
The amount of accumulated earnings of subsidiaries outside of the U.S. at
October 31, 1997 for which U.S. taxes have not been provided as management does
not intend to repatriate such amounts or otherwise cause them to become taxable
is approximately $4,800,000.
F-12
<PAGE> 59
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT -- NET
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1996 1997
-------- ---------
<S> <C> <C>
At cost:
Office equipment.................................... $149,714 $ 369,348
Furniture and fixtures.............................. 70,381 162,376
Leasehold improvements.............................. 14,977 71,590
Motor vehicles...................................... 10,256 14,256
-------- ---------
Total................................................. 245,328 617,570
Less: Accumulated depreciation and amortization....... (74,714) (162,543)
-------- ---------
Net book value........................................ $170,614 $ 455,027
======== =========
</TABLE>
6. INVESTMENT IN JOINT VENTURE CORPORATIONS
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Foshan Weidu Aluminium Window Manufacturing Company,
Ltd.................................................. $ 88,992 $ 79,968
Foshan Weidu Decoration Engineering Company, Ltd....... 112,800 113,485
-------- --------
$201,792 $193,453
======== ========
</TABLE>
The Company, through a subsidiary, owns 30% of each of the above
corporations at October 31, 1997. During 1996, the Company acquired 70% of the
equity of Foshan Weidu Decoration Engineering Company, Ltd. and disposed of 40%
in the same year.
The joint venture capital contribution payable is principally for a
commitment to provide additional capital to Foshan Weidu Decoration Engineering
Company, Ltd.
7. COMMITMENTS AND CONTINGENCIES
The Company leases premises under various operating leases. At October 31,
1997, the Company and its subsidiaries were committed under operating leases
requiring minimum rentals as follows:
<TABLE>
<S> <C>
Year ending October 31:
1998...................................................... $268,758
1999...................................................... 87,100
2000...................................................... 101,948
2001...................................................... 101,948
2002...................................................... 30,303
--------
Total minimum lease payments................................ $590,057
========
</TABLE>
In addition to the above operating lease commitments there is a performance
guarantee of $129,534 outstanding in relation to a construction contract in
progress.
FCAM is a party to legal proceedings incidental to its business. In one
case, FCAM filed suit against a subcontractor for non-performance in the amount
of $1.4 million and the subcontractor has filed a counterclaim against FCAM in
the amount of $1.7 million. There is currently no scheduled date for the
commencement of trial. The Company was named as a party to certain environmental
actions which arose
F-13
<PAGE> 60
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
prior to FCAM's sale by Armco. Armco, pursuant to the sale agreement, agreed to
defend, indemnify, and hold harmless the Company in connection with these
actions. Other litigation to which the Company is a party is immaterial. In the
opinion of management, any ultimate liability with respect to these actions will
not materially affect the financial position, results of operations or cash
flows of the Company.
8. RELATED PARTY TRANSACTIONS
SHAREHOLDERS AND MANAGEMENT
At October 31, 1997, the Company had outstanding loans payable to directors
and shareholders in the amount of $148,339. The loans are unsecured, carry no
interest and have no fixed terms of repayment.
JOINT VENTURE CORPORATIONS
The Company and its subsidiaries have transactions with its 30% owned joint
venture corporations as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Sales to joint venture corporations........ $282,145 $370,408 $110,841
</TABLE>
The Company and its subsidiaries had the following balances with the above
joint ventures:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Amounts receivable from joint venture corporations..... $192,305 $177,084
</TABLE>
9. SEGMENT INFORMATION
The Company operates in one business segment, which is to design, supply
and install curtain wall.
F-14
<PAGE> 61
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
An analysis of revenues, operating profit and identifiable assets by
geographic location as provided for under Statement of Financial Accounting
Standards No. 14, Financial Reporting for Segments of a Business Enterprise, is
as follows:
<TABLE>
<CAPTION>
HONG KONG MALAYSIA AND UNITED
AND THE PRC THAILAND STATES CONSOLIDATED
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1995
Revenues from third parties............ $1,160,898 $ 3,362,810 $ -- $ 4,523,708
Revenues from joint venture
corporations......................... 282,145 -- -- 282,145
---------- ----------- ----------- -----------
Total revenues....................... 1,443,043 3,362,810 -- 4,805,853
Income (loss) before income taxes...... (669,910) 1,762,720 -- 1,092,810
Identifiable assets.................... 1,442,838 2,907,481 -- 4,350,319
========== =========== =========== ===========
YEAR ENDED OCTOBER 31, 1996
Revenues from third parties............ $1,418,769 $ 4,895,053 $ -- $ 6,313,822
Revenues from joint venture
corporations......................... 370,408 -- -- 370,408
---------- ----------- ----------- -----------
Total revenues....................... 1,789,177 4,895,053 -- 6,684,230
Income (loss) before income taxes...... (713,567) 2,282,543 -- 1,568,976
Identifiable assets.................... 4,877,768 2,693,282 -- 7,571,050
========== =========== =========== ===========
YEAR ENDED OCTOBER 31, 1997
Revenues from third parties............ $1,970,177 $10,736,794 $19,057,452 $31,764,423
Revenues from joint venture
corporations......................... 110,841 -- -- 110,841
---------- ----------- ----------- -----------
Total revenues....................... 2,081,018 10,736,794 19,057,452 31,875,264
Income (loss) before income taxes...... (385,249) 3,706,548 3,698,086 7,019,385
Identifiable assets.................... 1,671,436 7,283,750 12,127,905 21,083,091
========== =========== =========== ===========
</TABLE>
Export sales for the year ended October 31, 1995 were to the PRC in the
amount of $583,965. In subsequent periods, export sales were less than 10% of
total revenues.
10. BANK BORROWINGS
These represent borrowings in the form of bills payable, invoice financing,
and other short-term loans with certain commercial banks.
<TABLE>
<CAPTION>
YEAR ENDED AND AT OCTOBER 31,
------------------------------------
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Total credit facilities available....... $115,385 $1,282,051 $1,282,051
Total utilized facilities............... $ 86,800 $ 166,141 462,993
Weighted average interest rate on
borrowings at end of year............. 10.50% 10.25% 9.5%
</TABLE>
All the above credit facilities were guaranteed by the Chairman of the
Board of Directors throughout the relevant years. Interest rates in respect of
such facilities are generally based on the banks' prime lending rates and the
credit lines are normally subject to annual review.
F-15
<PAGE> 62
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Details of the customers accounting for 10% or more of total revenues and
accounts receivable for each of the three years ended and at October 31, 1995,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AND AT
OCTOBER 31,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Customer A......................................... 14% -- --
Customer B......................................... 70% 76% 34%
Customer C......................................... -- -- 33%
Accounts receivable:
Customer A......................................... 36% 22% --
Customer B......................................... 53% 70% 31%
Customer C......................................... -- -- 6%
</TABLE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, restricted deposits,
receivable from joint venture corporations, investment in joint venture
corporations, advance from shareholders and amounts due to joint venture
corporations, are reasonable estimates of their fair value because of the
relatively short maturities of these instruments. The carrying value of bank
loans payable approximate fair value as they have variable interest rates.
13. ACQUISITIONS AND RECAPITALIZATIONS
The acquisitions of FCAM Pacific by FCI and FCI by IFI described in Note 1
have both been accounted for as recapitalizations, accordingly, no value has
been attributed to the shares issued and they are treated as being outstanding
for all periods presented for purposes of computing earnings per share.
The net amount paid in the Armco sale was $100 cash. This acquisition has
been accounted for as a purchase. The net amount paid was allocated to the fair
value of the assets, liabilities and contracts assumed, with the excess of fair
value of net assets acquired used to first reduce property, plant and equipment
to zero and then credited to negative goodwill. The allocation of the price was
as follows:
<TABLE>
<S> <C>
Billed accounts receivable.................................. $$7,971,869
Other assets................................................ 251,785
Deferred income taxes....................................... 1,500,000
Note receivable -- Armco.................................... 1,395,000
Payables and other current liabilities...................... (1,447,047)
Billings in excess of cost and estimated earnings on
uncompleted contracts..................................... (7,487,000)
Negative goodwill........................................... (2,184,507)
----------
Net amount paid............................................. $ 100
==========
</TABLE>
The note receivable from Armco is unsecured and is without interest. It is
payable upon the occurrence of the Company either posting a performance bond or
completing and relieving Armco of performance obligations on certain contracts
assumed.
One shareholder of IFI had subscribed to but not paid for 107,143 shares of
IFI common stock for $187,500. This subscription was subject to repurchase by
the Company at the subscription price. In November
F-16
<PAGE> 63
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1997 the Company exercised its repurchase right and the subscription receivable
was cancelled and the shares returned to the Company.
The operating results of FCAM have been included in the Consolidated
Statement of Income from January 1, 1997, the effective date of acquisition. On
the basis of an unaudited pro forma consolidation of the results of operations
as if the acquisition had taken place at November 1, 1995, consolidated revenues
would have been $24,283,000 and $35,229,000 for the years ended October 31, 1996
and 1997, respectively. Consolidated pro forma net income (loss) and diluted net
income (loss) per share would have been $(1,441,000) and $5,471,000 and $(.33)
per share and $1.26 per share for the years ended October 31, 1996 and 1997,
respectively. Such pro forma amounts are not necessarily indicative of what the
actual consolidated results of operations might have been if the acquisition had
been effective at the beginning of fiscal 1996. In computing the pro forma
amounts, no adjustment has been made to retroactively reflect the amounts
allocated to the fair value of the contracts acquired from FCAM on January 1,
1997, as it is not possible to recast what values would have been attributable
to such contracts at November 1, 1995 nor what effect such contracts might have
had on the purchase price of FCAM.
Three employees of the Company, in connection with their employment
agreements effective January 1, 1997, have been granted an aggregate of 142,857
shares of restricted common stock of the Company (399,714 shares after the
merger with IFI). Such shares vest five years after date of grant and have
provisions for accelerated vesting if certain earnings targets are met. The fair
value of the stock issued at the date of grant has been reflected as unearned
compensation and is charged to operations over five years.
14. RECENTLY ISSUED ACCOUNTING STANDARDS
Segment information -- In June 1997, the FASB issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
supersedes portions of SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS No. 131 is effective for the Company commencing in its
year ending October 31, 1999. Company management has not completely assessed the
effects of SFAS No. 131 on its segment reporting, however, it does not currently
believe that there will be significant changes from the information currently
being reported.
Comprehensive income -- In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income, which becomes effective for the Company
commencing in its year ending October 31, 1999. Company management does not
believe, based on current activities, that adoption of this statement will have
a significant effect on its financial statements except to the extent that
cumulative foreign currency translations are included in comprehensive income.
15. SUBSEQUENT EVENT -- REVERSE STOCK SPLIT
On February 24, 1998 the Board of Directors declared a 1 for 7 stock split
to be effective prior to the closing of the Company's public offering. All per
share and weighted average share information in these financial statements have
been restated to reflect the effect of such stock split.
16. SUBSEQUENT EVENTS -- CLAIM RECEIVABLE, BAHT DEVALUATION (UNAUDITED)
The Company has one contract in Thailand denominated in Thai baht which has
been affected by the devaluation of the baht and the resulting economic
difficulties experienced by many Asian Pacific countries, including Thailand. In
July 1997, the government of Thailand changed its policy of pegging the baht to
the U.S. dollar and the baht has deteriorated in value from approximately 25 to
the U.S. dollar at that time to approximately 51 at January 31, 1998.
F-17
<PAGE> 64
FLOUR CITY INTERNATIONAL, INC. AND PREDECESSOR
FLOUR CITY ARCHITECTURAL METALS (PACIFIC) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Included on the January 31, 1998 consolidated balance sheet is a claim
receivable for the baht equivalent of 2,965,859 which has been recorded pursuant
to a clause in the contract which provides protection to the Company for changes
in government policy. The recording of this claim is in accordance with the
provisions of Statement of Position "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts" issued by the
Accounting Standards Division of the American Institute of Certified Public
Accountants.
Included in accounts receivable at October 31, 1997 is the baht equivalent
of approximately $1,000,000, representing amounts billed to and tentatively
agreed to by the owner for losses incurred by the company to that date. In
January 1998, the owner did not pay the amount billed on its scheduled payment
date and requested that it be included in the final claim settlement.
Accordingly, that amount is included in claims receivable at January 31, 1998.
In March 1998 the Company received a tentative claims agreement from the
owner of the Thai Project acknowledging their liability and intent to pay the
baht equivalent of approximately $2,279,859 relative to the devaluation claim,
to be paid in installments beginning in March 1998 through June 1998. On April
2, 1998, management received an additional written acknowledgment from the owner
for the remaining claim of approximately $686,000 to be paid by July 31, 1998.
At January 31, 1998, total amounts due from this one customer, including
the above claims, denominated in Thai baht, are the baht equivalent of
approximately $4,175,000. In the event of non-payment of any receivables in
Thailand, the Company may be subjected to seeking recourse through legal
proceedings in Thailand or arbitration in an undetermined jurisdiction, either
of which could be a relatively lengthy process.
F-18
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
Board of Directors
Flour City Architectural Metals, Inc.
Johnson City, Tennessee
We have audited the accompanying balance sheets of Flour City Architectural
Metals, Inc. ("FCAM"), as of December 31, 1995 and 1996, and the related
statements of operations, cash flows and stockholders' deficit for the years
then ended. These financial statements are the responsibility of the FCAM'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, such financial statements present fairly, in all material
respects, the financial position of Flour City Architectural Metals, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
June 4, 1997
F-19
<PAGE> 66
FLOUR CITY ARCHITECTURAL METALS, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 2)........................ $ 124,528 $ 168,054
Accounts receivable, less allowance for doubtful accounts
of $372,342 and $430,342, respectively (Note 3)........ 9,632,823 7,987,138
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 473,837 185,682
Other current assets...................................... 96,916 64,750
------------ ------------
Total current assets................................... 10,328,104 8,405,624
Property, Plant and Equipment, net (Notes 2 and 4).......... 2,299,649 740,069
------------ ------------
Total............................................. $ 12,627,753 $ 9,145,693
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 2,178,397 $ 1,218,947
Accrued and other liabilities............................. 1,953,569 798,733
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 3,041,092 3,656,738
Due to Armco and affiliates, net (Note 5)................. 27,953,666 28,346,515
------------ ------------
Total current liabilities.............................. 35,126,724 34,020,933
Commitments and Contingencies (Note 10)
Stockholder's Deficit:
Common Stock, $1 par, 1,000 shares authorized, issued and
outstanding............................................ 1,000 1,000
Additional paid-in capital................................ 1,991,748 1,991,748
Accumulated deficit....................................... (24,491,719) (26,867,988)
------------ ------------
Total stockholders' deficit............................ (22,498,971) (24,875,240)
------------ ------------
Total............................................. $ 12,627,753 $ 9,145,693
============ ============
</TABLE>
See notes to financial statements.
F-20
<PAGE> 67
FLOUR CITY ARCHITECTURAL METALS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Revenues (Notes 2 and 6).................................... $ 22,942,579 $ 17,129,561
Cost of revenues (Notes 2 and 5)............................ (23,394,221) (15,085,547)
------------ ------------
Gross profit (loss)......................................... (451,642) 2,044,014
Selling, general and administrative expenses (Notes 5, 7, 8
and 9).................................................... (5,533,445) (4,641,424)
------------ ------------
Operating income (loss)..................................... (5,985,087) (2,597,410)
Other income................................................ 293,765 221,141
------------ ------------
Net loss.................................................... $ (5,691,322) $ (2,376,269)
============ ============
</TABLE>
See notes to financial statements.
F-21
<PAGE> 68
FLOUR CITY ARCHITECTURAL METALS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT PAID-IN-CAPITAL DEFICIT
------ ------ --------------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995...................... 1,000 $1,000 $1,991,748 $(18,800,397)
Net loss.................................... -- -- -- (5,691,322)
----- ------ ---------- ------------
Balance, December 31, 1995.................... 1,000 1,000 1,991,748 (24,491,719)
Net loss.................................... -- -- -- (2,376,269)
----- ------ ---------- ------------
Balance, December 31, 1996.................... 1,000 $1,000 $1,991,748 $(26,867,988)
===== ====== ========== ============
</TABLE>
See notes to financial statements.
F-22
<PAGE> 69
FLOUR CITY ARCHITECTURAL METALS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(5,691,322) $(2,376,269)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 167,335 49,218
Provision for losses on contract receivables........... 846,648 624,724
Changes in assets and liabilities:
Decrease in accounts receivable........................ 1,893,394 1,645,685
Decrease in costs and estimated earnings in excess of
billings on uncompleted contracts..................... 833,270 288,155
Decrease in other current assets....................... 1,450,289 32,166
Decrease in accounts payable........................... (1,472,880) (959,450)
Increase in billings in excess of costs and estimated
earnings on uncompleted contracts..................... 318,825 615,646
Decrease in accrued and other liabilities.............. (6,070,417) (1,779,560)
----------- -----------
Net cash used in operating activities.................. (7,724,858) (1,859,685)
Cash flows from investing activities:
Purchase of property and equipment........................ (15,256) (18,481)
----------- -----------
Net cash used in investing activities.................. (15,256) (18,481)
Cash flows from financing activities:
Increase in due to Armco and affiliates................... 7,606,418 1,921,692
----------- -----------
Net cash provided by financing activities.............. 7,606,418 1,921,692
----------- -----------
Net increase (decrease) in cash and cash equivalents........ (133,696) 43,526
Cash and cash equivalents, beginning of year................ 258,224 124,528
----------- -----------
Cash and cash equivalents, end of year...................... $ 124,528 $ 168,054
=========== ===========
Supplemental disclosures of cash flow information:
Significant non-cash investing and financing activity:
Property and equipment transferred at net book value to
another Armco affiliate:
Property and equipment................................. $ -- $(1,528,843)
=========== ===========
Due to Armco and affiliates............................ $ -- $ 1,528,843
=========== ===========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 70
FLOUR CITY ARCHITECTURAL METALS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
1. ORGANIZATION AND BUSINESS
Flour City Architectural Metals, Inc. ("FCAM") was a wholly-owned
subsidiary of Armco, Inc. ("Armco") until January 24, 1997 at which time it was
sold to Flour City International, Inc. ("FCI"). Such sale was effective as of
January 1, 1997. In May 1997, FCI merged into a publicly traded shell
corporation, International Forest Industries, Inc. ("IFI"), which has changed
its name to Flour City International, Inc.
The historical financial statements through December 31, 1996 reflect only
the operations of the business of engineering, designing, fabricating and
installing high-rise curtainwall systems included in the January 1, 1997 sale
mentioned above. Such financial statements are stated on Armco's historical cost
basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue and cost recognition -- FCAM is engaged in various types of
construction under long-term construction contracts. The accompanying financial
statements have been prepared using the percentage-of-completion method of
accounting and, therefore, take into account the cost, estimated earnings and
revenue to date on contracts not yet completed.
The amount of revenue recognized at statement date is the portion of the
total contract price that the cost expended to date bears to the anticipated
final total cost, based on current estimates of cost to complete. Contract cost
includes all direct labor and benefits, materials unique to or installed in the
project, subcontract costs, and allocated indirect construction costs. From time
to time FCAM makes claims for additional billings to its customers because of
owner-caused delays, incomplete specifications or similar reasons. Such claims
involve negotiations and sometimes litigation. No revenue is included for claims
until agreement is obtained that such amount is owed.
As the long-term contracts extend over one or more years, revisions in
estimates of cost and earnings during the course of the work are reflected in
the accounting period in which the facts that require the revision become known.
At the time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss is recognized in the financial statements.
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 reporting period. Actual results could differ from those estimates.
FCAM continuously reviews estimated earnings from construction contracts
and makes necessary adjustments based on current evaluations of the indicated
outcome. In 1996, as a result of those evaluations, additional revenue on one
contract was recorded in the amount of $1,400,000 and additional losses on two
contracts were recorded in the aggregate amount of $1,500,000.
Cash equivalents -- Cash equivalents consist of short-term investments with
original maturities of 90 days or less stated at cost, which approximates market
value.
Property, plant and equipment -- Property, plant and equipment is stated at
cost. Depreciation is provided over the estimated useful lives of the assets
using the straight-line method. FCAM has adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption of this
standard had no material effect on FCAM's financial statements.
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. The
statement requires that all existing potential future
F-24
<PAGE> 71
FLOUR CITY ARCHITECTURAL METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
tax benefits be recognized as deferred tax assets and subjected to an impairment
evaluation based on the likelihood of realization.
3. ACCOUNTS RECEIVABLE
In accordance with terms of long-term contracts, certain percentages of
billings are withheld by customers until completion and acceptance of the
contracts. Final payments of all such amounts withheld which might not be
received within a one-year period from December 31, 1996 are $3,190,683. In
conformity with trade practice, however, the full amount of accounts receivable
has been included in current assets.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Buildings................................................... $ 17,934 $ --
Leasehold improvements...................................... 18,420 18,420
Machinery and equipment..................................... 2,524,335 616,581
Furniture, fixtures and tools............................... 546,778 554,323
---------- ----------
Total............................................. 3,107,467 1,189,324
Less accumulated depreciation............................... 807,818 449,255
---------- ----------
Property, plant and equipment, net.......................... $2,299,649 $ 740,069
========== ==========
</TABLE>
5. RELATED PARTY BALANCES AND TRANSACTIONS
FCAM's operations for 1995 and 1996 were dependent upon the continuing
financial support from Armco through affiliates capital contributions or other
means. A summary of significant related party transactions with Armco and its
affiliates for the years ending December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Purchase of manufacturing materials and labor............... $4,822,290 $2,461,356
Administrative costs........................................ 2,253,765 2,124,039
</TABLE>
Included in FCAM's accounts receivable is $960,000 due from Kasion
Contracting Co. Ltd., a Hong Kong corporation, which became an affiliate in 1997
pursuant to the transactions described in Note 1.
6. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Details of the customers accounting for 10% or more of total revenues for
the years ended December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenues:
Customer A................................................ 18% 12%
Customer B................................................ 43% 18%
Customer C................................................ -- 16%
Customer D................................................ 14% 13%
Customer E................................................ -- 12%
</TABLE>
F-25
<PAGE> 72
FLOUR CITY ARCHITECTURAL METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
7. LEASES
FCAM leases vehicles and certain equipment under operating leases. Future
minimum lease payments under noncancelable operating leases as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997................................................... $103,520
1998................................................... 97,584
1999................................................... 34,000
2000................................................... 34,000
2001................................................... 34,000
--------
Total............................................. $303,104
========
</TABLE>
Total rental expense for the years ended December 31, 1995 and 1996
amounted to $403,369 and $315,517, respectively.
8. EMPLOYEE BENEFIT PLAN
FCAM employees participate in a 401(k) plan which provides for FCAM to
match a portion of employee contributions. Amounts charged to expense for the
years ended December 31, 1995 and 1996 were $158,542 and $263,704.
9. INCOME TAXES
There has been no provision for income taxes made for the years ended
December 31, 1995 and 1996 as FCAM experienced significant net operating losses
which were included on Armco's consolidated income tax returns. As a result of
the change in control effective January 1, 1997, net operating loss
carryforwards are restricted as to future use, and accordingly, no deferred tax
asset has been established for such item.
10. LITIGATION
FCAM is a party to legal proceedings incidental to its business. In the
opinion of management, any ultimate liability with respect to these actions will
not materially affect the financial position, results of operations or cash
flows of FCAM.
11. RESTRUCTURING CHARGE
During 1994, plans were developed to significantly reduce FCAM's future
operating costs and expenses and to improve productivity. This restructuring
program principally involved a reduction in the number of staff plus the
consolidation of offices and facilities and the reorganization of support
functions. An analysis of the activity in the reserve established in 1994 is as
follows:
<TABLE>
<S> <C>
BALANCE, January 1, 1995.................................... $ 360,828
Additional amounts provided............................... 437,518
Costs charged against the reserve......................... (360,828)
---------
BALANCE, December 31, 1995.................................. 437,518
Costs charged against the reserve......................... (437,518)
---------
BALANCE, December 31, 1996.................................. $ --
=========
</TABLE>
In connection with the sale of FCAM in 1997 as described in Note 1, Armco
agreed to assume any further liabilities related to this restructuring.
F-26
<PAGE> 73
FLOUR CITY INTERNATIONAL, INC.
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statements of operations of Flour City
International, Inc. (the "Company") for the year ended October 31, 1997 and
three months ended January 31, 1998 is presented to show the effects of the
acquisition of Flour City Architectural Metals, Inc. ("FCAM") acquired as of
January 1, 1997 (the "Armco Sale"), which has been accounted for as purchase
acquisition, assuming the acquisition had occurred on November 1, 1996.
The unaudited pro forma financial information does not purport to represent
what the Company's financial position or results of operations would actually
have been had the transactions in fact occurred on the respective date indicated
above, nor to project the Company's financial position or results of operations
for any future date or period. In the opinion of the Company's management, all
adjustments necessary for a fair presentation have been made. This unaudited pro
forma financial information should be read in conjunction with the accompanying
notes and the financial statements of the Company and the related notes included
elsewhere herein.
F-27
<PAGE> 74
FLOUR CITY INTERNATIONAL, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FCAM
COMPANY NOVEMBER 1, 1996 TO PRO FORMA PRO FORMA
HISTORICAL DECEMBER 31, 1996(A) ADJUSTMENTS COMBINED
---------- -------------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................................... $31,875 $3,354 $ -- $35,229
Cost of revenues............................. 18,030 2,704 -- 20,734
------- ------ ---- -------
Gross profit................................. 13,845 650 -- 14,495
Selling, general and administrative.......... 6,116 530 -- 6,646
Non-cash stock compensation expenses......... 57 -- -- 57
Amortization of negative goodwill............ (314) -- (63)(1) (377)
------- ------ ---- -------
Operating income............................. 7,986 120 63 8,169
Exchange loss.............................. (1,337) -- -- (1,337)
Other revenue, net......................... 370 16 -- 386
------- ------ ---- -------
Income before minority interest and income
taxes...................................... 7,019 136 63 7,218
Income taxes................................. 1,753 -- -- 1,753
------- ------ ---- -------
Income before minority interest.............. 5,226 136 63 5,465
Minority interest............................ 6 -- -- 6
------- ------ ---- -------
Net income................................... $ 5,272 $ 136 $ 63 $ 5,471
------- ------ ---- -------
Net income per share:
Basic...................................... $ 1.33 $ 1.38
======= =======
Diluted.................................... $ 1.21 $ 1.26
======= =======
Weighted average shares outstanding:
Basic...................................... 3,960 3,960
======= =======
Diluted.................................... 4,359 4,359
======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31, 1997
------------------------------------------------------------
FCAM
COMPANY NOVEMBER 1, 1996 TO PRO FORMA PRO FORMA
HISTORICAL DECEMBER 31, 1996(A) ADJUSTMENTS COMBINED
---------- -------------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................................... $ 3,717 $3,354 $ -- $ 7,071
Cost of revenues............................. 2,306 2,704 -- 5,009
------- ------ ---- -------
Gross profit................................. 1,411 650 -- 2,062
Selling, general and administrative.......... 968 530 -- 1,498
Non-cash stock compensation expenses......... 6 -- -- 6
Amortization of negative goodwill............ (36) -- (63)(1) (99)
------- ------ ---- -------
Operating income............................. 474 120 63 657
Exchange loss.............................. (13) -- -- (13)
Other revenue, net......................... 34 16 -- 50
------- ------ ---- -------
Income before minority interest and income
taxes...................................... 495 136 63 694
Income taxes................................. 150 -- -- 150
------- ------ ---- -------
Income before minority interest.............. 345 136 63 544
Minority interest............................ 6 -- -- 6
------- ------ ---- -------
Net income................................... $ 351 $ 136 $ 63 $ 550
======= ------ ---- =======
Net income per share:
Basic...................................... $ .09 $ .14
======= =======
Diluted.................................... $ .08 $ .13
======= =======
Weighted average shares outstanding:
Basic...................................... 3,960 3,960
======= =======
Diluted.................................... 4,359 4,359
======= =======
</TABLE>
- ---------------
(a) To adjust the statement of operations to include the two months of activity
of FCAM for November and December 1996.
F-28
<PAGE> 75
FLOUR CITY INTERNATIONAL, INC.
NOTES TO THE PRO-FORMA STATEMENTS OF INCOME
(1) To reflect the amortization of negative goodwill in the acquisition of FCAM
over 5 years. No adjustment is made to retroactively reflect the amounts
allocated to the fair value of the contracts in process acquired from FCAM
on January 1, 1997 as it is not possible to recast what values would have
been attributable to such contracts at November 1, 1996, nor what effect
such contracts might have had on the purchase price of FCAM.
F-29
<PAGE> 76
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 14
Use of Proceeds....................... 15
Capitalization........................ 15
Dividend Policy....................... 15
Price Range of Common Stock........... 16
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 24
Management............................ 34
Certain Transactions.................. 38
Principal Stockholders................ 39
Description of Capital Stock.......... 40
Shares Eligible for Future Sale....... 42
Underwriting.......................... 43
Legal Matters......................... 45
Experts............................... 45
Additional Information................ 45
Index to Financial Statements......... F-1
- --------------------------------------------
UNTIL JUNE 15, 1998 (25 CALENDAR DAYS
AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN SHARES OF
THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OF
SUBSCRIPTIONS.
============================================
</TABLE>
======================================================
2,000,000 SHARES
[LOGO]
FLOUR CITY
INTERNATIONAL, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
VAN KASPER & COMPANY
May 21, 1998
======================================================
