SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 31, 2000
GLOBAL TECHNOVATIONS, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 333-56083 84-1027821
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418
Registrant's telephone number, including area code: (561) 775-5756
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On August 31, 2000, Global Technovations, Inc. ("GTI") acquired 100% of the
outstanding common stock of Onkyo America, Inc. ("OAI") from Onkyo Corporation,
Onkyo Malaysia SDN. BHD., and Onkyo Europe Electronics GMBH. OAI is a
manufacturer and supplier of high quality audio speakers. It also sells overhead
sound systems installed in sports utility vehicles.
The purchase price was $25,000,000 plus a contingent sum of up to
$15,000,000 based upon the future post acquisition earnings of OAI (the
"Earn-Out") over a five-year period. At closing, GTI paid $13,000,000 in cash
and delivered the balance of $12,000,000 in promissory notes due in three years
together with accrued interest of 7.51%. The Earn-Out, if any, is due and
payable on August 31, 2005.
To facilitate the acquisition of OAI shares:
(i) GTI refinanced OAI's existing indebtedness with OAI entering into a secured
three-year $31,230,000 credit facility with GMAC Business Credit, LLC. The
proceeds were used to repay OAI's existing indebtedness owed to another
institutional lender and to lend part of the cash purchase price to GTI.
The credit facility consists of a revolving line of credit and two term
loans. The revolving line of credit is for a maximum of $20,000,000 subject
to meeting various financial and other covenants. Under the line of credit,
GTI may borrow up to 85% of eligible accounts receivable plus the lesser of
60% of all eligible inventory or $7,500,000. The term loans are for
$5,230,000 and $6,000,000. The $5,230,000 term loan is due in monthly
installments of approximately $72,639 with a balloon payment due on August
30, 2003 of approximately $2,615,000; the other term loan is due in monthly
installments of $100,000 increasing to monthly installments of $150,000 on
October 1, 2001 and again increasing to $250,000 per month on October 1,
2002. The final payment is due on August 30, 2003. Except for LIBOR loans,
which may be advanced under the line of credit, interest on each of the
loans under the credit facility is at the greater of the federal funds rate
established by the Federal Reserve Bank of New York plus one-half percent
or the published prime rate. At the closing, GTI borrowed a total of
$20,543,338 under the credit facility. The credit facility is secured by a
first lien on all of the assets of OAI. GTI guaranteed the credit facility
and pledged all of its outstanding stock of OAI as additional security;
(ii) OAI borrowed $7,000,000 from the Wilmington Trust Company and George Jeff
Mennen, co-trustee u\a dated November 25, 1970 with George S. Mennen FBO
John Henry Mennen (the "Mennen Trust"). Mr. George Jeff Mennen is a
director of GTI. This loan is due in eight years and is secured by a second
lien on all of the assets of OAI; and
(iii)GTI borrowed $5,000,000 from the Mennen Trust. This loan is due in eight
years and is secured by a first lien on all of the assets of GTI except for
the capital stock and assets of OAI.
(iv) In connection with the loans made by the Mennen Trust, the Company issued
warrants to purchase 1,500,000 shares of its common stock exercisable at
$.94 per share over a 10-year period. The issuance of these warrants will
result in the Company incurring an expense over the term of the
indebtedness of approximately $1,500,000 using the Black Scholes formula.
The interest on both loans made by the Mennen Trust is 15% per annum, of
which 12.5% shall be payable monthly with 2.5% per annum accruing and due at the
time the principal is due.
OAI, based in Columbus, Indiana, owns a 130,000 square foot facility
containing its manufacturing plant and executive offices. It employs
approximately 425 people. It also maintains sales offices in Troy, Michigan, and
in Chula Vista, California.
1
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
(i) Balance Sheets of Onkyo America, Inc as of December 31, 1999
and 1998
(ii) Statements of Operations of Onkyo America, Inc. for the years
ended December 31, 1999, 1998 and for the nine-month period
ended December 31, 1997.
(iii) Statements of Stockholder's Equity for the years ended
December 31, 1999, and 1998 and for the nine-month period
ended December 31, 1997.
(iv) Statements of Cash Flows of Onkyo America, Inc. for the years
ended December 31, 1999, 1998 and 1997
(v) Unaudited Balance Sheet of Onkyo America, Inc as of June 30,
2000
(vi) Unaudited Statements of Operations of Onkyo America, Inc. for
the six-months ended June 30, 2000 and 1999
(vii) Unaudited Statements of Cash Flows of Onkyo America, Inc. for
the six-months ended June 30, 2000 and 1999
(b) Pro Forma Financial Information
(i) Pro Forma Condensed Consolidated Balance Sheet as of June 30,
2000 (Unaudited)
(ii) Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended September 30, 1999 (Unaudited)
(iii) Pro Forma Condensed Consolidated Statement of Operations for
the Nine Months Ended June 30, 2000 (Unaudited)
2
<PAGE>
(c) Exhibits
The following exhibits were previously filed on Form 8-K for the period
ended August 31, 2000 on September 14, 2000:
99.1 Credit Agreement between GMAC Business Credit, L.L.C. ("GMAC") and
Onkyo Acquisition Corporation ("OAC") with Schedules
99.2 Subordination Agreement of Mennen Trust in favor of GMAC
99.3 Guaranty of Global Technovations, Inc. ("GTI")
99.4 Stock Pledge Agreement of GTI
99.5 Omnibus Amendment Agreement of Onkyo America ("OAI") and OAC
99.6 Mortgage and Security Agreement of OAI
99.7 Security Agreement of Onkyo America Specialty Products, Inc. ("OASP")
99.8 Security Agreement of OAI
99.9 Patent and License Security Agreement of OASP
99.10 Stock Pledge Agreement from OAI
99.11 $7,000,000 Senior Secured 8-year Note of OAC payable to Mennen Trust
99.12 Subordinated Loan and Security Agreement of OAC in favor of Mennen
99.13 Plan and Agreement of Merger between OAI and OAC
99.14 $5,000,000 Senior Secured Note of GTI payable to Mennen Trust
99.15 Security Agreement of GTI to Mennen Trust
99.16 1,500,000 GTI Common Stock Warrants to Mennen Trust
99.17 Share Purchase Agreement with Schedules
99.18 Amendment to Share Purchase Agreement
3
<PAGE>
ONKYO AMERICA, INC.
TABLE OF CONTENTS
------------------------------------------------------------------------------
<TABLE>
<S> <C>
Page
INDEPENDENT AUDITORS' REPORT 5
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1999 and 1998 6
Statements of Operations for the Years Ended December 31, 1999 and 1998 and
for the Nine-Month Period Ended December 31, 1997 7
Statements of Stockholder's Equity for the Years Ended December 31, 1999 and
1998 and for the Nine-Month Period Ended December 31, 1997 8
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 and
for the Nine-Month Period Ended December 31, 1997 9
Notes to Financial Statements 10-16
</TABLE>
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Onkyo America, Inc.
Columbus, Indiana
We have audited the accompanying balance sheets of Onkyo America, Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and of cash flows for each of the two years in the period
ended December 31, 1999 and for the nine-month period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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 financial statements present fairly, in all material
respects, the financial position of Onkyo America, Inc. as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1999 and for the nine-month period
ended December 31, 1997 in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Indianapolis, Indiana
March 24, 2000
(November 13, 2000 as to Note 11)
5
<PAGE>
<TABLE>
ONKYO AMERICA, INC.
BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------------
December 31,
1999 1998
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,605,768 $ 1,637,183
Accounts receivable, net of allowance for doubtful
accounts of $100,000, and ,000, respectively 7,153,885 6,137,382
Accounts receivable, Onkyo Corporation 380,088 306,118
Inventories 6,840,487 5,231,443
Prepaids and other current assets 697,760 137,570
Deferred taxes 866,000 370,578
------- -------
Total current assets 20,543,988 13,820,274
PROPERTY AND EQUIPMENT, net 10,023,670 10,254,152
GOODWILL, net of accumulated amortization of $102,000 8,247,796
--------- ----------
$38,815,454 $24,074,426
=========== ===========
LIABILITES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $12,500,000 $ 1,000,000
Current maturities of long-term debt 766,452 811,277
Note payable, Onkyo Corporation 1,000,000 3,000,000
Accounts payable 5,469,355 5,568,056
Accounts payable, Onkyo Corporation and affiliates 4,714,037 1,691,966
Accrued expenses 1,336,793 1,348,536
--------- ---------
Total current liabilities 25,786,637 13,419,835
LONG-TERM DEBT 5,922,543 5,471,024
DEFERRED TAXES 300,000 20,578
REDEEMABLE PREFERRED STOCK 1,000,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1,000 par value, 9,000 shares
authorized, 5,900 shares issued and outstanding 5,900,000 5,900,000
Accumulated deficit (93,726) (737,011)
------- --------
Total shareholders' equity 5,806,274 5,162,989
--------- ---------
$38,815,454 $24,074,426
=========== ===========
See notes to financial statements.
</TABLE>
6
<PAGE>
<TABLE>
ONKYO AMERICA, INC.
STATEMENTS OF OPERATIONS
<S> <C> <C>
Nine-Month
Years Ended Period Ended
December 31, December 31,
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------
NET SALES $ 74,932,738 $ 70,990,421 $ 58,065,809
COST OF SALES 67,299,346 65,020,516 52,452,469
---------- ---------- ----------
GROSS PROFIT 7,633,392 5,969,905 5,613,340
OPERATING EXPENSES:
Selling, general and administrative 4,045,041 4,101,938 3,332,630
Royalty expense, Onkyo Corporation 1,724,225 1,479,632 1,298,797
--------- --------- ---------
Total operating expenses 5,769,266 5,581,570 4,631,427
--------- --------- ---------
OPERATING INCOME 1,864,126 388,335 981,913
OTHER INCOME (EXPENSE):
Interest expense (837,911) (934,891) (703,732)
Interest income 28,946 23,577 207,903
Other income (expense) (8,876) 76,710 15,174
------ ------ ------
Total other income (expense) (817,841) (834,604) (480,655)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 1,046,285 (446,269) 501,258
INCOME TAX (EXPENSE) BENEFIT (403,000) 155,188 110,000
-------- ------- --------
NET INCOME (LOSS) $ 643,285 $ (291,081) $ 611,258
========= ========== =========
See notes to financial statements.
</TABLE>
7
<PAGE>
<TABLE>
ONKYO AMERICA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE-MONTH PERIOD ENDED DECEMBER 31, 1997
<S> <C> <C> <C>
Common Stock and
related paid-in capital,
$1,000 par value Total
---------------- Accumulated Shareholders'
Shares Amount Deficit Equity
Balance at April 1, 1997 5,900 $5,900,000 $(1,057,188) $4,842,812
Net income 611,258 611,258
----- ---------- ------- -------
Balance at December 31, 1997 5,900 5,900,000 (445,930) 5,454,070
Net loss (291,081) (291,081)
------ --------- -------- --------
Balance at December 31, 1998 5,900 5,900,000 (737,011) 5,162,989
Net income 643,285 643,285
------ --------- ------- -------
Balance at December 31, 1999 5,900 $5,900,000 $ (93,726) $5,806,274
===== ========= ======= =========
See notes to financial statements.
</TABLE>
8
<PAGE>
ONKYO AMERICA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Nine-Month
Years Ended Period Ended
December 31, December 31,
------------ ------------
1999 1998 1997
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 643,285 $ (291,081) $ 611,258
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,729,095 1,403,903 1,031,299
Deferred taxes (216,000) (148,000) (202,000)
Changes in certain assets and liabilities:
Accounts receivable 982,630 473,736 1,284,711
Inventories (1,212,296) (484,200) 63,960
Prepaids and other current assets (429,194) 111,009 (137,657)
Refundable income taxes 570,000 (570,000)
Accounts payable 2,103,877 1,969,802 1,984,758
Accrued expenses (16,046) 409,909 (146,124)
------- ------- --------
Net cash provided by operating activities 3,585,351 4,015,078 3,920,205
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (1,266,555) (1,962,411) (3,054,563)
Acquisition of Top Source (9,173,804)
Sale of investment securities 5,204,804 (298,231)
---------- --------- --------
Net cash provided by (used in)
investing activities (10,440,359) 3,242,393 (3,352,794)
----------- --------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (repayments) on revolving line
of credit 11,500,000 (4,737,000) (3,733,000)
Repayments to shareholder (2,000,000) (580,000) 3,580,000
Proceeds from long-term debt 6,688,995 6,500,000
Repayments of long-term debt (6,282,301) (7,217,699)
Debt issuance costs (83,101)
------- ---------- ---------
Net cash provided by (used in)
financing activities 9,823,593 (6,034,699) (153,000)
--------- ---------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 2,968,585 1,222,772 414,411
CASH AND CASH EQUIVALENTS,
beginning of period 1,637,183 414,411
--------- ------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 4,605,768 $ 1,637,183 $ 414,411
=========== =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 791,491 $ 841,175 $ 697,221
Cash paid for income taxes $ 573,000 $ 662,000
</TABLE>
In September 1999, the Company issued $1.0 million of redeemable preferred stock
as part of the Top Source acquisition.
See notes to financial statements.
9
<PAGE>
ONKYO AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE-MONTH PERIOD ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Onkyo America, Inc. (the "Company") is an Indiana corporation
with manufacturing facilities in Columbus, Indiana and Detroit, Michigan. The
Company's primary business is to manufacture, import, and sell speakers and
related components to domestic companies, primarily in the automotive industry.
The Company's ultimate parent is Onkyo Corporation, a Japanese corporation.
Revenue recognition - The Company recognizes revenue when products are shipped.
Cash and cash equivalents- The Company considers all highly liquid investments
with an original maturity of three months or less to be cash and cash
equivalents.
Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and equipment - Property and equipment are stated at cost. Depreciation
is determined using the straight-line method over the estimated useful lives of
the related assets which range from 3 to 31 years. Expenditures for routine
maintenance and repairs are charged to expense when incurred.
Goodwill - Goodwill represents the excess of the purchase price over the fair
value of tangible and identifiable intangible net assets acquired and is
amortized on a straight-line basis over twenty years.
Use of estimates - The preparation of the financial statements in conformity
with accounting principles generally accepted in the United States of America
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.
Concentration of credit risk - Financial instruments that potentially subject
the Company to credit risk consist principally of trade receivables.
Approximately 64%, 63% and 69% of sales were to one customer for the years ended
December 31, 1999 and 1998 and the nine-month period ended December 31, 1997,
respectively. The same customer represented 44% and 64% of trade accounts
receivable as of December 31, 1999 and 1998, respectively. To reduce credit risk
associated with trade receivables, the Company performs ongoing evaluations of
its customers' financial condition but does not generally require collateral.
Current Accounting Pronouncement - In June 1998, Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133") was issued. This statement, as amended, requires the
recognition of all derivative financial instruments, including embedded
derivative instruments, as either assets or liabilities in the balance sheet and
measurement of those instruments at fair value. SFAS 133, as amended, is
effective for the Company beginning January 1, 2001. Management has not
completed its evaluation of the impact of adopting SFAS 133.
Reclassifications - Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform with the 1999 presentation.
10
<PAGE>
2. BUSINESS ACQUISITION
In September 1999, the Company acquired from Global Technovations, Inc. certain
assets and assumed certain liabilities of Top Source Automotive, Inc. ("Top
Source"), a manufacturer of automobile speaker systems, for $10.2 million ($9.2
in cash and $1.0 million in redeemable preferred stock). The acquisition was
accounted for under the purchase method of accounting. The results of Top
Source's operations are included in the Company's statement of operations for
the year ended December 31, 1999, since the date of acquisition. The excess of
the purchase price over the estimated fair value of assets acquired and
liabilities assumed was $8.3 million and is being amortized on the straight-line
method over twenty years. The allocation of the purchase price is based upon
preliminary estimates made by the Company and is subject to change.
The purchase price was allocated as follows:
Accounts receivable $ 2,073,103
Inventory 396,748
Prepaids and other current assets 47,895
Property and equipment 130,058
Goodwill 8,349,796
Accounts payable and accrued expenses (823,796)
--------
Total $10,173,804
===========
The following unaudited pro forma summary presents information as if Top Source
had been acquired as of January 1, 1998. The unaudited pro forma data give
effect to actual operating results prior to the acquisition, adjusted to include
the unaudited pro forma effect of interest expense, amortization of goodwill and
income taxes.
Years Ended
December 31,
-------------------------
1999 1998
Net sales $83,796,552 $81,805,626
Net income (loss) 879,766 (399,436)
11
<PAGE>
These unaudited pro forma results do not necessarily reflect the actual results
that would have occurred nor are such results necessarily indicative of future
operating results.
3. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<S> <C> <C>
1999 1998
Raw materials $3,678,874 $2,973,262
Finished goods 3,161,613 2,258,181
--------- ---------
Total $6,840,487 $5,231,443
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<S> <C> <C>
1999 1998
Land $ 370,650 $ 370,650
Buildings 4,654,264 4,596,647
Machinery, equipment and tooling 15,619,196 14,919,949
Office equipment 1,943,727 1,739,295
Construction in progress 1,078,463 643,146
--------- -------
Total property and equipment 23,666,300 22,269,687
Less accumulated depreciation (13,642,630) (12,015,535)
----------- -----------
Property and equipment, net $ 10,023,670 $ 10,254,152
============ ============
</TABLE>
Noncancellable lease commitments total $736,000 through 2003 with annual
commitments ranging from $244,000 in 2000 to $37,000 in 2003.
12
<PAGE>
5. LINE OF CREDIT
The Company has a revolving bank line of credit of $13,000,000 (including
letters of credit of up to $500,000) which expires in September 2000. Borrowings
bear interest at either the prime rate (8.5% at December 31, 1999) or an
adjusted LIBOR rate (8.0% at December 31, 1999). The line of credit is
collateralized by the Company's accounts receivable and inventory. The Company
utilizes the line of credit to fund working capital requirements. Unused letters
of credit at December 31, 1999 are $190,000.
6. LONG-TERM DEBT
Long-term debt at December 31, 1999 consists of two term loans totaling
$6,689,000 which bear interest at either the prime rate or an adjusted LIBOR
rate (8.5% at December 31, 1999). The term loans require quarterly principal
payments of $191,600, plus interest. The term loans are collateralized by land,
building and fixtures, and certain equipment of the Company and are due
September 2004.
Annual maturities of the term loans are $766,452 (2000), $766,452 (2001),
$766,452 (2002), $766,452 (2003), $3,623,187 (2004).
Outstanding debt with Onkyo Corporation was $1,000,000 and $3,000,000 as of
December 31, 1999 and 1998, respectively. The debt bears interest at 4.625% and
is payable on March 31, 2000.
The line of credit (Note 5) and long-term debt, which are governed by the same
credit agreement, subject the Company to certain restrictive covenants,
including, among others, (i) minimum debt service coverage ratios, (ii) maximum
funded debt to EBITDA, (iii) minimum tangible net worth, and (iv) additional
indebtedness. At December 31, 1999, the Company was not in compliance with
certain of these covenants. On February 29, 2000, the bank amended the credit
agreement, at which time the Company was in compliance with all restrictive
covenants.
7. REDEEMABLE PREFERRED STOCK
The Company's Series A Preferred Stock consists of 1,000 authorized shares (100
outstanding) and is non-voting and convertible into 1.5 shares of common stock
if a public offering of common shares occurs. Dividends accrue at 5%, are
cumulative, and are reported as interest expense in the statement of operations.
After October 1, 2002, or a payment outside the normal course of business of at
least $1,000,000 to a related party (defined as any officer, director,
shareholder or consultant of the Company), if earlier, the preferred
stockholders can cause the Company to redeem their shares at a price based upon
a factor of EBITDA plus cumulative unpaid dividends.
13
<PAGE>
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<S> <C> <C> <C>
Nine-Month
Years Ended Period Ended
December 31, December 31,
------------ ------------
1999 1998 1997
Income tax expense (benefit):
Current $ 619,000 $ (7,188) $ 95,000
Deferred (216,000) (148,000) 202,000
Change in beginning of the year valuation
allowance (407,000)
--------- -------- ---------
Total $ 403,000 $(155,188) $(110,000)
========= ========= =========
</TABLE>
The reconciliation of income taxes computed at the U.S. federal statutory
rate to income tax expense (benefit) is as follows:
<TABLE>
<S> <C> <C> <C>
Nine-Month
Years Ended Period Ended
December 31, December 31,
------------ ------------
1999 1998 1997
Tax at U.S. federal statutory rate $ 355,737 $(151,731) $ 170,428
State income taxes, net of federal benefit 52,987 (24,594) 118,962
Change in beginning of year valuation allowance (407,000)
Other (5,724) 21,137 7,610
------ ------ -----
Total $ 403,000 $(155,188) $(110,000)
========= ========= =========
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities at December 31 are as follows:
14
<PAGE>
<TABLE>
<S> <C> <C>
1999 1998
Current deferred tax assets:
Nondeductible accruals and reserves $ 866,000 $370,578
========= ========
Noncurrent deferred tax assets and (liabilities):
Net operating loss and tax credit carryforwards $289,450
Property and equipment basis differences $(300,000) (310,028)
--------- --------
Net deferred tax liabilities $(300,000) $(20,578)
========= ========
</TABLE>
9. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) employee retirement plan for substantially all
full-time employees. Participants may contribute 1% to 15% of their pre-tax base
salary to the plan, subject to certain limitations. The Company matches employee
contributions up to 3% of participants' annual salary. Company matching
contributions fully vest to participants after three years of employment and
totaled $197,000, $169,000 and $103,867 for the years ended December 31, 1999
and 1998 and the nine-month period ended December 31, 1997, respectively.
10. RELATED PARTY TRANSACTIONS
The Company purchases a significant portion of its inventory from Onkyo
Corporation and its affiliates. A summary of transactions and balances with
Onkyo Corporation and its affiliates, in addition to those described in Note 6
follows:
<TABLE>
<S> <C> <C> <C>
As of and for the
Years Ended Period Ended
December 31, December 31,
----------------------- ------------
1999 1998 1997
Onkyo Corporation:
Accounts receivable $ 380,088 $ 306,118
Accounts payable 2,163,263 587,929
Note payable 1,000,000 3,000,000
Sales 3,204,162 2,089,299 $ 474,260
Inventory purchases 3,459,183 4,331,657 4,344,300
Purchases of machinery, equipment and tooling 16,960 878,840 418,254
Royalty expense 1,724,225 1,479,632 1,298,797
Interest expense 68,035 220,000
Reimbursement of salary expenses 160,965
Other Onkyo Corporation affiliated companies:
Accounts payable 2,550,774 1,104,037
Inventory purchases 10,675,649 8,747,444 7,367,581
Purchases of machinery, equipment and tooling 7,575
Global Technovations, Inc.:
Redeemable preferred stock 1,000,000
</TABLE>
15
<PAGE>
11. SUBSEQUENT EVENT
On August 31, 2000, all of the Company's outstanding common stock was acquired
by Global Technovations, Inc. ("GTI"), a public company headquartered in West
Palm Beach, Florida, for cash and notes totaling $25,000,000. The shareholders
of the Company may receive up to $15,000,000 of additional proceeds, if the
Company's EBITDA for the period from October 1, 2000 through September 30, 2005
exceeds amounts specified in the Share Purchase Agreement. In connection with
this transaction, all of the Company's outstanding indebtedness was refinanced.
16
<PAGE>
ONKYO AMERICA, INC.
TABLE OF CONTENTS
-----------------------------------------------------------------------------
Page
FINANCIAL STATEMENTS:
Unaudited Balance Sheet as of June 30, 2000 18
Unaudited Statements of Operations for the Six-Month Periods
Ended June 30, 2000 and 1999 19
Unaudited Statements of Cash Flows for the Six-Month
Periods Ended June 30, 2000 and 1999 20
Notes to Financial Statements 21
17
<PAGE>
<TABLE>
ONKYO AMERICA, INC.
BALANCE SHEET
--------------------------------------------------------------------------------------------------------
<S> <C>
June 30,
2000
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful
accounts of $100,000 $11,627,137
Accounts receivable, Onkyo Corporation 303,941
Inventories 6,931,062
Prepaids and other current assets 1,052,876
Deferred taxes 1,239,670
---------
Total current assets 21,154,686
PROPERTY AND EQUIPMENT, net 10,188,141
GOODWILL, net of accumulated amortization
of $306,000 8,014,411
---------
$39,357,238
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit 12,000,000
Current maturities of long-term debt 766,452
Note payable, Onkyo Corporation 1,000,000
Accounts payable 6,776,209
Accounts payable, Onkyo Corporation and affiliates 4,571,515
Accrued expenses 1,737,070
---------
Total current liabilities 26,851,246
LONG-TERM DEBT 5,539,361
DEFERRED TAXES 300,000
REDEEMABLE PREFERRED STOCK 1,000,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1,000 par value, 9,000 shares
authorized, 5,900 shares issued and outstanding 5,900,000
Accumulated deficit (233,369)
--------
Total shareholders' equity 5,666,631
---------
$39,357,238
===========
</TABLE>
18
<PAGE>
<TABLE>
ONKYO AMERICA, INC.
STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Six-Month
Periods Ended
June 30,
2000 1999
------------------------------
(Unaudited)
NET SALES $ 38,507,784 $ 38,062,744
COST OF SALES 33,652,874 33,610,887
---------- ----------
GROSS PROFIT 4,854,910 4,451,857
OPERATING EXPENSES:
Selling, general and administrative 3,518,526 2,094,841
Royalty expense, Onkyo Corporation 794,601 916,029
------- -------
Total operating expenses 4,313,127 3,010,870
--------- ---------
OPERATING INCOME 541,783 1,440,987
OTHER INCOME (EXPENSE):
Interest expense (813,565) (398,678)
Interest income 42,289 7,813
Other income (expense) 2,430 3,107
----- -----
Total other income (expense) (768,846) (387,758)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (227,063) 1,053,229
INCOME TAX (EXPENSE) BENEFIT 87,420 (405,000)
------ --------
NET INCOME (LOSS) $ (139,643) $ 648,229
========== =========
</TABLE>
19
<PAGE>
ONKYO AMERICA, INC.
STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Six-Month Periods
Ended June 30,
2000 1999
----------------------------
(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (139,643) $ 648,229
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 793,141 822,146
Deferred taxes (373,670)
Changes in certain assets and liabilities:
Accounts receivable (4,397,105) (553,771)
Inventories (90,575) (872,425)
Prepaids and other current assets (355,116) 96,424
Accounts payable 1,164,332 1,808,627
Accrued expenses 400,277 654,270
------- -------
Net cash provided by (used in)operating activities (2,998,359) 2,603,405
---------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (724,228) (667,554)
-------- --------
Net cash used in investing activities (724,228) (667,554)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (repayments) on revolving line
of credit (500,000) 2,942,000
Repayments to shareholder (2,000,000)
Repayments of long-term debt (383,181) (397,915)
-------- --------
Net cash provided by (used in)
financing activities (883,181) 544,085
-------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (4,605,768) 2,479,936
CASH AND CASH EQUIVALENTS,
beginning of period 4,605,768 1,637,183
--------- ---------
CASH AND CASH EQUIVALENTS,
end of period $ $ 4,117,119
=========== ===========
</TABLE>
20
<PAGE>
ONKYO AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Article 10 of Regulations S-X.
Accordingly, the unaudited financial statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the
Company, all adjustments (consisting of normal recurring accruals)
considered necessary to present fairly the financial statements have been
included.
21
<PAGE>
Item 7.(b) Unaudited Pro Forma Financial Information
INTRODUCTION
On August 31, 2000, Global Technovations, Inc. ("GTI") acquired 100% of the
outstanding common stock of Onkyo America, Inc. ("OAI") from Onkyo Corporation,
Onkyo Malaysia SDN. BHD., and Onkyo Europe Electronics GMBH. OAI is a
manufacturer and supplier of high quality audio speakers. It also sells overhead
sound systems installed in sports utility vehicles. The purchase price was
$25,000,000 plus a contingent sum of up to $15,000,000 based upon the future
post acquisition earnings of OAI (the "Earn-Out") over a five-year period. At
closing, GTI paid $13,000,000 in cash and delivered the balance of $12,000,000
in promissory notes due in three years together with accrued interest of 7.51%.
The Earn-Out, if any, is due and payable on August 31, 2005.
To facilitate the acquisition of OAI shares,
(i) GTI refinanced OAI's existing indebtedness with OAI entering into a secured
three-year $31,230,000 credit facility with GMAC Business Credit, LLC. The
proceeds were used to repay OAI's existing indebtedness owed to another
institutional lender and to lend part of the cash purchase price to GTI and
pay costs and fees associated with obtaining the credit facility and
financing. At the closing, GTI borrowed a total of $20,543,338 under the
credit facility consisting of $9,313,338 on the revolving line of credit,
$5,230,000 on the Term A loan and $6,000,000 on the Term B loan.
(ii) OAI borrowed $7,000,000 from the Wilmington Trust Company and George Jeff
Mennen, co-trustee u\a dated November 25, 1970 with George S. Mennen FBO
John Henry Mennen (the "Mennen Trust"). Mr. George Jeff Mennen is a
director of GTI. This loan is due in eight years and is secured by a second
lien on all of the assets of OAI; and
(iii)GTI borrowed $5,000,000 from the Mennen Trust. This loan is due in eight
years and is secured by a first lien on all of the assets of GTI except for
the capital stock and sets of OAI. The interest on both loans made by the
Mennen Trust is 15% per annum, of which 12.5% shall be payable monthly with
2.5% per annum accruing and due at the time the principal is due.
(iv) In connection with the loans made by the Mennen Trust, the Company issued
warrants to purchase 1,500,000 shares of its common stock exercisable at
$.94 per share over a 10-year period.
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2000
gives effect to the above transaction as if it had occurred on June 30, 2000.
The unaudited pro forma condensed consolidated statements of operations for the
year ended September 30, 1999 and nine months ended June 30, 2000 give effect to
the above transaction as if it had occurred as of October 1, the first day of
the Company's respective fiscal year.
The Pro Forma Condensed Combined Financial Information is unaudited and not
necessarily indicative of the consolidated results, which actually would have
occurred if the above transaction would have been consummated at the beginning
of the periods presented, nor does it purport to present the future financial
position and results of operations for future periods. The Pro Forma Condensed
Consolidated Financial Information gives effect to the acquisition and is based
upon management's current preliminary estimated allocations of the purchase
price and includes all adjustments described in the notes thereto.
22
<PAGE>
<TABLE>
GLOBAL TECHNOVATIONS, INC.
Unaudited Pro Forma Condensed
Consolidated Balance Sheet
As of June 30, 2000
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GTI OAI Pro Forma Consolidated
ASSETS Historical Historical Adjustments Pro Forma
-------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 1,454,321 $ - $ (13,000,000) (A) $ 691,846
(2,000,000) (A)
12,000,000 (B)
2,237,525 (E)
Accounts receivable trade, net 195,941 11,931,078 12,127,019
Inventories 1,313,237 6,931,062 8,244,299
Prepaid expenses 94,430 1,052,876 1,147,306
Other 275,111 1,239,670 1,514,781
-------------------------------------------------------------------
Total current assets 3,333,040 21,154,686 (762,475) 23,725,251
Property and equipment, net 2,252,012 10,188,141 (188,141) (A) 12,252,012
Patents, net 128,189 128,189
Capitalized database, net 1,704,236 1,704,236
Goodwill 8,014,411 25,000,000 (A) 29,535,921
2,000,000 (A)
188,141 (A)
(5,666,631) (F)
Preferred stock of buyer of automotive subsidiary 1,033,630 (1,033,630) (C)
-------------------------------------------------------------------
TOTAL ASSETS $ 8,451,107 $ 39,357,238 $ 19,537,264 $ 67,345,609
===================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit $ - $ 12,000,000 $ (12,000,000) (E) $ 9,313,338
9,313,338 (E)
Senior subordinated convertible notes 603,000 603,000
Current portion of long term debt - 766,452 (766,452) (E) 2,071,667
2,071,667 (E)
Note payable - Onkyo Corporation - 1,000,000 1,000,000
Accounts payable 235,778 11,347,724 11,583,502
Deferred revenue 1,161,604 1,161,604
Accrued liabilities 961,376 2,037,070 (33,630) (D) 2,964,816
Due to Former Buyer of automotive subsidiary 1,003,990 1,003,990
-------------------------------------------------------------------
Total current liabilities 3,965,748 27,151,246 (1,415,077) 29,701,917
Note Payable - Mennen Trust 12,000,000 (B) 10,500,000
(1,500,000) (D)
Note Payable - Seller's Note 12,000,000 (A) 12,000,000
Long term debt 5,539,361 (5,539,361) (E) 9,158,333
9,158,333 (E)
-------------------------------------------------------------------
Total liabilities 3,965,748 32,690,607 24,703,895 61,360,250
Commitments and contingencies - - - -
Stockholders' equity: 4,485,359 6,666,631 1,500,000 (D) 5,985,359
(1,000,000) (C)
(5,666,631) (F)
-------------------------------------------------------------------
Total stockholders' equity 4,485,359 6,666,631 (5,166,631) 5,985,359
-------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,451,107 $ 39,357,238 $ 19,537,264 $ 67,345,609
===================================================================
</TABLE>
See accompanying introduction and notes to unaudited pro forma condensed
consolidated balance sheet
23
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(A) To reflect the acquisition of OAI and the allocation of purchase price on
the basis of the fair value of assets acquired and liabilities. The
components of the purchase price and its allocation are as follows:
Purchase Price - Cash $13,000,000
Purchase Price - Notes 12,000,000
Acquisition Costs 2,000,000
Liabilities assumed 33,690,607
Allocation of purchase price:
Current Assets (21,154,686)
Property and equipment (10,000,000)
-----------
Cost in excess of nets assets acquired $29,535,921
==========
(B) To record $12,000,000 borrowed from Mennen Trust in which $10,000,000 was
used for the acquisition of OAI and the remaining balance of $2,000,000 of
cash was retained by GTI for general working capital needs.
(C) To eliminate GTI's historical investment in preferred stock of OAI.
(D) To record the Black Scholes value of the 1,500,000 warrants issued to
Mennen Trust, which represent an original issue discount.
(E) To record the proceeds from the credit facility with GMAC Business Credit,
LLC which were used to repay OAI's existing indebtedness and to fund part
of the cash purchase price.
(F) To eliminate OAI's stockholder's equity.
24
<PAGE>
<TABLE>
Global Technovations, Inc.
Unaudited Pro Forma Condensed
Consolidated Statement of Operations
For the year ended September 30, 1999
<S> <C> <C> <C> <C>
OAI
Historical
For the year
GTI Ended Pro Forma Consolidated
Historical December 31, 1999 Adjustments Pro Forma
------------------------------------------------------------------------------
Net sales $1,389,678 $74,932,738 $6,845,502 (A) $83,167,918
Cost of sales 1,256,621 67,299,346 4,152,798 (A) 72,708,765
Selling, general and
administrative expenses 3,687,911 5,769,266 758,884 (A) 9,866,632
(1,724,225)(B)
(102,000)(C)
1,476,796 (D)
------------------------------------------------------------------------------
Income (loss) from operations (3,554,854) 1,864,126 2,283,249 592,521
Interest expense, other
income (expense) net (518,555) (817,841) 837,911 (E) (5,471,787)
(4,785,802)(F)
(187,500)(G)
------------------------------------------------------------------------------
Loss before income taxes (4,073,409) 1,046,285 (1,852,142) (4,879,266)
Income tax expense (403,000) (34,250)(A) (57,250)
380,000 (H)
------------------------------------------------------------------------------
Loss from continuing operations (4,073,409) 643,285 (1,506,392) (4,936,516)
Dividends on preferred stock (277,458) (277,458)
------------------------------------------------------------------------------
Loss applicable to common stockholders ($4,350,867) $643,285 ($1,506,392) ($5,213,974)
==============================================================================
Loss per common share:
Basic and diluted ($0.15) ($0.18)
=============== ===================
Weighted average
common shares
Outstanding:
Basic and diluted 29,108,705 29,108,705
=============== ===================
See accompanying introduction and notes to unaudited pro forma condensed consolidated statement of operations
</TABLE>
25
<PAGE>
Global Technovations, Inc.
Unaudited Pro Forma Condensed
Consolidated Statement of Operations
For the nine months ended June 30, 2000
<TABLE>
<S> <C> <C> <C> <C>
GTI OAI Pro Forma Consolidated
Historical Historical Adjustments Pro Forma
---------------------------------------------------------------------
Net sales $794,650 $58,081,826 $58,876,476
Cost of sales 1,156,984 51,731,096 52,888,080
Selling, general and
administrative expenses 3,601,294 4,647,243 (1,204,304)(B) 7,845,830
(306,000)(C)
1,107,597 (D)
---------------------------------------------------------------------
Loss from operations (3,963,628) 1,703,487 402,707 (1,857,434)
Interest expense, other
income (expense) net 142,514 (972,179) 1,026,708 (E) (3,532,933)
(3,589,351)(F)
(140,625)(G)
---------------------------------------------------------------------
Loss before income taxes (3,821,114) 731,308 (2,300,561) (5,390,367)
Income tax expense (384,250) 350,000 (H) (34,250)
---------------------------------------------------------------------
Loss from continuing operations (3,821,114) 347,058 (1,950,561) (5,424,617)
Dividends on preferred stock (236,250) (236,250)
---------------------------------------------------------------------
Loss applicable to common stockholders ($4,057,364) $347,058 ($1,950,561) ($5,660,867)
=====================================================================
Loss per common share:
Basic and diluted ($0.14) ($0.19)
============== ==============
Weighted average
common shares
Outstanding:
Basic and diluted 29,333,047 29,333,047
============== ==============
See accompanying introduction and notes to unaudited pro forma condensed consolidated statement of operations
</TABLE>
26
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
(A) Top Source Automotive, Inc has been presented as a discontinued operation
in the GTI historical statements and therefore has been excluded from
historical loss from continuing operations for GTI. OAI had acquired Top
Source Automotive, Inc from GTI on September 30, 1999. This pro forma
adjustment records Top Source Automotive, Inc's results of operations for
the period January 1, 1999 - September 30, 1999
(B) To eliminate the royalty fee to Onkyo Corporation which was terminated as a
result of the acquisition of OAI by GTI.
(C) To eliminate the amortization expense on the historical goodwill recorded
by OAI.
(D) To record the amortization expense on a straight-line basis on the goodwill
of approximately $29,535,000 recorded by GTI on the acquisition of OAI
using an estimated life of 20 years.
(E) To eliminate OAI historical interest expense on debt which was paid off at
the closing.
(F) To record interest expense on the debt incurred in connection with the
acquisition.
<TABLE>
<S> <C> <C> <C> <C>
Interest Annual Nine Month
Description Rate Principal Interest Period
----------- ---- --------- -------- ------
Revolving line of credit 10.50% $9,313,338 $977,900 $733,425
Mennen Trust 15.00% 12,000,000 1,800,000 1,350,000
Seller's Note 7.51% 12,000,000 901,200 675,900
Term A Loan 10.50% 5,230,000 507,202 380,401
Term B Loan 11.00% 6,000,000 599,500 449,625
--------- ------- -------
$44,543,338 $4,785,802 $3,589,351
=========== ========== ==========
</TABLE>
(G) To record amortization expense of the original issue discount recorded on
the warrants issued to the Mennen Trust.
(H) To reflect reduction in OAI federal income tax expense due to the
utilization of GTI's NOL carry forward
27
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GLOBAL TECHNOVATIONS, INC.
_____________________________
By: s/ William C. Willis, Jr.
William C. Willis, Jr.
Date: November 13, 2000 Chairman and Chief Executive Officer
28
