<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 1, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-18707
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TBM HOLDINGS, INC.
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(Name of Small Business Issuer in its charter)
Florida 59-2824411
------- ----------
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
136 Main Street, Westport, Connecticut 06880
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (203) 227-6140
Securities registered
under Section 12(b) of the Exchange Act:
None
Securities registered
under Section 12(g) of the Exchange Act:
None
<PAGE> 2
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No | |
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB | |.*
* Not applicable. The registrant does not have a class of equity
securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, and accordingly, its officers and directors are
not subject to the reporting requirements referred to in Item 405 of
Regulation S-B.
For the fiscal year ended January 1, 2000, the issuer had revenues of
$38,993.
The aggregate market value of the issuer's common stock, par value $.001
per share, held by non-affiliates of the issuer (assuming for this purpose that
all officers, directors and holders of more than 5% of the Company's outstanding
voting stock are affiliates), computed based on an average bid and asked price
of $7.00 per share as of March 27, 2000, was $10,848,397.
As of March 29, 2000, there were approximately 4,519,337 shares of the
issuer's common stock outstanding, excluding 516 contingently issuable shares
held by an escrow agent.
Transitional Small Business Disclosure Format (check one): Yes | | No |X|
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PART I
Item 1. Description of Business.
General
TBM Holdings, Inc. (the "Company") was organized under the laws of
Florida in 1987. As of January 31, 1997, the Company had sold or discontinued
all business operations.
On January 31, 1997, a former subsidiary of the Company filed a
petition for relief under Chapter 11 of the United States Bankruptcy Code. In
May 1998, a Reorganization Plan in the Chapter 11 proceeding was approved by the
bankruptcy court. Under the terms of the Reorganization Plan, the Company was
released from all claims of the subsidiary and its creditors, and settled its
liability as a guarantor of the store lease to which the subsidiary was a party.
The subsidiary was subsequently dissolved. Thereafter, and until June 15, 1999,
the Company's only operations constituted maintaining a business office and
complying with its reporting obligations as a publicly-owned company.
On June 15, 1999, in connection with a $12,730,000 private
placement of restricted shares of the Company's Common Stock (the "1999 Private
Placement"), a new board of directors was appointed and the Company changed its
name to TBM Holdings, Inc. Immediately prior to the closing of the 1999 Private
Placement, the Company effected a one-for-412.92 reverse stock split of the
Company's Common Stock for shareholders of record as of June 15, 1999. After the
closing of the 1999 Private Placement and through January 1, 2000, the Company
had no business operations and was solely engaged in the business of seeking an
underperforming manufacturing company for possible acquisition. As of January 1,
2000, the Company had three employees.
After acquiring an underperforming manufacturing company, the
Company's objective is to improve its operating performance and profitability
through implementation of the Toyota Production System using the Kaizen Growth
Strategy. The goal of the Toyota Production System, which was developed by the
Toyota Motor Corporation, is to maintain a continuous flow of products
manufactured to meet customer demand. The system operates by pacing all
operations to the rate of customer orders by manufacturing the required product
in the exact quantity ordered and delivering it at precisely the right time. The
"Kaizen" process of continuous improvement was developed by Toyota to improve
worker productivity, reduce inventories and upgrade product quality. Kaizen is a
hands-on, shop floor based process that teaches participants to rapidly convert
to the Toyota Production System. Kaizen focuses on eliminating waste and
reducing lead times through fundamental changes in the manufacturing process.
The Kaizen Growth Strategy is a long-term strategy for growth in market share
and profitability achieved through improving product quality and being more
responsive to customer needs, with minimal investment in fixed assets.
<PAGE> 4
After acquisition of an initial company, the Company intends to
pursue follow-on acquisitions in the same industry as, or an industry
complementary to, the acquired manufacturing company.
Subsequent Development
On February 23, 2000, the Company acquired Long Reach Holdings,
Inc., a Delaware corporation ("LRH"), pursuant to the Amended and Restated
Agreement and Plan of Merger, dated February 4, 2000, among the Company, TBM
Acquisition I, Inc., a Delaware corporation and wholly-owned subsidiary of the
Company, LRH and certain shareholders of LRH. The aggregate consideration paid
by the Company in respect of the merger with LRH was $18,420,804, consisting of
(i) payment of $1,500,000 of cash, (ii) the issuance of 500,000 restricted
shares of the Company's Common Stock valued at $3,000,000, (iii) the assumption
by the surviving corporation of the merger (the "Surviving Corporation") of
subordinated notes of LRH to certain of its shareholders in the principal
amount of $3,000,000, and (iv) the assumption by the Surviving Corporation of
LRH's indebtedness to Bank One, Texas, N.A. (the "Bank") in the amount of
$10,920,804, comprised of a revolving line of credit and a term loan, which
debt was refinanced with the Bank upon the closing of the merger. In addition,
in the event certain net sales targets are met in calendar year 2000, the
Surviving Corporation will issue contingent subordinated notes to certain
shareholders, warrant holders, option holders and subordinated noteholders of
LRH in an aggregate amount not to exceed $2,000,000. The subordinated notes are,
and if issued the contingent subordinated notes will be, guaranteed by the
Company. The Company used a portion of the net cash proceeds from the 1999
Private Placement to fund the cash portion of the consideration.
LRH manufactures material handling equipment, including pallet
trucks, stackers, scissor lifts and masts and attachments for forklift trucks,
under the names Long Reach, Brudi and Rol-lift. Its three main product lines
consist of (i) heavy duty masts and integrals for rider forklifts, (ii)
attachments including mast attachments such as side shifters, fork positioners
and specially adapted material handling attachments to address particular
customer needs, and (iii) material lifting products, including pallet jacks,
manual and powered lifts, stackers and scissor-lift devices.
Masts and integrals are sold to forklift manufacturers. Mast
attachments are sold to forklift dealers, who order specialty attachments for
arrival concurrent with forklift delivery and assemble the attachment to make
delivery. Material lifting devices are primarily sold to material handling
equipment distributors and/or industrial equipment catalog houses.
The Company believes competition for mast production is limited,
due to the heavy equipment involved that makes effective market entry difficult
for new suppliers. Due to weight and cubic volume, the Company believes that
foreign competition is unlikely as well. The attachment markets served by LRH
are supplied domestically by several smaller regional and niche market suppliers
along with a large competitor. Import competition from foreign suppliers exists;
however, the Company believes that long lead-times, transportation costs and
service/parts availability weakens their effectiveness as a major supply.
Competition for material lifting products comes from a broad range of small
competitors as well as some foreign competition for less complex models.
LRH has approximately 285 employees.
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As provided in the Company's Current Report on Form 8-K dated
February 23, 2000, filed with the Securities and Exchange Commission on March 9,
2000, the Company will file financial statements and certain pro forma financial
information for LRH in accordance with the requirements of the Securities and
Exchange Commission no later than May 8, 2000.
The Company is engaged in preliminary discussions with an
additional acquisition candidate. Reference is made to the Company's Current
Report on Form 8-K dated March 29, 2000, filed with the Securities and Exchange
Commission on March 30, 2000, the terms of which are incorporated herein by
reference. The Company has also identified several additional potential
candidates which fit the Company's acquisition criteria. The Company is actively
pursuing preliminary discussions with such candidates. No assurance of success
with respect to any of these discussions, or the Company's efforts to identify
and acquire any additional manufacturing companies, can be made.
Item 2. Description of Property.
As of January 1, 2000, the Company occupied approximately 1,200
square-feet of office space at 136 Main Street, Westport, Connecticut 06880
under a sublease expiring January 31, 2001.
LRH operates a 160,000 square foot manufacturing facility in
Houston, Texas (the "Houston Facility") and a 135,000 square foot manufacturing
facility in Little Rock, Arkansas (the "Little Rock Facility"). LRH owns the
Houston Facility, which is subject to a mortgage in favor of the Bank, and a
second mortgage in favor of certain subordinated noteholders. The Little Rock
Facility is leased by LRH. The lease expires on February 22, 2002.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is quoted on the Nasdaq OTC Bulletin
Board under the symbol "TBMH". The following table sets forth the high and low
bid information on the OTC Bulletin Board as reported by the OTC Bulletin Board
for the periods indicated:
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
December 29, 1997 - March 29, 1998 $ .05 $ .01
March 30, 1998 - June 28, 1998 .06 .03
June 29, 1998 - September 30, 1998 .015 .01
October 1, 1998 - December 31, 1998 .02 .01
January 1, 1999 - March 31, 1999 .025 .012
April 1, 1999 - June 15, 1999* .025 .02
June 16, 1999 - June 30, 1999* 7.00 7.00
July 1, 1999 - September 30, 1999 10.00 6.00
October 1, 1999 - January 1, 2000 6.00 6.00
</TABLE>
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* The Company effected a one-for-412.92 reverse stock split of its Common Stock
for shareholders of record as of June 15, 1999.
These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
Actual prices may vary.
As of March 29, 2000, there were 321 holders of record of the
Company's Common Stock.
The Company has never paid dividends on the Common Stock and does
not anticipate paying any dividends in the foreseeable future.
Item 6. Plan of Operation.
See "Description of Business" under Item 1 of this Report on Form
10-KSB.
The Company invested the net proceeds of the 1999 Private
Placement of its Common Stock in the aggregate amount of $12,730,000 with Morgan
Stanley & Company, as custodian, in short-term securities, money market
instruments and government securities. A portion of the proceeds of the 1999
Private Placement was used to fund the acquisition of LRH on February 23, 2000.
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Also on February 23, 2000, the Company completed a private
placement of its Common Stock and issued shares of Common Stock pursuant to
exercise of an option, for aggregate proceeds to the Company of $8,000,000.
These funds were also invested with Morgan Stanley & Company, as custodian.
Proceeds from the recent private placement and option exercise will be used for
working capital and to fund LRH's operating costs and may be used for future
acquisitions.
The Company believes that its available cash, cash equivalents and
liquid investments will satisfy its cash requirements for its operations in the
next twelve months.
The Company has appointed its own management team at LRH and plans
to implement the Toyota Production System utilizing the Kaizen Growth Strategy
to seek to strengthen LRH's operational performance and competitive position.
Consistent with the Company's business objective of improving operating
performance and profitability of the companies it acquires, the Company is
evaluating appropriate measures it may take to improve LRH's operating
efficiencies and profitability. The Company's experience is that implementation
of the Kaizen Growth Strategy is a three to five year process; however, there
can be no assurance that the Company will be successful in implementing the
Toyota Production System within this time period or at all or, if implemented,
that the operating performance or profitability of LRH will be improved.
See discussion under Item 1, "Description of Business - Subsequent
Development," for a description of potential future acquisitions by the Company
consistent with its objective of acquiring other companies in the same industry
as, or an industry complementary to, LRH.
Statements contained in this Form 10-KSB that are not purely
historical are forward-looking statements and are being provided in reliance
upon the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. All forward-looking statements are made as of the date hereof and
are based on current management expectations and information available to the
Company as of such date. The Company assumes no obligation to update any
forward-looking statement. It is important to note that actual results could
differ materially from historical results or those contemplated in the
forward-looking statements. Forward-looking statements involve a number of risks
and uncertainties and may include trend information.
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Item 7. Financial Statements.
<TABLE>
<S> <C>
Contents...................................................................................................F-1
Independent auditors' report...............................................................................F-2
Balance sheet as of January 1, 2000........................................................................F-3
Statements of operations for the fifty-two weeks ended January 1, 2000, six months ended
December 31, 1998 and for the fifty-two weeks ended June 28, 1998.....................................F-4
Statements of stockholders' equity for the fifty-two weeks ended January 1, 2000,
six months ended December 31, 1998 and for the fifty-two weeks ended June 28, 1998....................F-5
Statements of cash flows for the fifty-two weeks ended January 1, 2000, six months
ended December 31, 1998 and for the fifty-two weeks ended June 28, 1998...............................F-6
Notes to Financial Statements..............................................................................F-7
</TABLE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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<PAGE> 9
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Information Concerning Directors and Executive Officers
The following table sets forth certain information concerning the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Anand Sharma 54 Chairman of the Board of Directors and
Chief Executive Officer
William A. Schwartz 42 President and Chief Operating Officer,
Director
Amy Ludwig Weisman 36 Secretary, Director
Rainer H. Bosselmann 56 Director
Herbert E. Brown 53 Director
Michael B. DeFlorio 30 Director
Daniel A. Levinson 39 Director
William A. Sample 57 Vice President, Operations
</TABLE>
Anand Sharma was elected Chairman and Chief Executive Officer of
the Company on June 17, 1999, and has served as a director of the Company since
June 15, 1999. In 1991, Mr. Sharma founded TBM Consulting Group, Inc. ("TBM
Consulting"), a consultant to manufacturing companies, and now serves as its
President and Chief Executive Officer.
William A. Schwartz was elected President and Chief Operating
Officer of the Company on June 17, 1999, and has served as a director of the
Company since June 15, 1999. Mr. Schwartz is Vice President of Business
Development and a principal of TBM Consulting. Mr. Schwartz joined TBM
Consulting in 1991.
Amy Ludwig Weisman was elected Secretary of the Company on June
17, 1999, and has served as a director of the Company since June 15, 1999. In
1998, Ms.Weisman joined Mr.
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Levinson as a principal of Colt Capital, LLC ("Colt Capital"). From 1990 until
joining Colt Capital, Ms. Weisman was Senior Vice President of Morgan-Walke
Associates, a niche financial consulting firm.
Rainer H. Bosselmann has served as a director of the Company since
June 15, 1999. Mr. Bosselmann has been Chairman and Chief Executive Officer of
Arguss Holdings, Inc. ("Arguss Holdings"), a manufacturing company, since 1996.
Prior to assuming his position with Arguss Holdings, Mr. Bosselmann was
President of Jupiter National, Inc., a business development company traded on
the American Stock Exchange.
Herbert E. Brown was elected a director of the Company on March
10, 2000. Since August 1996, Mr. Brown has served as Chairman and Chief
Executive Officer of Alexander Doll Co., Inc. ("Alexander Doll Co."), a private
company producing collectible dolls and figurines. Prior to that he was the
General Manager of the Intravenous Catheter Company of Johnson & Johnson.
Michael B. DeFlorio was elected a director of the Company on March
10, 2000. Mr. DeFlorio joined J.H. Whitney & Co. ("J.H. Whitney") in 1997 and is
currently a General Partner of the firm. J.H. Whitney is a private investment
firm headquartered in Stamford, CT. Previously, Mr. DeFlorio was with American
Industrial Partners and Donaldson, Lufkin & Jenrette.
Daniel A. Levinson has served as a director of the Company since
June 15, 1999. Mr. Levinson founded Colt Capital, a niche investment group. For
the prior ten years Mr. Levinson was a principal investor with Holding Capital
Group, Inc., a management buyout company. Mr. Levinson is a director of Disc
Graphics and Arguss Holdings.
William A. Sample was appointed Vice President, Operations of the
Company in April 1998. From April 1998 to present Mr. Sample also serves as
Senior Management Consultant at TBM Consulting. From April 1997 to April 1998
Mr. Sample was President and Chief Executive Officer of Fournier, Inc., which
manufactures ready-to-assemble furniture. From 1996 to 1997 he was Vice
President, Operations of Alexander Doll Co.; prior to that Mr. Sample was Vice
President and General Manager, Technical Products, at Pioneer Plastics Corp., a
manufacturer of laminated products.
The term of each director expires at the Company's next annual
shareholders' meeting scheduled to occur in April 2000, and until their
respective successors shall have been duly elected and qualified.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The Company does not have a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and
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accordingly, its officers and directors are not subject to the reporting
requirements of Section 16(a) of the Exchange Act.
Item 10. Executive Compensation.
General
The following table sets forth certain information with respect to
the compensation paid by the Company for services rendered to the Company in all
capacities for the fiscal year ended January 1, 2000, to its Chief Executive
Officer and to its most highly paid executive officer other than the Chief
Executive Officer. Both of these individuals assumed these positions effective
June 17, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1)
-----------------------
Name and Principal Position Year Salary Bonus
--------------------------- ---- ------ -----
<S> <C> <C> <C>
Anand Sharma.................................... 1999 (2) (2)
Chief Executive Officer
William A. Schwartz
President and Chief Operating
Officer...................................... 1999 $130,000 $0
</TABLE>
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(1) No other compensation in the form of perquisites and other personal
benefits, securities or property was paid by the Company.
(2) Mr. Sharma served as Chief Executive Officer of the Company without
compensation from June 17, 1999, through the end of the fiscal year ended
January 1, 2000.
The Company has no stock appreciation rights outstanding. No stock
options were awarded to or exercised by any executive officer during the fiscal
year ended January 1, 2000.
Director Compensation
Each of the non-employee members of the Board of Directors
receives a payment of $1.00 per meeting attended, whether in person or by
telephone, together with reimbursement for actual expenses incurred in attending
meetings. In addition, each non-employee director receives $1,000 per "off-site"
visit. Examples of an "off-site" visit are plant visits or acquisition related
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meetings at a target company's offices. Upon adoption of the TBM Holdings, Inc.
1999 Stock Option Plan by the Company's stockholders at the Company's annual
meeting in April 2000, the Company will grant each non-employee director an
option to purchase 2,000 shares of the Company's Common Stock.
Employment Agreement
The Company is party to an Employment Agreement, dated as of June
17, 1999, with William A. Schwartz pursuant to which Mr. Schwartz devoted 50% of
his business time to the Company prior to the Company's acquisition of LRH and
thereafter has devoted 100% of his business time to the operations and
management of the Company. Mr. Schwartz will continue to be a principal and
director of TBM Consulting, and will spend such time as is necessary to address
normal and customary commitments related thereto to the extent that such
activity does not interfere with his full-time commitment to the operations of
the Company. Pursuant to the terms of the Employment Agreement, prior to the
acquisition of LRH, Mr. Schwartz received annual compensation in the amount of
$130,000 plus ordinary and customary benefits; following such acquisition, Mr.
Schwartz's salary increased to $260,000 plus ordinary and customary benefits for
similarly situated executives. At the Board's discretion, Mr. Schwartz's
compensation and/or time commitment can be adjusted if the Company's size and
business plan do not justify such salary. The Employment Agreement contains
standard confidentiality and non-compete provisions. If Mr. Schwartz terminates
his employment upon a change in control (as defined in the Employment Agreement)
or if his employment is terminated without cause by the Company, Mr. Schwartz
will be entitled to receive his base salary at the time of termination, plus
benefits, for a period of one (1) year following such termination. The term of
Mr. Schwartz's Employment Agreement is four years.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table contains information as to shares of the
Company's Common Stock for (i) each director of the Company and each of the
executive officers named in the Summary Compensation Table above, and (ii) all
directors and executive officers of the Company as a group.
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<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage
Beneficial Owner (1) Beneficial Ownership of Class (2)
- -------------------- -------------------- ------------
<S> <C> <C>
Anand Sharma 198,500 (3) 4.4
William A. Schwartz 196,500 (4) 4.3
Amy Ludwig Weisman 404,000 (5) 8.9
Rainer H. Bosselmann 0 *
Herbert E. Brown 6,000 *
Michael B. DeFlorio(6) 1,316,667 (7) 29.1
Daniel A. Levinson 440,000 (8) 9.7
Directors and executive officers as a group 2,017,167 44.6
</TABLE>
* Represents less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of the beneficial owner is
c/o TBM Holdings, Inc., 136 Main Street, Westport, Connecticut 06880.
(2) Based on 4,519,337 shares of the Company's Common Stock outstanding as of
March 29, 2000, excluding 516 contingently issuable shares held by an
escrow agent.
(3) Includes 18,000 shares held by Mr. Sharma's wife, 140,000 shares held by
TBM Capital II, LLC, of which Mr. Sharma is a managing member and 6,500
shares held by TBM Consulting, of which Mr. Sharma is the President and
Chief Executive Officer. Mr. Sharma disclaims beneficial ownership of
these shares.
(4) Includes 10,000 shares held by Mr. Schwartz as custodian for two family
members, 140,000 shares held by TBM Capital II, LLC, of which Mr.
Schwartz is a managing member and 6,500 shares held by TBM Consulting, of
which Mr. Schwartz is Vice President of Operations and a principal. Mr.
Schwartz disclaims beneficial ownership of these shares.
(5) Includes 4,000 shares held by a family member of Ms. Weisman and 400,000
shares held by Colt Capital, of which Ms. Weisman is a principal.
Ms. Weisman disclaims beneficial ownership of these shares.
(6) Mr. DeFlorio's address is c/o J.H. Whitney & Co., 177 Broad Street,
Stamford, CT 06901.
(7) Includes 390,000 shares held by J.H. Whitney III, L.P., 10,000 shares
held by Whitney Strategic Partners, III, L.P. and 916,667 shares held by
J.H. Whitney IV, L.P. (collectively, the "J.H. Whitney Entities"). Mr.
DeFlorio is a general partner of J.H. Whitney, which is an affiliate of
the J.H. Whitney Entities. Mr. DeFlorio disclaims beneficial
ownership of such shares except to the extent of his proportionate
interest in such shares.
(8) Includes 40,000 shares of Common Stock owned by Tri-Lev, LLC, a family
investment vehicle of which Mr. Levinson is the manager, and 400,000
shares held by Colt Capital. Mr. Levinson is President of Colt Services,
Inc. ("Colt Services"), the manager of Colt Capital. Mr. Levinson
disclaims beneficial ownership of these shares, except to the extent of
his proportionate interest as a member of Colt Capital and Tri-Lev, LLC.
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<PAGE> 14
The following table contains information as to shares of the
Company's Common Stock for any person or group who is known by the Company to be
the beneficial owner of more than 5% of such Common Stock:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership of Class(1)
- ---------------- -------------------- -----------
<S> <C> <C>
J.H. Whitney, III, L.P. 1,316,667 (2) 29.1
Whitney Strategic Partners, III, L.P.
J.H. Whitney IV, L.P.
177 Broad Street
Stamford, CT 06901
Colt Capital LLC 400,000 (3) 8.8
136 Main Street
Westport, CT 06880
LEG Partners III SBIC, L.P. 952,915 (4) 21.1
LEG Partners II, L.P.
LEG Partners SBIC, L.P.
LEG Partners, L.P.
555 Madison Avenue, 30th Floor
New York, NY 10022
</TABLE>
- ------------------------
(1) Based on 4,519,337 shares of the Company's Common Stock outstanding as of
March 29, 2000, excluding 516 contingently issuable shares held by an
escrow agent.
(2) Does not include 100,000 shares of Common Stock owned by two related
entities, Green River Fund I L.P. and Green River Fund II L.P. The J.H.
Whitney Entities disclaim beneficial ownership of such shares. In
addition, each of the J.H. Whitney Entities disclaims beneficial
ownership of all shares held by the other J.H. Whitney Entities. See
footnote (7) in the preceding table for a description of beneficial
ownership of shares by certain affiliated entities and Mr. DeFlorio's
interest in such shares.
(3) See footnote (8) in the preceding table for a description of Mr.
Levinson's interest in Colt Capital.
(4) Includes 500,000 shares held by LEG Partners III SBIC, L.P., 217,155
shares held by LEG Partners II, L.P., 2,235 shares held by LEG Partners
SBIC, L.P. and 233,525 shares held by LEG Partners, L.P. Each entity
disclaims beneficial ownership of all shares other than those held by
such entity. The 500,000 shares owned by LEG Partners III SBIC, L.P. are
subject to a Voting Agreement appointing Mr. Sharma or, in the event of
his death or incapacity, Mr. Schwartz, to act as proxy, pursuant to which
such shares will be voted in the same manner and proportion that the
shares of Common Stock owned by Colt Capital, Colt Services, TBM Capital
II, LLC and Messrs. Sharma and Schwartz are voted. The Voting Agreement
expires upon the mutual agreement of LEG Partners III SBIC, L.P. and
Messrs. Sharma and Schwartz, or the death or permanent disability of
Messrs. Sharma and Schwartz and will also terminate as to any of the
500,000 shares sold to any person who is not an affiliate of LEG Partners
III SBIC, L.P. or, after giving effect to such sale, the beneficial
owner of 10% or more of the Company's Common Stock.
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<PAGE> 15
Item 12. Certain Relationships and Related Transactions.
In connection with the 1999 Private Placement and related
transactions effected on June 15, 1999, the Company issued to TBM Consulting and
Colt Services, and their respective designees, warrants to purchase an aggregate
of 20 percent of the Company's Common Stock on a fully diluted basis. The
Company also paid TBM Consulting and Colt Services an aggregate of $300,000 at
closing for consulting services rendered in connection with the 1999 Private
Placement and related transactions. Mr. Sharma, the Company's Chairman and Chief
Executive Officer, is the President and Chief Executive Officer of TBM
Consulting, and Mr. Schwartz, the Company's President and Chief Operating
Officer, is the Vice President of Business Development and a principal of TBM
Consulting. Mr. Levinson is the President of Colt Services; Colt Services is the
manager of Colt Capital.
The Company and TBM Consulting are parties to a Consulting and
Management Services Agreement, dated as of June 17, 1999. Pursuant to the
Consulting and Management Services Agreement, TBM Consulting will provide
regular and customary Kaizen consulting and management services to the Company
on a priority basis. The Company will compensate TBM Consulting for its services
at its published pricing rates. The initial term of such agreement is for a
period of five (5) years and is thereafter renewable on an annual basis.
The Company and Colt Services are parties to a Consulting
Agreement, dated as of June 17, 1999. Pursuant to the Consulting Agreement, Colt
Services will provide advice to the Company regarding the implementation of the
Company's business plan. Colt Services will advise as to strategy and
achievement of objectives, senior level staffing, acquisitions and financings,
financial structure, public company issues and the like. For its advice to the
Company following the Company's acquisition of LRH, Colt Services receives a
monthly consulting fee of $12,500 per month.
In addition, Colt Services' offices are located within the offices
of the Company. Colt Services pays its pro rata portion of the rent for its
office. Colt Services utilizes Company-paid office personnel and common
facilities. The term of such arrangement shall continue so long as Colt Services
or its affiliates maintain an equity interest in the Company.
The Company and TBM Consulting and Colt Services are parties to a
Consulting Agreement, dated as of June 17, 1999, pursuant to which TBM
Consulting and Colt Services will provide transaction-related and financing
advice for follow-on acquisitions and implementation of the business plan. For
its advice to the Company, TBM Consulting and Colt Services will receive, in the
aggregate, a 1% transaction/financing completion fee upon the closing of future
transactions, including mergers, acquisitions, divestitures or other financings,
with such transaction completion fee capped at $600,000 per transaction or
financing. TBM Consulting will receive 25% and Colt Services will receive 75% of
such fee. The initial term of such agreement is for a period of five (5) years
from the acquisition of LRH on February 23, 2000, and is thereafter renewable on
an annual basis.
13
<PAGE> 16
See Item 10, "Employment Agreement," for a description of the
Employment Agreement between the Company and William A. Schwartz, the Company's
President and Chief Operating Officer and a director of the Company.
In connection with the 1999 Private Placement, the Company granted
J.H. Whitney an option to purchase up to 1,000,000 shares of Common Stock at an
exercise price of $5 per share, subject to a limit of 25% of the outstanding
Common Stock. The option became exercisable upon the closing of the merger with
LRH. On February 23, 2000 J.H. Whitney IV, L.P., an affiliate of J.H. Whitney
III, L.P. and Whitney Strategic Partners, III, L.P., purchased 500,000 shares of
Common Stock pursuant to the exercise of this option and purchased an additional
416,667 shares at $6 per share, for an aggregate purchase price of $5,000,000.
LEG Partners, SBIC L.P., LEG Partners, L.P. and LEG Partners, II
L.P. (the "LEG Entities") were parties, as selling shareholders, to the merger
agreement pursuant to which the Company acquired LRH. See Item 1, "Description
of Business - Subsequent Development," for a description of the merger
consideration paid, and certain amounts which may be paid, to the LEG Entities
by the Company in connection with the merger. Also in connection with the merger
the Company has guaranteed the obligations of LRH under certain subordinated
notes held by the LEG Entities. The notes are secured by a second lien on LRH's
assets and by a second mortgage on the Houston Facility. In addition, LRH has
entered into a lease covering the Arkansas Facility with LR Real Property, LLC,
in which the LEG Entities are members. On March 9, 2000, LEG Partners III SBIC
L.P., an affiliate of the LEG Entities, purchased 500,000 shares of the
Company's Common Stock at a purchase price of $6.00 per share, for an aggregate
purchase price of $3,000,000. LEG Partners III SBIC, L.P. is a party to a Voting
Agreement with Messrs. Sharma and Schwartz. See footnote (4) to the table of
beneficial ownership by shareholders contained in Item 11, "Security Ownership
of Certain Beneficial Owners and Management," for a description of the Voting
Agreement.
In connection with the private placement and related stock
transactions effected on February 23, 2000, the Company paid TBM Consulting and
Colt Services an aggregate of $80,000 at closing for consulting services
rendered in connection therewith.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
See "Index to Exhibits."
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the period October 1,
1999, through January 1, 2000.
14
<PAGE> 17
TBM HOLDINGS, INC.
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Independent auditors' report F-2
Balance sheet as of January 1, 2000 F-3
Statements of operations for the fifty-two weeks ended January 1,
2000, six months ended December 31, 1998 and for the fifty-two
weeks ended June 28, 1998 F-4
Statements of stockholders' equity for the fifty-two weeks ended
January 1, 2000, six months ended December 31, 1998 and for the
fifty-two weeks ended June 28, 1998 F-5
Statements of cash flows for the fifty-two weeks ended January 1,
2000, six months ended December 31, 1998 and for the fifty-two
weeks ended June 28, 1998 F-6
Notes to financial statements F-7
</TABLE>
F-1
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
TBM Holdings, Inc.
Westport, CT
We have audited the accompanying balance sheets of TBM Holdings, Inc. as of
January 1, 2000 and the related statements of operations, stockholders' equity
and cash flows for the fifty-two weeks ended January 1, 2000, six months ended
December 31, 1998 and the fifty-two weeks ended June 28, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of TBM Holdings, Inc. as of January 1,
2000, and the results of its operations, and its cash flows for the fifty-two
weeks ended January 1, 2000, six months ended December 31, 1998 and the
fifty-two weeks ended June 28, 1998 in conformity with generally accepted
accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 11, 2000
With respect to Note J
February 23, 2000
F-2
<PAGE> 19
TBM HOLDINGS, INC.
BALANCE SHEET
JANUARY 1, 2000
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,064,049
Prepaid expense 10,544
------------
Total current assets 12,074,593
Other 7,980
------------
$ 12,082,573
============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 66,947
Legal settlement 80,000
------------
146,947
------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock; 15,000,000 shares authorized; $.001 par value;
no shares issued and outstanding
Common stock; 10,000,000 shares authorized; $.001 par value;
2,601,000 shares issued and outstanding 2,601
Additional paid-in capital 24,263,853
Accumulated deficit (12,330,828)
------------
11,935,626
------------
$ 12,082,573
============
</TABLE>
See notes to financial statements F-3
<PAGE> 20
TBM HOLDINGS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO
WEEKS SIX MONTHS WEEKS
ENDED ENDED ENDED
JANUARY 1, DECEMBER 31, JUNE 28,
2000 1998 1998
---------- ------------ ---------
<S> <C> <C> <C>
General and administrative expenses $ 445,705
----------
Other income:
Gain on satisfaction of legal fees 126,744
Investment income 343,163
----------
Total other income 469,907
----------
Income from continuing operations 24,202
Income (loss) from discontinued operations 14,791 $(44,923) $(373,589)
---------- -------- ---------
NET INCOME (LOSS) $ 38,993 $(44,923) $(373,589)
========== ======== =========
EARNINGS (LOSS) PER SHARE (NOTE B[5]):
Basic and diluted:
Income from continuing operations $.02
Income (loss) from discontinued operations .01 $(2.04) $(16.98)
---- ------ -------
Net income (loss) $.03 $(2.04) $(16.98)
==== ====== =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (NOTE B[5]):
Basic 1,401,000 22,000 22,000
========== ======== =========
Potential common share, issuable upon exercise
of warrants 63,000
==========
Diluted 1,464,000 22,000 22,000
========== ======== =========
</TABLE>
See notes to financial statements F-4
<PAGE> 21
TBM HOLDINGS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------- --------------------------
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE - JUNE 30, 1997 2,394,130 $ 2,394 22,000 $ 22
Net loss
---------- --------- ----------- -----------
BALANCE - JUNE 28, 1998 2,394,130 2,394 22,000 22
Net loss
---------- --------- ----------- -----------
BALANCE - DECEMBER 31, 1998 2,394,130 2,394 22,000 22
Cancellation of treasury shares
and return of preferred stock (2,394,130) (2,394)
Contributions to capital
Sale of common stock, net of costs 2,546,000 2,546
Issuance and exercise of options 33,000 33
Net income
---------- --------- ----------- -----------
BALANCE - JANUARY 1, 2000 0 $ 0 2,601,000 $ 2,601
========== ========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED TREASURY
CAPITAL DEFICIT STOCK TOTAL
----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
BALANCE - JUNE 30, 1997 $11,582,873 $(11,951,309) $(175,664) $ (541,684)
Net loss (373,589) (373,589)
----------- ------------ --------- ------------
BALANCE - JUNE 28, 1998 11,582,873 (12,324,898) (175,664) (915,273)
Net loss (44,923) (44,923)
----------- ------------ --------- ------------
BALANCE - DECEMBER 31, 1998 11,582,873 (12,369,821) (175,664) (960,196)
Cancellation of treasury shares
and return of preferred stock (173,270) 175,664 0
Contributions to capital 517,865 517,865
Sale of common stock, net of costs 12,171,418 12,173,964
Issuance and exercise of options 164,967 165,000
Net income 38,993 38,993
----------- ------------ --------- ------------
BALANCE - JANUARY 1, 2000 $24,263,853 $(12,330,828) $ 0 $ 11,935,626
=========== ============ ========= ============
</TABLE>
See notes to financial statements F-5
<PAGE> 22
TBM HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIFTY-TWO SIX MONTHS FIFTY-TWO
WEEKS ENDED ENDED WEEKS ENDED
JANUARY 1, DECEMBER 31, JUNE 28,
2000 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 38,993 $ (44,923) $(373,589)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,085 506 724
Gain on satisfaction of legal fees (126,744)
Changes in:
Prepaid expense (10,544)
Other assets (2,550) 19,258 (1,349)
Accounts payable and accrued expenses (10,615) 19,887 8,503
------------ --------- ---------
Net cash used in operating activities (110,375) (5,272) (365,711)
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (4,492)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock and exercise of options,
net of costs 12,177,264
Loans from stockholders 2,000 338,479
------------ --------- ---------
Net cash provided by financing activities 12,177,264 2,000 338,479
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,062,397 (3,272) (27,232)
Cash and cash equivalents, beginning of period 1,652 4,924 32,156
------------ --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,064,049 $ 1,652 $ 4,924
============ ========= =========
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Contribution of amount due to former officer
to paid-in capital $ 517,865
Issuance of options in full settlement of certain
accounts payable $ 161,700
</TABLE>
See notes to financial statements F-6
<PAGE> 23
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
NOTE A - THE COMPANY
TBM Holdings, Inc. (the "Company") is a holding company whose only current
operations are its plans for acquisition of a manufacturing entity. The Company
was formerly known as Specialty Retail Group, Inc., ("Specialty") a holding
company that was engaged through its subsidiaries in the operation and
franchising of retail specialty toy stores. Control of Specialty changed during
June 1999 as a result of a capital infusion into the Company and sale of shares
constituting 99% of the outstanding shares after such sale. As part of the
recapitalization, the Company's stock was reverse split 1 for 412.92. Such
reverse split is reflected retroactively throughout these financial statements.
The only operations of Specialty prior to the change in control constituted
maintaining a business office and complying with its reporting obligations as a
publicly owned company.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] BASIS OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION:
The consolidated financial statements include the accounts of the Company
and, through June 15, 1999, its subsidiaries, BBHI and SRG Management
Corp., (wholly owned), neither of which had any operations. All
significant intercompany balances and transactions have been eliminated
in consolidation. Except as specifically noted, no adjustments have been
made to revalue assets or liabilities. All operations of Specialty are
reported as results of discontinued operations.
[2] CASH EQUIVALENTS:
Cash equivalents for purposes of reporting cash flows consisted
principally of highly liquid debt instruments purchased with an original
maturity of three months or less. Such accounts are carried at cost plus
accrued interest, which approximates market.
[3] STOCK OPTIONS:
The Company, consistent with generally accepted accounting principles,
accounts for stock options granted to employees pursuant to the intrinsic
value method specified by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," whereunder compensation cost
is not recognized as long as the exercise price of the option equals or
exceeds the fair value of the underlying stock on the date of grant. The
Company accounts for options granted to non-employees pursuant to SFAS
No. 123, "Accounting for Stock-Based Compensation", which requires that
the fair value of stock options be measured on the date of grant using an
applicable statistically-based, market-sensitive, financial model (see
Note F).
[4] INCOME TAXES:
The Company accounts for income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability
method. Under this method, deferred income taxes are recognized for the
tax consequences of temporary differences by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and tax bases of existing assets and
liabilities. Deferred income tax benefit or expense is measured by the
change in deferred income tax assets or liabilities during the year.
Under SFAS No. 109, the effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.
F-7
<PAGE> 24
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] PER SHARE DATA:
Per share data is calculated based on the weighted average number of
shares of common stock outstanding during the period. The Company's
outstanding stock options are excluded from the computations for periods
in which there is a net loss as their effect would be antidilutive. The
effect of 516 shares issuable pursuant to a settlement of litigation in
August 1996 is not reflected as it is also antidilutive (see Note E[1]).
[6] FISCAL YEAR:
The Company previously adopted a 52/53 week fiscal year ending on the
Sunday closest to June 30. Fiscal 1998 and 1997 consisted of 52 weeks.
The Company changed its fiscal year to a twelve month reporting period
and its year end to December 31 resulting in a short period beginning
June 29, 1998 and ended December 31, 1998. In connection with an
acquisition (Note J) the Company changed its fiscal year to a 52/53 week
fiscal year ending on the Saturday closest to December 31. Such change
has been reflected in these financial statements.
[7] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and accounts payable approximate fair value
because of the short maturity of these items.
[8] 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.
NOTE C - STOCKHOLDERS' EQUITY
[1] REORGANIZATION:
Immediately prior to the closing of the private placement on June 15,
1999, the former majority stockholder, in his capacity as sole director
of the Company, authorized, and holders of a majority of the voting stock
of the Company approved; (i) a 1 for 412.92 reverse stock split of the
Company's common stock for stockholders of record as of June 15, 1999,
and (ii) the contribution to capital of the Company's treasury shares.
The reverse stock split reduced the number of outstanding shares from
9,084,238 to 22,000 shares. In addition, the Company changed its name
from Specialty Retail Group, Inc. to TBM Holdings, Inc.
F-8
<PAGE> 25
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
NOTE C - STOCKHOLDERS' EQUITY (CONTINUED)
[2] PRIVATE PLACEMENT:
On June 15, 1999, the Company completed a private placement of its common
stock pursuant to which the Company issued and sold 2,546,000 shares of
common stock for $5.00 per share for aggregate gross proceeds of
$12,730,000. The offering was made solely to accredited investors and the
Company paid a placement agent fee of $30,000 and various other costs,
see below. In connection with the private placement, the Company agreed
to offer, with a first call option to one of the investors (the
"Investor"), additional shares at the private placement price of $5.00
per share upon the Company's first acquisition of a business. The number
of shares purchasable was limited to an overall maximum of 1,000,000
shares, except that the number of shares available to the Investor was
limited to that number of shares which would bring said Investor's total
holdings of Company stock to 25% on a fully diluted basis. See Note J for
subsequent transactions.
[3] PURCHASE AGREEMENT:
The private placement was effectuated pursuant to a Stock Purchase and
Reorganization Agreement (the "Purchase Agreement"). The Purchase
Agreement was among the Company, the majority stockholder of the Company
prior to the private placement, and Colt Services, Inc. and TBM
Consulting Group, Inc. (the "Purchasers"). In connection with the
Purchase Agreement, the Company issued to the Purchasers and their
respective designees, warrants to purchase an aggregate of 20% (658,745
shares) of the Company's common stock at $5.00 per share on a fully
diluted basis. The Company also paid the Purchasers from the proceeds of
the offering an aggregate of $300,000 at closing for consulting services
rendered in connection with transactions contemplated by the Purchase
Agreement, as well as other costs of approximately $226,000, and the
Company issued to the former majority stockholder and his designee,
warrants to purchase an aggregate of 1% (32,937 shares) of the common
stock at $5.00 per share on a fully diluted basis. See Note J for
subsequent transactions.
[4] CONTRIBUTIONS TO CAPITAL:
The former majority stockholder and other related stockholders (i)
contributed $517,865 of notes payable and related accrued interest
payable to them to the capital of the Company and (ii) effected the
contribution to capital of all outstanding Preferred Stock held by an
affiliate.
[5] GAIN ON SATISFACTION OF LEGAL FEES:
Certain of the Company's attorneys who were owed $288,444, agreed to
accept options to purchase 33,000 shares of common stock exercisable at
$0.10 per share as full payment of such amount (the options were
effectively valued at $4.90 each). As a result, $126,744 has been
recorded as other income in the statement of operations.
[6] DISCONTINUED OPERATIONS:
Prior to the completion of the Purchase Agreement, the only operations of
the Company related to administration of its subsidiaries and the
bankruptcy of a former subsidiary, maintaining a office, and continuing
its filings with the Securities and Exchange Commission. The Company
incurred minimal expenses during the period from January 1, 1999 through
June 15, 1999 and negotiated with several creditors who accepted reduced
payments in fulfillment of the Company's prior obligations. As a result,
the Company recorded income from discontinued operations during the
fifty-two weeks ended January 1, 2000. The Company dissolved the
remaining subsidiaries prior to the completion of the Purchase Agreement.
F-9
<PAGE> 26
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
NOTE D - RELATED PARTY TRANSACTIONS
[1] DEMAND LOANS PAYABLE TO STOCKHOLDERS:
In a prior year, the Company had received cash advances in the form of
demand loans from three of its then stockholders bearing interest at 8%
per annum. The total amount due to stockholders at December 31, 1998 was
$517,865, including accrued interest of $50,614. In connection with the
reorganization (see Note C), the amount due the stockholders was
contributed to capital.
NOTE E - COMMITMENTS AND CONTINGENCIES
[1] LEGAL SETTLEMENT - ISSUANCE OF COMMON STOCK:
In a prior year, the Company was one of several defendants in a lawsuit
with a former officer, director and stockholder of the Company who
alleged, among other things, breach of contract, fraud, defamation,
interference with stock transfer rights, breach of fiduciary duties by
certain former officers of the Company, conspiracy to defraud, and
interference with respect to a termination payment of $1,400,000 pursuant
to an employment agreement with the Company. In August 1996, the Company
settled this litigation without admitting liability by issuing an
aggregate of 1,574 shares of the Company's common stock to the plaintiff
and his designee.
The Company also agreed to guarantee up to $160,000 for any shortfall
from $650,000 realized upon the sale by the holders of all of the 1,574
shares. The Company may satisfy the guarantee by a cash payment or
issuance to the holders of an additional 516 common shares currently
being held by an escrow agent. Such shares have been issued, but are not
included in the accompanying statements of stockholders' equity. The
agreement further provides for the Company to receive 67% of the excess
over $650,000, if any, of proceeds received by the plaintiff and his
designee from market sales of the shares. In a prior year, the Company
recognized an additional obligation of $80,000 related to the settlement
arising from its agreement to guarantee the shortfall.
[2] LEASE COMMITMENTS:
The Company currently occupies office space under a sublease expiring
January 31, 2001. Obligations under the sublease totalled $39,600 and
$3,300 during the years ending December 31, 2000 and 2001, respectively.
Rent expense, net of sublease income, approximated $12,600 for the
fifty-two weeks ended January 1, 2000. There was no rent expense for the
fifty-two weeks ended June 28, 1998 and six months ended December 31,
1998.
[3] CERTAIN AGREEMENTS:
On June 17, 1999, the Company entered into a five year Consulting and
Management Services agreement with one of its stockholders to provide
consulting and management services in relation to both the Company's
operations as a holding company and its planned operations in
manufacturing. Such agreement calls for the stockholder making available
certain of its employees to perform management services for the Company
and to receive consulting services on a priority level for its planned
operations.
On June 17, 1999, the Company entered into a consulting agreement with
one of its stockholders to provide various advisory services to the
Company. Such agreement calls for payments of $150,000 a year, payable at
the stockholder's request (and upon approval by the Company's Board of
Directors), in cash or common stock of the Company, to begin following
the Company's acquisition of a business. The agreement expires only when
the stockholder or designated affiliates no longer maintain an equity
interest in the Company and may be terminated by the Company upon a sale
of all or substantially all of its assets or if control of the Company
changes.
F-10
<PAGE> 27
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
NOTE E - COMMITMENTS AND CONTINGENCIES (CONTINUED)
[3] CERTAIN AGREEMENTS: (CONTINUED)
On June 17, 1999, the Company entered into a consulting agreement with
two of its stockholders to provide consulting services in connection with
the Company's planned acquisition(s). Such agreement calls for the
stockholders collectively to receive 1% of the enterprise value of any
acquisition and/or 1% of the amount financed, if any; such payments are
not to exceed $600,000 per acquisition and $600,000 per financing. Such
compensation may be paid, at the stockholders' request (and upon approval
by the Company's Board of Directors), in common stock of the Company and
may be increased on a transaction by transaction basis at the discretion
of the Company's Board of Directors. The agreement expires five years
from the date of the first such acquisition and may be renewed annually
thereafter.
NOTE F - STOCK OPTIONS AND WARRANTS
In December 1991 and October 1994, the Company established the 1991 Nonqualified
Stock Option Plan and the 1994 Stock Option Plan (the "Plans") under which a
total of 1,695 and 1,211 shares, respectively, of the Company's common stock
could be issued to officers, directors, employees and independent contractors of
the Company upon the exercise of options granted under the Plans. The Plans are
administered by a committee appointed by the Board of Directors (the
"Committee"). The Committee has authority, subject to the terms of the Plans to
determine the individuals to whom options may be granted, the exercise price and
the number of shares of common stock subject to each option, the time or times
during which all or a portion of each option may be exercised and certain other
provisions of each option. As of January 1, 2000, an aggregate of 2,228 shares
remain available for future grant of options under the Plans.
Nonqualified stock option activity has been as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER OF PRICE
SHARES PER SHARE
--------- ---------
<S> <C> <C>
Outstanding and exercisable at June 28,
1997 and December 31, 1998 1,646 $389.73
Granted 33,000 $ 0.10
Exercised (33,000) $ 0.10
-------
Outstanding and exercisable at January 1, 2000 1,646 $389.73
=======
</TABLE>
Pursuant to the Plans, the exercise price of shares is determined by the
Committee at the time of grant but may not be less than the lesser of (i) the
book value per share of common stock as of the end of the fiscal year of the
Company immediately preceding the date of grant or (ii) 50% of the fair market
value per share of common stock at the date of grant. The term of an option may
not exceed 10 years from the date of grant. Unless otherwise determined by the
Committee, options granted vest and become exercisable at a rate of at least
33-1/3% per year from the date of grant.
Of options granted prior to June 1999, 678 may be exercised until January 2003,
363 may be exercised until June 2003 and 605 may be exercised until October
2003. No options were granted during the fifty-two weeks ended June 28, 1998 or
six months ended December 31, 1998.
F-11
<PAGE> 28
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
NOTE F - STOCK OPTIONS AND WARRANTS (CONTINUED)
The fair value of the 33,000 options granted (see Note C[5]) at the date of
grant using the Black-Scholes model was $4.90 per share.
The fair value of the 691,682 warrants granted (see Note C[3]), all of which
were outstanding at January 1, 2000, was $3.01 per share at the date of grant.
NOTE G - INCOME TAXES
The Company files a consolidated federal tax return including all of its
subsidiaries. The Company has not yet filed its tax returns for the fifty-two
weeks ended January 1, 2000.
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $3,300,000 available for federal and state income tax purposes
expiring over the next five to fifteen years, depending on the jurisdiction.
Such loss carryforwards give rise to a deferred tax asset of $1,452,000 at
December 31, 1998, all of which is offset by an equivalent valuation allowance.
The valuation allowance increased by $11,000 and $136,000 during the six months
ended December 31, 1998 and fiscal 1998, respectively. As a result of the change
in ownership described in Note C, the Company, as of January 1, 2000, in all
material respects, will be unable to utilize its previously available net
operating loss carryforwards in accordance with the provisions of Section 382 of
the Internal Revenue Code.
NOTE H - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
No interest or income taxes were paid during the fifty-two weeks ended January
1, 2000, the six months ended December 31, 1998 or fiscal 1998.
NOTE I - EARNINGS PER SHARE
The following is the reconciliation of the numerators and denominators of the
basic and diluted earnings (loss) per share:
<TABLE>
<CAPTION>
FIFTY-TWO SIX FIFTY-TWO
WEEKS MONTHS WEEKS
ENDED ENDED ENDED
JANUARY 1, DECEMBER 31, JUNE 28,
2000 1998 1998
---------- ------------ ---------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 38,993 $(44,923) $(373,589)
========== ======== =========
Denominator:
Computation of basic earnings (loss) per share:
Weighted average shares outstanding 1,401,000 22,000 22,000
========== ======== =========
Basic earnings (loss) per share $ 0.03 $ (2.04) $ (16.98)
========== ======== =========
Computation of diluted earnings (loss) per share:
Weighted average shares outstanding 1,401,000 22,000 22,000
Potentially dilutive shares:
Incremental shares issuable under warrants 63,000(a) (b) (c)
---------- -------- ---------
Weighted average shares outstanding and available 1,464,000 22,000 22,000
========== ======== =========
Diluted earnings (loss) per share $ 0.03 $ (2.04) $ (16.98)
========== ======== =========
</TABLE>
F-12
<PAGE> 29
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
NOTE I - EARNINGS PER SHARE (CONTINUED)
(a) Shares issuable under options were not included in the computation
of diluted earnings (loss) per share since the exercise prices of
the options were greater than the average market price of the
common shares.
(b) Shares issuable under options and warrants were not included in
the computation of diluted earnings (loss) per shares as the
Company had a net loss and any effect would be anti-dilutive.
NOTE J - SUBSEQUENT EVENTS
[1] On February 23, 2000, the Company completed an Agreement and Plan of
Merger to acquire a manufacturing company. The aggregate consideration in
respect of the acquisition was approximately $18,500,000, and was
comprised of (i) a cash payment of $1,500,000, (ii) the issuance of
500,000 shares of the Company's common stock valued at $3,000,000, (iii)
the assumption of subordinated notes of the acquired company to certain
of its stockholders in the principal amount of $3,000,000, (iv) the
assumption of the acquired company's indebtedness to its lender in the
amount of approximately $11,000,000. As part of the transaction, certain
real property will be carved out of the purchase and transferred to the
sellers of the manufacturing company. Also, up to $2,000,000 of
additional consideration may be required if net sales between $36,000,000
and $40,000,000 are achieved. Such acquisition is expected to be
accounted for as a purchase and the excess of the purchase price over the
fair value of the assets acquired will be recorded as goodwill and
charged to expense over the period of benefit. The Company is presently
determining the allocation of the purchase price in connection with this
acquisition.
[2] On February 23, 2000, the Company completed a private placement of its
common stock pursuant to which the Company issued and sold 916,667 shares
of common stock for $6.00 per share for aggregate gross proceeds of
$5,500,000. The offering was made solely to accredited investors. In
addition, an investor who was granted an option to purchase shares under
the June 1999 private placement (see Note C[2]) exercised their option to
purchase 500,000 shares at $5.00 per share for aggregate gross proceeds
of $2,500,000. In connection with these transactions, the Company paid an
aggregate financing fee of $80,000 to two of its stockholders.
F-13
<PAGE> 30
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 2000 TBM HOLDINGS, INC.
By:/s/ William A. Schwartz
------------------------------
William A. Schwartz, President
and Chief Operating Officer
In accordance with the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/ Anand Sharma March 30, 2000
- --------------------------------------------
Anand Sharma, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ William A. Schwartz March 30, 2000
- --------------------------------------------
William A. Schwartz, Chief Operating Officer
and Director (Principal Financial Officer
and Principal Accounting Officer)
March , 2000
- --------------------------------------------
Rainer H. Bosselmann, Director
/s/ Herbert E. Brown March 30, 2000
- --------------------------------------------
Herbert E. Brown, Director
/s/ Michael B. DeFlorio March 30, 2000
- --------------------------------------------
Michael B. DeFlorio, Director
/s/ Daniel A. Levinson March 30, 2000
- --------------------------------------------
Daniel A. Levinson, Director
/s/ Amy Weisman March 30, 2000
- --------------------------------------------
Amy Weisman, Director
15
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated February
4, 2000, among the Company, TBM Acquisition I, Inc., Long Reach
Holdings, Inc. and certain shareholders of Long Reach Holdings,
Inc. (1)
2.2 Stock Purchase and Reorganization Agreement dated as of June 15,
1999, by and among Specialty Retail Group, Inc., Seymour Zises, TBM
Consulting Group, Inc. and Colt Services, Inc. (2)
3.1 Articles of Incorporation of the Company as amended through June
10, 1999, and filed with the Secretary of State of the State of
Florida on June 15, 1999. (3)
3.2 Amended and Restated By-Laws of the Company effective June 15,
1999. (3)
4.1 Form of Subordinated Promissory Note by TBM Acquisition I, Inc. in
favor of each of the Subordinated Noteholders identified on the
Schedule attached thereto. (4)
10.1 1991 Non-Qualified Stock Option Plan. (5)
10.2 1994 Stock Option Plan. (6)
10.3 Consulting and Management Services Agreement dated June 17, 1999,
between the Company and TBM Consulting Group, Inc. (3)
10.4 Consulting Agreement dated June 17, 1999, between the Company and
Colt Services, Inc. (3)
10.5 Consulting Agreement dated June 17, 1999, among the Company, TBM
Consulting Group, Inc. and Colt Services, Inc. (3)
10.6 Employment Agreement dated June 17, 1999, between the Company and
William A. Schwartz. (3)
10.7 Form of Indemnification Agreement between the Company and each of
its officers and directors. (3)
10.8 Form of Warrant Agreement between the Company and each of Seymour
Zises, TBM Consulting Group, Inc. and Colt Services, Inc. and their
respective designees. (3)
</TABLE>
16
<PAGE> 32
<TABLE>
<S> <C>
10.9 Guaranty Agreement, dated as of February 23, 2000, by the Company
in favor of Golub Associates Incorporated, as agent for the benefit
of the holders of the Subordinated Notes. (4)
10.10 Lease Agreement, dated February 23, 2000, between TBM Acquisition
I, Inc. and LR Real Property, LLC. (4)
10.11 Loan and Security Agreement, dated April 20, 1999, between Long
Reach Holdings, Inc. and Bank One, Texas, N.A. (4)
10.12 Amendment One to Loan and Security Agreement, dated February 23,
2000, between Long Reach Holdings, Inc. and Bank One, Texas, N.A.
(4)
10.13 Unlimited Guaranty, dated February 23, 2000, by TBM Holdings, Inc.
in favor of Bank One, Texas, N.A. (4)
21 Subsidiaries of the Company. (4)
23 Consent of Richard A. Eisner & Company, LLP
27 Financial Data Schedule
</TABLE>
- -----------------------------------
(1) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 4, 2000, filed with the Securities and Exchange Commission
on February 15, 2000.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated June 15, 1999, filed with the Securities and Exchange Commission on
June 30, 1999.
(3) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1999.
(4) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 23, 2000, filed with the Securities and Exchange Commission
on March 9, 2000.
(5) Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the year ended June 30, 1992.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the year ended July 2, 1995.
17
<PAGE> 1
Exhibit 23
Independent Auditors' Consent
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of Registration Statement No. 33-88424 on Form S-8 of our
report dated February 11, 2000 (February 23,2000, with respect to Note J),
relating to our audit of the financial statements of TBM Holdings, Inc.,
formerly known as Specialty Retail Group, Inc. and subsidiaries as of and for
the fiscal year ended January 1, 2000 appearing in the Company's Annual Report
on Form 10-KSB for the fiscal year ended January 1, 2000.
Richard A. Eisner & Company, LLP
New York, New York
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET,
STATEMENT OF OPERATIONS, STATEMENT OF CASH FLOWS AND NOTES THERETO INCORPORATED
IN PART II, ITEM 7 OF THIS FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 12,064,049
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,544
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,082,573
<CURRENT-LIABILITIES> 66,947
<BONDS> 0
0
0
<COMMON> 2,601
<OTHER-SE> 24,263,853
<TOTAL-LIABILITY-AND-EQUITY> 12,082,573
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 445,705
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,202
<INCOME-TAX> 0
<INCOME-CONTINUING> 24,202
<DISCONTINUED> 14,791
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,993
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
