<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 23, 2000
TBM HOLDINGS, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Florida 0-18707 59-2824411
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
136 Main Street, Westport, Connecticut 06880
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (203) 227-6140
N/A
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
This Amendment is being filed by TBM Holdings, Inc., a Florida
corporation (the "Company"), as an amendment to its Current Report on Form 8-K
dated February 23, 2000, as filed with the Securities and Exchange Commission on
March 9, 2000, to include the financial information required by Items 310(c) and
310(d) of Regulation S-B, under Item 7 of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Item 7(a) Financial Statements of Business Acquired.
<TABLE>
<CAPTION>
Financial Information Page
--------------------- ----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of June 30, 1999 and 1998 F-2
Consolidated Statements of Operations
for the years ended June 30, 1999 and 1998 F-3
Consolidated Statements of Stockholders' Equity and
Comprehensive Loss for the years ended June 30, 1999
and 1998 F-4
Consolidated Statements of Cash Flows
for the years ended June 30, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
Consolidated Balance Sheets as of January 1, 2000 and
June 30, 1999 (Unaudited) F-17
Consolidated Statements of Operations for the six months
ended January 1, 2000 and 1999 (Unaudited) F-18
Consolidated Statements of Cash Flows for the six months
ended January 1, 2000 and 1999 (Unaudited) F-19
Notes to Consolidated Financial Statements (Unaudited) F-20
</TABLE>
Item 7(b) Pro Forma Financial Information.
<TABLE>
<CAPTION>
Financial Information Page
--------------------- ----
<S> <C>
Unaudited Pro Forma Financial Statements F-26
TBM Holdings, Inc. Unaudited Condensed Combined Pro Forma
Balance Sheet as of January 1, 2000 F-27
TBM Holdings, Inc. Notes to Unaudited Condensed
Combined Pro Forma Balance Sheet F-28
TBM Holdings, Inc. Unaudited Condensed Combined Pro Forma
Statement of Operations for the year ended January 1, 2000 F-29
TBM Holdings, Inc. Notes to Unaudited Condensed
Combined Pro Forma Statement of Operations F-30
</TABLE>
2
<PAGE> 3
Item 7(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of
Merger, dated February 4, 2000, among TBM
Holdings, Inc., TBM Acquisition I, Inc.,
Long Reach Holdings, Inc. and certain
shareholders of Long Reach Holdings, Inc.,
previously filed as an exhibit to the
Company's Current Report on Form 8-K
dated February 4, 2000, filed with the
Commission on February 15, 2000.
23.1 Consent of KPMG LLP.
99.1 Press Release dated March 9, 2000,
previously filed as an exhibit to the
Company's Current Report on Form 8-K dated
February 23, 2000, filed with the Commission
on March 9, 2000.
</TABLE>
3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Long Reach Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Long Reach
Holdings, Inc. and subsidiary as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Long Reach Holdings,
Inc. and subsidiary as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG LLP
Houston, Texas
February 23, 2000
F-1
<PAGE> 5
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash $ 120,783 $ 255,887
Accounts receivable, net of allowance for doubtful accounts of
$112,797 and $561,419 at June 30, 1999 and 1998, respectively 6,253,017 4,315,938
Income tax receivable - 882,337
Inventories 9,008,340 9,141,009
Prepaid expenses and other receivables 157,876 160,010
----------- -----------
Total current assets 15,540,016 14,755,181
----------- -----------
Property, plant and equipment, at cost 17,230,453 22,190,554
Less accumulated depreciation 7,485,767 8,227,516
----------- -----------
Net property, plant and equipment 9,744,686 13,963,038
----------- -----------
Cost in excess of net assets of businesses acquired, net of accumulated
amortization of $1,554,344 and $1,354,910 at June 30, 1999 and 1998,
respectively 5,564,210 5,763,644
Debt issuance costs 426,895 580,367
Other assets 84,927 124,675
----------- -----------
$ 31,360,734 $ 35,186,905
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 4,454,183 $ 3,976,187
Accrued expenses 1,364,612 1,591,235
Current portion of revolving credit loan 3,987,456 1,383,670
Current portion of long-term debt 6,501,817 3,414,753
Current portion of other long-term liabilities - 10,770
Net deferred tax liability 167,872 102,428
Bank overdraft payable 430,583 726,295
----------- -----------
Total current liabilities 16,906,523 11,205,338
----------- -----------
Revolving credit loan 3,200,000 5,739,662
Long-term debt, excluding current portion 5,570,795 10,468,526
Other long-term liabilities 22,668 -
Net deferred tax liability 547,721 2,045,163
Mandatory redeemable convertible Series D preferred stock, $10 par and
liquidation value. Authorized 250,000 shares; 219,975 shares issued and
outstanding 2,322,387 -
Mandatory redeemable warrants and common stock, $0.01 par value -
1,133,333 shares issued and outstanding at June 30, 1999 and 1998 1,868,871 1,868,871
Stockholders' equity:
Series B preferred stock, $.01 par value, $.45 liquidation value.
Authorized 1,900,000 shares; 1,785,322 issued and outstanding at June 30,
1999 and 1998 17,853 17,853
Series C preferred stock, $.01 par value, $.90 liquidation value.
Authorized 1,900,000 shares; 1,785,322 issued and outstanding at June 30,
1999 and 1998 17,853 17,853
Common stock, $.01 par value. Authorized 7,500,000 shares; 4,786,678
shares issued and outstanding at June 30, 1999 and 1998, of which
1,133,333 shares are considered mandatory redeemable. 36,534 36,534
Additional paid-in capital 3,525,880 3,525,880
Accumulated other comprehensive loss - foreign currency translation
adjustments (154,679) (194,750)
Retained earnings (deficit) (2,521,672) 455,975
----------- -----------
Total stockholders' equity 921,769 3,859,345
Commitments and contingencies
----------- -----------
$ 31,360,734 $ 35,186,905
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 6
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenue $ 39,439,273 $ 41,239,191
Cost of sales 32,465,698 31,639,145
----------- -----------
Gross profit 6,973,575 9,600,046
Selling, general and administrative expenses 10,687,531 9,872,594
Nonrecurring expenses - 2,230,121
----------- -----------
Operating loss (3,713,956) (2,502,669)
Interest expense 2,017,348 2,190,202
Other income, net (1,544,724) (190,148)
----------- -----------
Loss before federal and state income taxes (4,186,580) (4,502,723)
----------- -----------
Federal and state income tax expense (benefit):
Current 100,428 (793,646)
Deferred (1,431,998) (636,050)
----------- -----------
(1,331,570) (1,429,696)
----------- -----------
Net loss $ (2,855,010) $ (3,073,027)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 7
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- --------------- ------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1997 1,785,322 $17,853 1,785,322 $17,853 3,653,345 $36,534
Dividends on preferred stock - - - - - -
Comprehensive loss:
Net loss - - - - - -
Foreign currency
translation adjustments - - - - - -
Total comprehensive loss
--------- --------- --------- --------- --------- ---------
Balances at June 30, 1998 1,785,322 17,853 1,785,322 17,853 3,653,345 36,534
Dividends on mandatory redeemable
Series D preferred stock - - - - - -
Comprehensive income (loss):
Net loss - - - - - -
Foreign currency
translation adjustments - - - - - -
Total comprehensive loss
--------- --------- --------- --------- --------- ---------
Balances at June 30, 1999 1,785,322 $17,853 1,785,322 $17,853 3,653,345 $36,534
========= ========= ========= ========= ========= =========
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RETAINED
PAID-IN COMPREHENSIVE EARNINGS
CAPITAL LOSS (DEFICIT) TOTAL
------- ---- --------- -----
<S> <C> <C> <C> <C>
Balances at June 30, 1997 $ 3,525,880 $ - $ 3,649,516 $ 7,247,636
Dividends on preferred stock - - (120,514) (120,514)
Comprehensive loss:
Net loss - - (3,073,027) (3,073,027)
Foreign currency
translation adjustments - (194,750) - (194,750)
-----------
Total comprehensive loss (3,267,777)
--------- --------- --------- -----------
Balances at June 30, 1998 3,525,880 (194,750) 455,975 3,859,345
Dividends on mandatory redeemable
Series D preferred stock - - (122,637) (122,637)
Comprehensive income (loss):
Net loss - - (2,855,010) (2,855,010)
Foreign currency
translation adjustments - 40,071 - 40,071
-----------
Total comprehensive loss (2,814,939)
--------- --------- --------- -----------
Balances at June 30, 1999 $ 3,525,880 $ (154,679) $ (2,521,672) $ 921,769
========= ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 8
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,855,010) $ (3,073,027)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation 1,501,736 1,626,146
Amortization 429,114 561,356
Deferred income taxes (1,431,998) (636,050)
(Gain) loss on sale of property, plant and equipment (938,358) 53,765
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable, net (1,937,079) 8,310
Inventories 132,669 (1,600,008)
Prepaid expenses and other receivables 916,976 13,024
Other assets 39,748 113,521
Trade accounts payable 477,996 881,524
Accrued expenses (105,637) (1,320,150)
----------- -----------
Net cash used in operating activities (3,769,843) (3,371,589)
----------- -----------
Cash flows from investing activities:
Capital expenditures for property, plant and equipment, net (1,583,941) (2,422,891)
Proceeds from sale of property, plant and equipment, net of selling costs 5,159,032 53,765
----------- -----------
Net cash provided by (used in) investing activities 3,575,091 (2,369,126)
----------- -----------
Cash flows from financing activities:
Change in bank overdraft payable (295,712) 1,022
Net borrowings under revolving credit loan 64,124 5,313,171
Borrowings under long-term debt 5,341,162 1,575,000
Principal payments on long-term debt (7,151,829) (1,183,441)
Debt issuance costs (108,713) (29,279)
Proceeds from issuance of Series D preferred stock 2,199,750 --
Payment of dividends on preferred stock -- (60,257)
----------- -----------
Net cash provided by financing activities 48,782 5,616,216
----------- -----------
Effect of foreign currency translation on cash 10,866 (68,631)
----------- -----------
Net decrease in cash (135,104) (193,130)
Cash at beginning of year 255,887 449,017
----------- -----------
Cash at end of year $ 120,783 $ 255,887
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 2,071,782 $ 1,963,020
Cash paid during the year for income taxes -- 351,040
=========== ===========
Supplemental disclosure of noncash activities:
Accrual of mandatory redeemable Series D preferred stock dividend $ 122,637 $ --
Accrual of Series B and Series C preferred stock dividend -- 60,257
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 9
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The primary business of Long Reach Holdings, Inc. and subsidiary (the
Company) is the manufacturing and marketing of hydraulically activated
material handling equipment in Houston, Texas; Little Rock, Arkansas; and
Wingfield, South Australia. The Company markets the majority of its
products through numerous material handling dealers in the U.S. and
internationally. The Company's raw materials are readily available and
the Company is not dependent on a single supplier or only a few suppliers
of proprietary products and is not dependent on any one customer. On
February 23, 2000, the Company completed a merger with a wholly-owned
subsidiary of TBM Holdings, Inc. (TBM Merger) (see note 11).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Long Reach
Holdings, Inc. and its wholly-owned subsidiary, Brudi Pacific Pty Ltd.
All significant intercompany transactions have been eliminated in
consolidation.
RECLASSIFICATION
Certain amounts previously reported in the financial statements have been
reclassified to conform to the current year presentation.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
related to the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Equipment under capital
leases is stated at the present value of minimum lease payments at the
inception of the lease.
F-6
<PAGE> 10
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
Depreciation of property, plant and equipment is calculated on the
straight-line method, based on the estimated useful lives of the various
assets, as follows:
LIFE
----
Buildings and improvements 25 - 30 years
Machinery and equipment 5 - 12 years
Furniture and fixtures 8 years
Equipment held under capital leases is depreciated on a straight-line
basis over the shorter of the lease term or estimated useful life of the
asset.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
COMPREHENSIVE INCOME (LOSS)
On July 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income (SFAS No. 130). SFAS No. 130 establishes standards
for reporting and presentation of comprehensive income (loss) and its
components. Comprehensive income (loss), consisting of net income
(loss) and foreign currency translation adjustments, is presented in
the consolidated statements of stockholders' equity and comprehensive
loss. SFAS No. 130 does not affect the Company's financial position or
results of operations. Prior year consolidated financial statements
have been reclassified to conform to the requirements of SFAS No. 130.
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED AND DEBT ISSUANCE
COSTS
The cost in excess of net assets of businesses acquired is being
amortized on a straight-line basis over 40 years. The Company assesses
the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of this intangible asset will be impacted if estimated
future operating cash flows are not achieved.
Debt issuance costs are being amortized over the life of the related debt
and are included as a component of interest expense.
F-7
<PAGE> 11
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the foreign subsidiary have been translated
into United States dollars at the applicable rates of exchange in effect
at the end of the period reported. Revenues and expenses have been
translated at the applicable weighted average rates of exchange in effect
during the period reported. Translation adjustments are excluded from the
statement of operations and are reported as accumulated other
comprehensive loss, as a separate component of stockholders' equity until
realized. Any transaction gains and losses are included in net income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at discrete points in time based on
relevant market information. These estimates may be subjective and
involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. The Company believes that the
carrying amounts of its current assets, current liabilities, revolving
credit loan and long-term debt approximate the fair value of such items
at June 30, 1999 and 1998.
(2) INVENTORIES
Inventory costs at June 30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 4,599,682 $ 5,160,729
Work in process 1,474,966 1,238,855
Finished goods 3,490,677 3,114,830
LIFO reserve (556,985) (373,405)
---------- ----------
Total inventories $ 9,008,340 $ 9,141,009
========== ==========
</TABLE>
F-8
<PAGE> 12
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment costs at June 30, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 860,674 $ 1,533,875
Buildings and improvements 4,112,377 7,550,503
Machinery and equipment 9,802,223 9,370,346
Furniture and fixtures 2,321,926 2,281,481
Construction in progress 133,253 1,454,349
----------- -----------
$ 17,230,453 $ 22,190,554
=========== ===========
</TABLE>
During 1998, the Company consolidated its Ridgefield, Washington
manufacturing operations into the Houston, Texas and Little Rock,
Arkansas operations. In connection with this restructuring, the Company
had been marketing the Ridgefield land and building for sale. On January
15, 1999, the Company completed the sale of the Ridgefield, Washington
land and building for approximately $5.4 million. Proceeds of
approximately $5.1 million, net of selling costs were used to pay down
the revolving credit loan and note payable to bank and for working
capital and general corporate purposes. The Company realized a gain on
the sale of approximately $0.9 million, which is included in other income
for the year ended June 30, 1999.
In connection with the TBM Merger as discussed in note 11, land and
buildings with a net book value of approximately $1,500,000 were
distributed to certain holders of equity interest in the Company.
F-9
<PAGE> 13
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(4) LONG-TERM DEBT AND REVOLVING CREDIT LOAN
Long-term debt at June 30, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Note payable to bank, due in monthly $ 4,850,000 $ -
principal installments of $51,196,
beginning August 1, 1999, plus interest
at the lender's prime rate plus 0.75%, with
final payment due April 20, 2002
Note payable to bank, due in monthly - 7,130,000
principal installments of $90,000 beginning
August 1, 1996, plus interest at lender's
prime rate plus 1.5%, with final payment
due December 31, 1998
Notes payable to stockholders, interest 5,955,000 5,955,000
at 12% paid monthly, due in monthly
principal installments of $187,500
beginning June 30, 2001, with final
payment due June 19, 2003
Notes payable to stockholders, interest 620,000 620,000
at 12% paid monthly, due in monthly
installments of $20,833 beginning June 30,
2001, with final payment due June 19, 2003
Notes payable to stockholders, interest at 491,162 -
12% paid monthly, due January 31, 2000
Capital lease obligations, interest between 156,450 178,279
5.7 - 14.25% due in monthly installments ---------- -----------
Total long-term debt 12,072,612 13,883,279
Less current portion 6,501,817 3,414,753
---------- -----------
Long-term debt, excluding
current portion $ 5,570,795 $10,468,526
========== ===========
</TABLE>
During fiscal year 1998 and through April 20, 1999, the Company had a
revolving credit loan that contained a maximum limit of $7,500,000. The
borrowing base was calculated as a percentage of eligible accounts
receivable as defined in the agreement and a percentage of inventory.
This revolving credit loan bore interest at the lender's prime rate plus
1.5% and expired June 19, 1999. At June 30, 1998, $7,123,332 was
outstanding under the revolving credit loan and the Company was overdrawn
on its borrowing base by $565,725. As of June 30, 1998, the Company was
in default on numerous financial covenants on the revolving credit loan
and notes payable to stockholders, and on April 20, 1999, entered into a
new lending agreement to replace the revolving credit loan.
F-10
<PAGE> 14
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
Effective April 20, 1999, the Company entered into a new credit agreement
with a bank to replace the existing revolving credit loan and note
payable to its existing lender. The new credit agreement includes a
revolving credit loan with a maximum commitment of $8,000,000, subject to
borrowing base availability and other items, and a term loan of
$4,850,000. Interest accrues on borrowings through the new credit
agreement at the bank's prime rate (7.75% at June 30, 1999) plus 0.50% to
0.75% under differing circumstances. Subject to borrowing base
limitations calculated on eligible inventory and accounts receivable, the
revolving credit loan is due and payable on April 20, 2002. Additionally,
a one-quarter percent fee per annum is paid to the bank for the unused
portion of the revolving loan commitment. A commitment fee of $47,500 was
paid to the bank at the time of entering into the new credit agreement.
At June 30, 1999, the borrowing base availability for the revolving
credit loan was determined to be $7,668,254, of which the Company had
utilized $7,187,456.
The new credit agreement requires the Company, among other provisions to:
(1) maintain certain financial ratios and covenants, (2) maintain and
assign to the bank, key man life insurance policies in the amount of $1
million on each of the Company's president and chief financial officer,
(3) restrict dividend payments without the bank's approval and (4) pay an
early termination fee in the event the credit agreement is terminated
prior to its scheduled maturity. The credit agreement is secured by
substantially all the assets of the Company.
At June 30, 1999, the Company was in default on numerous financial
covenants under the new credit agreement and notes payable to
stockholders. The Company obtained a forbearance agreement from the bank.
However, at October 31, 1999, the Company was unable to comply with one
of the financial covenants of the forbearance agreement. While the
Company received a waiver of payment acceleration from holders of the
notes payable to stockholders, no such waiver was received from the bank.
In connection with the TBM Merger (see note 11), the Company amended its
existing bank credit facility, which cured the default under the
forbearance agreement. The Company, in connection with the TBM Merger,
reduced the amount outstanding on its existing revolving loan and term
loan to $3,200,000 and $2,500,000, respectively. Interest on the amended
bank revolving credit loan accrues at the prime rate plus 0.25% to 1.00%
under different circumstances. The revolving credit loan matures on March
31, 2003. The amendment also provides that the term loan be repaid in
principal installments of $60,000, payable on the first day of each month
beginning January 1, 2001, and continuing through and including December
1, 2001, and $50,000, payable on the first day of each month beginning
January 1, 2002, and continuing through March 31, 2003. The Company is
required to meet certain financial covenants as defined in the amendment.
Additionally, as discussed in note 11, $6.0 million of the subordinated
debt was refinanced through the issuance of $3.0 million of new
subordinated debt and 500,000 shares of TBM common stock valued at $6 per
share.
F-11
<PAGE> 15
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
All of the above notes and the revolving credit loan are secured by liens
on substantially all of the Company's assets. In addition, the agreements
contain various restrictions relating to entering into certain
activities, payment of dividends, investments, capital leases, purchases
and sales of assets, etc. and also require compliance with certain
financial ratios and minimum levels of working capital.
The aggregate maturities of the Company's long-term debt and revolving
credit loan at June 30, 1999 (after giving effect to the refinancing in
the Merger with a wholly-owned subsidiary of TBM Holdings, Inc. discussed
in note 11) are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30,
---------------------
<S> <C>
2000 $10,489,273
2001 427,789
2002 663,006
2003 4,680,000
2004 -
Thereafter 3,000,000
------------
$19,260,068
============
</TABLE>
(5) STOCKHOLDERS' EQUITY
During 1996, Long Reach Holding's Board restated the Company's Articles
of Incorporation to authorize the issuance of 1,900,000 shares of Series
B, 5% cumulative, preferred stock with a par value of $0.01 and 1,900,000
shares of Series C, 5% cumulative, preferred stock with a par value of
$0.01. Series B shares have a face and liquidation value of $0.45, and
Series C shares have a face and liquidation value of $0.90. At June 30,
1999 and 1998, preferred dividends in arrears amounted to $180,773 and
$60,257, respectively. At June 30, 1999, $120,516 of dividends in arrears
had not been declared by the board of directors and were therefore not
accrued by the Company. The Company's agreement with its bank lender
limits the payment of dividends.
On August 3, 1998, the Company issued 219,975 shares of Series D, 6%
Mandatory Redeemable Convertible Preferred Stock (Series D) at a par
value of $10.00 per share, together with warrants exercisable into an
aggregate of 1,000,000 shares of common stock at a price of $1.50 per
share. Proceeds of approximately $2,167,000, net of offering costs, were
used for working capital and other general corporate purposes. Dividends
on the Series D are fully cumulative and payable when, as, and if
declared, in cash or shares of common stock (at a rate of $0.75 per share
of common stock), at the option of the holder of the shares of Series D
preferred stock. All of the Series D shall be redeemed upon the earlier
of certain events, including a change in control, or July 31, 2001 at a
redemption price of $10.00 per share plus any accumulated and unpaid
dividends subject to the terms of certain agreements the Company has
entered into with its lenders. If not redeemed on July 31, 2001, the
dividend rate of the Series D will increase 1% on July 31, 2001 and shall
continue to increase in increments of 1% annually until redeemed or the
dividend rate increases to 10%. The Series D is convertible into 13.33
shares of the Company's common stock at the option of the holder. At June
30, 1999, $122,637 of dividends in arrears has been accrued by the
Company and is included in mandatory redeemable preferred stock.
F-12
<PAGE> 16
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
In connection with the August 3, 1998 issuance of the Series D, the Company
granted a put option to certain shareholders who own common stock and
warrants to purchase common stock of the Company. This put option gives the
holders thereof the right to sell all or any part of their shares of common
stock and warrants and shares of common stock issuable or issued upon the
exercise of the warrants. The Company is not obligated to repurchase such
securities until after the earliest to occur of (a) June 19, 2001, (b) a
public offering of the Company's common stock, (c) a "change in control" as
defined in the Note, Stock, and Warrant Purchase Agreement dated June 19,
1996 (Purchase Agreement) and in the Series B Purchase Agreement, or (d)
the occurrence of certain events of default under the Purchase Agreement.
If the put option is exercised, the Company would have to pay the fair
value per share as defined in the Series D Preferred Stock Agreement.
Accordingly, at June 30, 1999 and 1998, the Company has classified the book
value of the common stock, and warrants to purchase common stock, subject
to the put options, outside of equity as Mandatory Redeemable Common Stock.
In connection with the TBM Merger (see note 11), each outstanding share of
the Company's common and preferred stock, and all warrants, options and
other rights to purchase the Company's common stock were canceled and
extinguished.
(6) INCOME TAXES
Income tax expense (benefit) for the years ended June 30, 1999 and 1998
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended June 30, 1999:
U.S. federal $ -- $ (1,431,998) $ (1,431,998)
State and local (8,572) -- (8,572)
Foreign 109,000 -- 109,000
----------- ----------- -----------
$ 100,428 $ (1,431,998) $ (1,331,570)
=========== =========== ===========
Year ended June 30, 1998:
U.S. federal $ (881,741) $ (636,050) $ (1,517,791)
State and local 95 -- 95
Foreign 88,000 -- 88,000
----------- ----------- -----------
$ (793,646) $ (636,050) $ (1,429,696)
=========== =========== ===========
</TABLE>
F-13
<PAGE> 17
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
The reasons for the difference between the amount of tax expense (benefit)
provided and the amount of tax expense (benefit) computed by applying the
federal statutory income tax rate of 34% to income before income taxes,
were as follows for the years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Tax benefit at statutory rate $ (1,423,437) $ (1,530,925)
Goodwill amortization 67,585 67,585
State, local and foreign income taxes 66,283 58,143
Other, net (42,001) (24,499)
----------- -----------
Total benefit $ (1,331,570) $ (1,429,696)
=========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
30, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Current portion:
Accounts receivable, due to
allowance for doubtful accounts $ 38,351 $ 190,882
Vacation accrual 44,729 34,750
Warranty accrual 87,984 23,666
Inventories, due to uniform
capitalization rules 24,548 44,846
Deferred compensation 33,648 --
----------- -----------
229,260 294,144
Long-term portion:
Deferred compensation 5,139 10,677
Net operating loss carryforward 1,224,747 889,676
----------- -----------
Total deferred tax assets 1,459,146 1,194,497
----------- -----------
Deferred tax liabilities:
Current portion - inventories, due
to difference in the LIFO reserves (397,132) (396,572)
Long-term portion - property, plant
and equipment, due to difference in
depreciation (1,777,607) (2,945,516)
----------- -----------
Total deferred tax liabilities (2,174,739) (3,342,088)
----------- -----------
Net deferred tax liability (715,593) (2,147,591)
Less net current deferred tax liability (167,872) (102,428)
----------- -----------
Net long-term deferred tax liability $ (547,721) $(2,045,163)
=========== ===========
</TABLE>
F-14
<PAGE> 18
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
The Company did not record a valuation allowance for deferred tax assets as
of June 30, 1999 and 1998. In assessing whether deferred tax assets will be
realized, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Based upon the historical taxable
income and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely
than not the Company will realize the benefits of those deductible
differences. The amount of deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
At June 30, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $3,600,000 which are available
to offset future federal taxable income, if any, through 2018.
(7) EMPLOYEE BENEFIT PLANS
The Company has a savings and retirement plan (the Plan) that is available
to all non-Brudi employees that choose to participate. The Company also
established a savings and retirement plan for Brudi, Inc. employees (the
Brudi Plan). The plans are defined contribution plans. The Plan provides
for participant contributions which can be matched by Company
contributions. The Company made contributions of $119,654 and $88,277 to
the Plan for the years ended June 30, 1999 and 1998, respectively. The
Company made contributions to the Brudi Plan of $-0- and $74,000 during
1999 and 1998, respectively. There were no Brudi, Inc. employees during
1999.
Effective June 30, 1999, the Company's Board of Directors amended the Brudi
Plan to merge that plan into the Plan. The Brudi participants' balances
immediately prior to the merger shall constitute the beginning balances in
the Plan. Brudi participants will have the option to transfer their
balances to the Plan or receive a lump sum payment of their participant
balances. Brudi participant balances transferred to the Plan will be
allocated between various funds available in the Plan based on Brudi
participant elections.
The Company has implemented a self-insured employee medical plan under the
501(c)(9) trust provisions of the IRS. This plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974. This
plan provides health benefits to all employees that choose to participate.
Employees pay specified premiums to the Company so that they and their
eligible dependents will be covered by the plan. The Company makes
additional monthly contributions as necessary to meet claims cost in excess
of the specified premiums. The plan agreement also provides that the
Company make contributions equal to insurance premiums and administrative
expenses of the plan. The Company's contributions to the self-insured
employee medical plan amounted to approximately $541,000 and $178,000 for
the years ended June 30, 1999 and 1998, respectively.
(8) CONTINGENCIES
The Company is involved in claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on the Company's
consolidated financial position.
F-15
<PAGE> 19
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(9) WARRANTS
In connection with obtaining financing through the issuance of notes and
preferred stock to stockholders, the Company has issued several classes of
warrants. The warrants enable the holders to acquire approximately
8,991,000 shares of the common stock of the Company on a fully diluted
basis. Exercise of approximately 3,885,000 of the warrants could be made
for an insignificant amount. The remaining common stock warrants are
exercisable at $1.50. Additionally, the Company has issued warrants to
enable the holders to acquire 493,970 Series E preferred shares for $5.50
per share. It is expected that the Series E preferred stock will have a
redemption value of $10 per share. In connection with the TBM Merger (see
note 11), all warrants to purchase common stock were canceled and
extinguished.
(10) NONRECURRING EXPENSES
During 1998, as discussed in note 3, the Ridgefield, Washington operations
were consolidated into the Houston, Texas and Little Rock, Arkansas
operations. In connection with this restructuring, the Company incurred
$2,230,121 in expenses for travel, recruiting, freight to transport capital
equipment, and depreciation on the building while idle. These expenses have
been shown in the statement of operations as a separate line item for the
year ended 1998. The majority of these expenses were paid during 1998, and
all had been paid as of June 30, 1999.
(11) SUBSEQUENT EVENTS
ISSUANCE OF SUBORDINATED NOTES
In September 1999, the Company entered into Omnibus Amendment No. 3 to
Financing Documents to provide financing totaling $740,000 through the
issuance of additional 12% Subordinated Notes to several of its
stockholders. The proceeds were used by the Company for working capital
purposes.
MERGER WITH A WHOLLY-OWNED SUBSIDIARY OF TBM HOLDINGS, INC.
On February 23, 2000, the Company completed a merger with a wholly-owned
subsidiary of TBM Holdings, Inc. (TBM), whereby such wholly-owned
subsidiary of TBM will be the surviving corporation. The merger
consideration consisted of (a) the payment of $1.5 million to the existing
shareholders of the Company, (b) the assumption of all existing debt of the
Company by the surviving corporation, (c) the surviving corporation's
issuance of $3.0 million of new subordinated notes to refinance a portion
of the existing subordinated notes with certain shareholders and (d)
500,000 shares of TBM common stock at $6 per share for repayment of the
remaining $3.0 subordinated notes outstanding at the date of acquisition.
Additionally, new contingent subordinated notes will be issued to certain
preferred and common shareholders in an aggregate amount not to exceed $2.0
million in the event that certain net sales targets are achieved in
calendar year 2000 as defined in the merger agreement. In connection with
the TBM Merger, the Company transferred certain real property located in
Little Rock, Arkansas to an affiliate of certain shareholders of the
Company.
F-16
<PAGE> 20
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
JANUARY 1, JUNE 30,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and Cash equivalents $ 164 $ 121
Trade accounts receivable, net 5,579 6,253
Inventories 7,002 9,008
Prepaid expenses and other receivables 166 158
-------- --------
Total current assets 12,911 15,540
Property, plant and equipment, net 9,290 9,745
Goodwill, net 5,466 5,564
Other assets 465 512
-------- --------
Total assets $ 28,132 $ 31,361
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 4,095 $ 4,454
Current portion of revolving credit loan 3,638 3,987
Current portion of long-term debt 7,439 6,502
Accrued expenses 1,704 1,365
Net deferred tax liability -- 168
Bank overdraft payable 361 431
-------- --------
Total current liabilities 17,237 16,907
Revolving credit loan, excluding current portion 3,200 3,200
Long-term debt, excluding current portion 5,500 5,571
Other long-term liabilities 39 23
Net deferred tax liability -- 547
Mandatory redeemable convertible Series D preferred
stock, $10 par and liquidation value. Authorized
250,000 shares; 219,975 shares issued and
outstanding 2,389 2,322
Mandatory redeemable warrants and common stock,
$0.01 par value - 1,133,333 shares issued and
outstanding 1,869 1,869
Stockholders' equity (deficit):
Series B preferred stock, $0.01 par value, $.45
liquidation value. Authorized 1,900,000 shares;
1,785,322 issued and outstanding 18 18
Series C preferred stock, $0.01 par value, $.90
liquidation value. Authorized 1,900,000 shares;
1,785,322 issued and outstanding 18 18
Common stock, $.01 par value. Authorized 7,500,000
shares; 4,786,678 shares issued and outstanding of
which 1,133,333 shares are considered mandatory
redeemable 37 37
Additional paid-in capital 3,526 3,526
Accumulated other comprehensive loss - foreign
currency translation adjustments (136) (155)
Accumulated deficit (5,565) (2,522)
-------- --------
Total stockholders' equity (deficit) (2,102) 922
Commitments and contingencies -------- --------
Total liabilities and stockholders' equity $ 28,132 $ 31,361
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 21
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JANUARY 1, JANUARY 1,
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 19,071 $ 19,106
Cost of Sales 17,467 16,166
-------- --------
Gross Profit 1,604 2,940
Selling, general and administrative expenses 4,479 4,775
-------- --------
Operating loss (2,875) (1,835)
Interest expense 849 1,093
Other income, net (72) (149)
-------- --------
Loss before income taxes (3,652) (2,779)
-------- --------
Income tax expense (benefit) (676) (880)
-------- --------
Net loss $ (2,976) $ (1,899)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 22
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
JANUARY 1, JANUARY 1,
---------- ------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,976) $(1,899)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 727 983
Deferred income taxes (715) (953)
Inventory obsolescence expense 1,128 --
Bad debt expense 157 51
Gain on sale of property, plant and equipment (10) (45)
Changes in working capital components 1,528 1,031
------- -------
Net cash used in operating activities (161) (832)
Cash flows from investing activities -
Capital expenditures for property, plant
and equipment, net (262) (1,205)
Cash flows from financing activities:
Change in bank overdraft payable (70) 849
Net borrowings under revolving credit loan (349) (537)
Borrowings under long-term debt 1,016 (14)
Principal payments on long-term debt (150) (570)
Proceeds from issuance of Series D preferred stock -- 2,167
------- -------
Net cash provided by financing activities 447 1,895
------- -------
Effect of foreign currency translation on cash 19 (26)
------- -------
Net increase (decrease) in cash 43 (168)
------- -------
Cash at beginning of period 121 256
------- -------
Cash at end of period $ 164 $ 88
======= =======
Supplemental cash flow disclosure:
Cash paid for interest $ 844 $ 1,038
Cash paid for income taxes $ 56 $ -
Supplemental non cash disclosure:
Dividends on Series D preferred stock $ 67 $ 54
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 23
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
(1) GENERAL
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to rules and regulations of the Securities and
Exchange Commission. The financial statements reflect all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary to fairly present such information. Certain amounts
previously reported in the consolidated financial statements have been
reclassified to conform to the current year presentation. Although the Company
believes that the disclosures are adequate to make the information presented not
misleading, certain information and footnote disclosures, including significant
accounting policies, normally included in financial statements prepared in
accordance with generally accepted accounting policies have been omitted
pursuant to such rules and regulations. These interim financial statements
should be read in conjunction with the Company's most recently audited
consolidated financial statements included herein.
(2) INVENTORIES
Inventory costs at January 1, 2000 and June 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
January 1, June 30,
2000 1999
------- -------
<S> <C> <C>
Raw materials $ 3,226 $ 4,600
Work in process 1,050 1,475
Finished goods 3,289 3,490
LIFO reserve (563) (557)
------- -------
Total inventories $ 7,002 $ 9,008
======= =======
</TABLE>
(3) LONG-TERM DEBT AND REVOLVING CREDIT LOAN
Long-term debt at January 1, 2000 and June 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
January 1, June 30,
2000 1999
---- ----
<S> <C> <C>
Note payable to bank, due in monthly principal installments of $51,
beginning August 1, 1999, plus interest at the lender's prime rate
plus 0.75%, with final payment due April 20, 2002 $ 4,748 $ 4,850
Notes payable to stockholders, interest at 12% paid monthly, due in
monthly principal installments of $187 beginning June 30, 2001, with
final payment due June 19, 2003 5,955 5,955
Notes payable to stockholders, interest at 12% paid monthly, due in
monthly principal installments of $21 beginning June 30, 2001, with
final payment due June 19, 2003 620 620
Notes payable to stockholders, interest at 12% paid monthly,
due January 31, 2000 491 491
Notes payable to stockholders, interest at 12% paid monthly,
due September 21, 2001 740 --
Notes payable to stockholders, interest at 12% paid monthly,
due October 31, 2001 297 --
Capital lease obligations, interest between 5.7 - 14.25%
due in monthly installments 88 157
------- -------
Total long-term debt $ 12,939 $ 12,073
Less current portion 7,439 6,502
------- -------
Long-term debt, excluding current portion $ 5,500 $ 5,571
======= =======
</TABLE>
F-20
<PAGE> 24
(3) LONG-TERM DEBT AND REVOLVING CREDIT LOAN (continued)
During fiscal year 1998 and through April 20, 1999, the Company had a revolving
credit loan that contained a maximum limit of $7,500. The borrowing base was
calculated as a percentage of eligible accounts receivable as defined in the
agreement and a percentage of inventory. This revolving credit loan bore
interest at the lender's prime rate plus 1.5% and expired June 19, 1999. At June
30, 1998, $7,123 was outstanding under the revolving credit loan and the Company
was overdrawn on its borrowing base by $566. As of June 30, 1998, the Company
was in default on numerous financial covenants on the revolving credit loan and
notes payable to stockholders, and on April 20, 1999, entered into a new lending
agreement to replace the revolving credit loan.
F-21
<PAGE> 25
(3) LONG-TERM DEBT AND REVOLVING CREDIT LOAN (continued)
Effective April 20, 1999, the Company entered into a new credit agreement with a
bank to replace the existing revolving credit loan and note payable to its
existing lender. The new credit agreement includes a revolving credit loan with
a maximum commitment of $8,000, subject to borrowing base availability and other
items, and a term loan of $4,850. Interest accrues on borrowings through the new
credit agreement at the bank's prime rate (7.75% at June 30, 1999) plus 0.50% to
0.75% under differing circumstances. Subject to borrowing base limitations
calculated on eligible inventory and accounts receivable, the revolving credit
loan is due and payable on April 20, 2002. Additionally, a one-quarter percent
fee per annum is paid to the bank for the unused portion of the revolving loan
commitment. A commitment fee of $48 was paid to the bank at the time of entering
into the new credit agreement. At January 1, 2000 the borrowing base
availability for the revolving credit loan was determined to be $7,347 of which
the Company had utilized $6,838.
The new credit agreement requires the Company, among other provisions to: (1)
maintain certain financial ratios and covenants, (2) maintain and assign to the
bank, key man life insurance policies in the amount of $1,000 on each of the
Company's president and chief financial officer, (3) restrict dividend payments
without the bank's approval and (4) pay an early termination fee in the event
the credit agreement is terminated prior to its scheduled maturity. The credit
agreement is secured by substantially all the assets of the Company.
At June 30, 1999, the Company was in default on numerous financial covenants
under the new credit agreement and notes payable to stockholders. The Company
obtained a forbearance agreement from the bank. However, at October 31, 1999,
the Company was unable to comply with one of the financial covenants of the
forbearance agreement. While the Company received a waiver of payment
acceleration from holders of the notes payable to stockholders, no such waiver
was received from the bank.
In September 1999, the Company entered into Omnibus Amendment No. 3 to Financing
Documents to provide financing totaling $740 through the issuance of additional
12% Subordinated Notes to several of its stockholders. The proceeds were used by
the Company for working capital purposes.
In connection with the TBM Merger (see note 7), the Company amended its existing
bank credit facility, which cured the default under the forbearance agreement.
Additionally, as discussed in note 7, $6,000 of the subordinated debt was
refinanced through the issuance of $3,000 of new subordinated debt and 500,000
shares of TBM common stock valued at $6 per share. The Company, in connection
with the TBM Merger, reduced the amount outstanding on its existing revolving
loan and term loan to $3,200 and $2,500, respectively. Interest on the amended
bank revolving credit loan accrues at the prime rate plus 0.25% to 1.0% under
different circumstances. The revolving credit loan matures on March 31, 2003.
The amendment also provides that the term loan be repaid in principal
installments of $60, payable on the first day of each month beginning January 1,
2001, and continuing through and including December 1, 2001, and $50, payable on
the first day of each month beginning January 1, 2002, and continuing through
March 31, 2003. The Company is required to meet certain financial covenants as
defined in the amendment.
F-22
<PAGE> 26
(3) LONG-TERM DEBT AND REVOLVING CREDIT LOAN (continued)
All of the above notes and the revolving credit loan are secured by liens on
substantially all of the Company's assets. In addition, the agreements contain
various restrictions relating to entering into certain activities, payment of
dividends, investments, capital leases, purchases and sale of assets, etc. and
also require compliance with certain financial ratios and minimum levels of
working capital.
The aggregate maturities of the Company's long-term debt and revolving credit
loan at January 1, 2000 (after giving effect to the refinancing in the TBM
Merger discussed in note 7) are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
-----------------
<S> <C>
2000 $ 11,077
2001 720
2002 600
2003 4,380
2004 --
Thereafter 3,000
-------
$ 19,777
=======
</TABLE>
(4) STOCKHOLDERS' EQUITY
During 1996, Long Reach Holdings' Board restated the Company's Articles of
Incorporation to authorize the issuance of 1,900,000 shares of Series B, 5%
cumulative, preferred stock with a par value of $0.01 and 1,900,000 shares of
Series C, 5% cumulative, preferred stock with a par value of $0.01. Series B
shares have a face and liquidation value of $0.45, and Series C shares have a
face and liquidation value of $0.90. At January 1, 2000 and June 30, 1999,
preferred dividends in arrears amounted to $241 and $181, respectively. At
January 1, 2000, $181 of dividends in arrears had not been declared by the board
of directors and were therefore not accrued by the Company. The Company's
agreement with its bank lender limits the payment of dividends.
On August 3, 1998, the Company issued 219,975 shares of Series D, 6% Mandatory
Redeemable Convertible Preferred Stock (Series D) at a par value of $10.00 per
share, together with warrants exercisable into an aggregate of 1,000,000 shares
of common stock at a price of $1.50 per share. Proceeds of approximately $2,167,
net of offering costs, were used for working capital and other general corporate
purposes. Dividends on the Series D are fully cumulative and payable when, as,
and if declared, in cash or shares of common stock (at a rate of $0.75 per share
of common stock), at the option of the holder of the shares of Series D. All of
the Series D shall be redeemed upon the earlier of certain events, including a
change of control, or July 31, 2001 at a redemption price of $10.00 per share
plus any accumulated and unpaid dividends subject to the terms of certain
agreements the Company has entered into with its lenders. If not redeemed on
July 31, 2001, the dividend rate of the Series D will increase 1% on July 31,
2001 and shall continue to increase in increments of 1% annually until redeemed
or the dividend rate increases
F-23
<PAGE> 27
(4) STOCKHOLDERS' EQUITY (continued)
to 10%. The Series D is convertible into 13.33 shares of the Company's common
stock at the option of the holder. For the six months ended January 1, 2000,
$67.0 of dividends in arrears has been accrued by the Company as an increase in
mandatory redeemable convertible Series D preferred stock.
In connection with the August 3, 1998 issuance of the Series D, the Company
granted a put option to certain shareholders who own common stock and warrants
to purchase common stock of the Company. This put option gives the holders
thereof the right to sell all or any part of their shares of common stock and
warrants and shares of common stock issuable or issued upon the exercise of the
warrants. The Company is not obligated to repurchase such securities until after
the earliest to occur of (a) June 19, 2001, (b) a public offering of the
Company's common stock, (c) a "change in control" as defined in the Note, Stock,
and Warrant Purchase Agreement dated June 19, 1996 (Purchase Agreement) and in
the Series B Purchase Agreement, or (d) the occurrence of certain events of
default under the Purchase Agreement. If the put option is exercised, the
Company would have to pay the fair value per share as defined in the Series D
Preferred Stock Agreement. Accordingly, at January 1, 2000 and June 30, 1999,
the Company has classified the book value of the common stock, and warrants to
purchase common stock, subject to put options, outside of equity as mandatory
redeemable common stock.
In connection with the TBM Merger (see note 7), each outstanding share of the
Company's common and preferred stock, and all warrants, options and other rights
to purchase the Company's common stock, were canceled and extinguished.
(5) CONTINGENCIES
The Company is involved in claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position.
(6) WARRANTS
In connection with obtaining financing through the issuance of notes and
preferred stock to stockholders, the Company has issued several classes of
warrants. The warrants enable the holders to acquire approximately 8,991,000
shares of the common stock of the Company on a fully diluted basis. Exercise of
approximately 3,885,000 of the warrants could be made for an insignificant
amount. The remaining common stock warrants are exercisable at $1.50.
Additionally, the Company has issued warrants to enable the holders to acquire
493,970 Series E preferred shares for $5.50 per share. It is expected that the
Series E preferred stock will have a redemption value of $10 per share. In
connection with the TBM Merger (see note 7), all warrants to purchase common
stock were canceled and extinguished.
F-24
<PAGE> 28
(7) SUBSEQUENT EVENT
Merger with a Wholly-owned Subsidiary of TBM Holdings, Inc.
On February 23, 2000, the Company completed a merger with a wholly-owned
subsidiary of TBM Holdings, Inc. (TBM), whereby such wholly-owned subsidiary was
the surviving corporation. The merger consideration consisted of (a) the payment
of $1,500 to the existing shareholders of the Company, (b) the assumption of all
existing debt of the Company by the surviving corporation, (c) the surviving
corporation's issuance of $3,000 of new subordinated notes to refinance a
portion of the existing subordinated notes with certain shareholders and (d)
500,000 shares of TBM common stock at $6 per share for repayment of the
remaining $3,000 subordinated notes outstanding at the date of acquisition.
Additionally, new contingent subordinated notes will be issued to certain
preferred and common shareholders in an aggregate amount not to exceed $2,000 in
the event that certain net sales targets are achieved in calendar year 2000 as
defined in the merger agreement. In connection with the TBM Merger, the Company
transferred certain real property located in Little Rock, Arkansas to an
affiliate of certain shareholders of the Company.
F-25
<PAGE> 29
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements consist of the
unaudited condensed combined pro forma statement of operations of TBM Holdings,
Inc. (the "Company") for the year ended January 1, 2000 and the unaudited
condensed combined pro forma balance sheet of the Company as of January 1, 2000
and related notes. The unaudited condensed combined pro forma statement of
operations of the Company gives effect to the merger between Long Reach
Holdings, Inc. and the Company (TBM Merger) as if such transaction had occurred
on January 1, 1999. The unaudited condensed combined pro forma balance sheet of
the Company gives effect to the TBM Merger as if such transaction had occurred
on January 1, 2000.
The historical data of the Company as of and for the year ended January 1,
2000 have been derived from the Company's audited financial statements. The
unaudited historical data of Long Reach Holdings, Inc. have been derived from
its unaudited consolidated financial statements as of and for the year ended
January 1, 2000.
The unaudited pro forma financial statements are based on assumptions and
include adjustments as explained in the notes thereto. The unaudited pro forma
financial statements are not necessarily indicative of the actual financial
results if the transaction described in the preceding paragraphs had been
effective on and as of the dates indicated and should not be considered
indicative of operations in future periods or as of future dates.
F-26
<PAGE> 30
TBM HOLDINGS, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
January 1, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TBM LONG REACH TBM
HOLDINGS HOLDINGS PRO FORMA HOLDINGS
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 12,064 $ 164 $ (7,385) (j) $ 4,843
Accounts Receivable, net -- 5,579 5,579
Inventories -- 7,002 332 (l) 7,334
Prepaid expenses and other
receivables 11 166 177
--------------- ---------- -------------- --------
Total current assets 12,075 12,911 (7,053) 17,933
--------------- ---------- -------------- --------
Property, plant and equipment, net -- 9,290 (1,604) (a)
(701) (b) 6,985
Goodwill -- 5,466 285 (c) 5,751
Other assets 8 465 (326) (k)
187 (i) 334
--------------- ---------- -------------- --------
$ 12,083 $ 28,132 $ (9,212) $ 31,003
=============== ========== ============== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 67 $ 5,799 932 (i) 6,798
Legal settlement 80 -- 80
Current portion of revolving
credit loan -- 3,638 (3,638) (d) --
Current portion of long-term debt -- 7,439 (2,247) (d)
(3,000) (f)
(2,103) (g) 89
Current deferred tax liability -- -- --
Bank overdraft payable -- 361 361
--------------- ---------- -------------- --------
Total current liabilities 147 17,237 (10,056) 7,328
---------------- ---------- -------------- --------
Revolving credit loan -- 3,200 (3,200) (d)
3,200 (e) 3,200
Long-term debt, excluding current portion -- 5,500 (2,500) (d)
2,500 (e)
(3,000) (g)
3,000 (g) 5,500
Other long-term liabilities -- 39 39
Net deferred tax liability -- -- --
Mandatory redeemable convertible Series D
preferred stock, $10 par and
liquidation value. Authorized
250,000 shares; 219,975 shares issued
and outstanding -- 2,389 (2,389) (h) --
Mandatory redeemable warrants and common
stock, $0.01 par value-$1,133,333 shares
issued and outstanding -- 1,869 (1,869) (h) --
Stockholders' equity
Preferred stock, $.001 par value,
no shares issued and outstanding -- -- --
Series B preferred stock, $.01 par value,
$.45 liquidation value. Authorized
1,900,000 shares; 1,785,322 issued
and outstanding -- 18 (18) (h) --
Series C preferred stock, $.01 par value,
$.90 liquidation value. Authorized
1,900,000 shares; 1,785,322 issued
and outstanding -- 18 (18) (h) --
Common stock, $.001 par value, 2,601,000
shares issued and outstanding,
3,101,000 pro forma shares issued
and outstanding 3 -- 3
Common stock, $.01 par value. Authorized
7,500,000 shares; 4,786,678 shares
issued and outstanding, of which
1,133,333 shares are considered
mandatory redeemable -- 37 (37) (h) --
Additional paid-in capital 24,264 3,526 (3,526) (h)
3,000 (f) 27,264
Accumulated other comprehensive loss-
foreign currency translation
adjustments -- (136) 136 (h) --
Accumulated deficit (12,331) (5,565) 5,565 (h) (12,331)
--------------- ---------- --------------- ---------
Total stockholders' equity (deficit) 11,936 (2,102) 5,102 14,936
Commitments and contingencies
--------------- ---------- -------------- --------
$12,083 $28,132 $(9,212) $31,003
=============== ========== ============= ========
</TABLE>
See accompanying notes to unaudited condensed combined pro forma
balance sheet.
F-27
<PAGE> 31
TBM HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
On February 23, 2000, TBM Holdings, Inc. (the Company) acquired Long Reach
Holdings, Inc., for (1) $1,500 of cash, (2) the issuance of 500,000 shares of
common stock valued at $6 per share, (3) the issuance of $3,000 of subordinated
notes and (4) the assumption of $10,920 of outstanding bank debt at the date of
the acquisition (approximately $11,584 at January 1, 2000). Long Reach Holdings,
Inc.'s primary business is the manufacturing and marketing of hydraulically
activated material handling equipment. The acquisition has been accounted for
using the purchase method of accounting, effective at the date of acquisition.
The purchase price was allocated to assets purchased and liabilities assumed as
follows:
Working capital $ 177
Property, plant and equipment 6,985
Goodwill 5,751
Other assets 326
Long-term debt (8,700)
Other liabilities (39)
--------
Purchase Price $ 4,500
========
The unaudited condensed combined pro forma balance sheet at January 1, 2000
presents the acquisition as if it had occurred on that date. The unaudited
condensed combined pro forma statement of operations presents the acquisition as
if it had occurred on January 1, 1999.
These statements should be read in conjunction with the separate audited
financial statements and notes thereto of TBM Holdings, Inc.'s previously filed
financial statements and Long Reach Holdings, Inc.'s consolidated financial
statements filed herein. The unaudited condensed combined pro forma statements
are not necessarily indicative of the results of operations of TBM Holdings,
Inc. as it may be in the future or as it might have been had the acquisition
been effective January 1, 2000 or January 1, 1999.
(a) Reflects the transfer of certain real property located in Little Rock,
Arkansas to an affiliate of certain shareholders of Long Reach Holdings,
Inc. at closing, with a net book value of approximately $1,604 at January
1, 2000.
(b) Reflects the adjustment to record fixed assets at their estimated fair
value at the acquisition date.
(c) Reflects the application of the purchase price to Long Reach Holdings
Inc.'s assets acquired and liabilities assumed. The resulting goodwill is
expected to be amortized over a period of 20 years.
(d) Reflects the payment of bank debt assumed from Long Reach Holdings, Inc.
(e) Reflects the proceeds to the Company from borrowings under its newly
negotiated bank debt with Long Reach Holdings, Inc.'s previous lender.
(f) Reflects the issuance of 500,000 shares of the Company's common stock at
$6 per share to Long Reach Holdings, Inc.'s subordinated note holders.
(g) Reflects the redemption of $5,103 of the existing subordinated notes for
the issuance of $3,000 subordinated notes to Long Reach Holdings Inc.'s
subordinated note holders. Should the operations of Long Reach Holdings,
Inc. achieve certain net sales targets in the year 2000, the Company will
issue up to $2,000 of additional subordinated notes. The additional
subordinated notes have not been reflected in the unaudited condensed
combined pro forma statements due to the contingent nature of such
subordinated notes.
(h) Reflects equity adjustments associated with the Long Reach Holdings, Inc.
acquisition.
(i) Reflects the accrual of $932 transaction fees related to the acquisition,
including $187 of financing costs.
(j) Reflects net cash used to finance the acquisition of Long Reach Holdings,
Inc.
(k) Reflects the write-off of Long Reach Holdings, Inc.'s deferred financing
costs related to the bank debt and subordinated notes paid in connection
with the transaction.
(l) Reflects the write-up of inventory to estimated fair value less selling
costs and a reasonable profit on selling efforts.
F-28
<PAGE> 32
TBM HOLDINGS, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
for the year ended
January 1, 2000
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
TBM Holdings Long Reach Pro Forma
Historical Historical Pro Forma Combined
(Audited) (Unaudited) Adjustments (Unaudited)
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ -- $ 39,229 $ -- $ 39,229
Cost of sales -- 33,525 (535)(a) 32,990
-------- -------- -------- --------
Gross profit -- 5,704 535 6,239
Selling, general and administrative
expense 446 9,257 (161)(a)
89 (b) 9,631
-------- -------- -------- --------
Income (loss) from operations (446) (3,553) 607 (3,392)
Interest expense, net -- (1,773) 940 (c) (833)
Other income, net 470 275 -- 745
Income from discontinued operations 15 -- -- 15
-------- -------- -------- --------
Income (loss) before income taxes 39 (5,051) 1,547 (3,465)
Income tax expense (benefit) -- (1,119) (163)(d) (1,282)
-------- -------- -------- --------
Net income (loss) $ 39 $ (3,932) $ 1,710 $ (2,183)
======== ======== ======== ========
Basic and diluted earnings (loss) per share:
From continuing operations $ 0.02 $ (1.16)
From discontinued operations 0.01 0.01
-------- --------
Net $ 0.03 $ (1.15)
======== ========
Basic and diluted weighted average
shares outstanding 1,401 1,901
======== ========
</TABLE>
See accompanying notes to unaudited condensed combined pro forma statement of
operations.
F-29
<PAGE> 33
TBM HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
(Dollars in thousands)
(a) Adjustment to reflect the reduction in depreciation ($535 in cost of goods
sold, and $161 in selling, general and administrative expenses) resulting
from the write-down of property, plant and equipment to fair value related
to the TBM Merger.
(b) Adjustment to reflect the amortization of additional goodwill for the year
ended January 1, 2000. The Company recorded approximately $5,751 of
goodwill in the TBM Merger and is amortizing the goodwill over 20 years.
(c) Adjustment to interest expense to reflect the following:
Effect of additional financing incurred with the TBM Merger:
<TABLE>
<S> <C>
Commitment fees on revolver $ 34
Bank revolver loan ($3,200 at 9.5%) 304
Bank term loan ($2,500 at 9.5%) 238
Subordinated notes ($3,000 at 6.0%) 170
Amortization of financing costs
resulting from the TBM Merger
($312 amortized between 3 to 5 years) 87
--
Pro forma interest expense 833
Less - Historical interest expense (1,773)
------
Pro forma interest expense adjustment $ (940)
=======
</TABLE>
The commitment fees on the revolver are calculated as 0.25% per annum of the
average daily unused portion of the revolver, payable monthly.
The effect of a 0.25% change in the annual interest rate of the bank
revolver and term loans would change pro forma interest expense by $14 for
the fiscal year ended January 1, 2000.
(d) Adjustment to reflect the tax impact on a pro forma basis using an effective
rate of 37%.
F-30
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Amendment to Report to be signed on its behalf by
the undersigned hereunto duly authorized.
TBM HOLDINGS, INC.
By: /s/ William A. Schwartz
---------------------------
William A. Schwartz
President
Dated: May 5, 2000
4
<PAGE> 35
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 TBM Holdings, Inc., TBM Acquisition I,
Inc., Long Reach Holdings, Inc. and certain shareholders of
Long Reach Holdings, Inc., previously filed as an exhibit to
the Company's Current Report on Form 8-K dated February 4,
2000, filed with the Commission on February 15, 2000.
23.1 Consent of KPMG LLP.
99.1 Press Release dated March 9, 2000, previously filed as an
exhibit to the Company's Current Report on Form 8-K dated
February 23, 2000, filed with the Commission on March 9,
2000.
</TABLE>
5
<PAGE> 1
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
Long Reach Holdings, Inc.
We consent to the incorporation by reference in the registration statement (No.
33-88424) on Form S-8 of TBM Holdings, Inc. (formerly known as Specialty Retail
Group, Inc.) of our report dated February 23, 2000, with respect to the
consolidated balance sheets of Long Reach Holdings, Inc. and subsidiary as of
June 30, 1999 and 1998, and the related statements of operations, stockholders'
equity and comprehensive loss, and cash flows for the years then ended, which
report appears in the Form 8-K/A (Amendment No. 1) of TBM Holdings, Inc., dated
February 23, 2000 and filed with the Securities and Exchange Commission on May
5, 2000.
KPMG LLP
Houston, Texas
May 5, 2000
