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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 2000.
REGISTRATION NO. 333-________.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
TBM HOLDINGS INC.
(Name of Small Business Issuer in Its Charter)
FLORIDA 3537 59-2824411
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation) Classification Code Number) Identification No.)
136 MAIN STREET
WESTPORT, CONNECTICUT 06880
(203) 227-6140
(Address and telephone number of principal executive office)
(Address of principal place of business)
WILLIAM A. SCHWARTZ, PRESIDENT
TBM HOLDINGS INC.
136 MAIN STREET
WESTPORT, CONNECTICUT 06880
(Name, address and telephone number of agent for service)
Copies of all communications to:
PETER H. STRUZZI, ESQ.
LEVETT ROCKWOOD P.C.
33 RIVERSIDE AVENUE
WESTPORT, CONNECTICUT 06880
Approximate date of proposed sale to the public: From time to time after
the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER SHARE AGGREGATE OFFERING PRICE FEE
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Common Stock, par value
$.001 per share 4,458,667 shares (1) $6.625 (2) $29,538,669 $7,798
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Common Stock issuable
upon exercise of Warrants (3) 1,201,175 shares (1) $6.625 (2) $7,957,784 $2,101
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(1) All shares offered for resale by Selling Stockholders.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) or Rule 457(g) under the Securities Act of
1933, on the basis of the average of the bid and asked price of the
Registrant's Common Stock as reported on the NASD's OTC Bulletin Board
on October 23, 2000, of $6.625.
(3) Represents shares of Common Stock issued or issuable upon exercise of
Warrants to purchase Common Stock by Selling Stockholders. The actual
number of shares of Common Stock received upon exercise of the Warrants
may vary from this number. In addition to the shares set forth in the
table, the number of shares registered under this registration
statement includes an indeterminate number of additional shares of
Common Stock issuable pursuant to antidilution rights of the holders of
the Warrants.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
5,659,842 SHARES OF COMMON STOCK
OF
TBM HOLDINGS INC.
This Prospectus relates to the offer and sale, from time to time, by
certain Selling Stockholders of 5,659,842 shares of the Common Stock of TBM
Holdings Inc. owned by them or which they may acquire upon exercise of Warrants
to purchase the Company's Common Stock. The number of shares being registered
includes an indeterminate number of additional shares of Common Stock issued or
issuable pursuant to antidilution rights of the Warrant holders.
The Company will not receive any proceeds from the sale of the Common
Stock by the Selling Stockholders. The Company will, however, receive the
exercise price upon the exercise of the Warrants by their holders. The Company
can provide no estimate of the price at which Selling Stockholders will offer
the Common Stock to the public or of the proceeds the Selling Stockholders may
receive upon sales of the Common Stock. See "Selling Stockholders" and "Plan of
Distribution."
The Common Stock is traded in the over-the-counter market and is quoted
on the NASD's OTC Bulletin Board under the symbol TBMH. On October 23, 2000, the
closing bid price for the Common Stock was $5.25 per share.
The information in this Prospectus is not complete and may be changed.
The Selling Stockholders may not sell these securities pursuant to this
Prospectus until the Registration Statement filed with the Securities and
Exchange Commission is effective. This Prospectus is not an offer to sell these
securities, and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
------------------------
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THESE
SECURITIES SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE 6.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ____________, 2000.
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TABLE OF CONTENTS
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PAGE NO.
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Prospectus Summary..............................................................3
Risk Factors....................................................................6
Cautionary Note Regarding Forward-Looking Statements...........................15
Use of Proceeds................................................................15
Price Range of Common Stock and Related Stockholder Matters....................16
Unaudited Pro Forma Financial Statements.......................................17
Management's Discussion and Analysis
of Financial Condition and Results of Operations; Plan of Operation.......25
Business.......................................................................31
Property.......................................................................39
Management.....................................................................40
Executive Compensation.........................................................42
Related Party Transactions.....................................................43
Principal Stockholders.........................................................46
Selling Stockholders...........................................................50
Plan of Distribution...........................................................55
Description of Capital Stock...................................................57
Legal Matters..................................................................59
Experts........................................................................60
Indemnification Against Liability..............................................60
Available Information..........................................................62
Index to Financial Statements.................................................F-1
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PROSPECTUS SUMMARY
The following is a summary of information appearing elsewhere in this
Prospectus. This summary does not contain all of the information you should
consider before investing in our common stock, par value $.001 per share (the
"Common Stock"). This summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
References in this Prospectus to "we," "us" and "our" refer to TBM Holdings Inc.
together with its subsidiaries.
OUR COMPANY
TBM Holdings Inc. (the "Company" or "TBM Holdings") was incorporated in
Florida in 1987 under the name Specialty Retail Group, Inc. In June 1999, the
Company was reorganized; we raised $12,730,000 of capital in a private placement
of restricted shares of the Company's Common Stock (the "1999 Private
Placement"), appointed a new board of directors and changed the Company's name
to TBM Holdings Inc. Our objective was to use the proceeds of the 1999 Private
Placement to acquire one or more underperforming manufacturing companies and
thereafter to improve their operating performance and profitability through
implementation of the Toyota Production System using the Kaizen Growth Strategy.
TOYOTA PRODUCTION SYSTEM AND 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. It operates by pacing all operations to
the rate of customer orders by manufacturing the required product in the
quantity ordered and delivering it at the right time. "Kaizen" is the Japanese
word for "continuous improvement." 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.
COMPANIES WE ACQUIRED IN THE MATERIAL HANDLING EQUIPMENT INDUSTRY
During the first six months of 2000, we selected the material handling
equipment industry in which to implement our strategy of acquiring one or more
underperforming companies within a manufacturing industry. In February 2000, we
acquired our first operating company, Long Reach Holdings, Inc. ("Long Reach"),
through a merger transaction. In May 2000, Long Reach purchased the capital
stock of Lee Engineering Company, Inc. ("Lee Engineering"), now operating under
the name Presto Lifts, Inc. ("Presto Lifts").
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OUR PRINCIPAL PRODUCTS AND MARKETS
We manufacture material handling equipment, including masts, integrals
and attachments for forklift trucks, and pallet trucks, stackers and scissor
lifts, under the names Long Reach(R), Brudi(R), Rol-Lift(R), Presto(R) and
Regal(R).
We have three main product lines: (i) heavy duty masts and integrals
for rider forklifts; (ii) forklift attachments, including paper roll clamps,
carton clamps and push pulls, and mast attachments such as side shifters, fork
positioners and other custom engineered material handling attachments; and (iii)
material lifting products, including pallet trucks, manual and powered stackers
and scissor-lift devices.
Masts and integrals are components mounted on the front of a lift truck
to provide lifting capability for the vehicle. Forklift attachments are designed
to increase the scope and efficiency of material handling applications normally
performed by industrial forklifts; they clamp, lift, rotate, push, pull, tilt
and sideshift a variety of loads, such as appliances, paper rolls, baled
materials, drums, lumber, power poles and tissue and paper products. Material
lifting products are used as material handling devices and ergonomic aids in the
workplace. Stackers are often used as work positioners for assembly lines.
Scissor lifts help elevate material to the point of use for manufacturing
associates in assembly and fabrication jobs.
Both Long Reach and Presto Lifts provide aftermarket service functions
that sell spare parts for equipment they manufacture.
WE RECENTLY EXECUTED AN AGREEMENT TO ACQUIRE BLUE GIANT
On October 19, 2000, our wholly-owned subsidiary executed an agreement
to purchase substantially all of the property and assets, and assume specified
liabilities, of Blue Giant Limited ("Blue Giant"), a wholly owned subsidiary of
CLARK Material Handling Company ("Clark"). The agreement also provides for the
transfer of certain intellectual property of Blue Giant Corporation, also a
subsidiary of Clark, to us. Based in Ontario, Canada, Blue Giant is a
manufacturer of loading dock equipment, including dock levelers, elevating
docks, edge of dock levelers, truck restraints, hydraulic lift tables and
related parts and accessories, and wheeled products, including powered
stackers, and powered and manual pallet trucks. The aggregate purchase price
payable in respect of the acquisition is U.S. $11,000,000, subject to closing
adjustments. We intend to fund the acquisition through a combination of debt
and additional equity investment by certain existing stockholders. The closing
of the acquisition is subject to satisfaction of a number of conditions, and
there can be no assurance that the acquisition will be consummated.
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OUR COMMON STOCK
Our Common Stock is quoted on the over-the-counter (the "OTC") Bulletin
Board maintained by the National Association of Securities Dealers, Inc. (the
"NASD") under the symbol "TBMH".
THE OFFERING
This Prospectus relates to the offer and sale, from time to time, by
certain Selling Stockholders of 5,659,842 shares of the Company's Common Stock,
(i) 4,458,667 of which are owned by the Selling Stockholders and (ii) 1,201,175
of which the Selling Stockholders may acquire upon exercise of warrants to
purchase the Company's Common Stock at an exercise price of $5.00 per share (the
"Warrants"). The number of shares being registered includes an indeterminate
number of additional shares of Common Stock issued or issuable pursuant to
antidilution rights of the holders of the Warrants. The Company will not receive
any proceeds from the sale of the Common Stock by the Selling Stockholders. The
Company will, however, receive the exercise price upon the exercise of the
Warrants by their holders, in an aggregate amount of $6,005,875 (assuming
exercise of all the Warrants in full and no adjustment pursuant to the
antidilution provisions of the Warrants).
EXECUTIVE OFFICES
Our principal executive offices are located at 136 Main Street,
Westport, Connecticut 06880, and our telephone number is (203) 227-6140.
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN INVESTMENT
DECISION CONCERNING OUR COMMON STOCK. YOU SHOULD NOT PURCHASE OUR COMMON STOCK
IF YOU CANNOT AFFORD THE LOSS OF YOUR ENTIRE INVESTMENT.
RISKS RELATED TO OUR BUSINESS
AFTER GIVING EFFECT TO OUR ACQUISITIONS, WE SUSTAINED NET LOSSES DURING FISCAL
1999, AND WE CONTINUE TO SUSTAIN LOSSES
Under our current structure, we are a holding company whose primary
asset is our stock in Long Reach. Long Reach sustained net losses during the
fiscal years ended June 30, 1999 and 1998. Our second acquisition, Presto Lifts,
sustained net losses during the fiscal years ended December 31, 1999 and 1998.
After giving effect to the Long Reach and Presto Lifts acquisitions, we
sustained a net loss during calendar year 1999 on a pro forma basis. Our
consolidated financial statements for the six months ended July 1, 2000, which
reflect the operations of Long Reach after February 23, 2000, and the operations
of Presto Lifts after May 15, 2000, reported a net loss. Management has
initiated several cost reduction and profit improvement initiatives. However,
there can be no assurance that we will achieve operating profits in the future.
WE MAY NOT SUCCEED IN IMPLEMENTING THE TOYOTA PRODUCTION SYSTEM OR THE KAIZEN
GROWTH STRATEGY
We have begun implementing the Toyota Production System utilizing the
Kaizen Growth Strategy and restructuring operations at Long Reach and Presto
Lifts. Our goal is to complete a majority of the restructuring of these entities
during 2000 and to achieve improved profitability during 2001. However,
implementation of the Toyota Production System utilizing the Kaizen Growth
Strategy is a long term process. There can be no assurance that we will be
successful in implementing the Toyota Production System utilizing the Kaizen
Growth Strategy within this time period or at all or, if implemented, that
improved financial results will be achieved.
WE ONLY BEGAN OPERATIONS RECENTLY IN THE MATERIAL HANDLING EQUIPMENT INDUSTRY
Until February 2000, we had no operations. Within the first six months
of 2000, we selected the material handling equipment industry in which to
implement our strategy of acquiring one or more underperforming companies within
a manufacturing industry. Accordingly, we are new to the material handling
equipment industry and have operated Long Reach, Long Reach's wholly-owned
Australian subsidiary, Long Reach Brudi Pacific Pty Ltd ("Brudi Pacific"), and
Presto Lifts for only a short period of time.
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OUR STRATEGY OF ACQUIRING UNDERPERFORMING COMPANIES MAY INCREASE OUR DEBT AND
ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE
We expect to continue our strategy of acquiring underperforming
businesses with complementary products and services, which includes our
proposed acquisition of substantially all the assets and certain liabilities of
Blue Giant and certain intellectual property of BGC. These acquisitions may be
financed by internally generated funds, bank borrowings, public offerings or
private placements of equity or debt securities, or a combination of any one or
more of the foregoing; we intend to fund the proposed Blue Giant acquisition
through a combination of debt and additional equity investment by certain
existing stockholders.
There are significant risks associated with a strategy of acquiring
companies that are underperforming, including increasing our debt to fund the
acquisition and the negative impact on our consolidated financial statements as
a result of the losses sustained by these companies. There can be no assurance
that we will be successful in improving the performance of any underperforming
company which we may acquire. Increasing our debt to fund an acquisition, or a
material delay in returning or failure to return an acquired company to
profitability, will have a material adverse effect on our consolidated
operations and financial performance. These risks apply to the proposed Blue
Giant acquisition, if consummated.
WE MAY BE UNSUCCESSFUL IN INTEGRATING THE OPERATIONS OF ACQUIRED BUSINESSES
We are in the process of integrating the operations of Long Reach and
Presto Lifts, which we acquired within the first six months of 2000. This
process involves restructuring operations at both companies to eliminate
inefficiencies, consolidate distribution channels and align
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products manufactured by the two companies. There are risks associated with
restructuring existing operations, including loss of revenue, disruption in our
relationships with customers and significant restructuring costs. We anticipate
that there will be restructuring costs and other write-offs associated with
restructuring and integrating operations and that these costs and write-offs
will negatively impact our operating results. Additional risks associated with
integrating these two businesses include diversion of management's attention
from ongoing operations and unanticipated problems or liabilities, some or all
of which may have a material adverse effect on our operations and financial
performance. No assurance can be given that we will succeed in integrating the
operations of Long Reach and Presto Lifts. Material failure or substantial delay
in successfully integrating the operations of Long Reach and Presto Lifts could
have a material adverse effect on our operations and financial performance.
Our goal is to continue to acquire additional companies in the material
handling equipment industry or complementary industries. We anticipate that the
risks associated with integration of acquired businesses and restructuring of
operations will also apply to any future acquisition, including, if consummated,
the proposed acquisition of substantially all of the assets of Blue Giant.
WE MAY BE UNABLE TO MANAGE GROWTH EFFECTIVELY
Our goal is to increase market share and grow our business through
acquisitions and improved customer responsiveness, product quality and
elimination of waste achieved by implementing the Toyota Production System
utilizing the Kaizen Growth Strategy. Our anticipated growth may place a strain
on our management, operational and financial resources. Successful management of
growth will require us to continue to improve our responsiveness, product
quality and manufacturing processes and systems, to implement new processes and
systems, and to attract, train, motivate and retain personnel. There can be no
assurance that we will be able to manage growth effectively.
OUR DEBT MAY RESTRICT OUR OPERATIONS
In connection with our acquisition of Long Reach and Presto Lifts, we
assumed and incurred an aggregate of approximately $13,000,000 of debt, secured
by Long Reach's and Presto Lifts' inventories and accounts receivable. The terms
of Long Reach's debt impose financial and operating covenants on Long Reach,
including, among others, restrictions on Long Reach's ability to incur debt or
take certain other corporate actions. Long Reach must maintain a minimum level
of net worth, is limited in the amount of net losses it can sustain, and will be
required to generate net income in excess of fixed charges. We intend to fund
the acquisition of substantially all of Blue Giant's assets in part by incurring
additional indebtedness secured by the Blue Giant assets. The terms of this debt
may impose financial and operating restrictions on the Blue Giant operation.
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Our inability to meet our debt service obligations, including the
inability of Long Reach to generate sufficient cash flow to meet its interest
obligations, could adversely affect our ability to restructure operations
effectively, reduce the amount of funds available for working capital and
impair our ability to pursue our acquisition strategy. In addition, we intend
to incur additional debt to fund a portion of the purchase price for the
proposed acquisition of Blue Giant assets and certain BGC intellectual
property, and may incur additional debt to fund future acquisitions, which
would further increase our financial risk.
WE ARE AT RISK FOR FLUCTUATING INTEREST RATES
Our borrowings are at floating rates of interest. Accordingly, we are
at risk for fluctuations in interest rates. We do not currently hedge any
interest rate risk.
THE MATERIAL HANDLING EQUIPMENT INDUSTRY IS SUBJECT TO CYCLICAL VARIATIONS
Sales of products we manufacture and sell have historically been
subject to substantial cyclical variations, sometimes extending over a number of
years, based on general economic conditions. Downward cycles that result in
reductions in the sales of some of our products could adversely impact our
operating results. We hope to decrease the impact of cyclicality by reducing
fixed costs. However, there can be no assurance that we will be able to decrease
the impact of cyclicality on our operating results. We believe that a general
economic downturn would have generally negative effects on our operating results
and finances.
SINCE MANY OF OUR COMPETITORS HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN WE
DO, WE MAY BE UNABLE TO COMPETE SUCCESSFULLY
The markets in which we operate are highly competitive. Both
domestically and internationally, we face competition from a number of different
manufacturers in each of our product lines, some of which have greater financial
and other resources than we do. The principal competitive factors affecting us
include performance, functionality, price, brand recognition, customer service
and support, financial strength and stability, and product availability. There
can be no assurance that we will be able to compete successfully with our
existing competitors or with new competitors. Failure to compete successfully
could have a material adverse effect on our financial condition, liquidity and
results of operations.
In the fork lift attachment product category, our significant
competitor is Cascade Corporation. This category comprised approximately 40% of
our net sales for calendar year 1999 on a pro forma basis after giving effect to
the Long Reach and Presto Lifts acquisitions. While we believe we currently
compete favorably with Cascade on pricing and delivery terms, there can be no
assurance that Cascade will not compete more aggressively in the future. Price
pressure from Cascade could result in lower margins. Delivery and lead time
pressure could result in a declining market share.
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THE LOSS OF SERVICES OF OUR FEW KEY EXECUTIVES COULD ADVERSELY AFFECT OUR
BUSINESS
Overall management of TBM Holdings and Long Reach rests with a small
group of executive employees. Although we have employment agreements with two
executives, the loss of services of any member of our executive group could have
a material adverse effect on our business. In addition, competition for highly
skilled technical, managerial and other personnel is intense. We might not be
able to attract, hire, train, retain and motivate the highly skilled managers
and employees we need to be successful. Failure to attract and retain the
necessary technical and managerial personnel could adversely affect our
business.
CERTAIN OF OUR DIRECTORS HAVE AFFILIATIONS THAT COULD RESULT IN A CONFLICT OF
INTEREST WHICH ADVERSELY AFFECTS OUR COMPANY
Messrs. Schwartz, Levinson and Sharma are members of our board of
directors. Messrs. Schwartz and Sharma are officers and directors of TBM
Consulting Group, Inc., a consultant to manufacturing companies specializing in
implementation of the Toyota Production System utilizing the Kaizen Growth
Strategy. Mr. Levinson is the President of Colt Services, Inc., a provider of
financing and ongoing business consulting services. We have entered into various
consulting agreements with TBM Consulting Group, Inc. and Colt Services, Inc.
These affiliations may result in a conflict of interest if a dispute arises
between us and TBM Consulting Group, Inc. or Colt Services, Inc., since our
board of directors has fiduciary responsibilities to us and the directors and
officers of TBM Consulting Group, Inc. and Colt Services, Inc. have fiduciary
responsibilities to those entities.
WE ARE AND WILL CONTINUE TO BE SUBJECT TO PRODUCT LIABILITY CLAIMS WHICH COULD
ADVERSELY AFFECT OUR BUSINESS
We are periodically subject to product liability claims relative to our
products which, if successful, could have a material adverse impact on our
financial position and results of operations. We maintain liability insurance
coverage that we believe will be adequate to satisfy such claims, but there can
be no assurance that we will be able to maintain such coverage or obtain
alternate coverage in the future at a reasonable cost, or that such coverage
will be sufficient to satisfy any such claims.
IF OUR UNIONIZED EMPLOYEES GO ON STRIKE OUR BUSINESS WILL BE ADVERSELY AFFECTED
As of September 30, 2000, we had approximately 440 employees. The
hourly workforce of Presto Lifts, comprising approximately 22% of our employees
as of September 30, 2000, is represented under a collective bargaining agreement
between Presto Lifts and Teamsters Local Union No. 251 Affiliated with the
International Brotherhood of Teamsters of America. The collective bargaining
agreement expires January 31, 2004. We believe that our current relations with
employees are good; however, there can be no assurance that our relations with
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employees will continue to be good or that we will not experience significant
work stoppages in the future.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO A NUMBER OF RISKS
We have operations and assets located in Adelaide, Australia at our
Brudi Pacific subsidiary. Our international operations accounted for
approximately 4% of our aggregate net sales in 1999 on a pro forma basis after
giving effect to the Long Reach and Presto Lifts acquisitions. If our
acquisition of substantially all the assets of Blue Giant is consummated, we
will have operations and assets located in Ontario, Canada. Although
historically exchange rate fluctuations and other international factors have not
had a material impact on our business, financial condition or results of
operations, the acquisition of Blue Giant's assets will increase this risk.
International operations expose us to a number of risks, including currency
exchange rate fluctuations, trade barriers, exchange controls, political and
legal risks and restrictions, foreign ownership restrictions and risks of
increases in taxes. Limitations on our ability to conduct our foreign operations
or distribute our products internationally could adversely affect our operations
and financial performance.
DISRUPTION OF OPERATIONS AT KEY FACILITIES OR IN THE SUPPLY OF ANY RAW MATERIALS
WOULD ADVERSELY AFFECT OUR BUSINESS
Our principal operations are conducted at certain key facilities, some
of which are the only producers of certain of our products. We have not
experienced any material disruption of operations at our key facilities, but if
operations at any such facilities were disrupted as a result of equipment
failures, natural disasters, work stoppages or other reasons, our business and
results of operations could be adversely affected. Although we believe our
property damage and business interruption insurance is adequate to provide for
reconstruction of our facilities and equipment or mitigate losses resulting from
any production shutdown caused by an insured loss, there can be no assurance
that such insurance will be adequate to cover losses that may occur. Although
the Company's raw materials are currently readily available and the Company is
not dependent on a single supplier or a few suppliers, a disruption in the
availability of any raw materials used by the Company could increase the
Company's costs and reduce its response time, which could have a material
adverse affect on the Company's operations and financial performance.
COMPLIANCE WITH ENVIRONMENTAL LAWS IS EXPENSIVE, AND FAILURE TO COMPLY COULD
IMPAIR OUR OPERATIONS
We generate hazardous and nonhazardous wastes in the normal course of
our manufacturing operations. As a result, we are subject to a wide range of
federal, state, local and foreign environmental laws and regulations that govern
activities or operations that may have adverse environmental effects, such as
discharges to air and water, as well as handling and disposal practices for
hazardous and nonhazardous wastes, and impose liability of the costs of
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cleaning up, and certain damages resulting from, sites of past spills, disposals
or other releases of hazardous substances. On occasion there may be delays or
difficulties in obtaining the permits or authorizations mandated by these laws
and regulations, and the inability to obtain permits may impair or impede the
efficient operation of our business. Compliance with these laws and regulations
can be costly and burdensome, and failure to comply can result in the imposition
of penalties and sanctions. We have incurred and will incur expenditures on a
continuing basis to comply with such laws and regulations.
RISKS RELATED TO AN INVESTMENT IN OUR COMMON STOCK
AN INVESTMENT IN OUR STOCK IS VERY ILLIQUID AND YOU MAY NOT BE ABLE TO SELL YOUR
SHARES
An investment in our Common Stock is currently very illiquid. Although
our shares are quoted on the NASD's OTC Bulletin Board, there is currently no
broadly followed established trading market for our shares, and there can be no
assurance that any such market will ever develop or be maintained. Historically,
the market for our Common Stock on the OTC Bulletin Board has been limited and
sporadic. There is currently only one market maker for our shares on the NASD's
OTC Bulletin Board. In addition, the OTC market is smaller than other securities
markets, and prices for OTC securities are not generally published in the news
media. Information about us and transactions in our shares may be more limited
on the OTC market. The limitations of the OTC Bulletin Board and the absence of
an active trading market for our Common Stock reduces the liquidity of an
investment in our shares.
To the extent that brokerage firms may act as market makers for our
shares on the OTC Bulletin Board, they may be a dominating influence in any
market that might develop, and the degree of participation by such firms may
significantly affect the price and liquidity of our shares. These firms may
discontinue their market making activities at any time. The prices at which our
shares are traded in the market will be determined by these firms and by the
purchasers and sellers of our shares, but such prices may not necessarily relate
to our assets, book value, results of operations or other established and
quantifiable criteria of value.
TRADING IN OUR COMMON STOCK MAY BECOME SUBJECT TO ADDITIONAL REGULATION THAT
COULD FURTHER LIMIT THE LIQUIDITY OF YOUR INVESTMENT
If the trading price of our Common Stock were to fall below $5.00 per
share, and our stock continued to trade in the NASD OTC market, trading in our
Common Stock would become subject to the requirements of additional rules under
the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act").
These rules require additional disclosure by broker-dealers in connection with
any trades involving any non-Nasdaq equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. Among other things,
such rules require the delivery, prior to any so-called penny stock transaction,
of a disclosure schedule explaining the penny stock market and the risks
associated with it, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than
12
<PAGE> 14
established customers and accredited investors. The additional burdens imposed
upon broker-dealers by such requirements may discourage broker-dealers from
effecting transactions in our Common Stock, which could severely limit the
market liquidity of your investment.
OUR STOCK PRICE COULD GO DOWN AS A RESULT OF THIS OFFERING AND OUR ISSUANCE OF
OTHER PUBLICLY TRADED SHARES
Following the effectiveness of our registration statement, the shares
of Common Stock offered by the Selling Stockholders, representing approximately
99% of our outstanding Common Stock, will become freely salable in the public
market during the period the registration statement remains effective. Although
the sale of these additional shares to the public might increase the liquidity
of our stockholders' investments, the significant increase in the number of
shares available for public sale could drive the price of our Common Stock down,
thus reducing the value of your investment. To the extent other restricted
shares become freely salable, whether through an effective registration
statement or under Rule 144 of the Securities Act of 1933 (the "Securities
Act"), or we issue additional shares that might be or become freely salable, our
stock price may decrease. We intend to fund the acquisition of substantially all
Blue Giant's assets in part by issuing additional shares of Common Stock to
certain existing stockholders; the risks described in this paragraph apply to
the issuance of any such shares.
YOUR HOLDINGS MAY BE DILUTED IN THE FUTURE
Our Articles of Incorporation authorize the issuance of 10,000,000
shares of Common Stock. At October 23, 2000, approximately 4,500,000 shares of
Common Stock were outstanding (excluding shares issuable upon exercise of
options and warrants). The future issuance of all or part of the remaining
authorized Common Stock, including shares which may be issued in connection
with the proposed Blue Giant acquisition, may result in substantial dilution in
the percentage of our Common Stock held by our existing stockholders other than
those purchasing stock in connection with the proposed Blue Giant acquisition.
Warrants to purchase an aggregate of approximately 1,200,000 shares of
our Common Stock are currently outstanding and exercisable. Exercise of these
Warrants could result in additional dilution in the percentage of our Common
Stock held by our existing stockholders other than those exercising Warrants.
OUR BOARD CAN ISSUE PREFERRED STOCK WHICH ADVERSELY AFFECTS YOUR RIGHTS AS A
STOCKHOLDER
Our Articles of Incorporation authorize the issuance of up to
11,000,000 shares of preferred stock with designation, powers and preferences as
may be determined from time to time by our board of directors. Accordingly, our
board of directors is empowered, without stockholder approval, to issue a new
series of preferred stock with dividend, liquidation,
13
<PAGE> 15
conversion, voting or other rights which could adversely affect the voting power
of the holders of our Common Stock and the assets available to the holders of
our Common Stock upon our dissolution or liquidation. The issuance of a new
series of preferred stock could also adversely affect the market price of our
Common Stock.
WARRANTS, OUR VOTING AGREEMENT AND THE BOARD'S ABILITY TO ISSUE PREFERRED STOCK
COULD HINDER A CHANGE IN CONTROL OF OUR COMPANY
Our Company has reserved approximately 1,200,000 shares of Common Stock
for issuance upon exercise of outstanding Warrants. In addition, 500,000 shares
of Common Stock are subject to a Voting Agreement among the stockholder and
Messrs. Sharma and Schwartz. The existence of the Warrants and the Voting
Agreement, together with the Company's ability to issue Preferred Stock, could
discourage persons from attempting to acquire control of the Company by tender
offer or other means, and could therefore deprive stockholders of benefits that
could result from such an attempt, such as the ability to tender shares at a
premium over the market price or the temporary increase in market price that
such an attempt could cause.
OUR COMPANY CAN BE CONTROLLED BY A FEW EXISTING STOCKHOLDERS ACTING TOGETHER
Certain of our existing stockholders identified in the beneficial
ownership tables under "Principal Stockholders" beneficially own between 9% and
30% of our outstanding Common Stock. By virtue of their stock ownership, these
stockholders may be in a position, if they act together, to control the
management and affairs of the Company. The sale of additional Common Stock to
fund a portion of the purchase price for our proposed acquisition of Blue Giant,
if consummated, could increase the percentage of outstanding shares held by
existing stockholders who purchase such Common Stock.
PURCHASE OF A MAJORITY OF THE SHARES BEING REGISTERED UNDER THIS REGISTRATION
STATEMENT BY ONE OR AN AFFILIATED GROUP OF PURCHASERS COULD RESULT IN A CHANGE
OF CONTROL
Approximately 99% of our outstanding Common Stock is being registered
by the Selling Stockholders pursuant to this Registration Statement (assuming
the issuance of Common Stock issuable upon exercise of Warrants, without giving
effect to any additional shares that may be issued pursuant to the antidilution
provisions contained in the Warrants). The purchase of a majority of these
shares by one or an affiliated group of purchasers could result in a change of
control of our Company.
WE HAVE NEVER PAID DIVIDENDS IN OUR COMMON STOCK AND WE HAVE NO PLANS TO DO SO
We have never paid dividends on our Common Stock and do not anticipate
paying any dividends in the foreseeable future.
14
<PAGE> 16
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Registration Statement on Form SB-2
(together with all amendments hereto, the "Registration Statement") 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. Such forward-looking statements may be identified, without
limitation, by use of the words "expects," "anticipates," "believes,"
"estimates," "intends" and similar expressions. 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.
Readers are cautioned not to place undue reliance on any such forward-looking
statements.
USE OF PROCEEDS
The principal reason for this offering is to satisfy certain
registration rights granted to the Selling Stockholders by the Company under the
terms of the Warrants and in connection with the Company's 1999 Private
Placement, the subsequent private placement of Common Stock in February 2000,
the Company's acquisition of Long Reach and other related transactions.
The Company will not receive any proceeds upon the sale of Common Stock
by the Selling Stockholders.
The Company will receive the exercise price of $5.00 per share of
Warrants that are exercised by the Selling Stockholders. Assuming the exercise
of all the Warrants held by the Selling Stockholders (without giving effect to
any additional shares that may be issued pursuant to the anti-dilution
provisions contained in the Warrants), the gross proceeds to the Company will be
approximately $6,000,000. The Company intends to use any proceeds from the
exercise of these Warrants for working capital and general corporate purposes.
15
<PAGE> 17
PRICE RANGE OF COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the OTC Bulletin Board
maintained by the NASD 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 and adjusted for the one-for-412.92 reverse stock split of
the Company's Common Stock for stockholders of record as of June 15, 1999, for
the periods indicated:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
December 29, 1997 - March 29, 1998 $ 20.65 $ 4.13
March 30, 1998 - June 28, 1998 24.78 12.39
June 29, 1998 - September 30, 1998 6.19 4.13
October 1, 1998 - December 31, 1998 8.26 4.13
January 1, 1999 - March 31, 1999 10.32 4.96
April 1, 1999 - June 15, 1999 10.32 8.26
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
January 2, 2000 - April 1, 2000 6.00 6.00
April 2, 2000 - July 1, 2000 6.00 6.00
July 2, 2000 - September 30, 2000 6.00 5.00
</TABLE>
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 October 23, 2000, there were approximately 320 holders of record
of the Company's Common Stock.
The Company has not paid cash dividends on its Common Stock and does
not anticipate paying any dividends in the foreseeable future.
16
<PAGE> 18
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements consist of the condensed
consolidated unaudited pro forma statements of operations of TBM Holdings for
the six months ended July 1, 2000 and the year ended January 1, 2000, and
related notes. The condensed consolidated unaudited pro forma statements of
operations of TBM Holdings give effect to the February 23, 2000 merger of Long
Reach with and into a wholly-owned subsidiary of TBM Holdings (the "Long Reach
Merger") and the May 16, 2000 acquisition by TBM Holdings, through Long Reach,
of all of the outstanding capital stock of Lee Engineering from United Dominion
Industries, Inc. (the "Lee Engineering Acquisition"), as if such transactions
had occurred on January 1, 1999.
The historical data for the year ended January 1, 2000 have been derived from
TBM Holdings' audited financial statements. TBM Holdings' unaudited historical
data for the six months ended July 1, 2000 have been derived from its unaudited
financial statements. The unaudited historical data of Long Reach for the year
ended January 1, 2000 and for the period from January 2, 2000 to February 23,
2000, have been derived from Long Reach's unaudited historical consolidated
financial statements. The historical data of Lee Engineering for the year ended
December 31, 1999 have been derived from Lee Engineering's audited financial
statements. The unaudited historical data of Lee Engineering for the period from
January 2, 2000 to May 15, 2000 have been derived from Lee Engineering's
unaudited financial statements.
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 transactions 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.
17
<PAGE> 19
TBM HOLDINGS INC.
CONDENSED CONSOLIDATED UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
Six month period ended July 1, 2000
(In thousands, except per share data)
<TABLE>
<CAPTION>
Long Reach Pro Forma TBM Holdings
TBM Holdings Holdings Adjustments for Pro Forma for the
Historical Historical (f) the Long Reach Long Reach Merger
(Unaudited) (Unaudited) Merger (Unaudited)
--------------------- -------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales $ 13,898 $ 4,604 $ - $ 18,502
Cost of sales 10,941 3,846 (8) (a) 14,779
--------------------- -------------------- ------------------- ---------------------
Gross profit 2,957 758 8 3,723
Selling, general and
administrative expense 3,785 1,466 (6) (a)
30 (b) 5,275
--------------------- -------------------- ------------------- ---------------------
Income (loss) from operations (828) (708) (16) (1,552)
Interest expense, net (412) (204) 173 (c) (443)
Other income (expense), net 260 - - 260
--------------------- -------------------- ------------------- ---------------------
Income (loss) before income
taxes (980) (912) 157 (1,735)
Income tax expense 31 13 - (e) 44
--------------------- -------------------- ------------------- ---------------------
Net income (loss) $ (1,011) $ (925) $ 157 $ (1,779)
===================== ==================== =================== =====================
Basic and diluted earnings (loss)
per share $ (0.26)
=====================
Basic and diluted weighted
average shares outstanding 3,908
=====================
</TABLE>
18
<PAGE> 20
TBM HOLDINGS INC.
CONDENSED CONSOLIDATED UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS (CONTINUED)
Six month period ended July 1, 2000
(In thousands, except per share data)
<TABLE>
<CAPTION>
TBM Holdings
Pro Forma
for the Long
Reach Merger
and the Lee
Lee Pro Forma Engineering
Engineering Adjustments for the Acquisition
Historical (g) Lee Engineering As Adjusted
(Unaudited) Acquisition (Unaudited)
------------------- -------------------- ----------------------
<S> <C> <C> <C>
Net sales $ 6,712 $ - $ 25,214
Cost of sales 5,690 (26) (a) 20,443
------------------- -------------------- ----------------------
Gross profit 1,022 26 4,771
Selling, general and
administrative expense 1,632 (46) (a)
52 (b) 6,913
------------------- -------------------- ----------------------
Income (loss) from operations (610) 20 (2,142)
Interest expense, net - (69) (c) (512)
Other income (expense), net - (111) (d) 149
------------------- -------------------- ----------------------
Income (loss) before income
taxes (610) (160) (2,505)
Income tax expense - - (e) 44
------------------- -------------------- ----------------------
Net income (loss) $ (610) $ (160) $ (2,549)
=================== ==================== ======================
Basic and diluted earnings (loss)
per share $ (0.62)
======================
Basic and diluted weighted
average shares outstanding 4,099
======================
</TABLE>
See accompanying notes to condensed consolidated unaudited pro forma financial
statements.
19
<PAGE> 21
TBM HOLDINGS INC.
CONDENSED CONSOLIDATED UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
for the year ended January 1, 2000
(In thousands, except per share data)
<TABLE>
<CAPTION>
TBM Holdings
Pro Forma
Long Reach Pro Forma for the
TBM Holdings Holdings Adjustments for Long Reach
Historical Historical the Long Reach Merger
(Audited) (Unaudited) Merger (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)
183 (b) 9,725
-------- -------- -------- --------
Income (loss) from operations (446) (3,553) 513 (3,486)
Interest expense, net - (1,773) 940 (c) (833)
Other income (expense), net 470 275 - 745
Income from discontinued operations 15 - - 15
-------- -------- -------- --------
Income (loss) before income taxes 39 (5,051) 1,453 (3,559)
Income tax expense (benefit) - (1,119) (163)(e) (1,282)
-------- -------- -------- --------
Net income (loss) $ 39 $ (3,932) $ 1,616 $ (2,277)
======== ======== ======== ========
Basic and diluted earnings (loss) per share:
From continuing operations $ 0.02
From discontinued operations 0.01
--------
Net income (loss) $ 0.03
========
Basic weighted average
shares outstanding 1,401
========
Diluted weighted average
shares outstanding 1,464
========
</TABLE>
20
<PAGE> 22
TBM HOLDINGS INC.
CONDENSED CONSOLIDATED UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS (CONTINUED)
for the year ended January 1, 2000
(In thousands, except per share data)
<TABLE>
<CAPTION>
TBM Holdings
Pro Forma
for the Long
Reach Merger
and the Lee
Lee Pro Forma Engineering
Engineering Adjustments for the Acquisition
Historical Lee Engineering As Adjusted
(Audited) Acquisition (Unaudited)
--------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 16,834 $ - $ 56,063
Cost of sales 12,688 (98) (a) 45,580
-------- -------- --------
Gross profit 4,146 98 10,483
Selling, general and administrative expense 5,282 (2) (a)
124 (b) 15,129
-------- -------- --------
Income (loss) from operations (1,136) (24) (4,646)
Interest expense, net - (192) (c) (1,025)
Other income (expense), net (291) (269) (d) 185
Income from discontinued operations - - 15
-------- -------- --------
Income (loss) before income taxes (1,427) (485) (5,471)
Income tax expense (benefit) (508) (234) (e) (2,024)
-------- -------- --------
Net income (loss) $ (919) $ (251) $ (3,447)
======== ======== ========
Basic and diluted earnings (loss) per share:
From continuing operations $ (1.82)
From discontinued operations 0.01
--------
Net income (loss) $ (1.81)
========
Basic weighted average shares
outstanding 1,901
========
Diluted weighted average shares
outstanding 1,901
========
</TABLE>
See accompanying notes to condensed consolidated unaudited pro forma financial
statements.
21
<PAGE> 23
TBM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
On February 23, 2000, the Company acquired Long Reach in a merger transaction
pursuant to which Long Reach merged into a wholly-owned subsidiary of the
Company (the "Surviving Corporation"). The aggregate consideration in respect of
the acquisition was (1) $1,500,000 of cash, (2) the issuance of 500,000 shares
of the Company's Common Stock valued at $6.00 per share, (3) the Surviving
Corporation's issuance of $3,000,000 of new subordinated notes to refinance a
portion of existing subordinated notes with certain stockholders of Long Reach
and (4) the assumption by the Surviving Corporation of $10,921,000 of
outstanding bank debt at the date of the acquisition. Upon closing, the Company
paid down $5,338,000 of the debt assumed. In addition, in the event certain net
sales targets are met in calendar year 2000, new contingent subordinated notes
will be issued to certain shareholders, warrant holders, option holders and
subordinated noteholders of Long Reach in an aggregate amount not to exceed
$2,000,000. The Long Reach Merger has been accounted for using the purchase
method of accounting, effective at the date of acquisition.
On May 16, 2000, TBM Holdings, through Long Reach, acquired all of the capital
stock of Lee Engineering for $7,466,000 of cash. On May 22, 2000, TBM Holdings
changed the name of Lee Engineering Company, Inc. to Presto Lifts, Inc. The Lee
Engineering 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 (dollars in thousands):
<TABLE>
<CAPTION>
Long Reach Lee Engineering
Merger Acquisition
--------------- ----------------
<S> <C> <C>
Working capital $(1,606) $ 2,105
Property and equipment 6,985 641
Goodwill 7,495 4,720
Other assets 326 --
Long-term debt (8,583) --
Other liabilities (117) --
------- -------
Purchase Price $ 4,500 $ 7,466
======= =======
</TABLE>
22
<PAGE> 24
TBM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
The condensed consolidated unaudited pro forma statements of operations for the
year ended January 1, 2000 and the six months ended July 1, 2000 give effect to
the pro forma results of TBM Holdings for the Long Reach Merger and the Lee
Engineering Acquisition for the entire periods presented.
These statements should be read in conjunction with the separate audited
financial statements and notes thereto of TBM Holdings, Long Reach and Lee
Engineering, which are included elsewhere in this Registration Statement. The
condensed consolidated unaudited pro forma financial statements are not
necessarily indicative of the results of operations of TBM Holdings, as it may
be in the future or as it would have been had the Long Reach Merger and the Lee
Engineering Acquisition been effective January 1, 2000 or January 1, 1999.
(a) For the Long Reach Merger, the adjustment reflects the reduction in
depreciation in cost of sales, $535,000 for the year ended January 1,
2000 and $8,000 for the six months ended July 1, 2000. The adjustment
also reflects the reduction in depreciation in selling, general and
administrative expenses, $161,000 for the year ended January 1, 2000 and
$6,000 for the six months ended July 1, 2000. These adjustments result
from the application of new depreciable lives to the fair value of
property, plant and equipment related to the Long Reach Merger.
For the Lee Engineering Acquisition, the adjustment reflects the
reduction in depreciation in cost of sales, $98,000 for the year ended
January 1, 2000 and $26,000 for the six months ended July 1, 2000. The
adjustment also reflects the reduction in depreciation in selling,
general and administrative expenses, $2,000 for the year ended January 1,
2000 and $46,000 for the six months ended July 1, 2000. These adjustments
result from the application of new depreciable lives to the fair value of
property, plant and equipment acquired in the Lee Engineering
Acquisition.
(b) Adjustment to reflect the amortization of additional goodwill for the
year ended January 1, 2000 and the six months ended July 1, 2000. TBM
Holdings recorded goodwill of approximately $7,495,000 in the Long Reach
Merger and $4,720,000 in the Lee Engineering Acquisition and is
amortizing the goodwill over 20 years.
23
<PAGE> 25
TBM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
(c) Adjustment to interest expense to reflect the following (dollars in
thousands):
<TABLE>
<CAPTION>
Year ended Six months ended
January 1, 2000 July 1, 2000
------------------- ------------------------
<S> <C> <C>
Effect of additional financing incurred with the
Long Reach Merger and the
Lee Engineering Acquisition:
Commitment fees on revolver $ 34 $ 16
Bank revolver loan:
Long Reach Merger ($3,200 at 9.5%) 304 152
Lee Engineering Acquisition ($2,000 at 9.5%) 190 95
Bank term loan ($2,500 at 9.5%) 238 119
Subordinated notes ($3,000 at 6.0%) 170 85
Other 19 10
Amortization of financing costs
resulting from the Long Reach Merger and the
Lee Engineering Acquisition ($318 amortized
between 3 to 5 years) 70 35
-------- --------
Pro forma interest expense 1,025 512
Less - Historical interest expense (1,773) (616)
-------- --------
Pro forma interest expense adjustment ($ 748) ($ 104)
======== ========
</TABLE>
(d) Adjustment to other income (expense), net to reflect reduction in
available working capital for short-term investments.
(e) Adjustment to reflect the tax impact on a pro forma basis using an
effective rate of 37% to the extent of available deferred tax
liabilities.
(f) Includes results of Long Reach for the period from January 2, 2000 to
February 23, 2000 (the date of the Long Reach Merger) for the six months
ended July 1, 2000.
(g) Includes results of Lee Engineering for the period from January 2, 2000
to May 15, 2000 (the date prior to the date of the Lee Engineering
Acquisition) for the six months ended July 1, 2000.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS;
PLAN OF OPERATION
The Company's unaudited financial statements included in the Company's
Quarterly Report on Form 10-QSB for the quarter ended July 1, 2000, and the
Company's audited financial statements included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended January 1, 2000, respectively, are set
forth on pages F-4 through F-32 of this Prospectus. Set forth below are the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Plan of Operation included in such Form 10-QSB and Form
10-KSB, respectively. Management's Discussion and Analysis of Financial
Condition and Results of Operations reflects the SEC's subsequent issuance of a
document addressing significant implementation issues related to SAB No. 101.
Subsequent events have occurred since the date of the Form 10-QSB and Form
10-KSB. See "BUSINESS" for a description of these subsequent events.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS RELATING TO THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED JULY 1, 2000.
On June 15, 1999, the Company completed a private placement in which it
raised $12,730,000 from investors. Upon the closing of the private placement,
the Company changed its name from Specialty Retail Group, Inc. to TBM Holdings
Inc. Prior to and after the private placement, the Company had no operating
business. The Company planned to use the proceeds of the private placement to
purchase an operating company within a manufacturing industry. The Company
intended to implement the Toyota Production System using the Kaizen Growth
Strategy to improve the results of an underperforming manufacturing company once
acquired.
On February 23, 2000, the Company completed the acquisition of Long
Reach through the merger of Long Reach into a wholly-owned subsidiary of the
Company. In operation since 1930, Long Reach is a manufacturer of hydraulic
material handling equipment, including lift truck attachments, pallet trucks,
pallet stackers and industrial lift tables. This acquisition was the result of a
lengthy search process culminating in the selection of the material handling
equipment industry as the target industry for the Company's implementation of
the Kaizen Growth Strategy.
On May 16, 2000, the Company completed the acquisition of Lee
Engineering from United Dominion Industries, Inc. Since 1944, Lee Engineering
has been manufacturing material handling equipment including pallet stackers,
scissor lifts and dock lifts under the Presto Lifts(R) and Regal(R) brand names.
Subsequent to the acquisition, the Company changed the name of the acquired
company to Presto Lifts, Inc. Presto Lifts is a wholly-owned subsidiary of Long
Reach.
Long Reach and Presto Lifts are the first of several potential
acquisitions by the Company in the material handling and ergonomic work
positioning equipment industry. The Company is engaged in preliminary
discussions with several additional acquisition candidates. Negotiations are
ongoing; however, no assurance of success with respect to these negotiations, or
25
<PAGE> 27
the Company's efforts to identify and acquire any additional manufacturing
companies, can be made.
RESULTS OF OPERATIONS
Operating results through February 23, 2000, the date of the
acquisition of Long Reach, reflect interest income generated through the
investment of the proceeds of the 1999 private placement in short-term
government securities. Operating expenses during such period were costs
associated with search activities required to identify a manufacturing company
acquisition, maintaining a business office and complying with the Company's
reporting obligations as a public company.
Results for the six months ended July 1, 2000 include the operating
results of Long Reach for the period February 24, 2000 through July 1, 2000, and
the operating results of Presto Lifts for the period May 16, 2000 through July
1, 2000, consolidated with the expenses incurred by the Company associated with
maintaining a business office and complying with its reporting obligations as a
public company.
The Company generated net sales of $10,243,000 and a net loss of
$1,019,000 for the three months ended July 1, 2000 compared with no sales and
net income of $39,000 for the comparable period in 1999. For the three months
ended July 1, 2000, gross profit represented 18.6% of net sales, and selling,
general and administrative expenses represented 26.7% of net sales. During the
three months ended June 30, 1999, the Company had no ongoing operations and,
accordingly, no sales. The net income for this period reflected the cost of
maintaining a business office and the cost of compliance with the Company's
reporting obligations as a public company, offset by other income which
generated net income for the period.
During the three and six months ended July 1, 2000, the increase in net
sales, cost of sales and selling, general and administrative expenses over the
corresponding period of the prior year is the result of the acquisitions by the
Company of Long Reach on February 23, 2000, and Presto Lifts on May 16, 2000.
Interest expense for the three and six months ended July 1, 2000 was
$313,000 and $412,000, respectively. This reflects the interest expense for the
period February 24, 2000 through July 1, 2000 under Long Reach's revolving line
of credit and term loan, each as amended. Other income, net was $128,000 and
$260,000 for the three and six months ended July 1, 2000, as compared to $37,000
for the corresponding periods of the prior year. This represents income from
investment of excess cash on hand.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $2,525,000 for the six months
ended July 1, 2000, compared with $93,000 for the six months ended June 30,
1999. This change
26
<PAGE> 28
reflects the net loss for the six months ended July 1, 2000 of $1,011,000
combined with the negative changes in working capital components for such period
of $1,951,000 following the consolidation of the Company with Long Reach on
February 23, 2000, and Presto Lifts on May 16, 2000. The most significant change
in the working capital components of the Company was a reduction in payables
resulting from the Company's efforts to bring Long Reach's payables to suppliers
current.
Net cash used in investing activities was $13,343,000 for the six
months ended July 1, 2000, compared with $0 for the corresponding six months in
1999. This investment reflects the acquisition of Long Reach on February 23,
2000, and the acquisition of Presto Lifts on May 16, 2000.
Net cash provided by financing activities was $9,740,000 for the six
months ended July 1, 2000, as compared to $12,212,000 for the six months ended
June 30, 1999. Net cash provided by financing activities for the six months
ended July 1, 2000 reflects the issuance of Common Stock of $8,000,000 and an
increase in borrowings of $1,740,000 under Long Reach's revolving credit
agreement to fund changes in working capital during the period, after giving
effect to the change in bank overdraft payable for the period. Net cash provided
by financing activities for the six months ended June 30, 1999 reflects the
issuance of Common Stock of $12,212,000 in connection with the Company's private
placement on June 15, 1999.
At July 1, 2000, the Company owed $7,570,000 under its revolving credit
facility. Long term debt outstanding at July 1, 2000 consisted of a $2,500,000
note payable to the bank and $2,913,000 of notes payable to stockholders.
Issuance of Common Stock was $8,000,000 and $12,212,000 for the six
months ended July 1, 2000 and June 30, 1999, respectively. Issuance of Common
Stock for the six months ended July 1, 2000 reflects the Company's private
placement of its Common Stock on February 23, 2000 and the exercise of an
option. Common Stock issued for acquisition for the six months ended July 1,
2000 represents the Company's issuance of 500,000 shares of its Common Stock,
valued at $6.00 per share, in connection with its acquisition of Long Reach on
February 23, 2000. Issuance of Common Stock of $12,212,000 for the six months
ended June 30, 1999 reflects the Company's private placement of its Common Stock
on June 15, 1999.
Capital expenditures for property, plant and equipment totaled $58,000
for the first six months of fiscal 2000. Total capital expenditures for the Long
Reach and Presto Lifts operations are currently expected to aggregate $450,000
for fiscal 2000. The Company believes that the combination of its existing
working capital, current cash balances and access to other financing sources
will be adequate to meet its anticipated capital and liquidity requirements with
respect to the operations of the Company for fiscal year 2000. See however
"CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS."
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QUANTITATIVE AND QUALITATIVE DISCLOSURES
The Company is exposed to market risks. Market risk is the potential
loss arising from adverse changes in market prices and rates. The Company does
not enter into derivative or other financial instruments for trading or
speculative purposes. The Company's market risks could arise from changes in
interest rates and foreign currency exchange rates.
Interest rate risk. The Company is subject to market risk exposure
related to changes in interest rates. Accordingly, the Company's net income is
affected by changes in interest rates. Assuming the Company's current level of
borrowings, a 100 basis point increase in interest rates under these borrowings
would increase the Company's net loss for the second quarter and six months
ended July 1, 2000 by approximately $25,000 and $33,000, respectively. In the
event of an adverse change in interest rates, the Company could take action to
mitigate its exposure; however, due to the uncertainty of the actions that would
be taken and their possible effects, this analysis assumes no such actions.
Furthermore, this analysis does not consider the effects of the change in the
level of overall economic activity that could exist in such an environment.
Foreign exchange currency risk. The Company's earnings are affected by
foreign exchange rate fluctuations. The Company currently has foreign operations
in Australia. The translation adjustment during the six months ended July 1,
2000 was a loss of $34,000, which was recognized in accumulated other
comprehensive loss in the unaudited condensed consolidated financial statements
included herein.
ADDITIONAL INFORMATION
The Company has begun implementing the Kaizen Growth Strategy and
restructuring operations at Long Reach and Presto Lifts. The Company's goal is
to reduce product costs by improving manufacturing methods and processes to
improve productivity. As this process continues, the Company expects Long Reach
and Presto Lifts to have marginally profitable or unprofitable results through
December 31, 2000. The Company's goal is to complete a majority of this
restructuring during 2000 and to achieve improved profitability during 2001.
However, there can be no assurance that this restructuring will be completed
within this timeframe or that improved financial results will be achieved.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS
No. 137 and SFAS No. 138, was issued by the Financial Accounting Standards Board
in June 1998. SFAS 133 standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts. Under the
standard, entities are required to carry all derivative instruments in the
statement of financial position at fair value. The Company will adopt SFAS 133
beginning in fiscal year 2001. The Company does not expect the adoption of SFAS
133 will
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have a material effect on its financial condition or results of operation
because the Company historically has not entered into derivative or other
financial instruments for trading or speculative purposes nor does the Company
use or intend to use derivative financial instruments or derivative commodity
instruments.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB No. 101"). SAB No. 101 summarizes the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
The SEC staff has issued a document to address significant implementation
issues related to SAB No. 101. To the extent that SAB No. 101 ultimately
changes the Company's revenue recognition practices, it is required to adopt
SAB No. 101 no later than the quarter beginning October 1, 2000. The Company
cannot determine the potential impact that SAB No. 101 may have on its
consolidated financial position or results of operations at this time.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation; an Interpretation of APB
Opinion No. 25. Among other issues, Interpretation No. 44 clarifies the
application of Accounting Principles Board Opinion No. 25 ("APB No. 25")
regarding (a) the definition of employee for purposes of applying APB No. 25,
(b) the criteria for determining whether a plan qualifies as a non-compensatory
plan, (c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock options in a business combination. The provisions of Interpretation No.
44 affecting the Company are to be applied on a prospective basis effective July
1, 2000.
PLAN OF OPERATION RELATING TO THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE
FISCAL YEAR ENDED JANUARY 1, 2000.
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 Long Reach on February 23, 2000.
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 Long Reach'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.
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The Company has appointed its own management team at Long Reach and
plans to implement the Toyota Production System utilizing the Kaizen Growth
Strategy to seek to strengthen Long Reach'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 Long
Reach'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 Long
Reach will be improved.
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BUSINESS
PRIOR HISTORY
The Company was incorporated in Florida in 1987 under the name
Specialty Retail Group, Inc. As of January 31, 1997, Specialty Retail Group,
Inc. had sold or discontinued all business operations. On January 31, 1997,
Specialty Retail Group, Inc.'s subsidiary 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.
1999 PRIVATE PLACEMENT
On June 15, 1999, the Company completed the 1999 Private Placement of
restricted shares of the Company's Common Stock, in which the Company received
aggregate gross proceeds of $12,730,000. In connection with the 1999 Private
Placement, the Company elected a new board of directors and changed its name to
TBM Holdings Inc. Immediately prior to the closing of the 1999 Private
Placement, TBM Holdings effected a one-for-412.92 reverse stock split of the
Company's Common Stock for stockholders of record as of June 15, 1999.
OBJECTIVE
The Company's objective was to use the proceeds of the 1999 Private
Placement to acquire one or more underperforming manufacturing companies and
thereafter to improve their operating performance and profitability through
implementation of the Toyota Production System using the Kaizen Growth Strategy.
TOYOTA PRODUCTION SYSTEM AND KAIZEN GROWTH STRATEGY
Toyota Production System. The Toyota Motor Corporation developed the
Toyota Production System over 50 years ago. The goal of the Toyota Production
System is to maintain a continuous flow of products manufactured to meet
customer demand; it operates by pacing all operations to the rate of customer
orders. This is achieved by manufacturing the required product in the quantity
ordered and delivering it at the right time.
The Toyota Production System is supported by several components:
- Just-in-Time Production ("JIT") - JIT, the realization of
demand-drive production flow, allows factories to be more responsive to changes
in demand. JIT involves producing the
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right product, in the right quantities, at the right time with the minimum
material, labor, equipment and space. In a JIT system of producing with minimum
inventories, production starts upon receipt of order, inputs are delivered
according to need, and output is shipped as soon as production is completed.
- Total Quality Management ("TQM") - TQM is a quality control
technique that detects defects so defective parts do not pass to the next
operation. TQM also frees the worker from simply tending machines and provides
the opportunity for multi-tasking and problem solving by line workers.
The Toyota Production System, often called "Just-in-Time" manufacturing
or "Lean Production," has been applied worldwide by many industries, including
manufacturers of automotive and motorcycle equipment and parts, heating,
ventilation and air conditioning, machine tools, medical equipment, and electric
and electro-mechanical equipment.
Kaizen Growth Strategy. Kaizen, the Japanese word for "continuous
improvement," is a process developed by Toyota. As implemented by TBM Consulting
Group, Inc. (see "- TBM Consulting Group, Inc." below), 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. By increasing labor productivity
and asset utilization, companies should be able to reduce costs, improve margins
and improve cash flow. Shorter lead time and improved product quality should
enable companies to meet customer demand more effectively, increasing sales and
market share and achieving higher profitability.
Kaizen Breakthrough. Kaizen Breakthrough is a hands-on, shop-floor
based process that teaches participants how to rapidly convert the manufacturing
operation to the JIT system. Kaizen Breakthrough has become associated with a
rapid, team-based process that allows workers to participate in the improvement
process. Kaizen Breakthrough projects typically target improvements in key
business and manufacturing processes, including reductions in floor space and
lead time, and improvements in worker productivity and product quality.
TBM Consulting Group, Inc. Anand Sharma, the Chairman of the Board of
the Company and Long Reach, founded TBM Consulting Group, Inc. in 1991. Mr.
Sharma and William A. Schwartz, President and Chief Executive Officer and a
director of the Company and a director of Long Reach, are officers and directors
of TBM Consulting Group, Inc. TBM Consulting Group, Inc. provides manufacturing
companies with consulting services to assist them in implementing the Toyota
Production System utilizing the Kaizen Growth Strategy. TBM Consulting Group,
Inc. provides Kaizen consulting and management services to the Company on a
priority basis pursuant to a Consulting and Management Services Agreement with
the Company. See "RELATED PARTY TRANSACTIONS."
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Implementation. In accordance with the strategy developed by TBM
Consulting Group, Inc., the Company's implementation of the Toyota Production
System using the Kaizen Growth Strategy is comprised of several initial steps,
which are currently being implemented at Long Reach and Presto Lifts:
- The Company installs a senior management team and seeks to
rebuild existing management capability and establish a high performance culture
at newly acquired companies. Management also conducts an organizational
assessment and makes appropriate additions to fill key operational roles, either
from professionals who are consultants employed by TBM Consulting Group, Inc. or
from recruiting efforts conducted by management.
- Management adopts a Time-Based strategy, a philosophy and
strategy designed to reduce operational lead time for products and eliminate
systemic causes of waste. "Waste" is defined as an activity or motion which
takes time and costs money, but does not add value. Elimination of waste is
targeted by use of formal systems, such as JIT, as well as by redesigning
workflows, streamlining production processes, rationalizing operations or
relocating machinery and rebuilding workstations to avoid extra motion by
workers. The ultimate goal of Time-Based Management is to significantly reduce
customer lead time - the time from customer order to product shipment.
- The Company conducts a comprehensive business assessment of
each acquired company, examining key business systems, product line
profitability, customer profitability and business processes. Management's
immediate goal is to establish integrity and reliability in key business
systems, such as sales forecasting, material planning, factory scheduling,
financial reporting and cash flow management.
- During year one, in consultation with TBM Consulting Group,
Inc., the Company begins to implement the Toyota Production System using Kaizen,
a process which continues over a three to five year time period.
Once the business is staffed, stabilized and directed toward specific
goals, following the model of TBM Consulting Group, Inc., senior management will
implement a strategic growth plan and continue, over a three to five year
period, to implement the Toyota Production System utilizing Kaizen.
Particularly during the first year after acquisition, the Company
anticipates that there will be restructuring costs and other write-offs
associated with restructuring and integrating the operations of the acquired
companies, including Long Reach, Presto Lifts and any other acquisition. These
costs and write-offs will negatively impact the Company's consolidated financial
results. For a further description of this risk and other risks associated with
the Company's strategy of acquiring underperforming companies and implementation
of the Toyota Production System utilizing the Kaizen Growth Strategy, see "RISK
FACTORS - After Giving Effect to Our Acquisitions, We Sustained Net Losses
During Fiscal 1999, and We Continue to
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Sustain Losses," "- We May Not Succeed in Implementing the Toyota Production
System or the Kaizen Growth Strategy," "-We Only Began Operations Recently in
the Material Handling Equipment Industry" and "-Our Strategy of Acquiring
Underperforming Companies May Increase Our Debt and Adversely Affect Our
Financial Performance."
ACQUISITIONS
On February 23, 2000, the Company acquired its first operating company,
Long Reach, through a merger transaction. Long Reach manufactures material
handling equipment, including masts, integrals and attachments for forklift
trucks, and pallet trucks, stackers and scissor lifts.
On May 16, 2000, the Company closed a strategic add-on acquisition
pursuant to which Long Reach purchased all of the outstanding capital stock of
Lee Engineering from its parent corporation. This company's name was
subsequently changed to Presto Lifts, Inc. Presto Lifts manufactures material
handling and ergonomic work positioning equipment, including scissor lifts and
stackers.
The Company is in the process of implementing the Toyota Production
System utilizing the Kaizen Growth Strategy and integrating and restructuring
the operations of Long Reach and Presto Lifts. See "RISK FACTORS - We May Not
Succeed in Implementing the Toyota Production System or the Kaizen Growth
Strategy" and "-- We May Be Unsuccessful in Integrating the Operations of
Acquired Businesses."
Long Reach sustained net losses during the fiscal years ended June 30,
1999 and 1998. In addition, our second acquisition, Presto Lifts, sustained net
losses during the fiscal years ended December 31, 1999 and 1998. After giving
effect to the Long Reach and Presto Lifts acquisitions, the Company sustained
losses during calendar year 1999 on a pro forma basis. The Company's
consolidated financial statements for the six months ended July 1, 2000, which
reflect the operations of Long Reach after February 23, 2000, and the operations
of Presto Lifts after May 15, 2000, reported a net loss. See "RISK FACTORS -
After Giving Effect to Our Acquisitions, We Sustained Net Losses During Fiscal
1999, and We Continue to Sustain Losses."
Reference is made to the audited financial statements of Long Reach
Holdings, Inc. and Subsidiary, which are set forth on pages F-33 through F-70 of
this Prospectus. Reference is also made to the audited financial statements of
Lee Engineering Company, Inc., which are set forth on pages F-71 through F-91 of
this Prospectus.
On October 19, 2000, 1445833 Ontario Inc., an Ontario corporation and
wholly owned subsidiary of the Company, as purchaser (the "Purchaser"), and Blue
Giant Limited, a Canadian corporation and wholly owned subsidiary of CLARK
Material Handling Company ("Clark"), as vendor ("Blue Giant"), executed an Asset
Purchase Agreement pursuant to which the Purchaser has agreed to purchase
substantially all of the property and assets used in connection with Blue
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<PAGE> 36
Giant's business and to assume specified liabilities, including trade payables
and liabilities and obligations arising under assumed contracts and with respect
to the purchased assets and Blue Giant's business on or after the closing date.
Based in Ontario, Canada, Blue Giant is a manufacturer of loading dock
equipment, including dock levelers, elevating docks, edge of dock levelers,
truck restraints, hydraulic lift tables and related parts and accessories, and
wheeled products, including powered stackers, and powered and manual pallet
trucks.
A condition of the closing of the Asset Purchase Agreement requires
that Blue Giant Corporation, a subsidiary of Clark ("BGC"), deliver to
Purchaser a transfer agreement (the "Transfer Agreement") pursuant to which
certain intellectual property of BGC will be transferred to the Company.
The aggregate purchase price payable in respect of the acquisition
described above is U.S. $11,000,000, payable in cash at closing, consisting of
(i) $9,500,000 in respect of Blue Giant's assets, and (ii) $1,500,000 payable to
BGC for certain intellectual property. The purchase price is subject to closing
adjustments as set forth in the Asset Purchase Agreement. The Company intends to
fund the acquisition through a combination of debt and additional equity
investment by certain existing stockholders.
The closing of the acquisition is subject to a number of conditions,
including (i) execution and delivery of the Transfer Agreement, (ii) execution
and delivery by Clark and the Purchaser of certain supply agreements ("Supply
Agreements"), (iii) the Purchaser's receipt, by November 2, 2000, of a
financing commitment from a financial institution sufficient to pay the
purchase price in respect of the Blue Giant assets, (iv) Blue Giant's
outstanding indebtedness for borrowed money not exceeding $3,000,000 as of the
closing, (v) satisfactory completion of Purchaser's due diligence by October
31, 2000, (vi) environmental liabilities on purchased real property not
exceeding $50,000, (vii) approval of the transaction by the board of directors
of the Purchaser and Clark, (viii) the approval of the United States Bankruptcy
Court for the District of Delaware, which is currently adjudicating Clark's
Chapter 11 bankruptcy proceedings, of Clark's indemnification obligations under
the Asset Purchase Agreement and of the Transfer Agreement and the Supply
Agreements, and (ix) other customary conditions. There can be no assurance that
the acquisition will be consummated.
PRINCIPAL PRODUCTS AND MARKETS
The Company manufactures material handling equipment, including masts,
integrals and attachments for forklift trucks, and pallet trucks, stackers and
scissor lifts, under the names Long Reach(R), Brudi(R), Rol-Lift(R), Presto(R)
and Regal(R).
The Company has three main product lines: (i) heavy duty masts and
integrals for rider forklifts manufactured under the Brudi(R) brand name; (ii)
forklift attachments, including paper roll clamps, carton clamps and push pulls,
and mast attachments such as side shifters, fork positioners and other custom
engineered material handling attachments manufactured under the Long Reach(R)
and Brudi(R) brand names; and (iii) material lifting products, including pallet
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trucks, manual and powered stackers and scissor-lift devices, manufactured by
Long Reach and Presto Lifts under the Rol-Lift(R), Presto(R) and Regal(R) brand
names.
Masts and integrals are components mounted on the front of a lift truck
to provide lifting capability for the vehicle.
Forklift attachments are designed to increase the scope and efficiency
of materials handling applications normally performed by industrial forklifts;
they clamp, lift, rotate, push, pull, tilt and sideshift a variety of loads,
such as appliances, paper rolls, baled materials, drums, lumber, power poles and
tissue and paper products.
Heavy duty masts and integrals and forklift attachments are currently
manufactured by Long Reach at two facilities located in Houston, Texas and
Little Rock, Arkansas and at the Brudi Pacific facility in Adelaide, Australia.
These products are sold through a broad range of market channels, including
original equipment manufacturers, forklift manufacturers and forklift dealers.
The Company also supplies certain government agencies and exports certain
products abroad.
Material lifting products are used as material handling devices and
ergonomic aids in the workplace. Stackers are often used as work positioners for
assembly lines. Scissor lifts help elevate material to the point of use for
manufacturing associates in assembly and fabrication jobs. The products are used
extensively in the automotive industry as well as other high-volume assembly
environments. Other key product uses include distribution warehouses, printers
and light manufacturing facilities. Material lifting products are currently
manufactured by Long Reach in Little Rock, Arkansas and by Presto Lifts at its
facility in Pawtucket, Rhode Island. These products are sold through material
handling equipment distributors and industrial equipment catalog supply houses.
Both Long Reach and Presto Lifts provide after-market service functions
that sell spare parts for equipment they manufacture.
The Company has announced the consolidation of its operations in Little
Rock, Arkansas into its manufacturing locations in Houston, Texas and Pawtucket,
Rhode Island, which it hopes to accomplish by the end of 2000. See "-
Facilities; Employees."
CUSTOMERS AND SUPPLIERS
Masts and integrals manufactured by Long Reach are sold to original
equipment manufacturer (OEM) forklift manufacturers and forklift dealers.
Forklift attachments are sold to forklift dealers. These dealers order specialty
attachments for arrival concurrent with forklift delivery and assemble the
attachment to make delivery to the industrial customer. Material lifting devices
are primarily sold to material handling equipment distributors and/or industrial
equipment catalog houses on short lead times.
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Presto Lifts sells to material handling equipment dealers and currently
has a customer list of over 1,000 active dealers. Presto Lifts sells to these
dealers through sales representatives and a dedicated direct sales force. In
addition, these products are distributed through major industrial equipment
catalogs including W.W. Grainger, Inc., McMaster-Carr Supply Company, Global
Industrial Equipment, and C&H Industrial Tool & Supply, Inc. Products sold
through industrial equipment catalogs are sold directly to industrial supply
companies for distribution to end users.
The Company also manufactures replacement parts for its products. These
parts are used to replace parts that wear out as well as for repairs. These
parts are sold to authorized dealers of the Company's equipment.
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.
COMPETITION
The markets in which the Company operates are highly competitive. Both
domestically and internationally, the Company faces competition from a number of
different manufacturers in each of its product lines, some of which have greater
financial and other resources than the Company.
The Company, however, believes that existing domestic and foreign
competition for mast and integral products is limited. Manufacture of these
products is expensive due to the heavy equipment and tooling involved in the
manufacturing process, making effective market entry difficult for new
suppliers. Due to weight and cubic volume, which increases the cost and time
necessary to ship this type of equipment, the Company believes that foreign
competitors without a U.S. manufacturing presence are at a disadvantage
competing in the United States market.
The attachment markets 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 supplier.
Competition for material lifting products, produced under the
Rol-Lift(R), Presto(R) and Regal(R) brand names, comes from a broad range of
small and mid-sized competitors. Additionally, the market for pallet trucks is
highly competitive, with numerous domestic competitors and significant foreign
competition from manufacturers in Canada, China and India.
The Company believes there is limited competition for the spare parts
it manufactures, as most of its customers purchase spare parts for the Company's
equipment from the Company, as the original equipment manufacturer.
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FACILITIES; EMPLOYEES
Long Reach's headquarters and administrative offices are located in
Houston, Texas. The office includes sales, marketing, customer service, order
entry, finance & administration, human resources, engineering, production
control, purchasing, and manufacturing management. Long Reach's manufacturing
facilities are currently located in Houston, Texas and Little Rock, Arkansas.
The Little Rock facility has a small administrative staff including engineering,
customer service, purchasing, and manufacturing management. The Company has
announced its plans for Long Reach to transfer its fork attachment production
lines to the Company's Long Reach plant in Houston, Texas, and its Rol-Lift
material handling equipment production lines to the Company's Presto Lifts plant
in Pawtucket, Rhode Island. The Company plans to complete this consolidation by
the end of 2000.
Presto Lifts' headquarters, administrative offices and manufacturing
facility are located in Pawtucket, Rhode Island. The office includes customer
service, order entry, finance and administration, human resources, engineering,
production control, purchasing, and manufacturing management.
Brudi Pacific's headquarters, administrative offices and manufacturing
facility is located in Adelaide, Australia. The office includes sales,
marketing, customer service, order entry, finance and administration,
engineering, production control, purchasing and manufacturing.
As of September 30, 2000, the Company had approximately 440 employees,
all of whom were employed full-time. Presto Lifts' hourly employees, which
represented approximately 22% of the Company's total employees as of September
30, 2000, are represented by the Teamsters Union under a collective bargaining
agreement which expires on January 31, 2004. The Company's total number of
employees and percentage of employees represented by the union do not take into
account the Company's consolidation of its operations in Little Rock, Arkansas.
The Company currently anticipates that its workforce will be reduced by
approximately 75 employees as a result of this consolidation.
GOVERNMENT REGULATIONS
As part of its ongoing responsibilities as a United States
manufacturing entity, the Company must comply with proper safety and working
conditions under regulations governed by the Occupational Safety and Health
Administration (OSHA). The Company has had OSHA audits and inspections in the
past in all locations and complies in all material respects with applicable
regulations.
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ENVIRONMENTAL LAWS
The Company has a responsibility to have proper permits and comply with
all Environmental Protection Agency and local and state environmental laws
including but not limited to air emissions permits, stormwater discharge
permits, Material Safety Data Sheet (MSDS) labeling and education, Spill
Prevention, Control and Countermeasures (SPCC) Plans, above ground and
underground storage tank registrations, and underground injection well permits.
The Company complies in all material respects with applicable environmental laws
and makes periodic routine filings as required with various environmental
agencies.
INTELLECTUAL PROPERTY
The Company holds trademarks, both in the United States and abroad,
covering its Long Reach(R), Brudi(R), Rol-Lift(R), Presto(R) and Regal(R) names
and the names of a variety of its products. Long Reach and Brudi Pacific also
have patents covering attachments to forklift trucks and other products they
manufacture. The Company does not believe that the loss of any one of its
patents, or the expiration of any of its current patents, would have a material
adverse effect on its business or results of operations.
FOLLOW-ON ACQUISITIONS
The Company is currently pursuing an acquisition of assets and certain
liabilities of Blue Giant. See "BUSINESS - Acquisitions." The Company intends to
continue to pursue other follow-on acquisitions in the material handling
equipment industry. The Company has identified several potential candidates
which fit the Company's acquisition criteria, and it is engaged in discussions
with such candidates. Negotiations are ongoing; however, no assurance of success
with respect to these negotiations, or the Company's efforts to identify and
acquire any additional manufacturing companies, can be made.
PROPERTY
The Company's headquarters is located at 136 Main Street, Westport,
Connecticut 06880. The Company occupies approximately 1,200 square-feet of
office space under a sublease expiring January 31, 2001.
Long Reach operates a 160,000 square foot manufacturing facility in
Houston, Texas. Long Reach owns the Houston facility, which is subject to a
mortgage in favor of its lender and a second mortgage in favor of certain
subordinated noteholders. Long Reach also operates a 135,000 square foot
manufacturing facility in Little Rock, Arkansas. The Little Rock facility is
leased by Long Reach under a lease which expires on February 22, 2002. The
Company has the right to terminate this lease upon 120 days prior notice. The
Company plans to terminate this lease in connection with the recently announced
consolidation of its manufacturing operations in Houston, Texas and Pawtucket,
Rhode Island. See "BUSINESS - Facilities; Employees."
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Presto Lifts operates a 47,600 square foot manufacturing facility in
Pawtucket, Rhode Island. This facility is leased by Presto Lifts. The lease
expires on January 31, 2001.
Brudi Pacific operates a 15,400 square foot manufacturing facility in
Adelaide, Australia. This facility is subject to a mortgage in favor of the
entity that provides credit card and payroll financing to Brudi Pacific.
MANAGEMENT
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 55 Chairman of the Board of Directors
William A. Schwartz 42 President and Chief Executive Officer, Director
Amy Ludwig Weisman 37 Secretary, Director
Rainer H. Bosselmann 57 Director
Herbert E. Brown 54 Director
Michael B. DeFlorio 30 Director
Daniel A. Levinson 39 Director
William J. Sample 57 Vice President, Operations
</TABLE>
Anand Sharma was elected Chairman of the Board of Directors of the
Company on June 17, 1999, and has served as a director of the Company since June
15, 1999. Mr. Sharma was Chief Executive Officer of the Company from June 17,
1999, until April 28, 2000. Mr. Sharma also serves as Chairman of the Board of
Directors of Long Reach. In 1991, Mr. Sharma founded TBM Consulting Group, Inc.,
a consultant to manufacturing companies; he is currently a director of TBM
Consulting Group, Inc. and serves as its President and Chief Executive Officer.
William A. Schwartz was elected Chief Executive Officer of the Company
on April 28, 2000. Mr. Schwartz has served as President of the Company since
June 17, 1999, and has served as a director of the Company since June 15, 1999.
From June 17, 1999 until his election as Chief Executive Officer, Mr. Schwartz
served as the Company's Chief Operating Officer. Mr. Schwartz serves as
Secretary and a director of Long Reach. Mr. Schwartz is Vice President of
Business Development and a director of TBM Consulting Group, Inc. Mr. Schwartz
joined TBM Consulting Group, Inc. in 1991.
40
<PAGE> 42
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. Ms.
Weisman also serves as a director of Long Reach. In 1998, Ms. Weisman joined Mr.
Levinson as a principal of Colt Capital, LLC, a niche investment firm that was
instrumental in launching the Company. From 1990 until joining Colt Capital,
LLC, 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 also serves as a director of Long Reach. Mr. Bosselmann
has been Chairman and Chief Executive Officer of Arguss Communications, Inc.
since 1996. Prior to assuming his position with Arguss Communications, Inc., 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. Mr. Brown also serves as a director of Long Reach. 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 Vice President and General Manager of
Johnson & Johnson Medical, Inc.
Michael B. DeFlorio was elected a director of the Company on March 10,
2000. Mr. DeFlorio also serves as a director of Long Reach. Mr. DeFlorio joined
Whitney & Co. in 1997 and is currently a managing director of the firm. Whitney
& Co. is a private investment firm headquartered in Stamford, Connecticut.
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 also serves as a director of Long Reach. In January 1998
Mr. Levinson founded Colt Capital, LLC. Mr. Levinson is the President of Colt
Services, Inc., the manager of Colt Capital, LLC. For the prior ten years Mr.
Levinson was a principal investor with Holding Capital Group, Inc., a niche
investment firm. Mr. Levinson is a director of Disc Graphics, Inc. and Arguss
Communications, Inc.
The term of each director expires at the Company's next annual
stockholders' meeting and until their respective successors shall have been duly
elected and qualified.
William J. Sample is President and Chief Executive Officer of Long
Reach and has served as Vice President, Operations of the Company since April
1998. From April 1998 to February 2000, Mr. Sample served as Senior Management
Consultant at TBM Consulting Group, Inc. 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.
41
<PAGE> 43
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid by the Company to its Chief Executive Officer and to its most
highly paid executive officer other than the Chief Executive Officer for
services such officers rendered to the Company in all capacities for the period
June 17, 1999, through the fiscal year ended January 1, 2000. These officers
were first elected on June 17, 1999; accordingly, there is no compensation to
these individuals for prior periods. For the period January 31, 1997 until June
15, 1999, the Company had sold or discontinued all business operations; its only
operations constituted maintaining a business office and complying with its
reporting obligations as a publicly-owned company. See "BUSINESS - Prior
History."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
--------------------------- ---- ------ -----
<S> <C> <C> <C>
Anand Sharma...........................................
Chief Executive Officer 1999 (2) (2)
William A. Schwartz....................................
President and Chief Operating Officer 1999 $130,000 $20,000
</TABLE>
(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.
Effective April 28, 2000, Mr. Schwartz was elected Chief Executive
Officer, and re-elected President, of the Company.
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 meetings
at a target company's offices.
42
<PAGE> 44
Pursuant to the TBM Holdings, Inc. 1999 Stock Option Plan, each
non-employee director shall be granted a non-qualified option to purchase 2,000
shares of the Company's Common Stock on the date such person first becomes a
director of the Company. Such option shall be exercisable at any time during its
term. The option price is equal to the fair market value of the shares on the
date the option is granted. In accordance with the 1999 Stock Option Plan, on
April 28, 2000, the Company granted to each of Messrs. Bosselmann and Brown,
non-employee directors of the Company, an option to purchase 2,000 shares of the
Company's Common Stock. The other non-employee directors waived their
entitlement to receive such options.
EMPLOYMENT AGREEMENT
The Company is party to an Employment Agreement, dated as of June 17,
1999, as amended by a First Amendment to Employment Agreement, made as of May 1,
2000, with William A. Schwartz, pursuant to which Mr. Schwartz serves as the
Company's President and Chief Executive Officer. Under the terms of Mr.
Schwartz's employment agreement, Mr. Schwartz will continue to be an officer and
director of TBM Consulting Group, Inc., 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. Prior to the acquisition of Long Reach, Mr. Schwartz received
annual compensation in the amount of $130,000 plus ordinary and customary
benefits; following such acquisition on February 23, 2000, and until his
election as Chief Executive Officer on April 28, 2000, Mr. Schwartz's annual
compensation increased to $260,000 plus ordinary and customary benefits.
Effective May 1, 2000, Mr. Schwartz's annual base salary as the Company's
President and Chief Executive Officer is $200,000 plus ordinary and customary
benefits. 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. Mr. Schwartz's employment agreement contains
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 year following such termination. Mr. Schwartz's
employment agreement terminates on June 16, 2003.
RELATED PARTY TRANSACTIONS
In connection with the 1999 Private Placement and related transactions
effected on June 15, 1999, the Company issued to TBM Consulting Group, Inc. and
Colt Services, Inc. and their respective designees, Warrants to purchase an
aggregate of 20% of the Company's Common Stock on a fully diluted basis. The
Company also paid TBM Consulting Group, Inc. and Colt Services, Inc. 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 of the Board, is the President and Chief Executive Officer
and a director of TBM Consulting Group, Inc., and Mr. Schwartz, the Company's
President and Chief Executive Officer and a director of the Company, is the Vice
President of Business Development and a director of TBM
43
<PAGE> 45
Consulting Group, Inc. Mr. Levinson, a director of the Company, is the President
of Colt Services, Inc. See "RISK FACTORS - Certain of Our Directors Have
Affiliations that Could Result in a Conflict of Interest Which Adversely Affects
Our Company."
The Company and TBM Consulting Group, Inc. 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 Group, Inc.
provides regular and customary Kaizen consulting and management services to the
Company on a priority basis. The Company compensates TBM Consulting Group, Inc.
for its services at its standard pricing rates. The agreement has an initial
term of five years and is thereafter renewable on an annual basis. From June 17,
1999 through September 30, 2000, the Company paid TBM Consulting Group, Inc.
approximately $230,000 under this agreement.
The Company and Colt Services, Inc. are parties to a Consulting
Agreement, dated as of June 17, 1999. Pursuant to the Consulting Agreement, Colt
Services, Inc. provides advice to the Company regarding the implementation of
its business plan. Colt Services, Inc. advises as to strategy and achievement of
objectives, senior level staffing, acquisitions and financings, financial
structure, public company issues and related matters. For its advice to the
Company following its acquisition of Long Reach, Colt Services, Inc. receives a
monthly consulting fee of $12,500.
The Company, TBM Consulting Group, Inc. and Colt Services, Inc. are
parties to a Consulting Agreement, dated as of June 17, 1999, pursuant to which
TBM Consulting Group, Inc. and Colt Services, Inc. provide transaction-related
and financing advice for follow-on acquisitions and implementation of the
business plan. For their advice to the Company, TBM Consulting Group, Inc. and
Colt Services, Inc. receive, in the aggregate, a 1% transaction/financing
completion fee upon the closing of specified transactions occurring after
closing of the Long Reach Merger, including mergers, acquisitions, divestitures
or other financings, with such transaction completion fee capped at $600,000 per
transaction or financing. TBM Consulting Group, Inc. receives 25% and Colt
Services, Inc. receives 75% of such fee. The agreement has an initial term of
five years from the closing of the Long Reach Merger on February 23, 2000, and
is thereafter renewable on an annual basis. On February 23, 2000, in connection
with a private placement of the Company's Common Stock and related stock
transactions, the Company paid TBM Consulting Group, Inc. and Colt Services,
Inc. an aggregate of $80,000 at closing for consulting services rendered under
the terms of this agreement. On May 16, 2000, in connection with the acquisition
by the Company of Presto Lifts, a fee in the amount of $73,830 was paid to TBM
Consulting Group, Inc. and Colt Services, Inc. pursuant to this Agreement. In
accordance with the terms of this Agreement, TBM Consulting Group, Inc. received
25% and Colt Services, Inc. received 75% of such fees.
The offices of Colt Services, Inc. are located within the offices of
the Company. Colt Services, Inc. pays its pro rata portion of the rent for its
office. Colt Services, Inc. utilizes Company-paid office personnel and common
facilities. The Company expects that the term of
44
<PAGE> 46
this arrangement will continue so long as Colt Services, Inc. or its affiliates
maintain an equity interest in the Company.
The Company and William A. Schwartz, the Company's President and Chief
Executive Officer, are parties to an employment agreement. See "EXECUTIVE
COMPENSATION - Employment Agreement" for a description of this employment
agreement.
Long Reach is party to an employment agreement, dated as of April 3,
2000, with William J. Sample pursuant to which Mr. Sample serves as Long Reach's
President and Chief Executive Officer. Pursuant to the terms of this employment
agreement, Mr. Sample receives an annual base salary of $200,000 plus benefits.
Mr. Sample received a relocation allowance of $20,000, receives an automobile
allowance of $550 per month and is reimbursed for housing expenses up to $2,500
per month for a period of two years. Mr. Sample's employment agreement contains
confidentiality and non-compete provisions. If Mr. Sample's employment is
terminated without cause by Long Reach, Mr. Sample will be entitled to receive
his base salary at the time of termination, plus specified benefits, for a
period of one year following such termination. Mr. Sample's employment agreement
terminates on April 3, 2004.
In connection with the 1999 Private Placement, the Company granted
Whitney & Co. an option to purchase up to 1,000,000 shares of Common Stock at an
exercise price of $5.00 per share, subject to a limit of 25% of the outstanding
Common Stock. The option became exercisable upon the closing of the Long Reach
Merger on February 23, 2000. On that date, J.H. Whitney IV, L.P. purchased
500,000 shares of Common Stock pursuant to the exercise of this option and
purchased an additional 416,667 shares of Common Stock at $6.00 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 stockholders, to the merger
agreement pursuant to which the Company acquired Long Reach. As partial
consideration for the Long Reach Merger, the Company paid the LEG Entities their
pro rata portion of $1,500,000 million paid to selling stockholders of Long
Reach. Also on February 23, 2000, in connection with the Long Reach Merger, Long
Reach assumed, and the Company guaranteed, the obligations under certain
subordinated notes held by the LEG Entities in the principal amount of
$2,854,878. The notes are secured by a second lien on Long Reach's assets and by
a second mortgage on its Houston facility. In addition, in the event certain net
sales targets are met in calendar year 2000, Long Reach will issue (and, if
issued, the Company will guarantee) contingent subordinated notes to certain
Long Reach stockholders, warrant holders, option holders and subordinated
noteholders, which include the LEG Entities, in an aggregate amount not to
exceed $2,000,000. Long Reach has also entered into a lease covering its
facility in Little Rock, Arkansas with LR Real Property, LLC, in which the LEG
Entities are members. See "PROPERTY." On February 23, 2000, the Company
completed a private placement pursuant to which 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
45
<PAGE> 47
III SBIC, L.P. is a party to a voting agreement with Messrs. Sharma and Schwartz
with respect to such 500,000 shares. See footnote (4) to the table included
under the caption "PRINCIPAL STOCKHOLDERS - Beneficial Owners of More than 5% of
the Common Stock," for a description of the voting agreement.
The Company has entered into indemnification agreements with each of
its directors and executive officers, pursuant to which the Company has agreed
to indemnify each of them against losses and expenses to the extent permitted by
law for any breach of duty, neglect, error, misstatement, misleading statement,
omission, or other act done or attempted, or any of the foregoing alleged by
any claimant, or any claim against any of them, in each case incurred by reason
of his or her service as a director or officer, or both, of the Company or as a
director or officer serving at the Company's request as a director or officer
of a subsidiary (as defined) of the Company and not covered under the Company's
or a subsidiary's bylaws or directors' and officers' insurance policies
maintained by the Company or under a separate indemnification agreement with a
subsidiary. Among other exclusions, the Company shall not indemnify any person
with respect to claims involving (i) receipt of a personal benefit to which the
recipient is not entitled, (ii) the return of profits from the sale of
securities as contemplated by Section 16 of the Securities Exchange Act, or
(iii) knowingly fraudulent, dishonest or willful misconduct.
PRINCIPAL STOCKHOLDERS
DIRECTORS AND EXECUTIVE OFFICERS
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 included under the caption
"EXECUTIVE COMPENSATION" elsewhere in this Prospectus; and (ii) all directors
and executive officers of the Company as a group. For information on the number
of shares these individuals are registering pursuant to this Registration
Statement, see "SELLING STOCKHOLDERS."
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS (2)
---------------------------------------- -------------------- --------------------
<S> <C> <C>
Anand Sharma 487,619 (3) 10.14
William A. Schwartz 548,227 (4) 11.25
Amy Ludwig Weisman 421,892 (5) 9.30
Rainer H. Bosselmann 2,000 (6) *
Herbert E. Brown 8,000 (7) *
Michael B. DeFlorio (8) 1,316,667 (9) 29.13
Daniel A. Levinson 668,794 (10) 14.09
Directors and executive officers as a group 2,852,110 (11) 53.27
</TABLE>
46
<PAGE> 48
* 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 4,519,336 shares of the Company's Common Stock outstanding as
of October 23, 2000, excluding 517 contingently issuable shares held by
an escrow agent. In accordance with the rules of the Securities and
Exchange Commission, options or warrants to purchase shares of Common
Stock that are exercisable as of October 23, 2000, or within 60 days
thereafter, are deemed to be outstanding and beneficially owned by the
person or group holding such options or warrants for the purpose of
computing the percent ownership of such person or group, but are not
deemed to be outstanding for the purpose of computing the percent
ownership of any other person or group.
(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 Group, Inc., of which Mr. Sharma is
the President and Chief Executive Officer and a director. Mr. Sharma
disclaims beneficial ownership of these shares. Includes 219,119 shares
issuable upon exercise of Warrants held by Mr. Sharma and 70,000 shares
issuable upon exercise of a Warrant held by TBM Capital II, LLC. Mr.
Sharma disclaims beneficial ownership of the Warrant held by TBM
Capital II, LLC and the shares issuable thereunder.
(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
Group, Inc., of which Mr. Schwartz is Vice President of Business
Development and a director. Mr. Schwartz disclaims beneficial ownership
of these shares. Includes 281,727 shares issuable upon exercise of
Warrants held by Mr. Schwartz and 70,000 shares issuable upon exercise
of a Warrant held by TBM Capital II, LLC. Mr. Schwartz disclaims
beneficial ownership of the Warrant held by TBM Capital II, LLC and the
shares issuable thereunder.
(5) Includes 4,000 shares held by a family member of Ms. Weisman and
400,000 shares held by Colt Capital, LLC, of which Ms. Weisman is a
principal. Ms. Weisman disclaims beneficial ownership of these shares.
Includes 17,892 shares issuable upon exercise of a Warrant held by Colt
Capital, LLC. Ms. Weisman disclaims beneficial ownership of the Warrant
held by Colt Capital, LLC and the shares issuable thereunder.
(6) Includes 2,000 shares which may be issued upon exercise of an option
awarded to Mr. Bosselmann on April 28, 2000.
(7) Includes 2,000 shares which may be issued upon exercise of an option
awarded to Mr. Brown on April 28, 2000.
(8) Mr. DeFlorio's address is c/o Whitney & Co., 177 Broad Street,
Stamford, CT 06901.
(9) 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 managing director of Whitney & Co., which is an
affiliate
47
<PAGE> 49
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.
(10) 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, LLC, of which Mr. Levinson is a principal.
Mr. Levinson disclaims beneficial ownership of these shares, except to
the extent of his proportionate interest as a member of Colt Capital,
LLC and Tri-Lev, LLC. Includes 17,892 shares issuable upon exercise of
a Warrant held by Colt Capital, LLC and 210,902 shares issuable upon
exercise of a Warrant held by Colt Capital Partners, LLC, of which Mr.
Levinson is a principal. Mr. Levinson disclaims beneficial ownership of
the Warrant held by Colt Capital, LLC, the Warrant held by Colt Capital
Partners, LLC and the shares issuable thereunder, except to the extent
of his proportionate interest as a member of Colt Capital, LLC and Colt
Capital Partners, LLC.
(11) Includes 31,303 shares issuable upon exercise of a Warrant held by an
executive officer.
BENEFICIAL OWNERS OF MORE THAN 5% OF THE COMMON STOCK
The following table contains information as to shares of the Company's
Common Stock for any person or group known by the Company to be the beneficial
owner of more than 5% of such Common Stock. For information on the number of
shares these entities are registering pursuant to this Registration Statement,
see "SELLING STOCKHOLDERS."
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
------------------------------------ -------------------- --------------------
<S> <C> <C>
J.H. Whitney, III, L.P. 1,316,667 (2) 29.13
Whitney Strategic Partners, III, L.P.
J.H. Whitney IV, L.P.
177 Broad Street
Stamford, CT 06901
Colt Capital, LLC 417,892 (3) 9.21
136 Main Street
Westport, CT 06880
LEG Partners III SBIC, L.P. 952,915 (4) 21.09
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 4,519,336 shares of the Company's Common Stock outstanding as of
October 23, 2000, excluding 517 contingently issuable shares held by an
escrow agent. In accordance with the rules of the Securities and Exchange
Commission, options or warrants to purchase shares of Common Stock that
are exercisable as of October 23, 2000, or within 60 days thereafter, are
deemed to be
48
<PAGE> 50
outstanding and beneficially owned by the person holding such options or
warrants for the purpose of computing such person's percent ownership,
but are not deemed to be outstanding for the purpose of computing the
percent ownership of any other person.
(2) Does not include 90,567 shares of Common Stock owned by a related entity,
Green River Fund I, L.P. or 9,433 shares of Common Stock owned by a
related entity, 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 (9) in the preceding
table for a description of beneficial ownership of shares by certain
affiliated entities and the interest of Mr. DeFlorio, a director of the
Company, in such shares.
(3) See footnotes (5) and (10) in the preceding table for a description of
the interest of Ms. Weisman and Mr. Levinson, directors of the Company,
in Colt Capital, LLC and/or its managing member, Colt Capital Partners,
LLC. Includes 17,892 shares issuable upon exercise of a Warrant held by
Colt Capital, LLC.
(4) Includes 500,000 shares held by LEG Partners III SBIC, L.P., 217,155
shares held by LEG Partners II, L.P., 233,525 shares held by LEG Partners
SBIC, L.P. and 2,235 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, LLC, Colt Services, Inc.,
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.
49
<PAGE> 51
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES AND
PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES CLASS TO BE
OWNED PRIOR TO TO BE OFFERED OWNED AFTER THE
SELLING STOCKHOLDER THE OFFERING IN THE OFFERING OFFERING*
---------------------------------------------- ------------------- -------------------- -----------------
<S> <C> <C> <C>
Allen Investments II LLC 100,000 100,000 0
Argent Consulting Corporation PSP 10,000 10,000 0
Ask Co. 10,000 10,000 0
Roy Behran 12,000 12,000 0
Beverly Brown Bishop 1,500 1,500 0
Thomas A. Briatico 20,000 20,000 0
Herbert E. Brown (2) 6,000 6,000 0
Mitchell Brown 5,000 5,000 0
E. Lee Bryan and Susan M. Bryan 4,000 4,000 0
Christopher J. Carroll Jr. 20,000 20,000 0
Laurance R. Clark 5,000 5,000 0
Robert T. Colgan 5,000 5,000 0
Colt Capital, LLC (3) 400,000 400,000 0
Colt Capital, LLC (3) 17,892 (1) 17,892 (1) 0
Colt Capital Partners, LLC (4) 210,902 (1) 210,902 (1) 0
Edward G. Culverwell 6,000 6,000 0
Gregory T. H. Davies 8,000 8,000 0
Theodore M. Davis 2,000 2,000 0
Robert S. Dean (5) 40,000 40,000 0
Robert S. Dean (5) 125,211 (1) 125,211 (1) 0
Shane Dolohanty 10,000 10,000 0
Jack R. Dweck 15,000 15,000 0
Isaac R. Dweck 25,000 25,000 0
Ralph I. Dweck 20,000 20,000 0
Harold Falik 10,000 10,000 0
Paul Finkelstein 15,000 15,000 0
Michael Goldstein 5,000 5,000 0
Green River Fund I, L.P. 90,567 90,567 0
Green River Fund II, L.P. 9,433 9,433 0
Dina Marie Griggs 4,000 4,000 0
Alan Grodko 10,000 10,000 0
Jeffrey Grodko 10,000 10,000 0
Nicholas Grudzien 1,000 1,000 0
Thomas G. Hardy 20,000 20,000 0
David S. Harris 5,000 5,000 0
Timothy Healy 2,000 2,000 0
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
NUMBER OF
SHARES AND
PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES CLASS TO BE
OWNED PRIOR TO TO BE OFFERED OWNED AFTER THE
SELLING STOCKHOLDER THE OFFERING IN THE OFFERING OFFERING*
---------------------------------------------- ------------------- -------------------- -----------------
<S> <C> <C> <C>
John Michael Herr (6) 20,000 20,000 0
John Michael Herr (6) 62,605 (1) 62,605 (1) 0
Ronald D. Hicks 4,000 4,000 0
Carol J. and Richard H. Hochman 50,000 50,000 0
Hockema Family Trust 10,000 10,000 0
Holding Capital Management LLC 75,000 75,000 0
Hon Industries Inc. 100,000 100,000 0
Dorothy A. Hutchinson 4,000 4,000 0
Larry W. Johnson Trust 3,000 3,000 0
Gary Kaplowitz 10,000 10,000 0
Eric A. Karl (7) 4,000 4,000 0
William E. Kassling 20,000 20,000 0
Marshall Kiev 2,861 (1) 2,861 (1) 0
Morton K. Klein 2,000 2,000 0
George Koenigsaecker (8) 24,000 24,000 0
Margaret M. Krumholz 2,000 2,000 0
Robert J. Kurz 3,000 3,000 0
Patrick R. Lancaster 20,000 20,000 0
LEG Partners, L.P. (9) 2,235 2,235 0
LEG Partners II, L.P. (9) 217,155 217,155 0
LEG Partners III SBIC, L.P. (10) 500,000 500,000 0
LEG Partners SBIC, L.P. (9) 233,525 233,525 0
Lawrence Lepard 10,000 10,000 0
Vincent T. Lovelle 5,000 5,000 0
Albert G. Lowenthal 20,000 20,000 0
David Lowinger 2,000 2,000 0
Robert Anthony Mackie 10,000 10,000 0
James C. Maiden, Jr. 10,000 10,000 0
Maurice S. Mandel 20,000 20,000 0
Marwit Capital Company, L.P. 47,085 47,085 0
John P. McFadden, Jr. 4,500 4,500 0
Patrick McGeehin 20,000 20,000 0
John M. McMahon 6,000 6,000 0
Christian Meininger 2,000 2,000 0
George S. Miz, M.D. Money Purchase Plan 9,000 9,000 0
Guy M. and Julie MoDrak 1,800 1,800 0
Andrew L. Moss 5,000 5,000 0
Peter M. Mulderry 2,000 2,000 0
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
NUMBER OF
SHARES AND
PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES CLASS TO BE
OWNED PRIOR TO TO BE OFFERED OWNED AFTER THE
SELLING STOCKHOLDER THE OFFERING IN THE OFFERING OFFERING*
---------------------------------------------- ------------------- -------------------- -----------------
<S> <C> <C> <C>
Brian J. Murphy 4,000 4,000 0
Robert Neuhoff 10,000 10,000 0
Mark Oakeson (11) 20,000 20,000 0
Mark Oakeson (11) 62,605 (1) 62,605 (1) 0
One & Co. 10,000 10,000 0
Michael J. Paliotta 2,000 2,000 0
Pemp Realty Corp. 2,000 2,000 0
Raymond S. Peterson 2,000 2,000 0
Poko Management Corp. 4,000 4,000 0
Laurence Pomerance 20,000 20,000 0
Lawrence D. Portman 2,000 2,000 0
Pulse Capital LLC 20,000 20,000 0
Gary Robert Rascoe 2,000 2,000 0
Robert Reuben 20,000 20,000 0
Barry Rothberg 5,000 5,000 0
Allan P. Rothstein 10,000 10,000 0
David Mark Rucker 4,000 4,000 0
William J. Sample (12) 2,000 2,000 0
William J. Sample (12) 31,303 (1) 31,303 (1) 0
Mark Schoenthal 20,000 20,000 0
William A. Schwartz, Custodian for Alexander
Schwartz (13) 5,000 5,000 0
William A. Schwartz, Custodian for James
Schwartz (13) 5,000 5,000 0
William A. Schwartz (13) 40,000 40,000 0
William A. Schwartz (13) 281,727 (1) 281,727 (1) 0
Anand Sharma (14) 34,000 34,000 0
Anand Sharma (14) 219,119 (1) 219,119 (1) 0
Anu Sharma (15) 18,000 18,000 0
Don Sinkin 2,000 2,000 0
Shari Sollender 4,000 4,000 0
Harvey Sorkin 20,000 20,000 0
Howard Sorkin 20,000 20,000 0
B. Andrew H. Spence 2,000 2,000 0
Robert Sperling 15,000 15,000 0
Thomas M. Steel 20,000 20,000 0
Steel Partners II LP 100,000 100,000 0
John M. Stoner, Jr. 2,000 2,000 0
Suebro, Inc. 10,000 10,000 0
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
NUMBER OF
SHARES AND
PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES CLASS TO BE
OWNED PRIOR TO TO BE OFFERED OWNED AFTER THE
SELLING STOCKHOLDER THE OFFERING IN THE OFFERING OFFERING*
---------------------------------------------- ------------------- -------------------- -----------------
<S> <C> <C> <C>
H. Samuel Swoyer, Jr. (16) 20,000 20,000 0
H. Samuel Swoyer, Jr. (16) 62,605 (1) 62,605 (1) 0
TBM Capital II LLC (17) 140,000 140,000 0
TBM Capital II LLC (17) 70,000 (1) 70,000 (1) 0
TBM Consulting Group, Inc. (18) 6,500 6,500 0
Tri-Lev LLC (19) 40,000 40,000 0
William H. vonReichbauer 5,000 5,000 0
David Walke 8,000 8,000 0
Mark Weinstein 20,000 20,000 0
J. H. Whitney III, L.P. (20) 390,000 390,000 0
J.H. Whitney IV, L.P. (20) 916,667 916,667 0
Whitney Strategic Partners III, L.P. (20) 10,000 10,000 0
Harold M. Wit 40,000 40,000 0
Gregory Wooten 10,000 10,000 0
Zindrick Family Partners 11,700 11,700 0
Seymour W. Zises (21) 54,345 (1) 54,345 (1) 0
</TABLE>
* Represents less than 1% of the outstanding Common Stock.
(1) Represents shares of Common Stock issuable upon exercise of Warrants
held by the Selling Stockholders. The actual number of shares of Common
Stock received upon exercise of Warrants may vary from this number. In
addition to the shares set forth in the table, the number of shares
offered in the offering includes an indeterminate number of additional
shares of Common Stock issuable pursuant to antidilution rights of
holders of the Warrants.
(2) Mr. Brown is a director of the Company.
(3) Colt Capital, LLC beneficially owns approximately 9.21% of the Common
Stock of the Company. Amy Ludwig Weisman and Daniel A. Levinson,
directors of the Company, are principals of Colt Capital, LLC.
(4) Daniel A. Levinson, a director of the Company, is a principal of Colt
Capital Partners, LLC.
(5) Mr. Dean is a director and a Vice President of TBM Consulting Group,
Inc.
(6) Mr. Herr is a director of TBM Consulting Group, Inc.
53
<PAGE> 55
(7) Mr. Karl was a consultant to the Company during the period from October
1998 through February 1999.
(8) Mr. Koenigsaecker was a director of the Company from June 1999 through
January 2000.
(9) See "RELATED PARTY TRANSACTIONS" for a description of the relationships
which the selling stockholder has with the Company.
(10) See the table included under the caption "PRINCIPAL STOCKHOLDERS -
Beneficial Owners of More than 5% of the Common Stock" and footnote (4)
thereto for a description of the voting agreement which the selling
stockholder has entered into with Messrs. Sharma and Schwartz with
respect to these 500,000 shares.
(11) Mr. Oakeson is a director and a Vice President of TBM Consulting Group,
Inc.
(12) Mr. Sample is Vice President, Operations of the Company and the
Chairman and Chief Executive Officer of Long Reach.
(13) Mr. Schwartz, a director of the Company and Long Reach and the
President and Chief Executive Officer of the Company, is a director and
a Vice President of TBM Consulting Group, Inc.
(14) Mr. Sharma, the Chairman of the Board of the Company and Long Reach, is
a director and the President of TBM Consulting Group, Inc.
(15) Ms. Sharma is the spouse of Mr. Sharma.
(16) Mr. Swoyer is a director and the secretary of TBM Consulting Group,
Inc.
(17) Mr. Sharma, the Chairman of the Board of the Company and Long Reach,
and Mr. Schwartz, a director of the Company and Long Reach and the
President and Chief Executive Officer of the Company, are managing
members of TBM Capital II LLC.
(18) See footnotes (13) and (14).
(19) Daniel A. Levinson, a director of the Company, is a manager of Tri-Lev
LLC.
(20) See "RELATED PARTY TRANSACTIONS" for a description of the relationships
which the selling stockholder has with the Company.
(21) Mr. Zises was the sole director of the Company from June 30, 1997
through June 15, 1999.
54
<PAGE> 56
PLAN OF DISTRIBUTION
The Company is registering 5,659,842 shares of Common Stock covered by
this Prospectus on behalf of the Selling Stockholders. This number includes
4,458,667 shares of Common Stock issued and outstanding, and 1,201,175 shares of
Common Stock issuable upon exercise of Warrants to purchase Common Stock by
Selling Stockholders. The number of shares covered by this Prospectus includes
an indeterminate number of additional shares of Common Stock issued or issuable
pursuant to antidilution rights of the holders of the Warrants. Accordingly, the
actual number of shares of Common Stock received upon exercise of the Warrants
may vary from the number indicated.
The Company will pay the costs and fees of registering the Common
Stock, but the Selling Stockholders will pay any brokerage commissions,
discounts or other expenses relating to the sale of the Common Stock. As of the
date hereof, none of the Selling Stockholders has advised the Company if, when,
and to what extent they intend to sell any of their shares. There can be no
assurance that all or any of the shares offered by this Prospectus will be sold
by the Selling Stockholders.
The Selling Stockholders or donees, pledgees, transferees or other
successors in interest may, from time to time, sell all or a portion of the
shares of Common Stock in any market on which the Common Stock may be traded, in
privately negotiated transactions or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
the prevailing market prices, or at negotiated prices or such other price as the
Selling Stockholders determine from time to time. The Selling Stockholders have
the sole and absolute discretion not to accept any purchase offer or make any
sale of shares if they deem the purchase price to be unsatisfactory at any
particular time. The shares of Common Stock could be sold by the Selling
Stockholders by one or more of the following methods:
- block trades in which the broker or dealer so engaged will
attempt to sell the shares of the Common Stock as agent, but
may position and resell a portion of the block as principal,
in order to facilitate the transaction;
- purchases by a broker or dealer as principal and the resale by
the broker or dealer for its account pursuant to this
Prospectus;
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
- privately negotiated transactions;
- through the writing of options on the shares;
55
<PAGE> 57
- market sales, both long and short, to the extent permitted
under the federal securities laws; and
- a combination of any of these methods of sale.
When selling the Common Stock, the Selling Stockholders may enter into
hedging or other types of transactions with third parties. For example, the
Selling Stockholders may:
- enter into transactions involving short sales of the Common
Stock by broker-dealers;
- sell Common Stock short themselves and redeliver such shares
to close out their short positions;
- enter into options or other types of transactions that require
the Selling Stockholder to deliver Common Stock to a
broker-dealer, who will then resell or transfer the Common
Stock under this Prospectus; or
- loan or pledge the Common Stock to a broker-dealer, who may
sell the loaned shares or, in the event of default, sell the
pledged shares.
The Selling Stockholders may also sell the shares through an
underwriter or directly to market makers acting as principals and/or
broker-dealers acting as agents for themselves or their customers. In effecting
sales, brokers and dealers engaged by the Selling Stockholders may arrange for
other brokers or dealers to participate. Broker-dealers may receive commissions,
discounts or concessions for their services from the Selling Stockholders or, if
any such broker-dealer acts as agent for the purchaser of such shares, from such
purchaser, in amounts to be negotiated. Broker-dealers may agree with the
Selling Stockholders to sell a specified number of shares of Common Stock at a
stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for the Selling Stockholder, to purchase as principal any
unsold shares of Common Stock at the price required to fulfill the broker-dealer
commitment to the Selling Stockholders. Market makers and block purchasers
purchasing the shares will do so for their own account and at their own risk. It
is possible that a Selling Stockholder will attempt to sell shares of Common
Stock in block transactions to purchasers at a price per share which may be
below the then market price.
The Selling Stockholders and any broker-dealer or agent involved in the
sale or resale of the Common Stock may be deemed to be "underwriters" within the
meaning of Section 2(a)(11) of the Securities Act. In such event, a portion of
any proceeds of sale and the broker-dealers' or agents' commissions, discounts
or concessions may be deemed to be underwriting commissions under the Securities
Act.
In addition to selling their Common Stock under this Prospectus, the
Selling Stockholders may:
56
<PAGE> 58
- agree to indemnify any broker-dealer or agent against certain
liabilities related to the selling of the Common Stock,
including liabilities arising under the Securities Act;
- transfer their Common Stock in other ways not involving market
makers or established trading markets, including directly by
gift, distribution, or other transfer; or
- sell their Common Stock under Rule 144 of the Securities Act
rather than under this Prospectus, if the transaction meets
the requirements of Rule 144.
The Company has informed the Selling Stockholders that the provisions
of the Securities Exchange Act and the rules and regulations thereunder,
including without limitation Regulation M, may apply to the offer and sale of
their shares included in this Prospectus. The Selling Stockholders have agreed
to comply with all applicable federal and state securities laws applicable to
the offer and sale of shares included in the Registration Statement of which
this Prospectus is a part, including without limitation the provisions of
Regulation M.
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Company's capital
stock describes all material provisions, but does not purport to be complete and
is subject to, and qualified in its entirety by, the Company's Articles of
Incorporation and Bylaws that are included as exhibits to the Registration
Statement of which this Prospectus is a part and by the provisions of applicable
law.
The Company's authorized capital stock consists of: (i) 10,000,000
shares of Common Stock, par value $.001 per share, of which 4,519,336 shares
were issued and outstanding as of October 23, 2000, excluding 517 contingently
issuable shares held by an escrow agent; and (ii) 11,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"), none of which are
issued and outstanding as of October 23, 2000.
57
<PAGE> 59
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders generally, including the election of
directors. Holders of Common Stock do not have cumulative voting rights, which
means generally that the holders of more than 50% of the shares voting for the
election of directors can elect all of the directors if they choose to do so,
and in such event, the holders of the remaining shares will not be able to elect
any persons to the board of directors. The holders of Common Stock have no
preemptive or other subscription or conversion rights with respect to any stock
issued by the Company. The Common Stock is not subject to redemption, and the
holders thereof are not liable for further calls or assessments. All shares of
Common Stock participate equally in dividends when and as declared by the board
of directors out of funds legally available therefor. The Company has never paid
dividends on the Common Stock and does not anticipate paying any dividends in
the foreseeable future.
In the event of the liquidation, distribution or sale of assets,
dissolution or winding up of the Company's affairs, all of its tangible and
intangible assets remaining after the payment of all debts and other liabilities
shall be distributed, pro rata, among the holders of the Common Stock, subject
to prior rights of holders of Preferred Stock then outstanding, if any.
PREFERRED STOCK
Pursuant to the Company's Articles of Incorporation, the Company's
board of directors is authorized, without further action by the Company's
stockholders, to issue shares of the Preferred Stock in series, and to establish
from time to time the number of shares to be included in each series, and to fix
the designation, powers, preferences, and relative, participating, optional or
other special rights of the shares of each series and the qualifications,
limitations or restrictions thereof. The authority of the board of directors
with respect to each series of Preferred Stock includes, without limitation,
determination of the following: (i) the number of shares constituting the series
and distinctive designation of the series; (ii) the dividend rate on the shares
of the series, whether dividends shall be cumulative, and, if so, from which
date or dates and the relative rights of priority, if any, of payments of
dividends on shares of the series; (iii) whether the series will have voting
rights, and if so, the terms of the voting rights; (iv) whether the series will
have conversion privileges, and, if so, the terms and conditions of the
conversion, including provision for adjustment of the conversion rate in such
events as the board of directors determines; (v) whether or not the shares of
the series will be redeemable, and if so, the terms and conditions of
redemption, including the date or dates and the amount per share payable in case
of redemption; (vi) whether the series shall have a sinking fund for the
redemption or purchase of shares of the series, and if so, the terms and amount
of the sinking fund; (vii) the rights of the shares of the series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
Company, and the relative rights or priority, if any, of payment of shares of
the series; and (viii) any other relative terms, rights, preferences and
limitations, if any, of the series as the board of directors may lawfully fix
under the laws of the State of Florida as in effect at the time of the creation
of such series.
58
<PAGE> 60
As of the date hereof, the Company does not have any fixed plans to
designate any series of Preferred Stock or to issue shares of Preferred Stock,
although there can be no assurance that it will not do so in the future. As a
result, the Company could authorize the issuance of a series of Preferred Stock
which would grant to holders preferred rights to the Company's assets upon
liquidation, the right to receive dividends before dividends would be declared
to holders of the Common Stock, and the right to the redemption of such shares,
together with a premium, prior to the redemption of the Common Stock. In
addition, issuance of shares of Preferred Stock by the Board of Directors could
be utilized, under certain circumstances, as a method of discouraging
unsolicited acquisition proposals and could delay, defer or prevent a change in
control of the Company.
WARRANTS
The number of shares offered pursuant to this Prospectus includes
1,201,175 shares of Common Stock issuable upon exercise of outstanding Warrants.
The existence of the Warrants could have the effect of discouraging unsolicited
acquisition proposals and their exercise could delay, defer or prevent a change
in control of the Company.
VOTING AGREEMENT
Pursuant to a Voting Agreement with Messrs. Sharma and Schwartz, LEG
Partners III SBIC, L.P. has appointed Mr. Sharma, or in the event of his death
or incapacity, Mr. Schwartz, as proxy to vote the 500,000 shares of Common Stock
it owns in accordance with the Voting Agreement. See footnote (4) to the table
of beneficial ownership included under the caption "PRINCIPAL STOCKHOLDERS -
Beneficial Owners of More Than 5% of the Common Stock," for a description of the
Voting Agreement. The existence of the Voting Agreement and the voting of the
shares in accordance with such agreement could have the effect of delaying or
deferring a change in control of the Company.
TRANSFER AGENT
American Stock Transfer & Trust Company, 40 Wall Street, New York, NY
10005, is the transfer agent for the Common Stock.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered by this
Prospectus is being passed upon for the Company by Levett Rockwood P.C.,
Westport, Connecticut.
59
<PAGE> 61
EXPERTS
The audited consolidated financial statements of TBM Holdings, Inc. as
of January 1, 2000 and for the fifty-two weeks ended January 1, 2000, the six
months ended December 31, 1998 and the fifty-two weeks ended June 28, 1998,
included in this Prospectus and elsewhere in the Registration Statement on Form
SB-2 have been audited by Richard A. Eisner & Company, LLP, independent
certified public accountants, as stated in their reports appearing herein and
elsewhere in the Registration Statement of which this Prospectus is a part, and
have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Long Reach Holdings, Inc. and
subsidiary as of and for the years ended June 30, 1999 and 1998 and the
financial statements of Lee Engineering Company, Inc. as of and for the years
ended December 31, 1999 and 1998, have been included herein and in the
registration statement in reliance upon the reports of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
INDEMNIFICATION AGAINST LIABILITY
The Company's Articles of Incorporation and Bylaws provide that the
Company shall, to the maximum extent required or permitted by law, indemnify its
directors, officers, employees or agents (and persons serving at the request of
the Company as directors, officers, employees or agents of other organizations),
against liability actually and reasonably incurred by such persons. "Liability"
is defined to include obligations to pay a judgment, settlement, penalty, fine
(including an excise tax payable with respect to any employee benefit plan) and
expenses actually and reasonably incurred with respect to a proceeding.
The Florida Business Corporation Act (the "Florida BCA") permits a
Florida corporation to indemnify specified persons, including officers and
directors, against liability in proceedings (other than a proceeding by, or
brought derivatively on behalf of, the corporation), if such person acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
In the case of a proceeding brought by the corporation, or derivatively
on behalf of the corporation, the Florida BCA permits indemnification of
specified persons, including officers and directors, against expenses and
amounts paid in settlement not exceeding, in the judgment of the board of
directors, the estimated expense of litigating the proceeding to a conclusion
and which are reasonably incurred in connection with the defense or settlement
of such proceeding, if the person seeking indemnity acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation. If, however, the person seeking indemnity is
adjudged to be liable in such a proceeding, the corporation may only indemnify
60
<PAGE> 62
such person to the extent that a court determines upon application that, in view
of all the circumstances, such person is fairly and reasonably entitled to
indemnity and then only for expenses as the court deems proper.
A Florida corporation must indemnify any person who was successful on
the merits in defense of any proceeding described above against expenses
actually and reasonably incurred by such person in connection with the
indemnified claim.
The Florida BCA, however, prohibits indemnification if a judgment or
other final adjudication establishes that the action, or failure to act, of a
director, officer, employee or agent was material to the cause of action that
was adjudicated and (i) constitutes a violation of criminal law (unless such
director, officer, employee or agent had reasonable cause to believe that his or
her conduct was lawful or had no reasonable cause to believe his or her conduct
was unlawful); (ii) bestows, directly or indirectly, an improper personal
benefit upon such director, officer, employee or agent; (iii) in the case of a
director, subjects such director to potential liability for certain unlawful
distributions; or (iv) in the case of a derivative proceeding, exhibits a
conscious disregard for the best interest of the corporation or willful
misconduct.
The Florida BCA permits a corporation to indemnify any of its officers,
directors, employees and agents to a greater extent than that provided in the
Florida BCA so long as such greater indemnity does not extend to those matters
described in the preceding paragraph for which the Florida BCA prohibits
indemnification.
The Florida BCA and the Company's Bylaws permit the purchase of
insurance on behalf of directors and officers against any liability asserted
against them and incurred by them in their capacity as an officer or director,
or arising out of their status as an officer or director, whether or not the
corporation would have the power to indemnify or advance expenses to such
director and/or officer against that liability under the Florida BCA. The
Company maintains insurance for the benefit of its directors and officers,
insuring such persons against certain liabilities, including liabilities arising
under the federal securities laws.
The Company has entered into indemnification agreements with each of
its directors and executive officers, pursuant to which the Company has agreed
to indemnify each of them against losses and expenses to the extent permitted
by law for any breach of duty, neglect, error, misstatement, misleading
statement, omission, or other act done or attempted, or any of the foregoing
alleged by any claimant, or any claim against any of them, in each case
incurred by reason of his or her service as a director or officer, or both, of
the Company or as a director or officer serving at the Company's request as a
director or officer of a subsidiary of the Company (as defined) and that are
not covered under the Company's or a subsidiary's Bylaws or directors' and
officers' insurance policies maintained by the Company or under a separate
indemnification agreement with a subsidiary. Among other exclusions, the
Company shall not indemnify any person with respect to claims involving (i)
receipt of a personal benefit to which the recipient is not entitled, (ii) the
return of profits from the sale of securities as contemplated by
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<PAGE> 63
Section 16 of the Securities Exchange Act, or (iii) knowingly fraudulent,
dishonest or willful misconduct.
The Selling Stockholders whose shares of Common Stock are issued or
issuable pursuant to the exercise of Warrants and which shares are being
registered pursuant to this Prospectus have agreed to severally indemnify the
Company and its directors and officers against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Securities Act, the Securities Exchange Act or
otherwise, arising from information furnished by or on behalf of such holders or
their successors or assigns, for specific inclusion in the Registration
Statement of which this Prospectus is a part.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, the Company has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
AVAILABLE INFORMATION
The Company filed with the Securities and Exchange Commission the
Registration Statement relating to the shares offered in this Prospectus. This
Prospectus does not contain all of the information included in the Registration
Statement. For further information, reference is made to the Registration
Statement. The statements made by the Company in this Prospectus regarding the
content of any contract or other document are necessarily not complete, and
readers may examine the copy of the contract or other document that was filed as
an exhibit to the Registration Statement. All of the Company's statements about
those contracts or other documents are qualified in their entirety by reference
to the exhibits to the Registration Statement.
The Company intends to furnish voluntarily to its stockholders an
annual report containing audited financial statements of the Company and its
consolidated subsidiary. The Registration Statement and the exhibits thereto, as
well as copies of the Company's annual and quarterly reports, current reports,
and other information are filed with the SEC. Such registration statements,
reports and other information can be inspected and copied at the public
reference facility of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's Regional Offices located at Seven
World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained by mail from the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Avenue, N.W., Washington, D.C. 20549, at prescribed
rates. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the Company is
required to file electronic versions of these documents with the SEC through the
SEC's Electronic Data Gathering,
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<PAGE> 64
Analysis and Retrieval ("EDGAR") system. The SEC maintains an Internet site at
http://www.sec.gov that contains registration statements, reports and other
information regarding registrants that file electronically through EDGAR with
the SEC.
63
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
Annual Report on Form 10-KSB for the fiscal year ended January 1, 2000:
<TABLE>
<S> <C>
TBM Holdings, Inc. Consolidated Financial Statements
Independent auditors' report..................................................F-5
Balance sheet as of January 1, 2000...........................................F-6
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-7
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-8
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-9
Notes to financial statements.................................................F-10
Quarterly Report on Form 10-QSB for the quarter ended July 1, 2000
TBM Holdings, Inc. and Subsidiary Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets
at July 1, 2000 and January 1, 2000 (audited)......................F-22
Unaudited Condensed Consolidated Statements of Operations
for the three months and six months
ended July 1, 2000 and June 30, 1999...............................F-23
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended July 1, 2000 and June 30, 1999............F-24
Notes to Unaudited Condensed Consolidated Financial Statements................F-25
</TABLE>
F-1
<PAGE> 66
Current Report on Form 8-K/A dated February 23, 2000, filed May 5, 2000
<TABLE>
<S> <C>
Consolidated Financial Statements of Long Reach Holdings, Inc. and Subsidiary
--------------------------
Independent Auditors' Report.....................................................F-34
Consolidated Balance Sheets at June 30, 1999 and 1998............................F-35
Consolidated Statements of Operations
for the years ended June 30, 1999 and 1998..............................F-38
Consolidated Statements of Stockholders' Equity and Comprehensive
Loss for the years ended June 30, 1999 and 1998..........................F-39
Consolidated Statements of Cash Flows
for the years ended June 30, 1999 and 1998...............................F-41
Notes to Consolidated Financial Statements.......................................F-43
Consolidated Balance Sheets as of January 1, 2000 and
June 30, 1999 (Unaudited)................................................F-58
Consolidated Statements of Operations for the six months
ended January 1, 2000 and 1999 (Unaudited)...............................F-60
Consolidated Statements of Cash Flows for the six
months ended January 1, 2000 and 1999 (Unaudited).......................F-61
Notes to Consolidated Financial Statements (Unaudited)...........................F-63
</TABLE>
F-2
<PAGE> 67
Current Report on Form 8-K/A dated May 16, 2000, filed July 31, 2000
<TABLE>
<S> <C>
Financial Statements of Lee Engineering Company, Inc.
--------------------------
Independent Auditors' Report.....................................................F-72
Balance Sheets as of December 31, 1999 and 1998..................................F-73
Statements of Operations and Retained Earnings
for the years ended December 31, 1999 and 1998..........................F-74
Statements of Cash Flows
for the years ended December 31, 1999 and 1998...........................F-75
Notes to Financial Statements....................................................F-76
Balance Sheets as of April 1, 2000 (Unaudited) and
December 31, 1999........................................................F-84
Statements of Operations and Retained Earnings (Deficit) for the
three months ended April 1, 2000 and March 31, 1999 (Unaudited)..........F-85
Statements of Cash Flows for the three
months ended April 1, 2000 and March 31, 1999 (Unaudited)................F-86
Notes to Unaudited Financial Statements..........................................F-87
</TABLE>
F-3
<PAGE> 68
Annual Report on Form 10-KSB
for the fiscal year ended
January 1, 2000
<TABLE>
<S> <C>
TBM Holdings, Inc. Consolidated Financial Statements
Independent auditors' report......................................................F-5
Balance sheet as of January 1, 2000...............................................F-6
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-7
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-8
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-9
Notes to financial statements.....................................................F-10
</TABLE>
F-4
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
TBM Holdings, Inc.
Westport, CT
We have audited the accompanying balance sheet 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-5
<PAGE> 70
TBM HOLDINGS, INC.
BALANCE SHEET
JANUARY 1, 2000
<TABLE>
<CAPTION>
<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-6
<PAGE> 71
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 shares, issuable upon
exercise of warrants 63,000
======
Diluted 1,464,000 22,000 22,000
========= ====== ======
</TABLE>
See notes to financial statements
F-7
<PAGE> 72
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-8
<PAGE> 73
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-9
<PAGE> 74
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
F-10
<PAGE> 75
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
[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
F-11
<PAGE> 76
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
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.
[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
F-12
<PAGE> 77
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
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.
F-13
<PAGE> 78
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
[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.
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.
F-14
<PAGE> 79
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
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 totaled $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.
F-15
<PAGE> 80
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
NOTE E - COMMITMENTS AND CONTINGENCIES (CONTINUED)
[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.
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,
F-16
<PAGE> 81
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
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-17
<PAGE> 82
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.
F-18
<PAGE> 83
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
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) (b)
--------- --- ---
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>
(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.
F-19
<PAGE> 84
TBM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000
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-20
<PAGE> 85
Quarterly Report on Form 10-QSB
for the quarter ended
July 1, 2000
<TABLE>
<S> <C>
TBM Holdings, Inc. and Subsidiary Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets
at July 1, 2000 and January 1, 2000 (audited).................................................... F-22
Unaudited Condensed Consolidated Statements of Operations
for the three months and six months
ended July 1, 2000 and June 30, 1999............................................................. F-23
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended July 1, 2000 and June 30, 1999.......................................... F-24
Notes to Unaudited Condensed Consolidated Financial Statements.............................................. F-25
</TABLE>
F-21
<PAGE> 86
TBM HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 1, 2000 AND JANUARY 1, 2000
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS JANUARY 1,
------ JULY 1, 2000
2000 (audited)
---- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,902 $ 12,064
Trade accounts receivable, net 7,042 -
Inventories, net 8,763 -
Prepaid expenses and other receivables 391 11
--------- ---------
Total current assets 22,098 12,075
Property, plant and equipment, net 7,479 -
Goodwill, net 11,935 -
Other assets 252 8
--------- ---------
Total assets $ 41,764 $ 12,083
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable $ 3,985 $ 67
Current portion of long-term debt 360 -
Legal settlement 80 80
Accrued expenses 2,423 -
Bank overdraft payable 317 -
--------- ---------
Total current liabilities 7,165 147
--------- ---------
Revolving credit loan 7,570 -
Long-term debt, excluding current portion 5,053 -
Other long-term liabilities 85 -
Stockholders' equity:
Common stock, $.001 par value. Authorized 10,000,000 shares;
4,519,337 and 2,601,000 shares issued and outstanding at
July 1, 2000 and January 1, 2000 respectively 5 3
Additional paid-in capital 35,262 24,264
Accumulated other comprehensive loss - foreign currency
translation adjustments (34) -
Accumulated deficit (13,342) (12,331)
--------- ---------
Total stockholders' equity 21,891 11,936
--------- ---------
Commitments and contingencies
Total liabilities and stockholders' equity $ 41,764 $ 12,083
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-22
<PAGE> 87
TBM HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED JULY 1,2000 AND JUNE 30, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JULY 1, JUNE 30, JULY 1, JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 10,243 $ - $ 13,898 $ -
Cost of Sales 8,334 - 10,941 -
------------- ----------- ----------- -----------
Gross Profit 1,909 - 2,957 -
Selling, general and
administration expenses 2,734 9 3,785 9
------------- ----------- ----------- -----------
Operating loss (825) (9) (828) (9)
Interest expense 313 - 412 -
Other income, net (128) (37) (260) (37)
------------- ----------- ----------- -----------
Income (loss) before income taxes (1,010) 28 (980) 28
Income tax expense 9 - 31 -
------------- ----------- ----------- -----------
Income (loss) from continuing
operations (1,019) 28 (1,011) 28
Income (loss) from discontinued operations - 11 - (32)
------------- ----------- ----------- -----------
Net income (loss) $ (1,019) $ 39 $ (1,011) $ (4)
============= =========== =========== ===========
Basic and diluted income (loss) per share:
Continuing operations $ (0.23) $ 0.06 $ (0.26) $ 0.12
Discontinued operations - 0.02 - (0.14)
------------- ----------- ----------- -----------
$ (0.23) $ 0.08 $ (0.26) $ (0.02)
============= =========== =========== ===========
Weighted average shares outstanding 4,517,667 446,333 3,908,377 234,167
============= =========== =========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-23
<PAGE> 88
TBM HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED JULY 1, 2000 AND JUNE 30, 1999
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JULY 1, JUNE 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,011) $ (4)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 379 2
Noncash interest expense 58 -
Gain on forgiveness of debt - (24)
Changes in working capital components (1,951) (67)
-------- --------
Net cash used in operating activities (2,525) (93)
-------- --------
Cash flows from investing activities:
Capital expenditures for property, plant and equipment, net (58) -
Payment for acquisition of businesses, net of cash acquired (13,285) -
-------- --------
Net cash used in investing activities (13,343) -
-------- --------
Cash flows from financing activities:
Change in bank overdraft payable (748) -
Net borrowings under revolving credit loan 2,488 -
Issuance of common stock 8,000 12,212
-------- --------
Net cash provided by financing activities 9,740 12,212
Effect of foreign currency translation on cash (34) -
-------- --------
Net increase (decrease) in cash (6,162) 12,119
Cash and cash equivalents, beginning of period 12,064 2
-------- --------
Cash and cash equivalents, end of period $ 5,902 $ 12,121
======== ========
Supplemental cash flow disclosure:
Cash paid for interest $ 387 $ -
Supplemental non cash disclosure:
Common stock issued for acquisition $ 3,000 $ -
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-24
<PAGE> 89
TBM HOLDINGS, INC AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JULY 1, 2000
(In thousands, except share and per share data)
(1) GENERAL; DESCRIPTION OF BUSINESS; SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
GENERAL
The condensed consolidated financial statements included herein have been
prepared by TBM Holdings, Inc. (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. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles 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 in the Company's Annual Report on Form 10-KSB for the fiscal
year ended January 1, 2000 (financial statements included herein on pages F-5
through F-20.
DESCRIPTION OF BUSINESS
The primary business of the Company, through the operations of its wholly-owned
subsidiary, Long Reach Holdings, Inc. ("Long Reach"), and Long Reach's
subsidiaries, Brudi Pacific Pty Ltd and Presto Lifts, Inc. ("Presto Lifts"), is
the manufacturing and marketing of hydraulically activated material handling and
ergonomic work positioning equipment in Houston, Texas; Pawtucket, Rhode Island;
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
Long Reach. All significant intercompany transactions have been eliminated in
consolidation.
F-25
<PAGE> 90
TBM HOLDINGS, INC AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JULY 1, 2000
(In thousands, except share and per share data)
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 first-in, first-out (FIFO) 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.
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:
<TABLE>
<CAPTION>
LIFE
----
<S> <C>
Buildings and improvements 20 - 30 years
Machinery and equipment 3 - 12 years
Furniture and fixtures 7 - 8 years
</TABLE>
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.
F-26
<PAGE> 91
TBM HOLDINGS, INC AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JULY 1, 2000
(In thousands, except share and per share data)
GOODWILL AND DEBT ISSUANCE COSTS
Goodwill is amortized on a straight-line basis over 20 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.
REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped and ownership transfers
to the customer.
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 statements of operations
and are reported as accumulated other comprehensive loss, as a separate
component of stockholders' equity, until realized. Comprehensive income (loss)
consists of net income (loss) and foreign currency translation adjustments. Any
transaction gains and losses are included in the determination of net income
(loss).
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 July 1, 2000.
F-27
<PAGE> 92
TBM HOLDINGS, INC AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JULY 1, 2000
(In thousands, except share and per share data)
(2) ACQUISITION
On February 23, 2000, the Company acquired Long Reach in a merger transaction
pursuant to which Long Reach merged into a wholly-owned subsidiary of the
Company (the "Surviving Corporation"). The aggregate consideration in respect of
the acquisition was (1) $1,500 of cash, (2) the issuance of 500,000 shares of
the Company's common stock valued at $6 per share, (3) the Surviving
Corporation's issuance of $3,000 of new subordinated notes to refinance a
portion of existing subordinated notes with certain shareholders of Long Reach
and (4) the assumption by the Surviving Corporation of $10,921 of outstanding
bank debt at the date of the acquisition. Additionally, new contingent
subordinated notes will be issued to certain shareholders of Long Reach in an
aggregate amount not to exceed $2,000 in the event that certain net sales
targets are achieved in calendar year 2000. The subordinated notes are and, if
issued, the contingent subordinated notes will be, guaranteed by the Company.
The Company also incurred approximately $936 of costs directly attributable to
the acquisition, of which $874 had been paid as of July 1, 2000. The acquisition
has been accounted for using the purchase method of accounting, effective at the
date of acquisition. Assets acquired and liabilities assumed consist primarily
of accounts receivable, inventory, fixed assets, accounts payable and long-term
debt.
On May 16, 2000, the Company, through its wholly-owned subsidiary, Long Reach,
acquired Lee Engineering Company, Inc. ("Lee") pursuant to a stock purchase
agreement. The acquisition was effected by Long Reach's purchase of all of the
outstanding common stock of Lee from United Dominion Industries, Inc. for $7,383
of cash. The Company also incurred approximately $310 of costs directly
attributable to the acquisition, all of which had been paid as of July 1, 2000.
The acquisition has been accounted for using the purchase method of accounting,
effective at the date of acquisition. Assets acquired and liabilities assumed
consist primarily of accounts receivable, inventory, fixed assets, accounts
payable and accrued expenses. Lee's name was changed to Presto Lifts, Inc. on
May 22, 2000.
Results for the six months ended July 1, 2000 include the operating results of
Long Reach for the period February 24, 2000 through July 1, 2000, and the
operating results of Presto Lifts for the period May 16, 2000 through July 1,
2000, consolidated with the expenses incurred by the Company associated with
maintaining a business office and complying with its reporting obligations as a
public company.
F-28
<PAGE> 93
TBM HOLDINGS, INC AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JULY 1, 2000
(In thousands, except share and per share data)
Set forth below is certain unaudited summary pro forma combined financial data
of the Company for the six months ended July 1, 2000, and for the six months
ended June 30, 1999, respectively, based upon historical information that has
been adjusted to reflect the Company's acquisitions of Long Reach and Presto
Lifts as if such transactions occurred at January 1, 1999. The unaudited summary
pro forma combined financial data is based upon certain assumptions and
estimates, and therefore does not purport to be indicative of the results that
would actually have been obtained had the transaction been completed as of such
date or indicative of future results of operations and financial position.
Unaudited Summary Pro Forma Combined Financial Data
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
July 1, 2000 June 30, 1999
------------ -------------
<S> <C> <C>
Net sales $ 25,214 $ 28,726
Loss from continuing operations (2,549) (743)
Net loss $ (2,549) $ (775)
========== =========
Basic and diluted income (loss) per share:
From continuing operations $ (0.65) $ (1.01)
From discontinued operations -- (.05)
---------- ---------
Net $ (0.65) $ (1.06)
========== =========
Basic and diluted weighted average
shares outstanding 3,908,377 734,167
========== =========
</TABLE>
F-29
<PAGE> 94
TBM HOLDINGS, INC AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JULY 1, 2000
(In thousands, except share and per share data)
(3) INVENTORIES
Inventory costs at July 1, 2000 are summarized as follows:
<TABLE>
<S> <C>
Raw materials $3,962
Work in process 1,749
Finished goods 3,052
------
Total inventories $8,763
======
</TABLE>
(4) LONG-TERM DEBT AND REVOLVING CREDIT LOAN
Long-term debt at July 1, 2000 is summarized as follows:
<TABLE>
<S> <C>
Note payable to bank, interest at the lender's prime rate plus 1.0%,
due in monthly principal installments of $50 or $60 beginning January
1, 2001, with final payment due March 31, 2003 $ 2,500
Notes payable to stockholders, interest at 0% through December 31,
2000, 6% beginning January 1, 2001 through February 23, 2004, and
Senior Debt Rate plus 2% thereafter until maturity on February 23, 2005 2,913
---------
Total long-term debt $ 5,413
Less current portion 360
---------
Long-term debt, excluding current portion $ 5,053
=========
</TABLE>
F-30
<PAGE> 95
TBM HOLDINGS, INC AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JULY 1, 2000
(In thousands, except share and per share data)
In connection with the acquisitions of Long Reach and Presto Lifts (see note 2),
the Company amended Long Reach's revolving credit agreement and term loan with a
bank. The amended credit agreement includes a revolving credit loan with a
maximum commitment of $10,000, subject to borrowing base availability and other
items, and a term loan of $2,500. Borrowings under the amended credit agreement
accrue interest at the bank's prime rate (9-1/2% at July 1, 2000) plus 0.25% to
1% under differing circumstances. Subject to borrowing base limitations
calculated on eligible inventory and accounts receivable, the revolving credit
loan is due and payable on March 31, 2003. Additionally, a one-quarter percent
fee per annum is paid to the bank for the unused portion of the revolving loan
commitment. A closing fee of $125 was payable to the bank at the time of
entering into the credit agreement in connection with the Long Reach
acquisition. At July 1, 2000, the borrowing base availability for the revolving
credit loan was determined to be $8,743, of which the Company had utilized
$7,570.
The credit agreement, as amended, 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 credit agreement, as amended.
The $3,000 notes payable to stockholders were recorded at a discount at
acquisition date and interest is being imputed at 6% using the interest method
to reflect an effective interest rate over the life of the notes.
The notes payable to stockholders, the term loan and the revolving credit loan
are secured by liens on substantially all of Long Reach's and Presto Lifts'
assets. In addition, the amended credit agreement contains various restrictions,
including restrictions relating to entering into certain activities, payment of
dividends, investments, capital leases and purchases and sales of assets, and
also requires compliance with certain financial ratios and minimum levels of
working capital.
(5) STOCKHOLDERS' EQUITY
On February 23, 2000, the Company completed a private placement of its common
stock, $.001 par value per share, pursuant to which it issued and sold an
aggregate of 916,667 restricted shares at $6.00 per share, for aggregate
proceeds to the Company of $5,500. In addition, a shareholder
F-31
<PAGE> 96
TBM HOLDINGS, INC AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JULY 1, 2000
(In thousands, except share and per share data)
exercised an option to purchase 500,000 restricted shares of Common Stock at
$5.00 per share, for aggregate proceeds to the Company of $2,500.
(6) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings (loss) by
the weighted average number of shares outstanding during the period. If
applicable, diluted earnings per common share is determined on the assumption
that outstanding dilutive stock options and warrants have been exercised and the
aggregate proceeds as defined were used to reacquire Company common stock using
the average price of such common stock for the period. Because the Company
reported a net loss for the six month periods ended July 1, 2000 and June 30,
1999, basic and diluted loss per common share are the same.
At July 1, 2000, there were 5,630 shares of common stock subject to stock
options that were not included in the calculation of diluted loss per common
share, because to do so would have been antidilutive.
On June 15, 1999, the Company effected a 1 for 412.92 reverse stock split. All
shares and earnings (loss) per share data have been adjusted to reflect this
reverse stock split.
(7) 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-32
<PAGE> 97
Current Report on Form 8-K/A
dated February 23, 2000
(filed May 5, 2000)
<TABLE>
<CAPTION>
Consolidated Financial Statements of Long Reach Holdings, Inc. and Subsidiary
--------------------------
<S> <C>
Independent Auditors' Report................................................................................................ F-34
Consolidated Balance Sheets at June 30, 1999 and 1998....................................................................... F-35
Consolidated Statements of Operations
for the years ended June 30, 1999 and 1998......................................................................... F-38
Consolidated Statements of Stockholders' Equity and Comprehensive
Loss for the years ended June 30, 1999 and 1998..................................................................... F-39
Consolidated Statements of Cash Flows
for the years ended June 30, 1999 and 1998.......................................................................... F-41
Notes to Consolidated Financial Statements.................................................................................. F-43
Consolidated Balance Sheets as of January 1, 2000 and
June 30, 1999 (Unaudited)........................................................................................... F-58
Consolidated Statements of Operations for the six months
ended January 1, 2000 and 1999 (Unaudited).......................................................................... F-60
Consolidated Statements of Cash Flows for the six
months ended January 1, 2000 and 1999 (Unaudited).................................................................. F-61
Notes to Consolidated Financial Statements (Unaudited)...................................................................... F-63
</TABLE>
F-33
<PAGE> 98
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-34
<PAGE> 99
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
================ ================
</TABLE>
F-35
<PAGE> 100
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets (continued)
June 30, 1999 and 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
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
</TABLE>
F-36
<PAGE> 101
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets (continued)
June 30, 1999 and 1998
<TABLE>
<S> <C> <C>
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-37
<PAGE> 102
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-38
<PAGE> 103
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
========= ========= ========= ========= ========= =========
</TABLE>
F-39
<PAGE> 104
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
(continued)
Years ended June 30, 1999 and 1998
<TABLE>
<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-40
<PAGE> 105
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)
--------------- ----------------
</TABLE>
F-41
<PAGE> 106
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
Years ended June 30, 1999 and 1998
<TABLE>
<S> <C> <C>
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-42
<PAGE> 107
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended 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.
F-43
<PAGE> 108
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
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.
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:
<TABLE>
<CAPTION>
LIFE
<S> <C>
Buildings and improvements 25 - 30 years
Machinery and equipment 5 - 12 years
Furniture and fixtures 8 years
</TABLE>
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.
F-44
<PAGE> 109
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
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.
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.
F-45
<PAGE> 110
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended 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>
(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>
F-46
<PAGE> 111
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
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.
(4) LONG-TERM DEBT AND REVOLVING CREDIT LOAN
Long-term debt at June 30, 1999 and 1998 is summarized as follows:
F-47
<PAGE> 112
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
<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>
F-48
<PAGE> 113
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
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.
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.
F-49
<PAGE> 114
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
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.
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>
F-50
<PAGE> 115
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
(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.
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
F-51
<PAGE> 116
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
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-52
<PAGE> 117
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended 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>
F-53
<PAGE> 118
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
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-54
<PAGE> 119
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended 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
F-55
<PAGE> 120
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
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.
(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.
F-56
<PAGE> 121
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended June 30, 1999 and 1998
(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-57
<PAGE> 122
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2000 AND JUNE 30, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
JANUARY 1, JUNE 30,
2000 1999
---------------- -----------
<S> <C> <C>
(unaudited)
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
</TABLE>
F-58
<PAGE> 123
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (continued)
JANUARY 1, 2000 AND JUNE 30, 1999
(In thousands, except share and per share data)
<TABLE>
<S> <C> <C>
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-59
<PAGE> 124
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED JANUARY 1, 2000 AND 1999
(UNAUDITED)
(In thousands)
<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-60
<PAGE> 125
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED JANUARY 1, 2000 AND 1999
(UNAUDITED)
(In thousands)
<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
======= =======
</TABLE>
F-61
<PAGE> 126
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
PERIODS ENDED JANUARY 1, 2000 AND 1999
(UNAUDITED)
(In thousands)
<TABLE>
<S> <C> <C>
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-62
<PAGE> 127
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JANUARY 1, 2000
(UNAUDITED)
(In thousands, except share and per share data)
(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>
F-63
<PAGE> 128
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JANUARY 1, 2000
(UNAUDITED)
(In thousands, except share and per share data)
(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-64
<PAGE> 129
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JANUARY 1, 2000
(UNAUDITED)
(In thousands, except share and per share data)
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.
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
F-65
<PAGE> 130
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JANUARY 1, 2000
(UNAUDITED)
(In thousands, except share and per share data)
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.
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.
F-66
<PAGE> 131
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JANUARY 1, 2000
(UNAUDITED)
(In thousands, except share and per share data)
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>
F-67
<PAGE> 132
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JANUARY 1, 2000
(UNAUDITED)
(In thousands, except share and per share data)
(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 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
F-68
<PAGE> 133
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JANUARY 1, 2000
(UNAUDITED)
(In thousands, except share and per share data)
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-69
<PAGE> 134
LONG REACH HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JANUARY 1, 2000
(UNAUDITED)
(In thousands, except share and per share data)
(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-70
<PAGE> 135
Current Report on Form 8-K/A
dated May 16, 2000
(filed July 31, 2000)
<TABLE>
<CAPTION>
Financial Statements of Lee Engineering Company, Inc.
--------------------------
<S> <C>
Independent Auditors' Report................................................................................................ F-72
Balance Sheets as of December 31, 1999 and 1998............................................................................. F-73
Statements of Operations and Retained Earnings
for the years ended December 31, 1999 and 1998..................................................................... F-74
Statements of Cash Flows
for the years ended December 31, 1999 and 1998...................................................................... F-75
Notes to Financial Statements............................................................................................... F-76
Balance Sheets as of April 1, 2000 (Unaudited) and
December 31, 1999................................................................................................... F-84
Statements of Operations and Retained Earnings (Deficit) for the
three months ended April 1, 2000 and March 31, 1999 (Unaudited)..................................................... F-85
Statements of Cash Flows for the three
months ended April 1, 2000 and March 31, 1999 (Unaudited)........................................................... F-86
Notes to Unaudited Financial Statements..................................................................................... F-87
</TABLE>
F-71
<PAGE> 136
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Lee Engineering Company, Inc.:
We have audited the accompanying balance sheets of Lee Engineering Company, Inc.
as of December 31, 1999 and 1998, and the related statements of operations and
retained earnings (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lee Engineering Company, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Charlotte, North Carolina
June 2, 2000
F-72
<PAGE> 137
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Current assets:
Trade accounts receivable, less allowance for doubtful
accounts of $57,535 and $68,800 for 1999 and 1998, respectively $ 2,096,923 1,952,069
Inventories (note 2) 2,363,802 2,504,906
Deferred income taxes (note 4) 73,694 79,458
Prepaid expenses and other current assets 34,207 117,582
--------------- -------------
Total current assets 4,568,626 4,654,015
Property, plant and equipment, net (note 3) 683,203 751,930
Goodwill, net of accumulated amortization of $320,121 and
$210,693 for 1999 and 1998, respectively 4,048,661 4,158,089
Deferred income taxes (note 4) 79,378 74,017
--------------- -------------
$ 9,379,868 9,638,051
=============== =============
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Bank overdraft $ 146,080 141,066
Accounts payable 1,637,445 1,655,026
Accrued liabilities 473,060 1,233,685
--------------- -------------
Total liabilities 2,256,585 3,029,777
Stockholder's equity:
Class A common stock; $1 par value; 1,000 shares issued
and outstanding as of December 31, 1999 and 1998 (note 9) 1,000 1,000
Additional paid-in-capital 7,551,094 7,551,094
Retained (deficit) earnings (167,490) 752,489
--------------- -------------
7,384,604 8,304,583
Net transactions with parent (261,321) (1,696,309)
--------------- -------------
Total stockholder's equity 7,123,283 6,608,274
Commitments and contingencies (notes 5 and 8)
--------------- -------------
Total liabilities and stockholder's equity $ 9,379,868 9,638,051
=============== =============
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE> 138
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Statements of Operations and Retained Earnings (Deficit)
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Net sales $ 16,833,797 17,737,787
Cost of goods sold 12,688,422 12,979,559
------------ ------------
Gross profit 4,145,375 4,758,228
Selling, general and administrative expenses 5,281,551 4,662,835
------------ ------------
(Loss) income from operations (1,136,176) 95,393
Other expenses 291,643 430,422
------------ ------------
Loss before income taxes (1,427,819) (335,029)
Income tax benefit (note 4) 507,840 82,016
------------ ------------
Net loss (919,979) (253,013)
Retained earnings at beginning of year 752,489 1,005,502
------------ ------------
Retained (deficit) earnings at end of year $ (167,490) 752,489
============ ============
</TABLE>
See accompanying notes to financial statements.
F-74
<PAGE> 139
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net loss $ (919,979) (253,013)
Cash flows from operating activities:
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 302,100 300,785
Cash provided by (used for) changes in:
Accounts receivable, net (144,854) 14,931
Inventories 141,104 (528,906)
Deferred taxes 403 (24,506)
Prepaid expenses and other current assets 83,375 (202,551)
Accounts payable and accrued expenses (778,206) 1,220,370
----------- -----------
Net cash used in (provided by) operating activities (1,316,057) 527,110
Cash flows from investing activities:
Proceeds from sale of equipment 90,563 4,778
Capital expenditures (214,508) (188,273)
----------- -----------
Net cash used in investing activities (123,945) (183,495)
----------- -----------
Cash flows from financing activities:
Bank overdraft 5,014 (22,934)
Net (increase) decrease in net transactions with parent 1,434,988 (320,681)
Net cash provided by (used in) financing activities 1,440,002 (343,615)
----------- -----------
Net increase (decrease) in cash -- --
Cash at beginning of year -- --
----------- -----------
Cash at end of year $ -- --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE> 140
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Lee Engineering Company, Inc. (the "Company") is a subsidiary of
United Dominion Industries, Inc. ("UDI" or "the Parent"). The
Company manufactures material handling and ergonomic work
positioning equipment, and is located in Pawtucket, Rhode
Island.
As a result of the Company's relationship with UDI, the
financial position and results of operations are not necessarily
indicative of what actually would have occurred if the Company
were a stand-alone entity. Additionally, these financial
statements are not necessarily indicative of future financial
position or results of operations.
(b) INVENTORIES
Inventories are stated at the lower of standard cost (which
approximates cost on a first-in, first-out basis) or market.
Inventory cost includes material, labor, and manufacturing
overhead.
(c) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation
on plant and equipment is calculated on the straight-line method
over the estimated useful lives of the assets. Estimated useful
lives are as follows:
Machinery and equipment 5 years
Furniture and fixtures 5 years
Leasehold improvements 39 years
Automobiles 5 years
Computer equipment 5 years
F-76
<PAGE> 141
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
(d) GOODWILL
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis
over 40 years, the expected periods to be benefited. 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 goodwill 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 goodwill
will be impacted if estimated future operating cash flows are not
achieved.
(e) RESEARCH AND DEVELOPMENT AND ADVERTISING
Research and development and advertising costs are charged to
expense as incurred.
(f) INCOME TAXES
The Company does not file separate income tax returns but,
instead, files as part of the consolidated UDI return. Income taxes
are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years 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.
F-77
<PAGE> 142
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
(g) 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. Actual results
could differ from those estimates.
(h) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risks are primarily trade accounts
receivable. The Company performs ongoing credit evaluations of its
customers' financial condition. Allowances are provided for risks
inherent in receivables.
(i) REVENUE RECOGNITION
The Company recognizes revenue and related expenses upon the
shipment of products.
(2) INVENTORIES
Inventories consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Raw materials $1,631,329 1,699,253
Work-in-process 653,073 710,653
Finished goods 79,400 95,000
---------- ----------
$2,363,802 2,504,906
========== ==========
</TABLE>
F-78
<PAGE> 143
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Machinery and equipment $ 1,262,357 1,243,661
Furniture and fixtures 144,422 128,288
Leasehold improvements 254,882 240,614
Computer equipment 368,001 318,932
Automobiles 25,778 --
----------- -----------
2,055,440 1,931,495
Less accumulated depreciation (1,372,237) (1,179,565)
----------- -----------
$ 683,203 751,930
=========== ===========
</TABLE>
F-79
<PAGE> 144
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
(4) INCOME TAXES
Income tax expense (benefit) attributable to income from continuing
operations consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Year ended December 31, 1999:
Federal $(429,851) 341 (429,510)
State and local (78,392) 62 (78,330)
--------- --------- ---------
$(508,243) 403 (507,840)
========= ========= =========
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1998:
Federal $(48,640) (20,726) (69,366)
State and local (8,870) (3,780) (12,650)
-------- -------- --------
$(57,510) (24,506) (82,016)
======== ======== ========
</TABLE>
The amount of UDI's consolidated current and deferred tax expense
(benefit) was allocated to the Company using a separate-return method by
applying the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, to the Company as if the Company
were a separate taxpayer. The income tax benefit of net operating losses
have been fully utilized by UDI as of December 31, 1999.
F-80
<PAGE> 145
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
Income tax benefit differed from the amounts computed by applying the
U.S. federal income tax rate of 35% to pretax income from continuing
operations as a result of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Computed "expected" tax benefit $(499,737) (117,260)
Increase (reduction) in income taxes resulting from:
Non-deductible goodwill 38,300 38,300
State and local taxes (50,915) (8,223)
Other 4,512 5,167
--------- ---------
$(507,840) (82,016)
========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1999 and 1998 are
presented below.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to
allowance for doubtful accounts $ 22,381 26,452
Capitalized production costs 24,372 22,605
Accrued vacation 26,941 30,401
Plant and equipment principally due to differences in
depreciation 79,378 74,017
-------- --------
Total gross deferred tax assets 153,072 153,475
Less valuation allowance -- --
-------- --------
Net deferred tax assets $153,072 153,475
======== ========
</TABLE>
F-81
<PAGE> 146
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
(5) LEASES
The Company has several noncancelable operating leases, primarily for
office space and office equipment. The following is a schedule of future
annual rental payments to be paid by the Company under noncancelable
operating leases in effect as of December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 196,675
2001 875
-----------------
Total $ 197,550
=================
</TABLE>
Rent expense for 1999 and 1998 is $201,850 and $265,000, respectively.
(6) TRANSACTIONS WITH PARENT
On January 1, 1997, UDI acquired the net assets of the Company for a
purchase price of $7,552,094 including approximately $4,368,782 of
goodwill. This acquisition of the Company by UDI was accounted for under
the purchase method of accounting and all purchase accounting
adjustments for the acquisition have been recognized by the Company.
The financial statements include certain corporate general and
administrative expenses incurred on a consolidated basis by UDI for all
periods presented that have been allocated to the Company. Such
allocations are included in the Company's statements of operations and
retained earnings and amounted to $1,519,917 and $377,431 in 1999 and
1998 respectively. In management's opinion, the basis for the allocation
of such costs is reasonable and is based upon the ratio of the total
direct operating costs incurred by the Company to total UDI direct
operating costs. However, the expenses allocated to the Company,
although made on a basis management believes is reasonable, may not
necessarily be representative of amounts the Company would have incurred
on a stand-alone basis.
F-82
<PAGE> 147
LEE ENGINEERING COMPANY, INC.
(A Wholly-Owned Subsidiary of United Dominion Industries, Inc.)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
UDI provides cash management services for the Company on a centralized
basis. During the course of the year, cash is received for the Company's
operations on a daily basis and UDI funds disbursements on an as needed
basis. Such activity together with the allocated costs described above
are reflected in the parent company's net advances and are non-interest
bearing and have no defined repayment terms and accordingly, have been
classified as a separate component of stockholder's equity.
(7) EMPLOYEE BENEFITS
The Company participates with certain affiliated companies in the UDI
defined benefit pension plan and defined contribution retirement plan
that cover substantially all salaried and certain hourly-paid employees.
Additionally, the Company participates in the UDI medical plans, life
insurance, disability plans and other health and welfare benefit plans.
The Parent determines the Company's share of these liabilities and
allocates the liability to the Company through non-cash charges (see
note 6). Expenses for employee benefits amounted to $1,301,826 and
$1,506,102 for the years ended December 31, 1999 and 1998, respectively.
(8) COMMITMENTS AND CONTINGENCIES
The Company is involved in various 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 financial position, results of operations or
liquidity.
(9) SUBSEQUENT EVENT
On May 16, 2000, TBM Holdings, Inc., a Florida corporation, through its
wholly-owned subsidiary, Long Reach Holdings, Inc. ("LRH"), a Delaware
corporation, acquired the Company pursuant to a stock purchase
agreement. The acquisition was effected by LRH's purchase of all of the
outstanding common stock of the Company from UDI.
F-83
<PAGE> 148
LEE ENGINEERING COMPANY, INC.
BALANCE SHEETS
APRIL 1, 2000 AND DECEMBER 31, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
APRIL 1, DECEMBER 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 4 $ -
Trade accounts receivable, net 2,174 2,097
Inventories 2,203 2,364
Deferred income taxes 74 74
Prepaid expenses and other current assets 30 34
--------- ---------
Total current assets 4,485 4,569
Property, plant and equipment, net 641 683
Goodwill, net 4,021 4,049
Deferred income taxes 79 79
--------- ---------
Total assets $ 9,226 $ 9,380
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 1,497 $ 1,638
Accrued liabilities 800 473
Bank overdraft - 146
--------- ---------
Total liabilities 2,297 2,257
Stockholders' equity:
Class A common stock; $1 par value; 1,000 shares issued
and outstanding 1 1
Additional paid-in capital 7,551 7,551
Retained deficit (617) (168)
--------- ---------
6,935 7,384
Net transactions with Parent (6) (261)
--------- ---------
Total stockholders' equity 6,929 7,123
Commitments and contingencies
Total liabilities and stockholders' equity $ 9,226 $ 9,380
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
F-84
<PAGE> 149
LEE ENGINEERING COMPANY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
PERIODS ENDED APRIL 1, 2000 AND MARCH 31, 1999
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
APRIL 1, MARCH 31,
2000 1999
----------- --------------
<S> <C> <C>
Net Sales $ 4,624 $ 4,316
Cost of Sales 3,942 3,241
------- -------
Gross Profit 682 1,075
Selling, general and administrative expenses 1,131 1,434
------- -------
Loss from operations (449) (359)
Income tax benefit -- (128)
------- -------
Net loss $ (449) $ (231)
Retained earnings (deficit) at beginning
of period (168) 752
------- -------
Retained (deficit) earnings at end
of period (617) 421
======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
F-85
<PAGE> 150
LEE ENGINEERING COMPANY, INC.
STATEMENTS OF CASH FLOWS
PERIODS ENDED APRIL 1, 2000 AND MARCH 31, 1999
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
APRIL 1, MARCH 31,
2000 1999
--------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (449) $ (231)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 75 80
Deferred income taxes - -
Inventory obsolescence expense 353 -
Changes in working capital components (79) (1,098)
------- -------
Net cash used in operating activities (100) (1,249)
Cash flows from investing activities -
Capital expenditures for property, plant and equipment, net (5) (112)
Cash flows from financing activities:
Change in bank overdraft payable (146) (141)
Net increase in net transactions with Parent 255 1,696
------- -------
Net cash provided by financing activities 109 1,555
------- -------
Net increase in cash 4 194
------- -------
Cash at beginning of period - -
------- -------
Cash at end of period $ 4 $ 194
======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
F-86
<PAGE> 151
LEE ENGINEERING COMPANY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED APRIL 1, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The financial statements included herein have been prepared by Lee Engineering
Company, Inc. (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. 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 financial statements included herein.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
The Company is a subsidiary of United Dominion Industries, Inc.
("UDI" or "the Parent"). The Company manufactures material
handling and ergonomic work positioning equipment, and is
located in Pawtucket, Rhode Island.
As a result of the Company's relationship with UDI, the
financial position and results of operations are not
necessarily indicative of what actually would have occurred if
the Company were a stand-alone entity. Additionally, these
financial statements are not necessarily indicative of future
financial position or results of operations.
(b) INVENTORIES
Inventories are stated at the lower of standard cost (which
approximates cost on a first-in, first-out basis) or market.
Inventory cost includes material, labor, and manufacturing
overhead.
(c) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation
on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Estimated
useful lives are as follows:
F-87
<PAGE> 152
LEE ENGINEERING COMPANY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED APRIL 1, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Machinery and equipment 5 years
Furniture and fixtures 5 years
Leasehold improvements 39 years
Automobiles 5 years
Computer equipment 5 years
</TABLE>
(d) GOODWILL
Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a
straight-line basis over 40 years, the expected periods to be
benefited. 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 goodwill 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 goodwill
will be impacted if estimated future operating cash flows are
not achieved.
(e) RESEARCH AND DEVELOPMENT AND ADVERTISING
Research and development and advertising costs are charged to
expense as incurred.
(f) INCOME TAXES
The Company does not file separate income tax returns but,
instead, files as part of the consolidated UDI return. Income
taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years 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 as income in the period that includes the
enactment date.
F-88
<PAGE> 153
LEE ENGINEERING COMPANY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED APRIL 1, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(g) 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. Actual
results could differ from those estimates.
(h) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risks are primarily trade accounts
receivable. The Company performs ongoing credit evaluations of
its customers' financial condition. Allowances are provided for
risks inherent in receivables.
(i) REVENUE RECOGNITION
The Company recognizes revenue and related expenses upon the
shipment of products.
(2) INVENTORIES
Inventories consist of the following at April 1, 2000 and December 31,
1999:
<TABLE>
<CAPTION>
APRIL 1, DECEMBER 31,
2000 1999
------------ -------------
<S> <C> <C>
Raw materials $1,512 1,631
Work-in-process 602 653
Finished goods 89 80
------ ------
$2,203 2,364
====== ======
</TABLE>
F-89
<PAGE> 154
LEE ENGINEERING COMPANY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED APRIL 1, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 1, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Machinery and equipment $ 1,266 1,262
Furniture and fixtures 146 144
Leasehold improvements 255 255
Computer equipment 368 368
Automobiles 26 26
------- -------
2,061 2,055
Less accumulated depreciation (1,420) (1,372)
------- -------
$ 641 683
======= =======
</TABLE>
(4) TRANSACTIONS WITH PARENT
On January 1, 1997, UDI acquired the net assets of the Company for a
purchase price of $7,552 including approximately $4,369 of goodwill.
This acquisition of the Company by UDI was accounted for under the
purchase method of accounting and all purchase accounting adjustments
for the acquisition have been recognized by the Company.
The financial statements include certain corporate general and
administrative expenses incurred on a consolidated basis by UDI for all
periods presented that have been allocated to the Company. Such
allocations are included in the Company's statements of operations and
retained earnings and amounted to $46 and $339 for the three months
ended April 1, 2000 and March 31, 1999 respectively. In management's
opinion, the basis for the allocation of such costs is reasonable and is
based upon the ratio of the total direct
F-90
<PAGE> 155
LEE ENGINEERING COMPANY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED APRIL 1, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
operating costs incurred by the Company to total UDI direct operating
costs. However, the expenses allocated to the Company, although made on
a basis management believes is reasonable, may not necessarily be
representative of amounts the Company would have incurred on a
stand-alone basis. UDI provides cash management services for the Company
on a centralized basis. During the course of the year, cash is received
for the Company's operations on a daily basis and UDI funds
disbursements on an as needed basis. Such activity together with the
allocated costs described above are reflected in the parent company's
net advances and are non-interest bearing and have no defined repayment
terms and accordingly, have been classified as a separate component of
stockholder's equity.
(5) COMMITMENTS AND CONTINGENCIES
The Company is involved in various 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 financial position, results of operations or
liquidity.
(6) SUBSEQUENT EVENT
On May 16, 2000, TBM Holdings, Inc., a Florida corporation, through its
wholly-owned subsidiary, Long Reach Holdings, Inc. ("LRH"), a Delaware
corporation, acquired the Company pursuant to a stock purchase
agreement. The acquisition was effected by LRH's purchase of all of the
outstanding common stock of the Company from UDI.
F-91
<PAGE> 156
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation and Bylaws provide that the
Company shall, to the maximum extent required or permitted by law, indemnify its
directors, officers, employees or agents and persons serving at the request of
the Company as directors, officers, employees or agents of other organizations,
against liability actually and reasonably incurred by such persons. "Liability"
is defined to include obligations to pay a judgment, settlement, penalty, fine
(including an excise tax payable with respect to any employee benefit plan) and
expenses actually and reasonably incurred with respect to a proceeding.
Section 607.0850(1) of the Florida Business Corporation Act (the "Florida
BCA") provides that a Florida corporation may indemnify any person who was or is
a party to any proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal ("Proceeding") (other than a
Proceeding by, or brought derivatively on behalf of, the corporation) by reason
of the fact that he or she is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against liability incurred in connection
with such proceeding, including any appeal thereof, if he or she acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
A Florida corporation may indemnify any person under Section 607.0850(2)
of the Florida BCA who was or is a party to any Proceeding brought by or
derivatively on behalf of the corporation to procure judgment in its favor, by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to a conclusion and reasonably
incurred by him or her in connection with the defense or settlement of such
Proceeding, including any appeal thereof. The corporation may indemnify such
person if such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification may be made in respect of any claim, issue or
matter as to which he or she has been adjudged to be liable unless and only to
the extent that a court of competent jurisdiction determines that in view of all
the circumstances, he or she is fairly and reasonably entitled to indemnity and
then for expenses as the court deems proper.
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A Florida corporation must indemnify any person (including a director or
officer) who was successful on the merits or otherwise in defense of any
Proceeding or in defense of any claim, issue or matter in any Proceeding
referred to in Sections 607.0850(1) and 607.0850(2), against expenses actually
and reasonably incurred by such person in connection therewith.
The Florida BCA, however, prohibits indemnification if a judgment or
other final adjudication establishes that the action, or failure to act, of a
director, officer, employee or agent was material to the cause of action that
was adjudicated and (i) constitutes a violation of criminal law (unless such
director, officer, employee or agent had reasonable cause to believe that his or
her conduct was lawful or had no reasonable cause to believe his or her conduct
was unlawful); (ii) bestows, directly or indirectly, an improper personal
benefit upon such director, officer, employee or agent; (iii) in the case of a
director, subjects such director to potential liability for certain unlawful
distributions; or (iv) in the case of a derivative proceeding, exhibits a
conscious disregard for the best interest of the corporation or willful
misconduct.
The Florida BCA permits corporations to indemnify any of its officers,
directors, employees and agents to a greater extent than that provided in the
Florida BCA so long as such greater indemnity does not extend to those matters
described in the preceding paragraph for which the Florida BCA prohibits
indemnification.
A Florida corporation may pay for the expenses incurred by an officer or
director in defending a Proceeding in advance of the final disposition upon
receipt from such officer or director of an undertaking to repay the amounts
advanced if it shall ultimately be determined that such officer or director is
not entitled to be indemnified by the corporation.
The Company's Bylaws require the Company to indemnify its directors,
officers, employees and agents to the maximum extent required or permitted under
the Florida BCA and provide for the advancement of expenses upon receipt of a
written undertaking by the person for whom such expenses are advanced to repay
the amounts advanced if it is determined that such person has not met the
applicable standard of conduct or that indemnification of such expenses is
prohibited by law.
The Company has entered into indemnification agreements with each of its
directors and executive officers, pursuant to which the Company has agreed to
indemnify each of them against losses and expenses to the extent permitted by
law for any breach of duty, neglect, error, misstatement, misleading statement,
omission, or other act done or attempted, or any of the foregoing alleged by
any claimant, or any claim against any of them, in each case incurred by reason
of his or her service as a director or officer, or both, of the Company or as a
director or officer serving at the Company's request as a director or officer
of a subsidiary of the Company (as defined) and that are not covered under the
Company's or a subsidiary's bylaws or directors' and officers' insurance
policies maintained by the Company or under a separate indemnification
agreement with a subsidiary. Among other exclusions, the Company shall not
indemnify any person with respect to claims involving (i) receipt of a personal
benefit to which
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the recipient is not entitled, (ii) the return of profits from the sale of
securities as contemplated by Section 16 of the Securities Exchange Act, or
(iii) knowingly fraudulent, dishonest or willful misconduct.
The Florida BCA permits the purchase of insurance on behalf of directors
and officers against any liability asserted against directors and officers and
incurred by them in their capacity as an officer or director, or arising out of
their status as an officer or director, whether or not the corporation would
have the power to indemnify directors and officers against that liability.
The Company maintains insurance for the benefit of its directors and
officers, insuring such persons against certain liabilities, including
liabilities arising under the federal securities laws.
The Selling Stockholders whose shares of Common Stock are issued or
issuable pursuant to the exercise of Warrants and which shares are being
registered pursuant to this Registration Statement have agreed to severally
indemnify the Company, its directors and officers against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Securities Act, the Securities Exchange Act
or otherwise, arising from information furnished by or on behalf of such holders
or their successors or assigns, for specific inclusion in the registration
statement.
Section 607.0831 of the Florida BCA provides that a corporation's
directors will not be personally liable to the corporation or others for any
statement, vote, decision or failure to act with respect to corporation
management and policy unless the director breached or failed to perform his or
her duties as a director and the breach or failure to perform such duties: (i)
constitutes a violation of the criminal law (unless such director had reasonable
cause to believe that his or her conduct was lawful or had no reasonable cause
to believe his or her conduct was unlawful); or (ii) bestows, directly or
indirectly, an improper personal benefit upon such director; (iii) subjects such
director to potential liability for certain unlawful distributions under Section
607.0834 of the Florida BCA; (iv) exhibits conscious disregard of the best
interest of the corporation or willful misconduct in a proceeding by or in the
right of the corporation or a stockholder; or (v) exhibits recklessness or bad
faith or malicious purpose or wanton and willful disregard of human rights,
safety or property in a proceeding by or in the right of someone other than the
corporation or a stockholder.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, the Company has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
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ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee ..................................................$9,899
Legal fees and expenses................................................$
------
Accounting fees and expenses...........................................$
------
Blue sky fees and expenses.............................................$
------
Miscellaneous..........................................................$
------
TOTAL.......................................$
======
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On June 15, 1999, the Company completed the 1999 Private Placement of its
Common Stock, pursuant to which it issued and sold an aggregate of 2,546,000
restricted shares to accredited investors at $5.00 per share, for aggregate
gross proceeds to the Company of $12,730,000. The shares were sold in reliance
on the exemption provided by Section 4(2) of the Securities Act and Regulation D
promulgated thereunder.
In November and December of 1999, the Company sold 33,000 restricted
shares of its Common Stock at $.10 per share pursuant to the exercise of options
held by transferees of certain creditors who had provided legal services to the
Company. The aggregate proceeds to the Company in this transaction were $3,300.
On February 23, 2000, the Company completed a private placement of its Common
Stock, pursuant to which it issued and sold an aggregate of 916,667 restricted
shares at $6.00 per share, for aggregate proceeds to the Company of $5,500,000.
J.H. Whitney IV, L.P. purchased 416,667 shares and LEG Partners III SBIC, L.P.
purchased 500,000 shares of the Common Stock. In addition, J.H. Whitney IV, L.P.
exercised an option to purchase 500,000 restricted shares of Common Stock at
$5.00 per share, for aggregate proceeds to the Company of $2,500,000. Also on
February 23, 2000, the Company issued 500,000 restricted shares of its Common
Stock at $6.00 per share to certain stockholders of Long Reach as partial
consideration for the Company's acquisition of Long Reach. These shares were
issued or sold in reliance on the exemption provided by Section 4(2) of the
Securities Act.
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ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1 Stock Purchase and Reorganization Agreement, dated as of June 15, 1999, among
Specialty Retail Group, Inc., Seymour Zises, Colt Services, Inc. and TBM Consulting
Group, Inc. (incorporated into this registration statement by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K, dated June 15, 1999, filed with the
Commission on June 30, 1999).
2.2 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. (incorporated into this registration statement by
reference to Exhibit 99.1 to the Company's Current Report on Form 8-K, dated February
4, 2000, filed with the Commission on February 15, 2000).
2.3 Stock Purchase Agreement, dated as of May 16, 2000, among Long Reach Holdings, Inc.,
United Dominion Industries, Inc. and Lee Engineering Company, Inc. (incorporated into
this registration statement by reference to Exhibit 2 to the Company's Current Report
on Form 8-K, dated May 16, 2000, filed with the Commission on May 24, 2000).
2.4 Asset Purchase Agreement, dated October 19, 2000, between 1445833 Ontario, Inc. and
Blue Giant Limited (incorporated into this registration statement by reference to
Exhibit 2 to the Company's Current Report on Form 8-K, dated October 19, 2000, filed
with the Commission on October 26, 2000).
3.1 Restated Articles of Incorporation of TBM Holdings Inc., as amended (incorporated
into this registration statement by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999).
3.2 Amended and Restated Bylaws of TBM Holdings, Inc. (incorporated into this
registration statement by reference to Exhibit 3.2 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1999).
</TABLE>
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<TABLE>
<S> <C>
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
(incorporated into this registration statement by reference to Exhibit 4.1 to the
Company's Current Report of Form 8-K, dated February 23, 2000, filed with the
Commission on March 9, 2000).
5.1 Opinion of Levett Rockwood P.C. on the legality of the securities being registered
(to be filed by amendment).
9.1 Voting Agreement, dated as of March 13, 2000, between LEG Partners III SBIC, L.P.,
Anand Sharma and William A. Schwartz (incorporated into this registration statement
by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended April 1, 2000).
10.1 1991 Non-Qualified Stock Option Plan.
10.2 1994 Stock Option Plan.
10.3 1999 Stock Option Plan (incorporated into this registration statement by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ended
July 1, 2000).
10.4 Consulting and Management Services Agreement, dated June 17, 1999, between the
Company and TBM Consulting Group, Inc. (incorporated into this registration statement
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1999).
10.5 Consulting Agreement, dated June 17, 1999, between the Company and Colt Services,
Inc. (incorporated into this registration statement by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999).
10.6 Consulting Agreement, dated June 17, 1999, among the Company, TBM Consulting Group,
Inc. and Colt Services, Inc. (incorporated into this registration statement by
reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1999).
10.7 Employment Agreement, dated June 17, 1999, between the Company and William A.
Schwartz (incorporated into this registration statement by reference to Exhibit 10.4
to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1999).
</TABLE>
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<TABLE>
<S> <C>
10.8 First Amendment to Employment Agreement, dated as of May 1, 2000, between TBM
Holdings, Inc. and William Schwartz (incorporated into this registration statement by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended July 1, 2000).
10.9 Employment Agreement, dated as of April 3, 2000, between Long Reach Holdings, Inc.
and William Sample (incorporated into this registration statement by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB for the quarter ended
July 1, 2000).
10.10 Form of Indemnification Agreement between the Company and each of its directors and
officers.
10.11 Form of Warrant Agreement between the Company and the holders of Warrants
(incorporated into this registration statement by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999).
10.12 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 (incorporated into this registration statement by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K, dated February 23, 2000, filed with the
Commission on March 9, 2000).
10.13 Lease Agreement, dated February 23, 2000, between TBM Acquisition I, Inc. and LR Real
Property, LLC (incorporated into this registration statement by reference to Exhibit
10.2 to the Company's Current Report on Form 8-K, dated February 23, 2000, filed with
the Commission on March 9, 2000).
10.14 Loan and Security Agreement, dated April 20, 1999, between Long Reach Holdings, Inc.
and Bank One, Texas, N.A. (incorporated into this registration statement by reference
to Exhibit 10.3 to the Company's Current Report on Form 8-K, dated February 23, 2000,
filed with the Commission on March 9, 2000).
10.15 Amendment One to Loan and Security Agreement, dated February 23, 2000, between Long
Reach Holdings, inc. and Bank One, Texas, N.A. (incorporated into this registration
statement by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K,
dated February 23, 2000, filed with the Commission on March 9, 2000).
</TABLE>
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<TABLE>
<S> <C>
10.16 Unlimited Guaranty, dated February 23, 2000, by the Company in favor of Bank One,
Texas, N.A. (incorporated into this registration statement by reference to Exhibit
10.5 to the Company's Current Report on Form 8-K, dated February 23, 2000, filed with
the Commission on March 9, 2000).
10.17 Amendment Two to Loan and Security Agreement, dated as of May 16, 2000, between Long
Reach Holdings, Inc. and Bank One, Texas, N.A. (incorporated into this registration
statement by reference to Exhibit 10 to the Company's Current Report on Form 8-K,
dated May 16, 2000, filed with the Commission on May 24, 2000).
10.18 Voting Agreement, dated as of March 13, 2000, between LEG Partners III SBIC, L.P.,
Anand Sharma and William A. Schwartz (incorporated into this registration statement
by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended April 1, 2000).
21.1 Subsidiaries of the Company.
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of KPMG LLP.
23.4 Consent of Levett Rockwood P.C. (included in its opinion to be filed as Exhibit 5.1
hereto).
24.1 Power of Attorney (included within the signature page hereto).
</TABLE>
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ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information set forth in the registration statement;
and
(iii) include any additional or changed material information on
the plan of distribution.
2. That, for determining liability under the Securities Act, it will
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
3. To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of the Florida Business Corporation Act,
the Articles of Incorporation or Bylaws of the Company, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the Town of
Westport, State of Connecticut on October 30, 2000.
TBM HOLDINGS INC.
By: /s/ William A. Schwartz
--------------------------------
William A. Schwartz, President
and Chief Executive Officer
Each person whose signature appears below hereby authorizes, appoints and
constitutes William A. Schwartz, Anand Sharma and Amy Ludwig Weisman, and each
of them singly, his/her true and lawful attorneys-in-fact, with full power of
substitution and resubstitution, for him/her and in his/her name, place and
stead, in any and all capacities, to execute and cause to be filed with the
Commission, any and all amendments (including post-effective amendments) to this
Registration Statement, which amendments may make such changes in this
Registration Statement as any of them individually, or their substitutes, deems
appropriate, with exhibits thereto and other documents in connection therewith,
as the Company deems appropriate, and he/she hereby ratifies and confirms all
that said attorneys-in-fact or any of them, or their substitutes, may lawfully
do or cause to be done in connection therewith.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated:
<TABLE>
<S> <C>
/s/ William A. Schwartz October 30, 2000
-----------------------------------------------------
William A. Schwartz, President, Chief
Executive Officer and Director (Principal
Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
/s/ Rainer H. Bosselmann October 30, 2000
-----------------------------------------------------
Rainer H. Bosselmann, Director
/s/ Herbert E. Brown October 30, 2000
-----------------------------------------------------
Herbert E. Brown, Director
/s/ Michael B. DeFlorio October 30, 2000
-----------------------------------------------------
Michael B. DeFlorio, Director
/s/ Daniel A. Levinson October 30, 2000
-----------------------------------------------------
Daniel A. Levinson, Director
/s/ Anand Sharma October 30, 2000
-----------------------------------------------------
Anand Sharma, Director
/s/ Amy L. Weisman October 30, 2000
-----------------------------------------------------
Amy L. Weisman, Director
</TABLE>
