<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 1, 1999
-------------------
Clarion Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-24690 91-1407411
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1901 N. Roselle Road, Suite 340, Schaumburg, Illinois 60195
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 490-9900
-----------------
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
--------------------------------------------
This report amends the current report filed by Clarion
Technologies, Inc. (the "Company") dated October 13, 1999.
Effective October 1, 1999, Clarion Acquisition, Inc., a
Michigan corporation and a wholly owned subsidiary of the Company, merged with
and into Double "J" Molding, Inc., a Michigan corporation ("Double J"). As a
result of the Double J merger, the outstanding shares of Double J were converted
into an aggregate of 850,000 shares of common stock, $.001 par value, of the
Company, and the outstanding shares of Clarion Acquisition, Inc. were converted
into one share of Double J, making Double J a wholly owned subsidiary of the
Company. In a related transaction, the Company also acquired the real estate
owned by a partnership controlled by the former Double J shareholders, and used
by Double J, for $2,005,000 in cash and the assumption of $1,287,900 in debt.
The audited financial statements of Double J as of September
30, 1999 and December 31, 1998, for the nine month period ended September 30,
1999 and for the fiscal year ended December 31, 1998 are presented below. The
Company is relying on Rule 3-06 of Regulation S-X in presenting the financial
statements of Double J as of September 30, 1999 and for the nine-month period
then ended.
<PAGE>
DOUBLE "J" MOLDING, INC.
--------
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
--------
SEPTEMBER 30, 1999
<PAGE>
DOUBLE "J" MOLDING, INC.
--------
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
---------
SEPTEMBER 30, 1999
<PAGE>
DOUBLE "J" MOLDING, INC.
- CONTENTS -
PAGE NUMBER
-----------
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2
Statement of Operations and Retained Earnings 3
Statement of Cash Flows 4 & 5
Notes to Financial Statements 6 - 16
<PAGE>
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders
Double "J" Molding, Inc.
South Haven, Michigan
We have audited the accompanying balance sheet of Double "J" Molding, Inc. (a
Michigan corporation) as of September 30, 1999, and December 31, 1998, and the
related statements of operations and retained earnings and cash flows for the
nine months and year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those statements require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Double "J" Molding, Inc. at
September 30, 1999 and December 31, 1998 and the results of operations and cash
flows for the period and year, respectively, then ended, in conformity with
generally accepted accounting principles.
PERRIN, FORDREE & COMPANY, P.C.
/s/ Perrin, Fordree & Company, P.C.
Troy, Michigan
October 27, 1999
<PAGE>
<TABLE>
DOUBLE "J" MOLDING, INC.
BALANCE SHEET
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<CAPTION>
ASSETS
------
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 4,301
Accounts receivable:
Trade - net of allowance for doubtful
accounts of $172,600 in 1999 and
$142,800 in 1998, respectively 4,472,568 3,605,588
Stockholders and employees 136,846 148,718
Related party 144,060 144,060
Other - 14,211
Inventory 1,225,734 1,165,961
Prepaid expenses:
Tooling 103,235 483,325
Taxes 320,700 52,690
Other 14,116 39,922
Interest receivable 1,292 6,517
Deferred tax asset 292,700 174,100
------------- -------------
Total current assets 6,711,251 5,839,393
PROPERTY AND EQUIPMENT:
Machinery and equipment 8,733,983 7,307,053
Leasehold improvements 2,238,628 901,769
Furniture and fixtures 569,975 544,182
Vehicles 136,492 136,492
Construction in progress - 55,819
------------- -------------
11,679,078 8,945,315
Less accumulated depreciation and amortization (4,833,925) (4,181,325)
------------- -------------
6,845,153 4,763,990
OTHER ASSETS:
Deferred financing, net of accumulated amortization
of $4,072 in 1999 and $407 in 1998 93,656 97,321
Investments - available-for-sale - restricted 409,809 2,204,675
------------- -------------
503,465 2,301,996
------------- -------------
$ 14,059,869 $ 12,905,379
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Line-of-credit $ 2,500,000 $ 2,000,000
Current portion of capital lease obligations 46,684 57,616
Current portion of long-term debt 400,029 514,724
Accounts payable:
Trade 2,278,064 785,773
Related party 1,327,891 1,113,988
Accrued liabilities:
Employee benefits 306,600 216,362
Payroll and payroll taxes 525,645 129,564
Other 863,976 155,359
------------- -------------
Total current liabilities 8,248,889 4,973,386
CAPITAL LEASES OBLIGATIONS 34,506 66,084
LONG-TERM DEBT 2,116,935 2,402,268
DEFERRED FEDERAL INCOME TAX 555,800 538,200
------------- -------------
Total liabilities 10,956,130 7,979,938
STOCKHOLDERS' EQUITY :
Common stock, - $1.00 par value,
Authorized - 50,000 shares
Issued and outstanding, 10,500 shares 10,500 10,500
Retained earnings 3,093,239 4,914,941
------------- -------------
3,103,739 4,925,441
------------- -------------
$ 14,059,869 $ 12,905,379
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
DOUBLE "J" MOLDING, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
SALES $ 16,585,271 $ 20,568,619
COST OF SALES 17,327,854 18,670,503
------------- -------------
GROSS PROFIT (742,583) 1,898,116
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,404,778 1,605,744
------------- -------------
INCOME (LOSS) FROM OPERATIONS (2,147,361) 292,372
OTHER INCOME (EXPENSE):
Interest income 27,863 10,797
Interest expense (143,975) (129,325)
Other income 2,900 5,897
------------- -------------
(113,212) (112,631)
------------- -------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (2,260,573) 179,741
PROVISION FOR INCOME TAXES (438,871) 73,910
------------- -------------
NET INCOME (LOSS) (1,821,702) 105,831
RETAINED EARNINGS:
Beginning of year 4,914,941 4,809,110
------------- -------------
End of year $ 3,093,239 $ 4,914,941
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
<TABLE>
DOUBLE "J" MOLDING, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
YEAR ENDED DECEMBER 31, 1998
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 15,732,502 $ 20,633,462
Cash paid to suppliers and employees (14,818,462) (20,078,443)
Interest received 33,089 4,279
Interest paid (140,974) (122,308)
Income taxes paid 69,861 111,566
Miscellaneous income 2,900 5,897
------------- -------------
Net cash from operating activities 878,916 554,453
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,735,545) (712,221)
Advances to related party - (144,060)
Purchases of available-for-sale securities (2,655,456) (2,204,675)
Sales of available for sale securities 4,450,322 -
------------- -------------
Net cash to investing activities (940,679) (3,060,956)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line-of-credit - net 500,000 505,000
Proceeds from long-term debt - 2,500,000
Payments of long-term debt (400,028) (352,238)
Payments of capital leases (42,510) (51,939)
Debt acquisition costs - (97,321)
------------- -------------
Net cash from financing activities 57,462 2,503,502
------------- -------------
NET DECREASE IN CASH EQUIVALENTS (4,301) (3,001)
CASH AND CASH EQUIVALENTS:
Balance - beginning of year 4,301 7,302
------------- -------------
Balance - end of year $ - $ 4,301
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
<TABLE>
DOUBLE "J" MOLDING, INC.
STATEMENT OF CASH FLOWS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
RECONCILIATION OF NET INCOME TO NET CASH FROM OPERATING
-------------------------------------------------------
ACTIVITIES
----------
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
NET INCOME (LOSS) $ (1,821,702) $ 105,831
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization 657,364 832,766
Loss on disposal of equipment 683 -
Provision for bad debts 29,800 67,800
Deferred income taxes (101,000) (3,400)
Changes in operating assets and liabilities
which increase (decrease) cash flow:
Accounts receivable (882,569) (2,957)
Employee advance 11,871 (45,134)
Inventories (59,773) (197,641)
Prepaid expenses 25,806 (32,268)
Prepaid tooling 380,090 (483,325)
Prepaid income taxes (268,010) 188,876
Interest receivable 5,226 (6,518)
Accounts payable 1,706,195 45,310
Accrued payroll 396,080 32,248
Accrued expenses 798,855 52,865
------------- -------------
2,700,618 448,622
------------- -------------
NET CASH FROM OPERATING ACTIVITIES $ 878,916 $ 554,453
============= =============
NON-CASH INVESTING AND FINANCING TRANSACTIONS
---------------------------------------------
PROPERTY AND EQUIPMENT ACQUIRED BY
CAPITAL LEASE OBLIGATIONS $ - $ 114,695
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Double "J"
Molding, Inc. (the Company), is presented to assist in
understanding the Company's financial statements. The financial
statements and notes are representations of the Company's
management which is responsible for their integrity and
objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied
in the preparation of the financial statements.
BUSINESS ACTIVITY
-----------------
The Company is a manufacturer of plastic injection molded parts
for the automotive industry. Most of the Company's business
activity is with customers located primarily in southwestern
Michigan.
CASH AND CASH EQUIVALENTS
-------------------------
For purposes of the statement of cash flows, cash equivalents
include cash in banks and all highly liquid debt instruments with
original maturities of three months or less.
ACCOUNTS RECEIVABLE
-------------------
The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral for
accounts receivable arising from the normal course of business.
The Corporation maintains allowances for potential credit losses
which, when realized, have been within the range of management's
expectations.
INVENTORY
---------
Inventory is stated at the lower of cost or market, determined
using the first-in, first-out (FIFO) method. Inventories, net of
valuation reserves, consisted of the following:
September 30, December 31,
1999 1998
------------ ------------
Raw materials $ 844,879 $ 737,313
Finished goods 380,855 428,648
------------ ------------
Total inventories $ 1,225,734 $ 1,165,961
============ ============
-6-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
PREPAID TOOLING
---------------
The costs to manufacture and supply customer-owned tooling are
recorded as prepaid tooling costs when incurred. Amounts incurred
are charged to cost of sales and revenue is recognized upon
completion of tooling and acceptance by the customer. Gains
incurred on tooling projects are recognized into income upon
completion, while estimated losses are recognized immediately as
cost of sales.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment are stated at cost and include
expenditures that materially extend the useful lives of these
assets. Expenditures for normal repairs and maintenance are
charged to operations as incurred.
DEPRECIATION AND AMORTIZATION
-----------------------------
For financial statement purposes, depreciation is computed using
the straight-line and declining balance methods based on the
estimated useful lives of the fixed assets as follows:
Machinery and equipment 6-11 years
Leasehold improvements 15-40 years
Furniture and fixtures 3-10 years
Vehicles 6-7 years
For income tax purposes, depreciation is computed using the
modified accelerated cost recovery method (MACRS) as prescribed
by the Internal Revenue Service.
Depreciation expense was $653,699 and $832,766 for the nine
months ended September 30, 1999, and the year ended December 31,
1998, respectively.
DEFERRED FINANCING COSTS
------------------------
Costs incurred in connection with the financing of the revenue
bond (Note 6) have been capitalized and are being amortized over
the term of the respective debt using the straight-line method.
Amortization expense was $3,665 for the nine months ended
September 30, 1999 and $407 for the year ended December 31, 1998.
-7-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
INCOME TAXES
------------
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes are recognized
for differences between the basis of assets and liabilities for
financial statements and income tax purposes.
The deferred tax asset and liability represent the future tax
return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are
recovered or settled.
The primary components of the Company's deferred tax assets and
liabilities are inventory valuation, allowance for doubtful
accounts, certain accruals and an Alternative Minimum Tax
carryover credit (assets) and tax over book depreciation
(liabilities).
REVENUE RECOGNITION
-------------------
Revenue is recognized in the period in which the products are
shipped.
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 may differ from those estimates.
RECLASSIFICATIONS
-----------------
Certain amounts previously reported for fiscal 1998 have been
reclassified to conform to the classifications used for the nine
months ended September 30, 1999. Such reclassifications had no
effect on reported income.
-8-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 2 - RELATED PARTY TRANSACTIONS:
The Company leases buildings from a related party. These leases
require minimum monthly rental payments of $5,742 and $7,858 and
expire on December 31, 2010. Rent on the first lease may be
increased by up to 5% on each anniversary date of the lease. The
Company is responsible for all expenses related to the buildings.
Rent expense for these leases was $122,400, and $163,200 for the
nine months ended September 30, 1999, and year ended December 31,
1998, respectively.
Annual future obligations are as follows:
Year ending September 30:
2000 $ 163,200
2001 163,200
2002 163,200
2003 163,200
2004 163,200
Thereafter 1,020,000
------------
$ 1,836,000
============
In December, 1998 the Company received cash proceeds of
$2,500,000 from the issuance of the revenue bond (Note 6) which
is restricted to the construction of a new facility, acquisitions
of machinery and equipment and the financing costs of the bond
issuance. This new facility is being constructed by a related
party, at an estimated total cost of $1,300,000 and the equipment
for the Company is estimated at a total cost of $1,200,000. The
Company and the related party are jointly and severally liable
for the entire amount of the revenue bond. The Company has
accounted for the entire amount of the aforementioned
transactions on its financial statements for the period ending
September 30, 1999 and year ending December 31, 1998, due to the
fact that the related party has entered into an asset purchase
agreement with the same buyer as the Company (Note 11).
Purchases of materials from a related party were $5,666,599 and
$8,230,159 for the nine months ended September 30, 1999 and the
year ended December 31, 1998, respectively.
-9-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 3 - INVESTMENT SECURITIES
The amortized cost of securities and their approximate fair
values as of September 30, 1999 and December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
September 30, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
- ------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. government $ 14,563 $ - $ - $ 14,563
State and municipal
governments 395,246 - - 395,246
------------- ------------- ------------- -------------
$ 409,809 $ - $ - $ 409,809
============= ============= ============= =============
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
- ------------------ ------------- ------------- ------------- -------------
U.S. government $ 510,563 $ - $ - $ 510,563
State and municipal
governments 1,444,562 - - 1,444,562
Corporate debt securities 249,550 - - 249,550
------------- ------------- ------------- -------------
$ 2,204,675 $ - $ - $ 2,204,675
============= ============= ============= =============
</TABLE>
Amounts maturing in:
<TABLE>
<CAPTION>
Available-for-Sale Amortized Cost Fair Value
- ------------------ -------------- -------------
<S> <C> <C>
One year or less $ 14,563 $ 14,563
One year through five years 15,000 15,000
Five years through ten years 110,000 110,000
After ten years 270,246 270,246
-------------- -------------
$ 409,809 $ 409,809
============== =============
</TABLE>
-10-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 3 - INVESTMENT SECURITIES - CONTINUED:
During 1999 and 1998, the Company sold securities available for
sale for total proceeds of approximately $4,450,322 and
$1,728,071, respectively, resulting in no gross realized gains or
losses. Investment securities totaling $409,809 are restricted
for construction purposes (Note 2).
NOTE 4 - LINE-OF-CREDIT:
The Company has a line-of-credit agreement with a bank which
provides for maximum borrowings of $2,500,000 as of September 30,
1999 and $2,000,000 as of December 31, 1998. At September
30,1999, and December 31, 1998, there was an outstanding balance
of $2,500,000 and $2,000,000, respectively. The agreement bears
interest at 1/2% under the bank's prime rate, which was 8.25% and
7.75% as of September 30, 1999 and December 31, 1998,
respectively. The note is due on demand and is secured by
accounts receivable, inventory and machinery and equipment.
NOTE 5 - CAPITAL LEASE OBLIGATIONS:
The Company periodically acquires assets under capital lease
obligations. The cumulative capitalized cost of assets acquired
under capital lease obligations of $188,750, less accumulated
amortization of $80,365 and $60,466 at September 30, 1999, and
December 31, 1998, respectively, is included in machinery and
equipment and vehicles in the accompanying financial statements.
Depreciation of these assets is included in depreciation expense.
The following is a schedule of future lease payments under
capital leases:
Year ending September 30:
2000 $ 54,504
2001 36,814
-----------
Total lease payments 91,318
Amount representing interest (10,128)
-----------
Present value of future minimum payments 81,190
Less: current portion (46,684)
-----------
Long term portion $ 34,506
===========
-11-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 6 - LONG-TERM DEBT:
Long-term debt at September 30, 1999 and December 31, 1998 consists of
the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenue bond - due in quarterly payments totaling $245,000 per
annum from December 1,1999 to September 1, 2005, $110,000 from
December 1, 2005 to September 1,2006, $60,000 per annum from
December 1, 2006 to September 1, 2018, and $20,000 ending
December 1, 2018, including interest determined at a weekly rate,
currently 4.2% as of September 30, 1999, secured by a letter of
credit with a bank. $2,320,000 $2,500,000
Note payable - bank, due in monthly payments of $6,718, including
interest at 1/2% under the bank's prime rate of 7.75% as of
December 31, 1998, maturing March 6, 1999, when any unpaid
balance is due, secured by accounts receivable, inventory and
machinery and equipment. - 20,367
Note payable - bank, due in monthly payments of $10,945,
including interest at 1/2% under the bank's prime rate of 8.25%
and 7.75% as of September 30,1999 and December 31, 1998,
respectively, maturing October 3, 1999 when any unpaid balance is
due, secured by accounts receivable, inventory and machinery
and equipment. 10,943 105,911
-12-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 6 - LONG-TERM DEBT - CONTINUED:
Note payable - bank, due in monthly payments of $11,650,
including interest at 1/2% under the bank's prime rate of 8.25%
and 7.75% as of September 30, 1999 and December 31, 1998,
respectively, maturing September 19, 2000 when any unpaid balance
is due, secured by accounts receivable, inventory and machinery
and equipment. 128,234 222,999
Note payable - City of South Haven, due in monthly payments of
$1,637, including interest at a fixed rate of 7.5%, maturing
December 1, 2003 when any unpaid balance is due, secured by real
estate owned by a related party. 57,787 67,715
----------- -----------
2,516,964 2,916,992
Less current portion 400,029 514,724
----------- -----------
Long-term debt $2,116,935 $2,402,268
=========== ===========
</TABLE>
Maturities of long-term debt are summarized as follows:
Year ending September 30:
2000 $ 400,029
2001 262,083
2002 263,408
2003 251,444
2004 245,000
Thereafter 1,095,000
------------
$ 2,516,964
============
NOTE 7 - INCOME TAXES:
Current income tax is based on the taxable income for the year as
measured by the current year's payable per the income tax return.
The deferred tax adjustment is the amount required to adjust the
deferred tax asset and liability to that expected to be realized
in future years.
-13-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 7 - INCOME TAXES - CONTINUED:
The income tax provision differs from the expense that would
result from applying federal statutory rates to income before
income taxes. This is due to non-deductible officers' life
insurance payments, municipal bond interest income and the
non-deductible portion of meals and entertainment.
As of September 30, 1999 the Company has available AMT operating
loss carryforwards of approximately $139,800, which can be
utilized through 2019.
As of September 30, 1999 and December 31, 1998 the components of
deferred income taxes consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Current deferred taxes - gross assets $ 725,200 $ 174,100
Valuation allowance (432,500) -
------------- -------------
292,700 174,100
Noncurrent deferred taxes - gross liabilities (555,800) (538,200)
------------- -------------
Net deferred tax liability $ (263,100) $ (364,100)
============= =============
</TABLE>
The tax effects of cumulative temporary differences as of
September 30, 1999 and December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Depreciation $ (555,800) $ (538,200)
Quality containment accrual 255,000 -
AMT Carryforward 139,800 -
Accrued payroll 119,800 37,400
Obsolescence reserve 62,200 59,900
Bad debt reserve 51,900 48,600
Other 96,500 28,200
------------- -------------
169,400 (364,100)
Less valuation allowance (432,500) -
------------- -------------
$ (263,100) $ (364,100)
============= =============
</TABLE>
-14-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 8 - OPERATING LEASES:
The Company is obligated under noncancelable operating leases for
vehicles The annual minimum lease payments under these as of
September 30, 1999, net of prepaid expenses of $8,469 are as
follows:
Year ending September 30:
2000 $ 52,835
2001 34,911
2002 21,063
2003 8,976
2004 8,266
Thereafter 14,934
----------
$ 140,985
==========
Rent expense related to these operating leases for the nine
months ending September 30, 1999, and the year ended December 31,
1998 were approximately $47,000 and $49,000, respectively.
NOTE 9 - PROFIT SHARING PLAN:
The Company has a salary reduction/profit sharing plan under the
provisions of Section 401(k) of the Internal Revenue Code. The
Plan covers all full-time employees who have completed one full
year of service with the Company. Each employee may contribute up
to a maximum of 15% of their annual salary to the Plan. The
Company, at its option, may contribute additional amounts to the
Plan. Company contributions to the Plan for the nine months ended
September 30, 1999, and the year ended December 31, 1998 were
$54,000, and $72,362, respectively.
NOTE 10 - MAJOR CUSTOMER:
A material part of the Company's business is dependent upon one
major customer, the loss of whom would have a materially adverse
effect on the Company. Sales to the customer during the nine
months ended September 30, 1999 and year ended December 31, 1998
were approximately $15,100,000 and $19,800,000, respectively,
representing 91% and 96% of the total sales for those years. At
September 30, 1999, and December 31, 1998 amounts due from this
customer included in trade accounts receivable were approximately
$4,100,000 and $3,500,000, respectively.
-15-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND YEAR ENDED DECEMBER 31, 1998
NOTE 11 - SUBSEQUENT EVENTS:
In October 1999, Company stockholders entered into a stock
purchase agreement. Under this agreement, the buyer will purchase
all of the issued and outstanding capital stock of Double "J"
Molding, Inc.
In October, 1999, the Company obtained a $3,150,000
line-of-credit and a $4,400,000 term loan with a bank. These
amounts were used to refinance the $2,500,000 working capital
line-of-credit (Note 4) and pay off the outstanding balances of
the Company's long term debt (Note 6). In connection with this
transaction, the Company expensed the deferred financing costs of
$93,656 relating to the revenue bond.
-16-
<PAGE>
DOUBLE "J" MOLDING, INC.
--------
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
--------
DECEMBER 31, 1998
<PAGE>
DOUBLE "J" MOLDING, INC.
--------
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
---------
DECEMBER 31, 1998
<PAGE>
DOUBLE "J" MOLDING, INC.
- CONTENTS -
PAGE NUMBER
-----------
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4 & 5
Notes to Financial Statements 6 - 14
<PAGE>
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders
Double "J" Molding, Inc.
South Haven, Michigan
We have audited the accompanying balance sheet of Double "J" Molding, Inc. (a
Michigan corporation) as of December 31, 1997 and 1998, and the related
statements of income and retained earnings 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 audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those statements require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
We did not observe the taking of the physical inventories at December 31, 1996
and 1997 (stated at $832,213 and $1,038,120, respectively), since those dates
were prior to the time we were initially engaged as auditors for the Company. We
were unable to satisfy ourselves about inventory quantities by means of other
auditing procedures. We were able to satisfy ourselves about the inventory
quantities as of December 31, 1998.
In our opinion, the financial statements referred to in the first paragraph
present fairly in all material respects, the financial position of Double "J"
Molding, Inc. as of December 31, 1998, in conformity with generally accepted
accounting principles. Also, except for the effect of such adjustments, if any,
as might have been determined to be necessary had we been able to observe the
physical inventories taken as of December 31, 1996 and 1997, the financial
statements referred to in the first paragraph present fairly, in all material
respects the financial position of Double "J" Molding, Inc. as of December 31,
1997 and the results of its operations and its cash flows for the year ended
December 31, 1998 and 1997, in conformity with generally accepted accounting
principles.
Perrin, Fordree & Company, P.C.
/s/ Perrin, Fordree & Company, P.C.
Troy, Michigan
May 10,1999
<PAGE>
<TABLE>
DOUBLE "J" MOLDING, INC.
BALANCE SHEET
<CAPTION>
ASSETS
------
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,301 $ 7,302
Accounts receivable:
Trade - net of allowance for doubtful
accounts of $142,800 in 1998
and $75,000 in 1997 3,605,588 3,684,642
Stockholders and employees 148,718 103,583
Related party 144,060 -
Other 14,211 -
Inventory 1,165,961 968,320
Prepaid expenses: -
Tooling 483,325 -
Taxes 52,690 241,566
Other 39,922 7,654
Interest receivable 6,517 -
Deferred tax asset 174,100 124,100
------------ ------------
Total current assets 5,839,393 5,137,167
PROPERTY AND EQUIPMENT:
Leasehold improvements 901,769 887,806
Machinery and equipment 7,307,053 6,662,661
Furniture and fixtures 544,182 485,286
Vehicles 136,492 82,645
Construction in progress 55,819 -
------------ ------------
8,945,315 8,118,398
Less accumulated depreciation and amortization (4,181,325) (3,348,559)
------------ ------------
4,763,990 4,769,839
OTHER ASSETS:
Deferred financing, net of accumulated amortization
of $407 97,321 -
Investments - available-for-sale - restricted 2,204,675 -
------------ ------------
2,301,996 -
------------ ------------
$12,905,379 $ 9,907,006
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Line-of-credit $ 2,000,000 $ 1,495,000
Current portion of capital lease 57,616 36,614
Current portion of long-term debt 514,724 355,255
Accounts payable 1,899,761 1,854,451
Accrued liabilities:
Employee benefits 216,362 188,647
Payroll and payroll taxes 129,564 97,317
Other 155,359 130,208
------------ ------------
Total current liabilities 4,973,386 4,157,492
CAPITAL LEASE - less current portion 66,084 24,330
LONG TERM DEBT - less current portion 2,402,268 413,974
DEFERRED FEDERAL INCOME TAX 538,200 491,600
------------ ------------
Total liabilities 7,979,938 5,087,396
STOCKHOLDERS' EQUITY:
Common stock, - $1.00 par value,
Authorized - 50,000 shares
Issued and outstanding, 10,500 shares 10,500 10,500
Retained earnings 4,914,941 4,809,110
------------ ------------
4,925,441 4,819,610
------------ ------------
$12,905,379 $ 9,907,006
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
DOUBLE "J" MOLDING, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
SALES $20,568,619 $20,881,402
COST OF SALES 18,670,503 18,268,145
------------ ------------
GROSS PROFIT 1,898,116 2,613,257
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,605,744 1,480,488
------------ ------------
INCOME FROM OPERATIONS 292,372 1,132,769
OTHER INCOME (EXPENSE):
Interest expense (129,325) (96,853)
Interest income 10,797 6,187
Other income 5,897 3,466
------------ ------------
(112,631) (87,200)
------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 179,741 1,045,569
PROVISION FOR INCOME
TAXES 73,910 373,434
------------ ------------
NET INCOME 105,831 672,135
RETAINED EARNINGS:
Beginning of year 4,809,110 4,136,975
------------ ------------
End of year $ 4,914,941 $ 4,809,110
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
<TABLE>
DOUBLE "J" MOLDING, INC.
STATEMENT OF CASH FLOWS
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $20,633,462 $18,677,707
Cash paid to suppliers and employees (20,078,443) (18,634,059)
Interest received 4,279 6,187
Interest paid (122,308) (94,183)
Income taxes paid 111,566 (405,000)
Miscellaneous income 5,897 3,466
------------ ------------
Net cash from (to) operating activities 554,453 (445,882)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (712,221) (1,060,040)
Advances to related party (144,060) -
Available-for-sale securities (2,204,675) -
------------ ------------
Net cash to investing (3,060,956) (1,060,040)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line-of-credit - net 505,000 1,485,000
Proceeds from long-term debt 2,500,000 369,060
Payments of long-term debt (352,238) (310,584)
Proceeds from capital leases - net ( 51,939) (32,295)
Debt acquisition costs (97,321) -
------------ ------------
Net cash from financing activities 2,503,502 1,511,181
------------ ------------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS (3,001) 5,259
CASH AND CASH EQUIVALENTS:
Balance - beginning of year 7,302 2,043
------------ ------------
Balance - end of year $ 4,301 $ 7,302
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
<TABLE>
DOUBLE "J" MOLDING, INC.
STATEMENT OF CASH FLOWS - CONTINUED
RECONCILIATION OF NET INCOME TO NET CASH FROM (TO) OPERATING
------------------------------------------------------------
ACTIVITIES
----------
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET INCOME $ 105,831 $ 672,135
Adjustments to reconcile net income to
net cash to operating activities:
Depreciation and amortization 832,766 777,686
Loss on donation of car - 8,689
Changes in operating assets and liabilities
which increase (decrease) cash flow:
Accounts receivable 64,843 (2,203,696)
Employee advance (45,134) (103,183)
Inventories (197,641) (184,107)
Prepaid expenses (32,268) 7,654
Prepaid tooling (483,325) -
Prepaid income taxes 188,876 (54,566)
Interest receivable (6,518) -
Accounts payable 45,310 547,970
Accrued expenses 85,113 62,536
Deferred income taxes (3,400) 23,000
----------- -----------
448,622 (1,118,017)
----------- -----------
NET CASH FROM (TO) OPERATING ACTIVITIES $ 554,453 $ (445,882)
=========== ===========
NON-CASH INVESTING AND FINANCING TRANSACTIONS
---------------------------------------------
PROPERTY AND EQUIPMENT ACQUIRED BY
CAPITAL LEASE OBLIGATIONS $ 114,695 $ 60,944
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Double "J"
Molding, Inc. (the Company), is presented to assist in
understanding the Company's financial statements. The financial
statements and notes are representations of the Company's
management which is responsible for their integrity and
objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied
in the preparation of the financial statements.
BUSINESS ACTIVITY
-----------------
The Company is a manufacturer of plastic injection molded parts
for the automotive industry. Most of the Company's business
activity is with customers located primarily in southwestern
Michigan.
CASH AND CASH EQUIVALENTS
-------------------------
For purposes of the statement of cash flows, cash equivalents
include cash in banks and all highly liquid debt instruments with
original maturities of three months or less.
INVENTORIES
-----------
Inventory is stated at the lower of cost or market, determined
using the first-in, first-out (FIFO) method. Inventories, net of
valuation reserves, consisted of the following as of December 31:
1998 1997
----------- -----------
Raw materials $ 737,313 $ 617,992
Finished goods 428,648 350,328
----------- -----------
Total inventories $ 1,165,961 $ 968,320
=========== ===========
-6-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
PREPAID TOOLING
---------------
The costs to manufacture and supply customer-owned tooling are
recorded as prepaid tooling costs when incurred. Amounts incurred
are charged to cost of sales and revenue is recognized when the
tooling is shipped and billed to customers, respectively. Gains
incurred on tooling projects are recognized into income upon
completion, while estimated losses are recognized immediately as
cost of sales.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment are stated at cost and include
expenditures that materially extend the useful lives of these
assets. Expenditures for normal repairs and maintenance are
charged to operations as incurred.
DEPRECIATION AND AMORTIZATION
-----------------------------
For financial statement purposes, depreciation is computed using
the straight-line and declining balance methods based on the
estimated useful lives of the fixed assets as follows:
Leasehold improvements 15-40 years
Furniture and fixtures 6-11 years
Vehicles 5-7 years
Machinery and equipment 5 years
For income tax purposes, depreciation is computed using the
modified accelerated cost recovery method (MACRS) as prescribed
by the Internal Revenue Service.
Depreciation expense was $832,766 and $777,686 at December 31,
1998 and 1997, respectively.
DEFERRED FINANCING COSTS
------------------------
Costs incurred in connection with the financing of the revenue
bond have been capitalized and are being amortized over the term
of the respective debt using the straight-line method.
Amortization expense was $407 for the year ended December 31,
1998.
-7-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
INCOME TAXES
------------
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes are recognized
for differences between the basis of assets and liabilities for
financial statements and income tax purposes.
The deferred tax asset and liability represent the future tax
return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are
recovered or settled.
The primary components of the Company's deferred tax assets and
liabilities are inventory capitalization and valuation, allowance
for doubtful accounts, employee benefits (assets) and tax over
book depreciation (liabilities).
REVENUE RECOGNITION
-------------------
Revenue is recognized in the period in which the products are
shipped.
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 may differ from those estimates.
NOTE 2 - RELATED PARTY TRANSACTIONS:
The Company leases its building from a related company. The
leases require minimum monthly rental payments of $5,742 and
$7,858 and expire on December 31, 2010. Rent on the first lease
may be increased by up to 5% on each anniversary date of the
lease. The Company is responsible for all expenses related to the
building. Rent expense for these leases was $163,200 and $138,473
for the years ended December 31, 1998 and 1997, respectively.
-8-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 2 - RELATED PARTY TRANSACTIONS - CONTINUED:
Annual future obligations are as follows:
Year ending December 31:
1999 $ 163,200
2000 163,200
2001 163,200
2002 163,200
2003 163,200
Thereafter 1,142,400
------------
$ 1,958,400
============
Cash proceeds of $2,500,000 from the issuance of the revenue bond
(Note 6) is restricted to the construction of a new facility and
related equipment estimated to be completed in 1999, along with
the financing costs of the bond issuance. This new facility is
being constructed by a related party, at an estimated cost of
$1,300,000. The equipment of the Company is estimated to cost
$1,200,000. The Company and the related party are jointly and
severally liable for the entire amount of the revenue bond. The
Company has accounted for this transaction on its financial
statements. A portion of the investments, property, deferred
financing costs, and the revenue bond are the responsibility of
the related party and not of the Company. This is due to the fact
that the related party has entered into an asset purchase
agreement with the same buyer as the Company (Note 11). As such,
the aforementioned transactions have not been separated for
financial accounting purposes as they will be consolidated into
the buyer's financial statements upon completion of the stock
purchase agreement.
In addition to the related party transactions discussed above,
the Company also purchases goods from another related company. In
connection therewith, the accompanying financial statements
include the following:
1998 1997
---------- ----------
Accounts payable $1,113,988 $ 760,306
========== ==========
Approximate purchases $8,230,159 $8,573,000
========== ==========
-9-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 3 - INVESTMENT SECURITIES
The amortized cost of securities and their approximate fair
values as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. government $ 510,563 $ - $ - $ 510,563
State and municipal
governments 1,444,562 - - 1,444,562
Corporate debt
securities 249,550 - - 249,550
------------ ------------ ------------ ------------
$ 2,204,675 $ - $ - $ 2,204,675
============ ============ ============ ============
</TABLE>
AMOUNTS MATURING IN:
Available-for-Sale Amortized Cost Fair Value
------------------ -------------- ------------
One year or less $ 515,125 $ 515,125
One year through five years 479,550 479,550
Five years through ten years 360,000 360,000
After ten years 850,000 850,000
------------ ------------
$ 2,204,675 $ 2,204,675
============ ============
During 1998, the Company sold securities available for sale for
total proceeds of approximately $1,728,071 resulting in no gross
realized gains or losses. Investment securities totaling
$2,204,675 are restricted for construction purposes (Note 2).
NOTE 4 - LINE-OF-CREDIT:
The Company has a line-of-credit agreement with a bank which
provides for maximum borrowings of $2,000,000 as of December 31,
1998 and $1,500,000 as of December 31, 1997. At December 31 1998
and 1997, there were outstanding balances of $2,000,000 and
$1,495,000, respectively. The agreement bears interest at 1/2%
under the bank's prime rate, which was 7.75% and 8.5% as of
December 31, 1998 and 1997, respectively. The note is due on
demand and is secured by accounts receivable, inventory and
machinery and equipment.
-10-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 5 - CAPITAL LEASES:
The Company periodically acquires assets under capital lease
obligations. The capitalized cost of assets acquired under
capital lease obligations of $188,750 and $74,055, less
accumulated amortization of $60,466 and $41,967 at December 31,
1998 and 1997, respectively, is included in machinery and
equipment and furniture and fixtures in the accompanying
financial statements. Depreciation of these assets is included in
depreciation expense (Note 1).
The following is a schedule of future lease payments under
capital leases:
Year ending December 31:
1999 $ 70,663
2000 48,445
2001 25,208
-----------
Total lease payments 144,316
Amount representing interest (20,616)
-----------
Present value of future minimum payments 123,700
Less: current portion (57,616)
-----------
Long term portion $ 66,084
===========
NOTE 6 - LONG-TERM DEBT:
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenue bond, bank, due in quarterly payments totaling $245,000
per annum from March 1,1999 to December 1, 2005, $60,000 per
annum from March 1, 2006 to December 1, 2017, and $65,000 ending
December 1, 2018, including interest determined at a weekly rate,
currently 4.3% as of December 31, 1998, secured by a letter of
credit with a bank. $ 2,500,000 $ -
Note payable - bank, due in monthly payments of $6,516, including
interest at 1/2% under the bank's prime rate of 8.5% as of
December 31,1997, maturing January 25,1998, when any unpaid
balance is due, secured by accounts receivable, inventory and
machinery and equipment. - 28,131
-11-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 6 - LONG-TERM DEBT - CONTINUED:
Note payable - bank, due in monthly payments of $6,718, including
interest at 1/2% under the bank's prime rate of 7.75% and 8.5% as
of December 31, 1998 and 1997, respectively, maturing March 6,
1999, when any unpaid balance is due, secured by accounts
receivable, inventory and machinery and equipment. 20,367 96,053
Note payable - bank, due in monthly payments of $10,945,
including interest at 1/2% under the bank's prime rate of 7.75%
and 8.5% as of December 31,1998 and 1997, respectively, maturing
October 3, 1999 when any unpaid balance is due, secured by
accounts receivable, inventory and machinery and equipment. 105,911 223,541
Note payable - bank, due in monthly payments of $11,650,
including interest at 1/2% under the bank's prime rate of 7.75%
and 8.5% as of December 31, 1998 and 1997, respectively, maturing
September 19, 2000 when any unpaid balance is due, secured by
accounts receivable, inventory and machinery and equipment. 222,999 339,794
Note payable - City of South Haven, due in monthly payments of
$1,637, including interest at 7.5%, secured by related real estate. 67,715 81,710
------------ ------------
2,916,992 769,229
Less current portion 514,724 355,255
------------ ------------
Long-term debt $ 2,402,268 $ 413,974
============ ============
</TABLE>
Maturities of long-term debt are summarized as follows:
Year ending December 31:
1999 $ 514,724
2000 355,886
2001 262,514
2002 263,868
2003 245,000
Thereafter 1,275,000
------------
Total minimum lease payments $ 2,916,992
============
-12-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 7 - INCOME TAXES:
Current income tax is based on the taxable income for the year as
measured by the current year's payable per the income tax return.
The deferred tax adjustment is the amount required to adjust the
deferred tax asset and liability to that expected to be realized
in future years.
The income tax provision differs from the expense that would
result from applying federal statutory rates to income before
income taxes. This is due to non-deductible officers' life
insurance payments and the non-deductible portion of meals and
entertainment.
As of December 31,1998, and December 31, 1997 the components of
deferred income taxes consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Current deferred taxes - gross assets $ 174,100 $ 124,100
Noncurrent deferred taxes - gross liabilities (538,200) (491,600)
----------- -----------
Net noncurrent deferred tax liabilities $ (364,100) $ (367,500)
=========== ===========
</TABLE>
The tax effects of cumulative temporary differences as of
December 31,1998 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Depreciation $ (538,200) $ (491,600)
Bad debt reserve 48,600 25,500
Obsolescence reserve 59,900 44,200
Vacation pay accrual 37,400 30,900
Self-insurance reserve 11,600 11,600
Section 163 costs 16,600 11,900
------------- -------------
$ (364,100) $ (367,500)
============= =============
</TABLE>
NOTE 8 - OPERATING LEASES:
The Company is obligated under noncancelable operating leases for
vehicles and trailers. The annual minimum lease payments under
noncancelable operating leases for the year ending December 31,
1998, net of prepaid expenses of $14,335 are as follows:
-13-
<PAGE>
DOUBLE "J" MOLDING, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 8 - OPERATING LEASES - CONTINUED:
Year ending December 31:
1999 $ 54,504
2000 50,888
2001 30,594
2002 16,200
2003 8,976
Thereafter 20,956
----------
$ 182,118
==========
Rent expense for operating leases for the year ending December
31, 1998 and 1997 was approximately $49,000 and $42,000,
respectively.
NOTE 9 - PROFIT SHARING PLAN:
The Company has a salary reduction/profit sharing plan under the
provisions of Section 401(k) of the Internal Revenue Code. The
Plan covers all full-time employees who have completed one full
year of service with the Company. Each employee may contribute up
to a maximum of 15% of their annual salary to the Plan. The
Company, at its option, may contribute additional amounts to the
Plan. Company contributions to the Plan for the years ended
December 31, 1998 and 1997 were $72,362 and $63,647,
respectively.
NOTE 10 - MAJOR CUSTOMER:
A material part of the Company's business is dependent upon one
major customer, the loss of whom would have a materially adverse
effect on the Company. Sales to the customer during 1998 and 1997
were approximately $19,800,000 and $19,705,000, respectively,
representing 96% and 94% of the total sales for those years. At
December 31, 1998 and 1997, amounts due from this customer
included in trade accounts receivable were approximately
$3,500,000 for both periods.
NOTE 11 - SUBSEQUENT EVENTS:
In April 1999, Company stockholders entered into a stock purchase
agreement. Under this agreement, the buyer will purchase all of
the issued and outstanding capital stock of Double "J" Molding,
Inc.
Effective April 29,1999, a new agreement with the bank increased
maximum borrowings on the line-of-credit (Note 4) to $2,500,000.
-14-
<PAGE>
(b) Pro forma financial information.
--------------------------------
The following unaudited pro forma combined income statements
data for the nine months ended September 30, 1999 illustrates the effect of the
acquisition of Double J as if the transactions had been completed on January 1,
1999. The following unaudited pro forma combined balance sheet as of September
30, 1999 illustrates the effect of the acquisition of Double J as if the
transaction had been completed on that date. The acquisition of Double J is
reflected using the purchase method of accounting for business combinations. The
unaudited pro forma combined financial data is provided for comparative purposes
only and does not purport to represent the results of operations of the Company
that actually would have been obtained if the acquisition of Double J had been
consummated on the date specified, nor is it necessarily indicative of the
results of operations that may be achieved in the future. Adjustments to pro
forma combined operating results include changes cash and cash equivalents
resulting from bank financing incurred to fund the acquisitions, cash paid in a
transaction related to the acquisition, and payment of Double J debt; changes in
current assets to estimated fair values; changes in property and equipment to
reflect real property used by Double J and acquired in a transaction related to
the acquisition; recordation of goodwill associated with the Double J;
elimination of Double J historical stockholders' equity; issuance of common
stock as partial consideration in the acquisition; changes in depreciation to
reflect the real property acquired; elimination of rental expense for real
property which was previously released from a related third party; changes in
amortization expenses resulting from the goodwill associated with the Double J
acquisition; and the recording of additional interest expense. The unaudited pro
forma combined financial data set forth below is based upon certain assumptions
and adjustments described in the notes thereto and should be read in conjunction
therewith.
<PAGE>
<TABLE>
CLARION TECHNOLOGIES, INC.
CONDENSED COMBINED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
<CAPTION>
(1) (2) (3)
Clarion Double "J" Pro Forma
Historical Historical Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 4,333,928 $ - $ 2,000,000 A $ 4,627,650
2,950,000 B
(2,708,444) C
(1,947,834) D
Accounts receivable 7,000,056 4,753,474 - 11,753,530
Inventories 2,277,588 1,225,734 (150,000) E 3,353,322
Other current assets 397,638 732,043 - 1,129,681
------------ ------------ ------------ ------------
Total current assets 14,009,210 6,711,251 143,722 20,864,183
PROPERTY AND EQUIPMENT, NET 24,765,508 6,845,153 1,947,834 F 33,558,495
COSTS IN EXCESS OF
NET ASSETS ACQUIRED 4,368,211 - 1,296,261 G 5,664,472
OTHER NONCURRENT ASSETS 1,037,777 503,465 (94,000) H 1,447,242
------------ ------------ ------------ ------------
$44,180,706 $14,059,869 $ 3,293,817 $61,534,392
============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 4,657,143 $ 2,500,000 $2,950,000 B $ 7,607,143
(2,500,000) C
Current portion of long-term
debt and capital leases 1,351,596 446,713 400,000 A 2,043,280
(155,029) C
Accounts payable 4,735,465 3,605,955 - 8,341,420
Other current liabilities 2,219,333 1,696,221 756,000 I 4,660,074
(11,480) C
------------ ------------ ------------ ------------
Total current liabilities 12,963,537 8,248,889 1,439,491 22,651,917
DEFERRED TAXES - 555,800 - 555,800
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 9,718,055 2,151,441 1,600,000 A 13,427,561
(41,935) C
STOCKHOLDERS' EQUITY:
Preferred stock options 11,901,260 - - 11,901,260
Common stock 18,087 10,500 (10,500) J 18,937
850 K
Additional paid in capital 21,822,650 - 3,399,150 K 25,221,800
Retained earnings (deficit) (12,242,883) 3,093,239 (3,093,239) J (12,242,883)
------------ ------------ ------------ ------------
21,499,114 3,103,739 296,261 24,899,114
------------ ------------ ------------ ------------
$44,180,706 $14,059,869 $ 3,293,817 $61,534,392
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
CLARION TECHNOLOGIES, INC.
CONDENSED COMBINED PRO FORMA INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<CAPTION>
(1) (2) (3)
Clarion Double "J" Pro Forma
Historical Historical Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $13,047,728 $16,585,271 $ - $29,632,999
Cost of sales 13,136,606 17,327,854 35,222 L 30,396,722
(102,960) M
------------ ------------ ------------ ------------
Gross profit (loss) (88,878) (742,583) 67,738 (763,723)
Selling, general and
administrative expense 5,658,532 1,404,778 64,813 N 7,108,683
(19,440) M
------------ ------------ ------------ ------------
Operating income (loss) (5,747,410) (2,147,361) 22,365 (7,872,406)
Interest and other expense 776,791 113,212 134,493 O 1,024,496
------------ ------------ ------------ ------------
Loss before income taxes (6,524,201) (2,260,573) (112,128) (8,896,902)
Income taxes - (438,871) - (438,871)
------------ ------------ ------------ ------------
NET LOSS $(6,524,201) $(1,821,702) $ (112,128) $(8,458,031)
============ ============ ============ ============
Loss per share $ (.37) $ (.46)
============ ============
Weighted average shares
outstanding 17,647,395 850,000 K 18,497,395
============ ============
</TABLE>
<PAGE>
<TABLE>
CLARION TECHNOLOGIES, INC.
CONDENSED COMBINED PRO FORMA INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<CAPTION>
(1)
Clarion (2) (3)
Restated Double "J" Pro Forma
Historical Historical Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 9,965,633 $20,568,619 $ - $30,534,252
Cost of sales 9,223,636 18,670,503 46,962 L 27,803,821
(137,280) M
------------ ------------ ------------ ------------
Gross profit 741,997 1,898,116 90,318 2,730,431
Selling, general and
administrative expense 5,117,352 1,605,744 86,417 N 6,783,593
(25,920) M
------------ ------------ ------------ ------------
Operating income (loss) (4,375,355) 292,372 29,821 (4,053,162)
Interest and other expense 258,029 112,631 179,324 O 549,984
------------ ------------ ------------ ------------
Income (loss) before
income taxes (4,633,384) 179,741 (149,503) (4,603,146)
Income taxes (55,245) 73,910 - 18,665
------------ ------------ ------------ ------------
NET INCOME (LOSS) $(4,578,139) $ 105,831 $ (149,503) $(4,621,811)
============ ============ ============ ============
Loss per share $ (.53) $ (.49)
============ ============
Weighted average shares
outstanding 8,662,711 850,000 K 9,512,711
============ ============
</TABLE>
<PAGE>
CLARION TECHNOLOGIES, INC.
NOTES TO CONDENSED COMBINED PRO FORMA
FINANCIAL STATEMENTS
(1) The historical balance sheet for Clarion is as of September 30, 1999 and
the historical interim income statement is for the nine months ended
September 30, 1999. The historical income statement for the year ended
December 31, 1998 has been restated to include two 1999 business
combination transactions that were accounted for under the pooling of
interests method of accounting. The Company completed acquisitions of Mito
Plastics, Inc. ("Mito") and Wamar Tool & Machine Co. ("Wamar Tool") during
the second and third quarters of 1999, respectively, in which these
entities became wholly-owned subsidiaries of Clarion. Accordingly, the
historical financial statements of the Company have been restated as if the
acquisitions occurred at the beginning of the earliest period presented.
Selected financial information for the combining entities in the historical
restated statements of income for the year ended December 31, 1998 is as
follows:
Year Ended
December 31,
1998
------------
Net sales:
Clarion $ 3,400,786
Mito 4,978,252
Wamar Tool 1,586,595
------------
$ 9,965,633
============
Net income (loss):
Clarion $(4,396,612)
Mito (260,520)
Wamar Tool 78,993
------------
$(4,578,139)
============
(2) The historical balance sheet for Double "J" is as of September 30, 1999.
The historical income statements are for the nine months ended September
30, 1999 and the year ended December 31, 1998.
(3) Amounts in this column represent pro forma adjustments required to account
for the acquisition as a purchase, which include the following items:
A Record long-term bank financing related to the acquisition
B Record short-term bank financing related to the acquisition
C Payment of Double "J" debt and accrued interest
D Cash paid in a separate but related transaction to the sellers of real
property used by Double "J"
E Adjust current assets to estimated fair value
F Real property used by Double "J" acquired in a separate but related
transaction
G Record the excess of the acquisition cost over the fair value of net
assets acquired
H Reserve for deferred financing costs related to industrial revenue bond
paid in October
I Reserve for severances and other post-closing obligations
J Eliminate Double "J" historical stockholders' equity
K Issue 850,000 shares of Clarion common stock to Double "J" stockholders
L Record additional depreciation expense for real property acquired
M Eliminate rent expense for real property that was previously leased
from a related third party
N Record amortization expense for the costs in excess of net assets
acquired
O Record increase in interest expense
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Clarion Technologies, Inc.,
a Delaware corporation
(Registrant)
Date: December 13, 1999 By: /s/ Robert W. Martin
-----------------------------------------
Robert W. Martin, Chief Financial Officer
