<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 Report): October 31, 1998
----------------
Rowe Furniture Corporation
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Nevada 1-10226 54-0458563
- --------------------------------------------------------------------------------
State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
Number)
239 Rowan Street, Salem, Virginia 24153
- --------------------------------------------------------------------------------
(Address of principal executive offices Zip Code)
Registrant's telephone number, including area code: 540-389-8671
------------
None
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Page 1 of 5
<PAGE>
ITEMS OF INFORMATION
--------------------
Forward-Looking Statements
When used in this Form 8-K and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrases "pro forma,"
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results and those presently anticipated or projected. Such risks and
uncertainties include, but are not limited to, the risk that cost savings and
revenues resulting from the acquisition of The Mitchell Gold Co. may be lower
than expected, industry cyclicality, fluctuations in customer demand and order
patterns, the seasonal nature of the Company's business, changes in pricing and
general economic conditions, as well as other risks and uncertainties detailed
in the Company's other filings with the Securities and Exchange Commission. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above and other factors could
affect the Company's financial performance and could cause the Company's actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements.
The Company does not undertake--and specifically declines any
obligation--to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
Item 2. Acquisition or Disposition of Assets
As previously reported, on October 31, 1998, Rowe Furniture Corporation
(the "Company") completed its acquisition of The Mitchell Gold Co., Inc. ("MGC")
pursuant to the Stock Purchase Agreement, dated September 25, 1998, among the
Company, MGC, and the two stockholders of MGC, Mitchell S. Gold and Robert T.
Williams, Jr (the "Agreement"). The acquisition was effected through the
purchase by the Company of all the issued and outstanding shares of the capital
stock of MGC from Mr. Gold and Mr. Williams in exchange for a purchase price
consisting of (i) an initial payment of $13 million, comprised of (1) $10
million in cash and (2) $3 million in convertible debentures, (ii) an interim
earn-out amount, if earned, of $5 million and (iii) a long-term earn-out amount,
if earned, up to a maximum of $19 million, if the interim earn-out is not
earned, and up to a maximum of $14 million if the interim earn-out is earned.
The interim earn-out is based upon the financial performance of MGC during the
two-year period ending April 30, 2000. The long-term earn-out is based upon the
financial performance of MGC over a four-year or five-year period ending
November 30, 2002 and November 30, 2003, respectively. The Agreement was
included as an exhibit to the Company's Current Report on Form 8-K filed on
October 7, 1998.
The Company funded the $10 million cash portion of the initial payment by
drawing upon an existing line of credit in the ordinary course of business from
its commercial bank facility.
MGC, a manufacturer of upholstered furniture, is now operated as a wholly
owned subsidiary of the Company.
Item 7. Financial Statements and Exhibits
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant hereby amends the following item of its Current Report on Form 8-K,
dated October 31, 1998.
Item 7. Financial Statements and Exhibits
(a) and (b) The financial statements and pro forma financial information
required as part of this item are being filed as Exhibit 99 to this
amendment to the Company's Current Report on Form 8-K, dated October 31,
1998. The financial statements and pro forma financial information being
filed as Exhibit 99 to this amendment are as follows:
I. Pro Forma Financial Statements (Unaudited)
Pro Forma Combined Financial Statements Introduction
Pro Forma Combined Balance Sheet as of August 30, 1998
Page 2 of 5
<PAGE>
Pro Forma Combined Statement of Income for the nine months
ended August 30, 1998
Pro Forma Combined Statement of Income for the year ended
November 30, 1997
Notes to Pro Forma Combined Financial Statements
II. The Mitchell Gold Co.--Audited Financial Statements and Notes to
Audited Financial Statements
Independent Accountants' Report
Balance Sheets as of April 30, 1998 and 1997
Statements of Income for the years ended April 30, 1998 and 1997
Statements of Retained Earnings for the years ended April 30, 1998 and
1997
Statements of Cash Flows for the years ended April 30, 1998 and 1997
Summary of Accounting Policies
Notes to Financial Statements
III. The Mitchell Gold Co.--Unaudited Financial Statements
Balance Sheets as of August 30, 1998 and 1997 (Unaudited)
Statements of Income for the four months ended August 30, 1998 and
1997 (Unaudited)
Statements of Cash Flows for the four months ended April 30, 1998 and
1997 (Unaudited)
(c) Exhibits.
23. Consent of BDO Seidman, LLP
99. Financial statements and pro forma financial information
Page 3 of 5
<PAGE>
SIGNATURES
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.
ROWE FURNITURE CORPORATION
--------------------------
Registrant
Date: 01-14-99 /s/ Arthur H. Dunkin
-------- --------------------------
Arthur H. Dunkin
Secretary-Treasurer
Page 4 of 5
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
- --- ----------------------
23 Consent of BDO Seidman, LLP
99 Financial Statements and Pro Forma Financial Information
Page 5 of 5
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Rowe Furniture Corporation
Salem, Virginia
We hereby consent to the incorporation by reference of our report dated
September 16, 1998, relating to the financial statements of The Mitchell Gold
Co. for the years ended April 30, 1998 and 1997 into the Company's previously
filed registration statements file numbers 2-94943, 33-90486, 33-77766, and 33-
77768.
BDO SEIDMAN, LLP
/s/ BDO Seidman, LLP
High Point, North Carolina
January 11, 1999
<PAGE>
Exhibit 99
Rowe Furniture Corporation and Wholly Owned Subsidiaries
Pro Forma Combined Financial Statements
(Unaudited)
The following pro forma combined balance sheet and statement of income as of and
for the nine months ending August 30, 1998, and the combined statement of income
for the year ended November 30, 1997 give effect to the acquisition of The
Mitchell Gold Co. (MGC) by Rowe Furniture Corporation (the Company) as described
in the following paragraphs.
On October 31, 1998, the Company acquired 100% of the issued and outstanding
capital stock of MGC, a privately owned company. The purchase price for MGC
consisted of (i) an initial payment of $13 million, comprised of $10 million in
cash and $3 million of convertible debentures bearing interest at 7% per annum,
and (ii) earn-out provisions allowing for a maximum purchase price of $32
million, if certain earnings targets are attained as defined in the purchase
agreement.
The acquisition of MGC was effected pursuant to the stock purchase agreement
dated as of September 25, 1998. The Company has accounted for such acquisition
using the purchase method of accounting. In connection with this acquisition,
the Company recorded cost in excess of net assets of the business acquired,
which will be amortized over 20 years under the straight-line method.
The pro forma statements of income give effect to these transactions as if they
had occurred at the beginning of the period presented and were carried forward
through the period presented.
The pro forma combined statements have been prepared by the Company's management
based upon the historical financial statements of the Company and MGC. These
pro forma statements may not be indicative of the results that actually would
have occurred if the combination had been in effect on the date indicated or
which may be obtained in the future. The pro forma financial statements should
be read in conjunction with the financial statements and notes of the MGC and
the Company appearing elsewhere herein and as filed under Forms 10-K and 10-Q.
<PAGE>
Rowe Furniture Corporation and Wholly Owned Subsidiaries
Pro Forma Combined Balance Sheet
August 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historicals
-------------------------------
Rowe The
Furniture Mitchell Pro Forma Pro Forma
Corporation Gold Co. Adjustments Combined
----------- -------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Accounts receivable, net $ 27,030 $ 486 $ - $ 27,516
Inventories 16,658 5,120 - 21,778
Other current assets 947 235 - 1,182
-------- ------- ------- --------
Total Current Assets 44,635 5,841 - 50,476
-------- ------- ------- --------
(6) 3,266
Property and equipment, net 17,768 1,992(7) 528 23,554
Notes receivable - 3,266(6) (3,266) -
Investment property 7,872 - - 7,872
Goodwill - -(7) 9,969 9,969
Other assets 9,131 3,361 - 12,492
-------- ------- ------- --------
Total Assets $ 79,406 $14,460 $10,497 $104,363
======== ======= ======= ========
LIABILITIES
Short-term bank borrowings $ 12,716 $ 1,332 $ - $ 14,048
Accounts payable 12,051 3,535 - 15,586
Other current liabilities 7,465 103 - 7,568
-------- ------- ------- --------
Total current liabilities 32,232 4,970 - 37,202
-------- ------- ------- --------
Long-term debt 6,772(7) 13,000 19,772
Other liabilities 4,925 -(7) 215 5,140
-------- ------- ------- --------
Total Liabilities 37,157 11,742 13,215 62,114
-------- ------- ------- --------
STOCKHOLDERS' EQUITY
Common stock 14,872 -(7) - 14,872
Capital in excess of par value 9,269 - - 9,269
Retained earnings 35,142 2,718(7) (2,718) 35,142
Less treasury stock (17,034) - (17,034)
-------- ------- ------- --------
Total Stockholders' Equity 42,249 2,718 (2,718) 42,249
-------- ------- ------- --------
Total Liabilities and Stockholders' Equity $ 79,406 $14,460 $10,497 $104,363
======== ======= ======= ========
</TABLE>
<PAGE>
Rowe Furniture Corporation and Wholly Owned Subsidiaries
Pro Forma Combined Statement of Income
For the Nine Months Ended August 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historicals
----------------------
Rowe The
Furniture Mitchell Pro Forma Pro Forma
Corporation Gold Co. Adjustments Combined
----------- -------- ----------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net shipments $138,920 $26,194 - $165,114
Cost of shipments 102,602 20,290(4) 17 122,909
-------- ------- ----- --------
Gross profit 36,318 5,904 17 42,205
(1) 373
Selling and administrative expenses 24,929 4,066(3) 154 29,522
-------- ------- ----- --------
Operating income 11,389 1,838 544 12,683
Interest expense 384 554(2) 590 1,528
Other income 774 212 986
-------- ------- ----- --------
Earnings before taxes 11,779 1,496 1,134 12,141
Taxes on income 4,520 620(5) 295 4,845
-------- ------- ----- --------
Net earnings $ 7,259 $ 876 $ 839 $ 7,296
======== ======= ===== ========
Earnings per common share $ 0.58 $ 0.58
======== ========
Weighted average common
shares 12,478 12,478
======== ========
Earnings per common share
assuming dilution $ 0.56 $ 0.57
======== ========
Weighted average common
shares and equivalents 12,937 12,988
======== ========
</TABLE>
<PAGE>
Rowe Furniture Corporation and Wholly Owned Subsidiaries
Notes to the Pro Forma Combined Financial Statements
(Unaudited)
Proforma Adjustments:
- --------------------------------------------------------------------------------
(1) Adjust amortization of goodwill on the acquisition.
(2) Reflect interest expense associated with the financing agreement
(5.76%) used to pay the cash portion of the purchase price and the
convertible debenture issued in the purchase.
(3) Reflect increase in salary expense to the former shareholders of
The Mitchell Gold Co. pursuant to employment contracts.
(4) Depreciation impact of fair value adjustment to identifiable
assets.
(5) Properly reflect income tax expense on a pro forma basis.
(6) Transfer the ownership of a building under construction from the
former shareholders to The Mitchell Gold Co. pursuant to the
purchase agreement.
(7) Recognition of the excess of the purchase price over the net assets
acquired (goodwill of $9,969,000), related fair value adjustment to
identifiable assets ($528,000), deferred taxes related to the fair
value adjustment ($215,000), increase in debt ($3,000,000
convertible debenture and $10,000,000 bank debt), and elimination
of equity of The Mitchell Gold Co. ($200 common stock and
$2,718,000 retained earnings).
<PAGE>
Rowe Furniture Corporation and Wholly Owned Subsidiaries
Pro Forma Combined Statement of Income
For the Year Ended November 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Historicals
----------------------
Rowe The
Furniture Mitchell Pro Forma Pro Forma
Corporation Gold Co. Adjustments Combined
----------- -------- ----------- ---------
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Net shipments $144,118 $23,572 $ - $167,690
Cost of shipments 105,164 17,855 (4) 23 123,042
-------- ------- ----------- --------
Gross profit 38,954 5,717 23 44,648
(1) 497
Selling and administrative expenses 30,179 3,971 (3) 340 34,987
-------- ------- ----------- --------
Operating income 8,775 1,746 860 9,661
Interest expense 279 423 (2) 786 1,488
Other income 1,390 - - 1,390
-------- ------- ----------- --------
Earnings before taxes 9,886 1,323 1,646 9,563
Taxes on income 3,600 553 (5) 426 3,727
-------- ------- ----------- --------
Net earnings $ 6,286 $ 770 $ 1,220 $ 5,836
======== ======= =========== ========
Earnings per common share $ 0.49 $ 0.45
======== ========
Weighted average common shares 12,955 12,955
======== ========
Earnings per common share assuming dilution $ 0.47 $ 0.45
======== ========
Weighted average common shares and equivalents 13,333 13,336
======== ========
</TABLE>
<PAGE>
The Mitchell Gold Co.
================================================================================
Financial Statements
Years Ended April 30, 1998 and 1997
<PAGE>
The Mitchell Gold Co.
Contents
================================================================================
Independent Accountants' Report 3
Financial Statements
Balance Sheets 4
Statements of Income 5
Statements of Retained Earnings 6
Statements of Cash Flows 7
Summary of Accounting Policies 8
Notes to Financial Statements 10
<PAGE>
[LETTERHEAD OF IBDO APPEARS HERE]
Independent Accountants' Report
The Mitchell Gold Co.
Hiddenite, North Carolina
We have audited the accompanying balance sheets of The Mitchell Gold Co. as of
April 30, 1998 and 1997 and the related statements of income, 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 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 The Mitchell Gold Co. at April
30, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
September 16, 1998
<PAGE>
<TABLE>
<CAPTION>
==============================================================================
April 30, 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current
Cash $ 70,172 $ 46,365
Accounts receivable:
Factored (Note 1) 720,826 344,958
Trade 43,775 28,362
Other 21,402 90,266
Inventories (Notes 2 and 3) 4,909,526 2,973,240
Prepaid expenses 154,108 12,373
Advances to affiliates (Note 7) 246,324 -
- ------------------------------------------------------------------------------
Total current assets 6,166,133 3,495,564
Property and equipment (Notes 3 and 4)
Land and land improvements 77,906 77,906
Buildings and improvements 996,225 1,005,505
Machinery and equipment 538,756 444,051
Showroom accessories 78,143 78,143
Showroom improvements 115,531 89,451
Motor vehicles 361,779 322,912
Office furniture and equipment 384,244 281,188
- ------------------------------------------------------------------------------
2,552,584 2,299,156
Less accumulated depreciation 923,032 720,129
- ------------------------------------------------------------------------------
Net property and equipment 1,629,552 1,579,027
- ------------------------------------------------------------------------------
Advances to shareholders (Note 7) 144,699 -
Restricted cash and cash equivalents (Note 4) 5,275,902 -
Other
Deferred loan costs, net (Note 4) 221,225 12,092
Miscellaneous 34,537 73,672
- ------------------------------------------------------------------------------
Total other assets 255,762 85,764
- ------------------------------------------------------------------------------
$ 13,472,048 $ 5,160,355
==============================================================================
</TABLE>
<PAGE>
The Mitchell Gold Co.
Balance Sheets
<TABLE>
<CAPTION>
=================================================================================
April 30, 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Line of credit (Note 3) $ 800,000 $ 500,000
Accounts payable - trade 2,217,861 1,593,764
Accrued expenses:
Compensation 500,147 256,190
Income taxes (Note 6) 422,156 139,604
Other 72,155 72,674
Current portion of long-term debt (Note 4) 454,795 233,879
- ---------------------------------------------------------------------------------
Total current liabilities 4,467,114 2,796,111
Long-term debt, net of current portion (Note 4) 6,608,678 1,058,708
- ---------------------------------------------------------------------------------
Total liabilities 11,075,792 3,854,819
- ---------------------------------------------------------------------------------
Commitments and contingencies (Note 5)
Stockholders' equity
Common stock, $10 par value, 10,000 shares
authorized, 20 shares issued and outstanding 200 200
Retained earnings 2,396,056 1,305,336
- ---------------------------------------------------------------------------------
Total stockholders' equity 2,396,256 1,305,536
- ---------------------------------------------------------------------------------
$ 13,472,048 $ 5,160,355
=================================================================================
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
<PAGE>
The Mitchell Gold Co.
Statements of Income
<TABLE>
<CAPTION>
=========================================================================
Year ended April 30, 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 30,204,947 $ 17,657,295
Cost of sales 23,133,244 13,268,500
- -------------------------------------------------------------------------
Gross profit on sales 7,071,703 4,388,795
- -------------------------------------------------------------------------
Operating expenses
Selling 2,241,433 1,599,808
Administrative 2,514,136 1,586,303
- -------------------------------------------------------------------------
Total operating expenses 4,755,569 3,186,111
- -------------------------------------------------------------------------
Operating income 2,316,134 1,202,684
Other income (expense) 121,022 (8,476)
Interest expense (576,436) (306,460)
- -------------------------------------------------------------------------
Income before income taxes 1,860,720 887,748
Income taxes (Note 6) 770,000 391,539
- -------------------------------------------------------------------------
Net income $ 1,090,720 $ 496,209
=========================================================================
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
<PAGE>
The Mitchell Gold Co.
Statements of Retained Earnings
<TABLE>
<CAPTION>
========================================================================
Year ended April 30, 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 1,305,336 $ 809,127
Net income for the year 1,090,720 496,209
- ------------------------------------------------------------------------
Balance, end of year $ 2,396,056 $ 1,305,336
========================================================================
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================
Year ended April 30, 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net income $ 1,090,720 $ 496,209
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 243,996 154,651
Deferred income taxes (18,461) -
Provision for bad debts 3,710 -
Changes in operating assets and liabilities:
Accounts receivable 49,741 (116,145)
Inventories (1,936,286) (1,660,998)
Prepaid expenses and other current assets (141,785) 14,843
Other non-current assets 37,268 (71,072)
Accounts payable 624,097 994,555
Accrued expenses 263,766 161,484
Income taxes payable 282,552 (20,089)
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 499,368 (46,562)
- ---------------------------------------------------------------------------------------------------
Investing activities
Purchases of property and equipment (253,428) (611,421)
Purchase of restricted cash and cash equivalents (6,000,000) -
Proceeds from the restricted cash and cash equivalents 724,098 -
Advances to affiliate (391,023) -
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,920,353) (611,421)
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The Mitchell Gold Co.
Statements of Cash Flows
<TABLE>
<CAPTION>
====================================================================================
Year ended April 30, 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Financing activities
Proceeds from line of credit - net 300,000 500,000
Proceeds from issuance of long-term debt 6,000,000 251,069
Payments of long-term debt (229,114) (190,235)
Payments of loan costs (250,226) -
Change in factored accounts receivable (375,868) 117,176
- ------------------------------------------------------------------------------------
Net cash provided by financing activities 5,444,792 678,010
- ------------------------------------------------------------------------------------
Net increase in cash 23,807 20,027
Cash, beginning of year 46,365 26,338
- ------------------------------------------------------------------------------------
Cash, end of year $ 70,172 $ 46,365
====================================================================================
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Income taxes $ 510,910 $ 393,168
Interest 603,500 217,136
====================================================================================
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
<PAGE>
The Mitchell Gold Co.
Summary of Accounting Policies
================================================================================
Business The Company manufacturers fully upholstered and
slip-covered furniture, selling primarily in the
United States to national catalogue and retail
stores. Sales are recognized when products are
shipped and invoiced to customers.
Estimates The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect certain reported amounts and
disclosures. Actual results could differ from those
estimates.
Significant Customers Four customers accounted for approximately 70% and
55% of the Company's sales during 1998 and 1997,
respectively.
Inventories Inventories are valued at the lower of cost (first-
in, first-out) or market.
Property, Equipment and Property and equipment are stated at cost.
Depreciation Depreciation is computed over the following
estimated useful lives of the assets using
principally the straight-line method for financial
reporting and accelerated methods for income tax
purposes:
Years
----------------------------------------------------
Land improvements 15
Buildings and improvements 9-39
Machinery and equipment 5-7
Showroom accessories 7
Showroom improvements 7-39
Motor vehicles 3-5
Office furniture and equipment 5-7
====================================================
<PAGE>
The Mitchell Gold Co.
Summary of Accounting Policies
================================================================================
Long-Lived Assets Long-lived assets, such as property and equipment,
are evaluated for impairment when events or changes
in circumstances indicate that the carrying amount
of the assets may not be recoverable through the
estimated undiscounted future cash flows from the
use of these assets. When any such impairment
exists, the related assets will be written down to
fair value. This policy is in accordance with
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which
is effective for fiscal years beginning after
December 15, 1995. No impairment losses have been
necessary through April 30, 1998.
Advertising Advertising costs are expensed as incurred. The
charges to expense for the year ended April 30, 1998
and 1997 were approximately $405,000 and $400,000,
respectively.
Income Taxes The Company follows the requirements of Statement of
Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under SFAS No. 109,
deferred tax assets or liabilities are computed
based on the difference between the financial
statement and income tax bases of assets and
liabilities using the enacted marginal tax rate.
Deferred income tax expenses or credits are based on
the changes in the assets or liability from period
to period.
Reclassification Certain reclassification of prior year financial
statement balances have been made to conform with
current year presentation.
<PAGE>
The Mitchell Gold Co.
Notes to Financial Statements
================================================================================
1. Accounts Receivable The Company factors the majority of its accounts
receivables under an agreement whereby the factor
assumes the credit risk for approved accounts
receivable without recourse. Certain other accounts
receivable may be assumed by the factor with
recourse. The agreement grants the factor a security
interest in all accounts receivable whether or not
assigned. The factoring agreement also provides that
the Company must maintain a reserve balance equal to
10% of the accounts receivable carried by the
factor. The Company paid interest on the average
daily funds advanced in monthly installments at
prime plus 1 and 3/4% (10.25%) per annum for the
year ending April 30, 1998. At April 30, 1998 and
1997, the accounts receivable assigned to the factor
were $3,770,960 and $2,627,624, respectively, of
which $44,849 and $3,079 were held with full
recourse.
2. Inventories Inventories are summarized as follows:
April 30, 1998 1997
----------------------------------------------------
Raw materials $ 2,979,011 $ 2,061,573
Work-in-progress 661,389 315,705
Finished goods 1,269,126 595,962
----------------------------------------------------
$ 4,909,526 $ 2,973,240
====================================================
3. Line of Credit At April 30, 1998 and 1997 the Company had a
$800,000 and $500,000 revolving credit facility with
a bank that expires in January 1999. Borrowings
under the line bear interest at the bank's prime
rate (8.5%) plus 0.5 and 1% at April 30, 1998 and
1997, respectively. The revolving credit facility is
collateralized by machinery and equipment,
buildings, and inventory. At April 30, 1998 and 1997
the revolving credit facility was fully utilized.
<PAGE>
The Mitchell Gold Co.
Notes to Financial Statements
<TABLE>
<CAPTION>
============================================================================================================================
4. Long-Term Debt Long-term debt consists of:
April 30, 1998 1997
------------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial Revenue Bonds, described below $ 6,000,000 -
Note payable to bank, payable in
monthly installments of principal and
interest of $6,000, through January 2005,
interest at the stated rate of the lender's prime rate plus 1%
(9.5%), collateralized by real property 375,884 409,568
Note payable to bank, payable in monthly installments of
principal and interest of $3,192, through April 2001, interest
at the stated rate of the lender's prime rate plus 1% (9.5%),
collateralized by real property 278,829 289,679
8.5% notes payable to individuals, due November 1999,
collateralized by real property 254,129 375,283
Note payable to bank, payable in monthly installments of $1,466,
through February 2001, interest at the stated rate of the
lender's prime rate (8.5%), secured by motor vehicles 43,615 56,798
Note payable to financial institution, payable in monthly
installments of principal and interest of $1,662, through
August 2000, interest stated at 9%, secured by a motor vehicle 40,467 56,316
</TABLE>
<PAGE>
The Mitchell Gold Co.
Notes to Financial Statements
<TABLE>
<CAPTION>
============================================================================================================================
<S> <C> <C>
Note payable to financial institution, payable in monthly
installments of principal and interest of $1,478, through
August 2000, interest stated at 8.5%, secured by a motor vehicle 36,135 50,325
Note payable to county, payable in monthly installments of $728,
through April 2002, interest stated at 6%, collateralized by
real property 30,054 37,300
Note payable to bank, payable in monthly installments of
principal and interest of $525, through January 1999, interest
at the stated rate of the lender's prime rate plus 1% (9.5%),
secured by a motor vehicle 4,360 9,943
Lease payable to leasing company, payable in monthly
installments of principal and interest of $847 through February
1998, interest stated at 8.5% secured by a computer - 7,375
------------------------------------------------------------------------------------------------
Total 7,063,473 1,292,587
Less current maturities 454,795 233,879
------------------------------------------------------------------------------------------------
Total long-term debt $ 6,608,678 1,058,708
================================================================================================
The approximate amounts of long-term debt maturing in each of the
next five years are as follows: 1999 - $454,795; 2000 -
$457,706; 2001 - $558,584; 2002 - $292,750; 2003 - $300,406;
thereafter - $4,999,232.
On November 1, 1997, the Company received $6 million in proceeds
from the issuance of Industrial Revenue Bonds from the Alexander
County Industrial Facilities and Pollution Control Financing
Authority (Authority). The industrial revenue bonds are payable
in varying installments through 2017, with interest paid monthly
at variable rates determined by the Remarketing Agent of
</TABLE>
<PAGE>
The Mitchell Gold Co.
Notes to Financial Statements
================================================================================
the Authority (4.57% at April 1998) with an option
to convert to a fixed rate. The proceeds are to be
used to purchase $1 million in equipment which will
be owned by the Company and the remaining $5 million
is to be loaned to the stockholders to construct a
new plant facility which will be leased to the
Company (see Note 7). The proceeds of the loan were
invested in cash equivalents with Norwest Bank, who
is serving as trustee over the bond's proceeds.
Furthermore, the Company obtained a irrevocable
letter of credit of $6,112,000 from SouthTrust Bank
to serve as collateral for the loan.
In 1998, the Company incurred $162,087 in costs
associated with the issuance of the industrial
revenue bonds. Such costs are being amortized over
the length of the loan agreement. Accumulated
amortization at April 30, 1998 was $3,593.
In addition, the loan agreement contains covenants
with respect to debt to tangible net worth and debt
service coverage. At April 30, 1998 after giving
effect to waivers granted by the bank, the Company
is in compliance with the provisions of the
agreement.
5. Commitments and Retirement Plan
Contingencies
The Company sponsors a 401(k) savings plan covering
substantially all employees. Matching contributions
are at the discretion of the Company. Employees vest
immediately in their contributions and are fully
vested in the Company's contributions after 7 years.
The Company's expense under the 401(k) plan was
$32,227 during the year ended April 30, 1998. No
expense was incurred during the year ending April
30, 1997.
Self Insurance Plan
The Company is self-insured for certain health
benefits up to $15,000 and $10,000 per individual,
with certain maximum aggregate policy limits per
claim year. The cost of such benefits is recognized
as an expense in the period the claim occurs. The
cost amounted to $225,043 and $180,079 during the
years ending April 30, 1998 and 1997. Self-insurance
costs are accrued based upon
<PAGE>
The Mitchell Gold Co.
Notes to Financial Statements
================================================================================
the aggregate of the liability for reported claims
and an estimated liability for claims incurred but
not reported.
Operating Leases
The Company leases a showroom, certain warehouses,
and plant facilities. The leases for the existing
warehouses and plant facilities will expire within
the next fiscal year. The leases are not expected to
be renewed due to the construction of a new plant
facility in which operations are expected to
commence in November 1998. The lease for the new
plant facility will be with the Company's
stockholders and ends on the twenty-first
anniversary date of the commencement date. Beginning
at the new plant facility's commencement date,
annual rent will be $600,000 the first year,
$480,000 the second year, and will increase $4,800
each year thereafter. Furthermore, the Company
leases its showroom located in High Point, North
Carolina from its stockholders. The term of the
lease is twenty-one years beginning May 1, 1997 at a
monthly rental of $21,000 for the first year. After
the first year, annual rental will increase $12,600
each year thereafter.
Commitments for minimum rentals under non-cancelable
leases at April 30, 1998 are as follows:
Total
----------------------------------------------------
1999 $ 861,463
2000 797,200
2001 773,000
2002 790,400
2003 806,200
----------------------------------------------------
Total $ 4,028,263
====================================================
Rent expense for the year ending April 30, 1998 and
1997 was approximately $618,000 and $306,000,
respectively, of which $252,000 and $164,000 were
payments to stockholders.
<PAGE>
6. Income Taxes Components of the income tax provision are as
follows:
<TABLE>
<CAPTION>
Year ended April 30, 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Current income tax provision
Federal $ 620,000 $ 318,402
State 150,000 73,137
---------------------------------------------------------------
Total current income tax provision $ 770,000 $ 391,539
===============================================================
</TABLE>
7. Related Party The Company holds a note receivable from the
Transactions stockholders for advances for the construction of
the new plant facility (see Note 5), $391,023 is
outstanding at April 30, 1998. The note bears
interest at a varying rate corresponding with the
industrial revenue bonds (see Note 4) and will
mature November 2017.
<PAGE>
The Mitchell Gold Co.
Balance Sheets
August 31,1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Assets:
Current:
Cash and cash equivalents $ 112,795 $ 18,512
Accounts receivable, net 485,993 560,879
Inventories (Note 3) 5,120,460 3,413,037
Other current assets 122,170 56,037
----------- -----------
Total current assets 5,841,418 4,048,465
----------- -----------
Property and equipment, net 1,991,360 1,519,178
Receivable from stockholders 3,266,302 -
Other assets, including restricted
cash of $3,144,122 at 1998 3,361,242 87,544
----------- -----------
$14,460,322 $5,655,187
=========== ==========
Liabilities:
Current:
Short-term bank borrowings and
current maturities $ 1,331,604 $1,039,033
Accounts payable and accrued liabilities 3,535,268 1,977,667
Income tax payable 103,272 126,599
----------- -----------
Total current liabilities 4,970,144 3,143,299
Long-term debt 6,772,293 1,017,586
----------- -----------
Total Liabilities 11,742,437 4,160,885
----------- -----------
Stockholders' Equity:
Common stock 200 200
Retained earnings 2,717,685 1,494,102
----------- -----------
Total stockholders' equity 2,717,885 1,494,302
----------- -----------
$14,460,322 $5,655,187
=========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
The Mitchell Gold Co.
Statements of Income
Four Months Ended August 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net sales $10,873,217 $7,298,332
Cost of goods sold 8,420,440 5,528,486
----------- -----------
Gross margin 2,452,777 1,769,846
Operating expenses 1,767,927 1,302,268
----------- -----------
Income from operations 684,850 467,578
Other expense (248,986) (162,108)
Other income 90,964 102
----------- -----------
Income before taxes on income 526,828 305,572
Taxes on income 205,199 116,805
----------- -----------
Net income $ 321,629 $ 188,767
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
THE MITCHELL GOLD CO.
STATEMENTS OF CASH FLOW
FOUR MONTHS ENDED AUGUST 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 321,629 $ 188,767
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 68,618 76,666
Changes in operating assets and liabilities:
Inventories (210,934) (439,797)
Other current assets 31,938 (45,444)
Accounts payable and accrued liabilities 745,105 55,039
Income taxes payable (318,884) (13,005)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 637,472 (177,774)
----------- -----------
INVESTING ACTIVITIES
Purchases of fixed assets (430,426) (16,818)
Redemption of restricted cash 2,170,422 --
Advances to stockholders (2,875,279 --
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,135,283) (16,818)
----------- -----------
FINANCING ACTIVITIES
Proceeds (net of repayments) from borrowings 240,424 264,032
Change in factored accounts receivable 300,010 (97,293)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 540,434 166,739
----------- -----------
NET INCREASE (DECREASE) IN CASH
Cash, beginning of period 42,623 (27,853)
Cash, ending beginning of period 70,172 46,365
----------- -----------
$ 112,795 $ 18,512
=========== ===========
</TABLE>
<PAGE>
The Mitchell Gold Co.
Notes to Financial Statements
August 31,1998 and 1997
(Unaudited)
Note 1 - In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position as of August 30, 1998 and 1997 and the results of operations and cash
flows for the nine-months ended August 30, 1998 and 1997.
Note 2 - The results of operations for the nine-months ended August 30, 1998 and
1997 are not necessarily indicative of the results of operations for the full
year.
Note 3 - Inventory components are as follows:
<TABLE>
<CAPTION>
August 30, August 30,
1998 1997
---------- ----------
<S> <C> <C>
Finished Goods $1,269,126 $ 680,737
Work-in-Process 661,389 315,705
Raw Materials 3,189,945 2,416,595
---------- ----------
$5,120,460 $3,413,037
========== ==========
</TABLE>
