<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
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) December 31, 1996
The Eastwind Group, Inc.
------------------------------------------------------------
(Exact name of registrant as specified in its Charter)
<TABLE>
<CAPTION>
Delaware 0-27638 23-2732753
- --------------------------------- --------------------------------- ----------------------------------------
<S> <C> (IRS Employer
(State or other jurisdiction of Commission file Number Identification Number)
incorporation or organization)
</TABLE>
-----------------------------------------------
100 Four Falls Corporate Center
Suite 305
West Conshohocken, PA 19428
(610) 828-6860
-----------------------------------------------
(Address, including zip code, and telephone
number [including area code] of registrant's
principal executive office)
-----------------------------------------------
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) Financial Statements of Tygart Moulding Corporation Page No.
--------------------------------------------------- --------
<S> <C> <C>
Report of Independent Accountants F- 1
Balance Sheets F- 3
Statements of Loss and Retained Earnings F- 5
Statements of Cash Flows F- 7
Notes to the Financial Statements F- 9
(b) Pro Forma Financial Information
-------------------------------
Basis of Presentation F-22
Unaudited Pro Forma Consolidated Statement of Operations for
the Year Ended December 31, 1995 F-23
Unaudited Pro Forma Consolidated Statement of Operations for
the Nine Months Ended September 30, 1996 F-24
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1996 F-25
Notes to Unaudited Pro Forma Consolidated Financial Statements F-26
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Tygart Moulding Corporation
Beverly, West Virginia and
Charlottesville, Virginia
We have audited the accompanying balance sheet of TYGART MOULDING
CORPORATION as of December 31, 1995, and the related statements of loss and
retained earnings, and cash flows for the 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of TYGART
MOULDING CORPORATION as of December 31, 1995, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
This report has been reissued to reclassify the debt due to NationsBank as
currently due, and to present comparative unaudited (compiled) information for
the nine months ended September 30, 1996 and 1995. Our original report for the
year ended December 31, 1995 was issued and was dated March 21, 1996. The
effects of the proposed sale of the Company's assets to the Eastwind Group,
Inc., which is to occur on December 31, 1996, have not been included in this
report.
F-1
<PAGE>
To the Board of Directors
and Stockholders
Tygart Moulding Corporation
REPORT OF INDEPENDENT ACCOUNTANTS--(Cont'd)
We have compiled the accompanying balance sheet of TYGART MOULDING
CORPORATION as of September 30, 1996, and the related statements of income and
retained earnings, and cash flows for the nine months ended September 30, 1996
and 1995, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of the Company's management. We have not
audited or reviewed the accompanying financial statements as of September 30,
1996 and 1995 and, accordingly, do not express an opinion or any other form of
assurance on them.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company is in default of making
loan payments and of other loan covenants with NationsBank. Accordingly,
NationsBank may demand repayment of the loans. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Charlottesville, Virginia
December 30, 1996
F-2
<PAGE>
TYGART MOULDING CORPORATION
---------------------------
Balance Sheets
--------------
December 31, 1995 and September 30, 1996
----------------------------------------
(See Report of Independent Accountants)
ASSETS
------
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
(Audited) (Compiled)
CURRENT ASSETS
- --------------
<S> <C> <C>
Cash and cash equivalents.................... $ 129,375 $ 268,080
Accounts receivable - trade.................. 331,477 315,108
Inventory.................................... 2,392,302 1,740,972
Prepaid expenses............................. 32,321 29,827
Income tax refunds receivable................ 47,479 7,934
Deferred tax asset........................... 93,000 70,000
---------- ----------
Total current assets...................... 3,025,954 2,431,921
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Land and improvements........................ 291,894 291,894
Buildings and improvements................... 2,172,095 2,172,095
Plant machinery and equipment................ 1,959,718 1,975,320
Furniture, fixtures and equipment............ 575,988 456,120
Vehicles..................................... 165,510 165,510
---------- ----------
Total..................................... 5,165,205 5,060,939
Less: Accumulated depreciation.............. 2,513,398 2,598,557
---------- ----------
Net property, plant and equipment....... 2,651,807 2,462,382
---------- ----------
OTHER ASSETS
- ------------
Loan costs - net of accumulated
amortization of $25,362 and $32,496,
respectively.............................. 41,213 34,079
Leasehold improvements, net of
accumulated amortization of $69,696 and
$48,347, respectively..................... 57,527 40,171
---------- ----------
98,740 74,250
---------- ----------
$5,776,501 $4,968,553
========== ==========
</TABLE>
F-3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
(Audited) (Compiled)
CURRENT LIABILITIES
-------------------
<S> <C> <C>
Line of credit............................... $1,539,000 $1,533,000
Notes payable................................ 2,166,784 2,018,324
Current portion of capital lease
obligations................................. 25,886 29,703
Accounts payable............................. 303,264 172,121
Accrued vacation and leave pay............... 127,740 98,295
Accrued salaries and commissions............. 28,459 34,161
Accrued payroll taxes and withholdings....... 22,479 26,346
Sales tax payable............................ 22,904 12,879
Customer deposits............................ 74,607 48,911
Accrued interest............................. 26,919 167,019
---------- ----------
Total current liabilities................ 4,338,042 4,140,759
---------- ----------
LONG-TERM LIABILITIES
---------------------
Note payable to officer...................... 200,000 200,000
Capital lease obligations.................... 97,460 74,014
Deferred income taxes........................ 333,437 93,437
---------- ----------
Total long-term liabilities................. 630,897 367,451
---------- ----------
Total liabilities..................... 4,968,939 4,508,210
---------- ----------
STOCKHOLDERS' EQUITY
--------------------
Common stock - 10(c) par value; authorized
250,000 shares; issued and outstanding
107,300 shares.............................. 10,730 10,730
Paid-in capital............................... 1,470,396 1,355,681
Retained earnings............................. 1,103,207 755,988
---------- ----------
Total..................................... 2,584,333 2,122,399
Less: Deferred compensation - ESSOP.......... ( 1,776,771) ( 1,662,056)
---------- ----------
Net stockholders' equity............... 807,562 460,343
---------- ----------
$5,776,501 $4,968,553
========== ==========
</TABLE>
(The accompanying notes are an integral part of these financial statements)
F-4
<PAGE>
TYGART MOULDING CORPORATION
---------------------------
Statements of Loss and Retained Earnings
----------------------------------------
Year Ended December 31, 1995 and
---------------------------------
Nine-Month Periods Ended September 30, 1995 and 1996
----------------------------------------------------
(See Report of Independent Accountants)
<TABLE>
<CAPTION>
Year Ended Nine Month Periods
December 31, Ended September 30,
-------------------------
1995 1995 1996
---- ---- ----
(Audited) (Compiled) (Compiled)
<S> <C> <C> <C>
NET REVENUES..................... $ 8,714,842 $ 6,443,974 $ 5,573,677
----------- ----------- -----------
COST OF GOODS SOLD
- ------------------
Raw materials.................. 3,487,817 2,550,259 2,373,789
Labor.......................... 1,596,185 1,219,800 1,038,517
Indirect costs................. 702,042 549,999 489,123
Plant depreciation............. 188,752 142,055 136,692
----------- ----------- -----------
Cost of goods sold.......... 5,974,796 4,462,113 4,038,121
----------- ----------- -----------
GROSS PROFIT..................... 2,740,046 1,981,861 1,535,556
- ------------ ----------- ----------- -----------
SELLING, GENERAL AND
- --------------------
ADMINISTRATIVE EXPENSES
-----------------------
Salaries.................... 1,263,565 978,218 780,396
Rent........................ 366,481 275,613 286,406
Advertising................. 100,775 87,612 24,870
Legal and other
professional fees......... 68,508 65,021 185,126
Depreciation................ 72,487 55,387 49,724
Uncollectible accounts...... 16,193 1,638 2,454
Amortization of loan costs 9,510 7,134 7,134
Other general and selling
expenses.................. 685,929 527,843 479,692
----------- ----------- -----------
Total selling, general
and administrative
expenses.................. 2,583,448 1,998,466 1,815,802
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 156,598 ( 16,605) ( 280,246)
- -----------------------------
INTEREST EXPENSE................. ( 396,211) ( 303,867) ( 262,664)
- ----------------
OTHER INCOME (LOSS).............. 20,274 17,493 ( 21,309)
- ------------------- ----------- ----------- -----------
LOSS BEFORE CONTRIBUTIONS TO
- ----------------------------
ESSOP AND INCOME TAX BENEFIT ( 219,339) ( 302,979) ( 564,219)
----------------------------
COMPENSATION EXPENSE - ESSOP . ( 29,738) ( 22,006) ....
- ---------------------------- ----------- -----------
LOSS BEFORE INCOME TAX
- ----------------------
BENEFIT--forwarded............. ( 249,077) ( 324,985) ( 564,219)
-------
</TABLE>
F-5
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Statements of Loss and Retained Earnings--(Cont'd)
- ----------------------------------------
Year Ended December 31, 1995 and
- --------------------------------
Nine-Month Periods Ended September 30, 1995 and 1996
----------------------------------------------------
(See Report of Independent Accountants)
<TABLE>
<CAPTION>
Year Ended Nine Month Periods
December 31, Ended September 30,
--------------------------
1995 1995 1996
---- ---- ----
(Audited) (Compiled) (Compiled)
<S> <C> <C> <C>
LOSS BEFORE INCOME TAX
- ----------------------
BENEFIT--brought forward....... ($ 249,077) ($ 324,985) ($ 564,219)
-------
INCOME TAX BENEFIT............... 210,000 240,000 217,000
- ------------------ ----------- ----------- -----------
NET LOSS......................... ( 39,077) ($ 84,985) ( 347,219)
- --------
RETAINED EARNINGS, BEGINNING
- ----------------------------
OF YEAR AND PERIOD,
-------------------
RESPECTIVELY................... 1,142,284 1,103,207
------------ ----------- -----------
RETAINED EARNINGS, END OF
- ---------------------------------
YEAR AND PERIOD,
----------------
RESPECTIVELY................... $ 1,103,207 $ 755,988
------------ =========== ===========
</TABLE>
(The accompanying notes are an integral part
of these financial statements)
F-6
<PAGE>
<TABLE>
<CAPTION>
TYGART MOULDING CORPORATION
---------------------------
Statements of Cash Flows
-----------------------
Year Ended December 31, 1995 and
--------------------------------
Nine-Month Periods Ended September 30, 1995 and 1996
----------------------------------------------------
(See Report of Independent Accountants)
Year Ended Nine-Month Periods
December 31, Ended September 30,
-------------------
1995 1995 1996
---------- ---------- ----------
(Audited) (Compiled) (Compiled)
CASH FLOWS FROM OPERATING
- -------------------------
ACTIVITIES
----------
<S> <C> <C> <C>
Net loss........................ ($ 39,077) ($ 84,985) ($347,219)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Net (gain) loss on asset
disposition............... ( 2,275) ( 2,275) 35,967
Depreciation................ 261,239 197,442 186,416
Amortization of loan
costs..................... 9,510 7,134 7,134
Compensation expense -
ESSOP..................... 29,738 22,006 ....
(Increase) decrease in:
Accounts receivable....... 19,207 76,084 16,369
Inventory................. 568,083 354,424 651,330
Prepaid expenses and
other assets............ 19,373 20,164 2,494
Income tax refunds 95,479 95,479 39,545
Increase (decrease) in:
Accounts payable.......... 48,739 ( 23,886) ( 131,143)
Other current
liabilities............. 33,896 ( 1,843) 84,503
Bank overdraft............ ( 406,513) ( 233,057) ....
Deferred income taxes..... ( 162,521) ( 192,521) ( 217,000)
-------- -------- --------
Net cash provided by
operating
activities............ 474,878 234,166 328,396
-------- -------- --------
CASH FLOWS FROM INVESTING
- -------------------------
ACTIVITIES
----------
Payments for property and
equipment..................... ( 84,787) ( 84,787) ( 15,602)
Proceeds from sales of
equipment..................... 35,000 35,000 ....
-------- -------- --------
Net cash used in
investing activities...... ( 49,787) ( 49,787) ( 15,602)
-------- -------- --------
</TABLE>
F-7
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Statements of Cash Flows
- ------------------------
Year Ended December 31, 1995 and
- --------------------------------
Nine-Month Periods Ended September 30, 1995 and 1996
----------------------------------------------------
(See Report of Independent Accountants)
<TABLE>
<CAPTION>
Year Ended Nine-Month Periods
December 31, Ended September 30,
-----------------------
1995 1995 1996
---------- ---------- ----------
(Audited) (Compiled) (Compiled)
CASH FLOWS FROM FINANCING
- -------------------------
ACTIVITIES
----------
<S> <C> <C> <C>
Net line of credit draws
(payments)..................... $ 114,904 $ 196,904 ($ 6,000)
Principal payments on debt....... ( 337,687) ( 272,110) ( 168,089)
Payments on stockholders/
officer debt................... ( 95,000) ( 95,000) ....
Amount paid to purchase
terminated employees'
stock vested with ESSOP........ ( 6,693) ( 6,693) ....
-------- -------- ---------
Net cash used in
financing activities ( 324,476) ( 176,899) ( 174,089)
-------- -------- --------
NET INCREASE IN CASH AND CASH
- -----------------------------
EQUIVALENTS........................ 100,615 7,480 138,705
-----------
CASH AND CASH EQUIVALENTS,
- --------------------------
BEGINNING OF YEAR AND PERIODS,
------------------------------
RESPECTIVELY....................... 28,760 28,760 129,375
------------ ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF
- ---------------------------------
YEAR AND PERIODS, RESPECTIVELY $ 129,375 $ 36,240 $ 268,080
------------------------------ ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
- -------------------------------
FLOW INFORMATION
----------------
Cash paid during the year/
periods for:
Interest..................... $ 369,292 $ 303,867 $ 95,645
========== ========== ==========
</TABLE>
(The accompanying notes are an integral part
of these financial statements)
F-8
<PAGE>
TYGART MOULDING CORPORATION
---------------------------
Notes to Financial Statements
-----------------------------
NATURE OF BUSINESS
- ------------------
Tygart Moulding Corporation has been in the business of manufacturing
moulding, flooring, and paneling from lumber and wood products at its plant in
Beverly, West Virginia since 1953. The Company sells and distributes these
products in West Virginia and those states contiguous with West Virginia. On
April 30, 1993, Ivy Industries, Inc. was merged into Tygart Moulding
Corporation and became the Ivy Industries Division of Tygart Moulding
Corporation.
Ivy Industries manufactures finished picture mouldings and frames and finishes
architectural mouldings and doors in Charlottesville, Virginia and wholesales
these items across the United States. It also operates retail stores in
Charlottesville, Richmond, Hampton, and Virginia Beach, Virginia under the
trade name of Picture Parts.
SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL POLICIES
- --------------------------------------------------------
Accounting and Reporting
------------------------
The accounting and reporting policies of the Company conform to generally
accepted accounting principles, which is on the accrual basis of accounting.
The Company has a June 30 year end for income tax reporting.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Cash deposited at the same banking institution
in amounts greater than $100,000 are uninsured and subject to risk of loss.
Accounts Receivable
-------------------
The Company uses the direct write-off method for the recognition of bad
debts. Management does not feel that an allowance for bad debts is
necessary, since its estimate of potential write-offs in the accounts is not
significant as of the balance sheet dates.
The Company's receivables, in the ordinary course of its business, generally
are not secured and subject to certain credit risks.
Inventories
-----------
Inventories are stated at lower of cost or market on the first-in, first-out
basis and consist of the following:
F-9
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL POLICIES--(Cont'd)
- --------------------------------------------------------
Inventories--(Cont'd)
- -----------
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
Raw materials and purchased goods... $ 487,585 $ 205,595
Work in progress.................... 472,788 418,963
Finished goods ..................... 1,431,929 1,116,414
---------- ----------
$2,392,302 $1,740,972
========== ==========
</TABLE>
All intracompany profit has been eliminated from the carrying value of the
inventories.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at cost and are depreciated using
the straight-line method over lives ranging from 30-40 years for buildings
and 5-15 years for leasehold improvements (based on the lease terms), and
from 5-15 years for furniture, fixtures, equipment, and vehicles. Refer to
the MERGER note for assets purchased in the merger with Ivy Industries, Inc.
on April 30, 1993.
Other Assets
------------
At April 30, 1993, the Company capitalized $66,575 of costs paid to procure
new borrowings and a new line of credit facility from NationsBank. These
costs are being amortized at $9,510 per year over the 84-month term of the
notes.
Accrued Vacation and Leave Pay
------------------------------
All vacation and leave time which has been earned, but not used by employees
of the Company as of the balance sheet dates, has been accrued at the
employee's current rate of pay and charged against income in the period
earned.
Income Taxes
------------
Deferred income taxes are provided on temporary differences related to
accelerated depreciation deductions allowed for income tax purposes as
compared to book depreciation over the actual estimated useful lives of the
assets, deferred deductible differences for unpaid vacation and leave pay
accruals, and costs capitalized into inventory based on IRC Section 263A,
less net operating loss carryforwards and AMT credit carryforwards. Any
future income tax liability/asset is estimated based on the federal and
state statutory rates currently in effect.
F-10
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL POLICIES--(Cont'd)
- --------------------------------------------------------
Advertising Costs
-----------------
The Company expenses the production costs of advertising as incurred.
Advertising expenses amounted to $100,775 and $24,870 for the year ended
December 31, 1995 and the nine-month period ended September 30, 1996,
respectively.
Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
- -----------------------------------------
Effective December 31, 1992, the Company adopted an Employee Savings and Stock
Ownership Plan (ESSOP) where the ESSOP purchased 53,620 shares of two
stockholders' common stock to be held in a trust created by the ESSOP. The
Company is guarantor on the note used to purchase these shares in the original
amount of $1,600,020, as well as the remaining liability from the assumption
of Ivy Industries, Inc.'s ESSOP obligation at the time of merger. The
recognition of this note was an offsetting and equal reduction of equity
termed Deferred Compensation.
Beginning in 1994, the Company began accounting for its ESSOP in accordance
with Statement of Position 93-6. As the debt is repaid, shares are released
from collateral and allocated to active employees, based on the proportion of
debt service (principal and interest) paid and accrued through the filing of
the income tax return. As shares are released from collateral, the Company
reports compensation expense equal to the current market price of the shares.
For the year ended December 31, 1995, an independent appraisal of the
Company's common stock was completed July 12, 1996 at a value per share of
$4.85. As of September 30, 1996, there were no shares committed to be
released by NationsBank. The ESSOP shares as of December 31, 1995 and
September 30, 1996 were as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
Committed to be released shares........ 6,131.40 ....
Estimated fair market value per share x $ 4.85 x $ ....
-------- ---------
Compensation expense................. $ 29,738 $ ....
========= =========
ESSOP debt principal paid.............. $ 325,395 $114,715
Less: Difference in fair market
value of shares...................... ( 295,657) ( 114,715)
Compensation expense ............. $ 29,738 $ ....
========= =========
</TABLE>
F-11
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN--(Cont'd)
- -----------------------------------------
As an incentive for employees to contribute pre-tax income to the 401(k)
savings portion of the ESSOP, the Company has agreed to match the employee's
401(k) contribution at the rate of 50%, with no matching on contribution
amounts over 4% of the employee's annual compensation. The match is made with
Company shares held in the trust created by the ESSOP. All employees who meet
the specified criteria of the plan with over 1,000 hours of service are
eligible to participate in the plan. Effective October 10, 1996, the Employee
Savings and Stock Ownership Plan was terminated.
DEFERRED COMPENSATION
- ---------------------
As the Company pays principal on the ESSOP debt, the balance of deferred
compensation (equity) is decreased by an equal amount. However, the December
31, 1995 payment due on the ESSOP debt was not received by the bank until
January, 1996, but the Company recorded compensation expense, reduced the
deferred compensation, and calculated the release of shares to the ESSOP as if
paid on December 31, 1995. Accordingly, the matching ESSOP debt and deferred
compensation can be reconciled as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
Deferred compensation ................ $1,776,771 $1,662,056
December ESSOP principal ............. 28,181 ....
---------- ----------
ESSOP debt principal ............... $1,804,952 $1,662,056
========== ==========
</TABLE>
LINE OF CREDIT
- --------------
The Company is obligated on a line of credit to NationsBank for $1,539,000 at
December 31, 1995 and $1,533,000 at September 30, 1996. Interest is payable
monthly at a rate of prime plus 2%. The maximum limit subject to borrowing
base restrictions on this line of credit is $1,700,000 and is secured by all
real estate, equipment, furniture and fixtures, accounts receivable, and
inventory. The borrowing base for the amount of the loan may not exceed 75%
of the eligible accounts receivable plus 50% of the eligible inventory. The
Company had exceeded the borrowing base on the line at December 31, 1995. The
line expired March 31, 1996.
NOTES PAYABLE
- -------------
Notes payable of the Company are summarized below:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
ESSOP note payable to NationsBank in 84
monthly installments of principal,
plus interest at 6.5% from May, 1993
through April, 2000 .................. $1,536,523 $1,525,385
</TABLE>
F-12
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
NOTES PAYABLE--(Cont'd)
- -------------
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
ESSOP note payable to NationsBank with
monthly payments of principal and
interest at 90% of the prime rate from
May, 1993 through September, 1996 ......... $ 268,429 $ 136,671
Note payable to NationsBank on 84-month
amortization schedule of principal and
interest at 8.2%, with a balloon
payment of $273,688 on April 30, 2000 361,832 356,268
---------- ----------
Total notes payable................... $2,166,784 $2,018,324
========== ==========
</TABLE>
The notes payable to NationsBank represent the guarantee of the Company for
the purchase of common stock by the ESSOP and $400,000 of additional borrowing
to pay off pre-merger existing debt. The notes are secured by all real
estate, equipment, furniture and fixtures, accounts receivable, and inventory.
The notes payable and line of credit to NationsBank (as amended) contain
financial covenants which require the maintenance of tangible net worth of not
less than $1,200,000 as of December 31, 1995. These covenants also require
the maintenance of a debt-to-equity ratio of not greater than 3.75 to 1, a
current ratio of not less than 1.20 to 1, and a debt coverage ratio of not
less than 1.50 to 1 for the year ended December 31, 1995. Other covenants
restrict the purchase and sale of assets, additional borrowings, stock
redemptions, payment of dividends, and stockholder, officer, and employee
loans.
These agreements also state that the Company must maintain a net worth of not
less than $1,500,000 at December 31, 1996, and the ratio of total liabilities
to net worth cannot exceed 2.5 to 1 as of that date.
The Company was in technical default on the Tangible Net Worth, Leverage,
Current, and Debt Coverage ratio covenants at December 31, 1995, and has not
received a waiver from the Bank regarding these technical defaults. Also, the
Company was in default of the loan payments and interest on all notes after
April, 1996. Accordingly, the notes are due on demand by the Bank and are
classified as current liabilities on the Balance Sheet at December 31, 1995
and September 30, 1996.
F-13
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
NOTES PAYABLE--(Cont'd)
- -------------
Maturities of long-term liabilities are as follows for the next five years
(assuming they are not called by the bank):
<TABLE>
<S> <C>
1996 ............................................ $ 401,017
1997 ............................................ 404,283
1998 ............................................ 440,018
1999 ............................................ 478,911
2000 ............................................ 442,555
----------
Total ......................................... $2,166,784
==========
</TABLE>
CAPITAL LEASES
- --------------
Capital lease obligations of the Company are summarized below:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
Lease payable to Centura Bank in 60
monthly payments of $2,377,
including interest at an implicit
rate of 10.5%, with a buyout of
$12,000 in September, 1999;
secured by a kiln................... $ 93,918 $ 80,526
Lease payable to Facility Capital Corp.
in 60 monthly payments of $703,
including interest at an implicit
rate of 15%, with a buyout of $3,069
in September, 1999; secured by a
boiler.............................. 23,460 20,177
Lease payable to Business Credit
Leasing in 36 monthly payments of
$372, including interest at an
implicit rate of 20% through August,
1997; secured by computer system.... 5,968 3,014
-------- --------
Total capital lease obligation 123,346 103,717
Less: Current portion ............... ( 25,886) ( 29,703)
Capital lease obligations,
long-term................. $ 97,460 $ 74,014
======== ========
<CAPTION>
Obligations under these lease arrangements are as follows:
Total Net
Payments Interest Obligation
-------- -------- ----------
<S> <C> <C> <C>
1996.......................... $ 38,762 $ 12,876 $ 25,886
1997.......................... 39,939 9,209 30,730
1998.......................... 36,963 5,738 31,225
1999.......................... 37,444 1,939 35,505
-------- -------- --------
Total..................... $153,108 $ 29,762 $123,346
======== ======== ========
</TABLE>
F-14
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
The Company has entered into lease agreements for retail store space at six
locations. The lease terms are typically for five years with an option to
extend for five additional years, and some include provisions for additional
rent based on gross sales volume. One store's lease was terminated in 1996,
which obligated the Company to pay a $35,000 termination fee. The Company
paid $18,000 of this fee on February 1, 1996 and will pay the remaining
$17,000, evidenced by a promissory note, in twelve monthly installments
beginning February 1, 1996. Lease expense was $366,481 and $286,406 for the
year ended December 31, 1995 and for the nine months ended September 30, 1996
under these agreements, respectively.
Approximate minimum future obligations of base rent under these lease
arrangements as of any December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 ........................................... $300,000
1997 ........................................... 249,000
1998 ........................................... 237,000
1999 ........................................... 148,000
2000 ........................................... 20,000
--------
Total ........................................ $954,000
========
</TABLE>
In 1996, the Company closed two of its retail stores, the Pocono Green store
in Richmond, and the Townside store in Roanoke and incurred a loss of
approximately $35,000.
On or after May 1, 1996, stockholders owning approximately 22% of the
Company's stock have the irrevocable right to sell the Company their stock at
the fair value as of the date of redemption. The Company has the option to
fulfill this obligation with a five-year note with annual installments to
redeem the shares from the date of written notice from the shareholder, or the
ESSOP can purchase the shares within one year. NationsBank prohibited these
stockholders from exercising their right to sell the shares in 1996.
The Company is contingently obligated under the Tygart Moulding Employee
Savings and Stock Ownership Plan to provide a "put option" to any participants
who receive a distribution of Company stock upon the participant's
termination, reaching retirement age, becoming disabled, or death. The "put
option" shall permit the participant (or beneficiary) to sell such Company
stock to the Company at any time during two option periods, at the then fair
market value of the stock. The Company also has the "right of first refusal"
to buy back Company stock distributed to participants if the participant has
received a bona fide offer from an independent buyer. The Company has made
discretionary cash contributions to the Plan each year to begin funding this
future repurchase liability obligation, which approximates $165,000 as of
December 31, 1995, based on the release of approximately 34,000 shares at the
independent appraised value of $4.85 per share. At September 30, 1996, the
value of these shares was approximately $6,000 as determined by Company
management.
F-15
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
COMMITMENTS AND CONTINGENCIES--(Cont'd)
- -----------------------------
Effective April 30, 1993, a pre-merger stockholder of Tygart Moulding
Corporation (not eligible for some ESSOP benefits) has entered into a phantom
stock agreement with the Company which will provide for essentially the same
benefits as would be provided under the ESSOP plan. As of January 1, 1995,
the Company had issued 135.1547 shares of phantom stock to this individual
with a value of $650, which is 100% vested.
INCOME TAXES
- ------------
The Company's benefit for income taxes differs from applying statutory income
tax rates to the book loss primarily due to the difference between the cost
and fair market value of the committed-to-be-released ESSOP shares, as
follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
Net loss before income taxes......... ($249,077) ($564,219)
Differences in fair market value of
released shares.................... ( 295,657) ....
---------- ----------
( 544,734) ( 564,219)
Estimated tax rate................... x 38.5% x 38.5%
---------- ----------
209,723 217,224
Tax benefit rounding................. 277 ( 224)
---------- ----------
Income tax benefit................... $ 210,000 $ 217,000
========== ==========
Comprised of:
Current tax receivable........... $ 47,479 $ ....
Deferred tax decrease............ 162,521 217,000
---------- ----------
$ 210,000 $ 217,000
========== ==========
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Section 263A inventory ................ ($ 48,000) ($ 32,000)
Vacation and sick pay ................. ( 50,000) ( 38,000)
Net operating loss carryovers ......... ( 270,000) ( 524,000)
AMT credit carryover .................. ( 27,000) ( 2,000)
Other ................................. ( 15,000) ( 18,000)
-------- --------
Total ............................... ( 410,000) ( 614,000)
Deferred tax liabilities:
Tax greater than book accumulated
depreciation......................... $ 650,437 $637,437
---------- --------
Net deferred tax liability......... $ 240,437 $ 23,437
========== ========
</TABLE>
F-16
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
INCOME TAXES--(Cont'd)
- ------------
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
Presented in the accompanying balance sheets as:
Deferred tax asset (current) ....... ($ 93,000) ($ 70,000)
Deferred tax liability (long-term) . 333,437 93,437
-------- --------
Net deferred tax liability......... $240,437 $ 23,437
======== =========
</TABLE>
For income tax purposes, the Company has approximately $700,000 of net
operating loss carryforwards from Ivy Industries, Inc. to reduce future
taxable income through 2007. Due to the change in ownership rules, the
utilization of these net operating losses is limited to approximately $60,000
per year, which carry over if not utilized. The Company also has
approximately $2,000 in AMT credit carryovers which can be used to offset
regular federal tax liabilities indefinitely.
RELATED PARTY TRANSACTIONS
- --------------------------
Immediately upon merging with Ivy Industries, Inc., the Tygart Moulding
Employee Savings and Stock Ownership Plan (ESSOP) purchased 53,620 shares from
two of the pre-merger stockholders of Tygart Moulding Corporation for
$1,600,020. The merger agreement also contains various employment, covenants
not to compete, and pension agreements with the pre-merger stockholders of
Tygart Moulding Corporation which stipulate work requirements for a
stockholder/ officer of the Company, a general agreement for the pre-merger
stockholders not to compete with the Company under specified conditions, and a
phantom stock agreement for one of the pre-merger stockholders, essentially
equivalent to other employees' ESSOP arrangements.
Prior to the merger, the pre-merger stockholders were issued notes for
$160,125 relating to previous commitments which had not been paid. The
Company paid $100,125 on these notes in 1994. The remaining $60,000 note was
paid during 1995.
Note payable to officer consists of a demand note due January 26, 1996 of
$200,000 which pays interest at the bank's rate. The note is unsecured and
upon the occurrence of an event of default under the credit agreement with
NationsBank, or if making of any payment on this note would cause an event of
default, the indebtedness evidenced by this instrument shall be subordinated
to the prior payment in full of all obligations of the Company under the
credit agreement with NationsBank. Accordingly, it is classified as a long-
term liability.
The Company also owed a stockholder/officer of the Company on an unsecured
demand note of $35,000 as of December 31, 1994, which was fully paid in 1995.
F-17
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
RELATED PARTY TRANSACTIONS--(Cont'd)
- --------------------------
The trustees of the ESSOP (which holds approximately 74% of the Company's
stock) are also stockholders and officers of Tygart Moulding Corporation.
Several stockholders/officers of the Company set up the LPS Limited Liability
Company (LLC) to purchase lumber and sell it to the Company. During 1995,
this LLC purchased and sold lumber to the Company amounting to approximately
$325,000. There was no amount owed to LPS as of December 31, 1995, and there
was no inventory in transit between the companies and no formal commitments by
the Company to purchase any additional inventory.
During 1995, the Company sold a 1987 International Truck to a shareholder for
$15,000, which resulted in a gain of $12,280. The Company also has an
informal leasing arrangement with the same shareholder for approximately $550
per month.
The Company also leases a building from a shareholder for approximately $600 a
month, again under an informal arrangement.
MERGER
- ------
On April 30, 1993, Ivy Industries, Inc. was merged into Tygart Moulding
Corporation in a tax-free reorganization under Section 368 of the Internal
Revenue Code. The merger was accomplished by recapitalizing Tygart Moulding
Corporation's common stock in a 615.25-for-one stock split and then issuing
34,816 shares of Tygart Moulding Corporation 10c par common stock in a one-
for-one stock swap with the shareholders of Ivy Industries, Inc. Immediately
following the merger, Ivy Industries, Inc. was liquidated and Tygart Moulding
Corporation was the surviving Company.
Because of a pre-arrangement for the Tygart Moulding ESSOP to purchase 53,620
shares of the pre-merger stockholders' shares for $1,600,020 upon completion
of the merger on April 30, 1993, pooling was precluded, and the transaction
has been accounted for as a purchase of Ivy Industries, Inc. as follows:
<TABLE>
<S> <C>
Independent appraisal of the fair market value
of Ivy Industries, Inc. ..................... $1,038,909
Ivy Industries, Inc. net stockholders' equity,
April 30, 1993 .............................. 736,027
----------
Excess of fair market value (purchase
price) over book value .................. $ 302,882
==========
</TABLE>
F-18
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
MERGER--(Cont'd)
- ------
Consequently, the assets and liabilities of Ivy Industries, Inc. were assumed
and recorded on the books of Tygart Moulding Corporation on April 30, 1993 at
their respective fair market values which, except for the building, were not
significantly different from their book values as of that date. The $302,882
excess of fair value over book value was allocated to the building based upon
recent independent appraisals and will be depreciated over the estimated life
of the building. The original cost of the fixed assets and the accumulated
depreciation was carried over from Ivy Industries' books, rather than
transferring the net value of the assets, to maintain a continuity of
depreciation records for these assets.
Subsequent to the merger, the directors of Ivy Industries, Inc. and the
related ESSOP became directors of Tygart Moulding Corporation and the related
ESSOP.
EQUITY TRANSACTIONS
- -------------------
During the year ended December 31, 1995, the Company repurchased shares of
terminated employees. Accordingly, the Company paid $6,693 for 690 shares of
its common stock, which were then retired. The effect on equity was as
follows:
<TABLE>
<CAPTION>
Common Stock Paid-In Capital
------------ ---------------
<S> <C> <C>
Balance, December 31, 1994............ $10,799 $1,772,677
Repurchase of 690 shares at 10c
par value ........................... ( 69) ( 6,624)
Difference between fair market and
cost of committed-to-be-released
shares from ESSOP.................... .... ( 295,657)
------- ----------
Balance, December 31, 1995............ $10,730 $1,470,396
======= ==========
<CAPTION>
Common Stock Paid-In Capital
------------ ---------------
<S> <C> <C>
Balance, December 31, 1995............ $10,730 $1,470,396
Payment of ESSOP principal, no
shares released...................... .... ( 114,715)
------- ----------
Balance, September 30, 1996........... $10,730 $1,355,681
======= ==========
</TABLE>
MAJOR VENDORS
- -------------
The Company purchased approximately 40% of its lumber from one vendor during
the year ended December 31, 1995.
F-19
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The following table summarizes the carrying amounts and estimated fair values
of the Company's significant financial instruments for which it is practicable
to estimate that value at December 31, 1995:
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Cash and cash equivalents ......... $ 129,375 $ 129,375
Notes payable ..................... $3,905,784 $3,905,784
</TABLE>
The following table summarizes the carrying amounts and estimated fair values
of the Company's significant financial instruments for which it is practicable
to estimate that value at September 30, 1996:
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Cash and cash equivalents ......... $ 268,080 $ 268,080
Notes payable ..................... $3,751,324 $3,751,324
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents - The carrying amount approximates fair value
-------------------------
because of the short maturity of those instruments.
Notes Payable - The estimated fair value of notes payable is based on the
-------------
current rates offered for debt of the same remaining maturities.
RECLASSIFICATIONS
- -----------------
Certain accounts on these financial statements have been reformatted or
reclassified from the previously issued audit report. Except for the
reclassification of the NationsBank Notes Payable as currently due, these
changes are not material to the overall presentation of the financial
statements.
SUBSEQUENT EVENTS
- -----------------
On December 31, 1996, The Eastwind Group, Inc. entered into an agreement to
purchase all the assets of Tygart Moulding Corporation for approximately $3.55
million to pay off the existing NationsBank notes and assume certain other
liabilities of the Company. The financial statements have not been adjusted
for the effects of this transaction.
F-20
<PAGE>
TYGART MOULDING CORPORATION
- ---------------------------
Notes to Financial Statements--(Cont'd)
- -----------------------------
SUBSEQUENT EVENTS--(Cont'd)
- -----------------
Effective October 10, 1996, the Employee Savings and Stock Ownership Plan was
terminated.
F-21
<PAGE>
THE EASTWIND GROUP, INC.
------------------------
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
----------------------------------------
BASIS OF PRESENTATION
---------------------
The following unaudited pro forma consolidated financial statements should be
read in conjunction with The Eastwind Group, Inc. ("Eastwind") historical
consolidated financial statements and notes thereto filed with Eastwind's annual
report on Form 10-KSB for the year ended December 31, 1995, the quarterly report
of Form 10-QSB for the quarter ended September 30, 1996, Form 8-K/A dated
December 31, 1996, and the Form 8-K dated December 31, 1996, and the historical
financial statements and notes thereto of Tygart Moulding Corporation ("Tygart")
filed pursuant to item 7(a) of this report on Form 8-K/A.
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 1995 and the nine months ended September 30, 1996, give
effect to the acquisition of Tygart by Eastwind as if it had occurred at the
beginning of the periods presented. The unaudited pro forma condensed
consolidated balance sheet as of September 30, 1996, gives effect to the
acquisition as if it had occurred on that date. The pro forma results are not
necessarily indicative of results of operations had the acquisition taken place
at the beginning of the year.
F-22
<PAGE>
THE EASTWIND GROUP, INC.
------------------------
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
-----------------------------------------------------------------------
Pro Forma
Eastwind Tygart Adjustments Pro Forma
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 34,211,000 $ 8,715,000 $ -- $ 42,926,000
COST OF GOODS SOLD 25,896,000 5,975,000 (402,000)(B)(E)(C) 31,469,000
------------- ------------- ------------- -------------
Gross profit 8,315,000 2,740,000 402,000 11,457,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE
7,689,000 2,593,000 (118,000)(B)(D)(C) 10,164,000
------------- ------------- ------------- -------------
Operating income 626,000 147,000 520,000 1,293,000
INTEREST EXPENSE 1,301,000 396,000 (16,000)(A) 1,681,000
------------- ------------- ------------- -------------
Loss before extraordinary item
and tax benefit (675,000) (249,000) 536,000 (388,000)
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT (218,000) -- -- (218,000)
------------- ------------- ------------- -------------
Loss before income tax benefit (893,000) (249,000) 536,000 (606,000)
INCOME TAX BENEFIT 15,000 210,000 (210,000)(F) 15,000
------------- ------------- ------------- -------------
NET LOSS (878,000) $ (39,000) $ 326,000 $ (591,000)
============= ============= ============= =============
PREFERRED STOCK DIVIDENDS (54,000) (54,000)
------------- -------------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $ (932,000) $ (645,000)
============= =============
EARNINGS PER COMMON
SHARE $ (.80) $ (.55)
============= =============
SHARES USED IN COMPUTING
EARNINGS PER COMMON
SHARE 1,167,982 1,167,982
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-23
<PAGE>
THE EASTWIND GROUP, INC.
------------------------
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996
-----------------------------------------------------------------------
Pro Forma
Eastwind Tygart Adjustments Pro Forma
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 28,412,000 $ 5,574,000 $ -- $ 33,986,000
COST OF GOODS SOLD 21,735,000 4,038,000 (294,000)(B)(C)(E) 25,479,000
------------- ------------- ------------- -------------
Gross profit 6,677,000 1,536,000 294,000 8,507,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,138,000 1,837,000 (64,000)(B)(C) 7,911,000
------------- ------------- ------------- -------------
Operating income (loss) 539,000 (301,000) 358,000 596,000
INTEREST EXPENSE 875,000 263,000 22,000(A) 1,160,000
------------- ------------- ------------- -------------
Loss before income taxes (336,000) (564,000) 336,000 (564,000)
INCOME TAXES (Benefit) 120,000 (217,000) 217,000(F) 120,000
------------- ------------- ------------- -------------
NET LOSS (456,000) $ (347,000) $ 119,000 (684,000)
============= =============
PREFERRED STOCK DIVIDENDS (98,000) (98,000)
------------- -------------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $ (554,000) $ (782,000)
============= =============
EARNINGS PER COMMON
SHARE $ (.27) $ (.38)
============= =============
SHARES USED IN COMPUTING
EARNINGS PER COMMON
SHARE 2,035,628 2,035,628
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE>
THE EASTWIND GROUP, INC.
------------------------
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
--------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1996
--------------------------------------------------------------------------
Pro Forma
Eastwind Tygart Adjustments Pro Forma
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 2,217,000 $ 268,000 $ (310,000) $ 2,175,000
Accounts receivable 8,198,000 315,000 -- 8,513,000
Inventories 2,188,000 1,741,000 -- 3,929,000
Prepaid expenses 359,000 108,000 (70,000) 397,000
---------------- -------------- -------------- ----------------
Total current assets 12,962,000 2,432,000 (380,000) 15,014,000
PROPERTY, PLANT AND EQUIPMENT, NET 5,128,000 2,503,000 (789,000) 6,842,000
INVESTMENTS 700,000 -- -- 700,000
OTHER ASSETS 737,000 34,000 1,000 772,000
GOODWILL 5,082,000 -- -- 5,082,000
---------------- -------------- -------------- ----------------
$ 24,609,000 $ 4,969,000 $ (1,168,000) $ 28,410,000
================ ============== ============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Lines of credit $ 3,457,000 $ 1,533,000 $ (784,000) $ 4,206,000
Current portion of long-term debt 1,370,000 2,048,000 (1,891,000) 1,527,000
Accounts payable 4,332,000 185,000 -- 4,517,000
Accrued expenses 1,215,000 159,000 -- 1,374,000
Other current liabilities 191,000 216,000 (167,000) 240,000
---------------- -------------- -------------- ----------------
Total current liabilities 10,565,000 4,141,000 (2,842,000) 11,864,000
---------------- -------------- -------------- ----------------
LONG-TERM DEBT 4,808,000 274,000 2,228,000 7,310,000
---------------- -------------- -------------- ----------------
OTHER NON-CURRENT LIABILITIES 983,000 93,000 (93,000) 983,000
---------------- -------------- -------------- ----------------
REDEEMABLE SERIES B PREFERRED STOCK 900,000 -- -- 900,000
---------------- -------------- -------------- ----------------
STOCKHOLDERS' EQUITY:
Common stock 232,000 11,000 (11,000) 232,000
Warrants outstanding 1,233,000 -- -- 1,233,000
Additional paid-in capital 5,837,000 1,356,000 (1,356,000) 5,837,000
Retained earnings 51,000 756,000 (756,000) 51,000
Deferred compensation - ESOP -- (1,662,000) 1,662,000 --
---------------- -------------- -------------- ---------------
Total stockholders' equity 7,353,000 461,000 (461,000) 7,353,000
---------------- -------------- -------------- ----------------
$ 24,609,000 $ 4,969,000 $ (1,168,000) $ 28,410,000
================ ============== ============== ================
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
THE EASTWIND GROUP, INC.
------------------------
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
1. EASTWIND HISTORICAL:
-------------------
The historical balances for the year ended December 31, 1995, and for the nine
months ended September 30, 1996, represent the results of operations after
giving effect to the acquisitions of The Polychem Division of the Budd Company,
which occurred on March 10, 1995, and the acquisition of Centennial Printing
Corporation, which occurred on October 17, 1996, as if the acquisitions occurred
on January 1, 1995, as reported in the Company's Form 8-K/A filed December 31,
1996.
2. TYGART ACQUISITION:
------------------
On December 31, 1996, a majority-owned subsidiary of the Company acquired
substantially all of the assets and assumed certain liabilities of Tygart
Moulding Corporation ("Tygart"). The total consideration paid by the Company was
$3,564,000, of which $3,304,000 was financed through new debt incurred. The
acquisition has been accounted for using the purchase method of accounting,
whereby the purchase price is allocated to the assets and liabilities of Tygart
based on the fair market values at the acquisition date. Such allocation has
been based on estimates that may be revised at a later date. The fair market
value of the net assets acquired, based on an appraisal of property, plant and
equipment and book value for other assets acquired and liabilities assumed,
exceed the purchase price by approximately $____. For financial reporting
purposes, this excess reduced the fair market value of property plant and
equipment.
The unaudited pro forma consolidated statements of operations for the year ended
December 31, 1995, and the nine months ended September 30, 1996, contain the
results of Tygart for the twelve and nine months, respectively.
Unaudited Pro Forma Adjustments to Consolidated Statements of Operations
- ------------------------------------------------------------------------
A. Interest expense is reduced by $16,000 for the year ended December 31,
1995, and increased by $22,000 for the nine months ended September 30,
1996, to account for the debt incurred in the acquisition.
B. Reduction in depreciation expense of $156,000 and $107,000 for the year
ended December 31, 1995, and the nine months ended September 30, 1996,
respectively, based on the write down of property, plant and equipment
discussed above.
C. Reduction in payroll expense of $429,000 and $322,000 resulting from the
termination of employees offset by new management compensation of $115,000
and $86,000 for the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively.
F-26
<PAGE>
D. Elimination of compensation expense of $30,000 for the year ended December
31, 1995 relating to the ESSOP terminated upon the purchase of Tygart.
E. Elimination of rent expense of $20,000 and $15,000 for the year ended
December 31, 1995 and the nine months ended September 30, 1996,
respectively related to a facility lease not assumed by the Company.
F. The elimination of the federal tax benefit of $210,000 and $217,000 based
on a pro forma consolidated loss before income taxes for the year ended
December 31, 1995 and the nine months ended September 30, 1996,
respectively.
F-27
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE EASTWIND GROUP, INC.
Date: March 17, 1997 /s/ WILLIAM B. MILLER
--------------------------------
William B. Miller
Senior Vice President and
Chief Financial Officer
