UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] Annual report pursuant to section 13 or 15(d) of The Securities Exchange
Act of 1934 ("Exchange Act") [Fee Required]
For the fiscal year ended June 30, 1999
[ ] Transition report pursuant to section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from _________ to __________
Commission file number 33-42408-NY
WESTBURY METALS GROUP, INC.
(Name of small business issuer in its charter)
New York 11-3023099
(State or other jurisdiction (I.R.S. Employer of incorporation
or organization) Identification No.)
750 Shames Drive, Westbury, New York 11590
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (516) 997-8333
Securities Registered under Section 12(b) of the Exchange Act:
None
Securities Registered under Section 12(g) of the Exchange Act:
Title of Each Class: Common Stock, Par Value $.001
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes x . No .
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. []
<PAGE>
The issuer's net revenues for its most recent fiscal year were $34,469,788
The aggregate market value of the issuer's voting stock held as of September 13,
1999 by non-affiliates of the issuer, based upon the average of the closing bid
and asked prices on that date was approximately $540,000.
As at September 13, 1999, 3,247,312 shares of the issuer's Common Stock, $.001
par value, were outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes . No X .
<PAGE>
This Form 10-KSB contains forward-looking statements. Additional written and
oral forward-looking statements may be made by the Company from time to time in
Securities and Exchange Commission ("SEC") filings and otherwise. The Company
cautions readers that results predicted by forward-looking Statements,
including, without limitation, those relating to the Company's future business
prospects, revenues, working capital, liquidity, capital needs and income are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward-looking statements due to
risks and factors identified in this Form 10-KSB and as may be identified from
time to time in the Company's future filings with the SEC.
Item 1. Business
The Company
On June 18, 1998, the Company name was changed from Rosecap, Inc. to Westbury
Metals Group, Inc.(the "Company" or "WMG"). On March 31, 1998 Rosecap, Inc.
entered into a merger between Westbury Acquisition Corp. ("WAC"), a wholly owned
subsidiary of the Company, and Westbury Alloys, Inc., ("Westbury") a Delaware
Corporation, the surviving entity. The merger was a reverse merger whereby the
principals of Westbury became the principals and the largest shareholders of the
Company. The Company commenced the operations of Westbury after the consummation
of the merger. Prior to the merger, the Company, which was incorporated in 1990,
had not conducted any operations and reported as a development stage enterprise.
On March 30, 1998, West Tech, Inc. was formed as a subsidiary of the
Company for the manufacture and sale of silver in various forms and shapes,
plating salts and tin and tin-lead anodes which are used in manufacturing. The
Company anticipates increasing its product lines to include precious metal
casting grains, alloys, and mill products. In May 1998, the Company acquired the
registered trade name "Onic" for use in the manufacture and sale of its high
quality tin products.
<PAGE>
On July 16, 1999, the Company, through its wholly owned subsidiary,
Reliable - West Tech, Inc., ("RWT") (formerly known as West Tech, Inc.),
purchased substantially all of the assets (excluding cash and accounts
receivable) of Reliable Corporation, ("Reliable") pursuant to an Asset Purchase
Agreement dated May 5, 1999, as amended on July 1, 1999, and as modified by an
Escrow Agreement dated July 1, 1999. This transaction was effective as of June
30,1999 for accounting purposes, as all assets purchased by the Company were
conveyed on that date. Reliable is a manufacturer of silver semi-fabricated
products similar to those manufactured by West Tech. RWT will use the purchased
assets to continue the business operations of Reliable.
The purchase price for the assets was $1,915,000. Of this amount,
$1,000,000 was paid in cash and the balance was paid with a six year, seven
percent self-amortizing promissory note with a principal amount of $915,000. The
note was secured by a security agreement granting a security interest in the
machinery, equipment and customer list purchased pursuant to this transaction.
RWT paid an additional $192,578 in cash for the purchase of Reliable's metals
inventory. The cash portion of the purchase price was funded by a combination of
the Company's funds and the proceeds of certain financing described below. The
Company also incurred acquisition costs of $58,076 in connection with the
Reliable purchase.
As part of this transaction, Rajendra A. Shukla, the President and sole
shareholder of Reliable, sold to the Company the building and real property at
which Reliable operated its business for $185,000. RWT plans to continue its
business operations from this location. The purchase price was paid with a six
year, seven percent self amortizing promissory note from RWT in the principal
amount of $185,000. The owner of record of the property is Westbury Realty
Management, Inc.("Westbury Realty"), a wholly owned subsidiary of the Company.
The note was secured by the guaranty of Westbury Realty, and such guaranty was
secured by a first mortgage on the purchased real property. At the Closing, RWT
entered into a three year employment agreement with Rajendra A. Shukla. Mr.
Shukla shall serve as President of the RWT subsidiary.
<PAGE>
On July 13, 1999 RWT, Westbury International, Inc and Westbury Alloys,
Inc.,( all wholly owned subsidiaries of the Company) as co-borrowers, closed a
financing transaction with BankBoston, N.A. pursuant to which the co-borrowers
received a $12,000,000 revolving credit loan, with a $7,000,000 sublimit for a
consignment facility and a $1,500,000 credit facility for forward contracts and
executed a Loan and Consignment Agreement and a Revolving Credit Promissory Note
in the principal amount of $12,000,000. The co-borrowers' obligations are
secured by a security interest in the assets of the co-borrowers and the
guaranties of the co-borrowers; such obligations are further secured by an
Unlimited Guaranty Agreement of the Company, which is secured by a first
priority security interest in all of its tangible and intangible personal
property and by a pledge of the stock of RWT, Westbury International, Inc and
Westbury Alloys, Inc.
On July 15, 1999, the Company, RWT, Westbury International, Inc. and
Westbury Alloys, Inc., as co-borrowers closed a financing transaction with
Alliance Capital Investments Corp.("Alliance"),pursuant to a Loan Agreement
dated July 13, 1999, pursuant to which the co-borrowers received a $2,000,000
term loan and executed a Loan Agreement and a Term Promissory Note in the
principal amount of $2,000,000. The co-borrower's obligations are secured by a
second priority security interest in the assets of the co- borrowers. As further
consideration for the loan, pursuant to an Agreement dated as of July 13,1999
the Company granted to Alliance a Warrant for the purchase of 90,000 shares of
the Company's common stock at an exercise price of $3.00 per share, such Warrant
to remain outstanding until July 15, 2009.
Products and Services
From its facilities in Westbury, New York the Company provides a broad
range of processing, refining and financial services in connection with the
reclamation of precious and specialty metals from primary and secondary sources.
The Company reclaims principally gold, silver, platinum and palladium from scrap
and residues from the electronics, jewelry, petroleum, dental, chemical,
automotive, mining and aerospace industries. After controlled weighing,
sampling, and assaying to determine values and to settle with the customer, the
Company either purchases the precious metal or returns metal to the customer.
Through its 98% owned Peruvian subsidiary Alloy Trading S.A., the Company
imports metals for its own use, as well as for direct sales to third parties.
The Company has not encountered significant difficulties in purchasing
scrap or raw materials for its refining process. Management is continually
searching for improved sources of materials and believes that if any one source
of raw materials becomes unavailable, alternative sources of supply can be found
at comparable prices, but there can be no assurance thereof.
On July 1, 1998 Westbury International, Inc., was formed to provide risk
management services. Activities include metals leasing, inventory financing,
cash and forward purchases and sales for internal metals management requirements
and as a profit center dealing with third parties.
<PAGE>
Research and Development
The Company is engaged in various research and development activities at
its Westbury, New York facility. The Company is, among other things, researching
and developing refining and processing techniques that produce less
environmental waste. The Company is currently developing preparations of
precious and specialty metals to improve processing capabilities. No assurance
can be given that the Company's research efforts will be successful.
Consultants
From time to time the Company retains consultants to assist in specific
requirements of product development and plant operations as well as the
administrative areas of computer systems and business plan development.
Competition
The precious metals refining industry is highly competitive. Many of the
companies with which the Company currently competes or may compete in the future
have greater financial, technical, marketing, sales and customer support
resources, as well as greater name recognition and better access to customers.
Environmental Matters
The Company's environmental concerns are central to its business. The
refining activities are subject to extensive and rigorous government regulations
designed to protect the environment from wastes, emissions and from hazardous
substances, particularly with respect to the emissions of air pollutants, the
discharge of cooling water, and the disposal and storage of hazardous
substances.
The Company is in compliance with present federal, state and local air
and water pollution controls, and intends to remain so. However, evolving
federal, state and local air and water pollution control legislation and
regulations will continue to affect the Company's operations and long-range
planning. During the fiscal year the Company did not need to make any capital
expenditures to comply with environmental laws and regulations.
<PAGE>
The Company cannot predict the direction of future laws or regulations
designed to protect the environment and control the discharge and disposal of
hazardous waste materials or their impact on the Company's operations.
Consequently, the Company is unable to predict with any certainty its total
future expenditures for installation of pollution control facilities or for
legal and administrative expenditures. New and expanding laws, regulations,
administrative policies and control levels, new pollution control technology and
cost-benefit analysis based on future market conditions are all factors which
will affect future expenditures.
Employees
As of June 30, 1999 the Company had 37 employees, 12 of whom were in
administration, 8 of whom were in marketing and sales and 17 of whom were in
operations. All employees are full-time. The Company's employees are not
unionized and the Company believes that its relations with its employees are
satisfactory.
Sales and Marketing
The Company maintains a highly experienced sales force for its customers
that require processing and refining services in connection with the reclamation
of precious and specialty metals from secondary sources. An expanding network of
suppliers has been established to procure catalyst materials from certain
automotive products, where platinum and palladium are recovered. The Company has
entered into an exclusive agreement with Stillwater Mining Corp., the largest
miners of platinum group metals in the Northern Hemisphere, for the processing
of these catalytic materials.
The Company has recently registered the name West-Cat for use by the
catalyst refining division of WAI. The new trade name will better reflect the
specific area of interest to customers.
Item 2. Properties
The Company has a lease on its premises at 750 Shames Dr., Westbury, New
York, which expires July 31, 2003. The facility is approximately 10,200 square
feet and serves as the Corporate Headquarters. The Company has the option to buy
the premises at the end of the lease term. The Company currently has no
intention of exercising this option.
On September 29, 1998, the Company purchased an approximately 13,000
square foot adjoining building at 900 Shames Dr., Westbury, New York, which
currently houses its catalyst activities. The Company paid $510,000 for the
property, and carries a mortgage in the amount of $325,000.
On July 16, 1999 the company purchased from Rajendra A. Shukla, the
President and sole shareholder of Reliable, the building and real property at
which Reliable operated its business for $185,000. This transaction was
effective as of June 30, 1999 for accounting purposes. RWT shall continue to run
its business operations from this location. The purchase price was paid with a
six year, seven percent self amortizing promissory note from RWT in the
principal amount of $185,000. The owner of record of the property is Westbury
Realty Management, Inc.("Westbury Realty"), a wholly owned subsidiary of the
Company. The note was secured by the guaranty of Westbury Realty, and such
guaranty was secured by a first mortgage on the purchased real property. The
property located at 302 Platts Mill Road, Waterbury, CT., consists of a building
of approximately 13,000 square feet situated on approximately one acre of land.
Small administrative offices are under lease in Lima, Peru, where the
Company's 98 percent owned subsidiary operates.
<PAGE>
Item 3. Legal Proceedings
There are no pending legal proceedings to which the Company or any of its
subsidiaries is a party, other than ordinary litigation arising in the ordinary
course of business, none of which individually or in the aggregate will have a
material adverse effect on the Companys' financial condition or on the business
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
<PAGE>
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters
The following table sets forth the high and low closing bid prices for
the periods indicated as reported by the National Association of Securities
Dealers Automated Quotation System (NASDAQ) between dealers and do not include
retail mark-ups, mark-downs, or commissions and do not necessarily represent
actual transactions. The Company commenced trading on the Bulletin Board in
September 1998 under the symbol WMET.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Low High
Fiscal Year 1999:
First Quarter Not Traded Not Traded
Second Quarter 3.00 3.00
Third Quarter 2.3/8 3 3/16
Fourth Quarter 3.00 3 5/8
Fiscal Year 1998:
First Quarter Not Traded Not Traded
Second Quarter Not Traded Not Traded
Third Quarter Not Traded Not Traded
Fourth Quarter Not Traded Not Traded
</TABLE>
At September 13, 1999, the Company had 121 holders of record of its
Common Stock.
The Company has paid no cash dividends on its Common Stock to date and it
does not anticipate declaring or paying any cash dividends in the foreseeable
future.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company has positioned itself through its subsidiaries to engage in
four significant areas of the precious metals business.
Westbury International, Inc.
Commodity and risk management services, including metals leasing, financing
arrangements, cash and forward purchases and sales for internal metals
management requirements. This newly formed entity is responsible for the ongoing
management and operations of the Peruvian subsidiary, which is 98 percent owned
by the Company.
It is expected that long-term contracts for metals will be entered into for both
the procurement and sales of precious metals on both a domestic and
international basis.
Reliable-West Tech, Inc. ("RWT")
Manufacture and sale of precious and base metal products for use by industry.
Westbury Alloys, Inc.
Refining services to accumulators and manufacturers of precious metals.
West-Cat (trade name)
Catalyst procurement and collection for the purpose of processing and recovery
of platinum group metals.
Results of Operations
The following table sets forth, as a percentage of revenue, certain
items appearing in the Company's Statements of Operations for the indicated
fiscal years ended June 30.
1999 1998
Revenues:
Sales 84.5% 43.2%
Refining 15.5 56.8
-------- -------
Total Revenues 100.0% 100.0%
---- -------
The net loss for the years ended June 30, 1999 and June 30, 1998 was ($184,694)
and ($424,441), respectively. The net loss per diluted share for the years ended
June 30, 1999 and June 30, 1998 was ($.06) and ($.20) respectively.
Comparison of Fiscal Year Ended June 30, 1999 versus Fiscal Year Ended June 30,
1998
Revenues were $34,470,000 for fiscal 1999 compared to $3,300,000 for
fiscal 1998. Of the total increase, $27,707,000 related to our industrial
product sales and our industrial commodities management divisions, while
$3,463,000 related to our refining and processing activities. This increase is
primarily the result of expanded operations outside of the refining services
offered in the past.
Through the diversification of its refining area and greater
efficiencies in its catalyst operations, net refining revenues for year ended
June 30, 1999 were $5,338,000 compared to $1,875,000 for the year ended June 30,
1998 for an increase of $3,463,000.
RWT commenced operations on April 1, 1998. For the current fiscal year,
this subsidiary recorded gross revenues of $8,908,000. The industrial products
management division which started business in July 1998 was responsible for an
additional $20,224,000 in gross revenues for the year ended June 30, 1999. The
revenues relate to precious metal sales to industrial end users. Combined
product and precious metal sales were $29,132,000 for the year ended June 30,
1999 compared to $1,425,000 for the year ended June 30, 1998, resulting in an
increase of $27,707,000.
The percentage of total revenues for the year ended June 30, 1999
compared to the year ended June 30, 1998 by revenue source were as follows:
product and precious metal sales were 84.5% and 43.2%, respectively, and
refining revenues were 15.5% and 56.8%, respectively.
Cost of precious metal sales were $27,971,000 or 96.0% of sales for
fiscal 1999 compared to $1,336,000 or 93.7% of sales for fiscal 1998. This
increase of 2.3% in cost of sales is due to the nature of precious metals sales
which are high volume and low margin transactions.
Cost of refining revenues were $3,451,000 or 64.7% of refining fees for
fiscal 1999 compared to $807,000 or 43.5% of refining fees for fiscal 1998. This
increase of 21.2% in cost of refining is primarily due to the increased activity
in catalysts and the related labor, facility and transportation costs.
Selling, general and administrative expenses increased by $1,356,000,
or 98.4%, in the current year, as a result of new employees hired at the sales,
administrative and operations levels to facilitate the expansion of Westbury
Metals Group, Inc.
Depreciation and amortization expense was $167,000 for the year ended
June 30, 1999 compared to $95,000 for the year ended June 30, 1998. This
increase of $72,000, or 76.2%, was due to the depreciation on the acquired
building, machinery and equipment in the current fiscal year and the full year
impact on fixed assets acquired in the prior fiscal year.
Interest expense was $276,000 for the year ended June 30, 1999 compared
to $132,000 for the year ended June 30, 1998. The increase of $144,000 or 109.1%
was primarily due to the revolving credit facility which was established in
September 1998.
The provision for income taxes of $86,000 for the year ended June 30, 1999 is
primarily attributable to the income derived from the 98% owned Peruvian
subsidiary.
Liquidity, Capital Resources and Other Financial Data
Operating activities
Net cash used in operating activities was ($617,000) in fiscal 1999
compared to ($555,000) in fiscal 1998 which represent an increase of by $62,000.
There was a decrease in working capital of $1,862,000, which was primarily due
to an increase in accounts receivable and the loss from operations, partially
offset by the increase in amounts due to customers.
Investing activities
Net cash used in investing activities in fiscal 1999 included the
September 1998 acquisition of the 900 Shames Drive, Westbury, NY facility, for
$510,000, which is primarily used for the processing of catalysts, as well as
for administrative offices.
On June 30, 1999 the Company purchased the land and building at which
Reliable operated its business for $185,000. Closing of this acquisition for
accounting purposes is June 30, 1999. The property located at 302 Platts Mill
Road, Waterbury, CT. The facility will be used for manufacturing and sales
offices for RWT.
Financing activities
Net cash provided by financing activities in fiscal 1999 is primarily
due to the proceeds received under the revolving credit agreement which
commenced in October 1998,as well as from the exercise of stock warrants.
During the fiscal year ended June 30, 1999, the Company issued 50,000
shares of common stock to warrant holders at an exercise price of $2.00 per
share for total proceeds of $100,000.
The Company has been relying on a gold consignment program and internally
generated funds to finance its metal purchases, inventories and accounts
receivable. Inventories are stated at market value. Consistent with other
companies that refine and produce precious metal fabricated products, customers
and suppliers on a consignment basis furnish some of the Company's gold and
silver requirements. Title to the consigned gold and silver remains with the
Consignor. The value of consigned gold and silver held by the Company is not
included in the Company's inventory and there is no related liability recorded.
At June 30, 1999 the Company held $2,334,000 of precious metal under a
consignment agreement with Republic National Bank for which the Company is
charged a consignment fee based on current market rates. There can be no
assurances that fluctuations in the precious metals markets and credit would not
result in an interruption of the Company's gold supply or the credit
arrangements necessary to allow the Company to support its accounts receivable
and continue the use of consigned gold.
On September 28 1998 the Company entered into a loan agreement with a
credit corporation for a $2,000,000 revolving line of credit used for working
capital requirements. The Company was charged an origination fee of 2% of the
available line, an underutilized loan fee of 1% and interest at the prime rate
plus 2%. This loan agreement was replaced in July 1999 with a $12,000,000
financing agreement with Bank Boston N.A.
Management has purchased the property, plant and equipment and business
of Reliable Corporation of Waterbury, CT. This acquisition was effective for
accounting purposes on June 30, 1999. Reliable Corporation is a major
manufacturer of silver in various forms and shapes, plating salts as well as tin
and tin-lead anodes to the industrial manufacturing and plating industries.
The activities of this acquisition will be integrated with our RWT
subsidiary (formerly West Tech Inc.). With the addition of plant and equipment,
management believes that there will be significant growth in this area.
Year 2000
Many currently installed computer systems, software products and
manufactured products that utilize microprocessors are coded to accept only
two-digit entries in the date code field. These date code fields will need to
accept four-digit entries to distinguish twenty-first century dates. This is
commonly referred to as the "Year 2000 issue". The Company is aware of the Year
2000 issue and during fiscal 1998 commenced a program to identify, remediate,
test and develop contingency plans for the Year 2000 issue (the "Y2K Program"),
to be substantially completed by the fall of 1999.
Under the Y2K Program, the Company began to assess the Year 2000
readiness of the software and computer information systems used in the internal
business ("CIS") of the Company ("Company CIS"); and the CIS of its key
customers. Although the Y2K Program is still underway, the Company does not
currently anticipate that the cost of the Y2K Program will be material to its
financial condition or results of operations. Satisfactorily addressing the Year
2000 issue is dependent on many factors, some of which are not completely within
the Company's control, such as the availability of certain resources,
third-party remediation plans and other factors.
As of June 30, 1999, the results of the assessment being conducted
under the Y2K Program were as follows:
Computer Information Systems (Company CIS): The company has acquired new
software and hardware to replace all non-compliant aspects of existing CIS.
Customers: The Company has solicited statements of compliance from its
key customers with respect to their CIS. In the event that its key customers are
unable to certify that they will be Year 2000 compliant by the fall of 1999, the
Company will be assessing the accounts receivable collection risk of such key
customers.
Costs: The cost to replace the existing software programs used in the
Company CIS of approximately $100,000 has already been expended by the Company.
There are no significant expenditures anticipated by the company to complete its
Year 2000 compliance program.
The Year 2000 issue presents far-reaching implications, some of which
cannot be anticipated with any degree of certainty. Based on the assessment that
has been made under the Y2K Program, and other than as stated above, the Company
has no other contingency plans in the event of any Year 2000 noncompliance and
does not currently believe that any other contingency plans are necessary.
However, management is not able to determine the effect of any Year 2000
noncompliance (including with respect to a "worst-case scenario") on the
Company, but there can be no guarantee that any such noncompliance would not
have an adverse effect on the Company's CIS, results of operations or financial
condition.
Inflation
The Company does not believe that inflation has had, or will have in
the foreseeable future, a material impact upon the Company's operating results.
Recent Pronouncements of the Financial Accounting Standards Board
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SAFS 130")and Statement of
Financial Standards No. 131, "Disclosure About Segments of an Enterprise and
Related Information" ("SAFS 131") Each of these statements required additional
disclosure in the Company's consolidated financial statements but did not have a
material effect on the Company's consolidated financial position or results of
operations.
Recent pronouncements of the Financial Accounting Standards Board which
are not required to be adopted at this date include Statement of Financial
Standards No.133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133, as deferred by SFAS No. 137,is effective for fiscal
quarters of all fiscal years beginning after June 15, 1999. Based upon current
data, the adoption of this pronouncement is not expected to have a material
impact on the Company's consolidated financial statements.
Forward Looking Statements
Management has been concentrating on building market share at RWT
through its internal sales force. With the acquisition of Reliable management
anticipates annual sales at RWT to increase 300% in the next fiscal year.
Due to the current constraints on working capital resulting from the $1
million in cash required for the Reliable acquisition, management has elected to
reduce activities at its Peruvian subsidiary. This resulted in reduced
anticipated net profit for the year ended June 30,1999 of approximately
$200,000. Management expects that the operations in Peru will increase revenues
and profitability by the second quarter of fiscal 2000.
Through its continued efforts to diversify refining activities,
consolidate manufacturing activities and broaden its activities in industrial
products management divisions, management anticipates higher profits for the
fiscal year ended June 30, 2000, although there can be no assurances that
management will continue to be successful in its efforts.
<PAGE>
Item 7. Financial Statements.
(A)(1) The following financial statements are included in Part II Item 7:
Page Number
Reports of Independent Auditors ................................F-1,F2, F-3
Consolidated Balance Sheet as of June 30, 1999 .................. F-4
Consolidated Statements of Operations for the Years Ended
June 30, 1999 and 1998 ....................................... F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1999 and 1998.............................. F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999 and 1998 ......................................... F-7
Notes to Consolidated Financial Statements ......................F-8-F-20
Schedule II - Valuation Qualify Accounts
(B) Reports on Form 8-K - Not Applicable. (C) Exhibits.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Westbury Metals Group, Inc.
We have audited the accompanying consolidated balance sheet of Westbury Metals
Group, Inc. and Subsidiaries as of June 30, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
June 30, 1999. Our audit also includes the consolidated financial schedule
listed in the foregoing index for the year ended June 30, 1999. These
consolidatedfinancial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial
statements of Alloy Trading S.A., a 98% owned consolidated subsidiary, for the
year ended June 30, 1999, which statements reflect total assets of 1.7% of total
consolidated assets for that year; there were no revenues as they have been
eliminated in consolidation. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for Alloy Trading S.A., for the year ended June 30, 1999 is
based solely on the report of the other auditors. 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 consolidated 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 and the report of the other auditors provide a reasonable basis for our
opinion. In our opinion, based on our audit and the report of the other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Westbury Metals Group, Inc. and Subsidiaries as of June 30, 1999, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statement taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Jericho, New York
September 27, 1999
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
ALLOY TRADING S.A.
We have audited the accompanying balance sheet of ALLOY TRADING S.A. as of June
30,1999, and the related statements of profit and loss, changes in stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the ALLOY TRADING S.A. 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 above present fairly, in all
material respects, the financial position of ALLOY TRADING S.A. as of June
30,1999, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
The financial statements show the effect of the translation adjustment over the
accounts for the period then ended. This amount (loss $ 60,677) results of the
methodologic procedures effort established by the general accepted accounting
principles.
Lima, Peru
August 25,1999
NOLES MONTEBLANCO & ASOC. S.C.
Member Firm of
B K R International
Walter A Noles (partner)
Peruvian Public Accountant
Matriculation No. 7208
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Westbury Metals Group, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Westbury Metals Group, Inc. (formerly
known as Rosecap, Inc.) and subsidiaries for the year ended June 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial
statements of Alloy Trading S.A., a 98% owned subsidiary, which statements
reflect, as of June 30, 1998, no revenues, as they have been eliminated in
consolidation. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Alloy Trading S.A., is based solely on the report of the other
auditors.
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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 and the report of other
auditors provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Westbury Metals
Group, Inc. and subsidiaries for the year ended June 30, 1998 in conformity with
generally accepted accounting principles.
CITRIN COOPERMAN & COMPANY, LLP
New York, New York
September 18, 1998
F-3
<PAGE>
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,242,230
Accounts receivable, net of allowance of $17,000
2,824,949
Inventory (Notes 5 and 7)
1,076,237
Prepaid expenses and other current assets
161,364
Total current assets
5,304,780
PROPERTY, PLANT AND EQUIPMENT - Net (Note 6)
2,273,233
GOODWILL, Net of accumulated amortization of $80,720
1,410,480
OTHER ASSETS
168,452
TOTAL ASSETS $ 9,156,945
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 611,574
Due to former Reliable shareholder (Note 3) 1,192,578
Current portion of long-term debt (Note 8) 1,721,758
Due to customers 1,773,663
--------------
Total current liabilities 5,299,573
LONG-TERM DEBT (Note 8) 1,342,369
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
-
STOCKHOLDERS' EQUITY (Note 11):
Common stock, $.001 par value - authorized, 50,000,000 shares;
issued and outstanding, 3,247,312 shares
3,247
Capital in excess of par value
3,284,329
Accumulated comprehensive loss (60,678)
Accumulated deficit (711,895)
Total stockholders' equity 2,515,003
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,156,945
===========
See notes to consolidated financial statements.
<PAGE>
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
REVENUE:
Precious metal sales $29,131,960 $1,425,315
Refining 5,337,828 1,874,829
------------------- ---------
Total revenue 34,469,788 3,300,144
---------------- ---------
COST OF SALES:
Cost of precious metal sales 27,970,518 1,335,607
Cost of refining 3,451,001 807,221
------ ----------- -------
Total cost of sales 31,421,519 2,142,828
---- ------------ ---------
GROSS PROFIT 3,048,269 1,157,316
OPERATING EXPENSES:
Selling, general and administrative expenses 2,732,680 1,377,159
Depreciation and amortization 166,897 94,696
-------- --------- ------
Total operating expenses 2,899,577 1,471,855
------ ----------- ---------
EARNINGS (LOSS) FROM OPERATIONS 148,692 (314,539)
OTHER EXPENSES (INCOME):
Interest expense 276,148 132,090
Interest income (28,714) (22,188)
-------- --------- --------
Total other expenses 247,434 109,902
-------- --------- -------
LOSS BEFORE PROVISION FOR INCOME TAXES (98,742) (424,441)
PROVISION FOR INCOME TAXES (Note 10) 85,952 -
------------------
NET LOSS $ (184,694) $ (424,441)
============ ===========
NET LOSS PER SHARE - Basic and Diluted $ (0.06) $ (0.20)
=========== =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - Basic and Diluted 3,197,586 2,173,139
======== ===========
See notes to consolidated financial statements.
F-4
<PAGE>
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
Capital in Other Accumulated Total
Common Stock Excess of Accumulated Comprehensive Comprehensive Stockholders'
Shares Amount Par Value Deficit Loss Loss Equity
BALANCE, JULY 1, 1997
1,937,500 1,937 $ 118,102 $(102,760) $ - $ - $ 17,279
Common stock issued upon merger with
Rosecap, Inc., March 31, 1998 92,500 93 20,905 - - - 20,998
Common stock issued in private placement,
March 31, 1998 814,503 815 2,015,224 - - - 2,016,039
Common stock issued upon conversion of
bridgeholder loans,
March 31, 1998 233,333 233 699,767 - - - 700,000
Common stock issued in private placement,
May 8, 1998 119,476 119 317,881 - - - 318,000
Net loss for the year ended
June 30, 1998 - - - (424,441) - - (424,441)
-------- -------- -------- ---------- -------- ----------- ---------
BALANCE, JUNE 30, 1998 3,197,312 3,197 3,171,879 (527,201) - - 2,647,875
Exercise of stock warrants 50,000 50 112,450 - - - 112,500
Net loss for the year ended
June 30, 1999 - - - (184,694) - (184,694) (184,694)
Foreign currency translation
adjustments - - - - (60,678) (60,678) (60,678)
-------- -------- -------- -------- --------- -------- ---------
BALANCE, JUNE 30, 1999 3,247,312 3,247 3,284,329 $(711,895) $ (60,678) $(245,372) $2,515,003
=========== ======= =========== ========== ========== ========== ==========
See notes to consolidated financial statements.
F-5
<PAGE>
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (184,694) $ (424,441)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 166,897 94,696
Reserve for allowance for doubtful accounts
17,000 -
Warrant conversion inducement charge
12,500 -
Changes in assets and liabilities:
Inventory (114,617)
(48,094)
Accounts receivable (2,073,796) (711,159)
Due from affiliates
- 81,445
Prepaid expenses and other current assets 129,462 276,092
Other noncurrent assets
(55,275) (92,114)
Due to customers 1,318,110 15,850
Accounts payable and accrued expenses 101,215 319,599
--------- -------
Net cash used in operating activities (616,675) (554,649)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Equipment additions (656,788) (174,395)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 2,334,039
-
Repayment of loans payable (973,046)
-
Proceeds of bridge financing 700,000
-
Repayment of long-term debt (14,490) (568,983)
Net proceeds from credit line 1,552,663 -
Proceeds from stock warrants exercised 100,000 -
Net cash provided by financing activities 1,638,173 1,492,010
----------- ---------
NET INCREASE IN CASH 364,710 762,966
CASH FROM MERGED SUBSIDIARY
- 41,418
CASH, BEGINNING OF YEAR 877,520 73,136
--------- ------
CASH, END OF YEAR $1,242,230 $ 877,520
============ =========
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
WESTBURY METALS GROUP, INC. AND subsidiaries
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
1. ORGANIZATION
Westbury Metals Group, Inc. and Subsidiaries (the "Company") were formed,
initially as Rosecap, Inc., on March 31, 1998 through a reverse merger of
Westbury Acquisition Corp. and Westbury Alloys, Inc. On June 18, 1998, the
Company's name was changed from Rosecap, Inc.
The Company primarily operates in the precious metal industry, principally in
the reclamation, sale, manufacture and third party sales of precious metals. The
Company's operations occur through its five subsidiaries, Westbury Alloys, Inc.
("Westbury"), Alloy Trading S.A. ("Alloy"), Reliable-West Tech, Inc. ("RWT"),
Westbury International, Inc. ("International") and Westbury Realty Management
Corp. ("Realty"). Westbury - Principally reclaims gold, silver, platinum and
palladium from scraps and residues from the electronics, jewelry, petroleum,
dental, chemical, automotive, mining and aerospace industries. Once reclaimed,
the precious metals are weighed, sampled and assayed to determine values and
settle with the customer, WMG either purchases the precious metal or returns the
metal to the customer. Alloy - Is a 98% owned Peruvian subsidiary of the
Company. Local managers of Alloy own the remaining 2%. Alloy primarily exports
precious metals for the Company's own use or sale to third parties. Alloy is
also engaged in the development of precious metal opportunities in South America
which may include gold and silver bullion transactions with the mining industry
and other industrial users of precious metals. RWT - Manufactures and sells
silver in various forms and shapes, plating salts and tin and tin-lead anodes
used in manufacturing. RWT also will be involved in precious metal casting
grains, alloys and mill products as its business expands. RWT currently holds
the registered trade name `Onic' for use in the manufacture and sale of its
high-quality tin products. RWT was formed on June 30, 1999 through the purchase
of Reliable Corporation by the Company's subsidiary, West Tech. West Tech was
formed as a subsidiary of the Company on March 30, 1998. International - Engages
in the risk management of precious metals and foreign currency for the Company.
The Company's policy is to hedge all financed transactions so no gains and
losses occur due to market fluctuations. International was formed in July 1998.
Realty - Acquired, owns and manages property used by Westbury and RWT in its
reclamation and manufacturing operations. Realty was formed in June 1998, and
did not have financial activity during that year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation - All significant intercompany balances
and transactions between and among Westbury Metals Group and its
subsidiaries have been eliminated in consolidation.
b. Inventory and Inventory Hedging - Inventories which consist of
precious metals are stated at market value. Quantities are
determined based upon physical count and third party assays.
Gold and silver comprise the major portion of the value of
Westbury's precious metal inventory. The prices of gold and silver
are subject to fluctuations and are expected to continue to be
affected by world market conditions. At June 30, 1999, all inventory
owned by Westbury was fully hedged to protect against market
fluctuations. Market gains or losses as well as all trading
activities are included in "Cost of sales." It is the Company's
policy that all metal transactions are fully hedged and should
result in no gains or losses due to market fluctuations. Hedging
consists of the sale or purchase of forward contracts for the
physical delivery of metals. When the Company purchases precious
metal, it sells a forward contract to protect against fluctuating
market prices; conversely, when the Company sells precious metals,
it buys a contract to close the transaction. Futures contracts are
measured at market value with unrealized gains and losses reflected
in operations during the period. Westbury maintains inventories of
precious metals in various states of processing. Westbury also
maintains inventories at independent outside refineries. Such
inventories are also carried at current market value.
c. Property, Plant and Equipment - Property, plant and equipment is
stated at cost less accumulated depreciation. Depreciation is
provided for by the straight-line method over the estimated useful
lives of the related assets, ranging from 5 to 35 years.
d. Amortization of Intangible Assets - Intangible assets consist of
goodwill, which is the excess of the purchase price over the fair
value of assets acquired in business combinations accounted for as
purchases. Goodwill is being amortized on a straight-line basis over
the period benefited, ranging from 20-24 years. Goodwill is reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
e. Impairment of Long-Lived Assets - The Company has adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("Statement 121"). Statement 121 establishes accounting
standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be
held and used for long-lived assets and certain identifiable
intangibles to be disposed of. Statement 121 requires the review of
long-lived assets and certain identifiable intangibles whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Impairment would be recognized
in operating results if a permanent diminution in value were to
occur.
f. Translation of Foreign Currencies - Translation adjustments result
from the process of translating Alloy's financial statements from
their local currency to U.S. dollars. Assets and liabilities in
foreign currencies are translated into U.S. dollars at the rate in
effect on the balance sheet date. Revenues and expenses are
translated at the average rate for the period. Where amounts
denominated in a foreign currency are converted to U.S. dollars by
remittance or repayment, the realized exchange differences are not
material and are included in determining net loss for the
period.
g. Due to Customers - The Company's customers have the option of
receiving cash in lieu of the refined precious metals. Since the
Company bears the risk of loss, it is the policy of the Company to
record all precious metals received for refining as inventory and an
offsetting liability due to customers. Amounts due to Customers were
$1,773,663 at June 30, 1999.
h. Revenue Recognition - Revenue from sales to customers is recognized
at the time product is shipped. Revenue for precious metal
reclamation and refining activities is recognized once all
significant reclamation activities have been performed and
substantially all expenses related to the reclamation and refining
process have been incurred. Customers are billed and reclamation
revenue is recorded initially based upon assayed value of the
reclaimed materials. Once the final refining and assaying is
performed, the transaction is settled. The settlement amount does
not vary significantly from the amounts initially recorded. In
certain cases, the Company accepts payment for product sales or
reclamation services in precious metals.
i. Income Taxes - The Company accounts for income taxes under Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires the use of the liability method of accounting
for deferred income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates in effect for the years in
which the differences are expected to reverse.
j. Net Loss per Common Share - Basic net loss per common share is
calculated using the weighted average number of common shares
outstanding during the period. Dilutive potential common shares,
such as stock options and warrants, are not included for all periods
presented because they would be antidilutive.
k. Fair Value of Financial Instruments - Financial instruments consist
primarily of investments in cash, trade account receivables,
accounts payable, debt obligations and derivative financial
instruments. The Company estimates the fair value of financial
instruments based on interest rates currently available to the
Company and by comparison to quoted market prices. At June 30, 1999,
the fair value of the Company's instruments approximated the
carrying value except as otherwise disclosed.
l. Use of Estimates - The preparation of financial statements requires
the Company's management to estimate the current effects of
transactions and events whose ultimate outcomes may not be
determinable until future years. Consequently, actual results could
differ from those estimates.
m. Stock-Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method in accordance with APB
No. 25, Accounting for Stock Issues to Employees. The Company has
adopted the disclosure requirements of SFAS No. 123, Accounting for
Stock-Based Compensation, which requires the disclosure of pro forma
net income and earnings per share as if the Company adopted the fair
value-based method in measuring compensation expense.
n. New Accounting Pronouncements - The Company has adopted the
provisions of Statement of Financial Accounting Standards ("SFAS")
No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosure About Segments of an Enterprise and Related Information,
which require the Company to report and display certain information
related to comprehensive income and operating segments. Adoption of
these statements did not impact the Company's financial position or
results of operations.
o. Reclassifications - Certain prior year amounts have been reclassified to
conform with current year presentations.
3. ACQUISITION
Effective June 30, 1999, the Company purchased assets consisting of land,
building, inventory, customer list, and business name from Reliable Corporation
for $2,350,655, including related acquisition costs of $58,077. The acquisition
was accounted for as a purchase. Accordingly, the assets of the acquired
business are included in the consolidated balance sheet as of June 30, 1999. The
acquisition was financed through amounts payable to the former owner of
Reliable. A cash payment of $1,192,578 was made on July 16, 1999, with the
remaining balance financed through the issuance of promissory notes which bear
interest at an annual interest rate of 7% and are payable over six years. The
purchase price exceeded the fair value of net assets acquired by $1,190,000,
which is being amortized on a straight-line basis over 20 years.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of Reliable Corporation had occurred as of
July 1, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
June 30,
1999 1998
Total revenue $50,503,961 $21,440,135
============= ===========
Net loss $ (980,182) $ (638,868)
============ ===========
Loss per share - Basic and Diluted $ (0.31) $ (0.29)
=========== =========
</TABLE>
The unaudited pro forma consolidated results of operations are not
indicative of the actual results that would have occurred had the acquisition
been consummated on the dates indicated or of future operations of the combined
companies under the ownership and management of the Company.
4. ADVANCES TO CUSTOMERS
Advances to customers arise as a result of the Company advancing finished
metal or cash to the customer prior to the settled amount. At the request of the
customer, the Company may advance up to 90% of the expected settlement value of
the metal to the customer. The Company may occasionally advance or consign metal
to its customers. These advances are charged against future transactions with
the customer. At June 30, 1999, total advances to customers amounted to
$450,297.
5. INVENTORIES
Inventories are stated at current market value. Consistent with other
companies that refine and produce precious metal fabricated products, some of
the Company's gold and silver requirements are furnished by customers and
suppliers on a consignment basis. Title to the consigned gold and silver remains
with the consignor. The value of consigned gold and silver held by the Company
is not included in the Company's balance sheet. At June 30, 1999, the Company
held $2,401,638 under consignment agreements (See Note 7). The Company's gold
and silver requirements are provided from a combination of owned inventories,
precious metals which have been purchased and sold for future delivery, and gold
and silver received from suppliers and customers on a consignment basis.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1999 consists of the following:
Land $ 207,916
Building and building improvements 742,144
Machinery and equipment 1,396,458
Furniture and fixtures 196,005
Vehicles 50,062
--------
2,592,585
Less accumulated depreciation and amortization 319,352
Property, plant and equipment, net $2,273,233
7. GOLD CONSIGNMENT AGREEMENTS
The Company has gold consignment agreements with lenders to provide the
Company with the gold used in production. At June 30, 1999, the Company has not
included in its inventory 9,193 troy ounces of fine gold on consignment having a
market value of $2,401,638 (See Note 5). The maximum amount of consigned gold
available during fiscal 1999 was limited to the amount guaranteed by letters of
credit provided by a third-party consignee, which totaled $2,600,000.
The Company has incurred consignment fees in the amount of $72,634 and
$22,518 for the years ended June 30, 1999 and 1998.
8. LONG-TERM DEBT
Revolving Credit Agreement (a) $1,552,663
Promissory Notes (b) 1,100,000
Mortgage (c) 317,712
Other 93,752
--------------
Total 3,064,127
Less current maturities 1,721,758
Long-term maturities $1,342,369
a) In September 1998, RWT entered into a one-year revolving
credit agreement with a credit corporation which provides for
borrowings up to $2,000,000. Interest on outstanding
borrowings accrues at the prime rate of interest plus two
percent (10.0% at June 30, 1999). The facility is secured by
the assets of RWT and guaranteed by WMG. Borrowings are
limited to the balance of eligible accounts receivable. Based
upon the borrowing base of the Company at June 30, 1999, the
revolving credit agreement was fully utilized. The agreement
requires the Company to maintain certain financial ratios and
requires prior written consent for certain transactions. The
agreement was replaced subsequent to year end by a $12,000,000
revolving credit agreement with a financial institution (See
Note 17).
b) In connection with the acquisition of Reliable Corporation on
June 30, 1999, RWT issued two six year promissory notes
totaling to $1,100,000 to the former Reliable shareholder. The
promissory notes bear interest at fixed rate of 7.0% and is
payable in equal monthly principal installments totaling
approximately $18,750 with the first installments due on
August 1, 1999. The promissory notes are secured by the assets
acquired.
c) In September 1998, WRC entered into a fifteen year, $325,000
mortgage with a bank. The mortgage bears interest at a fixed
rate of 8.625% and is payable in equal monthly principal
installments of $3,224. The obligation under the Mortgage is
secured by the building acquired.
Long-term liabilities maturing subsequent to June 30, 1999 are as follows:
Year Ending June 30,
1999 $1,721,758
2000 195,300
2001 210,370
2002 222,235
2003 232,855
Thereafter 481,609
----------
$3,064,127
9. DEFINED CONTRIBUTION PLAN
The Company maintains an Employee 401(k) Profit-Sharing Plan (the "401(k)
Plan") for all qualified salaried employees, which complies with the Section
401(k) of the Internal Revenue code of 1984, as amended. The 401(k) Plan permits
employees to make voluntary contributions to the Plan. The Company is not
required to make any matching contributions but may do so at the discretion of
management. During fiscal 1999 and 1998, no contributions were made to the
401(k) Plan by the Company.
<PAGE>
10. INCOME TAXES
The income tax provisions consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
June 30,
1999 1998
Current:
Federal $ - $ -
State and local 9,430
-------------
-
Foreign 76,522
-
Total current 85,952
-
Deferred:
Federal
- -
State and local
- -
-------- -
Foreign
- -
-------- -
Total deferred
- -
-------- -
Total income tax provision $85,952 $ -
========= ===
Deferred taxes at June 30, 1999 consist of the following:
Deferred Tax Assets:
Accounts receivable $ 6,970
Net operating loss 283,561
----- -------
Other 318
--------------
290,849
Deferred Tax Liabilities:
Property and equipment (8,863)
Net deferred tax asset 281,986
Valuation allowance (281,986)
Net deferred taxes $ -
=======
</TABLE>
The valuation allowance increased by approximately $138,000 during the
fiscal year as a result of the increase in net operating loss carryforwards.
The Company has net operating loss carry forwards totaling approximately
$691,612, which expires between 2006 and 2017. A reconciliation of the
differences between the Federal statutory tax rate of 35% and the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
June 30,
1999 1998
Federal statutory income tax rate (35)% (35)%
State income taxes, net of Federal benefit 6
-
Permanent differences 14
-
Foreign rate differential (38)
-
Increase in valuation allowance 140 35
------ -------
Effective income tax rate 87 % 0 %
===== ======
</TABLE>
11. STOCKHOLDERS' EQUITY
a. Common Stock - Effective March 31, 1998, the Company issued 1,850,000 shares
of its common stock in exchange for all of the outstanding shares of Westbury
Alloys, Inc. This merger was accounted for as a purchase. The value attributed
to the shares was $100,000, which was the value of all of the outstanding shares
on the books of Westbury Alloys, Inc. Additionally, in accordance with the
reverse merger, the Company declared and paid a 1.057142 for one stock dividend
on the Company stock outstanding. This resulted in an additional 92,500 shares
of stock issued. In December 1997, the Company completed a bridge financing
agreement in the amount of $700,000 which was used to repay long-term debt and
to support operations. In accordance with the terms of the bridge agreement, the
debt was converted into shares of the Company's common stock at the time of the
reverse merger on March 31, 1998. A total of 233,333 shares of the Company's
common stock were issued to the debtholders at the offering price of $3.00 per
share.
In fiscal year 1998, the Company entered into an agreement whereby it issued
shares of its common stock through a private placement memorandum. The proceeds
of the offering, net of expenses, including the conversion of the bridge loan to
common stock, was $3,034,039 from the issuance of 1,167,312 shares.
b. Warrants - As part of the loan agreement (discussed in (a) above), the
debtholders received warrants to purchase 700,000 shares of the common stock of
the Company at $2.25. These warrants expire on December 19, 1999. In the fourth
quarter of fiscal 1999, the Company, in an attempt to raise capital, offered
each warrant holder the option to convert the warrants into common stock at an
exercise price of $2.00, which represented a discount of $.25 below the exercise
price. As of June 1999, two warrant holders accepted this offer and exercised a
total of 50,000 warrants, for which the Company recorded an expense of $12,500
related to this discount. The offer to exercise the warrants at a discount
expired on June 30, 1999.
c. Stock Option Plan - Under the Company's stock option plan (Westbury Alloys,
Inc.'s 1997 Omnibus Stock Incentive Plan (as amended)) (the "Plan"), which has
been ratified by the shareholders of Westbury Metals Group Inc., options to
purchase a maximum of 750,000 shares of common stock (subject to adjustment in
the event of stock splits, stock dividends, recapitalization and other capital
adjustments) may be granted to employees and outside directors of the Company.
The options to be granted under the Plan are designated as incentive stock
options or non-incentive stock options by the Board of Directors, which also has
the discretion as to the person to be granted the options, the number of shares
subject to the options and the terms of the option agreements. The Plan is
administered by the Board of Directors. All present and future employees shall
be eligible to receive incentive awards under the Plan, and all present and
future non-employee directors shall be eligible to receive non-statutory options
under the Plan. The options are intended to receive incentive stock option tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended.
The exercise price of shares of common stock covered by an incentive stock
option shall not be less than 100% of the fair market value of such shares on
the date of grant, provided that if an incentive stock option is granted to an
employee who, at the time of the grant is a 10% shareholder, then the exercise
price of the shares covered by the incentive stock option shall not be less than
110% of the fair market value of such shares on the date of grant. The exercise
price of shares covered by a non-statutory stock option shall not be less than
85% of the fair market value of such shares on the date of grant.
<PAGE>
Stock option transactions during the years ended June 30, 1999 and
1998 are summarized below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Shares Price Range Average Price
Options outstanding - July 1, 1997
- - -
Options granted 285,000 $0.50 - $3.00 $ 1.30
Options cancelled (15,000) $0.50 $ 0.50
----------- -------- --------
Options outstanding - June 30, 1998 270,000 $0.50 - $3.00 $ 1.40
Options granted 52,500 $3.00 $ 3.00
Options cancelled (8,500) $0.50 - $3.00 $ 2.29
-------- -------- --------
Options outstanding June 30, 1999 314,000 $3.00 $ 3.00
--------------- -------- --------
Options exercisable at June 30, 1999 150,833 $0.50 - $3.00 $ 2.07
=============== ============= ========
Not Registered
Stock Stock Options
Options Outstanding Outstanding Exercisable
------------------------------ ------------------------------
Weighted Avg. Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (yrs.) Price Exercisable Price
$0 .50 167,500 8.4 $0 .50 55,833 $0 .50
$3.00 146,500 9.1 $3.00 95,000 $3.00
--------- --------
314,000 150,833
========= =======
</TABLE>
Of the options granted for the fiscal year ended June 30, 1998,
167,500 are exercisable in equal installments over a three-year
period from date of grant, 50,000 are exercisable in equal
installments over a two-year period from date of grant and 50,000
were immediately exercisable. Of the option granted for the fiscal
year ended June 30, 1999, 16,500 are exercisable in equal
installments over a three-year period from date of grant, 10,000 are
exercisable one year from date of grant and 20,000 were immediately
exercisable. The exercise price under each option is the fair market
value of the Company's stock at the date of grant. All options
expire ten years from the date of grant. There are 436,000 shares
available for future grants. There have been 23,500 options
cancelled under this plan.
The Company applies APB Opinion No. 25 and related interpretations
in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized for the fixed portion of its
stock option plans. Had compensation cost for the Company's fixed
stock options been determined based on fair value at the grant dates
consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation to Employee" ("SFAS No.
123"), the Company's net loss attributable to common shareholders
and net loss per share would have increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1999 1998
As Pro As Pro
Reported Forma Reported Forma
Net. loss attributable to common
shareholders $(184,694) $(262,267) $(424,441) $(502,694)
Net loss per share -
basic and diluted $ (0.06) $ (0.08) $ (0.20) $ (0.23)
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants. The weighted
average fair value of options granted during fiscal 1999 was $1.18.
The weighted average fair value of all options granted as of June
30, 1999 was $0.50.
1999 1998
Dividend yield 0% 0%
Expected volatility 132% 0%
Risk-free interest rate 5.78% 5.00%
Expected option life, in years 4-5
4
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
a. Lease Commitments - The Company has several operating leases consisting of a
facility used for reclamation and various automobiles.
The facility lease provides the Company with the option to purchase
at the end of the lease term. The Company has no intention to
exercise this purchase option at this time.
Minimum payments for operating leases having initial or remaining
noncancelable terms in excess of one year are as follows:
Year Ending June 30,
2000 $ 96,970
2001 86,684
2002 89,556
2003 92,004
------------
$365,214
Rent expense for all operating leases was approximately $84,472 and
$91,624 for the years ended June 30, during 1999 and 1998,
respectively.
b. Employment Agreements - The Company's chief executive officer has an
employment agreement expiring December 31, 2000. Under the
agreement, he receives $175,000 annually plus 10% of the annual
pre-tax profits of the Company in excess of $500,000 to a maximum
bonus of $175,000.
Under the terms of the Reliable acquisition, the Company entered
into a three-year employment agreement with the former Reliable
shareholder effective July 1, 1999, to render services in the
capacity as president of the RWT subsidiary.
Compensation during the employment agreement will be $150,000
annually.
c. Letters of Credit - An affiliate of the Company has entered into a
letter of credit arrangement with an unrelated third party to
provide letters of credit in the amount of $2,600,000 to guarantee
the debt to a lender. During fiscal 1999 and 1998, the Company paid
fees of $21,807 for these letters of credit. Subsequent to year-end,
this letter of credit arrangement and related guarantee was
terminated as a result of the Company entering into a new credit
agreement with a different lender.
d. Consulting Services - In fiscal 1996, the Company entered into a
five-year consulting agreement with a former principal of Westbury
Alloys, Inc. for an annual fee of $10,000.
e. Litigation - The Company is subject to litigation in the ordinary
course of its business. The Company believes it has meritorious
defenses in all material pending lawsuits and that the outcome will
not have a material adverse effect on the Company's financial
position or results of operations.
13. RELATED PARTY TRANSACTIONS
a. An officer of the Company is affiliated with a legal firm which provided
services to the Company in the amount $55,485 and $67,641 for fiscal 1999 and
1998, respectively.
b. A Director of the Company is affiliated with a credit corporation
which provides financing under the revolving credit agreement. Total
interest and financing fees paid to the credit Corporation in fiscal
1999 was $139,250.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and noncash activities were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1999 1998
Cash paid during the year for:
Interest $ 252,443 $164,454
Noncash investment and financing activities:
Acquisition of business assets by assuming
liabilities (See Note 3) 2,292,578
-
Purchase of Land and Building:
Fair value of assets acquired $ 544,342
-
Cash Paid (219,342)
-
Liabilities assumed $ 325,000 $
-
Capital lease obligations 79,500
-
Loan obligations to finance purchase of vehicles 21,454 -
</TABLE>
15. INDUSTRY SEGMENTS
In 1997, the Financial Accounting Standard Board issued SFAS No. 131,
Disclosure About Segments at an Enterprise and Related Information, which
establishes standards for the way in which public business enterprises report
information about operating segments in annual financial statements.
The Company operates in three reportable segments, industrial commodities
management, manufacturing, and refining. The Industrial Commodities Management
segment consists principally of the sale of precious metals to end users. The
Manufacturing segment provides silver in various forms and shapes, plating salt,
tin and tin-lead anodes which are used in manufacturing to consumers of the
Company. The Refining segment provides refining services to customers of the
Company. The Corporate segment combines activity for nonreportable segments.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Industrial
Commodities
Management Manufacturing Refining Corporate Consolidated
YEAR ENDED JUNE 30, 1999
Sales to unaffiliated customers $ 20,224,000 $ 8,908,000 $ 5,338,000 $ $ 34,470,000
-
Transfers between segments
----- ------------------------------------
23,783,000 - - (23,783,000) -
------------ -------- -------- ------------- -
Total revenues $ 44,007,000 $ 8,908,000 $ 5,338,000 $(23,783,000) $ 34,470,000
============== ============= ============= ============== ============
Interest expenses $ 64,000 $ 89,000 $ 102,000 $ 21,000 $ 276,000
============ ============ ============ ============ ==========
Total Assets $ 981,000 $4,730,000 $2,524,000 $ 922,000 $9,157,000
Depreciation and amortization $ 2,000 $ 33,000 $ 122,000 $ 10,000 $ 167,000
============ ============ ============ ============ ==========
Income (Loss) before income tax
benefit provision $ 2,000 $ (133,000) $ 74,000 $ (42,000) $ (99,000)
============ ============= =========== ============= ===========
Income provisions $ 77,000 $ - $ 9,000 $ $ 86,000
============ =============== =========== ======== ==========
-
</TABLE>
16. CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank accounts which at times may exceed
federally insured limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant credit risk.
In fiscal 1999, the Company had two customers which accounted for
approximately 15.1% and 9.2% of consolidated revenue. As of June 30, 1999, the
accounts receivable balance for these customers were approximately $774,000 and
$0, respectively.
17. SUBSEQUENT EVENTS
In July 1999, RWT, International and Alloys (the "Co-borrowers") entered
into a two year revolving credit agreement with a bank under which it may borrow
up to $12,000,000. Of this total, $7,000,000 has been designated for the
consignment of precious metals, $1,000,000 for a forward contract facility, and
the remaining balance may be utilized to meet working capital requirements.
Interest on the consignment of precious metals accrues at the Gold Cost of Funds
rate plus 2.50%. Interest on the remaining borrowings accrues at the option of
the Company at LIBOR plus 2.50% or Prime plus .5%. Borrowings for the
consignment of precious metals is limited to the balance of eligible inventory,
with the remaining borrowings limited to the balance of eligible accounts
receivables. The facility is secured by the assets of the Co-borrowers, and
guaranteed by WMG. The agreement requires the Company to maintain certain
financial ratios and other financial conditions. The Company has agreed to pay
fees of .375% on the unused amount of the facility.
In addition, in July 1999, the Co-borrowers and WMG received a two year
subordinated term note (the "Note") in the amount of $2,000,000 from a financing
company. Interest on the Note accrues at a rate equal to prime plus 4% and is
payable monthly. The principal portion of the Note becomes due July 2001. In
conjunction with the issuance of the Note, the Company granted 90,000 warrants
to purchase the Company's common stock at an exercise price of $3.00, which
represents the fair market value of the stock on the date of issuance. The
warrants are exercisable July 2000 and expires July 2009. ******
<PAGE>
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- ----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
---------------------------------
Charged to
Balance, Charged to Other Balance,
Beginning Cost and Accounts Deductions End
Description of Period Expenses - describe - describe of Period
Year ended June 30, 1998: $ - $ - $ - $ - $ -
---------- ----------- ---------- ---------- ----
Allowance for doubtful accounts
Year ended June 30, 1999:
Allowance for doubtful accounts $ - $ 17,000 $ - $ - $ 17,000
========== ========== ========== ========== ========
</TABLE>
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
On April 26, 1999 the Company appointed Deloitte & Touche, LLP as the new
auditors for the Company. The change in auditors was approved by the Company's
Board of Directors. There were no disagreements with the prior auditors, Citrin
Cooperman & Company,LLP on any matter of accounting principles or practices,
financial statement disclosure or audit scope or procedure which if not resolved
to the satisfaction of the former accountants would have caused them to make
reference to the subject matter in their report. None of the events listed in
paragraphs (B) through (D) of Regulation S-B Item 304(a)(1)(iv) occurred.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Directors and Executive Officers
Name Age Position
Mandel Sherman 60 President, Chief Executive Officer and
Director
Michael A. O'Hanlon 52 Director
Michael Riess 58 Director
David W. Sass 63 Secretary
David Nadler 52 Treasurer and Chief Financial Officer
<PAGE>
Mandel Sherman, President, Chief Executive Officer and Director
Mandel Sherman, 60, has been the President, Chief Executive Officer and Director
of Westbury since July 1996. From 1993 to 1995, Mr. Sherman acted as an
independent consultant to various investment firms. From 1983 to 1993, Mr.
Sherman participated in numerous real estate ventures as both an investor and
manager of developments with an approximate total value in excess of $30
million. From 1975 to 1983, Mr. Sherman served as the Chief Executive Officer
and President of Refinement International Company ("Refinement"), a company he
founded in 1975. Refinement, a full service metals processing company with
financial capabilities and capital resources in precious metals and specialty
metals markets, exceeded sales of $350 million and was publicly traded on the
American Stock Exchange. From 1962 to 1975, Mr. Sherman served as the President
of Eastern Foundry Supplies ("EFS"), a company he founded in 1962. EFS
concentrated in the recovery of precious metals from the electronic and jewelry
industries. In 1967, Mr. Sherman was responsible for the sale of EFS to
Whittaker Corp., a California-based Company listed on the NYSE, where Mr.
Sherman remained as President with sales of approximately $10 million. Mr.
Sherman received his BSBA in Business Administration from Boston University in
1959.
Michael A. O'Hanlon, Director
Michael A. O'Hanlon, 52, has been the president and chief executive officer of
DVI Credit Corporation, since November, 1995 and served as executive vice
president of DVI since joining DVI in March, 1993. DVI is an independent
specialty finance company that conducts a medical equipment finance business and
related medical receivables finance business. Mr. O'Hanlon became a director of
DVI in November, 1993. Prior to joining DVI, Mr. O'Hanlon served as president
and chief executive officer of Concord Leasing, Inc., and its subsidiary, U.S.
Concord, Inc. for nine years. Concord Leasing provides medical, aircraft,
shipping and industrial equipment financing. Previously, Mr. O'Hanlon was a
senior executive with Pitney Bowes Credit Corporation. Mr. O'Hanlon received his
Master of Science degree from the University of Connecticut and his Bachelor of
Business Administration from the Philadelphia College of Textiles and Science.
Michael Riess, Director
Michael Riess, 58, has, since 1978, been the president of Materials Management
Corporation ("MMC"), a consulting firm specializing in precious and nonferrous
metals. He has headed the North American trading operations of the Gulf Oil
Corporation, Brascam, Ltd. and W.C. Heraeus, GmbH. He also managed Heraeus' U.S.
precious metals refining and has been involved in trading and marketing a broad
range of materials, including metals, scrap, and concentrates. A graduate of
Middlebury College with advanced degrees from Columbia University's Graduate
School of Business and its School of International Affairs, Mr. Riess was
Professor of Finance at Columbia University for eight years. He has been a
member of several commodity exchanges and is a Director of the International
Precious Metals Institute and the Center for the Study of Futures Markets.
David W. Sass, Secretary
David W. Sass, 63, has, for the past 38 years, been a practicing attorney in New
York City and is currently a senior partner in the law firm of McLaughlin &
Stern, LLP, counsel to the Company. Mr. Sass is a director of Pallet Management
Systems, Inc. a company engaged in the manufacture and repair of wooden pallets
and other packaging services; a director of BarPoint.com, Inc. a company that
will operate a patent pending search engine and software technology that allows
consumers to search for product specific information on the internet; a director
of Genisys Reservation Systems, Inc., a company engaged in the internet travel
business and a member and Vice Chairman of the Board of Trustees of Ithaca
College.
David Nadler, Treasurer, Chief Financial Officer
David Nadler, 52, joined the Company as the chief financial officer and
controller in March, 1998. From 1993 to when he joined the Company, Mr. Nadler
was a director, executive vice president, CFO and controller, with
responsibility for the management of all financial and accounting functions at
Merchants Overseas, E&C Imports, a Rhode Island distributor of jewelry products.
From 1988 to 1993, he was a partner of the public accounting firm of Leventhal,
Zupnick, Berg & Co. Prior to this, Mr. Nadler was vice president of British
American Petroleum, a publicly-traded syndicator of oil and gas drilling
programs. From 1974 to 1986, he was principal of David Nadler & Company, CPA,
P.C., which provided accounting, tax and financial consulting services. Mr.
Nadler is a graduate of Pace University and a member of the AICPA and of the New
York State Society of Certified Public Accountants.
All of Westbury's executive officers devote their full business time to the
affairs of the Company.
All directors shall serve for a term of one year or until their respective
successors have been duly elected and qualified. It is anticipated that outside
directors will receive $500 for each meeting attended in person and $250 for
each meeting attended telephonically as well as reimbursement for out-of-pocket
expenses. In addition, each outside director will receive an option to purchase
15,000 shares of Common Stock at an exercise price of $3.00 per share. As of
June 30, 1999, 30,000 options have been granted to directors. These options will
vest as follows: 20,000 immediately and 10,000 after one year.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Item 10. Executive Compensation
Summary Compensation Table
Name and Principal Long-Term Compensation
Position Annual Compensation Awards Payouts
Other
Annual Restricted All Other
Compensation Stock Options/ LTIP Compen-sation
Year Salary Bonus Award(s) SARs Payouts
Mandel Sherman $9,600
President 1999 $144,231
- - - - $6,888
1998 $166,154
- - - - $ -0-
1997 $ -0-
$4,886
David Nadler* 1999 $106,290 - - - -
Treasurer
*Commenced employment April 1998
</TABLE>
Employment Agreement
On January 1, 1998, Westbury entered into a three-year employment agreement with
Mr. Sherman, a stockholder, director and chief executive officer of the Company.
Under the agreement, Mr. Sherman's compensation is $175,000 annually. In
addition, Mr. Sherman will receive 10% of the pretax profits of the Company in
each year in excess of $500,000 to a maximum bonus of $175,000. This employment
agreement has been assumed by the Company upon the completion of the Merger. In
addition, the Company has taken out a $1,000,000 keyman life insurance policy
for Mr. Sherman.
On July 1, 1999, RWT entered into a three year employment agreement with Mr.
Rajendra Shukla to render services in the capacity as president of the RWT
subsidiary. Mr. Shukla's compensation during the employment period will be
$150,000 annually.
<PAGE>
Consulting Agreements
On July 22, 1996, Westbury entered into a five-year consulting agreement with
Lawrence Raskin, former president of the Company's predecessor, Westbury Alloys,
Inc. The Consulting Agreement also contains certain confidentiality and
non-compete provisions which are operative during the term of the agreement and
for given periods of time after termination thereof.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of September 13, 1999, the number of shares of
Common Stock of the Company and the percentage of that class owned beneficially,
within the meaning of Rule 13d-3 promulgated under the Exchange Act, and the
percentage of the Company's voting power owned by (i) all shareholders known by
the Company to beneficially own more than five percent of the Company's Common
Stock; (ii) each director of the Company; and (iii) all directors and officers
as a group. All shares set forth in the following table are entitled to one vote
per share and the named beneficial owners have sole voting and investment power.
Each percentage set forth in the following table assumes the exercise of all
stock options exercisable by the named individual or group as of September 13,
1999 or within 60 days thereafter.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number of Shares
Name and Address Beneficially Owned(1) Percentage
Dartmouth Capital Partners(2)
210 Dartmouth Street
Pawtucket, RI 02860 832,500 26.0%
Mandel Sherman(3)
Westbury Alloys, Inc.
750 Shames Drive
Westbury, NY 11590 450,166 14.1%
Michael A. O'Hanlon(4)
DVI, Inc.
500 Hyde Park
Doylestown, PA 18901 110,000 3.1%
Michael Riess(4) 10,000 -0-
818 Lake Avenue
Greenwich, CT 06831
Directors and Officers as a Group (3) 550,166 17.2%
</TABLE>
(1) All share amounts reflect beneficial ownership determined pursuant to Rule
13d-3 under the Exchange Act, and include voting and investment power with
respect to shares of Common Stock of the Company.
(2) The members of this limited liability company are immediate family members
of Mr. Mandel Sherman, President and Chief Executive Officer of Westbury. Mr.
Sherman disclaims beneficial ownership of such shares.
(3) Does not include 832,500 shares owned by Dartmouth Capital Partners, a
company owned and controlled by Mr. Sherman's children.
(4) Includes 10,000 stock options issued and vested in February 1999. An
additional 5,000 stock options, not included, will be vested in February 2000.
<PAGE>
Item 12. Certain Relationships and Related Transactions
On July 3, 1996, Westbury's predecessor, Westbury Alloys, LLC executed an asset
purchase agreement (the "Asset Purchase Agreement") where Westbury Alloys, LLC
purchased the assets of a unrelated New York corporation, Westbury Alloys, Inc.
("Westbury New York") for a purchase price of $650,000, payable as follows:
$550,000 in cash at or prior to closing and with a balance due in equal amounts
of $50,000 on January 31, 1997 and July 31, 1997. To fund this purchase Westbury
Alloys, LLC borrowed from Graco Holdings, Inc. ("Graco"), the sum of $550,000.
This loan has been repaid from the proceeds of certain bridge financing in the
amount of $700,000 (described below). On July 16, 1996, the obligation due to
Graco was assigned by Graco to another affiliate of a former stockholder. In
July 1996, Graco guaranteed Westbury Alloys, LLC's line of credit ("Line of
Credit") and deposited a letter of credit in the amount of $2,600,000 as
security for its guaranty.
On July 22, 1996, Lawrence Raskin, former president of Westbury New York signed
a five (5) year consulting agreement with Westbury to serve as a consultant to
Westbury in connection with transitional issues and continuing conduct of
Westbury's business. Westbury signed a five year lease on its 10,200 square foot
facilities at 750 Shames Drive, Westbury, New York, with Mr. Raskin. The term of
the lease expires on July 31, 2003. Throughout the term of the lease, Westbury
has the option to renew the lease at a mutually agreeable rental at least 30
days prior to expiration. In addition, Westbury has an option to purchase the
existing facility space at the appraised fair market value, although not for
less than $1.2 million for the first three years. Westbury has no current
intention to exercise this option.
From time to time, Westbury borrowed funds from several affiliated investment
limited partnerships. These loans were repaid in July and August, 1997. Mandel
Sherman, the president, director and a principal shareholder of the Company is
the general partner and manager of such affiliated entities.
In October 1997 Westbury Alloys, LLC merged into Westbury Alloys, Inc., a
Delaware corporation. The membership interests in Westbury Alloys, LLC were
converted into 1,850,000 shares of common stock of Westbury Alloys, Inc. in
proportion to the interest held by each member.
<PAGE>
On January 1, 1998, Westbury entered into a three-year employment agreement with
Mandel Sherman. Under the agreement, Mr. Sherman's compensation is $175,000
annually. In addition, Mr. Sherman will receive 10% of the pretax profits of the
Company in each year in excess of $500,000 to a maximum bonus of $175,000 per
year. This agreement has been assumed by the Company. In addition, the Company
has taken out a $1,000,000 keyman life insurance policy for Mr. Sherman.
The Agreement terminates upon the death or disability of Mr. Sherman and permits
the Company to terminate the agreement, without further payment obligation to
Mr. Sherman, upon the commission of certain acts, and to terminate the Agreement
for any other reason, provided that the Company pays to him a severance payment
equal to the aggregate base salary otherwise owed to him over the remaining term
of the Agreement. Pursuant to the terms of the Agreement, in the event that Mr.
Sherman is not nominated or re-elected to serve as a member of the Board of
Directors, either he or the Company may terminate his employment with the
Company and in such event, he shall be entitled to continue to receive his base
salary as set forth in the Agreement for the remainder of the term.
The Agreement also contains certain confidentiality and non-compete provisions
which are operative during the term of the Agreement. The confidentiality
provisions remain in effect after termination of employment.
In July 1996, the original members of Westbury Alloys, LLC, subscribed for
membership interests of $100,000, in the aggregate, in Westbury Alloys, LLC.
Such interests were converted into Westbury Common Stock at the time of the
merger between Westbury Alloys, LLC and Westbury.
On March 31, 1998, the Company completed a reverse merger of its wholly owned
subsidiary, Westbury Acquisition Corp. a New York corporation ("WAC") with
Westbury Alloys, Inc., a Delaware corporation ("Westbury") pursuant to which
Westbury has become a wholly owned subsidiary of the Company. Westbury provides
a broad range of processing and refining services in connection with the
reclamation of precious and specialty metals from scrap materials. Pursuant to
the merger, the principals of Westbury have become the principals of the Company
and are now the largest shareholders of the Company.
<PAGE>
In order to maintain and maximize the current sales growth of West Tech, Inc., a
borrowing facility of $2,000,000 for the financing of accounts receivable has
been approved by a commercial lender and became available on October 1, 1998. A
Director of the Company is an Officer of the commercial lender.
The Company paid to the firm of McLaughlin & Stern, LLP during the year ended
June 30, 1999, the sum of $55,485 for various legal services. David W. Sass, the
Secretary of the Company, is a member of said firm.
The Company paid to DVI Business Credit Corporation ("DVI")during the year ended
June 30, 1999, the sum of $139,250 for interest and financing fees related to
the $2,000,000 credit line established for the financing of accounts receivable.
Michael A. O'Hanlon a Director of the Company is the President and Chief
Executive Officer of DVI.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
Schedules and Reports on Form 8-K
(A)(1) The following financial statements are included in Part II, Item 7:
Reports of Independent Auditors'
Consolidated Balance Sheet as of June 30, 1999.
Consolidated Statements of Operations for the Years Ended June 30, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years Ended June 30,
1999 and 1998.
Consolidated Statements of Cash Flows for the Years Ended June 30,1999 and 1998
Notes to Consolidated Financial Statements
Schedule 11 - Valuation and Qualifying Accounts
Other schedules are omitted for the reason that they are not required, are not
applicable, or the required information is included in the financial statements
or notes thereto.
(B) Reports on Form 8-K
April 26, 1999-Item-4 and Item-7.
May 5, 1999-Item-2 and Item-7.
June 30,1999- Item-2, Item-5 and Item-7
(C) Exhibits. The following exhibits are filed as part of the Company's
report. Where such filing is made by incorporation by reference (I/B/R)
to a previously filed statement or report, such statement or report is
identified in parenthesis.
Official Exhibit
Number Description
<PAGE>
[3](a)* Certificate of Incorporation, as amended.
[3](b)* By-Laws.
4* Form of Common Stock Certificate
10* Form of Employment Agreement with Mandel Sherman.
[27]* Financial Data Schedule
* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
Westbury Metals Group, Inc. has caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
Dated: September 28, 1999
WESTBURY METALS GROUP, INC.
By: /s/ Mandel Sherman
Mandel Sherman,President
Pursuant to the requirements of the Exchange Act, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the date indicated:
Name Titles Date
/s/ Mandel Sherman President, Chief Executive September 28, 1999
Ma ndel Sherman Officer and Director
/s/ Michael A. O'Hanlon Director September 28, 1999
- -----------------------
Michael A. O'Hanlon
/s/ Michael Riess Director September 28, 1999
Michael Riess
/s/ David Nadler Treasurer, Chief Financial
David Nadler Officer September 28, 1999
