SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECITON 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) December 15, 1999
-----------------
Interiors, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-24352 13-3590047
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
320 Washington Street, Mount Vernon, New York 10553
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (914) 665-5400
-----------------------------
- --------------------------------------------------------------------------------
(Former Name of Former Address, if Changed Since Last Report)
1
<PAGE>
The Registrant hereby amends its Current Report on Form 8-K as filed
with the Commission on December 29, 1999 to include the financial statements and
pro forma financial information set forth below which was omitted from the
filing pursuant to Items 7(a)(4) and 7(b)(2).
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
Financial Statements of Concepts 4, Inc. ("Concepts 4") are appended as an
exhibit to this Report.
(b) Pro Forma Financial Information
Pro Forma Financial Information with respect to acquisition of Concepts 4
is appended as an exhibit to this Report.
(c) Exhibits
Financial Statements for Concepts 4 for the years ended December 31, 1998,
1997 and 1996. Pro Forma Financial Information with respect to acquisition
of Concepts 4.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: INTERIORS, INC.
February 28, 2000 By: /s/Max Munn
------------------------------------
Max Munn
Chairman, President and Chief
Executive Officer
3
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
23.1 Consent of Corbin & Wertz dated February 28, 2000
99.1 Financial Statements for Concepts 4, Inc. for the years ended December 31,
1998, 1997 and 1996
99.2 Pro Forma Financial Information with respect to acquisition of Concepts 4,
Inc.
4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the previously filed
Amendment No. 1 to the Registration Statement of Interiors, Inc. on Form S-3
(File No. 333-63207, effective August 16, 1999) of our report on the
consolidated financial statements of Concepts 4, Inc. dated February 22, 2000,
appearing in Amendment No. 1 of the Current Report on Form 8-K of Interiors,
Inc. dated December 15, 1999.
CORBIN & WERTZ
Irvine, California
February 28, 2000
EXHIBIT 99.1 FINANCIAL STATEMENTS FOR CONCEPTS 4, INC. FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
5
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INDEPENDENT AUDITORS' REPORT
Board of Directors
Concepts 4, Inc.
We have audited the accompanying consolidated balance sheets of Concept 4, Inc.
and subsidiary (the "Company") as of December 31, 1998 and 1997, and the related
consolidated statements of income and comprehensive income, shareholders' equity
and cash flows for the each of the three years in the period ended December 31,
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 audits. We did not audit the 1998
financial statements of Concepts 4 International Pte Ltd, a wholly owned
subsidiary, which statements reflect total assets of approximately $148,000 as
of December 31, 1998 and total revenues of approximately $258,000 for the period
from February 19, 1998 (date of inception) through December 31, 1998. 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 Concepts 4
International Pte Ltd as of December 31, 1998, and for the period then ended, is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audits and the reports of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Concepts 4, Inc. and subsidiary as
of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
CORBIN & WERTZ
Irvine, California
February 22, 2000
6
<PAGE>
Report of the Auditors to the Members of
Concepts 4 International Pte Ltd
We have audited the financial statements of Concepts 4 International Pte Ltd for
the period ended 31 December 1998 (not included herein). These financial
statements are the responsibility of the Company's directors. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Singapore Standards on Auditing. 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 the
directors, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion:-
(a) the financial statements of the Company are properly drawn up in
accordance with the provisions of the Companies Act, Chapter 50 (the
"Act") and Statements of Accounting Standard and so as to give a true and
fair view of:-
(i) the state of affairs of the Company as at 31 December 1998 and of
the results of the Company for the period ended on that date; and
(ii) the other matters required by Section 201 of the Act to be dealt
with in the financial statements;
(b) the accounting and other records and the registers required by the Act to
be kept by the Company have been properly kept in accordance with the
provisions of the Act.
KPMG
Certified Public Accountants
Singapore
31 August 1999
7
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
September 30, ----------------------
ASSETS 1999 1998 1997
------------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $5,067,160 $3,735,155 $3,392,305
Accounts receivable - contracts and retentions, net of
allowance of $50,000, $50,000 and $20,000 at
September 30, 1999, December 31, 1998 and 1997,
respectively 2,078,774 2,134,831 1,683,778
Other receivables 9,406 44,129 166,500
Employee receivable 260,035 -- --
Vendor advances 295,838 510,123 1,091,395
Costs and estimated earnings in excess of billings
on contracts in progress -- 35,585 --
Prepaids 10,067 -- --
---------- ---------- ----------
Total current assets 7,721,280 6,459,823 6,333,978
Property and equipment, net 264,352 246,175 166,779
Deposits and other assets 77,109 17,109 --
---------- ---------- ----------
$8,062,741 $6,723,107 $6,500,757
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,354,138 $1,339,755 $1,170,105
Accrued expenses 534,221 390,171 325,759
Income taxes payable 369,053 122,675 800
Lines of credit 285,810 -- 166,259
Billings in excess of costs and estimated
earnings on contracts in progress 4,012,211 3,766,316 4,040,194
Notes payable - officers 32,675 32,675 32,675
Current portion of long-term debt 40,000 40,000 40,000
---------- ---------- ----------
Total current liabilities 6,628,108 5,691,592 5,775,792
Long-term debt 16,667 46,667 86,667
---------- ---------- ----------
Total liabilities 6,644,775 5,738,259 5,862,459
---------- ---------- ----------
Shareholders' equity:
Common stock, $10 par value, 10,000 shares
authorized, 100 shares issued and outstanding 1,000 1,000 1,000
Retained earnings 1,416,966 983,730 637,298
Accumulated other comprehensive income -- 118 --
---------- ---------- ----------
Total shareholders' equity 1,417,966 984,848 638,298
---------- ---------- ----------
$8,062,741 $6,723,107 $6,500,757
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Nine Months Three Months Nine Months
--------------------------- ---------------------------
September 30, 1999 September 30, 1998
--------------------------- ---------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Contract revenues $ 4,913,774 $ 14,741,323 $ 5,676,937 $ 17,030,811
Direct contract costs 3,506,450 10,519,349 4,356,129 13,068,386
----------- ------------ ----------- ------------
Gross profit 1,407,324 4,221,974 1,320,808 3,962,425
Indirect costs and general and administrative expenses 1,180,562 3,541,687 1,208,455 3,625,364
----------- ------------ ----------- ------------
Income from operations 226,762 680,287 112,353 337,061
----------- ------------ ----------- ------------
Other income (expense):
Dividend and interest income 50,369 151,106 46,639 139,918
Interest expense (9,702) (29,105) (6,585) (19,755)
----------- ------------ ----------- ------------
40,667 122,001 40,054 120,163
----------- ------------ ----------- ------------
Income before provision for income taxes 267,429 802,288 152,407 457,224
Provision for income taxes 123,018 369,052 65,800 197,400
----------- ------------ ----------- ------------
Net income 144,411 433,236 86,607 259,824
Other comprehensive income - foreign currency
translation adjustment -- -- 30 89
----------- ------------ ----------- ------------
Comprehensive income $ 144,411 $ 433,236 $ 86,637 $ 259,913
=========== ============ =========== ============
<CAPTION>
Years Ended December 31,
---------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Contract revenues $ 22,707,748 $ 20,865,899 $ 30,339,089
Direct contract costs 17,424,515 15,545,826 25,170,852
------------ ------------ ------------
Gross profit 5,283,233 5,320,073 5,168,237
Indirect costs and general and administrative expenses 4,833,818 5,143,037 4,718,778
------------ ------------ ------------
Income from operations 449,415 177,036 449,459
------------ ------------ ------------
Other income (expense):
Dividend and interest income 186,557 152,112 138,987
Interest expense (26,340) (48,457) (7,685)
------------ ------------ ------------
160,217 103,655 131,302
------------ ------------ ------------
Income before provision for income taxes 609,632 280,691 580,761
Provision for income taxes 263,200 117,900 243,900
------------ ------------ ------------
Net income 346,432 162,791 336,861
Other comprehensive income - foreign currency
translation adjustment 118 -- --
------------ ------------ ------------
Comprehensive income $ 346,550 $ 162,791 $ 336,861
============ ============ ============
</TABLE>
9
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------------ Comprehensive Retained
Shares Amount Income Earnings Total
------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 10,000 $1,000 $ -- $137,646 $138,646
Net income -- -- -- 336,861 336,861
------ ------ ---- -------- --------
Balance at December 31, 1996 10,000 1,000 -- 474,507 475,507
Net income -- -- -- 162,791 162,791
------ ------ ---- -------- --------
Balance at December 31, 1997 10,000 1,000 -- 637,298 638,298
Net income -- -- -- 346,432 346,432
Foreign currency translation adjustment -- -- 118 -- 118
------ ------ ---- -------- --------
Balance at December 31, 1998 10,000 $1,000 $118 $983,730 $984,848
====== ====== ==== ======== ========
</TABLE>
10
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------------- ---------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 433,236 $ 259,824 $ 346,432 $ 162,791 $ 336,861
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for doubtful accounts -- 22,500 30,000 -- --
Depreciation and amortization 37,500 41,339 57,295 29,525 4,453
Changes in operating assets and liabilities:
Accounts receivable - contracts and retentions 56,057 (360,790) (481,053) (608,403) (701,413)
Other receivables (225,312) 91,778 122,371 10,849 (171,799)
Prepaids (10,067) -- -- -- --
Deposits on contracts in progress 214,285 448,808 598,410 -- --
Accounts payable and accrued expenses 158,433 175,547 234,062 (1,011,965) 1,851,270
Billings in excess of costs and estimated earnings on
contracts in progress, net 281,480 (244,951) (326,601) 181,620 2,520,996
Income taxes payable 246,378 91,406 121,875 (6,374) (80,995)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 1,191,990 525,461 702,791 (1,241,957) 3,759,373
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (55,677) (100,886) (136,691) (99,662) (98,095)
Increase in deposits (60,000) (17,109) (17,109) -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (115,677) (117,995) (153,800) (99,662) (98,095)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net (payments) borrowings under bank line of credit 285,810 -- (166,259) 166,259 --
Issuance of long-term debt -- (124,694) -- 160,000 --
Principal repayments on long-term debt (30,000) (30,000) (40,000) (33,333) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 255,810 (154,694) (206,259) 292,926 --
----------- ----------- ----------- ----------- -----------
Foreign currency translation adjustment (118) 89 118 -- --
----------- ----------- ----------- ----------- -----------
Net change in cash 1,332,005 252,861 342,850 (1,048,693) 3,661,278
Cash at beginning of period 3,735,155 3,392,305 3,392,305 4,440,998 779,720
----------- ----------- ----------- ----------- -----------
Cash at end of period $ 5,067,160 $ 3,645,166 $ 3,735,155 $ 3,392,305 $ 4,440,998
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information -
Cash paid during the period for interest $ 13,337 $ 19,755 $ 26,340 $ 48,457 $ 7,685
=========== =========== =========== =========== ===========
Cash paid during the period for income taxes $ 800 $ 800 $ 800 $ 800 $ 265,969
=========== =========== =========== =========== ===========
</TABLE>
11
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Concepts 4, Inc. (the "Company"), a California corporation, was incorporated in
November 1977 and is a general contractor specializing in the development and
renovation of hospitality facilities. The Company provides architectural and
interior design, procurement, construction management and turnkey construction
services throughout the United States, Mexico and Asia. During 1998, the Company
established a wholly owned subsidiary corporation in Singapore, Concepts 4
International Pte Ltd, to meet the growing demands of the Company's services in
that country.
Consolidation Policy
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany balances
and transactions have been eliminated in consolidation.
Foreign Currency Translation
The assets and liabilities of Concepts 4 International Pte Ltd, whose functional
currency is the local foreign currency, are translated using rates of exchange
as of December 31, 1998; revenues and expenses are translated at weighted
average rates of exchange in effect during the period February 19, 1998 (date of
inception) through December 31, 1998. The cumulative effect resulting from such
translation is included in accumulated other comprehensive income in the
consolidated financial statements.
Concentration of Credit Risk
The Company extends credit to a variety of customers and performs ongoing credit
evaluations of such customers. The Company follows the practice of filing
statutory liens on all projects where collection problems are anticipated. The
liens serve as collateral for accounts receivable. The Company evaluates
reserves for potential credit losses based on a job-by-job review and on the
Company's historical experience. Management determined that a $50,000 and
$20,000 reserve was required for accounts and contracts receivable at December
31, 1998 and 1997, respectively.
The Company transacts a significant amount of business with certain customers.
As of December 31, 1998, accounts receivable from four customers aggregated to
55% of total accounts receivable. As of December 31, 1997, accounts receivable
from two customers aggregated to 74% of total accounts receivable. For the years
ended December 31, 1998, 1997 and 1996, contract revenues from two customers
aggregated 33%, 50% and 78%, respectively, of the Company's total revenue.
12
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The Company maintains cash balances at financial institutions that are secured
by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances
total approximately $3,466,000 and $3,192,000 at December 31, 1998 and 1997,
respectively.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reported period.
Significant estimates made by the Company's management include, but are not
limited to, the allowance for losses on accounts and contracts in process, the
percentage of completion on uncompleted contracts and the realizability of
property and equipment through future operations. Actual results could
materially differ from those estimates.
Cash and Cash Equivalents
The Company considers all investments with an original maturity of three months
or less to be cash equivalents.
Vendor Advances
Vendor advances represents prepayments to suppliers and subcontractors for jobs
in progress.
Property and Equipment
Depreciation of property and equipment is provided for using the straight-line
method over the estimated useful lives of the related assets (five years).
Amortization of leasehold improvements is provided over the lesser of the life
of the related asset or the term of the lease.
Maintenance and repairs are charged to expense as incurred. Renewals and
improvements of a major nature are capitalized. At the time of retirement or
other disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gains or losses are
reflected in income.
13
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The Company assesses the recoverability of property and equipment by determining
whether the depreciation of such assets over their remaining lives can be
recovered through projected undiscounted cash flows. The amount of impairment,
if any, is then measured based on fair value and is charged to operations in the
period in which such impairment is determined by management. As of December 31,
1998, the Company's management believes that no impairment of the carrying value
of its property and equipment exists.
Revenue and Cost Recognition
The accompanying financial statements have been prepared using the
percentage-of-completion method of accounting and, therefore, take into account
the cost, estimated earnings, and revenue to date on fixed-fee and unit-price
contracts not yet completed.
The amount of revenue recognized at the statement date is the portion of the
total contract price that the cost expended to date bears to the anticipated
final cost, based on current estimates of cost to complete. It is not related to
the progress billings to customers. The method is used because management
considers the cost expended to date to be the best available measure of progress
on the contracts. Because of inherent uncertainties in estimating costs, it is
at least reasonably possible that the estimates will change within the near
term.
Contract costs include all direct labor and benefits, materials unique to or
installed in the project, subcontract costs, and other direct construction
costs.
Because long-term contracts extend over one or more years, revisions in
estimates of cost and earnings during the course of the work are reflected in
the accounting period in which the facts that require the revision become known.
At the time a loss on a contract becomes known, the entire amount of the
estimated loss is recognized in the financial statements.
Contracts that are substantially complete are considered closed for financial
statement purposes. Revenues earned on contracts in progress in excess of
billings (underbillings) are classified as current assets. Amounts billed in
excess of revenue earned (overbillings) are classified as current liabilities.
14
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "ACCOUNTING FOR INCOME TAXES." Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.
Unaudited Interim Financial Statements
The unaudited financial information included herein as of September 30, 1999,
for the three months ended September 30, 1998 and 1999 and for the nine months
ended September 30, 1998 and 1999, have been prepared in accordance with
generally accepted accounting principles for interim financial statements. In
the opinion of the Company, these unaudited financial statements, reflect all
adjustments necessary, consisting of normal recurring adjustments, for a fair
presentation of such data on a basis consistent with that of the audited data
presented herein. The results of operations for interim periods are not
necessarily indicative of the results expected for a full year.
NOTE 2 - BILLINGS ON CONTRACTS IN PROGRESS
At December 31, costs and billings on contracts in progress consist of the
following:
1998 1997
------------ ------------
Costs incurred on contracts in progress $ 14,763,060 $ 11,632,543
Estimated earnings on contracts in progress 3,908,817 3,025,141
------------ ------------
18,671,877 14,657,684
Less: billings on above contracts (22,402,608) (18,697,878)
------------ ------------
$ (3,730,731) $ (4,040,194)
============ ============
15
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
NOTE 2 - BILLINGS ON CONTRACTS IN PROGRESS, continued
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Included in the accompanying balance sheets as:
Costs and estimated earnings in excess of progress
billings on contracts in progress $ 35,585 $ --
Billings in excess of costs and estimated
earnings on contracts in progress (3,766,316) (4,040,194)
----------- -----------
$(3,730,731) $(4,040,194)
=========== ===========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
At December 31, 1998 and 1997, property and equipment consists of the following:
1998 1997
--------- ---------
Furniture, fixtures and equipment $ 304,770 $ 253,638
Leasehold improvements 125,647 40,088
--------- ---------
430,417 293,726
Less accumulated depreciation and amortization (184,242) (126,947)
--------- ---------
$ 246,175 $ 166,779
========= =========
Depreciation and amortization expense for the years ended December 31, 1998 and
1997 totaled $57,295 and $29,525, respectively.
NOTE 4 - LINES OF CREDIT
The Company has a $1,000,000 line of credit available with a financial
institution. The line bears interest at the bank's index rate (8% at December
31, 1998) plus 1% and expires January 31, 2001. It is collateralized by accounts
receivable and is guaranteed by the Company's stockholder.
16
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
NOTE 4 - LINES OF CREDIT, continued
The line of credit agreement requires maintenance of working capital and debt to
net worth ratios. In addition, the agreement contains restrictions regarding
adequate insurance, loans and advances. The Company was in compliance with all
restrictions as of December 31, 1998.
As of December 31, 1998 and 1997, the outstanding balance on this line of credit
was $0 and $166,259, respectively.
The Company also had a $100,000 line of credit available with a bank. The line
bore interest at the bank's index rate (7.75% at December 31, 1998) plus 1.5%
and expired November 6, 1999. The line of credit agreement contained
restrictions regarding adequate insurance, loans and advances. The Company was
in compliance with these restrictions as of December 31, 1998. As of December
31, 1998 and 1997, the balance of this line of credit was $0 and $598,
respectively.
NOTE 5 - NOTES PAYABLE - SHAREHOLDERS
Shareholder notes payable consists of unsecured notes, bearing interest at 10%
per annum, with principal and interest due on demand. Interest expense on the
notes for each of the years ended December 31, 1999, 1998 and 1997 was
approximately $3,300.
NOTE 6 - LONG-TERM DEBT
At December 31, 1998 and 1997, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Notes payable - secured by equipment, payable in monthly installments of
$3,333 plus interest at 10% per annum. Debt matures on March 1, 2001 $ 86,667 $ 126,667
Less current portion (40,000) (40,000)
--------- ---------
$ 46,667 $ 86,667
========= =========
</TABLE>
17
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
NOTE 6 - LONG-TERM DEBT, continued
At December 31, 1998, scheduled maturities of long-term debt were as follows:
Years Ending December
31,
- -------------------------
1999 $ 40,000
2000 40,000
2001 6,667
---------------
$ 86,667
===============
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Leases
During 1998, the Company entered into a lease for office space expiring in 2003.
At December 31, 1998, the future minimum payments for this operating lease are
as follows:
1999 $ 168,113
2000 177,375
2001 182,006
2002 191,269
2003 195,900
-------------
$ 914,663
==============
Total rent expense was approximately $166,000, $150,000 and $122,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
Litigation
The Company is involved in litigation resulting in the normal course of
business. Management is currently not able to predict the outcome of the cases.
However, management believes there is little merit to the claims and the
resolutions of these matters will not have a material adverse effect on the
Company's financial statements.
18
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
NOTE 8 - EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The Company has a profit-sharing plan, which covers substantially all employees.
Contributions to the plan are at the discretion of the board of directors.
Employees must be employed with the Company for one year and be at least 21
years of age before they are eligible to participate in the plan. Participants
vest over a five-year period. The plan terminated in 1997 and was rolled over
into a 401(k) plan. No plan contributions were approved for the years ended
December 31, 1997.
401(k) Plan
Effective February 1, 1997, the Company adopted a 401(k) plan, which covers
substantially all employees. Employees must be employed with the Company for one
year and be at least 21 years of age before they are eligible to participate in
the plan. Employees may defer from 1% to 15% of compensation up to a
predetermined limit. Company contributions to the plan are at the discretion of
the board of directors. All deferrals are 100% vested and Company contributions
are vested based on a percentage of years of service with the Company. No plan
contributions were approved for the years ended December 31, 1997 and 1998.
NOTE 9 - BACKLOG
The following schedule summarizes changes in backlog on contracts during the
years ended December 31, 1998 and 1997. Backlog represents the amount of revenue
the Company expects to realize from work to be performed on uncompleted
contracts in progress at the year end and from contractual agreements on which
work has not yet begun:
Backlog balance at December 31, 1997 $ 17,502,671
New contracts and contract adjustments during the year ended 1998 27,645,688
------------
Subtotal 45,148,359
Less contract revenue earned during 1998 (22,707,748)
------------
Backlog balance at December 31, 1998 $ 22,440,611
============
19
<PAGE>
CONCEPTS 4, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
NOTE 10 - INCOME TAXES
The components of income tax provision is as follows:
1998 1997 1996
-------- -------- --------
Current payable
Federal $209,300 $ 93,100 $192,600
State 53,900 24,800 51,300
-------- -------- --------
263,200 117,900 243,900
-------- -------- --------
Deferred provision
Federal -- -- --
-------- -------- --------
State -- -- --
-------- -------- --------
Provision for income taxes $263,200 $117,900 $243,900
======== ======== ========
The following is a reconciliation of income tax at the federal statutory rate to
the provision of income taxes:
1998 1997 1996
-------- -------- --------
Tax at statutory rate of 34% $207,275 $ 95,435 $197,460
State income taxes, net of federal
income tax benefit 35,568 16,378 33,885
Other 20,357 6,087 12,555
-------- --------
$263,200 $117,900 $243,900
======== ======== ========
NOTE 11 - SUBSEQUENT EVENT
On December 15, 1999, the shareholders of the Company sold all of their shares
of outstanding common stock to Interiors, Inc. for $11,636,226 in cash and
notes.
20
EXHIBIT 99.2 PRO FORMA FINANCIAL INFORMATION
The following Pro-Forma Combined Financial Information for the year ended June
30, 1999 and the six months ended December 31, 1999 for Interiors, Inc. and
comparable periods for Concepts 4, Inc. has been prepared to reflect the
combined results of operations of Interiors Inc. and subsidiaries as if the
combination had been effective as of July 1, 1998 for the year ended June 30,
1999 and for six months ended December 31, 1999. The acquisition of Concepts 4,
Inc. has been accounted for as a purchase as if the acquisition had occurred as
of July 1, 1998 for the fiscal year ending June 30, 1999 and as if the
acquisition had occurred as of July 1, 1999 for the interim period ending
December 31, 1999. The excess of purchase price over fair value of assets
acquired if the acquisition had all occurred as of July 1, 1998 or July 1, 1999
is being amortized over a forty year period.
The Pro Forma Combined Financial Information is unaudited and not necessarily
indicative of the consolidated results which actually would have occurred if the
combination had been consummated at the beginning of the periods presented, nor
does it purport to represent the future results of operations for future
periods.
In management's opinion, all material adjustments necessary to reflect the
effects of the combination have been made.
PRO FORMA INTERIM FINANCIAL INFORMATION FOR INTERIORS INC. AND SUBSIDARIES AND
CONCEPTS 4, INC.
Pro Forma Statements of Operations
For the six months ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Interiors, Inc
and Concepts 4,
Subsidiaries. Inc. [C] Adjustments Combined
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $79,320,837 $ 9,827,549 $ 89,148,386
Cost of goods sold 47,004,243 7,012,900 54,017,143
----------- ----------- ------------
Gross profit 32,316,594 2,814,649 35,131,243
Selling, general, and 182,903[B]
administrative expenses 29,986,626 2,361,125 124,425[B] 32,655,079
----------- ----------- ------------ ------------
Income from operations 2,329,968 453,524 307,328 2,476,164
----------- ----------- ------------ ------------
Other Expenses (Income)
Interest expense 2,575,897 19,403 2,595,300
Interest income (100,738) (100,738)
Financing charges - non-cash 194,478 - 194,478
Consulting and management fees 22,135 - 22,135
Minority interest (54,703) - (54,703)
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Impairment loss on
non-operating receivables 175,561 - 175,561
----------- ----------- ------------
Total other (income)
expenses 2,913,368 (81,335) 2,832,033
----------- ----------- ------------
Income (Loss) from operations
before provision for income
taxes (583,400) 534,859 (355,869)
Provision for Income Taxes 80,550 246,035 (246,035)[D] 80,550
----------- ----------- ------------ ------------
Net Income (Loss) $ (663,950) $ 288,824 $ (436,419)
=========== =========== ============
Earnings Per Common Share:
Loss from continuing
operations $ (663,950) $ (436,419)
Preferred dividends (307,302) (307,302)
Accreted preferred dividends (1,000,000) (1,000,000)
----------- ------------
Net loss $(1,971,252) $ (1,743,721)
=========== ============
Net earnings per common share
- Basic and Diluted $ (0.06) $ (0.05)
===== =====
</TABLE>
Pro Forma Statements Of Operations
For the Year Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Interiors, Inc
and Concepts 4,
Subsidiaries Inc. [C] Adjustments Combined
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $80,433,426 $ 21,181,423 $101,614,849
Cost of goods sold 50,449,519 15,725,157 66,174,676
----------- ----------- ------------
Gross profit 29,983,907 5,456,266 35,440,173
Selling, general, and 324,974[B]
administrative expenses 28,964,186 4,778,034 248,849[B] 34,316,043
----------- ----------- ---------- ------------
Income from operations 1,019,721 678,232 573,823 1,124,130
----------- ----------- ---------- ------------
Other Expenses (Income)
Interest expense 2,992,861 32,573 3,025,434
Interest income - (194,016) (194,016)
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Financing charges - non-cash 1,192,359 1,192,359
Impairment loss on
investments and
non-operating receivables 6,088,372 - 6,088,372
Consulting and management
fees (442,100) - (442,100)
Minority interest (117,499) - (117,499)
----------- ----------- ------------
Total other expense
(income) 9,713,993 (161,443) 9,552,550
----------- ----------- ------------
Income (loss) before
provision (benefit) for
income taxes and
extraordinary item (8,694,272) 839,675 (8,428,420)
Provision for Income Taxes 200,000 377,635 (377,635)[D] 200,000
----------- ----------- ------------
Income (loss) before
extraordinary item (8,894,272) 462,040 (8,628,420)
----------- ----------- ------------
Extraordinary Gain from Early
Extinguishment of Debt 870,264 - 870,264
----------- ----------- ------------
Net (Loss) Income (8,024,008) 462,040 (7,758,156)
Other Comprehensive income -
foreign currency translation
adjustment - 59 59
----------- ----------- ------------
$(8,024,008) $ 462,099 $(7,758,097)
=========== =========== ===========
Earnings Per Common Share:
Basic
Income (loss) before
extraordinary item (8,894,272) (8,628,420)
Preferred dividends (518,265) (518,265)
Accreted preferred
dividends (832,000) (832,000)
----------- ------------
Net income (loss)
attributable to common
shares before (10,244,537) (9,978,685)
extraordinary item
Extraordinary gain from
early extinguishment of
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
debt, net 870,264 870,264
----------- ------------
Net income (loss) $ (9,374,273) $ (9,108,421)
============ ============
Net earnings per common
share - basic:
Earnings from continuing
operations $(0.46) $(0.45)
Extraordinary gain from
early extinguishment of
debt 0.04 0.04
----------- ------------
Net earnings per common
share - basic $(0.42) $(0.41)
====== ======
Diluted
Income (loss) before
extraordinary item (8,894,272) (8,628,420)
Preferred dividends (518,265) (518,265)
Accreted preferred
dividends (832,000) (832,000)
----------- ------------
Net income attributable to
common shares before
extraordinary item (10,244,537) (9,978,685)
Extraordinary gain from
early extinguishment of
debt, net 870,264 870,264
----------- ------------
Net income (loss) (9,374,273) (9,108,421)
=========== ============
Net earnings per common
share - diluted:
Earnings from continuing
operations $(0.46) $(0.45)
Extraordinary gain from
early extinguishment of
debt 0.04 0.04
----------- ------------
Net earnings per common
share - diluted $(0.42) $(0.41)
====== ======
Weighted average number of
shares used in
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
computation of earnings
per share:
Basic 22,035,755 22,035,755
Diluted 22,035,755 22,035,755
Weighted average number of
shares used in
computation of earnings
per share from
extraordinary gain:
Basic 22,035,755 22,035,755
Diluted 23,480,512 23,480,512
========== ==========
</TABLE>
NOTES TO PRO FORMA FINANCIAL INFORAMTION
(A) The Balance Sheet as of December 31, 1999 for Interiors and Subsidiaries
includes Concepts 4, Inc. and is disclosed in Interiors Inc. December 31,
1999 form 10Q.
(B) The acquisition of the common shares of Concepts 4, Inc. consists of
aggregated cash payments of $11,636,226. The purchase price consists of
(a) cash payment of $2,000,000 which was paid on the December 15, 1999 (b)
a cash payment of $2,600,000 which was paid prior to December 20, 1999 (c)
a cash payment of $2,822,938 payable on March 10, 2000, (d) a cash payment
of $770,000 payable on December 15, 2000 (e) a cash payment of $1,218,000
payable on December 15, 2001, (f) a cash payment of $1,218,000 payable on
December 15, 2002, and (g) a cash payment of $1,007,289 payable on March
10, 2003. Concepts 4, Inc. unaudited book value as of December 31, 1999
1,682,266. The aggregate purchase price resulted in estimated goodwill of
$9,953,960 which is being amortized over a forty year period. Amortization
of the goodwill for the year ended June 30, 1999 and six months ended
December 31, 1999 would have been $248,849 and $124,425, respectively and
has been reflect in the accompanying pro forma financial information.
Estimated imputed interest was calculated at 8% for the remaining cash
payments of $7,036,226. Imputed interest for the year end June 30, 1999
and the six months ended December 31, 1999 would have been $324,974 and
$182,903, respectively.
(C) Calendar year end statements of operations for 1998 and 1999 were ratably
divided over a half year period to compile the proforma six months ended
December 31, 1999 Statement of Operations and year ended June 30, 1999
Statement of Operations for Concepts 4, Inc.
(D) Utilization of Interiors, Inc. net losses against Concepts 4, Inc. net
income.
25
