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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File No. 0-25634
----------------------
FORTE COMPUTER EASY, INC.
(Exact name of Registrant as specified in its charter)
UTAH 87-0365268
(State of Incorporation) (IRS Employer Identification No.)
1350 ALBERT STREET
YOUNGSTOWN, OHIO 44505
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 746-3311
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title Class Name of each exchange on which registered
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<S> <C>
COMMON STOCK, $.01 PAR VALUE NONE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES NO X
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant'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 [ ].
Issuer's revenues for its fiscal year: $5,426,260
As of September 30, 1996, the number of shares of Common Stock outstanding was
48,605,794 and the aggregate market value of the Common Stock (based on the
closing price on that date) held by non-affiliates of the Registrant was
approximately $1,107,000.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit Index................................................. Page 14
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Forte Computer Easy, Inc. (the "Company") is a Utah corporation with
one operating subsidiary, Forte, Inc., an Ohio corporation ("Forte" or the
"Subsidiary"). All of the issued and outstanding common stock of Forte is owned
by the Company. The Company does not have any other subsidiaries, and Forte does
not have any subsidiaries.
The original business of the Company was conducted by Computer
Easy, Inc., an Arizona corporation which was incorporated on August 2,
1983. Empire Oil, Inc., a Utah corporation and predecessor of the
Company, acquired the stock of Computer Easy, Inc. in 1984. In
September, 1985, the assets of Computer Easy, Inc. were assigned to
Empire Oil, Inc., the name of the surviving corporation was subsequently
changed to Computer Easy International, Inc. and the separate existence
of Computer Easy, Inc. was terminated. The name of the Company was
changed from Computer Easy International, Inc. to Forte Computer Easy,
Inc. as of January 3, 1995.
Through Forte, the Company is engaged in the business of manufacturing
residential, commercial and architectural windows and doors (also known as
"fenestration" products). The Company previously was also engaged in the
businesses of computer software publishing and computer disk duplication and
fulfillment; however, as described below, the Company has discontinued its
operations in these businesses and concentrated its efforts on the fenestration
business.
The principal executive offices of the Company are located at 1350
Albert Street, Youngstown, Ohio 44505, and the Company's telephone number is
(330) 746-3311.
DESCRIPTION OF BUSINESS
The Company is not directly engaged in business operations. The
business of the Company is conducted through Forte, its wholly owned subsidiary.
The current business of the Company consists of the manufacture and
distribution of a wide variety of fenestration products, including doors,
windows, security screens, storm doors and screen doors. Typically, the Company
enters into contracts to provide fenestration products for large construction
projects. The Company continually strives to improve its products and to refine
its product mix to better meet the demands of its customers. As discussed below
under "Business Strategy", management believes changes in the fenestration
industry will provide the Company with significant opportunities for future
growth.
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Forte was incorporated under the laws of the State of Ohio in April,
1989. Frank J. Amedia ("Amedia") initially was the sole shareholder of Forte.
Prior to the formation of Forte, Mr. Amedia, through Frank J. Amedia &
Associates, had served as a manufacturer's representative in selling
fenestration products, consisting of doors, windows, security screens, storm
doors and screen doors, to the public housing market, military installations and
government agencies.
Forte was formed to operate in a developing vacuum in the commercial
fenestration market which occurred as a result of a number of plant closings and
mergers among previous manufacturers of commercial fenestration products. The
original market sought to be served by Forte was renovation and retrofit
products, as opposed to new construction. The first products developed by Forte
placed great emphasis on energy savings and security through sales of thermally
improved replacement windows and window protection screens of high grade
construction, safe operation and architecturally aesthetic appeal. The original
product line of Forte consisted of a variety of product variations with numerous
applications, including four (4) security screen lines, two (2) security screen
door lines, two (2) storm door lines and one (1) storm window line. By November,
1989, all Forte products had been successfully tested and certified by National
Certified Testing Laboratories as complying with published industry standards.
In October, 1991, Forte agreed to purchase the commercial window
product lines and a glass insulating product line of Airmaster Corporation of
Ben Salem, Pennsylvania. Airmaster had been formed in 1947 and had been long
recognized as one of the premier United States manufacturers of commercial
window lines, with sales throughout the country. This transaction was
consummated in early 1992 and the purchased equipment was moved to Forte's
headquarters in Youngstown, Ohio in March, 1992, at which time Forte began to do
business as "Forte/Airmaster."
In July, 1993, Forte acquired from Season-All Industries, Inc.
("Season-All") the following items: (i) specifically identified machinery and
equipment related to certain product lines, in addition to other machinery
equipment; (ii) inventories of raw materials, work in process and supplies held
for production for two (2) specific contracts; (iii) supplies held for
production for two (2) specific contracts; (iv) other inventory, work in process
and supplies specified by Forte for customer and supplier lists, catalogs,
brochures and related sales material; (v) manufactured drawings, process sheets,
specifications, bills of material and like data relating to the product lines;
and (vi) trade names related to products manufactured on the purchased product
lines. In addition, Forte was assigned two (2) major retrofit contracts of
Season-All.
Upon the closing of the Season-All acquisition described above, Forte
made arrangements with AMAS, Inc., an Ohio corporation ("AMAS") owned by Amedia
and John Masternick ("Masternick") which in turn owned a building located at
1450 Albert Street, Youngstown, Ohio (the "AMAS Building") adjacent to the
office and manufacturing plant of Forte, to lease from AMAS approximately
120,000 square feet of manufacturing and office space in that facility. Forte
and AMAS entered into a lease
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agreement which allowed Forte a credit against annual rental payments until
Forte expended approximately $800,000 for repairs to the facility. Forte began
production in the AMAS Building in the fall of 1994.
All of the issued and outstanding common stock of Forte was acquired by
the Company in June, 1994, in exchange for shares of the Company's common stock,
in addition to stock options. In connection with the Company's acquisition of
Forte, AMAS was merged into Forte. Masternick received shares of Forte common
stock in connection with the Forte-AMAS merger. Amedia and Masternick, as
shareholders of Forte, received shares of common stock of the Company in the
acquisition. Forte became the owner of the AMAS Building as a result of its
merger with AMAS, and the lease agreement between Forte and AMAS terminated by
operation of law.
On June 7, 1994, Forte purchased all of the issued and outstanding
shares of MoCorp Air, Inc. ("MoCorp") from Amedia for $215,000, which consisted
of the assumption by Forte of the balance due from MoCorp to Cessna Financing
Company in the amount of $147,902 and seller-provided financing for the balance
of the purchase price of $67,098. The sole asset of MoCorp was a Cessna
Chieftain Piper Aircraft, U.S. Registration No. N27363.
On October 25, 1996, the Company entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") with AAP Holdings, Inc., a
Delaware corporation ("AAPH"). Pursuant to the Reorganization Agreement, the
Company will acquire one hundred percent (100%) of the issued and outstanding
common stock of American Architectural Products, Inc., a Delaware corporation
("AAP") in exchange for shares of Series A Convertible Preferred Stock of the
Company which is convertible into a number of shares of the Company's common
stock which is equal to sixty percent (60%) of the issued and outstanding common
stock of the Company on the closing date of the transaction. In addition, the
Company will issue to AAPH options to purchase 1.5 times the number of shares of
the Company's common stock subject to options previously issued by the Company
which are outstanding on the closing date of the transaction. Such options will
be identical in price and exercise terms to the previously outstanding options.
The Company currently anticipates that the closing of this transaction will
occur prior to the end of 1996.
AAP is also engaged in the fenestration manufacturing business through
its principal operating subsidiaries Eagle Window & Door, Inc. ("Eagle") and
Taylor Building Products Company ("Taylor"). Eagle's primary product line
consists of aluminum clad and all-wood window and door products which are
targeted to high-end residential and certain "institutional" niche markets.
Taylor's primary products consist of urethane-insulated steel entry doors and
polystyrene-insulated steel garage doors. AAP also has a subsidiary known as
Mallyclad Corp. ("Mallyclad") which, pursuant to the Reorganization Agreement,
will either be sold by AAP or merged into AAP prior to closing of the
acquisition of AAP by the Company. Management expects the acquisition of AAP to
dramatically increase the Company's sales volume and to significantly enhance
the Company's competitive and strategic position in the manufacture and
distribution of windows, doors and other
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fenestration products. The transaction with AAPH is subject to customary
closing conditions.
Following consummation of the AAPH transaction, the Company intends to
seek shareholder approval of a reincorporation of the Company in Delaware under
the name American Architectural Products Corporation.
BUSINESS STRATEGY
Management believes consolidation in the fenestration manufacturing
industry presents significant growth opportunities for the Company. Although the
industry has historically been characterized by small, entrepreneurial
businesses scattered throughout the United States, the growing public demand for
more energy efficient windows and doors has resulted in increased manufacturing
costs. These increased costs and the competitive pressures brought about by
manufacturers' need for technology, computerization and enhanced marketing
efforts, have led to a shift away from small, independent manufacturers and
toward larger manufacturers that are able to spread higher costs across a broad
product line. The Company believes consolidation in the fenestration industry
will continue to accelerate and that this consolidation will present favorable
merger and acquisition opportunities.
The Company's business plan contemplates that the Company will,
following consummation of the AAPH transaction, target as acquisition candidates
small, established fenestration companies that are leaders in established
national or regional niche markets. The Company intends to pursue acquisition
candidates that produce fenestration products compatible with the scope of
fenestration products incorporated into the Company's marketing plan. In
evaluating acquisition candidates, the Company will focus on those candidates
that display strong growth potential, a stable customer base and predictable
cash flows. Following consummation of its acquisitions, the Company intends to
implement financial and operational improvements, product-line enhancements and
synergistic add-on acquisitions to enhance the value of the acquired
enterprises. The Company currently intends to finance these acquisitions through
a combination of senior bank borrowings secured by assets of the acquired
company, subordinated or mezzanine debt funded by institutional investors, and
issuances of common and preferred stock of the Company.
MANUFACTURING FACILITIES
Forte currently conducts manufacturing operations at a 120,000 sq. ft.
facility located in Youngstown, Ohio. AAP currently conducts manufacturing
operations at a 250,000 sq. ft. facility located in Dubuque, Iowa and a 220,000
sq. ft. facility located in West Branch, Michigan. The Company currently expects
to continue manufacturing operations at all of these facilities following
closing of the AAP acquisition transaction. AAP also operates a 30,000 sq. ft.
manufacturing facility in Detroit, Michigan through its subsidiary Mallyclad
Corp. which, as described above, will either be sold or merged into AAP prior to
closing of the acquisition of AAP by the Company. Management believes the
Company's current manufacturing facilities (together with the AAP manufacturing
facilities following the closing of
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the AAP acquisition) are sufficient to meet its current and projected
manufacturing needs.
DISCONTINUED BUSINESSES
Prior to November, 1995, the Company was engaged in the computer
software publishing business through a wholly owned subsidiary known as Computer
Easy, Inc. ("CEI"). The business of CEI consisted primarily of publishing and
marketing applications software, educational software and entertainment software
products through major software distributors for resale in national software and
computer retail chain stores, discount stores, warehouse stores and other retail
outlets. CEI contracted with software developers to publish software programs,
generally on an exclusive worldwide basis. CEI also developed software in-house
through internal research and development and through contracting with
independent computer programmers to develop proprietary software products for
CEI. After the introduction by Microsoft Corporation of the new Windows 95
personal computer operating system in 1995, CEI faced significant potential
costs to modify its software products to be compatible with the Windows 95
operating system. In addition, sales of the Company's software products had
decreased significantly in the preceding months as the market anticipated the
release of Windows 95. As a result, although the software publishing business
historically generated a significant portion of the Company's revenues,
management of the Company concluded that it was in the best long-term interest
of the Company to discontinue the operations of the software publishing
division. On August 30, 1995, the Company reached a tentative agreement to sell
assets constituting the principal software publishing business of CEI to
International Microcomputer Software, Inc. ("IMSI"). The parties subsequently
entered into a definitive Purchase Agreement, and the closing of the transaction
occurred on November 3, 1995. The Company intends to dispose of the entire
remaining portion of the software publishing business of CEI in 1996. The
Company booked a provision of $50,000 at December 31, 1995 for expected
operating losses of the remaining software publishing business during the
phase-out period.
Prior to August, 1996, the Company was also engaged in the computer
disk duplication and fulfillment business through a wholly owned subsidiary
known as Arizona Disk Fulfillment, Inc. ("ADF"). ADF was originally incorporated
under the laws of Arizona on November 1, 1991. The Company acquired all of the
issued and outstanding common stock of ADF in June, 1994. ADF's largest customer
was CEI, and the discontinuance of the Company's software publishing business in
1995 (as discussed above) had a significant adverse impact on ADF's operations.
In addition, ADF did not have CD-ROM duplication capabilities, which had an
increasing negative impact on ADF's operations as demand for CD-ROM based
software increased. As a result of these changes in ADF's business, the Company
concluded in late 1995 that it was in the best long-term interest of the Company
to discontinue the operations of its computer disk duplication and fulfillment
division through the divestiture of the Company's ownership of ADF. The Company
classified ADP as discontinued operations effective December 31, 1995 and booked
a provision of $80,000 at such date for expected operating losses on the disk
duplication and fulfillment business of ADF during the disposal
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period. On August 5, 1996, the Company entered into a stock purchase agreement
pursuant to which it agreed to sell one hundred percent (100%) of the issued and
outstanding common stock of ADF to Beverly and James W. Schmidt. Mr. Schmidt had
served as president of ADF since 1993. The sale of ADF by the Company was full
consummated in August, 1996.
INTELLECTUAL PROPERTY
Neither the Company nor Forte owns any copyrights, patents or
trademarks. In connection with the acquisition by Forte of certain product lines
from Season-All Industries, Inc. in July, 1993, Forte acquired the right to use
the "Season-All" name for the specific product lines acquired. The Company is
not aware of any of its products and/or processes infringing any U.S. or foreign
patent rights of any other party.
EMPLOYEES
As of September 30, 1996, the Company and Forte had a total of 36
employees. The Company believes that its relations with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal administrative offices and corporate
headquarters are located at 1450 Albert Street, Youngstown, Ohio, in a building
owned by Forte. All of Forte's manufacturing operations, including research,
product development and production, are conducted in three (3) separate
buildings located at 1350, 1410 and 1450 Albert Street, Youngstown, Ohio, all of
which are owned by Forte. All of these buildings are encumbered by mortgages
securing indebtedness of the Company and Forte.
All of the Company's and Forte's properties are deemed to be in good
operating condition, are adequately insured, comply with all local zoning
requirements and are not subject to any pending or threatened condemnation
proceeding or any other action of any governmental or regulatory body.
ITEM 3. LEGAL PROCEEDINGS:
The Company is a defendant in a lawsuit involving claims relating to an
employment agreement to which the Company was a party. The plaintiff seeks
actual and punitive damages in excess of $129,000. The Company believes this
suit is without merit and intends to vigorously defend this position.
Neither the Company nor Forte is subject to any other legal
proceedings, except routine litigation arising out of the ordinary course of
their respective businesses. There are no proceedings now pending or, to the
Company's knowledge, threatened with regard to any Federal, state or local
environmental laws. There are no material proceedings in which any director,
officer or affiliate, any owner of record or beneficially more than five percent
(5%) of any of voting
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securities or security holder is a party adverse to the Company or which has a
material interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS:
The shares of common stock of the Company are not listed on any
exchange. Brookstreet Securities, Paulson Investment, Paragon Capital
Corporation, and Fahnestock & Co. have served as market makers for the Company's
common stock shares. The following table represents the range of high and low
bid prices for each quarter commencing January 1, 1994 through December 31,
1995. The range of bids reflects actual transactions for the shares traded
during these periods, separate and apart from any interdealer prices, without
taking into account any retail mark up, mark down or commission.
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Period High Low
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1994
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<S> <C> <C>
1st quarter .50 .25
2nd quarter .50 .25
3rd quarter .875 .5625
4th quarter .625 .4025
</TABLE>
<TABLE>
<CAPTION>
1995
- ----
<C> <C> <C>
1st quarter .50 .3125
2nd quarter .5625 .3125
3rd quarter .3125 .125
4th quarter .125 .0625
</TABLE>
There were approximately 450 holders of record of the shares of the
Company as of December 31, 1995. The Company has never paid any dividends on its
outstanding common shares. The current board of directors of the Company does
not presently intend to implement a policy respecting the payment of regular
cash dividends on the common shares and it is unlikely that dividends will be
paid on the common shares in the immediate future. The board of directors will
review this policy from time to time having regard to the financial condition of
the Company and other factors that the board of directors may consider
appropriate in the circumstances. In addition, the ability of the Company and
Forte to pay dividends is limited by various loan and financing agreements to
which they are parties. As of December 31,
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1995, options to purchase a total of 5,815,548 shares of the Company's common
stock were outstanding.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
BUSINESS AND ORGANIZATION
The Company is engaged in the business of manufacturing residential,
commercial and architectural windows and doors, known as fenestration products,
through Forte, Inc. The current business of the Company consists of the
manufacture and distribution of fenestration products, including doors, windows,
security screens, storm doors, and screen doors. The Company's typical market is
to provide these products for large commercial and/or governmental contracts.
The Company was originally incorporated as Empire Oil, Inc., a Utah
Corporation on August 2, 1983. In 1984, the Company acquired the stock of
Computer Easy, Inc. , an Arizona Corporation, and subsequently changed its name
to Computer Easy International, Inc. The Company operated as Computer Easy
International, Inc. for approximately the next ten years. Computer Easy
International, Inc.'s primary business was in the computer software publishing
business. Computer Easy International, Inc. published and marketed application
software for educational and entertainment products through major software
distributors. After the introduction by Microsoft Corporation of the new Windows
95 personal computer operating system in 1995, Computer Easy International, Inc.
faced significant potential costs to modify its software products to be
compatible with the Windows 95 operating system. As a result, although the
software publishing business historically generated a significant portion of the
Company's revenues, management of the Company concluded that it was in the best
long-term interest of the Company to discontinue the operations of the software
publishing division. On August 30, 1995, the Company reached a tentative
agreement to sell assets constituting the principal software publishing business
of Computer Easy International, Inc. to International Microcomputer Software,
Inc. The parties subsequently entered into a definitive Purchase Agreement, and
the closing of the transaction occurred on November 3, 1995. The Company intends
to dispose of the entire remaining portion of the software publishing business
of Computer Easy International, Inc. in 1996. As such, the accompanying
discussion of results of operations focuses primarily on the operations of
Forte, Inc. The operations of Computer Easy International, Inc. and its
subsidiary, Arizona Disk Fulfillment, Inc. are included in discontinued
operations.
On June 8, 1994, the Company acquired all of the outstanding stock
of Forte, Inc., an Ohio Corporation, in a reverse merger. Forte, Inc.
was incorporated in April, 1989 by Frank J. Amedia. The Company was
renamed Forte Computer Easy, Inc. on January 3, 1995. Through the
reverse merger, the stockholders of Forte, Inc., primarily Mr. Amedia,
gained effective control of the Company. Mr. Amedia is a former
manufacturer's representative of fenestration products, selling such
products to the public housing market, commercial contractors, military
installations and governmental agencies.
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On October 25, 1996, the Company entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") with AAP Holdings, Inc., a
Delaware Corporation ("AAPH"). Pursuant to the Reorganization Agreement, the
Company will acquire one hundred percent (100%) of the issued and outstanding
common stock of American Architectural Products, Inc., a Delaware Corporation
("AAP") in exchange for shares of Series A Convertible Preferred Stock of the
Company which is convertible into a number of shares of the Company's common
stock which is equal to sixty percent (60%) of the issued and outstanding common
stock of the Company on the closing date of the transaction. In addition, the
Company will issue to AAPH options to purchase 1.5 times the number of shares of
the Company's common stock subject to options previously issued by the Company
which are outstanding on the closing date of the transaction. Such options will
be identical in price and exercise terms to previously outstanding options. The
Company currently anticipates that the closing of this transaction will occur
prior to the end of 1996.
AAP is also engaged in the fenestration manufacturing business through
its principal operating subsidiaries Eagle Window & Door, Inc. and Taylor
Building Products Company. AAP, through its subsidiaries, currently generates
approximately $75,000,000 in annual revenue. This merger will also be accounted
for as a reverse acquisition with the stockholders of AAP obtaining effective
control of the Company.
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
filing. Historical results and percentage relationships among accounts are not
necessarily an indication of trends in operating results for any future period.
The consolidated financial statements present the accounts of Forte Computer
Easy, Inc. and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue represented by
certain items reflected in the Company's Consolidated Statements of Operations
for the periods indicated.
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<TABLE>
<CAPTION>
Years Ended
December 31,
(UNAUDITED)
1995 1994
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<S> <C> <C>
Revenue 100.0% 100.0%
Cost of Revenue 83.7 78.9
----- -----
Gross Profit 16.3 21.1
Selling, General and Administrative 13.7 22.5
Other Expenses 4.5 4.5
----- -----
Loss from Continuing Operations
before Income Taxes (1.9) (5.9)
Income Tax Benefit 1.0 .1
----- -----
Loss from Continuing Operations (.9) (5.8)
Discontinued Operations (25.7) (4.2)
----- -----
Net Loss (26.6)% (10.0)%
===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue. For the year ended December 31, 1995, revenue increased by
$1,029,520, or 23.4% to $5,426,260 from $4,396,740. This increase was due to
contract revenue recognized under the two significant contracts acquired under
the Season-All acquisition. These contracts were concluded by December, 1995.
Cost of Revenue. For the year ended December 31, 1995, cost of revenue
increased by $1,071,605, or 30.9% to $4,540,722 from $3,469,117. This increase
was due primarily to the Season-All contracts as mentioned above. As a
percentage of sales, cost of revenue increased by 4.8% for the year ended
December 31, 1995. This increase was mainly attributable to unabsorbed
manufacturing costs being flowed through the operating statement when the
Company experienced some excess capacity during the latter part of the year.
Management of the Company believes they have taken corrective steps to eliminate
the excess capacity costs.
Selling, General and Administrative Expenses. For the year ended
December 31, 1995, selling, general and administrative expenses decreased by
$241,948, or 24.4% to $747,659 from $989,607. This decrease was due to the fact
that Forte, Inc. incurred significant professional, travel and related expenses
during 1994 in conducting due diligence
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procedures relating to potential merger candidates, prior to their merger with
Computer Easy International, Inc.
Other Expenses. For the year ended December 31, 1995, other expenses
increased by $44,014, or 22.1% to $243,388 from $199,374. This increase was
primarily due to an increase in interest expense resulting from higher interest
rates on long-term debt.
Discontinued Operations. For the year ended December 31, 1995,
discontinued operations increased by $963,079, or 516.6% to $1,149,518 from
$186,439. This increase was due to Company resolutions to discontinue the
software and disk duplication divisions in 1995, and the subsequent write-down
of assets.
SEASONALITY
Historically, the Company experiences little seasonality variation in
the recognition of revenue. Revenue recognition is dependent upon the Company
obtaining contracts for fenestration products. Such contracting revenue will
vary based upon the cyclical nature of construction activity. However, the
Company has found no identifiable trend related to these cycles.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilized approximately $109,000 in operating activities for
the year ended December 31, 1995. This deficit in operating cash flow was funded
through the sale of assets in the approximate amount of $686,000, and the sale
of stock of $75,000. In addition, the Company incurred approximately $153,000 of
additional capital expenditures during this period, and reduced debt by
$448,000.
In January, 1996, the Company restructured its long-term debt with its
principal bank, Second National Bank of Warren, Ohio. The debt restructure
consolidated nine existing loans, provided additional working capital, and
contains a fifteen year amortization period, with a call provision in five
years.
The Company is currently anticipating a reverse merger with AAPH, which
will be accomplished through the issuance of convertible preferred stock. The
Company does not currently anticipate any material capital expenditures in
relation to either its existing operation, or the operations of AAPH.
The Company's management has taken steps to expand its sales staff and
is aggressively seeking new contracts. It is the intention of management to
target aggressive growth through the continued implementation of mergers and
acquisitions of companies specializing in the fenestration and related materials
and components industries. This requires integration of assorted product lines
and marketing of the family of products as the Company grows on a nationwide
basis, including export of specialized products. The Company is committed to
building its management team to accommodate this growth and also to achieve a
high
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level of operational success so as to enhance profitability and market share. To
insure these efforts are successful, the Company is intent to secure capital
resources, including the consideration of, but not limited to, the following:
expansion of its existing lines of credit, financing of real and personal
property, funding through private placement offerings of its common or preferred
stock, through the issuance of convertible debentures, or a secondary public
offering of its stock.
IMPACT OF NEW ACCOUNTING STANDARDS
RECENT PRONOUNCEMENTS
During October, 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which
establishes a fair value-based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies that elect not to
adopt the new method of accounting. The Company will continue to account for
employee purchase rights and stock options under APB Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS 123 disclosures will be effective for
fiscal years beginning after December 15, 1995.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are included herewith commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
The information required to be presented in Items 9-12 of Part III of
this report is hereby incorporated by reference to the Company's Form 10-SB/A
Registration Statement prepared in accordance with Section 12(b) or (g) of the
Exchange Act of 1934 and filed with the Securities and Exchange Commission on
November 21, 1996.
<TABLE>
<CAPTION>
ITEM NO. ITEM DESCRIPTION FORM 10-SB/A CAPTION
<S> <C> <C>
9. Directors, Executive Directors, Executive
Officers, Promoters, and Officers, Promoters
Control Persons; Compliance and Control Persons
with Section 16(a) of the
Exchange Act
10. Executive Compensation Executive Compensation
11. Security Ownership of Security Ownership of
Certain Beneficial Owners Certain Beneficial Owners
and Management and Management
12. Certain Relationships and Certain Relationships and
Related Transaction Related Transactions
</TABLE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K:
(a) EXHIBITS
The following Exhibits are filed herewith pursuant to
Regulation S-B.
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
<S> <C> <C>
3.1 Articles of Incorporation, as Amended and Restated (1)
3.2 Bylaws (4)
4.1 Form of Common Stock Certificates (1)
4.2 Form of Series A Preferred Stock Agreement (1)
10.1 Agreement and Plan of Reorganization with Forte, (1)
Inc. Dated May 27, 1994
10.2 Purchase Agreement dated November 3, 1995 between (2)
Forte Computer Easy, Inc. and International
Microcomputer Software, Inc. and Computer Easy
International, Inc.
10.3 Stock Purchase Agreement dated August 5, 1996, among (2)
Forte Computer Easy, Inc., James W. Schmidt and
Beverly Schmidt, and Arizona Disk Fulfillment, Inc.
</TABLE>
-14-
<PAGE> 15
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
<S> <C> <C>
10.4 Addendum to Stock Purchase Agreement dated August 20, (2)
1996 and among Forte Computer Easy, Inc., James W.
Schmidt and Beverly Schmidt, and Arizona Disk
Fulfillment, Inc.
11 Statement Regarding Computation of Per Share (1)
Earnings
21 Subsidiaries of Registrant (1)
</TABLE>
- ------------------------------------
(1) Filed with Registration Statement on Form 10-SB/A
on November 22, 1996.
(2) Filed with Form 8-K on November 22, 1996 (See
Item(b) below).
(3) Filed with Form 8-K/A on November 22, 1996 (see Item (b) below).
(4) Previously filed.
(b) CURRENT REPORTS ON FORM 8-K.
The Company filed Forms 8-K on November 3, 1995, November 22, 1996 and
a Form 8-K/A on November 22, 1996, in connection with the disposition of assets
(see above under 10.2, 10.3 and 10.4).
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FORTE COMPUTER EASY, INC.
Dated: November 22, 1996 By /s/ Frank J. Amedia
-------------------------
Frank J. Amedia
President and Chief Executive Officer
-16-
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Forte Computer Easy, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Forte Computer
Easy, Inc. and Subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. 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 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 consolidated financial statements referred to above presents
fairly, in all material respects, the consolidated financial position of Forte
Computer Easy, Inc. and Subsidiaries as of December 31, 1995, and the
consolidated results of its operations, changes in stockholders' equity, and
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Semple & Cooper, P.L.C.
Phoenix, Arizona
May 28, 1996
F-1
<PAGE> 18
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash $ 143,254
Accounts receivable, less allowance for
doubtful accounts and returns of
$119,470 437,160
Inventory 1,666,832
Prepaid expenses 31,474
Costs and estimated earnings in
excess of billings on
uncompleted contracts 246,472
-----------
Total Current Assets 2,525,192
-----------
Property, Plant and Equipment:
Land 74,969
Buildings and improvements 2,957,795
Equipment, machinery and tooling 2,099,581
Office furniture and equipment 122,709
Motor vehicles 140,787
Airplane 207,600
-----------
5,603,441
Less: accumulated depreciation (1,196,182)
-----------
4,407,259
-----------
Other Assets:
Net assets of discontinued operations 74,000
Goodwill, net 360,533
Other intangible costs, net 27,170
Deposits and other 3,467
-----------
465,170
-----------
$ 7,397,621
===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-2
<PAGE> 19
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
December 31, 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities:
Current portion of long-term debt $ 243,438
Revolving line of credit 107,906
Amount due officer 18,013
Accounts payable 596,369
Accrued liabilities 457,170
Accrued costs of discontinued operations 277,619
Billings in excess of costs and estimated
earnings on uncompleted contracts 371,778
-----------
Total Current Liabilities 2,072,293
-----------
Long-Term Debt, Net of Current Portion 4,021,664
Lease Deposit 9,575
Deferred Tax Liability 160,573
-----------
4,191,812
-----------
Contingencies: --
Stockholders' Equity:
Preferred stock - $.01 par value; 20,000,000 shares
authorized; no shares issued or outstanding
Common stock - $.01 par value; 50,000,000
shares authorized; 48,460,111 shares
issued, 48,003,794 shares outstanding 484,601
Additional paid-in capital 2,669,485
Common stock subscribed, 1,718,422 shares 79,143
Accumulated deficit (1,727,609)
-----------
1,505,620
Less: Treasury stock, 456,317 shares at cost (372,104)
-----------
1,133,516
-----------
$ 7,397,621
===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-3
<PAGE> 20
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
(UNAUDITED)
1995 1994
---- ----
<S> <C> <C>
Net Revenues $ 5,426,260 $ 4,396,740
Cost of Revenues 4,540,722 3,469,117
------------ ------------
Gross Profit 885,538 927,623
Selling, General and Administrative Costs 747,659 989,607
------------ ------------
Income (Loss) from Continuing Operations
before Other Income and Expense 137,879 (61,984)
Other Income (Expense):
Other income 22,086 67,721
Rental income, net 86,929 68,750
Interest expense (352,403) (316,735)
Amortization of intangibles -- (19,110)
------------ ------------
Loss from Continuing Operations before
Provision for Income Taxes (105,509) (261,358)
Provision for Income Tax Benefit 54,971 6,000
------------ ------------
Loss from Continuing Operations (50,538) (255,358)
Discontinued Operations:
Loss from operations of Computer Easy
Software Division and Arizona Disk and
Fulfillment, Inc. to be disposed of (1,149,518) (186,439)
Estimated loss on disposal of Computer
Easy Software Division and Arizona Disk
and Fulfillment, Inc., including provision
for operating losses of $130,000 during
the disposal period (245,419) --
------------ ------------
Net Loss $ (1,445,475) $ (441,797)
============ ============
Earnings Per Share
Loss from continuing operations $ -- $ --
Loss of discontinued operations and
operations to be disposed of (.03) (.01)
Income (loss) from disposal of disk
and fulfillment division -- --
------------ ------------
Net Loss $ (.03) $ (.01)
============ ============
Weighted Average Shares Outstanding 50,000,000 32,487,493
============ ============
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-4
<PAGE> 21
COMPUTER EASY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
For The Period From December 31, 1993 Through December 31, 1995
<TABLE>
<CAPTION>
Common
Shares Paid-in Stock Treasury Accumulated Total
Preferred of Common Common Capital Subscribed Stock Deficit Equity
--------- --------- ------ ------- ---------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993
(unaudited) $ -- 12,901,809 $129,018 $ 566,004 $ -- $ -- $ (408,638) $ 286,384
Sale of 1,000,000
shares of
preferred stock 10,000 -- -- 240,000 -- -- -- 250,000
Acquisition of
subsidiary
for stock -- 1,900,000 19,000 505,400 -- -- -- 524,400
Reverse merger and
conversion of S
Corporation
losses -- 30,760,868 307,609 570,342 79,143 -- 568,301 1,525,395
Sales of common
stock -- 575,833 5,757 260,743 -- -- -- 266,500
Common stock
issued in
payment of debt -- 1,321,601 13,217 526,996 -- -- -- 540,213
Preferred stock;
1,000,000 shares
converted to
common stock (10,000) 1,000,000 10,000 -- -- -- -- --
Net loss
(unaudited) -- -- -- -- -- -- (441,797) (441,797)
-------- ---------- -------- ---------- ------- --------- ----------- -----------
Balance at December
31, 1994 -- 48,460,111 484,601 2,669,485 79,143 -- (282,134) 2,951,095
Acquisition of
456,317 shares of
treasury stock,
at cost -- -- -- -- -- (372,104) -- (372,104)
Net loss -- -- -- -- -- -- (1,445,475) (1,445,475)
-------- ---------- -------- ---------- ------- --------- ----------- -----------
December 31, 1995 -- 48,460,111 $484,601 $2,669,485 $79,143 $(372,104) $(1,727,609) $ 1,133,516
======== ========== ======== ========== ======= ========= =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-5
<PAGE> 22
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
(UNAUDITED)
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(1,445,475) $ (441,797)
Adjustments to reconcile net loss to net
cash flow used by operating activities:
Depreciation and amortization 378,886 226,634
Amortization of software development
costs 109,899 88,509
Amortization of intangibles 76,078 48,973
Decrease in provision for returns and
doubtful accounts (180,468) (37,250)
Change in provision for inventory
obsolescence (284,540) 284,540
Impairment of intangible assets of
discontinued operations 246,083 --
Cash received in purchase of
subsidiaries -- 61,413
Gain on sale of assets -- (3,188)
Changes in Assets and Liabilities:
Accounts receivable 1,272,684 (784,808)
Inventory 908,156 (1,290,398)
Prepaid expenses 80,204 (25,253)
Costs and estimated earnings in
excess of billings on
uncompleted contracts 72,848 500,982
Deposits and other 5,433 12,921
Accounts payable (1,692,059) 547,697
Amount due officer 713 --
Accrued liabilities (12,103) 136,373
Accrued costs of discontinued operations 277,619 --
Billings in excess of costs and estimated
earnings on uncompleted contracts 231,618 107,460
Net deferred tax liability (154,828) (10,600)
----------- -----------
Net cash used by operating
activities (109,252) (577,792)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (153,285) (163,416)
Computer software development costs (30,102) (265,542)
Proceeds from sale of assets 686,250 --
Proceeds from trade-in of assets -- 28,498
Acquisition of subsidiaries -- (150,000)
----------- -----------
Net cash provided by (used for)
investing activities 502,863 (550,460)
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-6
<PAGE> 23
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For The Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
(UNAUDITED)
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Financing Activities:
Proceeds from sale of stock and
stock subscribed $ 75,000 $ 516,500
Proceeds from debt 337,971 2,926,835
Repayment of debt (785,959) (2,053,823)
Payments on amount due officers -- (90,442)
----------- -----------
Net cash provided (used) by financing
activities (372,988) 1,299,070
----------- -----------
Net Increase in Cash 20,623 170,818
Cash (Overdraft), Beginning of Year 122,631 (48,187)
----------- -----------
Cash, End of Year $ 143,254 $ 122,631
=========== ===========
</TABLE>
Supplemental Disclosure of Cash Flow Information
<TABLE>
(UNAUDITED)
1995 1994
---- ----
<S> <C> <C>
Cash paid during the year for:
Interest $ 429,178 $ 381,950
Income taxes 57 --
</TABLE>
Supplemental Disclosure of Non-Cash Investing and Financing Activities
<TABLE>
<CAPTION>
(UNAUDITED)
1995 1994
---- ----
<S> <C> <C>
Negotiated accounts payable settlement
reductions of discontinued operations $ 124,744 $ --
Acquisition of subsidiaries with common stock -- 2,170,261
Payment of accounts payable with common stock -- 140,213
Conversion of debentures with common stock -- 400,000
----------- -----------
$ 124,744 $ 2,710,474
=========== ===========
Purchase of treasury stock through the
reduction of accounts receivable and
accrual of expenses $ 372,104 $ --
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-7
<PAGE> 24
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business:
Forte Computer Easy, Inc. is a Corporation which was duly formed and
organized under the laws of the State of Utah. The Company is engaged in
the business of software publishing, manufacturing of commercial and
architectural fenestration products, and computer disk duplication and
fulfillment services for software publishers and technology based
industries throughout the United States.
Name Change:
Pursuant to a vote of the Board of Directors, the Company amended the
Corporation's Certificate of Incorporation to change the Corporation's
name to Forte Computer Easy, Inc. effective January 3, 1995. The
financial statements give retroactive effect to this change.
Acquisition of Subsidiaries:
Effective June 8, 1994, the Company finalized the acquisition of all of
the outstanding stock of Forte, Inc. and Subsidiary, an Ohio corporation
and Arizona Disk Fulfillment, Inc., an Arizona corporation.
The acquisition of Forte, Inc. was effected through the exchange of
32,479,290 (unaudited) shares, of which 1,718,422 (unaudited) shares are
subscribed of the Company's common stock for all of the outstanding
shares of Forte, Inc. under a tax-free reorganization within the meaning
of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
The acquisition was accounted for financial statement purposes as a
reverse acquisition, with Forte, Inc. as the acquiring company.
The acquisition of Arizona Disk Fulfillment, Inc. was completed through
the payment of $150,000 (unaudited) and the issuance of 1,900,000
(unaudited) shares of the Company's common stock for all of the
outstanding shares of Arizona Disk Fulfillment, Inc. This transaction was
also completed as a tax-free reorganization.
For financial accounting purposes, the acquisitions are accounted for as
purchases in accordance with Accounting Principles Board Opinion No. 16.
For tax reporting purposes, these acquisitions were structured as
tax-free reorganizations.
Discontinued Operations:
The Company has decided to discontinue its operations in the software
publishing and computer disk duplication and fulfillment divisions, as
disclosed in Note 11, Discontinued Operations.
Principles of Consolidation:
The consolidated financial statements include the accounts of Forte
Computer Easy, Inc. and its wholly-owned subsidiaries, Forte, Inc. and
Arizona Disk Fulfillment, Inc. All significant inter-company balances
and transactions have been eliminated in consolidation.
F-8
<PAGE> 25
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition:
Computer Software:
The Company recognizes its computer software sales revenue in
accordance with the American Institute of Certified Public
Accountants Statement of Position 91-1 regarding software revenue
recognition. Product revenue is recognized, net of an allowance for
estimated returns, upon product shipment. The Company has established
a program which enables distributors to return products for credit
against future purchases.
Contracting Revenues:
The Company recognizes contract manufacturing income from fixed-price
and modified-fixed price contracts on the percentage-of-completion
method of accounting. Direct labor is allocated on a standard cost
basis, based on the estimated time to manufacture each type of
production unit, and manufacturing overhead is allocated by
manufacturing labor hours. Installation labor is allocated by
contract as incurred. Contract material costs are accumulated on a
standard cost basis based upon the type of production unit
manufactured under contract. The amount recorded as the percentage
complete for each individual contract is based upon the units of
production method. The cost of materials purchased but not utilized
in completion of the manufacturing process are not considered in
determining the progress toward completion.
Incurred contract costs include all direct material utilized, labor
costs, installation costs and those indirect costs related to
contract performance, such as indirect labor, supplies, tools,
repairs, factory costs, and depreciation. Selling, general and
administrative costs are charged to expense as incurred. Provisions
for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in job performance, job
conditions and estimated profitability, including those arising from
final contract settlements, may result in revisions to cost and
revenue and are recognized in the period in which the revisions are
determined.
The asset, "Costs and Estimated Earnings in Excess of Billings on
Uncompleted Contracts" represents revenues recognized in excess of
amounts billed, and the liability "Billings in Excess of Costs and
Estimated Earnings on Uncompleted Contracts" represents revenues
recorded in excess of recognized costs and estimated earnings.
F-9
<PAGE> 26
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Concentrations of Risk:
The Company sells its software inventory on credit primarily to
software distributors and national retailers who market the Company's
products and other software products principally in the United
States. The majority of the Company's consolidated accounts
receivable balance as of December 31, 1995 and 1994 is due from six
(6) and eight (8) (unaudited) major customers, respectively.
In addition, the Company currently has two (2) major contracts in
process from its fenestration operations, which together represent
approximately fifty-four percent (54%) and forty-five percent (45%)
(unaudited) of the total contracts in process at December 31, 1995
and 1994, respectively.
Accounts Receivable:
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense
as a percentage of accounts receivable, based on a review of the
individual accounts outstanding and the Company's prior history of
uncollectible accounts receivable.
Inventory:
Inventories are stated at the lower of cost or market. Cost is
determined on the weighted average basis for software product
inventory, and the first-in, first-out basis for all other inventory.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
computed by the straight-line method over the estimated useful lives
of the related assets for financial reporting purposes and on an
accelerated method for tax purposes. The estimated useful lives are
as follows:
<TABLE>
<S> <C>
Buildings 31.5 - 40 years
Leasehold improvements 5 - 7 years
Office furniture and
fixtures 7 - 10 years
Equipment 5 - 15 years
</TABLE>
Maintenance and repairs that neither materially add to the value of
the property nor appreciably prolong its life are charged to
operations as incurred. Betterments or renewals are capitalized when
incurred. For the years ended December 31, 1995 and 1994,
depreciation expense was $378,886 and $226,634 (unaudited),
respectively.
F-10
<PAGE> 27
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Capitalized Software Development Costs:
The Company capitalizes software development costs in accordance with
Financial Accounting Standards Board Statement No. 86. Software
development costs not qualifying for capitalization are expensed as
research and development costs, as incurred. These costs totaled
approximately $175,708 and $238,000 (unaudited) for the years ended
December 31, 1995 and 1994, respectively.
Capitalized costs are amortized on a product-by-product basis using
straight-line amortization with useful lives of 3 to 5 years. The
Company evaluates the estimated net realizable value of each software
product at each balance sheet date and records write-downs to net
realizable value for any products for which net book value is in
excess of net realizable value. During the years ended December 31,
1995 and 1994, amortization of capitalized software development costs
charged to cost of revenues totaled $109,899 and $88,509 (unaudited),
respectively. Based upon management's decision to phase-out the
software division, all capitalized software development costs were
written off as of December 31, 1995.
Goodwill:
Goodwill represents the excess of the cost of companies acquired over
the fair value of their net assets at the date of acquisition and is
being amortized on the straight-line method over 8 to 25 years.
Amortization expense charged to operations for the years ended
December 31, 1995 and 1994 was $47,567 and $26,413 (unaudited),
respectively. The Company evaluates the estimated net realizable
value of its goodwill at each balance sheet date, and records
writedowns if the carrying value exceeds the expected future net
operating cash flows from the related operations. If the expected
future net operating cash flows are less than the carrying value, the
Company recognizes an impairment loss equal to the amount by which
the carrying value exceeds the discounted expected future net
operating cash flows from the related operations. During the current
year the Company recognized an impairment of intangible assets of
discontinued operations in the approximate amount of $246,083.
Other Intangible Costs:
Other intangible costs are comprised primarily of deferred loan
costs, which are amortized over the term of the related loan on a
straight-line basis. For the years ended December 31, 1995 and 1994,
amortization of other intangible costs was $28,511 and $22,560
(unaudited), respectively.
Loss Per Common Share:
The computation of loss per common share is based on the net loss
attributable to common stockholders and the weighted average number
of common shares outstanding for each period.
F-11
<PAGE> 28
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Income Taxes:
Effective January 1, 1993, the Company implemented Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future, based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income, and tax net
operating loss and credit carryforwards. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable
or refundable for the period plus or minus the change in deferred tax
assets and liabilities during the period.
2. SEGMENT REPORTING:
The following table presents the total assets of Forte Computer Easy,
Inc. and Subsidiaries at December 31, 1995 and 1994, and the net
revenues and net income (loss) of Forte Computer Easy, Inc. and
Subsidiaires for the year ended December 31, 1995. In addition, the net
revenues and loss of Forte, Inc. for the year ended December 31, 1994
and the net revenues and income (loss) of Computer Easy International,
Inc. and Arizona Disk Fulfillment, Inc. for the period June 9, 1994
through December 31, 1994, are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
1995 1994
---- ----
<S> <C> <C>
Total Assets:
Forte Computer Easy, Inc. $ 150,198 $ 1,926,308
Forte, Inc. 7,260,315 8,887,878
Arizona Disk Fulfillment, Inc. (12,892) 625,954
----------- -----------
Total $ 7,397,621 $11,440,140
=========== ===========
Net Revenues:
Forte Computer Easy, Inc. $ 1,010,242 $ 1,574,357
Forte, Inc. 5,426,260 4,396,740
Arizona Disk Fulfillment, Inc. 1,541,650 429,859
Less: amount included in
discontinued operations (2,551,892) (2,004,216)
----------- -----------
Total $ 5,426,260 $ 4,396,740
=========== ===========
Net Loss:
Forte Computer Easy, Inc. $(1,026,029) $ (239,780)
Forte, Inc. (50,538) (255,358)
Arizona Disk Fulfillment,
Inc. (368,908) 53,341
----------- -----------
Total $(1,445,475) $ (441,797)
=========== ===========
</TABLE>
F-12
<PAGE> 29
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. CONTRACTS IN PROGRESS:
At December 31, 1995, costs and estimated earnings in excess of
billings and billings in excess of costs and estimated earnings on
uncompleted contracts consist of the following:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts $ 4,466,544
Profit earned to date 1,623,862
-----------
6,090,406
Less: billings to date (6,215,712)
-----------
$ (125,306)
===========
</TABLE>
Presented in the accompanying consolidated balance sheet at December
31, 1995, as follows:
<TABLE>
<S> <C>
Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 246,472
Billings in excess of costs
and estimated earnings
on uncompleted contracts (371,778)
-----------
$ (125,306)
===========
</TABLE>
4. INVENTORIES:
At December 31, 1995, inventories consist of the following:
<TABLE>
<S> <C>
Raw materials $ 1,761,561
Finished goods 110,188
Work in process 44,185
Packaging materials and components 10,898
Less: amounts included in net
assets of discontinued
operations (260,000)
-----------
$ 1,666,832
===========
</TABLE>
5. REVOLVING CREDIT LINE:
The Company had an operating agreement for a line of credit under
which it could borrow $300,000 or 80% of the eligible accounts
receivable of Computer Easy International, Inc. at a monthly rate of
3%. The credit line was terminated on August 31, 1995, as the Company
is in default.
F-13
<PAGE> 30
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. RELATED PARTY TRANSACTIONS:
The Company sells fenestration products to a contractor, whose owner
is related to an officer of the Company. Sales during the years ended
December 31, 1995 and 1994 totaled $43,459 and $82,537 (unaudited),
respectively. No amount is owed the Company at December 31, 1995.
Amounts included in accounts receivable at December 31, 1994 totaled
$38,019 (unaudited) and were collected in the subsequent year.
The Company performs management services for various rental
properties owned by an officer of the Company. Management services
billed during the year ended December 31, 1995 and 1994 totaled
$49,804 and $29,935 (unaudited), respectively. Amounts included in
accounts receivable at December 31, 1995 and 1994 totaled $14,109 and
$29,935 (unaudited), respectively, and in the opinion of management,
are expected to be collected in the current operating cycle.
7. INCOME TAXES:
For financial accounting and tax reporting purposes, the Company
reports income and expenses on the accrual basis of accounting. For
the year ended December 31, 1995, the Company made a provision for
net federal and state income tax benefits in the approximate amount
of $155,000. This tax benefit was due to the net increase of the
deferred tax asset arising from the net operating loss carryforwards.
At December 31, 1995, there are federal and state net operating loss
carryforwards available to offset future federal and state taxable
income, expiring as follows:
<TABLE>
<CAPTION>
Federal Net State Net
Expiration Operating Loss Expiration Operating Loss
December 31, Carryforward December 31, Carryforward
------------ ------------ ------------ ------------
<S> <C> <C> <C>
2002 $ 86,238 1997 $ 74,152
2005 74,252 1998 608,297
2008 608,297 1999 564,044
2009 564,044 2000 1,014,207
2010 1,014,207 - -
---------- ----------
$2,347,038 $2,260,700
========== ==========
</TABLE>
Federal net operating losses are further limited due to ownership
changes to approximately $300,000 per year.
Deferred income taxes arise from timing differences resulting from
revenues and costs reported for financial accounting and tax
reporting purposes in different periods. Deferred income taxes
represent the tax liability or asset based on different depreciation
methods used for financial accounting and tax reporting purposes,
research and development costs which are expended as period costs for
tax reporting purposes, contract accounting under the percentage of
completion method for financial reporting and completed contract
basis for tax purposes, and differences in asset basis for financial
reporting and tax purposes due to the purchase method of accounting
used in the business acquisitions.
F-14
<PAGE> 31
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INCOME TAXES: (Continued)
Amounts for components of the net deferred tax liability are as
follows:
<TABLE>
<S> <C>
Deferred Tax Asset:
Estimated benefit from federal and state
net operating loss carryforwards $ 704,111
Deferred Income Taxes Payable:
Depreciation differences (510,450)
Contract accounting differences (354,234)
----------
Net deferred tax liability $ (160,573)
==========
</TABLE>
8. LONG-TERM DEBT:
As of December 31, 1995, long-term debt consists of the following:
<TABLE>
<S> <C>
Borrowings under loan agreements with a bank $2,796,125
Lines of credit with a bank 495,000
Borrowings under other loan agreements 1,050,977
----------
4,342,102
Less: amount included in net assets of
discontinued operations (77,000)
----------
Total long-term debt 4,265,102
Less: current portion of long-term debt (243,438)
----------
Long-term debt $4,021,664
==========
</TABLE>
Borrowings under loan agreements and lines of credit with a bank are
collateralized by equipment, inventory, accounts receivable,
assignment of a $400,000 life insurance policy on an officer of the
Company, and an assignment of rents on an operating lease. The loan
agreements have interest rates varying from 8.25% per annum to
variable rates of prime plus 2.25% per annum. The prime rate at
December 31, 1995 was 8.5%.
Borrowings under other loan agreements are collateralized by
equipment and real estate and have interest rates varying from 3% to
10% per annum.
F-15
<PAGE> 32
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. LONG-TERM DEBT: (Continued)
At December 31, 1995, the approximate aggregate maturities of debt
for the succeeding five years, are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, Amount
<S> <C>
1996 $ 243,438
1997 266,386
1998 259,495
1999 279,841
2000 293,443
Subsequent 2,922,499
----------
$4,265,102
==========
</TABLE>
9. COMMITMENTS:
Leasing Activities:
The Company leases office space under an operating lease which
expired April 30, 1994, with one (1) year renewal options extending
to April 30, 1998. The lease requires monthly payments of
approximately $1,400. The renewal option is for the same monthly
payment in years two and three and approximately $1,600 per month in
years four and five. The Company is responsible for payment of all
maintenance, insurance and taxes. The Company has an option to
purchase the premises for $125,000 prior to the expiration of the
lease.
A wholly-owned subsidiary leases manufacturing and office space under
an operating lease which expires June, 1997. Rental payments are
$5,865 per month and include common area charges and taxes.
The Company also has various non-cancellable equipment operating
leases. These leases require aggregate monthly payments of
approximately $1,229 expiring through January, 2000.
As of December 31, 1995, all of the aforementioned leases had expired
or were cancelled.
Employment Agreements:
The Company has entered into an employment agreement with its
Executive Vice-President through December 31, 1995, which provides
for a minimum annual salary adjusted for cost-of-living changes and
incentives based on the Company's attainment of specified levels of
earnings. At December 31, 1994, the total commitment through December
31, 1995, excluding incentives, was $120,000.
F-16
<PAGE> 33
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCENTIVE STOCK OPTION PLANS AND STOCK OPTIONS:
In May, 1992, the Board of Directors adopted an Employee Incentive
Stock Option Plan which was approved by the shareholders in May,
1992. The plan calls for reservation of 5,000,000 shares of the
Company's common stock. The plan also provides for the issuance of
options to purchase the Company's common stock at 100% of the fair
market value at the date of grant. Options have a maximum duration of
ten (10) years after the date of grant.
As part of the Plan and Agreement of Reorganization with Forte, Inc.,
stock options were granted to the former stockholders of Forte, Inc.
for 4,717,698 shares at $.375 per share and are exercisable through
June 8, 1998. The Plan also provides for the Company to enter into
separate Stock Option Agreements dated June 7, 1994, whereby the
Company has the right, for a period of one (1) year from June 8,
1994, to purchase 30% of the shares owned by certain major
stockholders at the rate of $.50 per share. The number of shares
which can be redeemed by the Company under this agreement is
1,940,202. All of the aforementioned options have been granted in
contemplation of the Company effectuating a reverse stock split.
Until said stock split is consummated or such time as additional
shares are authorized or purchased for treasury, the options will not
be exercisable.
Outstanding options would be adjusted in the event of any forward or
reverse stock split or similar activity.
Stock option activity for the year ended December 31, 1995, is as
follows:
<TABLE>
<CAPTION>
Shares
Under Option
Option Price
------ -----
<S> <C> <C>
Outstanding, beginning of year 6,815,548 $.25 - $.50
--------- -----------
Outstanding, end of year 5,815,548 $.25 - $.50
========= ===========
</TABLE>
In addition, during the year ended December 31, 1995, the Company
sold approximately 150,000 shares of common stock, at $.50 per share,
subject to put options. The put options provide the purchasers the
right to put the shares to the Company one year after the date of
issuance of the common stock at $.625 per share or two years after
the date of issuance at $.75 per share. As of the balance sheet date,
an accrual for the put option, in the amount of $75,000, has been
made.
F-17
<PAGE> 34
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. DISCONTINUED OPERATIONS:
Software Division:
On September 6, 1995, Forte Computer Easy, Inc. sold its rights to
the Floor Plan Plus(TM) and 3D Design(TM) lines for $691,889,
together with a $200,000 contingent payment based upon future
performance goals of the acquiring company, International
Microcomputer Software, Inc. (NASDAQ:IMSI). These product lines
represent a significant portion of the historical sales of the
software operating division. The Company determined that it was in
the best long-range interest of the Company to phase-out the software
division. Proceeds from the sale were utilized for debt reduction of
this division.
The software division's operating loss for the year ended December
31, 1995 of $1,026,029 (net of income tax benefit of $16,500), is
shown separately in the accompanying statement of operations.
A provision of $50,000 for expected operating losses during the final
phase-out period in 1996 has been made at December 31, 1995.
Net revenue for the software division for 1995 was $1,010,242. This
revenue is not included in net revenue in the accompanying statement
of operations.
Arizona Disk Fulfillment, Inc.
During the first quarter of 1996, the Company is in the process of
adopting a plan to sell or liquidate the disk fulfillment division.
The assets of this division to be sold or liquidated consist
primarily of accounts receivable, inventory and duplicating
equipment. The Company anticipates having this division phased-out by
August 31, 1996.
The disk and fulfillment division operating loss for the year ended
December 31, 1995 of $368,908 (net of income tax benefit of $18,500),
is shown separately in the accompanying statement of operations.
Estimated losses on the disposal of the disk and fulfillment division
of $227,619, which includes $80,000 for expected operating losses for
the period January 1, 1996 to August 31, 1996, have been provided for
at December 31, 1995.
Net revenue for the disk fulfillment division for 1995 was
$1,541,650. This revenue is not included in net revenue in the
accompanying statement of operations.
F-18
<PAGE> 35
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. ASSETS AND LIABILITIES TO BE DISPOSED OF:
Assets and liabilities of the following operating divisions to be
disposed of consisted of the following at December 31, 1995:
<TABLE>
<CAPTION>
Disk and
Software Fulfillment
Division Division Total
-------- -------- -----
<S> <C> <C> <C>
Accounts receivable $ - $ 60,000 $ 60,000
Inventory - 260,000 260,000
Equipment and property 110,000 262,000 372,000
Deposits - 16,000 16,000
---------- ---------- ----------
Total assets 110,000 598,000 708,000
---------- ---------- ----------
Current portion of
long-term debt 70,000 - 70,000
Accounts payable and current
accrued liabilities - 557,000 557,000
Long-term debt - 7,000 7,000
---------- ---------- ----------
70,000 564,000 634,000
---------- ---------- ----------
Net Assets to be Disposed of $ 40,000 $ 34,000 $ 74,000
========== ========== ==========
</TABLE>
Assets and liabilities are shown at their expected net realizable
value, and have been separately classified in the accompanying
balance sheet at December 31, 1995.
13. LITIGATION:
The Company is a defendant in a lawsuit filed by an individual for
non-compliance and other claims related to an employment agreement.
The lawsuit seeks actual and punitive damages in excess of $129,000.
The Company's legal counsel believes that the lawsuit is without
merit. Therefore, as of December 31, 1995, no accrual has been made
for a loss contingency related to the subject litigation claim.
Management intends to vigorously defend this position.
The Company is a defendant in a lawsuit filed by a corporation for
claims relating to a contractual agreement. The plaintiff has
proposed a settlement in the amount of $11,000. Counsel anticipates
this matter to be resolved in the near future.
F-19
<PAGE> 36
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SUBSEQUENT EVENT:
On January 30, 1996, Forte, Inc. restructured its long-term debt with
the Second National Bank of Warren, Ohio. The debt restructure
consolidated nine (9) existing loans, and provides for a fifteen (15)
year amortization, with a five (5) year call. The gross proceeds of
the debt restructure amounted to $2,675,000, with an interest rate of
two (2) points over the bank's prime rate. The initial rate of
interest is ten and one-half percent (10.5%). The loan agreement
calls for monthly payments, including principal and interest, of
$25,000 for the period February, 1996 through July, 1996, and
thereafter monthly payments, including principal and interest, of
$30,000. The note is secured by a first mortgage assignment of rents
on property leased by the Company; a blanket assignment of life
insurance on Frank J. Amedia, Chief Executive Officer, in the amount
of $1,650,000, and all inventory, accounts, contract rights,
equipment, fixtures and general intangibles.
Subsequent to the balance sheet date, the Company entered into an
agreement with a former shareholder to purchase all of the
outstanding common stock owned by the shareholder. The common stock
was acquired in exchange for the relief of debt owing the Company and
discounted future services to be provided by the Company, in the
aggregate approximate amount of $372,000. The financial statements
give retroactive effect to this transaction. In addition, the Company
believes that it has a claim for additional shares of common stock
controlled by the shareholder, in the amount of approximately 260,000
shares.
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 143,254
<SECURITIES> 0
<RECEIVABLES> 556,630
<ALLOWANCES> 119,470
<INVENTORY> 1,666,832
<CURRENT-ASSETS> 2,525,192
<PP&E> 5,603,441
<DEPRECIATION> 1,196,182
<TOTAL-ASSETS> 7,397,621
<CURRENT-LIABILITIES> 2,072,293
<BONDS> 4,373,008
0
0
<COMMON> 484,601
<OTHER-SE> 648,915
<TOTAL-LIABILITY-AND-EQUITY> 7,397,621
<SALES> 5,426,260
<TOTAL-REVENUES> 5,426,260
<CGS> 4,540,722
<TOTAL-COSTS> 4,540,722
<OTHER-EXPENSES> 747,659
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 352,403
<INCOME-PRETAX> (105,509)
<INCOME-TAX> (54,971)
<INCOME-CONTINUING> (50,538)
<DISCONTINUED> (1,394,937)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,445,475)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
