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FORM 10-K/A
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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to ________________
Commission File Number: 0-25634
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AMERICAN ARCHITECTURAL PRODUCT CORPORATION,
FORMERLY
FORTE COMPUTER EASY, INC.
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(exact name of Registrant as specified in its charter)
Delaware 87-0365268
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
755 Boardman-Canfield Road
South Bridge Executive Center
Building G West
Boardman, Ohio 44512
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 330-965-9910
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of Class)
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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 twelve (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 ninety (90) days.
[X] Yes [ ] No
Indicate by check mark, if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K.
[ ] Yes [X] No
State the aggregate market value of the voting stock held by
nonaffiliates of the Registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within sixty (60) days prior to the
date of filing. (See definition of affiliate in Rule 405, 17 CFR 230.405).
$10,519,000 as of March 27, 1997
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE (5) YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date.
48,605,794 shares of Common Stock, $.01 par value, and 1,000,000 shares
of Series A Convertible Preferred Stock, $.01 par value (which is convertible
into Common Stock) as of March 28, 1997. There are no other classes of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document
is incorporated: (i) any annual report to security holders; (ii) any proxy or
information statement; and (iii) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933: None.
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TABLE OF CONTENTS
Page
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ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 7
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS 9
ITEM 6. SELECTED FINANCIAL DATA 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 45
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 46
ITEM 11. EXECUTIVE COMPENSATION 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 51
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 54
<PAGE> 4
PART I
ITEM 1. BUSINESS
GENERAL
Forte Computer Easy, Inc. (the "Company") is a Utah corporation with
operating subsidiaries: Forte, Inc., an Ohio corporation ("Forte") and American
Architectural Products, Inc., a Delaware corporation ("AAP").
The Company has been engaged in the business of manufacturing residential,
commercial and architectural windows and doors (also known as "fenestration"
products) since the acquisition of Forte in 1994. The Company was previously
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. Management of the Company concluded, for the reasons
described below, that the long-term interests of the Company would be best
served if the Company discontinued its operations in these businesses.
Accordingly, in November of 1995 and August of 1996, respectively, the Company
entered into transactions to dispose of its software publishing and disk
duplication/fulfillment businesses.
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 of 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.
On December 18, 1996, the Company acquired one hundred percent (100%) of
the issued and outstanding common stock of AAP through a reverse acquisition.
AAP and its operating units consist of Eagle Window & Door, Inc. ("Eagle"),
Taylor Building Products Company ("Taylor") and Mallyclad Corp. and Vyn-L
Corporation ("Mallyclad"). AAP was formed on June 19, 1996 for the purpose of
acquiring Eagle and Taylor as a foundation for penetrating the architectural
products industry and capitalizing on the consolidation of small to
middle-market companies to provide a broad product offering to fenestration
customers.
The Company intends to change its name, subject to shareholder approval, to
more accurately reflect the current nature of its 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)
746-1331.
Description of Business
Forte Computer Easy, Inc. is not directly engaged in business operations.
The business of the Company is conducted through Forte and AAP. AAP includes the
Eagle Window & Door, Taylor Building Products Company and Mallyclad. Mallyclad
was merged into AAP prior to the acquisition of AAP by the Company. The
following diagram reflects the Company's current structure.
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Forte Computer Easy, Inc.
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| |
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AMERICAN ARCHITECTURAL
PRODUCTS, INC. FORTE, INC.
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|---------------------------------------------------
| | | | |
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MALLYCLAD | EAGLE WINDOW & | TAYLOR BUILDING
CORPORATION | DOOR, INC. | PRODUCTS COMPANY
AND | of Dubuque, IA | of West Branch, MI
VYN-L CORPORATION | (a division of AAP) | (a division of AAP)
of Madison Heights, MI | |
(a division of AAP) | |
---------------------- | ------------------- | --------------------
| |
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EAGLE SERVICE EAGLE WINDOW
COMPANY & DOOR
of Dubuque, IA OF BELLEVUE, INC.
of Bellevue, WA
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The Company has been principally engaged in the fenestration business since
the acquisition of Forte in 1994. The Company and the AAP operating divisions
commenced business at various times. Forte began manufacturing fenestration
products in 1990, Eagle in 1977, Taylor in 1946, and Mallyclad recently has
expanded the scope of its business to enter the fenestration industry.
The current business of the Company consists of the manufacturing and
distribution of a wide variety of fenestration products, including doors,
windows, security screens, storm doors and screen doors. 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.
Forte was formed to fill a perceived gap which developed in the commercial
fenestration market as a result of a number of plant closings and mergers among
manufacturers of commercial fenestration products. The original market targeted
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
security screen lines, security screen door lines, storm door lines and storm
window lines.
Forte acquired various product line offerings in the early 1990's. In
October of 1991, Forte purchased the commercial window product lines and a glass
insulating product line of Airmaster Corporation. This transaction was
consummated in early 1992 and the product lines were moved to Forte's
headquarters in Youngstown, Ohio, at which time Forte began to do business as
"Forte/Airmaster."
In July of 1993, Forte acquired from Season-All Industries, Inc.
("Season-All") machinery and equipment related to certain commercial window
product lines, select inventories, and other related assets. In addition, Forte
was assigned major retrofit contracts from Season-All.
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Upon the closing of the Season-All acquisition described above, Forte made
arrangements with AMAS, Inc., an affiliated Ohio corporation ("AMAS") which
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 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 on June 8, 1994, in exchange for 33,110,092 shares of the Company's
common stock and options to acquire 4,881,918 shares of the Company's common
stock, based upon an approximate net book value of Forte of $3.6 million. In
connection with the Company's acquisition of Forte, AMAS was merged into Forte.
The shareholders of AMAS, received 1.660 shares of Forte common stock in
exchange for each outstanding share of AMAS common stock.
AAP was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired Eagle Window and Door, Inc. and Taylor Building
Products Company on August 29, 1996. Both Eagle and Taylor were merged into AAP
on August 29, 1996. AAP acquired the stock and certain assets and liabilities of
Eagle and Taylor from MascoTech, Inc. The purchase price approximated
$22,000,000. Eagle is based in Dubuque, Iowa and manufactures and distributes
aluminum clad and all wood windows and doors. Taylor is based in West Branch,
Michigan and manufactures entry and garage doors.
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") and parent of AAP. The transaction contemplated by
the Reorganization Agreement was consummated on December 18, 1996. Pursuant to
the Reorganization Agreement, the Company acquired one hundred percent (100%) of
the issued and outstanding common stock of AAP in exchange for 1,000,000 shares
of Series A Convertible Preferred Stock (the "Preferred Stock") of the Company.
The Preferred Stock is convertible into 75,486,324 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 issued to AAPH options to purchase 8,798,322 shares which is equal
to 1.5 times the number of shares of the Company's common stock subject to
options previously issued by the Company which were outstanding on the closing
date of the transaction. Such options are identical in price and exercise terms
to the previously outstanding options. The Company and AAPH also agreed that
Mallyclad Corp. and Vyn-L Corporation, which were separate companies controlled
by AAPH's ultimate controlling shareholder, would be merged into AAP prior to
the completion of this transaction.
The conversion ratio of the Preferred Stock was negotiated between the
Company and AAPH based upon, among other things, the estimated fair market
values of the respective entities as well as the synergies of management and
operations.
On June 25, 1996, the controlling shareholder of AAPH acquired ownership of
Mallyclad. The purchase price was approximately $1,009,000. On December 18,
1996, Mallyclad was merged into AAP in accordance with the previous agreement
between AAPH and the Company.
AAP is engaged in the fenestration manufacturing business through its
principal operating divisions, Eagle and 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. 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 fenestration products.
Eagle was formed in 1977, when a facility formerly operated by Caradco,
another window manufacturer, was vacated. Caradco had operated a window plant at
the current Eagle location but, in 1977, moved its operations to a new location.
Eagle was conceived to take advantage of Caradco's vacant operations and launch
a new line of "high end" windows for custom homes. Eagle's founder was Windor,
Inc., a former distributor of Caradco products.
MascoTech, Inc. acquired Eagle in 1987 and Eagle became a part of MascoTech
Inc.'s architectural products group of building products manufacturers. Eagle
greatly expanded its product line offering to keep pace with changing style
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trends and competition. Despite its product offering, Eagle's results were
adversely impacted by its growing complexity of its operations and general
market conditions. On August 29, 1996, Eagle was acquired by AAP.
As stated above, Taylor's primary products consist of urethane-insulated
steel entry doors and polystyrene-insulated steel garage doors. Taylor began
building entry doors in 1962 and garage doors in 1946. Taylor operated as Taylor
Door Co., a privately held company, until MascoTech, Inc. purchased the
operating unit in 1987. MascoTech, Inc. combined this purchase with other
product lines, including Perma Door, and consolidated various operating units
throughout the country into the Taylor location. During this time, Taylor
automated its manufacturing process and continued to reduce its product offering
to optimize profitability. Taylor continued to operate as a separate production
facility within the MascoTech Inc. architectural products group until the
purchase by AAP on August 29, 1996.
Mallyclad and Vyn-L process and manufacture vinyl clad steel and aluminum
coils and cut-to-length sheets. Primary markets are the construction, appliance
and automotive industries.
The following table sets forth sales by product class for the Company. The
data of the Company for 1996 represent sales from the date of inception (June
19, 1996) to December 31, 1996. The proforma data for 1995 and 1996 represent
sales assuming that the acquisitions of Eagle, Taylor and Mallyclad by AAP,
and the reverse acquisition between AAP and the Company occurred on January 1,
1995.
<TABLE>
<CAPTION>
(dollars in thousands) Proforma The Company
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1995 1996 1996
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<S> <C> <C> <C>
Wood windows and doors $29,416 $42,482 $16,867
Steel doors 22,904 12,753 4,107
Steel garage doors 20,643 8,460 2,750
Other 9,568 6,462 1,524
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$82,531 $70,157 $25,248
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</TABLE>
The Company's operating subsidiaries currently market their products
primarily in the continental United States. Eagle, the Company's largest
operating division, also exports window and door products to Mexico and the
Pacific Rim. Although currently not significant, the Company plans to increase
exports of products as opportunities arise. Eagle currently services over one
hundred distributor customers, most of whom sell the products to building
contractors or homeowners. Approximately two-thirds of Eagle's sales are
attributable to high-end new residential construction markets, and the remainder
to light commercial construction and renovation markets. Taylor has designed a
marketing program for its steel entry doors incorporating retail display,
merchandising and training its distributors, primarily lumberyards and home
centers. Taylor also sells garage door panels to installing garage door dealers.
Mallyclad manufacturers vinyl metal laminates for a wide variety of end uses,
including production of vinyl metal doors, commercial roofing products and vinyl
clad metals for various applications. Products are marketed through
manufacturers representatives located throughout the United States. Forte
markets its products through a combination of sales representatives, direct
marketing and bidding on publicly advertised projects. The Company plans to
integrate its operating subsidiaries' products into the existing distribution
channels and markets of each of its constituent companies.
While the impact of certain customers may be significant to a specific
operating unit of the Company, the Company as a consolidated unit is not
dependent on any single customer or small group of customers and does not expect
to derive a substantial portion of its sales from such customers. The Company
projects that Eagle will account for approximately 54% of total sales in 1997.
In 1996, Eagle's largest customer accounted for only 6% of its total sales and
Eagle's ten largest customers accounted for less than half of its total sales.
The Company projects that Taylor will account for approximately 30% of total
sales in 1997. In 1996, Taylor's largest customer accounted for only 11% of its
total sales and its ten largest customers accounted for only 51% of Taylor's
sales. The Company projects that Forte will account for approximately 9% of
total sales in 1997. In 1996, Forte substantially completed a contract which
accounted for 23% of Forte's sales. Because of the different nature of Forte's
sales pattern, that of specific contract orders rather than repeat customers,
the Company cannot accurately forecast whether any customer will account for a
substantial portion of Forte's sales in the future. Mallyclad, which the Company
projects to generate approximately 7% of total sales in 1997, is, like Taylor
and Eagle, not dependent on any particular customer or customers. In 1996,
Mallyclad's largest customer accounted for only 8% of its total sales and its
ten largest customers accounted for less than half of its total sales.
The fenestration industry is highly competitive. The Company competes for
customers with other window manufacturers, door manufacturers and assemblers of
related products, many of which have significantly greater
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financial, marketing and other resources than the Company. The Company estimates
that the residential fenestration industry generates approximately $6.5 billion
in sales annually, of which the Company's market share is small. The Company's
sales, however, have begun to grow as the Company has expanded through
acquisition.
The Company is working towards improving its competitive position in the
market in several ways. It has begun to exploit each operating unit's existing
distribution channels and market bases by coordinating the distribution of
products through such channels. The Company's operating units also are targeting
geographic market expansion. In addition, Eagle and Taylor have organized sales
training and development programs for retailers. Taylor recently implemented a
marketing strategy, unique in the industry, of selling steel garage door panels
rather than selling complete door units. The Company believes this strategy
eliminates the overhead associated with carrying garage door hardware and
capitalizes on a trend of garage door dealers purchasing hardware directly from
manufacturers rather than purchasing total packages. In addition, the company
expects that Mallyclad's specially designed laminating facility will provide
certain competitive advantages over many other laminators in the vinyl metal
door business. Mallyclad also plans to take advantage of the replacement of tar
and pebble commercial roofing with complete vinyl film systems.
During the second quarter of 1997, the Company will be seeking shareholder
approval of a reincorporation of the Company in Delaware from Utah and the
change of the Company's name to American Architectural Products Corporation. For
many years, Delaware has followed a policy of encouraging incorporation in that
State. In furtherance of that policy, Delaware has adopted comprehensive modern
and flexible corporate laws which periodically are updated and revised to meet
changing business needs. As a result, many major corporations initially have
chosen Delaware for their domicile or subsequently have reincorporated in
Delaware in a manner similar to that proposed by the Company. Delaware courts
have developed considerable expertise in dealing with corporate issues, and a
substantial body of case law has developed construing Delaware law and
establishing public policies with respect to Delaware corporations. The
favorable business corporation laws of Delaware should benefit the Company by
allowing it to conduct its affairs in a more flexible and efficient manner.
Additionally, neither the Company's principal offices nor any of the Company's
employees are located in Utah and, as such, the Company has no important ties to
or presence in Utah that would make incorporation in Utah convenient for the
Company.
On October 31, 1996, the Company entered into a Letter of Intent to acquire
all the outstanding shares of common stock of Western Insulated Glass, Co., an
Arizona corporation ("Western"). The transaction was consummated on March 14,
1997. Western manufactures and distributes custom aluminum windows and doors,
principally to the residential home market. The Company believes that the
acquisition of Western, located in Phoenix, Arizona, will broaden its geographic
penetration in the custom aluminum window industry. Western distributes its
products primarily in Arizona, Nevada and California. The Company also plans to
use Western to expand the geographic markets and increase sales volumes for its
Eagle and Taylor product lines by using Western as a distributor for these
products in the States presently serviced by Western. This will permit Western
to broaden its product offerings to include wood windows and patio doors, steel
entry doors, and garage doors.
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 target as
acquisition candidates small and medium-sized, established fenestration
companies and related material manufacturers that are leaders in established
national or regional niche markets. The Company intends to pursue acquisition
candidates that produce fenestration products and related materials which
complement the Company's growth and marketing strategy. In evaluating
acquisition candidates, the Company will focus on those candidates that display
strong
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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 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 target companies, subordinated debt or mezzanine debt
funded by institutional investors, and issuances of common and preferred stock
of the Company. The Company currently is discussing acquisition opportunities
with several companies.
MANUFACTURING FACILITIES
Forte currently conducts manufacturing operations in a 120,000 square foot
facility located in Youngstown, Ohio. AAP currently conducts manufacturing
operations at a 320,000 square foot facility located in Dubuque, Iowa and a
210,000 square foot facility located in West Branch, Michigan. AAP also operates
a 39,000 square foot manufacturing facility in the Detroit, Michigan area
through its Mallyclad division. Management believes the Company's current
manufacturing facilities are sufficient to meet its current and projected
manufacturing needs.
DISCONTINUED BUSINESSES
Prior to November of 1995, the Company was engaged in the computer software
publishing business through its operating division 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.
Prior to August of 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 of 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. 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 consummated in
August of 1996.
INTELLECTUAL PROPERTY
In August of 1996, AAP acquired the stock of Eagle and Taylor. In
connection with the acquisitions, AAP acquired ownership to various domestic
patents, foreign patents, and select domestic patent applications. Additionally,
AAP acquired ownership to domestic trademark registrations, foreign trademark
registrations, domestic trademark applications and foreign trademark
applications. The patents are of the design and manufacturing types and the
trademark protection applies to entity name protection, as well as product name
and process type. The intellectual property is used in the on-going business of
AAP.
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EMPLOYEES
As of December 31, 1996, the Company had a total of 662 employees. Certain
employees of Taylor and Mallyclad are covered under collective bargaining
agreements. Eagle and Forte hourly employees are not currently covered under
collective bargaining agreements.
ITEM 2. PROPERTIES
EAGLE FACILITY
Eagle operates in a facility located at 375 East Ninth street, Dubuque,
Iowa, which consists of approximately 320,000 square feet. This facility also
includes the administrative offices of Eagle.
Eagle also has an interest in a facility located at 1000 Jackson Street,
Dubuque, Iowa, which is comprised of approximately 12,000 square feet. This
facility houses inside sales and purchasing offices for Eagle. The premises are
leased on a month-to-month basis. Eagle also leases distribution facilities in
Bellevue, Washington and Denver, Colorado.
TAYLOR FACILITY
The operations of Taylor are located at 631 North First Street, West
Branch, Michigan, which is comprised of approximately 210,000 square feet. This
facility also includes the administrative offices of Taylor.
MALLYCLAD FACILITY
The Mallyclad facility is located at 31301 Mally Road, Madison Heights,
Michigan, and is comprised of approximately 39,000 square feet of a 53,000
square foot facility. The facility was built in 1965 and is leased to Mallyclad
by its former owner.
FORTE FACILITY
The Forte facility is located at 1350 Albert Street, Youngstown, Ohio and
is comprised of approximately 120,000 square feet. This facility houses the
executive offices and manufacturing facilities for Forte, Inc. and the Company.
Management believes the Company's current manufacturing facilities are
sufficient to meet its current and projected manufacturing needs.
ITEM 3. LEGAL PROCEEDINGS
The contingent legal liabilities of AAP are limited in scope. Presently,
Eagle is defending two (2) product warranty related suits:
DALE BLEECHER AND MARLA BLEECHER V. EAGLE WINDOW & DOOR., ET L., CASE
NO. 75638, IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR
THE COUNTY OF NAPA. This case is based upon theories of Negligence,
Breach of Express Warranty, Breach of Implied Warranty, Breech of
Contract and Strict Liability for Defective Products. This matter is
currently in the final phases of mediation pursuant to the California
"fast track" rules. Management has aggressively defended the suit.
DONALD L. BONE, INDIVIDUALLY AND AS TRUSTEE, BONE FAMILY TRUST V.
EAGLE WINDOW & DOOR, INC., CASE NO. C96- 03950, IN THE SUPERIOR COURT
OF CALIFORNIA IN AND FOR THE COUNTY OF CONTRA COSTA. This case is
based upon theories of Breach of Implied Warranty, Breach of Express
Warranty, Negligence in Manufacturer and Design, Strict Liability,
Negligent Misrepresentation and Fraud. This matter is currently in the
discovery phase of the litigation. Management is vigorously defending
this action.
CD WORLD PUBLISHING PLUS CORP. V. FORTE COMPUTER EASY, INC., AND
ARIZONA DISK FULFILLMENT, INC., CASE NO. CV 96-91630, FILED IN THE
MARICOPA COUNTY SUPERIOR COURT OF ARIZONA. D. Jess Riddle, a former
employee, is claiming a breach of agreement by the Company to provide
services by its former subsidiary, Arizona Disk Fulfillment, Inc. and
for failure to return glass CD masters belonging to CD World
Publishing Plus Corp. The Company denies the claim. On September 11,
1996, a counterclaim was filed on behalf of the Company asserting
damages for breach of agreement, fraud and misrepresentation. The
Company is vigorously defending this action.
RLC FINANCIAL CORP V. FORTE COMPUTER EASY, INC., CASE IN ARBITRATION,
MARICOPA COUNTY, ARIZONA. This case is based on a dispute related to
an interpretation of the terms of a Financing and Security Agreement
dated March 1, 1994 and subsequent negotiations whereby RLC was to
collect pledged receivables assigned from a discontinued operation of
the Company. RLC has commenced arbitration proceedings against the
Company to which the Company has objected. The Company is pursuing
action against RLC in Mahoning County Court, Ohio and is vigorously
defending against the arbitration proceedings.
7
<PAGE> 11
Eagle is also a party to an action before the National Labor Relations
Board (the "NLRB"). In early 1996, the Eagle facility was subjected to a union
vote; a successful outcome of which would cause Eagle to recognize the
International Association of Machinists, AFL-CIO (the "Union") at its facility.
The Union vote was successful. In connection with this vote, however,
approximately 47 ballots were not included in the final tally and the outcome
was disputed. Shortly after the disputed outcome, the NLRB agreed to include 9
of the disputed ballots in the final vote. The NLRB refused to include the
remaining 38 ballots alleging that these ballots were cast by supervisors and
not appropriately included for purposes of the Union vote. Eagle contested this
analysis and the 8th Circuit Court of Appeals ruled in its favor. The NLRB did
not appeal this decision and the 47 disputed ballots will be included in the
final tally. Eagle is presently awaiting the results of this recount by the
NLRB.
A former employee of the Company has filed a lawsuit against the
Company in Maricopa County (Arizona) Superior Court, seeking damages (trebled
under Arizona's wage statutes) in excess of $120,000 plus attorneys' fees. The
dispute arises out of a written employment agreement between the Company and the
former employee, pursuant to which the Company agreed to pay the former employee
a non-recoverable base draw of $36,000 per year. The former employee alleges
that the Company was also obligated to pay him a commission of 5% of his net
sales in addition to the base draw. The Company asserts that the commission is
payable against the base draw and has filed a counterclaim against the former
employee for approximately $54,000. The Company believes this suit is without
merit and is vigorously defending this position. The suit is scheduled for trial
on April 27, 1997.
The Company is not a party to any other pending or, to the knowledge of
the Company, threatened legal proceedings that it believes will have a material
impact on the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security
holders during the fourth quarter of the fiscal year covered by this report.
8
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' 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, 1995 through December 31, 1996. 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.
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
1995
<S> <C> <C>
1st quarter .5000 .3125
2nd quarter .5625 .3125
3rd quarter .3125 .1250
4th quarter .1250 .0625
1996
1st quarter .2500 .1250
2nd quarter .1250 .0312
3rd quarter .5625 .0312
4th quarter .6875 .4200
</TABLE>
There were approximately 464 holders of record of the shares of the Company
as of February 20, 1997. 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 depending on 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 to pay
dividends is limited by various loan and financing agreements. As of December
31, 1996, options to purchase a total of 14,663,870 shares of the Company's
common stock were outstanding, including options to purchase 8,798,322 shares
issued to AAPH on December 18, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of the Company
and its predecessors for the five years ended December 31, 1996. The selected
financial data for the Company were derived from the audited consolidated
financial statements included herein. The selected financial data for the
predecessors for 1996, 1995, and 1994 were derived from the audited combined
financial statements of Eagle Window & Door, Inc. and Subsidiaries and Taylor
Building Products Company included herein; the audited combined financial
statements of Mallyclad Corporation and Vyn-L Corporation included herein. The
selected financial data for the predecessors for 1993 and 1992 were derived from
the unaudited combined financial statements of Eagle Window & Door, Inc. and
Subsidiaries and Taylor Building Products Company, 1993 included herein; the
unaudited financial
9
<PAGE> 13
statements of Mallyclad Corporation, 1993 included herein; and the unaudited
financial statements of Vyn-L Corp. which are not included herein.
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements along with the notes thereto
of the Company, Eagle Window & Door, Inc. and Subsidiaries and Taylor Building
Products Company, and Mallyclad Corp. included herein.
<TABLE>
<CAPTION>
PREDECESSORS (2) THE COMPANY (1), (3)
------------------------------------------------------------------------------------
Combined (4)
1992 1993 1994 1995 1996 1996 1996
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 93,873 $ 116,809 $ 97,397 $ 77,104 $ 41,645 $ 25,249 $ 66,894
Cost of sales 76,984 103,260 87,369 71,313 35,232 19,027 54,259
------------------------------------------------------------------------------------------
Gross profit 16,889 13,549 10,028 5,791 6,413 6,222 12,635
Selling, general and administrative
expenses 14,370 20,211 14,929 12,983 7,399 4,060 11,459
Restructuring charge 0 0 0 840 0 0 0
------------------------------------------------------------------------------------------
Operating income (loss) 2,519 (6,662) (4,901) (8,032) (986) 2,162 1,176
Interest expense (income), net 1,368 2,023 2,033 1,756 1,143 756 1,899
Other expense (income), net 914 (192) (86) 298 480 5 485
------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 237 (8,493) (6,848) (10,086) (2,609) 1,401 (1,208)
Income tax provision (benefit) 148 (2,975) (2,508) (3,572) (908) 640 (268)
==========================================================================================
Net income (loss) $ 89 ($ 5,518) ($ 4,340) ($ 6,514) ($ 1,701) $ 761 ($ 940)
==========================================================================================
Net income per common share $ 0.01
Weighted average common shares
outstanding (5) 81,598,000
BALANCE SHEET DATA:
Total assets $ 81,038 $ 102,505 $ 39,502 $ 26,624 $ 25,039 $ 40,569
Long-term debt and capital lease
obligations, less current
portion (excluding
intercompany payable) 96 22 17 12 10 14,478
</TABLE>
- -------------
(1) For financial reporting purposes, The Company represents AAP as after
giving effect to the series of transactions described below.
AAP was formed in June 1996. Effective June 25, 1996, AAP's ultimate controlling
shareholder acquired Mallyclad and Vyn-L. Subsequently, on December 18, 1996,
Mallyclad and Vyn-L were merged into AAP. Based on the control maintained by
this shareholder, the merger was considered a transaction among companies under
common control and, accordingly, accounted for at the shareholder's historical
cost and included in the accounts of AAP effective June 25, 1996.
Effective August 29, 1996, AAP acquired Eagle and Taylor. The acquisition was
accounted for as a purchase with the assets acquired and the liabilities assumed
recorded at estimated fair values and the results of operations included in
AAP's financial statements from the date of acquisition.
Effective December 18, 1996, Forte Computer Easy, Inc. (FCEI) acquired all of
the outstanding stock of AAP in exchange for a 60% interest in FCEI. Based on
the controlling interest obtained by AAP's shareholder as a result of this
transaction and due to the relative size of AAP compared to FCEI, this
transaction was accounted for as an acquisition of FCEI by AAP (a reverse
acquisition in which AAP is considered the acquiror for accounting purposes).
Accordingly, the financial statements of the registrant for periods prior to
December 18, 1996 are those of AAP. The FCEI assets acquired and liabilities
assumed by AAP were recorded at their estimated fair values and the results of
FCEI's operations are included in the financial statements of AAP from the date
of the acquisition.
For purposes of presenting the selected financial data, Eagle and Taylor, and
Mallyclad and Vyn-L are considered to be predecessors and their financial data
are presented on a combined basis. The financial data for the period after the
acquisitions are presented on a different cost basis than the financial data
before the acquisitions and, therefore, are not comparable.
(2) Selected financial data for the predecessors for 1992 through 1995 were
derived from the combined financial statements of Eagle and Taylor for those
years, the financial statements of Mallyclad for the fiscal years ended November
30, 1992 through 1995, and the financial statements for Vyn-L for the fiscal
years ended February 28, 1993 through 1996. Selected financial data for the
predecessors for 1996 were derived from the combined financial statements of
Eagle and Taylor for the period January 1, 1996 through August 29, 1996, and the
financial statements of Mallyclad and Vyn-L for the period January 1, 1996
through June 30, 1996. Accordingly, the operating results of Vyn-L for the two
months ended February 28, 1996 are included in both the 1995 and 1996
predecessors columns; however, such amounts are not material.
(3) Selected financial data for the Company for 1996 were derived from the
financial statements of the Company for the period from June 1996 (inception)
through December 31, 1996. These financial statements include the operations of
Mallyclad and Vyn-L from June 25, 1996, and the operations of Eagle and Taylor
from August 29, 1996. The results of operations of FCEI and Subsidiary are
included in the Company's 1996 selected financial data from December 18, 1996.
(4) Selected financial data for Combined 1996 include the 1996 selected
financial data of the predecessors (note (2) above) and the 1996 selected
financial data of the Company (notes (1) and (3) above) without giving effect to
purchase accounting or the impact of financing and capitalization relating to
the acquisitions of Mallyclad and Vyn-L, Eagle and Taylor, and FCEI.
10
<PAGE> 14
(5) Pursuant to an Agreement and Plan of Reorganization dated October 25, 1996,
between FCEI and AAP Holdings, Inc., FCEI acquired all of the issued and
outstanding shares of AAP in exchange for 1,000,000 shares of the Series A
Convertible Preferred Stock. This Series A Preferred is convertible into an
aggregate number of shares of the common stock of FCEI equal to 60% of the
issued and outstanding common shares of FCEI at December 18, 1996, the closing
date of the acquisition of FCEI. Because the Series A Preferred (a) votes the
same and has the same dividend rights as if it were converted to common stock,
(b) was only labeled as preferred stock because sufficient shares of FCEI common
stock were not authorized to enable FCEI to issue common stock to AAP Holdings,
Inc., and (c) will convert into common shares pursuant to a plan to increase the
number of authorized common shares, it is considered to be in substance common
stock and is treated as such for purposes of computing the Company's net income
per common share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
Forte Computer Easy, Inc. and Subsidiaries (the Company) is principally engaged
in the business of manufacturing residential, commercial and architectural
windows and doors through its wholly owned subsidiaries American Architectural
Products, Inc. (AAP) and Forte, Inc. (Forte).
Immediately prior to December 18, 1996, Forte Computer Easy, Inc. (FCEI) had a
single wholly owned operating subsidiary, Forte, based in Youngstown, Ohio. On
December 18, 1996, pursuant to an Agreement and Plan of Reorganization dated
October 25, 1996 between FCEI and AAP Holdings, Inc. (the Agreement), FCEI
acquired all of the issued and outstanding shares of capital stock of AAP in
exchange for 1,000,000 shares of Series A Convertible Preferred Stock of FCEI
(the Series A Preferred). Under the terms of the Agreement and the Series A
Preferred, AAP Holdings, Inc. obtained 60 percent of the voting control of FCEI.
Accordingly, although FCEI is the parent of AAP following the transaction, the
transaction was accounted for as a recapitalization of AAP and a purchase by AAP
of FCEI (a reverse acquisition in which AAP is considered the acquirer for
accounting purposes), because the shareholders of AAP obtained a majority of the
voting rights in FCEI as a result of the transaction. Accordingly, the financial
statements of the Company for the periods prior to December 18, 1996 are those
of AAP, the assets and liabilities of FCEI are recorded at their estimated fair
values and the accounts of FCEI are included in the consolidated financial
statements from the date of acquisition (December 18, 1996).
AAP was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired Eagle Window and Door, Inc. (Eagle) and Taylor Building
Products Company (Taylor) on August 29, 1996 (see Note 2 to the consolidated
financial statements of the Company). Eagle is based in Dubuque, Iowa and
manufactures and distributes aluminum clad and all wood windows and doors.
Taylor is based in West Branch, Michigan and manufactures entry and garage
doors. The accounts of Eagle and Taylor are included in the accounts of the
Company from the August 29, 1996 acquisition date.
On June 25, 1996, AAP's ultimate controlling shareholder, an individual,
acquired ownership of Mallyclad Corp. (Mallyclad) and Vyn-L Corporation (Vyn-L).
Mallyclad and Vyn-L are based in Madison Heights, Michigan and process and
manufacture vinyl clad steel and aluminum coils and cut-to-length sheets. On
December 18, 1996, Mallyclad and Vyn-L were merged into AAP. Based on the
control maintained by this shareholder over AAP, Mallyclad and Vyn-L, the merger
was considered to be a transaction among companies under common control and was
accounted for at historical cost in a manner similar to a pooling of interests.
Accordingly, the accounts of Mallyclad and Vyn-L are included in the accounts of
the Company from the June 25, 1996 acquisition date.
11
<PAGE> 15
RESULTS OF OPERATIONS
The following table sets forth revenues and expenses in aggregate dollars and as
a percentage of total revenue for the Company and its predecessors, Eagle,
Taylor, Mallyclad and Vyn-L, for the three years ended December 31, 1996. The
financial data for 1996 were derived from the audited consolidated financial
statements of the Company included herein for the period from inception to
December 31, 1996; the audited combined financial statements of Eagle Window &
Door, Inc. and Subsidiaries and Taylor Building Products Company for the period
from January 1, 1996 to August 29, 1996 included herein; the unaudited financial
statements of Mallyclad Corporation for the period January 1, 1996 to June 30,
1996 not included herein; and the unaudited financial statements of Vyn-L Corp.
for the period January 1, 1996 to June 30, 1996 not included herein. The
financial data for 1995 and 1994 is that of the predecessors and were derived
from the audited combined financial statements of Eagle Window & Door, Inc. and
Subsidiaries and Taylor Building Products Company for the years ended December
31, 1995 and 1994 included herein; and the audited combined financial statements
of Mallyclad Corporation and Vyn-L Corporation for the fiscal years ended
November 30, 1995 and 1994 included herein.
The following selected data should be read in conjunction with the historical
financial statements along with the notes thereto of the Company, Eagle Window &
Door, Inc. and Subsidiaries and Taylor Building Products Company, and Mallyclad
Corporation and Vyn-L Corporation included herein.
As a result of the acquisitions discussed above, and the related differences in
cost basis of the assets and liabilities of the Company after the acquisitions
and the cost bases of the predecessors, the results of operations for the past
three years are not comparable. Such lack of comparability is explained in the
discussion below.
<TABLE>
<CAPTION>
1994 (2) 1995 (2) 1996 (1)
---------------------- ---------------------------- ---------------------
(DOLLARS IN THOUSANDS, EXCEPT FOOTNOTES)
<S> <C> <C> <C> <C> <C> <C>
Sales $97,397 100.00% $77,104 100.00% $66,894 100.00%
Cost of sales 87,368 89.70% 71,313 92.49% 54,259 81.11%
---------------------- ---------------------------- ---------------------
Gross profit 10,028 10.30% 5,791 7.51% 12,635 18.89%
Selling, general and administrative expenses (3) 14,929 15.33% 12,983 16.84% 11,459 17.13%
Restructuring charge 0 0.00% 840 1.09% 0 0.00%
---------------------- ---------------------------- ---------------------
Operating income (loss) (4,901) -5.03% (8,032) -10.42% 1,176 1.76%
Interest expense (3) 2,033 2.09% 1,756 2.28% 1,899 2.84%
Other expense (income) (86) -0.09% 298 0.39% 485 0.73%
---------------------- ---------------------------- ---------------------
Income (loss) before provision
for income taxes (6,848) -7.03% (10,086) -13.08% (1,208) -1.81%
Income tax provision (benefit) (3) (2,508) -2.58% (3,573) -4.63% (268) -0.40%
====================== ============================ =====================
Net loss ($4,340) -4.46% ($6,514) -8.45% ($940) -1.41%
====================== ============================ =====================
</TABLE>
- ----------
(1) Financial data presented for 1996 include the combination of financial data
of the Company and its predecessors, Eagle and Taylor and Mallyclad and Vyn-L.
Financial data for the Company for 1996 were derived from the financial
statements of FCEI and Subsidiaries for the period from June 1996 (inception)
through December 31, 1996. These financial statements include the operations of
Mallyclad and Vyn-L from June 25, 1996, and the operations of Eagle and Taylor
from August 29, 1996. The results of operations of FCEI and Subsidiary are
included in the Company's 1996 financial data from December 18, 1996. Financial
data for Eagle and Taylor for 1996 were derived from the audited combined
financial statements of Eagle Window & Door, Inc. and Subsidiaries and Taylor
Building Products Company for the period from January 1, 1996 to August 29,
1996. Financial data for Mallyclad and Vyn-L for 1996 were derived from the
unaudited
12
<PAGE> 16
financial statements of Mallyclad and Vyn-L for the
period January 1, 1996 to June 25, 1996. Because the financial data for 1996
include data of the Company and its predecessors which are presented on
different cost bases, such data are not comparable to the financial data for
1995 and 1994.
(2) Financial data for 1995 and 1994 are that of the predecessors and were
derived from the combined financial statements of Eagle and Taylor for those
years, and the combined financial statements of Mallyclad and Vyn-L for the
fiscal years ended November 30, 1994 and 1995. Because the financial data of the
predecessors are presented on cost bases different from that of the Company
after the acquisitions, the 1995 and 1994 financial data are not comparable to
the 1996 financial data (see note (1) above).
(3) In addition to comparability issues relating to differences in asset and
liability bases described in notes (1) and (2) above, other factors affect the
comparability of financial data from year to year. The former parent of Eagle
and Taylor provided those Companies' treasury function and allocated various
general and administrative expenses. Interest expense charged by the former
parent to Eagle and Taylor approximated $2,000,000 and $1,755,000 in 1994 and
1995, respectively; interest expense for the eight month period ended August 29,
1996 approximated $1,143,000 and was treated as contributed to capital to Eagle
and Taylor by the former parent. A management fee was charged by the former
parent to Eagle and Taylor based on budgeted sales approximating $1,481,000,
$1,315,000 and $951,000 for the years ended December 31, 1994 and 1995, and the
eight month period ended August 29, 1996, respectively. Other expenses charged
to Eagle and Taylor by the former parent that were specifically incurred for
those companies for items such as general insurance, health insurance and
workers compensation insurance approximated $4,358,000, $3,588,000 and
$1,613,000 for the years ended December 31, 1994 and 1995, and eight month
period ended August 29, 1996, respectively. Eagle and Taylor filed their tax
returns on a consolidated basis with their former parent and all provisions for
federal and state income taxes, including provisions for deferred taxes, were
provided through intercompany accounts. Because these charges to Eagle and
Taylor from their former parent may differ from such charges for those entities
as part of the Company, comparison of 1995 and 1994 financial data to 1996
financial data may not be meaningful.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K and in the future filings by the Company
with the Securities and Exchange Commission and in the Company's written and
oral statements made by or with the approval of an authorized executive officer
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
and the Company intends that such forward-looking statements be subject to the
safe harbors created thereby. These forward-looking statements reflect the
Company's current view with respect to future events and financial performance,
but are subject to many uncertainties and factors relating to the Company's
operations and business environment which may cause the actual results of the
Company to be materially different from any future results expressed or implied
by such forward-looking statements. Examples of such uncertainties include, but
are not
13
<PAGE> 17
limited to, changes in customer demand and requirements,
changes in general economic conditions, changes in federal income tax laws and
regulations, competition, unanticipated expenses and delays in the integration
of newly-acquired businesses, inability to consummate business acquisition
transactions, industry specific factors and world wide economic and business
conditions. The Company undertakes no obligation to publicly update or revise
any forward-looking statements whether as a result of new information, future
events or otherwise.
COMPARISON OF COMBINED YEAR ENDED DECEMBER 31, 1996 TO COMBINED YEAR ENDED
DECEMBER 31, 1995
Revenues. The Company experienced a 13% decrease in revenues in 1996. The
decrease was primarily a result of the restructuring of operations at Taylor. In
1995, the Taylor operation revised its manufacturing strategy and restructured
its business practices by eliminating non-core product lines. Management
believed this change would position Taylor to be more profitable in the
long-term. This was offset by nominal increases in revenues for the remaining
operations of AAP as a result of increases in volume and pricing during the
year.
Gross Profit. Gross profit as a percentage of sales was 18.9% in 1996 compared
with 7.5% in 1995. The 1996 gross margins have been affected by improvements in
material procurement, material substitutions, and favorable commodity prices.
The improvement is also a result of the restructuring at Taylor. In addition,
lower depreciation for the period subsequent to the acquisition of Eagle and
Taylor improved gross profit due to a lower basis of assets recorded, based on
an allocation of the purchase price, compared to the historical basis of the
assets prior to the acquisitions.
Selling, General, and Administrative Expenses. Selling, general, and
administrative ("S,G&A") expenses, as a percentage of sales, were 17.1% in 1996
compared to 16.8% in 1995. The percentage increase was due primarily to the
decrease in revenues between years while S,G&A expenses did not decline
proportionately due to the fixed nature of certain expenditures in this
category. Although S,G&A as a percentage of sales increased, total S,G&A
expenses decreased by $1.4 million. Taylor's restructuring efforts account for
the most significant portion of the reduction in S,G&A expenses. In addition,
sales salaries decreased $0.3 million, administrative salaries decreased $0.2
million, and the management fee charged by the previous parent of Taylor
decreased $0.4 million.
Operating Income. Operating income, excluding the nonrecurring restructuring
charges in 1995, increased by $8.4 million from the operating loss of $7.2
million in 1995. This is attributable to the improved gross profit resulting
from the Taylor restructuring and the reduction in SG&A expenses.
Interest Expense. Interest expense, as a percentage of sales, was 2.8% in 1996
compared to 2.3% in 1995. Interest expense increased by approximately $143
thousand in 1996. The former parent of Eagle and Taylor provide cash management
services to Eagle and Taylor and charged interest expense relating to the
amounts payable to affiliates. This interest expense approximated $1.76 million
in 1995 and $1.1 million for the eight months ended August 29, 1996. Interest
expense for combined year ended December 31, 1996 also includes approximately
$756 thousand incurred by the Company during its ownership.
14
<PAGE> 18
Income Taxes. In the combined year ended December 31, 1996, the Company presents
a tax benefit of $268 thousand on a loss before taxes of $1.2 million. The
benefit results from income tax expense recorded at an effective rate of 46%
on income before taxes for the period of AAP's operations and an income tax
benefit recorded at an effective rate of 35% on losses before taxes of the
Company's predecessors. The effective rate for the period of AAP's operations
was determined using AAP's operating results and the bases of its assets and
liabilities adjusted for purchase accounting for the acquisitions, and differs
from the statutory tax rates as a result of a valuation allowance adjustment,
non-deductible expenses and state taxes. Prior to the acquisitions, Eagle and
Taylor were included in the consolidated income tax returns of their parent and
recorded income taxes in their accounts at a prescribed effective rate.
Accordingly, income taxes for the combined year ended December 31, 1996 are not
indicative of the amounts that would have been recorded on a stand-alone basis
and are not comparable to prior years.
Net Loss. The Company's consolidated net loss decreased by $5.6 million to $.9
million in 1996 compared to the $6.5 million net loss incurred in 1995. As
presented in the Selected Financial Data of the Company for 1996, the Company
reported net income of $0.8 million for the period under AAP's ownership. The
factors cited above were responsible for the decrease in net loss of the
Company.
COMPARISON OF COMBINED YEAR ENDED DECEMBER 31, 1995 TO COMBINED YEAR ENDED
DECEMBER 31, 1994
Revenues. The Company experienced a 20.8% decrease in revenues. The decrease was
primarily a result of two major elements. As noted above, the Taylor operation
revised its manufacturing strategy and restructured its business practices.
Taylor began to focus on simplifying its operations based on its core
competencies which are production of entry door and garage door slabs. By
eliminating non-core product lines, management believed the operations would be
more profitable in the long-term. Eagle also experienced a sales volume decrease
that was partially offset by a price increase for certain of its products. The
decline in volume was a result of the loss of certain key customers.
Gross Profit. Gross profit as a percentage of sales was 7.5% in 1995, compared
with 10.3% in 1994. The 1995 gross margins were impacted by higher conversion
costs, including costs related to the restructuring program at Taylor such as
training and other related transition costs.
Selling, General, and Administrative Expenses. S,G&A expenses, as a percentage
of sales, were 16.8% in 1995 and 15.3% in 1994. S,G&A expenses declined by $2.0
million primarily due to the restructuring efforts at Taylor. This accounted for
over half of the reduction and included a reduction of sales and administrative
salaries in addition to lower sales promotion expenses.
15
<PAGE> 19
Restructuring Charge. Taylor's management adopted a restructuring plan in
September of 1995 to address recurring operating losses. The plan was
implemented to reduce overhead through a plan of business consolidation and
simplification. The major components consisted of closing select locations,
eliminating non-core product lines, and improving overall proficiency of its
remaining product lines. ( See Eagle and Taylor combined financial statements
for the year ended December 31, 1995).
Operating Income(Loss). The operating loss for 1995, before the nonrecurring
restructuring charge of $0.8 million, increased to $7.2 million compared to $4.9
million in 1994. The loss, as a percentage of sales, increased from 5.0% in 1994
to 9.3% in 1995 due to the reduced gross profit and the increase in S,G&A as a
percentage of revenues.
Interest Expense. Interest expense as a percentage of sales was 2.3% in 1995 and
2.1% in 1994. Interest expense declined by approximately $0.3 million during
1995. Interest expense decreased due to lower intercompany debt levels in 1995
offset by slightly higher interest rates than in 1994.
Income Taxes. The effective income tax rate for 1995 was 35% compared to 37% for
1994. For those years, Eagle and Taylor were included in the consolidated income
tax returns of their parent and recorded income taxes in their accounts at a
prescribed effective rate.
Net Loss. The net loss increased to $6.5 million in 1995 compared to
$4.3 million in 1994 primarily due to the nonrecurring restructuring charge of
$2.6 million recorded in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs include required debt service, working capital
needs and the funding of capital expenditures. Liquidity is provided by the
Company's operating activities and by borrowings under various credit
facilities. The Company has a number of loan agreements with financial
institutions which provide working capital financing through 1999 and term debt
financing through 2001. The Company had the ability to borrow an additional $1.9
million under these agreements at December 31, 1996. AAP also has subordinated
notes outstanding in connection with the purchase of Eagle and Taylor.
The Company has made a strategic decision to pursue acquisitions in the
fenestration industry to 1) increase its market share, 2) provide a broader
product offering to its customers and 3) provide synergies both operationally
and geographically. This strategy will require significant additional liquidity.
The Company will be pursuing a combination of debt and equity to improve its
liquidity position, reduce the level of short-term and long-term debt, and
position the Company for future growth. This growth will include the Company's
strategic acquisition initiative. Management also believes the Company's asset
management can generate significant levels of short-term financing.
The transfer of funds from the Company's significant operating subsidiaries to
the Company in the form of dividends, loans or advances is restricted by the
terms of the credit
16
<PAGE> 20
agreements without the approval of the respective lender. All credit agreements
are executed at the subsidiary level since the parent company has no operations
and acts as a holding company.
Cash provided by operations was $4.5 million in 1996, $2.6 million in 1995 and
$1.9 million in 1994. The increase in cash from operations resulted primarily
from higher operating results, a decrease in accounts receivable, an increase in
accounts payable, and an increase in accrued expense.
The Company's working capital requirements for inventory and accounts receivable
are impacted by changes in raw material costs, the availability of raw
materials, growth of the Company's business and seasonality. As a result, such
requirements may fluctuate significantly.
Capital expenditures were $0.4 million in 1996 compared to $2.6 million in 1995
and $1.9 million in 1994. Capital outlays included manufacturing equipment and
computer software and hardware. In addition, in 1996 the Company entered into a
$1.6 million capital lease to purchase the computer hardware and software. The
Company expects to spend approximately $2.4 million in 1997 for capital
expenditures. Management expects that its capital expenditure program will
continue at a sufficient level to support the strategic and operating needs of
the Company's operating subsidiaries. Future capital expenditures are expected
to be funded from internally generated funds, leasing programs and the Company's
credit facilities.
During 1996, the Company increased bank debt by approximately $13.0 million
primarily to fund the acquisition of Eagle and Taylor. The Company also
increased long-term debt by $8.0 million through a subordinated debt agreement
with the seller of Eagle and Taylor.
The Company plans to meet the demands of its debt service requirements of
approximately $1.5 million for 1997 related to debt with financial institutions
and up to $8.0 million in connection with subordinated debt through a
combination of operating activities, including continued emphasis on asset
management and improved profitability, and potential equity offerings. The
Company is uncertain as to the timing of any potential offerings but is
exploring possible alternatives with its financial advisors.
SEASONALITY
The Company's business is seasonal since its primary revenues are driven by
residential construction. Certain geographic areas where the Company's sales
activities are significant particularly in the Northeast and Midwest regions of
the United States where inclement weather during the winter months usually
reduces the level of building and remodeling activity in both the home
improvement and new construction markets. Traditionally, the Company's lowest
sales levels usually occur during the first and fourth quarters. Because a high
percentage of the Company's manufacturing overhead and operating expenses are
relatively fixed throughout the year, operating income has
17
<PAGE> 21
historically been lower in quarters with lower sales. Working
capital, and borrowings to satisfy working capital requirements, are usually at
their highest level during the second and third quarters.
18
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS PAGE
----
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . 20
Consolidated Balance Sheet as of December 31, 1996 . . . . . . . . . . . . . . . 21
Consolidated Statement of Income From the Date of Inception
(June 19, 1996) to December 31, 1996 . . . . . . . . . . . . . . . . . . . 23
Consolidated Statement of Stockholders' Equity From the Date of Inception
(June 19, 1996) to December 31, 1996 . . . . . . . . . . . . . . . .. . . . 24
Consolidated Statement of Cash Flows From the Date of Inception
(June 19, 1996) to December 31, 1996 . . . . . . . . . . . . . . . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 26
FINANCIAL STATEMENT SCHEDULE
Report of Independent Certified Public Accountants . . . . .. . . . . . . . . . 43
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . 44
</TABLE>
See also ITEM 14.
19
<PAGE> 23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Forte Computer Easy, Inc.
We have audited the accompanying consolidated balance sheet of Forte Computer
Easy, Inc. and subsidiaries as of December 31, 1996 and the related consolidated
statements of income, stockholders' equity, and cash flows from the date of
inception (June 19, 1996) to December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Forte Computer Easy,
Inc. and subsidiaries at December 31, 1996 and the results of their operations
and their cash flows from the date of inception (June 19, 1996) to December 31,
1996 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Troy, Michigan
March 14, 1997, except for Note 5
which is as of March 31, 1997
20
<PAGE> 24
<TABLE>
<CAPTION>
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
ASSETS (Note 5)
<S> <C>
CURRENT ASSETS
Cash $ 964,062
Accounts receivable, less allowance
for doubtful accounts of $439,000 6,302,694
Advances to affiliates (Note 11) 463,750
Inventories (Note 3) 10,971,144
Prepaid expenses and other current assets 664,401
- -----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 19,366,051
- -----------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land and improvements 255,096
Buildings and improvements 4,479,631
Machinery, tools and equipment 7,025,548
Computers and office equipment (Note 6) 2,524,884
- -----------------------------------------------------------------------------
14,285,159
Less accumulated depreciation (321,315)
- -----------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 13,963,844
- -----------------------------------------------------------------------------
OTHER
Cost in excess of net assets acquired,
net of amortization (Note 2) 6,850,059
Other 388,937
- -----------------------------------------------------------------------------
TOTAL OTHER ASSETS 7,238,996
- -----------------------------------------------------------------------------
$ 40,568,891
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 25
<TABLE>
<CAPTION>
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Note payable - bank (Note 4) $ 5,476,759
Accounts payable - trade 5,766,803
Payable to seller for purchase price adjustment (Note 2) 1,462,500
Accrued expenses 3,397,618
Accrued warranty obligations - current portion 1,100,000
Current portion of capital lease obligations (Note 6) 488,984
Current maturities of long-term debt (Note 5) 1,497,653
- ---------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 19,190,317
LONG-TERM DEBT, less current maturities (Note 5) 14,478,317
LONG-TERM CAPITAL LEASE OBLIGATIONS, less current portion (Note 6) 1,067,616
ACCRUED WARRANTY OBLIGATIONS, less current portion 3,281,079
ACCRUED POSTRETIREMENT BENEFITS (Note 7) 450,000
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES 38,467,329
- ---------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Notes 8 and 9)
Preferred stock, Series A convertible, $.01 par,
authorized 20,000,000 shares; outstanding
1,000,000 shares 10,000
Common stock, $.01 par, authorized 50,000,000
shares; outstanding 48,605,794 shares 486,058
Additional paid-in capital 1,014,415
Retained earnings 591,089
- ---------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,101,562
- ---------------------------------------------------------------------------------------
$ 40,568,891
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 26
<TABLE>
<CAPTION>
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FROM THE DATE OF INCEPTION (JUNE 19, 1996) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
NET SALES $ 25,248,908
COST OF SALES 19,026,604
- ------------------------------------------------------------------------------
GROSS PROFIT 6,222,304
SELLING EXPENSE 1,908,900
GENERAL AND ADMINISTRATIVE EXPENSES 2,150,968
- ------------------------------------------------------------------------------
INCOME FROM OPERATIONS 2,162,436
- ------------------------------------------------------------------------------
OTHER EXPENSE
Interest expense (755,758)
Miscellaneous (5,589)
- ------------------------------------------------------------------------------
TOTAL OTHER EXPENSE (761,347)
- ------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,401,089
INCOME TAXES (Note 10) 640,000
- ------------------------------------------------------------------------------
NET INCOME $ 761,089
==============================================================================
NET INCOME PER SHARE $ .01
==============================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 1) 81,598,000
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 27
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (JUNE 19, 1996) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
--------------------- ---------------------- Paid-In Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital contribution in
connection with acquisition
of Mallyclad and Vyn-L
(Note 2) -- $ -- -- $ -- $ 77,473 $ -- $ 77,473
Distribution to stockholder
of Mallyclad -- -- -- -- -- (170,000) (170,000)
Issuance of common stock
for cash -- $ -- 100 1 604,999 -- 605,000
Recapitalization (Note 2) 1,000,000 10,000 (100) (1) (9,999) -- --
Issuance of shares in
reverse acquisition
(Note 2) -- -- 48,605,794 486,058 341,942 -- 828,000
Net income for the year -- -- -- -- -- 761,089 761,089
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 1,000,000 $ 10,000 48,605,794 $ 486,058 $ 1,014,415 $ 591,089 $ 2,101,562
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 28
<TABLE>
<CAPTION>
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FROM THE DATE OF INCEPTION (JUNE 19, 1996) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 761,089
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 325,460
Amortization 117,038
Gain on sale of equipment (29,400)
Deferred income taxes 311,469
Changes in assets and liabilities
Accounts receivable - trade 1,771,004
Advances to affiliates (463,750)
Inventories (793,164)
Prepaid and other current assets (86,800)
Other assets (431,703)
Accounts payable 2,312,844
Accrued expenses 1,031,527
- -----------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,825,614
- -----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of equipment 98,200
Purchase of property and equipment (429,048)
Acquisitions of businesses, net of cash acquired (12,781,372)
- -----------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (13,112,220)
- -----------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on note payable - bank 5,476,759
Proceeds from long-term debt 4,213,000
Payments on long-term debt and capital lease obligations (1,121,564)
Issuance of common stock and capital contributions 682,473
- -----------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,250,668
- -----------------------------------------------------------------------------------
NET INCREASE IN CASH 964,062
CASH, beginning of period -
- -----------------------------------------------------------------------------------
CASH, end of period $ 964,062
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 29
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Forte Computer Easy, Inc. (FCEI) is principally engaged in the business of
manufacturing residential, commercial and architectural windows and doors
through its wholly-owned subsidiaries, American Architectural Products, Inc.
(AAP) and Forte, Inc. (Forte).
Prior to December 18, 1996, FCEI had a single wholly-owned operating subsidiary,
Forte, based in Youngstown, Ohio. On December 18, 1996, pursuant to an Agreement
and Plan of Reorganization dated October 25, 1996 between FCEI and AAP Holdings,
Inc. (the Agreement), FCEI acquired all of the issued and outstanding shares of
capital stock of AAP in exchange for 1,000,000 shares of Series A Convertible
Preferred Stock of FCEI (the Series A Preferred). Under the terms of the
Agreement and the Series A Preferred, AAP Holdings, Inc. obtained 60 percent of
the voting control of FCEI. Although FCEI is the parent of AAP following the
transaction, the transaction was accounted for as a recapitalization of AAP and
a purchase by AAP of FCEI because the stockholders of AAP obtained a majority of
the voting rights in FCEI as a result of the transaction (see Note 2). The
accompanying consolidated financial statements of Forte Computer Easy, Inc. and
subsidiaries (the Company) include the accounts of AAP for the period from its
inception (June 19, 1996) to December 31, 1996, and the accounts of FCEI from
December 18, 1996, the effective date of the acquisition.
AAP was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired Eagle Window and Door, Inc. (Eagle) and Taylor Building
Products Company (Taylor) on August 29, 1996 (see Note 2). Eagle is based in
Dubuque, Iowa and manufactures and distributes aluminum clad and all wood
windows and doors. Taylor is based in West Branch, Michigan and manufactures
entry and garage doors. The accounts of Eagle and Taylor are included in the
accompanying consolidated financial statements from the August 29, 1996
acquisition date.
26
<PAGE> 30
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On June 25, 1996, AAP's ultimate controlling stockholder acquired ownership of
Mallyclad Corp. (Mallyclad) and Vyn-L Corporation (Vyn-L). Mallyclad and Vyn-L
are based in Madison Heights, Michigan and process and manufacture vinyl clad
steel and aluminum coils and cut-to-length sheets. On December 18, 1996,
Mallyclad and Vyn-L were merged into AAP. Based on the control maintained by
this stockholder over AAP, Mallyclad and Vyn-L, the merger was considered to be
a transaction among companies under common control and was accounted for at
historical cost in a manner similar to a pooling of interests. Accordingly, the
accounts of Mallyclad and Vyn-L are included in the accompanying consolidated
financial statements from the June 25, 1996 acquisition date.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of FCEI and its
wholly-owned subsidiaries, AAP and Forte. All significant intercompany
transactions and accounts have been eliminated in consolidation.
USE 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 the 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 these estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, payables and accrued expenses
approximate fair value because of the short maturity of these items. Based on
the borrowing rates currently available to the Company, the carrying amounts of
notes payable and long-term debt approximate fair value.
27
<PAGE> 31
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
Revenues from sales and the corresponding receivables are recorded upon the
shipment of product to the customer.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for depreciation
using the straight-line method over the following estimated useful lives:
Buildings and improvements 20-25
Machinery and equipment 7-10
Computers and office equipment 3-7
Tools, dies and fixtures 3-7
Expenditures for renewals, and betterments are capitalized. Expenditures for
maintenance and repairs are charged against income as incurred.
LONG-LIVED ASSETS
The Company reviews the carrying values of its long-lived assets for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. Any long-lived assets held
for disposal are reported at the lower of these carrying amounts or fair value
less costs to sell.
28
<PAGE> 32
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is being amortized over 25 years using the
straight-line method. Accumulated amortization at December 31, 1996 was $74,000.
The Company periodically evaluates the recoverability of the cost in excess of
net assets acquired by comparing anticipated undiscounted future cash flows from
operating activities with the carrying amounts of the related assets. The
factors considered by management in performing this assessment include current
operating results, business prospects, market trends, competitive activities and
other economic factors.
WARRANTY OBLIGATIONS
Eagle and Taylor sell the majority of their products with limited warranties of
two to 25 years. Accrued warranty obligations are estimated based on claims
experience and levels of production. Warranty obligations estimated to be
incurred within one year are classified as current liabilities in the
accompanying consolidated balance sheet.
INCOME TAXES
The income tax provision is computed using the liability method. Deferred taxes
are recorded for the expected future tax consequences of temporary differences
between the financial reporting and the tax bases of the Company's assets and
liabilities.
AAP will file its income tax return on a consolidated basis with its parent
company until December 18, 1996, the date of acquisition by FCEI. Payments for
current federal and state income taxes payable for that period are included in
"Advances to Affiliates" in the accompanying consolidated balance sheet.
ADVERTISING
The cost of advertising is charged against income as incurred. Advertising
expense was $263,000 for the period from inception to December 31, 1996.
29
<PAGE> 33
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NET INCOME PER SHARE
Net income per share is computed on the basis of the weighted average number of
common shares outstanding, adjusted to reflect (1) the dilutive effect of
outstanding stock options, (2) the number of shares expected to be issued upon
the conversion of all of the Series A Preferred (which, based on its terms as
discussed in Note 8, the Company believes is common stock in substance) and (3)
the weighted average number of shares that the Company is obligated to issue to
an officer (see Note 8).
2. RECAPITALIZATION AND ACQUISITIONS
RECAPITALIZATION AND ACQUISITION OF FCEI
Effective December 18, 1996, FCEI acquired the stock of AAP in a reverse
acquisition in which AAP's stockholders acquired voting control of FCEI. The
acquisition was accomplished through an exchange of stock in which FCEI
exchanged 1,000,000 shares of Series A Preferred and options to purchase
8,798,322 shares of FCEI common stock for 100% of the outstanding stock of AAP.
Upon completing the transaction, the stockholders of AAP controlled 60% of the
voting rights of the combined Company.
For financial reporting purposes, AAP is deemed to be the acquiring entity. The
merger has been reflected in the accompanying consolidated financial statements
as (a) a recapitalization of AAP (whereby the issued and outstanding stock of
AAP was converted into 1,000,000 shares of Series A Preferred and options to
purchase 8,798,322 shares of common stock - see Note 9) and (b) the issuance of
the securities discussed in the following paragraph by AAP in exchange for all
of the outstanding equity securities of FCEI.
In the merger, AAP is deemed to have issued 48,605,794 shares of common stock,
committed itself to issuing an additional 1,718,422 shares of common stock (see
Note 8), and to have issued 5,865,548 stock options (see Note 9). The estimated
fair value assigned to the securities issued was $828,000. This estimated fair
value was based on the estimated fair value of the securities of AAP which were
obtained by the FCEI stockholders in the reverse acquisition. The estimated fair
value of the AAP securities was determined
30
<PAGE> 34
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
based on the values of AAP's recent acquisitions (Eagle, Taylor, Mallyclad and
Vyn-L) and adjusted for post-acquisition equity transactions and operating
results.
The acquisition was recorded using the purchase method of accounting.
Accordingly, the consideration of $925,000, including transaction costs, was
allocated to the FCEI net assets acquired based on estimated fair values
including current assets of $1,871,000, property and equipment of $5,341,000,
long-term debt of $4,030,000 and current liabilities of $2,257,000. The results
of FCEI's operations are included in the accompanying consolidated financial
statements from the date of acquisition.
ACQUISITION OF EAGLE AND TAYLOR
On August 29, 1996, AAP acquired the stock and certain assets and liabilities of
Eagle and Taylor. The acquisition was accounted for as a purchase. The purchase
price approximated $22,202,000 and was allocated to the net assets acquired
based on estimated fair market values including current assets of $17,123,000,
property and equipment of $6,805,000, accrued warranty obligations of
$4,600,000, and current and other liabilities of $4,362,000. Cost in excess of
net assets acquired of $7,236,000 was recorded and will be amortized over 25
years. Subordinated notes payable to the seller totalling $8,000,000 were used
to finance a portion of the acquisitions (see Note 5). In addition, the
remaining balance due the seller of $1,462,500 will be paid in monthly
installments, plus interest at 12%, through May 31, 1997. The results of Eagle
and Taylor operations are included in the accompanying consolidated financial
statements from the date of acquisition.
ACQUISITION OF MALLYCLAD AND VYN-L
The June 25, 1996 acquisition of Mallyclad and Vyn-L was accounted for as a
purchase. The purchase price approximated $1,009,000 and was allocated to net
assets acquired based on estimated fair values including current assets of
$900,000, property and equipment of $205,000, other assets of $170,000, and
current liabilities of $266,000. The accounts of Mallyclad and Vyn-L are
31
<PAGE> 35
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
included in the accompanying consolidated financial statements from the June 25,
1996 acquisition date.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma information has been prepared assuming that the
acquisitions of FCEI, Eagle and Taylor, and Mallyclad and Vyn-L had occurred on
January 1, 1995. The pro forma information includes adjustments for interest
expense for acquisition funding, adjustments to depreciation expense based on
the fair market value of the property and equipment acquired, amortization of
cost in excess of net assets acquired arising from the acquisitions, and
adjustments for income taxes and the weighted average number of shares
outstanding. The pro forma earnings per share information reflects the effects
of the recapitalization described above.
Year Ended December 31, 1995 1996
- --------------------------------------------------------------------------------
(In thousands, except per share data)
Sales $ 82,531 $ 70,157
Net loss (8,382) (1,656)
Loss per share (.07) (.01)
================================================================================
3. INVENTORIES
At December 31, 1996, inventories consisted of the following:
Raw materials $ 7,664,151
Work-in-process 1,266,383
Finished goods 2,040,610
- --------------------------------------------------------------------------------
$ 10,971,144
================================================================================
4. REVOLVING LINE-OF-CREDIT
At December 31, 1996, the Company had $5,477,000 outstanding under a
subsidiary's revolving line-of-credit facility whereby the subsidiary may borrow
or issue letters-of-credit of up to $13,000,000 based on available collateral.
Amounts outstanding under the revolving line-of-credit facility are payable on
August 29, 1999. Borrowings bear interest at 1.5% above the prime rate (9.75% at
December 31, 1996) and interest is payable monthly.
32
<PAGE> 36
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The subsidiary is charged a monthly fee equal to .375% per annum of the amount
by which the maximum credit limit exceeds the average monthly outstanding loans
and undrawn face amount of any letters-of-credit. No letters-of-credit were
outstanding at December 31, 1996.
Since the revolving line-of-credit facility includes both a subjective
acceleration clause and a requirement to maintain a lock-box arrangement whereby
remittances from the subsidiary's customers reduce the debt outstanding, the
borrowings outstanding are classified as current obligations.
The revolving line-of-credit is a component of a credit facility that also
includes a term loan under which the subsidiary is subject to certain
restrictive covenants (see Note 5).
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
At December 31, 1996, long-term debt consisted of the following:
<S> <C>
Term notes payable to bank, due August 2001,
payable in monthly installments of
$55,407 plus interest at the prime rate plus 1.5%
(9.75% at December 31, 1996) $ 3,112,800
Subordinated notes payable, due August 1999,
with interest payable monthly at the rate of 10% 8,000,000
Term note payable to bank, due January 2001,
requires monthly payments of $30,000 including
interest at the prime rate plus 2.0% (10.25%
at December 31, 1996) 2,625,558
Other 2,237,612
- -------------------------------------------------------------------------------
15,975,970
Less current portion 1,497,653
- -------------------------------------------------------------------------------
$ 14,478,317
- -------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 37
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The term notes due August 2001 are components of a credit facility that also
includes a revolving line-of-credit (see Note 4). The credit facility is secured
by substantially all of the assets of AAP and contains various restrictive
covenants which, among other matters, require the subsidiary to maintain certain
defined minimum working capital and adjusted net worth requirements. As of
December 31, 1996, the Company was not in compliance with certain covenants of
the credit facility. Subsequent to December 31, 1996, the lender modified these
covenants and the Company is in compliance with the revised covenants.
The subordinated notes due in August 1999 were incurred in connection with the
acquisition of Eagle and Taylor (see Note 2). The subordinated notes are secured
by 20% of the FCEI shares owned by AAP Holdings, Inc. (200,000 shares of the
Series A Preferred at December 31, 1996 - the "Option Shares") which have been
pledged to the seller under terms of a ten year Option and Pledge Agreement that
underlies the subordinated notes. Terms of the Option and Pledge Agreement
provide the seller with the right to purchase the Option Shares for $1 if the
principal balance of the subordinated notes is not repaid by December 31, 1997.
The amount of Option Shares is subject to reduction in accordance with a formula
based on repayment of principal of the subordinated notes defined in the Option
and Pledge Agreement. If the principal balance of the subordinated notes is
reduced by less than $1.5 million by December 31, 1997, the seller will have the
right to purchase all of the Option Shares for $1. If the subordinated notes are
paid in full by December 31, 1997, the number of Option Shares is reduced to
zero. The Company has agreed to issue to AAP Holdings, Inc. a number of common
shares of the Company equal to the number of common shares delivered by AAP
Holdings, Inc. to the seller or the number of common shares into which the
Series A Preferred delivered by AAP Holdings, Inc. to the seller would convert
if the options are exercised under terms of the Option and Pledge Agreement
described above. The subordinated notes also include certain restrictive
covenants.
34
<PAGE> 38
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The other term notes are secured by substantially all of the assets of Forte and
include certain restrictions, including the payment of dividends.
Various debt obligations are guaranteed by certain stockholders. In connection
with the Agreement and Plan of Reorganization (see Note 1), the Company must
obtain written consent from the guarantors before disposing of assets securing
the debt obligations.
The transfer of funds from the operating subsidiaries to the Company is
restricted by terms of the credit agreements described above without the prior
consent of the respective lenders. Substantially all operating assets are at the
subsidiary level as the parent company currently acts as a holding company and
does not have any operations.
The approximate maturities of long-term debt over the next five years (assuming
the subordinated notes will be repaid in 1999) are as follows: 1997 -
$1,500,000; 1998 - $1,000,000; 1999 - $9,000,000; 2000 - $1,030,000; and 2001 -
$2,860,000.
6. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Certain non-cancelable leases are classified as capital leases. Leased assets,
consisting of computer equipment with a cost of $1,578,000, are included as part
of "Property and Equipment". Other leases for buildings and equipment are
classified as operating and are not capitalized.
35
<PAGE> 39
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At December 31, 1996, the future minimum lease payments under operating and
capital leases are as follows:
Operating Capital
Year Ended Leases Leases
- -------------------------------------------------------------------------
<S> <C> <C>
1997 $ 497,600 $ 583,500
1998 332,600 585,400
1999 84,300 561,000
2000 3,100 -
- ------------------------------------------------------------------------
TOTAL $ 917,600 1,729,900
=========
Less amount representing interest 173,300
- ------------------------------------------------------------------------
Net present value 1,556,600
Less current portion 488,984
- ------------------------------------------------------------------------
LONG-TERM CAPITAL LEASE OBLIGATION $ 1,067,616
- ------------------------------------------------------------------------
</TABLE>
Rental expense incurred for operating leases was $217,000 for the period from
inception to December 31, 1996.
LITIGATION
At December 31, 1996, the Company is a defendant in several lawsuits. The
Company may be liable in these matters to the extent that the lawsuits are found
in favor of the plaintiffs and to the extent that these matters are not covered
by the Company's insurance. In the opinion of management, such liabilities, if
any, would not have a material effect on the consolidated financial statements
of the Company.
36
<PAGE> 40
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. BENEFIT PLANS
AAP maintains a 401(k) plan for all eligible nonunion employees which includes
provisions for Company matching contributions. Additionally, salaried employees
at the Mallyclad operating division participate in a defined contribution
retirement plan under which Mallyclad contributes a defined percentage of
participants' compensation. Union employees at the Taylor operating division
participate in a multiemployer pension plan into which Taylor contributes $.22
per hour worked. Expenses incurred relating to these plans from the period from
inception to December 31, 1996 were $89,000.
Union employees at Taylor are also entitled to postretirement healthcare
benefits pursuant to a collective bargaining agreement. Under the contract
provisions, Taylor will pay a retired employee with a minimum of 10 years of
service a benefit of up to $100 per month after retirement at age 62. The
accompanying consolidated balance sheet includes a liability of $450,000 which
is the accumulated postretirement benefit obligation at December 31, 1996.
Expenses for the period from inception to December 31, 1996 relating to these
postretirement benefits were not significant.
8. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Series A Preferred will be automatically converted into 75,486,324 shares of
common stock at such time the Company has sufficient authorized shares of common
stock to permit such conversion. The Series A Preferred is voting preferred
stock and has the same number of votes as the number of shares of common stock
into which the Series A Preferred would be convertible if converted in full on
the record date.
No dividends may be paid with respect to the common stock unless a dividend is
paid to the holders of the Series A Preferred. Any dividends paid are required
to be allocated pro rata among the holders of the common stock and Series A
Preferred as though the Series A Preferred had been converted in full to common
stock on the dividend payment date.
The Series A Preferred has a liquidation preference over the common stock in the
amount of $.10 per share. Any amounts remaining will be allocated to
37
<PAGE> 41
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the common stock and Series A Preferred holders as if the Series A Preferred had
been converted in full upon such liquidation.
COMMON STOCK
In connection with the acquisition of FCEI (see Note 2), the Company became
committed to issue 1,718,422 shares of common stock to an officer at such time
as the Company has a sufficient number of shares authorized.
9. STOCK OPTIONS
In 1992, FCEI adopted an Employee Incentive Stock Option Plan (the "Option
Plan"). Options to purchase an aggregate of up to 5,000,000 shares of the
Company's common stock are authorized under the Option Plan. Options granted
under the Option Plan have a maximum duration of ten years from the date of
grant.
As part of the consideration paid in the acquisition of FCEI in December 1996,
the Company is deemed to have issued to certain FCEI stockholders options to
purchase an aggregate of 5,865,548 shares of the Company's common stock at
prices ranging from $.25 to $.50 per share. The aforementioned options were
deemed to have been issued in exchange for previously outstanding options
granted under the Option Plan, which were issued in contemplation of the Company
effectuating a reverse stock split. Until such reverse stock split is
effectuated or until such time as additional shares of the Company's common
stock are authorized or purchased as treasury shares, these options will not be
exercisable.
As part of the recapitalization of AAP that occurred in connection with the
acquisition of FCEI (see Note 2), AAP Holdings, Inc. received options to
purchase 8,798,322 shares of common stock of FCEI ("AAPH Options"). The AAPH
Options are equivalent to 1.5 times the number of shares of FCEI common stock
subject to the 5,865,548 options issued to certain FCEI stockholders ("FCEI
Options"). The AAPH Options are identical in price and exercise terms to the
FCEI Options and are exercisable only to the extent that the FCEI Options are
exercised.
38
<PAGE> 42
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A summary of the stock options outstanding as of December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Option FCEI AAPH
Price Options Options TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
$ .25 1,000,000 1,500,000 2,500,000
.375 4,717,698 7,076,547 11,794,245
.50 147,850 221,775 369,625
- -------------------------------------------------------------------------------
5,865,548 8,798,322 14,663,870
===============================================================================
</TABLE>
All of the FCEI Options will be exercisable upon the Company effectuating a
reverse stock split or increasing the authorized number of shares of the
Company's common stock. The options with exercise prices of $.25 and $.375
expire in 1998 and the remaining options expire in 1999.
10. INCOME TAXES
The provision for income taxes consist of the following:
<TABLE>
<S> <C>
CURRENT
Federal $269,000
State 60,000
- --------------------------------------------------------------------------------
329,000
DEFERRED
Tax benefit allocated to reduce
cost in excess of net assets acquired 311,000
- --------------------------------------------------------------------------------
$640,000
================================================================================
</TABLE>
39
<PAGE> 43
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Significant components of deferred tax assets and liabilities as of December 31,
1996 are as follows:
<S> <C>
DEFERRED TAX ASSETS
Net operating loss carryforwards $ 220,000
Allowance for doubtful accounts 150,000
Accrued warranty obligations 1,520,000
Accrued postretirement benefits 150,000
Other accruals 250,000
Other 60,000
- --------------------------------------------------------------------------------
2,350,000
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Depreciation 1,350,000
Other 180,000
- --------------------------------------------------------------------------------
1,530,000
- --------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS 820,000
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS (820,000)
- --------------------------------------------------------------------------------
NET DEFERRED TAXES $ --
================================================================================
</TABLE>
In recording the acquisition of Eagle and Taylor, the Company established a
valuation allowance against the entire net deferred tax assets acquired, based
on uncertainties surrounding the expected realization of these assets. The
Company will reverse the valuation allowance if and when the assessment of the
need for such an allowance changes. In the event that the valuation allowance
established at the acquisition date is reduced, such reductions would be
recognized as reductions of cost in excess of net assets acquired.
40
<PAGE> 44
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The actual income tax expense attributable to earnings for the period from
inception to December 31, 1996 differed from the amounts computed by applying
the U.S. federal tax rate of 34 percent to pretax earnings as a result of the
following:
<S> <C>
Tax at U.S. federal statutory rate $ 470,000
Valuation allowance adjustment 100,000
State income taxes, net of federal
income tax benefit 40,000
Expenses not deductible for tax purposes 40,000
Other (10,000)
- -------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES $ 640,000
===============================================================================
</TABLE>
At December 31, 1996, FCEI has net operating loss carryforwards available to
offset future years' taxable income. Due to changes in ownership of FCEI,
utilization of net operating loss carryforwards is limited. Management estimates
that carryforwards aggregating approximately $700,000 will be available through
2011. The utilization of these carryforwards will be limited to approximately
$50,000 per year.
11. RELATED PARTY TRANSACTIONS
Advances to affiliates consist of advances paid in excess of current income
taxes payable to affiliates. In addition, the Company paid management fees to
its majority stockholder of approximately $120,000 during the period from
inception to December 31, 1996.
12. LABOR FORCE
Seventy percent of the hourly employees of Taylor, which represent 13% of the
Company's total labor force, are covered under a collective bargaining
agreement. The contract expired in February 1997 and was renegotiated for an
additional five years.
41
<PAGE> 45
<TABLE>
<CAPTION>
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for income taxes and interest expense was
approximately $70,000 and $620,000, respectively.
NONCASH INVESTING AND FINANCING ACTIVITIES
<S> <C>
Common stock and debt issued and liabilities
assumed in acquisitions $ 25,806,000
Capital lease obligations 1,578,000
Distribution to stockholder 170,000
================================================================================
</TABLE>
14. SUBSEQUENT EVENT
In March 1997, the Company acquired all of the outstanding common stock of
Western Insulated Glass, Co. ("Western"), a manufacturer of custom aluminum
windows and doors located in Phoenix, Arizona. The purchase price of
approximately $2,400,000 was financed through a revolving line of credit and
term debt with a bank in addition to promissory notes issued to the sellers. The
revolving line-of-credit and term debt with the bank are secured by
substantially all of the assets of Western. Western will operate as a separate
subsidiary of FCEI.
42
<PAGE> 46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Forte Computer Easy, Inc.
The audit referred to in our report dated March 14, 1997, except for Note 5
which is as of March 31, 1997, relating to the consolidated financial statements
of Forte Computer Easy, Inc. and subsidiaries, which is contained in Item 8 of
this Form 10-K, included the audit of the financial statement schedule listed in
the accompanying index. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audit.
In our opinion this financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Troy, Michigan
March 14, 1997
43
<PAGE> 47
FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additions
--------------------------
BALANCE, Charged to Charged BALANCE,
at beginning costs and to other at end of
Description of period expenses accounts(1) Deductions period
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $ - $ 12,546 $ 914,552 $ 487,894(2) $ 439,204
===================================================================================================================
<FN>
(1) Purchased in business acquisitions
(2) Accounts deemed to be uncollectible
</TABLE>
44
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None, other than as described in the Company's two Current Reports on
Form 8-K dated February 17, 1997 (one of which was amended by form 8-K/A filed
February 26, 1997).
45
<PAGE> 49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of
directors and executive officers of the Company as of March 1, 1997. The Board
of Directors of the Company currently consists of nine (9) members. Directors
hold office until the next annual meeting of stockholders or until their
successors have been duly elected and qualified. Officers are chosen by and
serve at the discretion of the Board of Directors. A summary of the background
and experience of each of these individuals is set forth after the table.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
George S. Hofmeister 45 Chairman of the Board
Frank J. Amedia 44 President, Chief Executive Officer
and Director
John J. Cafaro 45 Director
Joseph Dominijanni 40 Treasurer and Director
W.R. Jackson, Jr. 63 Director
John Masternick 71 Director
James E. Phillips 40 Director
Charles E. Trebilcock 70 Director
James K. Warren 32 Director
David S. McKelvey 44 Secretary
</TABLE>
George S. Hofmeister has served as the Chief Executive Officer and
Chairman of the Board since December 19, 1996. Mr. Hofmeister has served as
Chief Executive Officer and Chairman of the Board of American Commercial
Holdings, Inc., the parent company of AAP Holdings, Inc. ("AAPH"), since
December 15, 1995 and continues to serve in such roles. Mr. Hofmeister also
continues to serve as Vice Chairman of Tube Products, Inc., a manufacturer of
automobile exhaust systems. Mr. Hofmeister has held that position since February
14, 1996. From June 1, 1991 until December 15, 1995, Mr. Hofmeister served as
Chief Executive Officer and Chairman of the Board of EWI, Inc., a manufacturer
of automotive metal stampings.
Frank J. Amedia has been a director of the Company since June 8, 1994 and
now also serves as the President and Chief Executive Officer. Mr. Amedia was the
founder and served as the President of Forte, Inc. from its inception in 1989.
Prior thereto, Mr. Amedia was a manufacturer's representative in the
fenestration business.
John J. Cafaro joined the Board of Directors in December 1996. Mr. Cafaro
also serves as the Executive Vice President of The Cafaro Company, a major
domestic shopping mall developer engaged in the ownership, operation and
management of Enclosed Regional Shopping Centers. Mr. Cafaro has been a
principal officer of The Cafaro Company for the past 20 years.
Joseph Dominijanni has served as the Company's Treasurer since December 19,
1996. Mr. Dominijanni has also served as the Vice President - Finance of AAP
since its inception. Mr. Dominijanni also currently serves as Vice President -
Finance of American Commercial Holdings, Inc. ("ACH"), the parent corporation of
AAPH, and American Commercial Industries, Inc., ("ACI"), which is principally
engaged in the manufacturing of automotive components. Mr. Dominijanni joined
ACH and ACI in May 1996. Mr. Dominijanni served as Vice President - Finance of
EWI, Inc. a manufacturer of automotive metal stampings, from June 1990 until
April 1996.
W.R. Jackson, Jr. has served as a director of the Company since December
19, 1996. Mr. Jackson has also served since 1982 on the Board of Directors of
Pitt-Des Moines, Inc., a steel construction, engineering and metal products
manufacturer. Mr. Jackson was also President and Treasurer of Pitt-Des Moines,
Inc. from 1983-1987.
46
<PAGE> 50
John Masternick has been a director of the Company since June 14, 1994.
Mr. Masternick is a practicing attorney in Girard, Ohio, and is the Chairman of
the Board of Directors of Omni Manor, Inc. and Windsor House, Inc., owners and
operators of skilled nursing and extended care facilities in northeastern Ohio
and western Pennsylvania.
James E. Phillips has been a member of the Company's Board of Directors
since December 19, 1996. Mr. Phillips is also an attorney practicing with the
law firm of Arter & Hadden since 1985. Additionally, Mr. Phillips has served as
President and director of GPI Incorporated ("GPI"), Profile Extrusion Company
("PEC") and Daymonex Limited ("Daymonex") since April 1, 1994, April 1, 1994,
and May 2, 1996, respectively. GPI, PEC and Daymonex are engaged in the aluminum
extrusion industry.
Charles E. Trebilcock has been a director of the Company since June 14,
1994. Since 1964, Mr. Trebilcock has served as Chairman of Liberty Industries,
Inc., an Ohio-based manufacturer of industrial lumber packaging products and
equipment. Mr. Trebilcock is also a partner in Kings Company, which is also a
manufacturer of industrial lumber packaging products and equipment.
James K. Warren has been a director of the Company since February 28, 1997.
Mr. Warren holds the office of Vice President - Corporate Planning of American
Architectural Products, Inc., a subsidiary of Forte Computer Easy, Inc. Since
February 1, 1996, Mr. Warren has been employed by American Commercial
Industries, Inc. as its Vice President - Corporate Planning. During the same
time, Mr. Warren has also held the position of Vice President - Corporate
Planning for American Commercial Holdings, Inc. the parent company of ACI and
AAPH. Mr. Warren was previously a practicing attorney with the law firm of Arter
& Hadden.
David McKelvey joined the Company in August 1995 and has served as the
Company's Secretary since December, 1996, prior to which he served as its Vice
President. Prior to joining the Company, Mr. McKelvey was Executive Vice
President of Administration and Development for The Cafaro Company, a major
domestic shopping mall developer engaged in the ownership, operation and
management of Enclosed Regional Shopping Centers. From 1992 through 1995, Mr.
McKelvey also served as Executive Regional Director of Real Estate for The
Cafaro Company.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's
Chief Executive Officer and all other executive officers of the Company whose
total annual salary and bonus exceeds $100,000 for services rendered in all
capacities to the Company and its subsidiaries during the fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------------
OTHER ANNUAL RESTRICTED ALL OTHER
NAME AND YEAR ENDED SALARY BONUS COMPENSATION STOCK COMPENSATION
PRINCIPAL POSITION DECEMBER 31, ($) ($) ($)(2) AWARDS ($)
- ---------------------- ----------------- ------------- ---------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
FRANK J. AMEDIA, 1996 168,718 0 -- 0 0
PRESIDENT AND
CHIEF EXECUTIVE 1995 193,000 0 -- 0 0
OFFICER(1)
1994 137,294 0 -- 0 0
<FN>
(1) The amount of compensation paid to mr. Amedia for 1994 consists of $47,384
paid from October 1, 1993 through June 7, 1994 (paid by Forte, inc.) and an
additional $89,910 paid to Mr. Amedia following the closing of the Forte,
Inc. Acquisition on June 7, 1994.
(2) Other compensation to Mr. Amedia did not exceed $50,000 or 10% of his total
annual salary and bonus during any fiscal year.
</TABLE>
47
<PAGE> 51
AMENDMENT OR REPRICING OF OPTIONS
No stock options previously granted to the executive officers were subject
to repricing during the fiscal year ended December 31, 1996. The Company does
not have a long-term incentive plan established for the benefit of its executive
officers or directors.
OPTION GRANTS
No stock options, stock appreciation rights or restricted stock awards
were granted to or exercised by any officers, directors or employees of the
Company or its subsidiaries during the fiscal year ended December 31, 1996. The
Company entered into definitive stock option agreements with Mr. Amedia and Mr.
Masternick dated December 18, 1996, memorializing the terms of stock options
granted in 1994.
OPTION VALUES
The following table sets forth certain information concerning each
exercise of stock options during the year ended December 31, 1996 by each of the
Named Executive Officers and the aggregated fiscal year-end value of the
unexercised options of each such Named Executive Officer.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND OPTION VALUE AS OF DECEMBER 31, 1996
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
--------------------- -----------------------
Year End Fiscal Year
-------- -----------
(#) End ($)(1)
Shares Acquired Value Realized -------- ----------
Name on Exercise (#) ($) Exercisable Unexerciseable Exercisable Unexerciseable
- ---------------- ---------------- --------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Amedia -0- $-0- 4,262,440 -0- $2,530,824 $-0-
John Masternick -0- $-0- 455,258 -0- $270,309 $-0-
<FN>
(1) Based on average of reported bid and ask prices for the Common Stock
on December 31, 1996.
</TABLE>
EMPLOYMENT CONTRACTS WITH EXECUTIVE OFFICERS
The Company was a party to an employment agreement with Anthony E. DePrima
who served as Executive Vice President and Director of the Company. This
agreement had a term extending through December 31, 1995 (subject to renewal).
Mr. DePrima's base compensation under this agreement was $120,000 per annum,
plus an incentive bonus equal 5% of the net profits of the Company. The Company
also provided a car for Mr. DePrima and assumed the cost of his legal
malpractice insurance. The Company exercised its option to terminate Mr.
DePrima's employment agreement effective December 31, 1995. Effective May 15,
1996, the Company retained Mr. DePrima as a business and legal consultant for a
twelve-month term. In connection therewith, the Company agreed to pay Mr.
DePrima a consulting fee of $1,500 per month.
EMPLOYEE INCENTIVE STOCK OPTION PLAN
In May of 1992, the Board of Directors of the Company adopted an Employee
Incentive Stock Option Plan (the "Option Plan"). Options to purchase an
aggregate of up to 5,000,000 shares of the Company's common stock are authorized
under the Option Plan. Options granted under the Option Plan have a maximum
duration of ten years from the date of grant. In connection with the
acquisition of Forte in June of 1994, Mr. Amedia and Mr. Masternick (the former
shareholders of Forte) received options to purchase an aggregate of 4,717,698
shares of the Company's common stock at $.375 per share. The aforementioned
options were issued in contemplation of the Company
48
<PAGE> 52
effectuating a reverse stock split. Until such reverse stock split is
effectuated or until such time as additional shares of the Company's common
stock are authorized or purchased as treasury shares, these options will not be
exercisable.
As of December 31, 1996, options to purchase a total of 14,663,870 shares
of the Company's common stock were outstanding, including options to purchase
8,798,322 shares issued to AAPH on December 18, 1996, with exercise prices
ranging from $.25 to $.50 per share.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Plan"), which is subject
to shareholder approval, authorizes the Board to grant options to Directors and
employees of the Company to purchase in the aggregate an amount of shares of
Common Stock equal to 10% of the shares of Common Stock issued and outstanding
from time to time, but which aggregate amount shall in no event exceed
10,000,000 shares of Common Stock. Directors, officers and other employees of
the Company who, in the opinion of the Board of Directors, are responsible for
the continued growth and development and the financial success of the Company
are eligible to be granted options under the 1996 Plan. Options may be
nonqualified options, incentive stock options, or any combination of the
foregoing. In general, options granted under the 1996 Plan are not transferable
and expire ten (10) years after the date of grant. The per share exercise price
of an incentive stock option granted under the 1996 Plan may not be less than
the fair market value of the Common Stock on the date of grant. Incentive stock
options granted to persons who have voting control over 10% or more of the
Company's capital stock are granted at 110% of the fair market value of the
underlying shares on the date of grant and expire five years after the date of
grant. No option may be granted after December 19, 2006.
The 1996 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder will become exercisable. Generally,
such options may be exercised after a period of time specified by the Board of
Directors at any time prior to expiration, so long as the optionee remains
employed by the Company. No option granted under the 1996 Plan is transferable
by the optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the lifetime of the optionee only by the
optionee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock and Preferred Stock as of
January 27, 1997, by (i) each beneficial owner of more than 5% of the Company's
Common Stock or Preferred Stock, (ii) each director of the Company, (iii) each
executive officer of the Company, and (iv) all executive officers and directors
as a group. This information was determined in accordance with Rule 13(d)-3
under the Securities Exchange Act of 1934, as amended, and is based upon the
information furnished by the persons listed below. Except as otherwise
indicated, each shareholder listed possesses sole voting and investing power
with respect to the shares indicated as being beneficially owned.
49
<PAGE> 53
<TABLE>
<CAPTION>
Shares of Stock
Beneficially Owned
-------------------------------------
Number of Shares Percent of
Class of Stock Name and Address Beneficially Held Class
-------------- ---------------- ----------------- -----
<S> <C> <C> <C>
Common Frank J. Amedia(1) 33,593,262(2) 61.2%
Common John Masternick 3,696,799(3) 7.5%
20 E. Liberty Street
Girard, Ohio 44420
Common Anthony DePrima 3,029,692(4) 6.1%
501 Reservation Road
Marina, California 93933
Common Charles E. Trebilcock(1) 508,333(5) 1.0%
Common George S. Hofmeister(1) 25,000 *
Common David McKelvey(1) 0 (6) 0
Common James E. Phillips(1) 0 0
Common Joseph Dominijanni(1) 20,000 *
Common W.R. Jackson, Jr.(1) 0 0
Common John J. Cafaro(1) 0 0
Common AAP Holdings, Inc. 61.2%
100 S. Broadway Avenue 33,593,262(7,9)
Salem, Ohio 44460
Common All directors and executive officers 37,843,394(8) 67.1%
of the Company as a group (9
persons)
Preferred AAP Holdings, Inc. 1,000,000(9) 100.0%
100 S. Broadway Avenue
Salem, Ohio 44460
<FN>
* Less than 1%
(1) c/o Forte Computer Easy, Inc., 1350 Albert Street, Youngstown, Ohio 44505.
(2) Includes 4,262,440 shares of common stock which are subject to unexercised
options that were exercisable on January 27, 1997 or within sixty days
thereafter. Also includes an additional 1,718,422 unissued shares of common
stock which the Company is obligated to issue to Mr. Amedia and 324,323
outstanding shares of common stock which Forte, Inc. holds and is obligated
to transfer to Mr. Amedia in connection with the acquisition of Forte, Inc.
in June 1994. Does not include 1,000,000 shares of common stock which are
subject to options granted subsequent to January 27, 1997.
(3) Includes 455,258 shares of common stock which are subject to unexercised
options that were exercisable on January 27, 1997 or within sixty days
thereafter.
(4) Includes 1,000,000 shares of common stock which are subject to unexercised
options that were exercisable on January 27, 1997 or within sixty days
thereafter.
</TABLE>
50
<PAGE> 54
(5) Includes 258,333 shares of common stock owned individually and 250,000
shares held by a custodian for the benefit of an individual retirement
account of Mr. Trebilcock. In addition, LGL Company, owned by Lionel
Trebilcock, brother of Mr. Trebilcock, owns common shares. Mr. Trebilcock
does not have any beneficial interest in or control over the shares owned
by either LGL Company or Lionel Trebilcock. On October 3, 1994, Robert
Trebilcock, son of Mr. Trebilcock, purchased common shares, and Mr.
Trebilcock does not have any beneficial interest in or control over such
shares.
(6) Does not include 250,000 shares of common stock subject to options granted
subsequent to January 27, 1997.
(7) Does not include 8,798,322 shares of common stock which are subject to
unexercised options that are exercisable only upon the occurrence of
certain contingencies. Includes 27,288,077 shares of common stock owned by
Amedia, 1,718,422 shares of common stock issuable to Amedia by the Company,
324,323 shares of common stock that Forte, Inc. is obligated to transfer to
Amedia, and 4,262,440 shares of common stock subject to unexercised options
that were exercisable on January 27, 1997 or within sixty days thereafter.
In connection with the transaction between AAPH and the Company, Amedia
granted AAPH an irrevocable proxy to vote all shares of Common Stock
currently or hereafter owned by Amedia in favor of the reincorporation of
the Company from a Utah corporation to a Delaware corporation (including a
ten-for-one reverse stock split), any matters submitted to the shareholders
of the Company relating to the repayment of amounts owing to MascoTech,
Inc. from AAPH under those certain Promissory Notes dated August 29, 1996
in the original principal amount of $8,000,000, and any matters submitted
to the shareholders of the Company as to which the shares of Series A
Preferred Stock are not permitted to vote in accordance with their terms
but would have been permitted to vote had such shares of Series A Preferred
Stock been converted into common stock in accordance with their terms prior
to the record date for such vote. The proxy expires on December 31, 1997.
(8) Includes 5,717,698 shares of common stock which are subject to unexercised
options that were exercisable on January 27, 1997 or within sixty days
thereafter as described above and 2,042,745 shares of common stock the
Company and Forte, Inc. are obligated to issue to Mr. Amedia.
(9) George S. Hofmeister, Chairman of the Board of Directors of the Company, is
the controlling shareholder of the corporate parent of AAPH.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with a loan of $100,000 from Jack Martinez to the
Company, in 1988 two shareholders transferred 250,000 shares each to Mr.
Martinez as additional consideration for such loan. In November 1993, the Board
of Directors of the Company authorized the issuance of 250,000 shares of common
stock to each of those shareholders, Anthony E. DePrima and D. Jess Riddle, both
of whom were officers and directors of the Company at the time, to replace the
shares which each of them had transferred to Mr. Martinez.
Pursuant to an Agreement and Plan of Reorganization dated on May 27,
1994, which was consummated on June 8, 1994 (as amended, the "Forte Agreement"),
Forte became a wholly owned subsidiary of the Company. Pursuant to that
transaction, as modified, the Company agreed to issue to the prior Forte
shareholders a total of 32,479,290 shares of the Company's common stock,
consisting of 29,346,499 shares to Amedia, of which 27,628,077 have been issued
(with the balance of 1,718,422 to be issued by the Corporation when there are
sufficient authorized shares available), and 3,132,791 shares to Masternick. As
part of the same transaction, options were granted to Amedia and Masternick to
purchase 4,262,440 shares and 455,258 shares, respectively, of the Company's
common stock at $.375 per share. In addition, the Company realized $250,000 from
the sale of 1,000,000 Series A Preferred shares at $0.25 per share to Forte
under the Forte Agreement. Forte had assigned its rights to acquire the Series A
Preferred shares at $.37 per share to a group of accredited investors, resulting
in the investors purchasing 675,677 shares and Forte acquiring 324,323 shares.
The 324,323 shares of the Company's common stock acquired by Forte are to be
issued to Amedia as a former shareholder of Forte. These shares have not yet
been issued and are in addition to the 1,718,422 shares which, as noted above,
the Company is obligated to issue to Amedia.
In connection with the Company's acquisition of the stock of Forte in
June of 1994, the Company also entered into an agreement with D. Jess Riddle, a
former officer and director of the Company, regarding certain matters. Under
this Agreement, for a period of ninety days following the closing of the
transaction, the Company had a right of
51
<PAGE> 55
first refusal to acquire 500,000 shares of Company common stock held by Riddle.
During the same time period, the Company also had an exclusive option to acquire
1,200,000 shares of Company common stock held by Riddle at $.40 per share. If
the option was not exercised in the first ninety days of the option period, then
the Company had an additional 270 days to acquire such shares at $.50 per share.
If the Company purchased all 1,200,000 shares from Riddle, then simultaneously
with the payment for the last shares, the Company could purchase at $.15 per
share certain options previously granted to Riddle to acquire 1,000,000 shares
(the "Riddle Option"). If, within 180 days after the closing of the transaction,
the market price of the Company's common stock exceeded $1.50 per share, then
the exercise price for the Company to acquire any unpurchased portion of the
1,200,000 Riddle shares would be adjusted to $.75 per share. The Company also
agreed to retain Riddle as a consultant for six months following closing of the
transaction at a compensation rate equal to his base salary (with no commission
override) as in effect prior to the closing. The Company also agreed to pay
Riddle $3,000 on the first day of each month until the first 500,000 Riddle
shares were sold, or the end of ninety days after the close of the transaction,
whichever occurred first. On September 15, 1994, Riddle and Forte agreed to
several modifications of this Agreement, as follows:
(i) Riddle was permitted to sell 500,000 shares at $.60 per
share to four separate investors.
(ii) Designees of Forte, purchased 750,000 shares from
Riddle at $.40 per share.
(iii) Forte, or its designees, could purchase the remaining
500,000 shares owned by Riddle at $.50 per share prior
to the expiration date of the original 360 day period
following closing of the Forte acquisition transaction.
(iv) If Forte purchased all the remaining 500,000 shares
owned by Riddle within the 360 day period following
closing of the Forte acquisition transaction, the
Company could repurchase the Riddle Option at
$.15 per share.
Subsequent to December 31, 1995, the Company entered into an agreement
with Riddle pursuant to which the Company would purchase all remaining shares of
the Company's common stock owned by Riddle. The shares and 1,000,000 options
were acquired in exchange for (i) the discharge of approximately $180,000 in
indebtedness owing from CD World, a company owned by Riddle, to Arizona Disk
Fulfillment, Inc. ("ADF") and (ii) for a $195,000 credit in favor of Riddle or
his nominees against the retail price of goods and services of ADF.
In connection with the Forte transaction in June of 1994, the Company
entered into separate stock option agreements, dated June 7, 1994, whereby the
Company obtained the right, for a period of one (1) year from June 8, 1994, to
purchase 30% of the shares owned by certain large shareholders of the Company
for $.50 per share. Anthony E. DePrima, a director and former officer of the
Company, was a party to such an agreement with the Company. The Company did not
exercise any of these options, which expired on June 8, 1995.
In June, 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.
In connection with the Reorganization Agreement between the Company and
AAPH, the Company and its subsidiary, American Architectural Products, Inc.
("AAP"), agreed to use their best efforts to secure the release of Amedia,
Masternick and Hofmeister from all obligations as either a co-obligor or
guarantor of Company or AAP debt. In addition, the Company agreed to indemnify,
defend and hold harmless Amedia, Masternick and Hofmeister against any loss,
cost or expense which any of them may incur as a result of being a co-obligor or
guarantor of any Company or AAP debt. Furthermore, the Company and AAPH agreed
not to dispose of assets securing any Company or AAP debt without the prior
written consent of any person who is a co-obligor or guarantor of such debt.
Forte performs management services for 78 rental units owned by Amedia
and his wife. Such services involve accounting, performing maintenance, making
repairs and coordinating tenant requirements. Mr. Amedia and his wife paid the
Company $52,257 for such services during the year ended December 31, 1996,
$49,804 during the year ended December 31, 1995, and $29,925 during the year
ended December 31, 1994.
52
<PAGE> 56
Upon consummation of the transaction contemplated by the Reorganization
Agreement, the Company agreed that AAP would pay a management fee to AAPH of
$250,000 during 1997 and to reimburse AAPH and its affiliates for out-of-pocket
expenses incurred in providing services to AAP. The management fee agreement
will terminate on December 31, 1997. In addition, the Company agreed to pay AAPH
an acquisition consulting fee of one percent (1%) of the transaction price of
each acquisition transaction consummated by the Company with respect to which
AAPH or its affiliates provides acquisition consulting services. For purposes of
calculating the acquisition fee, the transaction price means the aggregate
amount of consideration paid by the Company or its affiliates for the
acquisition in the form of cash, stock, stock options, warrants, debt
instruments and other assumed liabilities. The acquisition consulting fee
agreement will terminate on December 31, 1997, except with respect to
acquisition transactions already in progress at such date.
53
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) FINANCIAL STATEMENTS.
The following is a list of all financial statements filed as a part of
this Report:
See ITEM 8 for Consolidated Financial Statements and Financial
Statement Schedule of Forte Computer Easy, Inc. and Subsidiaries.
<TABLE>
<CAPTION>
<S> <C>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND TAYLOR BUILDING PRODUCTS COMPANY
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . 58
Combined Balance Sheet as of August 29, 1996 . . . . . . . . . . . . . . . . . . 59
Combined Statement of Operations and
Accumulated Deficit For the Eight Month Periods Ended
August 29, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 60
Combined Statements of Cash Flows For the
Eights Month Periods Ended August 29, 1996 and 1995 . . . . . . . . . . . 61
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . 63
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND TAYLOR BUILDING PRODUCTS COMPANY
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . 71
Combined Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . 72
Combined Statements of Operations and Accumulated Deficit
For the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . 73
Combined Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . 74
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . 76
MALLYCLAD CORPORATION AND VYN-L CORPORATION
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . 84
Combined Balance Sheets as of June 30, 1996 and November 30, 1995 and 1994 . . . 85
Combined Statements of Operations and Retained Earnings
for the Seven Months Ended June 30, 1996 and the
Fiscal Years Ended November 30, 1995 and 1994 . . . . . . . . . . . . . . . 87
Combined Statements of Cash Flows for the Seven Months Ended June 30, 1996
and the Fiscal Years Ended November 30, 1995 and 1994 . . . . . . . . . . . 88
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
The following is a list of a financial statement schedule required to
be filed as a part of this Report:
II. Valuation and Qualifying Accounts
All schedules, other than the schedule(s) listed above, are omitted as
the information is not required, is not material or is otherwise furnished.
54
<PAGE> 58
(c) EXHIBITS.
<TABLE>
<CAPTION>
Method
Exhibit No. Description of Filing
----------- ------------ ---------
<S> <C> <C>
3.1 Articles of Incorporation B
3.2 Bylaws A
10.1 1992 Incentive Stock Option Plan B
10.2 Purchase Agreement dated November 3, 1995 among Forte C
Computer Easy, Inc., International Microcomputer Software,
Inc. and Computer Easy International, Inc.
10.3 Stock Purchase Agreement dated August 5, 1996 among Forte D
Computer Easy, Inc., James W. Schmidt and Beverly Schmidt,
and Arizona Disk Fulfillment, Inc.
10.4 Addendum to Stock Purchase Agreement dated August 20, D
1996 among Forte Computer Easy, Inc., James W. Schmidt and
Beverly Schmidt, and Arizona Disk Fulfillment, Inc.
10.5 Agreement and Plan of Reorganization dated October 25, 1996 E
between Forte Computer Easy, Inc. and AAP Holdings, Inc.
10.6 Letter Agreement dated December 18, 1996 between Forte *
Computer Easy, Inc. and AAP Holdings, Inc. regarding
management fee and expenses reimbursement
10.7 Letter Agreement dated December 18, 1996 between Forte *
Computer Easy, Inc. and AAP Holdings, Inc. regarding
acquisition consulting fees
10.8 Forte Computer Easy, Inc. 1996 Stock Option Plan F
22 Subsidiaries of the Registrant *
27 Financial Data Schedule *
<FN>
* Filed herewith.
A Incorporated by reference to the Company's Registration Statement on
Form 10-SB filed March 1, 1995.
B Incorporated by reference to the Company's Amendment No. 1 to
Registration Statement on Form 10-SB/A filed November 22, 1996.
C Incorporated by reference to the Company's Amendment No. 1 to Current
Report on Form 8-K/A dated August 30, 1995.
D Incorporated by reference to the Company's Current Report on
Form 8-K dated August 5, 1996.
E Incorporated by reference to the Company's Current Report on Form 8-K
dated October 25, 1996.
F Incorporated by reference to the Company's definitive Information
Statement relating to the special meeting of shareholders held on April
1, 1997.
(d) REPORTS ON FORM 8-K
The Company filed the following current reports on Form 8-K during the
fourth quarter of fiscal year 1996:
</TABLE>
55
<PAGE> 59
Form 8-K/A dated August 30, 1995 to report that the Company had entered
into a Purchase Agreement with International Microcomputer Software,
Inc.
Form 8-K dated August 5, 1996 to report that the Company had entered
into a Stock Purchase Agreement (as amended) with J.W. Schmidt, B.
Schmidt and Arizona Disk Fulfillment, Inc.
Form 8-K dated October 25, 1996 to report that the Company had entered
into an Agreement and Plan or Reorganization with AAP Holdings, Inc.
56
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN ARCHITECTURAL PRODUCTS
CORPORATION
June 23, 1997 By /s/ FRANK J. AMEDIA
---------------------------------
Frank J. Amedia, President and Chief
Executive Officer
By /s/ RICHARD L. KOVACH
---------------------------------
Richard L. Kovach, Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ GEORGE S. HOFMEISTER
- ------------------------------- Chairman of the Board of Directors June 23, 1997
George S. Hofmeister
/s/ FRANK J. AMEDIA
- ------------------------------- President (Principal Executive June 23, 1997
Frank J. Amedia Officer) and Director
/s/ JOSEPH DOMINIJANNI
- ------------------------------- Treasurer and Director June 23, 1997
Joseph Dominijanni
/s/ JOHN J. CAFARO
- ------------------------------- Director June 23, 1997
John J. Cafaro
- ------------------------------- Director June 23, 1997
W.R. Jackson, Jr.
- ------------------------------- Director June 23, 1997
John Masternick
/s/ JAMES E. PHILLIPS
- ------------------------------- Director June 23, 1997
James E. Phillips
- ------------------------------- Director June 23, 1997
Charles E. Trebilcock
/s/ JAMES K. WARREN
- ------------------------------- Director June 23, 1997
James K. Warren
</TABLE>
57
<PAGE> 61
To The Board of Directors and Stockholders of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited the accompanying combined balance sheet of Eagle Window & Door,
Inc. and Subsidiaries and Taylor Building Products Company (Wholly- Owned
Subsidiaries), as of August 29, 1996, and the related combined statements of
operations and accumulated deficit, and cash flows for the period then ended.
These combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
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 combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Eagle
Window & Door, Inc. and Subsidiaries and Taylor Building Products Company
(Wholly-Owned Subsidiaries) as of August 29, 1996, and the results of their
combined operations and cash flows for the eight month period then ended in
conformity with generally accepted accounting principles.
Semple & Cooper, P.L.C.
Phoenix, Arizona
January 31, 1997
58
<PAGE> 62
<TABLE>
<CAPTION>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED BALANCE SHEET
August 29, 1996
ASSETS
<S> <C>
Current Assets:
Cash (Note 2) $ 395,859
Accounts receivable, net (Note 1) 7,736,517
Inventory (Notes 1 and 3) 8,483,224
Prepaids and other 314,240
-----------
Total Current Assets 16,929,840
-----------
Property, Plant and Equipment, Net (Notes 1 and 4) 6,966,340
-----------
Deposits and Other Assets 93,376
-----------
Total Assets $23,989,556
===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 2,429,053
Accrued wages and payroll taxes 453,459
Payable to affiliates (Note 9) 19,441,656
Other accrued expenses 2,346,756
Accrued warranty reserve - short-term portion (Note 8) 1,479,000
-----------
Total Current Liabilities 26,149,924
-----------
Long-Term Liabilities:
Accrued warranty reserve - long-term portion (Note 8) 3,148,412
-----------
Commitments and Contingencies: (Note 5) -
Stockholder's Equity (Deficit): (Note 6)
Common stock 211,851
Additional paid-in capital 27,224,456
Accumulated deficit (32,745,087)
-----------
Total Stockholder's Equity (Deficit) (5,308,780)
-----------
Total Liabilities and Stockholder's
Equity (Deficit) $23,989,556
===========
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
</TABLE>
59
<PAGE> 63
<TABLE>
<CAPTION>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
For The Eight Month Periods Ended
August 29, 1996 and 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Sales $ 39,971,058 $ 49,279,325
Cost of Sales 33,832,799 45,687,243
------------ ------------
Gross Profit 6,138,259 3,592,082
Selling Expense 3,948,778 4,935,699
General and Administrative Expenses 3,141,852 3,497,374
------------ ------------
Loss from Operations (952,371) (4,840,991)
------------ ------------
Other Income (Expense):
Loss on sale of assets (773,866) (127,936)
Other 274,661 79,892
Interest expense (1,142,519) (1,167,661)
------------ ------------
(1,641,724) (1,215,705)
------------ ------------
Loss before Income Tax Benefit (2,594,095) (6,056,696)
Income Tax Benefit (Note 1) 907,933 2,011,743
------------ ------------
Net Loss (1,686,162) (4,044,953)
Accumulated Deficit, Beginning of Period (31,058,925) (24,670,847)
------------ ------------
Accumulated Deficit, End of Period $(32,745,087) $(28,715,800)
============ ============
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
</TABLE>
60
<PAGE> 64
<TABLE>
<CAPTION>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED STATEMENTS OF CASH FLOWS
For The Eight Month Periods Ended
August 29, 1996 and 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $39,462,693 $47,331,732
Cash paid to suppliers and employees (38,177,166) (45,970,684)
Interest received 1,340 -
----------- -----------
Net cash provided by operating
activities 1,286,867 1,361,048
----------- -----------
Cash Flows from Investing Activities:
Cash received from sale of assets 37,289 37,775
Purchase of assets (1,678,658) (1,105,484)
----------- -----------
Net cash used by investing
activities (1,641,369) (1,067,709)
----------- -----------
Net increase (decrease) in cash (354,502) 293,339
Cash at beginning of period 750,361 212,332
----------- -----------
Cash at end of period $ 395,859 $ 505,671
=========== ===========
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
</TABLE>
61
<PAGE> 65
<TABLE>
<CAPTION>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED STATEMENTS OF CASH FLOWS (Continued)
For The Eight Month Periods Ended
August 29, 1996 and 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Reconciliation of Net Loss to Net Cash
Provided by Operating Activities:
Net Loss $(1,686,162) $(4,044,953)
----------- -----------
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Depreciation 2,661,961 2,589,573
Loss on sale of assets 773,866 127,936
Interest expense contributed to capital
by Parent Company 1,142,519 -
Changes in Assets and Liabilities:
Accounts receivable (781,687) (2,027,320)
Inventory (152,631) 7,258,906
Prepaids and other 134,186 (59,438)
Deposits and other (38,005) (182,101)
Accounts payable (430,203) (998,580)
Accrued wages and payroll taxes 72,539 74,468
Other accrued expenses 828,870 694,837
Payable to affiliates (1,040,998) (1,572,280)
Accrued warranty reserve (197,388) (500,000)
----------- -----------
2,973,029 5,406,001
----------- -----------
Net cash provided by operating
activities $ 1,286,867 $ 1,361,048
=========== ===========
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
</TABLE>
62
<PAGE> 66
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Use of Estimates:
Basis of Presentation:
The combined financial statements include the financial position,
results of operations and cash flows of Eagle Window & Door, Inc. and
Subsidiaries and Taylor Building Products Company (the Companies). All
material intercompany transactions, accounts and balances have been
eliminated.
Each Company is a wholly-owned subsidiary of MascoTech, Inc. Because of
these relationships, the financial statements of the Companies have been
prepared on a combined format as if they were a single entity. In
addition, MascoTech, Inc. performed the Companies' treasury function,
and allocated expenses for various services it provided (See Note 9).
Eagle Window & Door, Inc. and Subsidiaries (Eagle) are engaged in the
manufacture of aluminum clad and all wood windows and doors. Eagle's
primary market is the construction industry. Products are marketed
through various distributors located throughout the United States and
Pacific Rim. Eagle's wholly-owned subsidiaries, Eagle Window & Door of
Bellevue, Inc. and Eagle Service Company are engaged in the sale and
distribution of windows and doors throughout the United States.
The accompanying combined financial statements include the consolidated
accounts of Eagle Window & Door, Inc. and its wholly-owned subsidiaries,
Eagle Window & Door of Bellevue, Inc. and Eagle Service Company. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
Taylor Building Products Company (Taylor) is engaged in the manufacture
of entry and garage doors. The Company markets entry doors under the
brand names of Perma Door and Taylor Door. The Perma Door brand is
primarily marketed through millwork distributors and the Taylor Door
brand is primarily marketed through installing dealers. The Company
markets garage doors under the Taylor Door brand name throughout the
United States.
63
<PAGE> 67
Interim Financial Information:
The interim financial statements for the eight month period ended August
29, 1995 are unaudited. In the opinion of management, these statements
reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the results of operations for the
interim period. The results of operations for the eight month periods
presented are not necessarily indicative of the results for the
respective years.
64
<PAGE> 68
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies and Use of Estimates:
(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.
Earnings Per Share:
Historical earnings per share data has not been presented in the
accompanying financial statements due to the subsequent acquisition of
the two (2) Companies by American Architectural Products, Inc. and its
reverse merger with a public reporting company (See Note 12).
Accounts Receivable:
As of August 29, 1996, an allowance has been established for potentially
uncollectible accounts receivable in the amount of $791,521.
Inventory:
Inventory is stated at the lower of cost (first-in, first-out method) or
market. Inventories are reviewed periodically for obsolescence and an
allowance established to record potentially obsolete inventory at net
realizable value (See Note 3).
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
provided for using the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs that neither materially add
to the value of the property nor appreciably prolong its life are
charged to expense as incurred. Betterments or renewals are capitalized
when incurred. Depreciation expense for the periods ended August 29,
1996 and 1995, was $2,661,961 and $2,589,573 (unaudited), respectively.
Assets are being depreciated over their estimated useful lives, as
follows:
Years
-----
Buildings and improvements 40
Machinery and equipment 6-15
Computer and office equipment 10
Tools, dies and fixtures 3
65
<PAGE> 69
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies and Use of Estimates:
(Continued)
Income Taxes:
The Companies file their income tax returns on a consolidated basis with
their parent company. All provisions for federal and state income taxes,
including provisions for deferred income taxes, are provided for through
the intercompany accounts.
Advertising:
The cost of advertising is expensed as incurred. Advertising expense was
$479,300 and $580,939 (unaudited), respectively, for the periods ended
August 29, 1996 and 1995.
2. Concentration of Credit Risk:
The combined Companies maintain cash balances at various financial
institutions. At August 29, 1996, the combined Companies have uninsured
cash in the approximate amount of $230,000.
3. Inventory:
As of August 29, 1996, inventory consisted of the following:
Raw materials $6,118,026
Work in process 1,366,212
Finished goods 1,473,501
----------
8,957,739
Less: provision for obsolete inventory (474,515)
----------
$8,483,224
==========
4. Property, Plant and Equipment:
As of August 29, 1996, property, plant and equipment consisted of the
following:
Land and improvements $ 408,934
Buildings and improvements 7,698,252
Machinery and equipment 11,276,992
Computer and office equipment 2,223,089
Tools, dies and fixtures 3,698,385
-----------
25,305,652
Less: accumulated depreciation (18,339,312)
-----------
$ 6,966,340
===========
66
<PAGE> 70
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
5. Commitments and Contingencies:
Commitments:
The Companies are currently leasing certain office and manufacturing
space in Dubuque, Iowa and West Branch, Michigan under non-cancellable
operating lease agreements which expire through July, 1997. The terms of
the leases provide for combined monthly payments totalling approximately
$12,000. The lease terms also require the Companies to pay common area
maintenance, taxes, insurance and other costs. The Companies are also
leasing equipment under various non-cancellable operating lease
agreements which expire through July, 2000. Rent expense under the
operating lease agreements was $477,761 and $487,134, (unaudited)
respectively, for the periods ended August 29, 1996 and 1995.
A schedule of future minimum lease payments due under the
non-cancellable operating lease agreements, is as follows:
Year Ended
August 29, Amount
---------- ------
1997 $ 382,862
1998 176,505
1999 88,425
2000 18,546
----------
$ 666,338
==========
Contingencies:
Environmental Issue:
Based on an evaluation of Eagle's operating facility,
asbestos-containing materials were located in various sections of the
facility. No provision or accrual has been made to provide for any
potential future costs for abatement because, in management's opinion,
they should not have a material adverse effect upon the combined
financial position of the Companies. In connection with the sale of the
Companies to American Architectural Products, Inc. (See Note 12), the
former parent of the Companies agreed to bear certain abatement costs
relating to this matter.
Litigation:
At August 29, 1996, the Companies were a party to several lawsuits. The
Company believes that the lawsuits are without merit and intend to
vigorously defend their position. A provision has been made for
approximately $100,000 for a lawsuit involving product performance
issues.
67
<PAGE> 71
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
6. Stockholders' Equity:
The stock of Taylor Building Products Company consists of 1,000 shares
of $1 par value common stock authorized, issued and outstanding. The
stock of Eagle Window & Door, Inc. consists of 500,000 shares of $1 par
value common stock authorized, 210,851 shares issued and outstanding.
7. Restructuring Charge:
In September, 1995, Taylor's management adopted a restructuring plan to
address recurring operating losses. The goal of the plan was to reduce
overhead through a plan of business consolidation and simplification.
The major components to the plan were: (1) closure of its satellite
locations in Florida and Texas; (2) elimination of its "non-core"
product lines; and (3) improve the proficiency of its entry and garage
door lines. As a result of the restructuring plan, the Company incurred
costs for liquidation of inventory, loss on the sale and abandonment of
fixed assets, severance pay, and other related costs.
A restructuring charge in the approximate amount of $2,600,000 was
recorded subsequent to August 29, 1995.
8. Warranty Reserve:
The Companies sell the majority of their products with limited
warranties of two (2) to twenty-five (25) years. At August 29, 1996, the
accompanying financial statements include a reserve of $4,627,412 for
estimated warranty claims based on the Companies' historical claims
experience.
9. Related Party Transactions:
As of August 29, 1996, the Companies had amounts payable to affiliates
of 19,441,656. These affiliates consisted primarily of the parent
company and subsidiaries of the parent company. For the eight month
periods ended August 29, 1996 and 1995, the Companies had recorded
related interest expense of $1,142,519 and $1,167,661 (unaudited),
respectively. Interest expense for the eight month period ended August
29, 1996 was treated as contributed to capital by the Parent Company.
Various shared expenses were charged to the Companies through the
payable to affiliate account. These expenses included items such as
general insurance, health insurance, and workers' compensation
insurance, which were charged based on specific identification of the
expense. For the eight month periods ended August 29, 1996 and 1995,
total expenses charged to the Companies through specific identification
were $1,613,407 and $2,642,306, respectively.
In addition, MascoTech, Inc., the parent company, charged the Companies
a management fee based on budgeted sales for the various operating
subsidiaries. For the eight month periods ended August 29, 1996 and
1995, total management fees charged to the Companies were $951,000 and
$872,300, respectively.
68
<PAGE> 72
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
10. Benefit Plans:
401K Profit Sharing Plan and Pension Plan:
The Companies' former parent sponsored the MascoTech, Inc. Salaried
Savings Plan. All salaried employees of the Company with three (3)
months of service, were eligible to participate in the Plan. The Plan
operated as a 401K Savings Plan. The Plan did not provide for a
discretionary matching or profit sharing contribution. As such, no
expense has been recorded for contributions in the accompanying
financial statements.
The Companies' former parent sponsored the MascoTech, Inc. Master Hourly
Employees' Pension Plan. All hourly employees of the Companies were
eligible to participate in the Plan with participation commencing on the
date of hire. Benefits in the Plan were vested and based on the number
of years of credited service. Pension expense under the Plan for the
eight month periods ended August 29, 1996 and 1995 for the combined
Companies was approximately $135,000 for each period.
Pursuant to the sale of the Companies to American Architectural
Products, Inc., in August, 1996, and in accordance with the Stock
Purchase Agreement, coverage under these plans ceased. The seller agreed
to fully vest all participants and pay benefits in the normal course of
the plans. As such, no liability has been reported in the accompanying
combined financial statements for any potential unfunded liabilities.
Post-Retirement Benefits:
Taylor Building Products Company sponsors a post-retirement health
benefit program pursuant to its collective bargaining contract. Under
the principal terms of the contract, the Company will pay a retired
employee with a minimum of ten (10) years service, a benefit of $100 per
month after retirement at age 62. As of the date of the financial
statements, no material post-retirement benefit obligation has been
incurred.
Labor Force:
Most of the hourly employees of Taylor Building Products Company,
comprising approximately eighty-five percent (85%) of the Taylor labor
force, are covered under a collective bargaining agreement. The contract
expired in February, 1997, and was renegotiated for an additional five
(5) years.
69
<PAGE> 73
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
11. Economic Dependency:
For the periods ended August 29, 1996 and 1995, Eagle Window & Door,
Inc. purchased approximately fifteen percent (15%) of their materials
from one (1) supplier. At August 29, 1996, the amount due to the
supplier was $332,179.
For the periods ended August 29, 1996 and 1995, Taylor Building Products
Company purchased approximately twenty percent (20%) of their materials
from one (1) supplier. At August 29, 1996, the amount due to the
supplier was $362,000.
12. Subsequent Event:
Acquisition:
Effective August 29, 1996, the Companies were acquired by American
Architectural Products, Inc. (AAP). On December 18, 1996, American
Architectural Products Holdings, Inc. (AAPH, parent of AAP) consummated
transactions contemplated under an Agreement and Plan of Reorganization
dated October 25, 1996. Under terms of this Agreement, all of the
capital stock of AAP was exchanged by AAPH for a sixty percent (60%)
interest in Forte Computer Easy, Inc. The financial statements do not
give effect to these transactions.
70
<PAGE> 74
To The Board of Directors and Stockholders of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited the accompanying combined balance sheets of Eagle Window & Door,
Inc. and Subsidiaries and Taylor Building Products Company (Wholly-Owned
Subsidiaries), as of December 31, 1995 and 1994, and the related combined
statements of operations and accumulated deficit, and cash flows for the years
then ended. These combined financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Eagle
Window & Door, Inc. and Subsidiaries and Taylor Building Products Company
(Wholly-Owned Subsidiaries) as of December 31, 1995 and 1994, and the results of
their combined operations and cash flows for the years then ended in conformity
with generally accepted accounting principles.
Semple & Cooper, P.L.C.
Phoenix, Arizona
January 31, 1997
71
<PAGE> 75
January 31, 1997
<TABLE>
<CAPTION>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
---- ----
<S> <C> <C>
Current Assets:
Cash (Note 2) $ 750,361 $ 212,332
Accounts receivable, net (Note 1) 6,954,830 7,901,250
Inventory (Notes 1 and 3) 8,330,593 18,234,183
Prepaids and other 448,426 569,385
----------- -----------
Total Current Assets 16,484,210 26,917,150
----------- -----------
Property, Plant and Equipment,
Net (Notes 1 and 4) 8,760,799 10,844,153
----------- -----------
Deposits and Other Assets 55,370 132,269
----------- -----------
Total Assets $25,300,379 $37,893,572
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 2,859,256 $ 3,342,794
Accrued wages and payroll taxes 371,510 567,118
Payable to affiliates (Note 10) 20,482,654 25,427,638
Other accrued expenses 1,527,296 1,783,282
Accrued warranty reserve - short-term
portion (Note 9) 1,566,000 1,740,000
------------ ------------
Total Current Liabilities 26,806,716 32,860,832
------------ ------------
Long-Term Liabilities:
Accrued warranty reserve - long-term
portion (Note 9) 3,258,800 3,409,800
------------ ------------
Commitments and Contingencies: (Note 5) - -
Stockholder's Equity (Deficit): (Note 6)
Common stock 211,851 211,851
Additional paid-in capital 26,081,937 26,081,937
Accumulated deficit (31,058,925) (24,670,848)
------------ ------------
Total Stockholder's Equity (Deficit) (4,765,137) 1,622,940
------------ ------------
Total Liabilities and
Stockholder's Equity (Deficit) $ 25,300,379 $ 37,893,572
============ ============
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
</TABLE>
72
<PAGE> 76
<TABLE>
<CAPTION>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
For The Years Ended December 31, 1995, 1994 and 1993
(Unaudited)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales $ 72,962,690 $ 92,644,635 $113,741,486
Cost of Sales 67,642,530 83,387,571 100,655,248
------------ ------------ ------------
Gross Profit 5,320,160 9,257,064 13,086,238
Selling Expense 6,619,136 9,166,868 12,406,431
General and Administrative
Expenses 5,714,966 5,084,716 7,327,844
Restructuring Charge (Note 7) 840,042 - -
------------ ------------ ------------
Loss from Operations (7,853,984) (4,994,520) (6,648,037)
------------ ------------ ------------
Other Income (Expense):
Interest expense (Note 10) (1,755,177) (2,040,067) (2,028,034)
Gain (Loss) on sale of
assets (375,325) (23,293) 4,923
Other 38,984 69,440 149,816
------------ ------------ ------------
(2,091,518) (1,993,920) (1,873,295)
------------ ------------ ------------
Loss before Income Tax
Benefit (9,945,502) (6,988,440) (8,521,332)
Income Tax Benefit (Note 1) 3,557,425 2,550,020 2,987,040
------------ ------------ ------------
Net Loss (6,388,077) (4,438,420) (5,534,292)
Accumulated Deficit,
Beginning of Year (24,670,848) (20,232,428) (14,698,136)
------------ ------------ ------------
Accumulated Deficit,
End of Year $(31,058,925) $(24,670,848) $(20,232,428)
============ ============ ============
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
</TABLE>
73
<PAGE> 77
<TABLE>
<CAPTION>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1995, 1994 and 1993
(Unaudited)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Cash received from
customers $73,112,175 $97,443,508 $111,509,790
Cash paid to suppliers
and employees (70,132,913) (95,570,911) (110,644,441)
Interest paid (3,686) (8,711) (7,622)
Interest received 4,504 20,548 31,898
Restructuring costs (423,909) - -
----------- ----------- ------------
Net cash provided by
operating activities 2,556,171 1,884,434 889,625
----------- ----------- ------------
Cash Flows from Investing
Activities:
Cash received from sale
of equipment 558,265 278,139 49,653
Purchase of equipment (2,576,407) (1,885,382) (1,246,623)
----------- ----------- ------------
Net cash used by
investing activities (2,018,142) (1,607,243) (1,196,970)
----------- ----------- ------------
Cash Flows from Financing
Activities:
Repayment of debt - (64,859) (6,569)
----------- ----------- ------------
Net cash used by
financing activities - (64,859) (6,569)
----------- ----------- ------------
Net increase (decrease)
in cash 538,029 212,332 (313,914)
Cash at beginning of year 212,332 - 313,914
----------- ----------- ------------
Cash at end of year $ 750,361 $ 212,332 $ -
=========== =========== ============
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
</TABLE>
74
<PAGE> 78
<TABLE>
<CAPTION>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
COMBINED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended December 31, 1995, 1994 and 1993
(Unaudited)
1995 1994 1993
---- ---- ----
Reconciliation of Net Loss
to Net Cash Provided by
Operating Activities:
<S> <C> <C> <C>
Net Loss $(6,388,077) $(4,438,420) $(5,534,292)
----------- ----------- -----------
Adjustments to Reconcile Net
Loss to Net Cash Provided
by Operating Activities:
Depreciation 3,310,040 3,926,218 4,033,723
(Gain) Loss on sale of
assets 375,325 23,293 (4,923)
Abandonment of fixed
assets in
restructuring 416,131 - -
Changes in Assets and
Liabilities:
Accounts receivable 946,420 5,319,036 (1,204,657)
Inventory 9,903,590 2,577,426 (1,094,874)
Prepaids and other 120,959 88,377 (123,221)
Deposits and other 76,899 674 447,827
Accounts payable (483,538) (806,796) (1,423,265)
Accrued wages and
payroll taxes (195,608) (31,983) 166,563
Other accrued expenses (255,986) (1,457,456) (647,164)
Payable to affiliates (4,944,984) (3,364,082) 6,722,045
Accrued warranty reserve (325,000) 48,147 (448,137)
----------- ----------- -----------
8,944,248 6,322,854 6,423,917
----------- ----------- -----------
Net cash provided by
operating activities $ 2,556,171 $ 1,884,434 $ 889,625
=========== =========== ===========
The Accompanying Notes are an Integral Part
of the Combined Financial Statements
</TABLE>
75
<PAGE> 79
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Use of Estimates:
Basis of Presentation:
The combined financial statements include the financial position,
results of operations and cash flows of Eagle Window & Door, Inc. and
Subsidiaries and Taylor Building Products Company (the Companies). All
material intercompany transactions, accounts and balances have been
eliminated.
Each Company is a wholly-owned subsidiary of MascoTech, Inc. Because of
these relationships, the financial statements of the Companies have been
prepared on a combined format as if they were a single entity. In
addition, MascoTech, Inc. performed the Companies' treasury function,
and allocated expenses for various services it provided (See Note 10).
Eagle Window & Door, Inc. and Subsidiaries (Eagle) are engaged in the
manufacture of aluminum clad and all wood windows and doors. Eagle's
primary market is the construction industry. Products are marketed
through various distributors located throughout the United States and
Pacific Rim. Eagle's wholly-owned subsidiaries, Eagle Window & Door of
Bellevue, Inc. and Eagle Service Company are engaged in the sale and
distribution of windows and doors throughout the United States.
The accompanying combined financial statements include the consolidated
accounts of Eagle Window & Door, Inc. and its wholly-owned subsidiaries,
Eagle Window & Door of Bellevue, Inc. and Eagle Service Company. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
Taylor Building Products Company (Taylor) is engaged in the manufacture
of entry and garage doors. The Company markets entry doors under the
brand names of Perma Door and Taylor Door. The Perma Door brand is
primarily marketed through millwork distributors and the Taylor Door
brand is primarily marketed through installing dealers. The Company
markets garage doors under the Taylor Door brand name throughout the
United States.
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.
76
<PAGE> 80
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies and Use of Estimates:
(Continued)
Earnings Per Share:
Historical earnings per share data has not been presented in the
accompanying financial statements due to the subsequent acquisition of
the two (2) Companies by American Architectural Products, Inc. and its
reverse merger with a public reporting company (See Note 13).
Accounts Receivable:
As of December 31, 1995 and 1994, allowances have been established for
potentially uncollectible accounts receivable in the amounts of $445,418
and $648,385, respectively.
Inventory:
Inventory is stated at the lower of cost (first-in, first-out method) or
market. Inventories are reviewed periodically for obsolescence, and an
allowance established to record potentially obsolete inventory at net
realizable value (See Note 3).
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
provided for using the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs that neither materially add
to the value of the property nor appreciably prolong its life are
charged to expense as incurred. Betterments or renewals are capitalized
when incurred. Depreciation expense for the years ended December 31,
1995, 1994 and 1993, was $3,310,040, $3,926,218 and $4,033,723
(unaudited), respectively. Assets are being depreciated over their
estimated useful lives, as follows:
Years
-----
Buildings and improvements 40
Machinery and equipment 6-15
Computer and office equipment 10
Tools, dies and fixtures 3
Income Taxes:
The Companies file their income tax returns on a consolidated basis with
their parent company. All provisions for federal and state income taxes,
including provisions for deferred income taxes, are provided for through
the intercompany accounts.
Advertising:
The cost of advertising is expensed as incurred. Advertising expense
was $1,192,915, $1,426,021 and $890,780 (unaudited), respectively, for
the years ended December 31, 1995, 1994 and 1993.
77
<PAGE> 81
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
2. Concentration of Credit Risk:
The combined Companies maintain cash balances at various financial
institutions. At December 31, 1995 and 1994, the combined Companies have
uninsured cash in the approximate amounts of $670,000 and $734,000,
respectively.
3. Inventory:
As of December 31, 1995 and 1994, inventory consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 7,106,775 $ 8,213,917
Work in process 1,215,724 3,873,183
Finished goods 1,631,594 7,702,083
----------- -----------
9,954,093 19,789,183
Less: provision for obsolete inventory (1,623,500) (1,555,000)
----------- -----------
$ 8,330,593 $18,234,183
=========== ===========
</TABLE>
Included in the allowance for obsolete inventory as of December 31, 1995
is approximately $1,260,000 for future losses from Taylor Building
Products Company's restructuring plan (See Note 7).
4. Property, Plant and Equipment:
As of December 31, 1995 and 1994, property, plant and equipment
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land and improvements $ 407,523 $ 388,690
Buildings and improvements 7,996,419 7,693,066
Machinery and equipment 10,807,526 12,322,099
Computer and office equipment 3,238,291 2,875,659
Tools, dies and fixtures 1,962,048 2,535,934
----------- -----------
24,411,807 25,815,448
Less: accumulated depreciation (15,651,008) (14,971,295)
----------- -----------
$ 8,760,799 $10,844,153
=========== ===========
</TABLE>
78
<PAGE> 82
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
5. Commitments and Contingencies:
Commitments:
The Companies are currently leasing certain office and manufacturing
space in Dubuque, Iowa and West Branch, Michigan under non-cancellable
operating lease agreements which expire through July, 1997. The terms of
the leases provide for combined monthly payments totalling approximately
$12,000. The lease terms also require the Companies to pay common area
maintenance, taxes, insurance and other costs. The Companies are also
leasing equipment under various non-cancellable operating lease
agreements which expire through July, 2000. Rent expense under the
operating lease agreements was $817,418, $927,916 and $837,934
(unaudited), respectively, for the years ended December 31, 1995, 1994
and 1993.
A schedule of future minimum lease payments due under the
non-cancellable operating lease agreements, is as follows:
Year Ended
December 31, Amount
------------ ------
1996 $ 595,370
1997 330,465
1998 221,577
1999 88,472
2000 4,729
----------
$1,240,613
==========
Contingencies:
Environmental Issue:
Based on an evaluation of Eagle's operating facility,
asbestos-containing materials were located in various sections of the
facility. No provision or accrual has been made to provide for any
potential future costs for abatement because, in management's opinion,
they should not have a material adverse effect upon the combined
financial position of the Companies. In connection with the sale of the
Companies to American Architectural Products, Inc. (See Note 13), the
former parent of the Companies agreed to bear certain abatement costs
relating to this matter.
79
<PAGE> 83
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
5. Commitments and Contingencies: (Continued)
Contingencies: (Continued)
Litigation:
At December 31, 1995, the Companies are a party to several lawsuits. The
Companies believe that the lawsuits are without merit and intend to
vigorously defend their position. Therefore, no provision for any
potential losses has been made in the accompanying financial statements,
except for a lawsuit that was settled subsequent to the balance sheet
date for approximately $165,000. A provision for this loss has been
charged to operations in the accompanying financial statements for the
year ended December 31, 1995.
6. Stockholders' Equity:
The stock of Taylor Building Products Company consists of 1,000 shares
of $1 par value common stock authorized, issued and outstanding. The
stock of Eagle Window & Door, Inc. consists of 500,000 shares of $1 par
value common stock authorized, 210,851 shares issued and outstanding.
7. Restructuring Charge:
In September, 1995, Taylor's management adopted a restructuring plan to
address recurring operating losses. The goal of the plan was to reduce
overhead through a plan of business consolidation and simplification.
The major components to the plan were: (1) closure of its satellite
locations in Florida and Texas; (2) elimination of its "non-core"
product lines; and (3) improve the proficiency of its entry and garage
door lines. As a result of the restructuring plan, the Company incurred
costs for loss on the sale and abandonment of fixed assets, severance
pay, and other related costs. The restructuring plan was completed
during the first quarter of 1996.
The restructuring charge for the year ended December 31, 1995, consisted
of the following:
<TABLE>
<S> <C>
Loss on sale and abandonment of
fixed assets $416,131
Severance pay 281,012
Other 142,899
----------
$ 840,042
==========
</TABLE>
80
<PAGE> 84
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
8. Statements of Cash Flows:
Non-Cash Investing and Financing Activities:
During the year ended December 31, 1995, the Companies recognized an
investing activity that affected equity, but did not result in cash
receipts or payments. This non-cash activity consisted of the write off
notes receivable deemed uncollectible in the amount of $344,473.
During the year ended December 31, 1994, the Companies recognized an
investing activity that affected assets and liabilities, but did not
result in cash receipts or payments. This non-cash activity was a
devaluation of fixed assets assigned to the Companies by the parent
company, offset against amounts due to the parent company.
9. Warranty Reserve:
The Companies sell the majority of their products with limited
warranties of two (2) to twenty-five (25) years. At December 31, 1995
and 1994, the accompanying financial statements include a reserve of
$4,824,800 and $5,149,800, respectively, for estimated warranty claims
based on the Companies' historical claims experience.
10. Related Party Transactions:
As of December 31, 1995 and 1994, the Companies had amounts payable to
affiliates of $20,482,654 and $25,427,638, respectively. These
affiliates represent primarily the parent company and subsidiaries of
the parent company. Various shared expenses were charged to the
Companies through the payable to affiliate account. These expenses
included items such as general insurance, health insurance, and workers
compensation insurance, which were charged based on specific
identification of the expense. For the years ended December 31, 1995,
1994 and 1993, total expenses charged to the Companies through specific
identification were $3,588,020, $4,357,726 and $4,527,768 (unaudited),
respectively.
In addition, MascoTech, Inc., the parent company, charged the Companies
a management fee based on budgeted sales for the various operating
subsidiaries. For the years ended December 31, 1995, 1994 and 1993 total
management fees charged to the Companies were $1,314,700, $1,481,200 and
$1,619,400 (unaudited), respectively.
MascoTech, Inc. also provided cash management services for the
Companies. As of December 31, 1995, 1994 and 1993, the Companies had
recorded interest expense relating to the amounts payable to affiliates
of $1,755,177, $2,040,067 and $2,020,414 (unaudited), respectively.
81
<PAGE> 85
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
11. Benefit Plans:
401K Profit Sharing Plan and Pension Plan:
The Companies' former parent sponsored the MascoTech, Inc. Salaried
Savings Plan. All salaried employees of the Company with three (3)
months of service, were eligible to participate in the Plan. The Plan
operated as a 401K Savings Plan. The Plan did not provide for a
discretionary matching or profit sharing contribution. As such, no
expense has been recorded for contributions in the accompanying
financial statements.
The Companies' former parent sponsored the MascoTech, Inc. Master Hourly
Employees' Pension Plan. All hourly employees of the Companies were
eligible to participate in the Plan with participation commencing on the
date of hire. Benefits in the Plan were vested and based on the number
of years of credited service.
Pursuant to the pending sale of the Companies to American Architectural
Products, Inc., in August, 1996, and in accordance with the Stock
Purchase Agreement, coverage under these plans ceased. The seller agreed
to fully vest all participants and pay benefits in the normal course of
the plans. As such, no liability has been reported in the accompanying
combined financial statements for any potential unfunded liabilities.
Post-Retirement Benefits:
Taylor Building Products Company sponsors a post-retirement health
benefit program pursuant to its collective bargaining contract. Under
the principal terms of the contract, the Company will pay a retired
employee with a minimum of ten (10) years service, a benefit of $100 per
month after retirement at age 62. As of the date of the financial
statements, no material post-retirement benefit obligation has been
incurred.
Labor Force:
Most of the hourly employees of Taylor Building Products Company,
comprising approximately eighty-five percent (85%) of the Taylor labor
force, are covered under a collective bargaining agreement. The contract
expired in February, 1997, and was renegotiated for an additional five
(5) years.
82
<PAGE> 86
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (Wholly-Owned Subsidiaries)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
12. Economic Dependency:
For the years ended December 31, 1995, 1994 and 1993 (unaudited), Eagle
Window & Door, Inc. purchased approximately thirty-eight percent (38%),
twenty-four percent (24%), and twenty-five percent (25%) (unaudited),
respectively, of their materials from two (2) suppliers. At December 31,
1995 and 1994, amounts due to the suppliers were $254,584 and $628,768,
respectively.
For the years ended December 31, 1995, 1994 and 1993 (unaudited), Taylor
Building Products Company purchased approximately sixteen percent (16%),
fourteen percent (14%) and ten percent (10%), respectively of their
materials from one (1) supplier. At December 31, 1995 and 1994, amounts
due to the supplier were approximately $452,000 and $434,000,
respectively.
13. Subsequent Event:
Acquisition:
Effective August 29, 1996, the Companies were acquired by American
Architectural Products, Inc. (AAP). On December 18, 1996, American
Architectural Products Holdings, Inc. (AAPH, parent of AAP) consummated
transactions contemplated under an Agreement and Plan of Reorganization
dated October 25, 1996. Under terms of this Agreement, all of the
capital stock of AAP was exchanged by AAPH for a sixty percent (60%)
interest in Forte Computer Easy, Inc. The financial statements do not
give effect to these transactions.
83
<PAGE> 87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Mallyclad Corporation and Vyn-L Corporation
We have audited the accompanying combined balance sheets of Mallyclad
Corporation and Vyn-L Corporation as of June 30, 1996, November 30, 1995 and
November 30, 1994 and the related combined statements of operations and
retained earnings, and cash flows for the seven months ended June 30, 1996 and
the years ended November 30, 1995 and 1994. These combined financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Mallyclad
Corporation and Vyn-L Corporation as of June 30, 1996, November 30, 1995 and
November 30, 1994, and the results of their combined operations and cash flows
for the seven months ended June 30, 1996 and years ended November 30, 1995 and
1994 in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
--------------------
BDO SEIDMAN, LLP
Troy, Michigan
April 28, 1997
84
<PAGE> 88
<TABLE>
<CAPTION>
November 30,
JUNE 30, --------------------
1996 1995 1994
==============================================================================
<S> <C> <C> <C>
ASSETS (Note 3)
CURRENT ASSETS
Cash and equivalents $229,615 $110,599 $ 75,660
Accounts receivable, less allowance for
doubtful accounts of $7,000 in 1996 358,731 530,410 673,627
Refundable income taxes 26,160 26,160 -
Inventories (Note 2) 285,635 430,902 527,475
Prepaid expenses 18,736 22,853 20,848
- ------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 918,877 1,120,924 1,297,610
- ------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Leasehold improvements 128,391 128,391 123,865
Machinery and equipment 2,205,604 2,203,868 2,166,739
Computers and office equipment 87,420 85,184 81,514
- ------------------------------------------------------------------------------
2,421,415 2,417,443 2,372,118
Less accumulated depreciation (2,304,178) (2,268,378) (2,186,494)
- ------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 117,237 149,065 185,624
- ------------------------------------------------------------------------------
OTHER ASSETS 32,896 59,481 64,042
- ------------------------------------------------------------------------------
$1,069,010 $1,329,470 $1,547,276
==============================================================================
</TABLE>
85
<PAGE> 89
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30,
JUNE 30, --------------------
1996 1995 1994
=======================================================================================
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit (Note 3) $ - $ 100,000 $ -
Accounts payable 158,039 280,737 460,372
Accruals
Product claims 46,101 59,556 11,807
Commissions 20,150 28,181 38,974
Compensation 8,647 12,185 42,522
Other 52,103 53,170 76,700
- ---------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 285,040 533,829 630,375
- ---------------------------------------------------------------------------------------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $1 par, authorized 50,000 shares;
outstanding 50,000 shares - Mallyclad Corporation 50,000 50,000 50,000
Common stock, $1 par, authorized 50,000 shares;
outstanding 38,000 shares - Vyn-L Corporation 38,000 38,000 38,000
Retained earnings 695,970 707,641 828,901
- ---------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 783,970 795,641 916,901
- ---------------------------------------------------------------------------------------
$1,069,010 $1,329,470 $1,547,276
=======================================================================================
</TABLE>
See accompanying notes to combined financial statements.
86
<PAGE> 90
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SEVEN
MONTHS Year Ended
ENDED November 30,
JUNE 30, ----------------------
1996 1995 1994
=============================================================================================
<S> <C> <C> <C>
NET SALES $1,915,620 $3,991,882 $4,564,079
COST OF GOODS SOLD 1,596,753 3,520,971 3,792,841
- ---------------------------------------------------------------------------------------------
GROSS PROFIT 318,867 470,911 771,238
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 349,671 648,990 677,656
- ---------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (30,804) (178,079) 93,582
OTHER INCOME - NET 19,133 37,133 46,913
- ---------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME (11,671) (140,946) 140,495
TAX BENEFITS (TAXES ON INCOME) (Note 6) - 20,686 (41,600)
- ---------------------------------------------------------------------------------------------
NET INCOME (LOSS) (11,671) (120,260) 98,895
RETAINED EARNINGS, beginning of period 707,641 828,901 731,006
DIVIDENDS - (1,000) (1,000)
- ---------------------------------------------------------------------------------------------
RETAINED EARNINGS, end of period $ 695,970 $ 707,641 $ 828,901
=============================================================================================
</TABLE>
See accompanying notes to combined financial statements.
87
<PAGE> 91
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN
MONTHS Year Ended
ENDED November 30,
JUNE 30, ---------------------
1996 1995 1994
==============================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (11,671) $(120,260) $ 98,895
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Depreciation and amortization 35,800 81,884 49,882
Changes in operating assets and liabilities
Receivables 171,679 117,057 (188,926)
Inventories 145,267 96,573 (198,249)
Prepaid expenses 4,117 (2,005) 3,500
Other assets 26,585 4,561 3,099
Accounts payable (122,698) (179,635) 171,948
Accruals (26,091) (16,911) 40,525
- ----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 222,988 (18,736) (19,326)
- ----------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to property and equipment (3,972) (45,325) (107,313)
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under
line-of-credit arrangements (100,000) 100,000 (46,719)
Dividends paid - (1,000) (1,000)
- ----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (100,000) 99,000 (47,719)
- ----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 119,016 34,939 (174,358)
CASH AND EQUIVALENTS, at beginning of period 110,599 75,660 250,018
- ----------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, at end of period $ 229,615 $ 110,599 $ 75,660
==============================================================================================
</TABLE>
See accompanying notes to combined financial statements.
88
<PAGE> 92
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF NATURE OF BUSINESS AND BASIS OF PRESENTATION
SIGNIFICANT
ACCOUNTING Mallyclad Corporation (Mallyclad) manufactures vinyl
POLICIES clad steel and aluminum cut to length sheets, primarily for
the construction, appliance and automotive industries.
Vyn-L Corporation (Vyn-L) is a steel and aluminum
processor, performing shearing and forming functions for its
customers.
Mallyclad and Vyn-L ("the Companies") were under common
control and because of these relationships, the financial
statements of the Companies have been prepared on a combined
basis as if they were a single entity. All material
intercompany transactions, accounts and balances have been
eliminated.
USE 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 these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of receivables, payables and accrued
expenses approximate fair value because of the short
maturity of these items. The carrying amounts of notes
payable-bank approximate fair values because the interest
rate varies with the market rate.
CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments
consisting of money market funds.
89
<PAGE> 93
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INVENTORIES
Inventories are stated at the lower of cost or market value
determined on the first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
provided for using accelerated methods over the following
estimated useful lives:
<TABLE>
<CAPTION>
Years
---------------------------------------------------------
<S> <C>
Leasehold improvements 7 - 31
Machinery and equipment 7 - 15
Computers and office equipment 5 - 7
=========================================================
</TABLE>
Depreciation expense for the seven months ended June 30,
1996, and the years ended November 30, 1995 and 1994, was
$35,800, $81,884 and $49,882, respectively.
Expenditures for renewals and betterments are capitalized.
Expenditures for maintenance and repairs are charged against
income as incurred.
REVENUE RECOGNITION
Revenues from sales and the corresponding receivables are
recorded upon the shipment of product to the customer.
INCOME TAXES
The income tax provision is computed using the liability
method. Deferred taxes are recorded for the expected future
tax consequences of temporary differences between the
financial reporting and the tax bases of the Companies'
assets and liabilities.
90
<PAGE> 94
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
2. INVENTORIES Inventories consisted of the following:
<TABLE>
<CAPTION>
November 30,
JUNE 30, -------------------
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Raw materials $198,605 $355,670 $422,175
Finished goods 87,030 75,232 105,300
---------------------------------------------------------
$285,635 $430,902 $527,475
=========================================================
</TABLE>
3. REVOLVING LINE Mallyclad had a $400,000 revolving line of credit secured by
OF CREDIT substantially all of the assets of Mallyclad. The
outstanding borrowings on the line were $-0-, $100,000 and
$-0-, respectively, as of June 30, 1996, November 30, 1995
and 1994. The interest rate on the line was prime plus 1/2
percent. Interest expense was $2,110, $5,086 and $467,
respectively, for the periods ended June 30, 1996, November
30, 1995 and 1994. The revolving line of credit was
terminated in connection with the acquisition of the
Company's common stock (see Note 9).
4. RETIREMENT Mallyclad sponsors a defined contribution retirement plan
PLAN for salaried employees. Employees are eligible to
participate in the Plan one year after employment. Company
contributions are required in the amount of 4.3 percent of
the participant's total compensation plus 4.3 percent of the
participants compensation in excess of $30,000.
Contributions were $17,500, $30,974 and $31,641, respec-
tively, for the periods ended June 30, 1996, November 30,
1995 and 1994.
5. COMMITMENTS The Companies leased their facilities from a related party
under non-cancelable operating lease agreements which
commenced January 1, 1994. The operating lease agreements
are for a term of five years and provide for total monthly
payments of $16,168. Rent expense under the operating lease
agreements for the periods ended June 30, 1996, November 30,
1995 and 1994 was $95,000, $163,000 and $163,000,
respectively.
91
<PAGE> 95
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
6. TAXES ON The benefits (expenses) for income taxes consist of the
INCOME following:
<TABLE>
<CAPTION>
SEVEN
MONTHS Year Ended
ENDED November 30,
JUNE 30, ---------------------
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Current federal $ - $ 20,686 $ (41,600)
Deferred - - -
---------------------------------------------------------
TOTAL $ - $ 20,686 $ (41,600)
=========================================================
</TABLE>
Significant components of deferred taxes consist of deferred
tax assets arising from accrued expenses, allowance for
doubtful accounts and depreciation. Management has recorded
a full valuation allowance against these deferred tax assets
at June 30, 1996, November 30, 1995 and November 30, 1994.
7. MAJOR Two customers, each individually accounting for at least 10%
CUSTOMERS of combined net sales, accounted for 23% of net sales in
1995 and one customer accounted for 16% of net sales in
1994.
8. SUPPLEMENTAL Cash paid for interest for the periods ended June 30, 1996,
CASH FLOW November 30, 1995 and 1994 totaled $2,110, $5,086 and $467,
INFORMATION respectively.
Cash paid for taxes on income for the period ended June 30,
1996, November 30, 1995 and 1994 totaled $-0-, $33,014 and
$39,449, respectively.
9. SUBSEQUENT On June 25, 1996, all of the outstanding stock of the
EVENT Companies was purchased by an individual. On December 18,
1996 Mallyclad and Vyn-L were merged into American
Architectural Products, Inc. (AAP), a Company controlled by
this same individual. These financial statements do not give
effect to these transactions.
92
<PAGE> 96
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
To the Shareholders and Board of Directors of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited in accordance with generally accepted auditing
standards, the August 29, 1996, December 31, 1995 and 1994 financial statements
included in this registration statement, and have issued our reports thereon
dated January 31, 1997. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is the responsibility of the company's management. It is not part of the basic
financial statements. The schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Semple & Cooper, L.L.P.
Phoenix, Arizona
June 23, 1997
<PAGE> 97
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance
Period beginning costs and other at end of
ended Description of period expenses accounts Deductions period
----- ----------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
August 29, 1996 Allowance for doubtful accounts $445,418 $425,595 $ - $79,492 $791,521
December 31, 1995 Allowance for doubtful accounts $648,385 $570,709 $ - $773,676 $445,418
December 31, 1994 Allowance for doubtful accounts $690,184 $836,609 $ - $878,408 $648,385
August 29, 1996 Provision for obsolete inventory $1,623,500 $70,000 $ - $1,218,985 $474,515
December 31, 1995 Provision for obsolete inventory $1,555,000 $462,905 $ - $394,405 $1,623,500
December 31, 1994 Provision for obsolete inventory $250,000 $1,305,000 $ - $ - $1,555,000
</TABLE>
<PAGE> 1
Exhibit 10.6
AAP HOLDINGS, INC.
CAXTON BUILDING #880
812 HURON ROAD
CLEVELAND, OHIO 44115-1126
December 18, 1996
Mr. Frank Amedia, President
Forte Computer Easy, Inc.
1350 Albert Street
Youngstown, OH 44505
Re: Management Fee and Reimbursement of Other Expenses
Dear Frank:
The purpose of this letter is to set forth our understanding and agreement
relating to fees and expenses that are paid by American Architectural Products,
Inc. ("AAP") to its parent and affiliate. Upon the closing of the transactions
described in the Agreement And Plan of Reorganization entered into between
Forte Computer Easy, Inc. ("Forte") and AAP Holdings, Inc. ("Holdings"), dated
October 25, 1996, AAP will become a wholly-owned subsidiary of Forte. After
the completion of that transaction, however, Holdings and its affiliates will
continue to provide management services to AAP. Accordingly, it is agreed by
Forte that, after the Closing, AAP will continue to have the right and the
obligation to pay a management fee of $250,000 during 1997 (the "Management
Fee") and to reimburse Holdings and its affiliates for out-of pocket expenses
(the "Expenses") incurred by them in providing services to AAP.
The Management Fee will be paid by AAP to Holdings and its affiliates during
1997 in accordance with the schedule attached to and made a part of this letter
as EXHIBIT A.
The obligation of AAP to pay the Management Fee will expire on December 31,
1997 unless the Management Fee is continued by the mutual written Agreement of
Forte and Holdings. Furthermore, the Expenses will be reimbursed to Holdings
and its affiliates by AAP as the Expenses are incurred.
After you have had the opportunity to review the contents of this letter,
please contact me if you have any questions or comments. If not, please
acknowledge your acceptance of this understanding and agreement by signing both
copies of this letter where indicated below. One copy is to be retained by you
for your files and the other copy returned to me for our files.
Very truly yours,
AAP HOLDINGS, INC.
/s/ GEORGE S. HOFMEISTER
-----------------------------
George S. Hofmeister, Chairman
AGREED TO AND ACCEPTED BY
FORTE COMPUTER, INC.
By: /s/ FRANK AMEDIA
--------------------------
Frank Amedia, President
Date: December 18, 1996
<PAGE> 2
EXHIBIT A
---------
TO MANAGEMENT FEE LETTER
------------------------
Payment Date Payment Amount
------------ --------------
January 31, 1997 $ 33,333
February 28, 1997 $ 33,333
March 31, 1997 $ 33,334
April 30, 1997 $ 25,000
May 31, 1997 $ 25,000
June 30, 1997 $ 25,000
July 31, 1997 $ 16,666
August 31, 1997 $ 16,667
September 30, 1997 $ 16,667
October 31, 1997 $ 8,333
November 30, 1997 $ 8,333
December 31, 1997 $ 8,334
--------
TOTAL $250,000
========
<PAGE> 1
Exhibit 10.7
AAP HOLDINGS, INC.
Caxton Building #880
812 Huron Road
Cleveland, Ohio 44115-1126
December 18, 1996
Mr. Frank Amedia, President
Forte Computer Easy, Inc.
1350 Albert Street
Youngstown, OH 44505
Re: Forte/AAP: Acquisition Services Agreement
Dear Frank:
The purpose of this letter is to set forth our understanding and agreement
relating to the fees to be paid by Forte Computer Easy, Inc. ("Forte") to AAP
Holdings, Inc. ("Holdings") for the services which Holdings will provide in
1997 to Forte for negotiating and structuring acquisitions and the financing
need for such acquisitions on behalf of Forte (the "Acquisition Fees"). The
amount of each Acquisition Fee to be paid to Holdings by Forte is one percent
(1%) of the "Transaction Price" of each acquisition, and the Acquisition Fee
will be paid at the closing of the respective transaction. The "Transaction
Price" shall mean the aggregate amount paid by Forte (or its affiliate) for the
acquisition in the form of cash, stock, stock options, and/or warrants, debt
instruments, and other liabilities assumed by the acquiring entity including,
but not limited to, accounts payable, accrued liabilities, bank financing, and
other forms of indebtedness.
The obligation of Forte to use the acquisition services offered by Holdings
will expire on December 31, 1997 unless Forte and Holdings agree in writing to
extend this Agreement beyond that date. All Acquisition Fees which have not
been paid by that time will be due and payable on December 31, 1997, except for
Acquisition Fees relating to transactions in progress at the end of 1997 which
close after December 31, 1997. With respect to those transactions, the
Acquisition Fee will be paid in 1998 when those acquisitions are completed.
After you have had the opportunity to review the contents of this letter,
please contact me if you have any questions or comments. If not, please
acknowledge your acceptance of this understanding and agreement by signing both
copies of this letter where indicated below. One copy is to be retained by you
for your files and the other copy returned to me for our files.
Very truly yours,
AAP HOLDINGS, INC.
/s/ GEORGE S. HOFMEISTER
------------------------------
George S. Hofmeister, Chairman
AGREED TO AND ACCEPTED BY
FORTE EASY COMPUTER, INC.
By: /s/ FRANK AMEDIA
----------------------------
Frank Amedia, President
Date: December 18, 1996
<PAGE> 1
EXHIBIT 22
Subsidiaries of Forte Computer Easy, Inc.
- -----------------------------------------
Forte, Inc., an Ohio corporation
American Architectural Products, Inc., a Delaware corporation
Subsidiaries of American Architectural Products, Inc.
- -----------------------------------------------------
Eagle Window & Door of Bellvue, Inc., a Delaware corporation
Eagle Service Co., a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF FORTE COMPUTER EASY, INC. AND SUBSIDIARIES
AS OF DECEMBER 31, 1996 AND FROM THE DATE OF INCEPTION (JUNE 19, 1996) TO
DECEMBER 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-19-1996
<PERIOD-END> DEC-31-1996
<CASH> 964,062
<SECURITIES> 0
<RECEIVABLES> 6,741,694
<ALLOWANCES> 439,000
<INVENTORY> 10,971,144
<CURRENT-ASSETS> 19,366,051
<PP&E> 14,285,159
<DEPRECIATION> 321,315
<TOTAL-ASSETS> 40,568,891
<CURRENT-LIABILITIES> 19,190,317
<BONDS> 17,532,570
<COMMON> 486,058
0
10,000
<OTHER-SE> 1,605,504
<TOTAL-LIABILITY-AND-EQUITY> 40,568,891
<SALES> 25,248,908
<TOTAL-REVENUES> 0
<CGS> 19,026,604
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,059,868
<LOSS-PROVISION> 12,546
<INTEREST-EXPENSE> 755,758
<INCOME-PRETAX> 1,401,089
<INCOME-TAX> 640,000
<INCOME-CONTINUING> 761,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 761,089
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
