<PAGE> 1
FORM 10-Q/A
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from ____________ to ___________.
Commission file number 0-25634
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(Exact name of business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization
(IRS Employer Identification No.) 87-0365268
755 Boardman-Canfield Road
South Bridge Executive Center
Building G West
Boardman, Ohio 44512
(330) 965-9910
Forte Computer Easy, Inc.
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
<PAGE> 2
past 90 days. Yes (X) No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common stock, $.001 par value, 4,860,579 shares outstanding at
March 31, 1997
Series A Convertible Preferred Stock, $.01 par value (which is
convertible into common stock), 1,000,000 shares outstanding at
March 31, 1997
<PAGE> 3
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
FORM 10-Q/A
INDEX
Page
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
American Architectural Products Corporation
- For the three months ended March 31, 1997 1-6
Eagle Window & Door, Inc. and Subsidiaries
and Taylor Building Products Company
- For the three months ended March 31, 1996 7-10
Mallyclad Corp. and Vyn-L Corporation
- For the three months ended February 28, 1996 11-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-18
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS UNAUDITED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 635,533 $ 964,062
Accounts receivable, net 7,241,255 6,302,694
Inventories 12,149,696 10,971,144
Prepaid expenses and other current assets 1,465,316 1,128,151
----------- -----------
Total Current Assets 21,491,800 19,366,051
NONCURRENT ASSETS:
Cost in excess of net assets acquired, net of amortization 6,787,359 6,850,059
Property, plant & equipment, net 16,962,696 16,138,844
Deposits and other assets 499,316 388,937
----------- -----------
Total Noncurrent Assets 24,249,371 23,377,840
----------- -----------
Total Assets $45,741,171 $42,743,891
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,806,412 $ 7,229,303
Accrued expenses 2,937,214 3,397,618
Accrued warranty obligations--current portion 1,100,000 1,100,000
Current maturities of long-term debt 3,071,816 1,497,653
Note payable--bank 7,891,369 5,476,759
Current portion of capital lease obligations 488,984 488,984
----------- -----------
Total Current Liabilities 22,295,795 19,190,317
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 14,588,164 14,478,317
Long-term capital lease obligations, less current portion 1,137,277 1,067,616
Accrued warranty obligations, less current portion 3,237,171 3,281,079
Accrued postretirement benefits 450,000 450,000
Other liabilities 270,901 0
----------- -----------
Total Long-Term Liabilities 19,683,513 19,277,012
----------- -----------
Total Liabilities 41,979,308 38,467,329
STOCKHOLDERS' EQUITY:
Preferred stock, Series A convertible, $.01 par, authorized
20,000,000 shares; outstanding 1,000,000 shares 10,000 10,000
Common stock, $.001 par, authorized 100,000,000 shares;
outstanding 4,860,579 shares 4,861 4,861
Additional paid-in capital 3,670,612 3,670,612
Retained Earnings 76,390 591,089
----------- -----------
Total Stockholders' Equity 3,761,863 4,276,562
----------- -----------
Total Liabilities & Stockholders' Equity $45,741,171 $42,743,891
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 1
<PAGE> 5
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
UNAUDITED
<TABLE>
<S> <C>
Net Sales $ 16,641,339
Cost of Sales 13,522,998
------------
Gross Profit 3,118,341
Selling Expense 1,502,168
General and Administrative Expenses 1,846,532
------------
Loss from Operations (230,359)
Interest Expense, net 614,760
Other Expense 12,587
------------
Loss Before Income Tax Benefit (857,706)
Income Tax Benefit (343,007)
------------
Net Loss ($514,699)
Retained earnings, beginning 591,089
------------
Retained earnings, ending $ 76,390
============
Net Loss Per Share ($0.04)
============
Weighted Average Shares Outstanding 12,581,054
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE> 6
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
UNAUDITED
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 514,699)
Adjustments to reconcile net loss to cash from
operating activities-
Depreciation 534,953
Amortization 97,983
Changes in operating assets and liabilities:
Accounts receivable, net (402,237)
Inventories (245,364)
Prepaid expenses and other current assets 168,560
Accounts payable (818,839)
Accrued expenses (762,070)
Other (363,289)
-----------
Net cash used in operating activities (2,305,002)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired (969,556)
Financing and acquisition costs (45,247)
Purchase of property and equipment (192,252)
-----------
Net cash used in investing activities (1,207,055)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term notes 1,100,000
Repayment of term notes (194,743)
Capital lease payments (136,339)
Net borrowings under a line of credit 2,414,610
-----------
Net cash provided by financing activities 3,183,528
Net Decrease in Cash (328,529)
Cash, beginning of period 964,062
-----------
Cash, end of period $ 635,533
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE> 7
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
American Architectural Products Corporation (AAPC or the Company - formerly
known as Forte Computer Easy, Inc.) is principally engaged in the business of
manufacturing residential, commercial and architectural windows and doors
through its wholly owned subsidiaries, Eagle & Taylor Company (formerly known as
American Architectural Products, Inc.-AAP), Forte, Inc. (Forte) and Western
Insulated Glass, Co. (Western).
The unaudited consolidated financial statements include the accounts of AAPC and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations have been made.
Operating results for interim periods are not necessarily indicative of results
that may be expected for a full year. The information included in this Form 10-Q
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements and
notes thereto of Forte Computer Easy, Inc. and Subsidiaries from the date of
inception (June 19, 1996) to December 31, 1996 included in the Company's annual
report on Form 10-K.
The preparation of financial statements in accordance 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 may differ from these estimates.
2. Recapitalization and Acquisitions:
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. 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. The consideration exchanged in this transaction was
recorded at estimated fair value which was determined based on the estimated
fair value of the securities of AAP which were obtained by the FCEI
stockholders in the reverse acquisition, an assessment to the trading prices
of FCEI stock preceding the reverse acquisition, and the appraised value of
the FCEI assets acquired. FCEI subsequently changed its name to American
Architectural Products Corporation to more accurately reflect the nature of
its ongoing business.
After discussion with the staff of the Securities and Exchange Commission, the
accompanying financial statements have been restated to reflect a revision to
the valuation of the consideration in the reverse acquisition. The effect of
the restatement was to increase assets and stockholders' equity at March 31,
1997 by approximately $2,149,000, and to decrease net income for the three
months ended March 31, 1997 by approximately $26,000.
Page 4
<PAGE> 8
AAP was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired Eagle Window and Door, Inc. (Eagle Window) and Taylor
Building Products Company (Taylor) on August 29, 1996. Eagle Window 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. AAP subsequently changed its name to Eagle & Taylor
Company.
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.
On March 14, 1997, the Company acquired the stock of Western. Western is based
in Phoenix, Arizona and manufactures custom residential aluminum windows and
doors. The acquisition was accounted for as a purchase. The purchase price
approximated $2,400,000 and was allocated to net assets acquired based on
estimated fair market values including current assets of $1,976,000, property
and equipment and other noncurrent assets of $961,000, and current liabilities
of $537,000. Notes to sellers approximating $779,000 were used to finance a
portion of the acquisition. Additionally, Western was financed with term notes
of $200,000 and $900,000 bearing interest at the prime rate plus 1.5% and the
prime rate plus 2.5%, respectively. The $200,000 note is payable in equal
monthly installments over four years. The $900,000 note is payable in equal
monthly installments over three years. Western also has a $1,000,000 revolving
line of credit bearing interest at the prime rate plus 1%. The term notes and
the revolving line of credit are secured by substantially all of the assets of
Western. The accounts of Western are included in the accompanying financial
statements from the March 14, 1997 acquisition date.
The following pro forma information for the three months ended March 31, 1996
has been prepared assuming that the acquisitions of FCEI, Eagle Window and
Taylor, Mallyclad and Vyn-L, and Western had occurred at the beginning of that
period. The following pro forma information for the three months ended March 31,
1997 has been prepared assuming that the acquisition of Western had occurred at
the beginning of that period. 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
acquisition, and adjustments for income taxes. The pro forma earnings per share
information reflects the effects of the recapitalization described above as well
as the reverse stock split described in Note 5.
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
-------- --------
<S> <C> <C>
(In thousands, except per share data)
Sales $ 17,664 $ 15,304
Net loss (447) (1,731)
Loss per share (0.04) (0.14)
</TABLE>
Page 5
<PAGE> 9
3. Net Loss Per Share
Net loss per share is based on the weighted average number of common shares
outstanding, adjusted to reflect the number of shares issued upon the conversion
of all of the Series A Preferred (which, based on its terms, the Company
considers to be common stock in substance) and the weighted average number of
shares that the Company is obligated to issue to an officer. The antidilutive
effect of stock options is not considered in the net loss per share calculation.
4. Inventories
Inventories at March 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Raw materials $ 8,865,226
Work-in-process 1,322,183
Finished goods 1,962,287
-----------
$12,149,696
===========
</TABLE>
5. Subsequent events
At a special shareholders' meeting held on April 1, 1997, the Company's
shareholders approved the Forte Computer Easy, Inc. 1996 Stock Option Plan and
approved the reincorporation of the Company in Delaware. Consequences of the
reincorporation plan include the change of the Company's name to American
Architectural Products Corporation; an increase in the authorized common stock
of the Company to 100,000,000 shares; a 10 for 1 reverse stock split of the
Company's common stock; the conversion of 1,000,000 shares of Series A
Preferred held by AAPH into 7,548,632 shares of common stock; and the issuance
of 171,842 shares of common stock to an officer to satisfy a commitment of the
Company. The reincorporation did not result in any substantive change to the
Company's business, assets, liabilities, net worth or operations, nor did it
result in any change in the ownership interest of any stockholder of the
Company. The computations of net loss per share give retroactive recognition to
the change in capital structure for all periods presented.
In April 1997, the Company received proceeds of $325,000 from the private
placement of 3,250 shares of Series B Cumulative Redeemable Convertible
Preferred Stock (the Series B Preferred). The Series B Preferred accrues
cumulative dividends at the annual rate of $8.00 per share commencing July 1,
1998 payable either in cash or common stock at the election of the Company. Each
share of Series B Preferred is convertible, at the option of the holder, into
shares of common stock. The redemption price of $100 per share of Series B
Preferred plus any cumulative unpaid dividends can be used to purchase shares of
common stock at market value. However, a discount from the current market value
of Common Stock will be applicable if the holder exercises conversion rights
prior to August 31, 1997.
Page 6
<PAGE> 10
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
COMBINED BALANCE SHEET
MARCH 31, 1996
UNAUDITED
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 39,956
Accounts receivable, net 5,162,821
Inventory 8,242,463
Prepaid expenses and other current assets 343,474
------------
Total Current Assets 13,788,714
NONCURRENT ASSETS:
Property, plant & equipment, net 8,110,463
------------
Total Assets $ 21,899,177
============
LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 2,125,943
Accrued expenses 1,971,268
Accrued warranty reserve, short-term portion 1,479,000
------------
Total Current Liabilities 5,576,211
LONG-TERM LIABILITIES:
Payable to affiliates 18,850,735
Accrued warranty reserve, long-term portion 3,170,800
------------
Total Long-Term Liabilities 22,021,535
------------
Total Liabilities 27,597,746
STOCKHOLDER'S EQUITY (DEFICIT):
Capital Stock 211,851
Additional paid in capital 26,510,382
Accumulated deficit (32,420,802)
------------
Total Stockholder's Equity (Deficit) (5,698,569)
------------
Total Liabilities & Stockholder's Equity (Deficit) $ 21,899,177
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 7
<PAGE> 11
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
COMBINED STATEMENT OF INCOME AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1996
UNAUDITED
<TABLE>
<S> <C>
Net Sales $ 12,057,493
Cost of Sales 11,237,495
------------
Gross Profit 819,998
Selling Expense 1,519,534
General and Administrative Expenses 1,173,742
------------
Loss from Operations (1,873,278)
Interest Expense 428,445
Other Income (206,460)
------------
Loss Before Income Tax Benefit (2,095,263)
Income Tax Benefit (733,386)
------------
Net Loss (1,361,877)
Accumulated deficit, beginning of period (31,058,925)
------------
Accumulated deficit, end of period ($32,420,802)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 8
<PAGE> 12
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
COMBINED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
UNAUDITED
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,361,877)
Adjustment to reconcile net loss to cash from
operating activities-
Depreciation 801,483
Interest expense contributed to
capital by Parent Company 428,445
Changes in assets and liabilities:
Accounts receivable - trade 2,877,541
Payable to affiliates (2,038,642)
Inventories 88,159
Prepaid and other current assets (116,997)
Accounts payable (872,412)
Accrued expenses (113,329)
Other liabilities (147,345)
-----------
Net cash from operating activities (454,974)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (400,091)
-----------
Net cash from investing activities (400,091)
Net Decrease in Cash (855,065)
Cash, beginning of period 895,021
-----------
Cash, end of period $ 39,956
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 9
<PAGE> 13
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited combined financial statements include the accounts of
Eagle Window & Door, Inc. and Subsidiaries and Taylor Building Products Company,
wholly owned subsidiaries of MascoTech, Inc. (the Companies). All significant
intercompany accounts and transactions have been eliminated. In the opinion of
management, all adjustments (consisting only of recurring adjustments) necessary
for a fair presentation of financial position and results of operations have
been made. Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results for a full year. These unaudited interim
financial statements should be read in conjunction with the financial statements
and notes thereto of the Companies for the year ended December 31, 1995 and for
the eight month period ended August 29, 1996.
On 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 60
percent interest in Forte Computer Easy, Inc. The financial statements do not
give effect to these transactions.
The preparation of financial statements in accordance 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 may differ from these estimates.
2. Inventories
At March 31, 1996, inventories consisted of the following:
<TABLE>
<S> <C>
Raw materials $6,125,463
Work-in-process 984,700
Finished goods 1,132,300
----------
$8,242,463
==========
</TABLE>
Page 10
<PAGE> 14
MALLYCLAD CORP. AND VYN-L CORPORATION
COMBINED BALANCE SHEET
FEBRUARY 28, 1996
UNAUDITED
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 180,454
Accounts receivable, net 564,593
Inventories 314,633
Prepaids and other assets 38,504
----------
Total Current Assets 1,098,184
NONCURRENT ASSETS:
Property and equipment, net 134,064
Other assets 50,160
----------
Total Noncurrent Assets 184,224
----------
Total Assets $1,282,408
==========
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 212,241
Accrued expenses 156,379
Revolving line of credit 61,989
----------
Total Liabilities 430,609
STOCKHOLDER'S EQUITY:
Capital Stock 88,000
Retained Earnings 763,799
----------
Total Stockholder's Equity 851,799
----------
Total Liabilities & Stockholder's Equity $1,282,408
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 11
<PAGE> 15
MALLYCLAD CORP. AND VYN-L CORPORATION
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1996
UNAUDITED
<TABLE>
<S> <C>
Net Sales $ 1,087,457
Cost of Goods Sold 754,757
-----------
Gross Profit 332,700
Selling, General & Administrative Expense 274,723
-----------
Income from Operations 57,977
Interest Expense, net 2,285
Other Income (466)
-----------
Net Income 56,158
Retained earnings, beginning 707,641
-----------
Retained earnings, ending $ 763,799
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 12
<PAGE> 16
MALLYCLAD CORP. AND VYN-L CORPORATION
COMBINED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1996
UNAUDITED
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 56,158
Adjustment to reconcile net income to cash
from operating activities-
Depreciation 15,001
Changes in operating assets and liabilities:
Accounts receivable 1,298
Inventories 116,269
Prepaid expenses (15,651)
Accounts payable (68,496)
Accrued expenses 3,287
---------
Net cash from operating activities 107,866
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of revolving line of credit (38,011)
---------
Net cash from financing activities (38,011)
Net Increase in Cash 69,855
Cash, beginning of period 110,599
---------
Cash, end of period $ 180,454
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 13
<PAGE> 17
MALLYCLAD CORP. AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited combined financial statements include the accounts of
Mallyclad Corp. and Vyn-L Corporation, entities under common ownership (the
Companies). All significant intercompany accounts and transactions have been
eliminated. In the opinion of management, all adjustments (consisting only of
recurring adjustments) necessary for a fair presentation of financial position
and results of operations have been made. Operating results for the three months
ended February 28, 1996 are not necessarily indicative of the results for a full
fiscal year. These unaudited interim financial statements should be read in
conjunction with the financial statements and notes thereto of the Companies for
the fiscal year ended November 30, 1995 and for the seven months ended June 30,
1996.
On June 25, 1996, all of the issued and outstanding stock of the Companies was
purchased by an individual. On December 18, 1996 the Companies were merged into
American Architectural Products, Inc.(AAP), a company controlled by this same
individual. Also 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 60
percent interest in Forte Computer Easy, Inc. The financial statements do not
give effect to these transactions.
The preparation of financial statements in accordance 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 may differ from these estimates.
2. Inventories
At February 28, 1996, inventories consisted of the following:
<TABLE>
<S> <C>
Raw materials $214,533
Finished goods 100,100
--------
$314,633
========
</TABLE>
Page 14
<PAGE> 18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
BACKGROUND
American Architectural Products Corporation (AAPC or the Company), formerly
known as 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 Eagle & Taylor Company, Forte,
Inc. (Forte), and Western Insulated Glass, Co. (Western).
On April 1, 1997, the Company's shareholders approved a reincorporation plan.
The reincorporation plan amended the Company's name from Forte Computer Easy,
Inc. to American Architectural Products Corporation. The Company revised its
name to more accurately reflect the current nature of its business. The
reincorporation plan also organized the Company under the laws of Delaware. The
Company was previously organized under the laws of Utah. 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.
The shareholders also approved the Company's incentive stock option plan.
Additionally, the reincorporation plan included a 10 for 1 reverse stock split
and an increase in the number of authorized shares. Each share of common stock
of Forte Computer Easy, Inc. shall be changed and converted into one-tenth
(0.1) of a share of common stock of AAPC. The Series A Convertible Preferred
Stock of Forte Computer Easy, Inc. was changed and converted into 7,548,632
shares of common stock of AAPC.
The reincorporation was approved at a special shareholders' meeting in
Youngstown, Ohio, the Company's corporate headquarters.
Immediately prior to December 18, 1996, FCEI had a single wholly-owned operating
subsidiary,
Page 15
<PAGE> 19
Forte, Inc. 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., FCEI acquired all of the issued and outstanding shares of
capital stock of AAP Holdings, Inc.'s wholly-owned subsidiary, American
Architectural Products, Inc. (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 was 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). Therefore, the 1996 first quarter results include the
results of AAP (i.e. the predecessor) but exclude the results of FCEI.
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. 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 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.
As a result of the acquisitions discussed above, and the related differences in
cost bases of the assets and liabilities of the Company after the acquisitions
and the cost bases of the predecessors, the results of the operations for 1996
and 1997 are not comparable. Such lack of comparability is explained in the
discussion below.
AMERICAN ARCHITECTURAL PRODUCTS CORP.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 (1) 1996 (2)
------------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT FOOTNOTES)
<S> <C> <C> <C> <C>
Sales $ 16,641 100.00% $ 13,145 100.00%
Cost of sales 13,523 81.26% 11,992 91.23%
------------------- -------------------
Gross profit 3,118 18.74% 1,153 8.77%
Selling, general and administrative expenses 3,349 20.12% 2,968 22.58%
------------------- -------------------
Operating loss (230) -1.38% (1,815) -13.81%
Interest expense 615 3.70% 430 3.27%
Other (income) expense 13 0.08% (207) -1.57%
------------------- -------------------
Loss before income tax benefit (858) -5.16% (2,038) -15.51%
Income tax benefit (343) -2.06% (733) -5.58%
------------------- -------------------
Net loss ($ 515) -3.09% ($ 1,305) -9.93%
=================== ===================
</TABLE>
(1) Financial data for the three months ended March 31, 1997 were derived from
the consolidated financial statements of American Architectural Products
Corporation for that period.
(2) Financial data for the three months ended March 31, 1996 are that of the
predecessors and were derived from the combined financial statements of Eagle
and Taylor for that period, and the combined financial statements of Mallyclad
and Vyn-L for the three months ended February 28, 1996. Because the financial
data of the predecessors are presented on cost bases different from that of the
Company after the acquisitions, the March 31, 1996 financial data are not
comparable to the 1997 financial data.
Page 16
<PAGE> 20
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenues. Revenues increased 27% to $16,641,000 for the three months ended
March 31, 1997, compared to $13,145,000 for the comparable period in 1996. The
increase is attributable to increased volume for both the Eagle and Taylor
divisions. The increase was also affected by contributions from Forte and
Western which were not reflected for the three months ended 1996. These
operations provided an additional $663,000 in revenues, approximately 4% of
consolidated AAPC sales for the period ending March 31, 1997.
Gross Profit. Gross profit increased 170% to $3,118,000 for the three month
period ended March 31, 1997, compared to $1,153,000 for the comparable period in
1996. The gross margin increased from 9% to 19% for the three months ended
March 31, 1997 compared to the period ending March 31, 1996. The overall
increase in total gross profit for the three months ended March 31, 1997, is
attributable to increased operating efficiencies at Eagle and Taylor's operating
facilities and the increased volume noted above. The gross margin of 19% for
the three months ended March 31, 1997 consists of an average margin of 21% at
the Eagle, Taylor and Mallyclad operating units offset by a 2% effect of a
negative margin at Forte. The negative margin at Forte resulted from lower
sales volume.
Selling General and Administrative costs. Selling general and administrative
costs ("S,G&A") increased to $3,349,000 for the three months ended March 31,
1997, compared to $2,968,000 for the comparable period in 1996. The 13% increase
in 1997 is due in part to the increased business activity for both Eagle and
Taylor. S,G&A as a percent of sales was 20.1% in 1997 compared to 22.6% in 1996.
Forte and Western facilities comprised nearly $195,000 or 51% of the $381,000
increase between years.
Interest Expense. Interest expense increased to $615,000 for the three months
ended March 31, 1997, compared to $430,000 for the comparable period in 1996.
The increase in interest expense is attributable to new debt incurred to
consummate the acquisition of Eagle and Taylor during the third quarter of 1996.
The previous parent of these entities allocated interest to Eagle and Taylor
during the three months ended March 31, 1996 based on amounts payable to
affiliates. Accordingly, interest expense for the period ending March 31, 1996
is not comparable. Forte and Western also contributed approximately $110,000 or
18% of the $615,000 interest expense for the three months ended March 31, 1997.
Income Taxes. The Company has recorded an income tax benefit of $343,000 on a
loss before taxes of $858,000 for the three month period ended March 31, 1997.
The income tax benefit has been recorded an an effective rate of 40%. Prior to
the acquisitions, Eagle and Taylor were included in the consolidated income
tax return of their parent which recorded income taxes in their accounts at
the parent's prescribed effective tax rate. Accordingly, income taxes for the
period ending March 31, 1996 are not indicative of the amounts that would have
been recorded on a separate basis and are not comparable.
Page 17
<PAGE> 21
Net Loss. The net loss decreased 61% to $515,000 for the three months ended
March 31, 1997, compared to $1,305,000 for the comparable period in 1996. The
factors cited above were responsible for the decrease in net loss of the
Company. Accordingly, the net loss for the period ending March 31, 1996 is not
indicative of the amount that would have been recorded on a stand-alone basis
and is not comparable.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997 the Company had $635,000 in cash. Net cash decreased
approximately $329,000 for the first three months of fiscal 1997. Cash used in
operating activities was approximately $2.3 million due primarily to the affect
of a net loss, increases in accounts receivable, inventories, and a
decrease in accounts payable and accrued expenses.
Investing activities used cash in the amount of $1.2 million during the three
months ended March 31, 1997 primarily from the acquisition of Western, capital
expenditures, and financing costs. Net cash provided from financing activities
in the amount of $3.2 million consisted primarily of $2.4 million of proceeds
received from the Company's various line of credit facilities and $1.1 million
of proceeds from term notes which were partially offset by capital lease and
debt payments. These proceeds were used to fund general operating expenses and
as part of the cash payment for the Western acquisition.
The Company will continue to pursue 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. There can be no assurance that
additional financing will be available or that, such financing will be on terms
favorable to the Company.
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, experience inclement weather during the winter months
which 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 occur during the first and fourth quarters which is
consistent with the general cycle of the building products industry. Because a
high percentage of the Company's manufacturing overhead and operating expenses
are relatively fixed throughout the year, operating income has 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.
Page 18
<PAGE> 22
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) The Company filed the following reports on Form 8-K during the period from
January 1, 1997 to March 31, 1997.
- - January 2, 1997 Form 8-K was filed reporting the completion of the merger
between AAP Holdings, Inc. and FCEI which was consummated on December
18, 1996.
- - February 21, 1997 Form 8-K was filed reporting the resignation of Semple &
Cooper, P.L.C. as independent auditors.
- - February 21, 1997 Form 8-K was filed reporting BDO Seidman LLP as
independent auditors for the fiscal year 1997.
- - March 31, 1997 Form 8-K was filed reporting the acquisition of Western
Insulated Glass, Co.
Page 19
<PAGE> 23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Date: September 10, 1997 /s/ FRANK J. AMEDIA
---------------------
Frank J. Amedia
President, Chief Executive Officer
/s/ RICHARD L. KOVACH
---------------------
Richard L. Kovach
Chief Financial Officer
Page 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 635,533
<SECURITIES> 0
<RECEIVABLES> 7,760,255
<ALLOWANCES> 519,000
<INVENTORY> 12,149,696
<CURRENT-ASSETS> 21,491,800
<PP&E> 17,818,589
<DEPRECIATION> 855,893
<TOTAL-ASSETS> 45,741,171
<CURRENT-LIABILITIES> 22,295,795
<BONDS> 19,286,241
<COMMON> 4,861
0
10,000
<OTHER-SE> 3,747,002
<TOTAL-LIABILITY-AND-EQUITY> 45,741,171
<SALES> 16,641,339
<TOTAL-REVENUES> 0
<CGS> 13,522,998
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,348,700
<LOSS-PROVISION> 80,000
<INTEREST-EXPENSE> 614,760
<INCOME-PRETAX> (857,706)
<INCOME-TAX> (343,007)
<INCOME-CONTINUING> (514,699)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (514,699)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
