<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
July 23, 1998 (June 12, 1998)
AMERICAN COIN MERCHANDISING, INC.
(Exact name of registrant as specified in its charter)
0-26580
(Commission File Number)
DELAWARE 84-1093721
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
5660 CENTRAL AVENUE, BOULDER, COLORADO 80301
(Address of principal executive offices and Zip Code)
(303) 444-2559
Registrant's telephone number, including area code
<PAGE> 2
This Amendment No. 1 to the Current Report of American Coin Merchandising,
Inc. ("Registrant" or the "Company") on Form 8-K dated July 10, 1998 (the
"Report"), relates to the Company's purchase of the assets of each of Suncoast
Toys, Inc., Oregon Coin Company and NW Toys Co. (collectively, the "Sellers")
pursuant to the Asset Purchase and Sale Agreements (the "Purchase Agreements"),
by and between the Company and each of the Sellers for an aggregate purchase
price of $30 million, including inventory. The purpose of this Amendment is to
amend Item 7(a) to provide the financial statements of the Sellers and Item 7(b)
to provide the required pro forma financial information relating to the business
combination between the Company and the Sellers on June 12, 1998 which were
impracticable to provide at the time the Registrant initially filed this Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired. See Exhibit 99.5 for
Sellers' financial statements.
(b) Pro Forma Financial Information. The pro forma financial information
is being filed herewith:
The following unaudited pro forma financial statements assume a business
combination between the Company and the Sellers accounted for using the purchase
method of accounting. The pro forma financial statements are based on historical
financial statements and the notes thereto of the Company included in the annual
report on Form 10-K for the year ended December 31, 1997 and the quarterly
report on Form 10-Q for the three months ended March 31, 1998 and the historical
financial statements and notes thereto of the Sellers' included herein.
The pro forma balance sheet combines the Company's March 31, 1998 balance
sheet with the Sellers' March 31, 1998 combined balance sheet, giving effect to
the acquisition of the Sellers, accounted for as a purchase, as if it had
occurred on March 31, 1998. The pro forma statements of earnings combines the
Company's historical statements of earnings for the year ended December 31, 1997
and the three months ended March 31, 1998 with the Sellers' historical results
of operations for the same periods giving effect to the acquisition of the
Sellers, accounted for as a purchase, as if it had occurred on January 1, 1997.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the purchase had been consummated on such dates, nor
is it necessarily indicative of future operating results or financial position.
Such information is subject to the assumptions set forth in the notes to the pro
forma financial statements.
These pro forma financial statements should be read in conjunction with
the historical financial statements and the related notes thereto of the Company
and the historical combined financial statements and the notes thereto of the
Sellers included herein.
2
<PAGE> 3
AMERICAN COIN MERCHANDISING, INC.
PRO FORMA FINANCIAL STATEMENTS
BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED ADJUSTMENTS FOR
SUNCOAST THE ACQUISITION
TOYS, INC., OF SUNCOAST
HISTORICAL NW TOYS TOYS, INC., NW
AMERICAN COIN CO. AND TOY CO. AND
MERCHANDISING, OREGON TOY OREGON TOY
INC. COMPANY COMPANY PRO FORMA
-------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 2,251 8,577 (8,577)(a) 2,251
Trade accounts and other receivables ............................... 643 140 (140)(a) 643
Inventories ........................................................ 6,433 1,713 (170)(a) 7,976
Note receivable .................................................... -- 350 (350)(a) --
Prepaid expenses and other assets .................................. 687 262 (262)(a) 687
-------- -------- -------- --------
Total current assets .......................................... 10,014 11,042 (9,499) 11,557
-------- -------- -------- --------
Property and equipment, at cost:
Vending machines .............................................. 26,236 4,405 (4,405)(b) 28,655
2,419 (b)
Vehicles ...................................................... 5,314 412 (412)(b) 5,531
217(b)
Office equipment, furniture and fixtures ...................... 1,481 93 (93)(b) 1,499
18(b)
-------- -------- -------- --------
33,031 4,910 (2,256) 35,685
Less: accumulated depreciation ................................ (8,637) (3,180) 3,180(b) (8,637)
-------- -------- -------- --------
Property and equipment, net ............................... 24,394 1,730 924 27,048
Placement fees, net of accumulated amortization .................... 285 -- 285
Cost in excess of assets acquired, net of accumulated
amortization .................................................... 9,478 -- 25,846(c) 35,324
Other assets ....................................................... 54 43 (43)(a) 54
-------- -------- -------- --------
Total assets .................................................. $ 44,225 12,815 17,228 74,268
======== ======== ======== ========
Current liabilities:
Current portion of long-term debt .................................. $ 1,277 -- 1,277
Notes payable to Control Group ..................................... 337 -- 337
Income taxes payable ............................................... 465 -- 465
Accounts payable ................................................... 2,636 1,211 (1,211)(a) 2,636
Accrued commissions ................................................ 1,011 -- 1,011
Other accrued expenses ............................................. 602 251 (251)(a) 602
-------- -------- -------- --------
Total current liabilities ..................................... 6,328 1,462 (1,462) 6,328
Long-term debt, net of current portion ............................. 6,602 -- 30,043(d) 36,645
Deferred income taxes .............................................. 421 -- 421
-------- -------- -------- --------
Total liabilities ............................................. 13,351 1,462 28,581 43,394
Stockholders' equity:
Preferred stock ................................................ -- -- --
Common stock ................................................... 65 53 (53)(e) 65
Additional paid-in-capital ..................................... 21,943 20 (20)(e) 21,943
Unearned stock option compensation ............................. (15) -- (15)
Retained earnings .............................................. 8,881 11,280 (11,280)(e) 8,881
-------- -------- -------- --------
Total stockholders' equity ..................................... 30,874 11,353 (11,353) 30,874
-------- -------- -------- --------
Commitments
Total liabilities and stockholders' equity ..................... $ 44,225 12,815 17,228 74,268
======== ======== ======== ========
</TABLE>
3
<PAGE> 4
AMERICAN COIN MERCHANDISING, INC.
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED ADJUSTMENTS FOR
SUNCOAST THE ACQUISITION
TOYS, INC., OF SUNCOAST
HISTORICAL NW TOYS TOYS, INC., NW
AMERICAN COIN CO. AND TOY CO. AND
MERCHANDISING, OREGON TOY OREGON TOY
INC. COMPANY COMPANY PRO FORMA
-------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C>
Revenue:
Vending ..................................... $ 52,866 18,726 71,592
Franchise and other ......................... 6,218 1,156 7,374
-------- -------- ------- --------
Total revenue ........................... 59,084 19,882 78,966
-------- -------- ------- --------
Cost of revenue:
Vending ..................................... 37,506 12,795 (792)(f) 50,040
531(f)
Franchise and other ......................... 3,967 491 4,458
-------- -------- ------- --------
Total cost of revenue ................... 41,473 13,286 (261) 54,498
Gross profit ............................ 17,611 6,596 261 24,468
General and administrative expenses .............. 10,314 2,523 1,292(g) 14,129
-------- -------- ------- --------
Operating earnings .......................... 7,297 4,073 (1,031) 10,339
Interest expense, related parties ................ 76 -- 76
Interest expense (income), other, net ............ 536 (336) 2,554(h) 2,754
-------- -------- ------- --------
Earnings before taxes ....................... 6,685 4,409 (3,585) 7,509
Provision for income taxes ....................... 2,256 -- 278(i) 2,534
-------- -------- ------- --------
Net earnings ................................ $ 4,429 4,409 (3,863) 4,975
======== ======== ======= ========
</TABLE>
4
<PAGE> 5
AMERICAN COIN MERCHANDISING, INC.
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED ADJUSTMENTS FOR
SUNCOAST THE ACQUISITION
TOYS, INC., OF SUNCOAST
HISTORICAL NW TOYS TOYS, INC., NW
AMERICAN COIN CO. AND TOY CO. AND
MERCHANDISING, OREGON TOY OREGON TOY
INC. COMPANY COMPANY PRO FORMA
-------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C>
Revenue:
Vending ................................. $ 17,615 5,266 22,881
Franchise and other ................ 1,146 85 1,231
-------- ------- ------- --------
Total revenue ................ 18,761 5,351 24,112
Cost of revenue:
Vending ............................ 12,614 3,570 (198)(f) 16,119
133(f)
Franchise and other ................ 680 64 744
-------- ------- ------- --------
Total cost of revenue ........ 13,294 3,634 (65) 16,863
Gross profit ................. 5,467 1,717 65 7,249
General and administrative expenses ..... 3,526 521 323(g) 4,370
-------- ------- ------- --------
Operating earnings ................. 1,941 1,196 (258) 2,879
Interest expense, related parties ....... 11 -- 11
Interest expense (income), other, net ... 107 (112) 638(h) 633
-------- ------- ------- --------
Earnings before taxes .............. 1,823 1,308 (896) 2,235
Provision for income taxes .............. 638 -- 144(i) 782
-------- ------- ------- --------
Net earnings ....................... $ 1,185 1,308 (1,040) 1,453
======== ======= ======= ========
</TABLE>
- --------------------------
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) Represents the elimination of certain historical working capital items of
the Sellers, as the Company's purchase of working capital is limited to
inventory, which was approximately $1,543,000 at the purchase date. The
calculation of inventory acquired is based on an estimate of the fair value
of the inventory acquired.
(b) Represents the elimination of historical property and equipment items of
the Sellers, and the recording of the fair value of such property and
equipment acquired. Fair value is based on management's estimates.
(c) Represents the purchase price in excess of the fair value of the net assets
acquired and net liabilities assumed.
(d) Represents borrowings under the Company's credit facility to finance the
purchase.
(e) Represents the elimination of the historical equity accounts of the
Sellers, as a result of the acquisition.
(f) Represents the adjustments to depreciation expense as a result of the
impacts of presenting the property and equipment at fair value and the
change in depreciation methods from an accelerated method used by the
Sellers to the straight-line method used by the Company.
(g) Represents the amortization of costs in excess of assets acquired.
Amortization expense is computed on a straight-line basis over periods that
are consistent with the Company's stated accounting policy.
(h) Represents interest expense as a result of the increased borrowings under
the Company's credit facility to finance the purchase. Interest expense on
such borrowings is calculated using an assumed interest rate of 8.5%.
(i) Represents additional income tax expense for: (i) the income of the
Sellers, as no income tax expense has historically been included in the
financial statements of the Sellers as the Sellers are S Corporations, and
(ii) the tax benefits of increased interest. Income tax expense is computed
using the statutory income tax rate.
5
<PAGE> 6
(c) Exhibits.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Press Release, dated as of June 1, 1998 entitled
"American Coin Merchandising signs agreements to acquire its largest
franchisees; will add approximately 1,300 skill-crane machines."
(Filed as an exhibit to the Company's Form 8-K filed on June 2,
1998, and incorporated herein by reference.)
99.2 Asset Purchase and Sale Agreement, effective May 29,
1998, between American Coin Merchandising, Inc. and Suncoast Toys,
Inc. (Filed as an exhibit to the Company's Form 8-K filed on June 2
1998, and incorporated herein by reference.)
99.3 Asset Purchase and Sale Agreement, effective May 29,
1998, between American Coin Merchandising, Inc. and Oregon Coin
Company. (Filed as an exhibit to the Company's Form 8-K filed on
June 2, 1998, and incorporated herein by reference.)
99.4 Asset Purchase and Sale Agreement, effective May 29,
1998, between American Coin Merchandising, Inc. and NW Toys Co.
(Filed as an exhibit to the Company's Form 8-K filed on June 2,
1998, and incorporated herein by reference.)
99.5 Suncoast Toys, Inc., NW Toys Co. and Oregon Coin
Company combined financial statements at December 31, 1996 and 1997
and for each of the three years in the period ended December 31,
1997 and at March 31, 1998 (unaudited) and for the three months
ended March 31, 1997 and 1998 (unaudited).
6
<PAGE> 7
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated July 23, 1998
AMERICAN COIN MERCHANDISING, INC.
By: /s/ W. John Cash
---------------------------------
W. John Cash
Its: Vice President, Chief Financial
Officer and Treasurer
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Press Release, dated as of June 1, 1998 entitled "American
Coin Merchandising signs agreements to acquire its largest
franchisees; will add approximately 1,300 skill-crane
machines." (Filed as an exhibit to the Company's Form 8-K
filed on June 2, 1998, and incorporated herein by
reference.)
99.2 Asset Purchase and Sale Agreement, effective May 29, 1998,
between American Coin Merchandising, Inc. and Suncoast Toys,
Inc. (Filed as an exhibit to the Company's Form 8-K filed on
June 2 1998, and incorporated herein by reference.)
99.3 Asset Purchase and Sale Agreement, effective May 29, 1998,
between American Coin Merchandising, Inc. and Oregon Coin
Company. (Filed as an exhibit to the Company's Form 8-K
filed on June 2, 1998, and incorporated herein by
reference.)
99.4 Asset Purchase and Sale Agreement, effective May 29, 1998,
between American Coin Merchandising, Inc. and NW Toys Co.
(Filed as an exhibit to the Company's Form 8-K filed on June
2, 1998, and incorporated herein by reference.)
99.5 Suncoast Toys, Inc., NW Toys Co. and Oregon Coin Company
combined financial statements at December 31, 1996 and 1997
and for each of the three years in the period ended December
31, 1997 and at March 31, 1998 (unaudited) and for the three
months ended March 31, 1997 and 1998 (unaudited).
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
American Coin Merchandising, Inc. on Form S-8 (File No. 333-40095) of our
report dated May 20, 1998, on our audits of the combined financial statements
of Suncoast Toys, Inc., NW Toys Co., and Oregon Coin Company as of December 31,
1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995, which
report is included in this report on Form 8-K.
Tampa, Florida PRICEWATERHOUSECOOPERS LLP
July 22, 1998
<PAGE> 1
EXHIBIT 99.5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Suncoast Toys, Inc., NW Toys Co., and Oregon Coin Company
We have audited the accompanying combined balance sheets of Suncoast
Toys, Inc., NW Toys Co., and Oregon Coin Company as of December 31, 1996 and
1997, and the related combined statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Sellers' management.
Our responsibility is to express an opinion on these 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 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 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
Suncoast Toys, Inc., NW Toys Co., and Oregon Coin Company as of December 31,
1996 and 1997, and the combined results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
As discussed in Note 8 to the combined financial statements, in May
1998 the Sellers and their stockholders entered into an agreement with American
Coin Merchandising, Inc. providing for the sale of certain assets and the
business operations of the Sellers to American Coin Merchandising, Inc.
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
May 20, 1998
1
<PAGE> 2
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------- MARCH 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $3,334,872 $ 5,916,750 $ 8,577,348
Trade accounts and other receivables ............... 491,673 254,100 139,610
Inventories ........................................ 3,006,576 2,264,543 1,712,720
Prepaid expenses and other current assets .......... 261,635 267,198 262,560
Note receivable .................................... 0 500,000 350,000
---------- ----------- -----------
Total current assets ............................. 7,094,756 9,202,591 11,042,238
Property and equipment, net ........................... 1,938,690 1,857,354 1,729,661
Other assets .......................................... 43,015 43,015 43,015
---------- ----------- -----------
Total assets ................................... $9,076,461 $11,102,960 $12,814,914
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ 46,930 $ 605,750 $ 1,211,188
Accrued expenses ................................... 488,855 452,364 250,805
---------- ----------- -----------
Total current liabilities ........................ 535,785 1,058,114 1,461,993
---------- ----------- -----------
Commitments (Note 5)
Stockholders' equity:
Common stock ....................................... 53,200 53,200 53,200
Additional paid-in capital ......................... 19,800 19,800 19,800
Retained earnings .................................. 8,467,676 9,971,846 11,279,921
---------- ----------- -----------
Total stockholders' equity ....................... 8,540,676 10,044,846 11,352,921
---------- ----------- -----------
Total liabilities and stockholders' equity ....... $9,076,461 $11,102,960 $12,814,914
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
2
<PAGE> 3
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- --------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Vending .................................. $18,462,142 $18,714,470 $18,725,699 $5,235,605 $5,266,078
Other .................................... 778,721 1,964,667 1,155,842 417,803 84,457
----------- ----------- ----------- ---------- ----------
Total revenues ......................... 19,240,863 20,679,137 19,881,541 5,653,408 5,350,535
----------- ----------- ----------- ---------- ----------
Cost of revenues:
Vending .................................. 12,224,715 12,985,261 12,795,243 3,566,912 3,569,667
Other .................................... 528,868 354,844 490,352 180,375 64,251
----------- ----------- ----------- ---------- ----------
Total cost of revenues ................. 12,753,583 13,340,105 13,285,595 3,747,287 3,633,918
----------- ----------- ----------- ---------- ----------
Gross profit ........................... 6,487,280 7,339,032 6,595,946 1,906,121 1,716,617
Selling, general and administrative
expenses ................................. 1,990,110 2,381,848 2,522,954 529,755 521,150
----------- ----------- ----------- ---------- ----------
Income from operations ................. 4,497,170 4,957,184 4,072,992 1,376,366 1,195,467
Interest income ............................. 168,212 189,427 336,178 64,861 112,608
----------- ----------- ----------- ---------- ----------
Net income ............................. $ 4,665,382 $ 5,146,611 $ 4,409,170 $1,441,227 $1,308,075
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
3
<PAGE> 4
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 ......................... $53,200 $19,800 $ 4,205,683 $ 4,278,683
Net income .................................... 0 0 4,665,382 4,665,382
Stockholder distributions ..................... 0 0 (1,580,000) (1,580,000)
------- ------- ------------ ------------
Balance, December 31, 1995 ....................... 53,200 19,800 7,291,065 7,364,065
Net income .................................... 0 0 5,146,611 5,146,611
Stockholder distributions ..................... 0 0 (3,970,000) (3,970,000)
------- ------- ------------ ------------
Balance, December 31, 1996 ....................... 53,200 19,800 8,467,676 8,540,676
Net income .................................... 0 0 4,409,170 4,409,170
Stockholder distributions ..................... 0 0 (2,905,000) (2,905,000)
------- ------- ------------ ------------
Balance, December 31, 1997 ....................... 53,200 19,800 9,971,846 10,044,846
Net income (unaudited) ........................ 0 0 1,308,075 1,308,075
Balance, March 31, 1998 (unaudited) .............. $53,200 $19,800 $ 11,279,921 $ 11,352,921
======= ======= ============ ============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
4
<PAGE> 5
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 4,665,382 $ 5,146,611 $ 4,409,170 $ 1,441,227 $ 1,308,075
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ..................................... 667,754 795,074 791,824 156,540 170,818
Changes in operating assets and
liabilities:
Trade accounts and other receivables ........... 630,373 (296,821) 237,573 37,776 114,490
Inventories .................................... (1,238,644) (612,582) 742,033 74,295 551,823
Prepaid expenses and other current ............. 14,157 (249,918) (5,563) 14,497 4,638
assets
Accounts payable ............................... (326,914) (4,660) 558,820 83,543 605,438
Accrued expenses ............................... 92,570 (127,476) (36,491) (342,663) (201,559)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities .... 4,504,678 4,650,228 6,697,366 1,465,215 2,553,723
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net ........... (1,321,173) (743,084) (710,488) (92,632) (43,125)
(Additions) payments note receivable ............... 16,740 0 (500,000) 0 150,000
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities ........ (1,304,433) (743,084) (1,210,488) (92,632) 106,875
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Stockholder distributions .......................... (1,580,000) (3,970,000) (2,905,000) (320,000) 0
Payment of note payable ............................ (136,472) 0 0 0 0
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities ....... (1,716,472) (3,970,000) (2,905,000) (320,000) 0
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents .. 1,483,773 (62,856) 2,581,878 1,052,583 2,660,598
Cash and cash equivalents, beginning of period ........ 1,913,955 3,397,728 3,334,872 3,334,872 5,916,750
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period .............. $ 3,397,728 $ 3,334,872 $ 5,916,750 $ 4,387,455 $ 8,577,348
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
5
<PAGE> 6
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
DESCRIPTION OF BUSINESS - Suncoast Toys, Inc., NW Toys Co., and Oregon
Coin Company (the Sellers) own and operate coin-operated skill-crane machines
that dispense stuffed animals, plush toys, watches, jewelry and other items. The
Sellers' machines are placed in supermarkets, mass merchandisers, bars,
restaurants, warehouse clubs and similar locations in franchised territories in
Florida, Washington, and Oregon.
BASIS OF PRESENTATION - The accompanying financial statements present
the combined financial statements of the Sellers. The Sellers operate under
common ownership and their financial statements have been combined to provide a
more meaningful presentation of the financial position, results of operations
and cash flows of these entities. All significant intercompany balances and
transactions have been eliminated in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUES - Vending revenue represents cash receipts from customers
using vending machines and is recognized when collected. The cost of vending is
comprised primarily of the cost of products vended through the machines, the
servicing of machines and commissions and royalties paid to retail locations and
the Sellers' franchisor. Other revenue represents bulk product sales to third
parties which are recognized upon shipment.
FRANCHISE EXPENSES - The Sellers are required to pay continuing
royalties of 2.5-3.5% of gross machine revenues (subject to certain maximums and
other adjustments as provided in the franchise agreement) to the franchisor.
Royalties were approximately $300,000, $318,000, and $350,000 for the years
ended December 31, 1995, 1996, and 1997, respectively. In addition, the Sellers
purchased from the franchisor vending products of approximately $1,102,000,
$689,000, and $610,000 during the years ended December 31, 1995, 1996, and 1997,
respectively.
CASH AND CASH EQUIVALENTS - The Sellers consider all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out method. Inventories consist of
purchased items ready for resale or use in vending operations.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed using accelerated methods, based upon estimated useful
lives of five to seven years. Expenditures for maintenance and repairs are
charged to expense as incurred, whereas major betterments are capitalized. Gains
and losses on sales and retirements are included in other income and expense,
respectively.
INCOME TAXES - The Sellers have each elected to be taxed as an "S"
corporation for federal and state income tax purposes. Accordingly, the
stockholders are liable for federal and state income taxes.
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 income and expenses during
the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION - The financial statements of the Sellers
as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 are
unaudited. All adjustments and accruals (consisting only of normal recurring
adjustments) have been recorded that, in the opinion of management, are
necessary for a fair presentation. Results of operations for the interim period
are not necessarily indicative of the results for the full year.
3. NOTE RECEIVABLE:
The note receivable consists of a $500,000 demand note entered into in
1997 with one of the Sellers' suppliers. Interest is accrued at 10% and the
principal balance is payable on demand.
6
<PAGE> 7
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Vending equipment ...................... $ 3,868,046 $ 4,360,896
Vehicles ............................... 277,142 412,138
Furniture, fixtures and equipment ...... 80,564 92,791
----------- -----------
4,225,752 4,865,825
Less accumulated depreciation .......... (2,287,062) (3,008,471)
----------- -----------
$ 1,938,690 $ 1,857,354
=========== ===========
</TABLE>
Depreciation expense was approximately $668,000, $795,000, and $792,000
for the years ended December 31, 1995, 1996, and 1997, respectively.
5. COMMITMENTS:
Certain properties used in the Sellers' operations are leased under
operating leases. Total rent expense under operating leases was approximately
$90,000, $84,000, and $70,000 for the years ended December 31, 1995, 1996, and
1997, respectively. Future minimum rentals under operating leases with terms of
more than one year as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.......................................... $ 75,213
1999.......................................... 29,835
2000.......................................... 9,235
</TABLE>
6. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES:
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
subject the Sellers to concentrations of credit risk consist principally of cash
and cash equivalents and trade accounts and note receivables.
The Sellers place substantially all of their cash and cash equivalents
with Wells Fargo Bank. At December 31, 1997, the Sellers had approximately
$5,349,000, including amounts representing outstanding checks, deposited with
Wells Fargo Bank.
Concentrations of credit risk with respect to trade accounts and note
receivables exist as a result of transactions with a small number of entities in
the same business as the Sellers. Accordingly, management evaluates each
entity's credit worthiness before extending them credit.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS SUPPLIERS -
Substantially all of the plush toys and other products dispensed from the
machines are produced by foreign manufacturers. A majority are purchased
directly by the Sellers from manufacturers in the People's Republic of China
(China). The Sellers purchase their other products indirectly from vendors and
the Sellers' franchisor who obtain a significant percentage of such products
from foreign manufacturers. As a result, the Sellers are subject to changes in
governmental policies, the imposition of tariffs, import and export controls,
transportation delays and interruptions, political and economic disruptions and
labor strikes which could disrupt the supply of products from such
manufacturers. Among other things, the loss of China's "most favored nation"
status under U.S. tariff laws could result in a substantial increase in the
import duty of certain products manufactured in China, which could result in
substantially increased costs for certain products purchased by the Sellers
which could have a material adverse effect on the Sellers' financial
performance.
7
<PAGE> 8
7. COMMON STOCK:
Common stock consisted of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
SHARES SHARES
AUTHORIZED ISSUED
---------- ------
<S> <C> <C>
Suncoast Toys, Inc., $1.00 par ................... 1,000 200
NW Toys Co., no par .............................. 10,000 100
Oregon Coin Company, no par ...................... 500 100
</TABLE>
8. SUBSEQUENT EVENT:
In May 1998, the Sellers and their stockholders entered into an
agreement with American Coin Merchandising, Inc. providing for the sale of
certain assets and the business operations of the Sellers to American Coin
Merchandising, Inc. The sale is expected to close in June 1998.
8
<PAGE> 9
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL INFORMATION
Our report on the audits of the combined financial statements of
Suncoast Toys, Inc., NW Toys Co., and Oregon Coin Company as of December 31,
1996 and 1997 and for each of the three years in the period ended December 31,
1997 appears elsewhere herein. These audits were conducted for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
combining balance sheet and combining statement of income as of and for the year
ended December 31, 1997 are presented for purposes of additional analysis and
are not a required part of the basic combined financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic combined financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the basic combined financial
statements taken as a whole. This information should be read in conjunction with
the last paragraph of our report which appears elsewhere herein.
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
May 20, 1998
9
<PAGE> 10
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINING BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
SUNCOAST OREGON COIN ELIMINATION
TOYS, INC. NW TOYS CO. COMPANY ENTRIES COMBINED
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ........................ $ 660,903 $4,017,814 $1,238,033 $ 0 $ 5,916,750
Trade accounts and other receivables ............. 863,021 57,933 1,427 (668,281) 254,100
Inventories ...................................... 1,854,138 269,950 157,169 (16,714) 2,264,543
Prepaid expenses and other current assets ........ 17,218 227,628 22,352 0 267,198
Note receivable .................................. 500,000 0 0 0 500,000
---------- ---------- ---------- --------- -----------
Total current assets ........................... 3,895,280 4,573,325 1,418,981 (684,995) 9,202,591
Property and equipment, net ......................... 703,079 736,446 417,829 0 1,857,354
Other assets ........................................ 43,015 0 0 0 43,015
---------- ---------- ---------- --------- -----------
Total assets ................................... $4,641,374 $5,309,771 $1,836,810 $(684,995) $11,102,960
========== ========== ========== ========= ===========
Current liabilities:
Accounts payable ................................. $ 433,456 $ 492,360 $ 333,959 $(654,025) $ 605,750
Accrued expenses ................................. 419,564 17,291 15,509 0 452,364
---------- ---------- ---------- --------- -----------
Total current liabilities ...................... 853,020 509,651 349,468 (654,025) 1,058,114
---------- ---------- ---------- --------- -----------
Stockholders' equity:
Common stock ..................................... 200 1,000 52,000 0 53,200
Additional paid in capital ....................... 19,800 0 0 0 19,800
Retained earnings ................................ 3,768,354 4,799,120 1,435,342 (30,970) 9,971,846
---------- ---------- ---------- --------- -----------
Total stockholders' equity ..................... 3,788,354 4,800,120 1,487,342 (30,970) 10,044,846
---------- ---------- ---------- --------- -----------
Total liabilities and stockholders' equity ..... $4,641,374 $5,309,771 $1,836,810 $(684,995) $11,102,960
========== ========== ========== ========= ===========
</TABLE>
10
<PAGE> 11
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINING STATEMENT OF INCOME
for the year ended December 31, 1997
<TABLE>
<CAPTION>
SUNCOAST OREGON COIN ELIMINATION
TOYS, INC. NW TOYS CO. COMPANY ENTRIES COMBINED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Vending ....................................... $ 4,563,364 $9,759,035 $4,403,300 $ 0 $18,725,699
Other ......................................... 7,525,617 6,411 2,116 (6,378,302) 1,155,842
----------- ---------- ---------- ----------- -----------
Total revenues .............................. 12,088,981 9,765,446 4,405,416 (6,378,302) 19,881,541
----------- ---------- ---------- ----------- -----------
Cost of revenues:
Vending ....................................... 3,330,448 6,395,942 3,068,853 0 12,795,243
Other ......................................... 5,005,419 0 0 4,515,067 490,352
----------- ---------- ---------- ----------- -----------
Total cost of revenues ...................... 8,335,867 6,395,942 3,068,853 4,515,067 13,285,595
----------- ---------- ---------- ----------- -----------
Gross profit ................................ 3,753,114 3,369,504 1,336,563 (1,863,235) 6,595,946
Selling, general and administrative expenses ..... 1,730,716 1,652,263 1,014,614 1,874,639 2,522,954
----------- ---------- ---------- ----------- -----------
Income from operations ...................... 2,022,398 1,717,241 321,949 11,404 4,072,992
Interest income .................................. 119,404 172,947 43,827 0 336,178
----------- ---------- ---------- ----------- -----------
Net income .................................. $ 2,141,802 $1,890,188 $ 365,776 $ 11,404 $ 4,409,170
=========== ========== ========== =========== ===========
</TABLE>
11
