<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: March 31, 1997
--
REGENCY AFFILIATES, INC.
-----------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 1-7949 72-0888772
- -------------------------------------- --------------------- ---------------------
(State or Other Jurisdiction of Incor- (Commission File No.) (IRS Employer
poration or Organization) Identification Number)
10 Winged Foot Drive, Novato, CA 94949
- ---------------------------------------- ---------------
(Address of Principal Executive Offices) (Zip Code)
10842 Old Mill Rd., #5. Omaha, NB 68154
- ---------------------------------------- ----------------
(Address of Administrative Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number (executive office), including Area Code: (415)
883-8046
Registrant's Telephone Number (administrative office), including Area Code:
(402) 330-8750
Not Applicable
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
FORM 8-K
Item 1. Changes in Control of Registrant.
Not Applicable.
Item 2. Acquisition or Disposition of Assets.
(a) On March 17, 1997, the Registrant purchased substantially all the
assets of Rustic Crafts Co., Inc., a Pennsylvania corporation, through a new
wholly-owned subsidiary, Rustic Crafts International, Inc., a Delaware
corporation. The purchase price for the acquisition consisted of a cash payment
of $1,100,000, plus the issuance of 100,000 shares of the common stock, $0.40
par value, of the Registrant. In addition, the Registrant paid approximately
$201,000 to discharge bank debt of the Seller, and the Registrant assumed trade
payable obligations of the Seller. Prior to the acquisition, selling persons had
no relationship with the Registrant, any of its affiliates, any director or
officer of the Registrant, or any associate of such director or officer. Funds
used by the Registrant for the acquisition were taken from the Registrant's
existing bank deposits.
(b) The Seller of the assets, Rustic Crafts Co., Inc., manufactured and
sold specialty electric fireplaces, decorative wood and marble fireplace
mantels, fireplace accessories and other home furnishings. In connection with
the purchase, Registrant's subsidiary acquired all of the inventory, plant,
equipment and other fixed assets of the Seller. Registrant intends to continue
using the assets to operate the acquired business.
Item 3. Bankruptcy or Receivership.
Not Applicable.
Item 4. Changes in the Registrant's Certifying Accountant.
Not Applicable.
Item 5. Other Events.
Not Applicable.
Item 6. Resignations of Registrant's Directors.
Not Applicable.
Item 7. Financial Statements and Exhibits.
The following pages contain the information required by Item 7(a). In
particular, attached are the audited financial statements of Rustic Crafts Co.,
Inc. for the three years ended March 31, 1996, 1995 and 1994. Also attached is
the unaudited compilation report of Rustic Crafts Co., Inc. for the nine months
ended December 31, 1996. Pro forma financial information will be supplied
through a subsequent amendment to the Form 8-K.
<PAGE> 3
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 duly authorized officer.
REGENCY AFFILIATES, INC.
March 31, 1997 By: /s/ Pamlyn Kelly, Ph.D.
--- -----------------------------
Pamlyn Kelly, Ph.D.
President
<PAGE> 4
FINANCIAL STATEMENTS
RUSTIC CRAFTS CO., INC.
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 5
RUSTIC CRAFT. CO., INC.
FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996, 1995, AND 1994
<TABLE>
CONTENTS
<S> <C>
Report of Independent Auditors .......................................... 1
Audited Financial Statements
Balance Sheets .......................................................... 2
Statements of Income and Retained Earnings .............................. 4
Statements of Cash Flows ................................................ 5
Notes to Financial Statements ........................................... 6
</TABLE>
<PAGE> 6
RAINEY & RAINEY
--------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Report of Independent Auditors
The Board of Directors and Shareholders
Rustic Crafts Co., Inc.
We have audited the accompanying balance sheets of Rustic Crafts Co., Inc. as of
March 31, 1996, 1995, and 1994. and the related statements of income and
retained earnings, and cash flows for the years then ended. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Rustic Crafts Co., Inc. at
March 31, 1996, 1995, and 1994, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Rainey & Rainey
January 16, 1997
Dunmore, Pennsylvania
Richard P. Rainey, CPA
Thomas P. Rainey, CPA
203 North Blakely Street, Dunmore, PA 18512
---------------------------------------------------
Phone (717) 343-9867 FAX (717)343-3001
<PAGE> 7
<TABLE>
RUSTIC CRAFTS CO., INC.
BALANCE SHEETS
<CAPTION>
March 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,336 $ 18,277 $ 12,904
Accounts receivable, Less allowance of $16,565
in 1996 142,880 170,059 133,223
Inventories:
Finished products 424,331 409,803 186,293
Work in process 61,080 26,692 29,112
Raw materials and supplies 165,146 169,276 151,734
----------------------------------------
650,557 605,771 367,139
----------------------------------------
Other current liabilities 80,167 47,412 85,693
----------------------------------------
Total current assets 877,940 841,519 598,959
Property, plant, and equipment:
Autos and trucks 50,945 50,945 50,945
Machinery and equipment 115,284 113,205 111,825
Furniture and fixtures 50,624 50,624 41,278
Leasehold improvements 83,059 73,999 57,585
----------------------------------------
299,912 288,773 261,633
Accumulated depreciation and amortizations 253,354 247,846 228,265
----------------------------------------
46,558 40,927 33,368
Goodwill 30,000 32,500 35,000
----------------------------------------
Total assets $954,498 $914,946 $667,327
========================================
</TABLE>
See accompanying notes.
2
<PAGE> 8
<TABLE>
RUSTIC CRAFTS CO., INC,
BALANCE SHEETS
<CAPTION>
March 31
1996 1995 1994
---------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $230,225 $134,671 $ 80,407
Accrued wages and taxes 12,033 13,261 29,985
Accrued bonus 50,000 60,000 55,200
Accrued expenses 5,011 2,444 2,117
Loan from shareholders -- 17,789 17,789
Line of credit 195,000 214,000 30,000
Current portion of long-term debt 27,110 23,046 19,792
----------------------------------
519,379 465,211 235,290
Long-term debt, less current portion 50,273 84,667 115,675
Shareholders' equity:
Authorized shares - 1,000
Issued and outstanding shares - 1,000 1,000 1,000 1,000
Retained earnings 383,846 364,068 315,362
----------------------------------
Total shareholders' equity 384,846 365,068 316,362
----------------------------------
Total liabilities and shareholders' equity $954,498 $914,946 $667,327
==================================
</TABLE>
See accompanying notes.
3
<PAGE> 9
RUSTIC CRAFTS CO., INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Years ended March 31
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
NET SALES $2,671,699 $2,548,201 $2,210,406
Cost of products sold 1,761,385 1,670,981 1,424,342
Selling and administrative expenses 720,929 671,583 575,085
Other (income) expense: 10,479 (19,468) 12,927
-----------------------------------------
2,492,793 2,323,096 2,012,354
-----------------------------------------
Income form operations before income
taxes and nonoperating expenses 178,906 225,105 198,052
Nonoperating expense
Related party expenses 151,821 164,899 102,551
-----------------------------------------
Income before income taxes 27,085 60,206 95,501
Income taxes 7,307 11,500 29,968
-----------------------------------------
Net income $ 19,778 $ 48,706 $ 65,533
=========================================
Retained earnings, beginning of year $ 364,068 $ 315,362 $ 249,829
Net income 19,778 48,706 65,533
-----------------------------------------
Retained earnings, end of year $ 383,846 $ 364,068 $ 315,362
=========================================
</TABLE>
See accompanying notes.
4
<PAGE> 10
RUSTIC CRAFTS CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31
1996 1995 1994
-----------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 19,778 $ 48,706 $ 65,533
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,757 22,080 20,497
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable 27,179 (36,836) (5,405)
Inventories (44,786) (238,632) (112,535)
Other current assets (35,504) 38,281 (33,226)
Accounts payable 95,554 54,265 31,805
Accrued wages and taxes (1,228) (16,724) 20,214
Accrued bonus (10,000) 4,800 5,200
Accrued expenses 2,567 327 (3,359)
------------------------------------
Net cash provided by operating activities 64,317 (123,733) (11,276)
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (11,139) (27,140) (37,271)
------------------------------------
Net cash used in investing activities (11,139) (27,140) (37,271)
FINANCING ACTIVITIES
Net change in short-term borrowings (19,000) 184,000 30,000
Payment of long-term debt (48,119) (27,754) (1,071)
------------------------------------
Net cash provided (used) by financing activities (67,119) 156,246 28,929
Net increase (decrease) in cash and cash equivalents (13,941) 5,373 (19,618)
Cash and cash equivalents at beginning of year 18,277 12,904 32,522
------------------------------------
Cash and cash equivalents at end of year $ 4,336 $ 18,277 $ 12,904
====================================
</TABLE>
See accompanying notes.
5
<PAGE> 11
RUSTIC CRAFTS CO., INC. .
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
1. Summary of Significant Accounting Policies
Rustic Crafts Co,, Inc, (the Company) significant accounting policies
conform to generally accepted accounting principles applied on a consistent
basis between years.
Nature of Operations: The Company is a manufacturer of wood and cast marble
decorative electric fireplaces and electric fireplace and heater logs, as
well as a wholesaler of various accessories related to the manufactured
product. The Company sells its products to mass merchants, fireplace
specialty distributors, furniture stores and export businesses who sell the
Company's product to the general public.
Fiscal Year: The Company's fiscal years end on March 31 of each year.
Accounts Receivable: Accounts receivable consist of all balances due from
purchases of the Company's product. A provision for bad debts is provided
for accounts which are determined to be uncollectible. The provision for
bad debts included in the financial statements is $16,565 for the year
ended March 31, 1996. No provision for bad debts is provided for the years
ended March 31, 1995 and March 31, 1994.
Inventories: Inventories are stated at the lower of cost or market using
the specific identification method. Work in process and finished goods are
valued using current cost of materials and labor to date multiplied by the
percentage of completion. Material and labor costs are determined using the
latest costs available at the end of the accounting period.
Prepaid expenses: Prepaid expenses consists of costs incurred and paid at
the balance sheet date which provides benefits into future accounting
periods.
Property and Equipment: Property and equipment are recorded at cost, less
any impairment losses relating to FAS 121. Capitalized amounts include
expenditures which materially extend the useful lives of existing
facilities and equipment.
Depreciation and amortization: Depreciation and amortization are computed
based upon the estimated useful lives of the respective assets using the
modified accelerated cost recovery method prescribed by the Internal
Revenue Code. The general range of lives are eighteen to thirty nine years
for leasehold improvements and five to twelve years for autos, machinery,
equipment, furniture and fixtures. Depreciation expense amounted to $5,508,
$19,581, and $17,996 for the years ended March 31, 1996, 1995, and 1994
respectively.
<PAGE> 12
RUSTIC CRAFTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
1. Summary of Significant Accounting Policies (continued)
Goodwill: Goodwill represents costs capitalized related to the original
acquisition of the Company by the current shareholders. Goodwill is being
amortized over 30 years using the straight line method of amortization.
Statement of cash flows: The Company considers all highly liquid
investments with a maturity of three months or less when purchased cash
equivalents. Cash expended for the payment of interest expense was $38,638,
32,058, 17,794 for the years ended March 31, 1996, 1995, and 1994
respectively, while cash outlays for taxes was $19,774, $22,386, and
$16,500 for the years ended March 31, 1996, 1995, and 1994 respectively.
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 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 estimated.
2. Notes Payable, Lines of Credit and Other Commitments and Contingencies
The Company had a $150,000 unsecured operating line of credit which matured
on May 31, 1994. At March 31, 1994 the interest on the line of credit was
charged at 7.25% per annum. This line of credit was replaced on June 20,
1994 by a secured $350,000 working capital line of credit. This line of
credit was increased on August 16, 1995 to $400,000. The line of credit
matured annually on June 13th of each year and has been extended through
May 31, 1997. The line bears interest at the National Prime Rate plus one
and one-quarter percentage points (1.25%). The interest rate from inception
of the lines of credit through March 31, 1996 ranged from 9% to 10.25%.
On August 8, 1995 the Company secured an additional $100,000 committed
line of credit available for working capital needs. This line expired on
November 30, 1996. The line of credit bore interest at the National Prime
Rate plus three quarters percentage point (.75%). The interest rate from
inception to the expiration of the line of credit ranged from 9% to 9.5%.
On February 22, 1994 the Company executed a promissory note in the amount
of $118,836 which matures February 15, 1999. The rate of interest on the
note is 8%. Equal monthly installment payments are due over 60 periods of
$2,413.84.
<PAGE> 13
RUSTIC CRAFTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
2. Notes Payable, Lines of Credit and other Commitments and Contingencies
(continued)
On July 19, 1993 the Company entered into an installment sale agreement for
the purchase of an automobile. The term of the agreement was for five
years and the note bore interest at the rate of 8%. Principal and interest
of $474.91 are due monthly.
Balances outstanding on each debt facility were as follows:
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
$150,000 Line of Credit $ $ $ 30,000
$400,000 Line of Credit 195,000 214,000
$100,000 Line of Credit
Promissory Note 74,853 96,758 116,977
Auto Loan 2,530 10,955 18,490
- --------- -------- -------- --------
Total $272,383 $321,713 $165,467
Portion due within one year 222.1lO 237,046 49,792
- --------------------------- -------- -------- --------
Long term debt $ 50,273 $ 84,667 $115,675
======== ======== ========
Minimum principal payments due on the loans over the next five years are as
follows:
<S> <C> <C>
3/31/97 $ 222,110
3/31/98 24,106
3/31/99 26,167
</TABLE>
The borrowing base on the $400,000 line of credit is calculated as: a)
80% of accounts receivable less than 90 days old; b) 20% of raw materials
and 50% of finished goods; and (c) 20% of the book value of equipment.
The lines of credit as well as the note contain restrictive financial and
operating covenants over the Company's operations.
<PAGE> 14
RUSTIC CRAFTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31,1996, 1995 AND 1994
3. Related Party Leasing Transactions
The Company leases the building which houses its operations and offices
from a shareholder who owns greater than 50% of the Company's outstanding
stock. The lease requires monthly lease payments of $3,750 plus the cost
of real estate taxes and maintenance. The lease will terminate on July 31,
2001. The lease was modified on August 1, 1996, at which time the payment
of all real estate taxes on the property became an expense of the leases.
Prior to this change the company reflected as real estate tax expenses in
the year March 31, 1996, $40,070 of taxes that were the responsibility of
the lessor. Minimum future lease payments are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
3/31/97 $45,000
3/31/98 45,000
3/31/99 45,000
3/31/00 45,000
3/31/01 15,000
</TABLE>
4. Income Taxes
The Company adopted FASB Statement No. 109 "Accounting for Income Taxes,
SPAS No. 109" under which deferred tax assets and liabilities are provided
on differences between financial reporting and tax reporting using the
enacted tax rates.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1996 1995 1994
Current:
<S> <C> <C> <C>
Federal $ 7,139 $ 4,552 $17,581
State 5,278 6,948 12,387
Deferred:
Reserve for bad debt (3,892)
Excess accruals (1,218)
------- ------- -------
Total $ 7,307 $11,500 $29,968
======= ======= =======
</TABLE>
The deferred tax assets which are included in the accompanying balance sheet is
comprised of the following items:
Deferred:
Reserve for bad debt 3,892
Excess accruals 1,218
------
Total $5,110
======
<PAGE> 15
RUSTIC CRAFTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
5. Prepaid Expenses
Included within prepaid expenses was prepaid professional fees related to
the marketing and sale of the business of the Company by its owners. The
amount incurred was $31,500. Management has elected to amortize this
payment over three years from the date incurred.
6. Identification of Major Customer
The Company distributes its products through a variety of authorized re-
sellers throughout the United States. One customer accounted for $967,155
(36.2%), $837,471 (32.7%), and $718,259 (32.4%) of sales for the years
ended March 31, 1996, 1995 and 1994 respectively.
7. Related Party Transactions
The beneficial Owners of the outstanding stock of the Company receive
payments which are categorized as operating expenses of the Company. These
payments are in the form of direct distributions to the owners, as well as
the payment of expenses incurred by another Company which is jointly owned
by the Owners. The total of wages and expenses paid on behalf of the
Owners was $219,841, $226,769, and $120,051 for the years ended March 31,
1996, 1995, end 1994.
<PAGE> 16
RUSTIC CRAFTS, CO., INC.
COMPILATION REPORT
DECEMBER 31, 1996
<PAGE> 17
ROBERT ROSSI & CO.
CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
<S> <C> <C>
ROBERT L. ROSSI, C.P.A. 208 MAIN ST. STURGES ROBERT A. HANIS, C.P.A.
ROBERT T. ARVONIO, C.P.A. OLYPHANT, PA 18447-2319 SALVATORE A. NOLE, JR., C.P.A.
MICHAEL J. MINELLO, C.P.A. (717) 878-2300 JOSEPH E. ROSSI, C.P.A.
PETER D. ARVONIO, JR., C.P.A. FAX (717) 876-5153 SEAN J. GRASSI, C.P.A.
</TABLE>
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
March 6, 1997
Rustic Crafts Co., Inc.
We have compiled the accompanying balance sheet of Rustic Crafts
Co., Inc. as of December 31, 1996 and the related statements of income and
retained earnings and cash flows for the period then ended in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the
disclosures required by generally accepted accounting principles. If the omitted
disclosures were included in the financial statements they might influence the
user's conclusion about the Company's financial position, results of operations
and cash flows. Accordingly, these financial statements are not designed for
those who are not informed about such matters.
/s/ Robert Rossi & Co.
MEMBER OF AMERICAN & PENNSYLVANIA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 18
<TABLE>
<CAPTION>
RUSTIC CRAFTS CO., INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 68,173
Accounts Receivable 519,365
Inventory 485,416
Prepaid Expenses and
Other Current Assets 36,261
----------
TOTAL CURRENT ASSETS $1,109,214
PROPERTY, PLANT AND EQUIPMENT
Autos and Trucks $ 50,945
Machinery and Equipment 115,930
Furniture and Fixtures 50,624
Leasehold Improvements 116,915
----------
Total $ 334,415
Less: Accumulated Depreciation (256,949)
----------
NET PROPERTY, PLANT AND EQUIPMENT 77,466
OTHER ASSETS
Goodwill, Less Accumulated
Amortization of $11,875 28,125
----------
TOTAL ASSETS $1,214,805
==========
</TABLE>
See accompanying independent accountants' compilation report.
<PAGE> 19
<TABLE>
<CAPTION>
RUSTIC CRAFTS CO., INC.
BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts Payable $ 263,442
Accrued & W/H Payroll Taxes 8,816
Accrued Wages 14,464
Accrued Expenses 13,720
Accrued Bonus 61,200
Income Taxes Payable 20,517
Line of Credit 295,000
Current Portion of
Long-Term Liabilities 25,300
--------
TOTAL CURRENT LIABILITIES $ 702,459
LONG-TERM LIABILITIES, NET OF
CURRENT PORTION
Notes Payable, PNC Bank 31,925
--------
TOTAL LONG-TERM LIABILITIES 31,925
STOCKHOLDERS' EQUITY
Common Stock, 1,000 Shares Authorized,
Issued and Outstanding $ 1,000
Retained Earnings 479,421
--------
TOTAL STOCKHOLDERS' EQUITY 480,421
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,214,805
==========
</TABLE>
See accompanying independent accountants' compilation report.
<PAGE> 20
RUSTIC CRAFTS CO., INC.
STATEMENT or INCOME AND EXPENSES
FOR THE PERIOD APRIL 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
AND THE PERIOD OCTOBER 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
<TABLE>
<CAPTION>
04/01/96 TO 04/1/95 TO 10/01/96 TO 10/01/95 TO
12/31/96 12/31/95 12/31/96 12/31/95
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
SALES
Rustic Crafts $2,352,171 $2,221,322 $1,137,107 $ 941,716
Firelogs 111,142 103,228 56,239 41,329
---------- ---------- ---------- ----------
TOTAL $2,463,313 $2,324,551 $1,193,346 $ 983,046
---------- ---------- ---------- ----------
GROSS PROFIT
Beginning Inventory $ 650,557 $ 605,771 524,129 511,997
Purchases and Freight 939,795 953,587 471,486 416,233
---------- ---------- ---------- ----------
TOTAL $1,590,352 $1,559,358 $ 995,614 $ 928,229
Less: Ending Inventory 485,416 476,368 485,416 476,368
---------- ---------- ---------- ----------
Cost of Material Used $1,104,937 $1,082,991 $ 510,199 $ 451,862
Direct Labor 298,141 313,500 137,110 133,408
Factory Overhead
(Schedule I) 263,991 226,328 109,141 84,811
---------- ---------- ---------- ----------
TOTAL COST OF SALES $1,667,069 $1,622,819 $ 756,449 $ 670,080
---------- ---------- ---------- ----------
GROSS PROFIT $ 796,244 $ 701,732 $ 436,897 $ 312,965
---------- ---------- ---------- ----------
EXPENSES
Commissions $ 115,974 $ 109,683 $ 68,463 $ 59,204
Selling Expense
(Schedule II) 136,616 117,081 57,170 35,126
Operating Expenses
(Schedule III) 5,126 5,378 2,064 2,549
General & Administrative
Expenses (Schedule IV) 375,637 375,831 154,606 166,020
---------- ---------- ---------- ----------
TOTAL EXPENSES $ 633,353 $ 607,972 $ 282,303 $ 262,899
---------- ---------- ---------- ----------
OPERATING INCOME $ 162,890 $ 93,760 $ 154,594 $ 50,066
---------- ---------- ---------- ----------
Other (Income) & Expenses
(Schedule V) $ 49,752 30,375 7,853 9,395
---------- ---------- ---------- ----------
Income Before Provision for
State & Federal Income Tax $ 113,138 $ 63,385 $ 146,741 $ 40,671
Federal Income Tax 23,000 9,228 27,524 6,162
</TABLE>
See accompanying independent accountants' compilation report.
<PAGE> 21
RUSTIC CRAFTS CO., INC.
STATEMENT OF INCOME AND EXPENSES
FOR THE PERIOD APRIL 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
AND THE PERIOD OCTOBER 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
<TABLE>
<CAPTION>
04/01/96 TO 04/1/95 TO 10/01/96 TO 10/01/95 TO
12/31/96 12/31/95 12/31/96 12/31/95
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
State Income Tax 11,200 6,275 14,547 4,004
-------- ------- -------- -------
NET INCOME $ 78,938 $47,882 $104,670 $30,505
-------- ------- -------- -------
Retained Earnings, Beg of Year 400,483
---------
RETAINED EARNINGS, End of Period 479,421
=========
</TABLE>
See accompanying independent accountants' compilation report.
<PAGE> 22
RUSTIC CRAFTS CO., INC.
SCHEDULE OF EXPENSES
FOR THE PERIOD APRIL 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
AND THE PERIOD OCTOBER 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
<TABLE>
<CAPTION>
04/01/96 TO 04/01/95 To 10/01/96 TO 10/01/95 T0
12131/96 12/31/95 12/31/96 12/31/95
<S> <C> <C> <C> <C>
FACTORY OVERHEAD (SCHEDULE I)
Payroll Tax Expense 44,435 53,821 18,253 19,610
Utilities 42,284 28,494 17,822 11,933
Insurance 51,147 37,301 16,494 14,717
Maintenance and Repair 27,353 27,494 17,257 10,373
Rent Plant 30,767 30,375 8,517 10,119
Salaries Factory Overhead 46,823 26,757 23,329 10,541
Shop Supplies 3,824 2,665 1,978 619
Employee Benefits 12,435 15,186 3,851 5,486
Depreciation 4,923 4,235 1,641 1,412
-------- -------- -------- -------
TOTAL $263,991 $226,328 $109,141 $84,811
======== ======== ======== =======
SELLING EXPENSE (SCHEDULE II)
Advertising 27,381 36,900 10,574 11,854
Printing 24,883 15,598 14,010 1,347
Telephone 19,470 16,210 7,028 5,923
Travel and Entertainment 10,534 7,623 5,211 3,931
Trade Shows 54,348 39,750 20,347 12,072
-------- -------- -------- --------
TOTAL $136,616 $117,081 $ 57,170 $ 35,126
======== ======== ======== ========
OPERATING EXPENSES (SCHEDULE III)
Insurance 4,169 4,145 1,697 1,904
Safety Equipment 320 351 251 78
Cleaning supplies 637 882 116 568
-------- -------- -------- --------
TOTAL $ 5,126 $ 5,378 $ 2,064 $ 2,549
======== ======== ======== ========
GENERAL AND ADMINISTRATIVE
EXPENSES (SCHEDULE IV)
Executive Salaries $102,280 $ 80,746 $ 34,807 $ 26,850
Office salaries 86,510 67,392 30,447 23,648
Product Development 75 2,283 0 0
Computer Leasing 940 1,162 398 250
</TABLE>
See accompanying independent accountants' compilation report.
<PAGE> 23
<TABLE>
<CAPTION>
RUSTIC CRAFTS CO., INC.
SCHEDULE OF EXPENSES
FOR THE PERIOD APRIL 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
AND THE PERIOD OCTOBER 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
04/01/96 To 04/01/95 To 10/01/96 TO 10/01/95 TO
12/31/96 12/31/95 12/31/96 12/31/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Bonuses 71,220 60,000 41,220 30,000
Dues and Subscriptions 1,656 1,968 941 105
Consulting Fees 40,140 59,640 13,380 24,880
Legal and Accounting 11,552 10,687 3,961 95
Repairs and Maintenance 5,831 3,629 3,350 928
Miscellaneous 8,973 5,540 5,780 3,144
Office Expense 20,060 26,758 8,909 12,420
Rent Office 5,799 3,375 3,109 1,131
Postage 7,753 6,787 3,940 3,184
Employee Benefit 7,045 6,998 1,986 2,813
Payroll Tax Expense 4,937 5,173 2,028 2,179
Donations 350 1,500 350 500
Other Taxes 517 32,193 0 31,893
-------- -------- -------- --------
TOTAL $375,637 $375,831 $154,606 $166,020
======== ======== ======== ========
</TABLE>
See accompanying independent accountants' compilation report.
<PAGE> 24
RUSTIC CRAFTS CO., INC.
SCHEDULE OF EXPENSES
FOR THE PERIOD APRIL 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
AND THE PERIOD OCTOBER 1, 1996 & 1995 TO DECEMBER 31, 1996 & 1995
<TABLE>
<CAPTION>
04/01/96 TO 04/01/95 TO 10/01/96 TO 10/01/95 TO
12/31/96 12/31/95 12/31/96 12/31/95
----------- ----------- ----------- -----------
OTHER (INCOME) & EXPENSES (SCHEDULE V)
<S> <C> <C> <C> <C>
Miscellaneous Income $ (4,319) $(4,687) $(4,099) $(1,227)
Royalties 75 0 75 0
Bad Debt Recoveries, Net 18,538 987 250 0
Depreciation & Amortization 1,608 2,331 269 1,043
Interest Expense 33,850 31,743 11,358 9,578
-------- -------- -------- --------
TOTAL $ 49,752 $ 30,375 $ 7,853 $ 9,395
======== ======== ======== ========
</TABLE>
See accompanying independent accountants' compilation report.
<PAGE> 25
<TABLE>
<CAPTION>
RUSTIC CRAFTS, CO., INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD APRIL 1, 1996 TO DECEMBER 31, 1996
CASH FLOWS PROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 78,938
Adjustments to Reconcile Net Loss
to Net Cash Provided By Operating
Activities:
Depreciation and Amortization 6,531
Deferred Income Taxes 34,200
Increase in Accounts Receivable (359,920)
Decrease in Inventory 165,141
Decrease in Other Current Assets 29,051
Increase in Prepaid Income Taxes (5,001)
Increase in Accounts Payable 33,217
Increase in Accrued and Withheld
Payroll Taxes 822
Increase in Accrued Wages 10,425
Increase in Accrued Bonus 11,200
Increase in Accrued Expenses 13,720
---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 18,324
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Plant
and Equipment $ (34,503)
---------
NET CASH USED IN INVESTING ACTIVITIES (34,503)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Line of Credit $ 305,000
Payment of Line of Credit (205,000)
Repayment of Long-Term Borrowings (20,158)
---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 79,842
---------
Net Increase in Cash $ 63,663
Cash and Cash Equivalents, Beginning of Year 4,510
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 68,173
=========
Supplemental Disclosure of Cash Flow Information:
Cash Paid During Year For:
Interest 32,834
Income Taxes 13,683
</TABLE>
"See accompanying independent accountants' compilation report."
