Item 1. Business
Vista 2000, Inc., the registrant, together with its subsidiaries, is referred to herein as the "Company". The Company's executive offices are located at 221 West First Street, Kewanee, Illinois 61443, and its telephone number is (309) 856-8068.
All statements, other than statements of historical fact, included in this Annual Report, including, without limitation, the statements under "Current Developments", "General Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" are, or may be deemed to be, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements ("Cautionary Statements") include: the general strength or weakness of the consumer products industry, and the pricing policies of competitors. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by such Cautionary Statements.
General
The Company, successor by merger to Firearm Safety Products, Inc. ("Firearm"), was organized to design, develop, manufacture and market consumer products. Firearm was organized on December 19, 1991 as Triggerguard, Inc., a Georgia corporation. Effective August 10, 1992, Triggerguard's name was changed to Firearm Safety Products, Inc. Pursuant to a Plan and Agreement of Merger entered into October 20, 1993, Firearm was merged into the Company, a newly formed Delaware corporation. In conjunction with the plan of merger, Family Safety Products, Inc. ("FSPI"), a Georgia corporation, was formed as a wholly-owned subsidiary of the Company, and the assets and operations of Firearm were transferred to FSPI. FSPI manufactured and marketed a broad range of personal safety and home security devices, alarms and security systems. On October 24, 1994, the Company completed an initial public offering of its common stock and warrants.
In 1995 the Company elected to change its fiscal year from September 30 to December 30. The Company engaged Grant Thornton LLP ("Grant Thornton") to audit its financial statements for the period ending December 30, 1995. In March, 1996, Grant Thornton advised the Company that contrary to prior projections and previously filed financial reports, the Company had incurred a substantial loss for the year-end and for prior quarters for fiscal year 1995. In March 1996, the Audit Committee of the Board of Directors (consisting of the Company's two outside (i.e. non-employee) directors) initiated an investigation of the integrity of the Company's financial reporting procedures as well as the integrity of management.
Richard P. Smyth ("Smyth") Chairman of the Board of Directors and Chief Executive Officer, was placed on leave of absence pending the Audit Committee's review. On April 16, 1996,
the Company announced Smyth's resignation as Chairman of the Board of Directors and Chief Executive Officer of the Company and the Company filed a lawsuit against Mr. Smyth, alleging, among other things, breach of fiduciary duty. This litigation is currently pending.
As a result of the Audit Committee's investigation, the Company reported a restatement of its results for the fiscal year ended September 30, 1994. The Company had previously reported a loss for the period of $329,000. The restated loss for this period was $2.1 million. Further, the Company reported a loss for the three (3) month stub period ended December 31, 1994 of approximately $1 million. The Company had reported a loss from its consolidated operations for the fiscal year ended December 30, 1995 of $12.9 million or $2.04 per share based on approximately 6.3 million weighted average shares outstanding during the period. This loss has been restated to $14.7 million or $2.33 per share as presented in the Company's Form 10-K for the year ended December 30, 1995.
Beginning in mid-April 1996, 17 class action lawsuits were filed against the Company and certain other entities and individuals relating to activities of the Company while under control of previous management and the previous Board of Directors. All of the lawsuits were eventually consolidated. The lawsuits were filed in the United States District Court for the Northern District of Georgia, and on March 14, 1997, the litigation was settled by a Final Judgment and Order of Dismissal by the Court. Further, the Securities and Exchange Commission ("SEC") commenced an investigation of the Company and its former officers and directors in 1997.
On April 26, 1996, the Company received a letter from the NASDAQ Stock Market, Inc. ("NASDAQ") notifying the Company that its securities were scheduled to be delisted from NASDAQ effective May 10, 1996. The Company requested a formal hearing on the matter which was held on May 22, 1996. On May 30, 1996, the Company was advised by NASDAQ that the Company's securities were delisted effective May 31, 1996. The Company will not be eligible to trade its securities on either the Electronic Bulletin Board Market or the "pink sheets" market until (i) an application is made on behalf of the Company by a NASD member firm as a market maker for the Company's securities and (ii) the application is accepted by NASDAQ.
On June 7, 1996, the Company entered into an agreement with a shareholder, Ginarra Holdings, Inc. ("Ginarra") to add six (6) additional outside directors to the Board of Directors which, at that time, consisted of three (3) members. Pursuant to the terms of the agreement, the directors amended the Company's bylaws to increase the size of the Board of Directors from five (5) to nine (9) and voted to add six (6) Ginarra nominees as directors of the Company. The nominees assumed office immediately following the issuance of a Form 8-K filed with the SEC on June 6, 1996 for the year ended December 30, 1995 in lieu of a Form 10-K (the "June 1996 Form 8-K"). Since that time, the three original directors and one of the newly-elected directors have resigned and one new director has been added.
As previously disclosed in the June 1996 Form 8-K, Grant Thornton had disclaimed an opinion on the Company's consolidated financial statements for the year ended December 30, 1995
because evidence supporting the results of operations of the Company's subsidiaries, FSPI, Promotional Marketing, Inc. ("PMI") and Intelock Technologies, Inc. ("Intelock") was not available. However, Grant Thornton advised that it could express, and the Company did receive, an unqualified opinion on the financial statements of the Company's subsidiary, American Consumer Products, Inc. ("ACPI"), presented on an historical basis for twelve (12) months ended December 30, 1995. Without an opinion on the Company's consolidated financial statements, the Company was not able to comply with the applicable rules and regulations of the SEC regarding reports and NASDAQ regarding the listing of the Company's securities. This resulted in, among other things, the delisting of the Company's securities from the NASDAQ National Market described above.
Following the issuance of the June 1996 Form 8-K, Grant Thornton was able to perform additional audit procedures with respect to the fiscal year ended December 30, 1995. After performing these procedures, Management identified certain corrections that have been made to the financial statements for the year-ended December 30, 1995. As a result of these corrections, on March 12, 1997, Grant Thornton re-issued its Auditors' Report on the Company's 1995 consolidated financial statements. This re-issued Report of Independent Certified Public Accounts, which now contains an unqualified opinion of Grant Thornton, was filed on May 1, 1997 with the Company's Form 10-K for the year ended December 30, 1995.
The Company's Form 10-K for the year ending December 28, 1996 was filed on August 25, 1997 and included an unqualified opinion of Grant Thornton, the Company's independent certified public accountants. All required quarterly SEC filings for the fiscal year ended December 27, 1997 have been made.
Acquisitions and Dispositions
On April 18, 1997, the Company sold all of its 94% interest in Intelock's common stock to a company managed by a minority (4.2%) shareholder of Intelock, who was an officer and director of Intelock prior to the purchase of Intelock by the Company in 1995. Proceeds from the sale were $5,000 in cash and a $95,000 promissory note, which matures on April 11, 1998. This sale resulted in a 1997 gain of approximately $128,000 since the net operating assets of Intelock had been previously written off during the third quarter of the 1996 fiscal year when Intelock ceased operations.
On June 19, 1997, the Company sold all of the stock of Alabaster to W. R. Hill & Co., Inc., for $2.0 million. Payment consisted of $500,000 cash and a $1.5 million note receivable, secured by a first mortgage on the land and buildings which comprise Alabaster's manufacturing, sales and administrative operations. During the quarter ended June 28, 1997, the Company recorded a loss of approximately ($1.8 million) on the sale. During the year ended December 28, 1996, the Company had recorded losses of approximately ($3.6 million), as a result of operating losses and asset write downs at Alabaster. Alabaster represented approximately $2.8 million of the Company's consolidated sales for the year ended December 27, 1997.
On August 25, 1997, the Company completed the sale of certain assets of ACPI to Axxess Technologies, Inc. (the "Purchaser"). These assets comprised primarily ACPI's key, key manufacturing, letters, numbers and signs manufacturing, real estate and related businesses. The Company retained Boss Manufacturing Company, Boss Balloon, Inc., Boss Real Estate, Inc. and the ACPI Warren Pet Division. The business assets being sold accounted for approximately $57.0 million of the Company's consolidated sales for the year ended December 28, 1996. The Company recognized a loss of approximately ($1.8 million) on the sale, after accounting for legal expenses and other transaction expenses.
Consideration for the sale consisted of cash of approximately $24.8 million and the assumption of approximately $3.3 million of liabilities by the Purchaser. Except for approximately $3.0 million of cash, which was retained by the Company to pay, among other things, closing costs and other expenses associated with the transaction, the balance of the cash proceeds were used to retire debt, including a payment of approximately $18.6 million against ACPI's revolving line of credit. Immediately after this payment the ACPI revolving line of credit had an outstanding balance of approximately $3.4 million. As a result of this sale of ACPI's assets, including inventory and accounts receivable, which comprised a significant portion of the revolving line of credit borrowing base, ACPI's borrowing limit was reduced from $30.0 million to $10.0 million.
Operations
With the asset and business sales which have occurred during the years ended December 27, 1997 and December 28, 1996, the concentration of the Company's operations have shifted to work gloves and protective wear. Boss Manufacturing Company ("Boss"), a wholly-owned subsidiary of the Company's ACPI subsidiary, manufactures and distributes the Company's work glove and protective wear products. The headquarters of Boss is in Kewanee, Illinois, with manufacturing and distribution facilities in the United States, Canada and Mexico.
Marketing
The Company markets its product lines directly through its own sales force to major retail stores and through distributors and manufacturer representatives. Retail products are primarily purchased from the Company by businesses located in the United States, including mass merchandising stores, supermarkets, hardware stores, drug and variety stores, and other retail outlets and by wholesalers who resell to such retailers. The Company's products are also marketed outside the United States in Canada.
Raw Material
The Company expects to have multiple sources of supply for substantially all of its material requirements. The raw materials and various purchased components required for its products have generally been available in sufficient quantities.
Competition
In the work glove and protective clothing market the Company competes with a few well-established domestic and foreign manufacturers as well as a number of smaller manufacturers. Many of the Company's products also compete against a number of substitute products. The fragmented nature of the competitive market does not permit the Company to form a reliable opinion as to its precise competitive position within these markets, however, the Company believes it has a significant share in many of the markets for some of its products.
Regulation
The Company is subject to federal, state and local regulations concerning the environment, occupational safety and health, and consumer products safety. The Company has not experienced significant difficulty in complying with such regulations and compliance has not had a material adverse effect on the Company's business.
Employees
The Company has approximately 413 full-time associates including 57 salaried personnel. Approximately 25 hourly associates are represented by labor organizations under collective bargaining agreements at the Company's Boss Manufacturing facilities.
Executive Officers of the Registrant
The following is a list of the names and ages of all the executive officers of the registrant and principal subsidiaries as of December 27, 1997 indicating all positions and offices with the registrant held by each such person, and each such persons' principal occupations or employment during the past five years.
THE REGISTRANT
- ---------------------- (1) Mr. Ken Fristad, the President of ACPI's subsidiary, Boss Manufacturing Company, was named President of ACPI effective May 7, 1997.
Item 2.
Item 2. Properties
The following table shows the location, general character, square footage, annual rent and lease expiration date of the principal operating facilities owned or leased by the Company as of December 27, 1997. The executive offices are located in Kewanee, Illinois, which is an owned facility occupying approximately 50,400 square feet. The Company considers its properties to be in generally good condition and well-maintained, and are generally suitable and adequate to carry on the Company's business.
Item 3.
Item 3. Legal Proceedings.
The Corporation is involved in various lawsuits in the ordinary course of business. These lawsuits primarily involve claims for damages arising out of commercial disputes.
The SEC notified the Company in April 1996 that it had commenced an informal investigation of the Company. The status of the investigation was changed to a formal private investigation in January, 1997. The Company has responded to the SEC's request for information and will continue to cooperate with the SEC in this matter. Independently, the Company through its Audit Committee has conducted an internal investigation of the facts and circumstances surrounding the investigation.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the year ended December 27, 1997, as neither an annual meeting was held nor a proxy statement issued during 1997.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock (symbol: VISTE) was traded on NASDAQ until May 31, 1996, when the Company's stock was delisted. Since that time, the Company's stock has not been listed on any official stock exchange. The following table sets forth the range of high and low bid prices for the Company's Common Stock as quoted by NASDAQ. These quotations represent prices between dealers in securities, do not include retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions.
- ----------------------- (1) There were in excess of 1000 record holders of the Company's common stock on these dates. Holders of Common Stock are entitled to dividends when, as, and if declared by the Board of Directors out of funds legally available therefore. The Company has not paid any cash dividends on its Common Stock and, for the immediate future, intends to retain earnings, if any, to finance the development and expansion of its business.
(2) Represents market prices second quarter through May 31, 1996, the date the stock was delisted.
Item 6.
Item 6. Selected Financial Data.
The selected consolidated financial data of the Company shown below for the five year and three month period ended December 27, 1997 are derived from the consolidated financial statements of the Company. The information set forth below is qualified in its entirety by the more detailed financial statements and notes thereto included elsewhere herein together with the reports issued by the independent certified public accounts. The following table should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition and the Company's audited Consolidated Financial Statements and Notes thereto appearing elsewhere herein.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The Company reported a net loss of $6.5 million or $.21 loss per share for the year ended December 27, 1997 compared to a net loss of $19.4 million or $1.20 loss per share for the year ended December 28, 1996 and a net loss of $14.7 million or $2.33 loss per share for the year ended December 30, 1995.
The 1997 loss is primarily attributable to losses on the sale of Alabaster and the ACPI key and letters, numbers and signs businesses, and to a lesser degree, operating losses resulting from the restructuring of the Company following the sale of the ACPI businesses. The 1997 loss also reflected additional legal and other costs associated with the settlement of the claims of preferred and common shareholders of the Company.
The 1996 loss is primarily attributable to operating losses and substantial losses on the sale of the assets of FSPI, a write-down of the assets of Alabaster and Intelock, and accrued costs resulting from settlement of the Class Action shareholder lawsuit. In addition, high general overhead costs were incurred in the operation of the Company's corporate offices.
The loss for the year ended December 30, 1995 was primarily attributable to acquisition and reorganization costs, inventory liquidations below normal selling prices, production start-up costs, related material and manufacturing costs, and high general overhead costs.
RESTATEMENT OF FINANCIAL STATEMENTS OF PRIOR PERIODS
Financial Statements for the Year ended September 30, 1994
The audited financial statements previously issued for the year ended September 30, 1994 have been restated to reflect two prior period accounting adjustments. First, previously recognized revenue from the sale of an exclusive license agreement for one of the Company's products, consideration for which was substantially in the form of a $1.2 million note receivable, has been reversed as a result of a 1996 investigation initiated by the Audit Committee of the Board of Directors. Second, $635,000 of previously reported sales have been reversed also as a result of the Audit Committee investigation referred to above. The effects of these two prior period adjustments on operations results in a reduction of revenue, an increase in net loss and an increase in accumulated deficit all in the amount of $1.8 million.
Quarterly Reports filed on Forms 10-Q
The unaudited interim financial statements filed on Forms 10-Q for the quarters ended December 31, 1994, March 31, 1995, June 30, 1995 and September 30, 1995 have been amended. These amendments were necessary to properly reflect certain year-end 1995 adjustments, correct accounting errors determined as a result of the audit of the December 30, 1995 financial statements, and record the prior period accounting adjustments referred to above related to the September 30, 1994 financial statements. The individual quarterly effects of the adjustments for the respective comparative quarters have been reported in the Company's Forms 10-Q for the quarters ending March 30, 1996, June 29, 1996 and September 28, 1996, which were filed on May 1, 1997. Descriptions of the nature of these adjustments are as follows:
- - The effective date of the acquisition of PMI by Vista was not October 31, 1994 as previously reported but instead, May 1, 1995, immediately prior to the closing date of the acquisition in May of 1995.
- - The effective date of the acquisition of Alabaster by Vista was not May 1, 1995 as previously reported but instead, the closing date of the acquisition was on July 31, 1995.
- - The effective date of the acquisition of ACPI by Vista was not August 31, 1995 as previously reported but instead, September 30, 1995, subsequent to the initiation of the tender offer through which Vista achieved majority ownership and control of ACPI.
- - Inventory costing adjustments necessary to properly state year-end FSPI inventories, in large part, related to the previously reported quarterly results. During prior quarters cost of goods sold for FSPI was artificially computed to be approximately 52% of net sales. Upon examination of the actual costs of products sold by FSPI it was determined that costs as a percentage of net sales was much higher than the 52% factor used in computing the quarterly gross profit amounts.
- - Accruals for various stock-based compensation costs were not recorded in the quarterly results.
RESULTS OF OPERATIONS
Consolidated for fiscal years ending December 27, 1997 and December 28, 1996.
Net sales were $78.4 million for the year ended December 27, 1997 compared to $111.0 million for the year ended December 28, 1996. The decrease is primarily the result of the sale of ACPI's key and letters, numbers and signs business in August, 1997, the sale of the Company's Alabaster subsidiary in June, 1997, and the sale of the assets of the Company's FSPI subsidiary in August, 1996.
Gross profit was $20.5 million for the year ended December 27, 1997 compared to $28.4 million for the year ended December 28, 1996. The decrease is primarily the result of the sale of ACPI's key and letters, numbers and signs business in August, 1997, the sale of the Company's Alabaster subsidiary in June, 1997, and the sale of the assets of the Company's FSPI subsidiary in August, 1996. Gross profit was 26.1% of net sales for the year ended December 27, 1997 compared to 25.6% of net sales for the year ended December 28, 1996.
Operating expenses were $21.2 million for the year ended December 27, 1997 compared to $34.2 million for the year ended December 28, 1996. In addition to operating expense reductions resulting from the sale of certain ACPI assets, the Alabaster subsidiary, and the sale of FSPI assets, the Company reduced its general overhead. Operating expenses were 27.0% of net sales for the year ended December 27, 1997 compared to 30.8% of net sales for the year ended December 28, 1996.
Net loss for the year ended December 27, 1997 was $6.5 million compared to $19.4 million for the year ended December 28, 1996. The 1997 loss includes a loss of $3.8 million on the sale of businesses and operating assets while the 1996 loss included a loss of $10.8 million from the sale and write-down of operating assets.
Consolidated for fiscal years ended December 28, 1996 and December 30, 1995.
Net sales were $111.0 million for the year ended December 28, 1996 compared to $32.4 million for the year ended December 30, 1995. The increase is primarily a result of the inclusion of a full year's operating results of ACPI and Alabaster, both of which were acquired during 1995.
Gross profit was $28.4 million for the year ended December 28, 1996 compared to $4.2 million for the year ended December 30, 1995. The increase was primarily a result of the acquisitions of ACPI and Alabaster during 1995. Gross profit was 25.6% of net sales for the year ended December 20, 1996 compared to 12.9% of net sales for the year ended December 30, 1995. Gross profit in 1996 improved as a result of having a full year's results for ACPI versus three months in 1995, substantially mitigating gross profit losses at FSPI.
Operating expenses were $34.2 million for the year ended December 28, 1996 compared to $17.3 million for the year ended December 30, 1995. The increase was primarily a result of the acquisitions of ACPI and Alabaster, and growth of parent company operations at Vista. Operating expenses were 30.8% of net sales for the year ended December 28, 1996 compared to 53.4% of net sales for the year ended December 30, 1995.
Net loss for the year ended December 28, 1996 was $19.4 million compared to $14.7 million for the year ended December 30, 1995.
Separate Company Analysis
The following is an analysis of results of operations on a separate company basis using financial data included in the consolidated financial statements.
Vista and FSPI (combined) for fiscal years ended December 27, 1997 and December 28, 1996
There were no sales for the year ended December 27, 1997 compared to $2.9 million for the year ended December 28, 1996. Due to the sale of all FSPI assets in August, 1996 and Vista having no operations, these units had no sales during the year ended December 27, 1997.
Gross profit (loss) was $0.00 for the year ended December 27, 1997 and $(764,000) or (26.2%) for the year ended December 28, 1996. The 1996 losses were due to a number of factors, the most significant of which were:
- - Excessive production costs related to gas detection products primarily caused by product rework, excessive direct labor costs, high indirect labor and engineering costs and high manufacturing overhead costs.
- - Shrinkage caused by loss of control over quantities of physical inventories, primarily manufactured goods.
Operating expenses were $2.2 million for the year ended December 27, 1997 compared to $9.2 million for the year ended December 28, 1996. Operating expenses in 1997 decreased primarily due to the absence of FSPI expenses and further reductions in the overhead costs associated with Vista.
Net loss was $3.7 million and $19.0 million for the years ended December 27, 1997 and December 28, 1996, respectively. The net loss for 1997 includes $1.7 million on the sale and disposal of assets and businesses. The net loss for 1996 included a $8.8 million loss on the sale of substantially all of the operating assets of FSPI.
Vista and FSPI (combined) for the years ended December 28, 1996 and December 30, 1995
Sales were $2.9 million for the year ended December 28, 1996, compared to $2.0 million for the year ended December 30, 1995. The increase in sales in 1996 was due to 1996 consisting of eight months of sales of gas detection devices while 1995 represented only three months of these sales.
Gross profit (loss) was $(764,000) or (26.2%) for the year ended December 28, 1996 compared to $(3.15) million or (157.5%) for the year ended December 30, 1995. The 1996 loss was due to a number of factors, the most significant of which were:
- - Excessive production costs related to gas detection products primarily caused by product rework, excessive direct labor costs, high indirect labor and engineering costs and high manufacturing overhead costs.
- - Shrinkage caused by loss of control over costs and quantities of physical inventories, primarily manufactured goods.
The loss for the year ended December 30, 1995 was due to low volume, high overhead costs and research and development expenditures for gas detection devices.
Operating expenses were $9.2 million for the year ended December 28, 1996 compared to $9.7 million for the year ended December 30, 1995. Operating expenses during 1996 decreased primarily as a result of reduction in staffing at the Company's corporate office. Operating expenses during 1995 were higher due to increased marketing and promotional costs, increased research and development costs, costs associated with start-up of full production operations for gas detection devices at FSPI, growth of parent company operations including executive and management staff at the parent company, equity based compensation awards at the parent company, and other less individually significant items. Operating expenses were 324% of net sales for the year ended December 28, 1996 compared to 485% of net sales for the year ended December 30, 1995.
The net loss was $19.0 million and $13.7 million for the year ended December 28, 1996 and the year ended December 30, 1995, respectively. The net loss for 1996 includes a $8.8 million loss on the sale of substantially all of the operating assets of FSPI.
Intelock for the fiscal years ended December 27, 1997 and December 28, 1996
Sales were $0 for the year ended December 27, 1997 compared to $262,000 for the year ended December 28, 1996. Sales in 1996 were reduced as the Intelock operations wound down and eventually ceased operating in the third quarter of 1996.
Gross profit (loss) was $0 for the year ended December 27, 1997 compared to $(32,000) or (12.2%) of sales for the year ended December 28, 1996. The loss in 1996 was primarily due to low volume levels, product returns, excessive customer credits and allowances related to product quality issues and inventory obsolescence reserves.
Operating expenses were $20,000 for the year ended December 27, 1997 compared to $207,000 for the year ended December 28, 1996. Decreased operating expenses were primarily due to the winding down of Intelock operations during 1996.
The net loss was $20,000 for the year ended December 27, 1997 compared to $896,000 for the year ending December 28, 1996. The 1996 loss included a loss of $659,000 on writing down Intelock's assets to net realizable value.
Intelock for fiscal years ended December 28, 1996 and December 30, 1995
Sales were $262,000 for the year ended December 28, 1996 compared to $480,000 for the period from June 30, 1995 (acquisition date) to December 30, 1995. Sales in 1996 were reduced as the Intelock operations wound down and eventually ceased operating in the third quarter of 1996. Sales volumes in 1995 were lower than anticipated due to product quality and reliability problems resulting in significant returns and customer credits.
Gross profit (loss) was $(32,000) or (12.2%) of sales for the year ended December 28, 1996 compared to ($6,000) or (1.2%) for the period from June 30, 1995 (acquisition date) to December 30, 1995. The loss was primarily due to low volume levels, product returns, excessive customer credits and allowances related to product quality issues and inventory obsolescence reserves.
Operating expenses were $207,000 for the year ended December 28, 1996 compared to $537,000 for the period from June 30, 1995 (acquisition date) to December 30, 1995. Decreased operating expenses were primarily due to the winding down of Intelock operations.
The net loss was $896,000 for the year ending December 28, 1996 compared to $543,000 for the period from June 30, 1995 (acquisition date) to December 30, 1995. The 1996 loss includes a loss of $659,000 on writing down assets to net realizable value.
Alabaster for fiscal years ended December 27, 1997 and December 28, 1996
Sales were $2.8 million for the year ended December 27, 1997 compared to $8.9 million for the year ended December 28, 1996. Sales during 1997 are only through June 18, 1997, the date of the sale of Alabaster.
The gross profit was $245,000 or 8.6% of net sales for the year ended December 27, 1997 compared to $723,000 or 8.1% of net sales for the year ended December 28, 1996.
Operating expenses were $862,000 for the year ended December 27, 1997 compared to $2.3 million for the year ended December 28, 1996. Operating expenses were 30.4% of net sales for the year ended December 27, 1997 compared to 25.6% of net sales for the year ended December 28, 1996. The reduction of operating expenses in 1997 were primarily a result of the sale of Alabaster in June, 1997.
The net loss was $751,000 for the year ended December 27, 1997 compared to $3.6 million for the year ended December 28, 1996. The 1996 loss included a loss of $1.8 million on the write down of assets to net realizable value.
Alabaster for fiscal years ended December 28, 1996 and December 30, 1995
Sales were $8.9 million for the year ended December 28, 1996 compared to $3.9 million for the period from July 31, 1995 (acquisition date) to December 30, 1995.
The gross profit was $723,000 or 8.1% of net sales for the year ended December 28, 1996 compared to $142,000 or 3.6% for the period from July 31, 1995 (acquisition date) to December 30, 1995. The gross profit in 1995 was negatively impacted by liquidations of excess and slow moving inventory which were not in accordance with management's sales and distribution strategies. Additionally, inventory costs in 1995 were high due to low manufacturing capacity utilization during the period. 1995 gross profit was also impaired due to valuation reserves necessary to absorb losses sustained from additional liquidations of 1995 year-end inventories during the first quarter of 1996.
Operating expenses were $2.3 million for the year ended December 28, 1996 compared to $1.2 million for the period from July 31, 1995 (acquisition date) to December 30, 1995. Operating expenses were 25.6% of net sales for the year ended December 28, 1996 compared to 30.8% of net sales for the period from July 31, 1995 (acquisition date) to December 30, 1995. The operating expense decrease was achieved primarily through reductions in administrative staffing.
The net loss was $3.6 million for the year ended December 28, 1996 compared to $1.1 million for the period from July 31, 1995 (acquisition date) to December 30, 1995. The 1996 loss included a loss of $1.8 million on the write down of assets to net realizable value.
ACPI for fiscal years ended December 27, 1997 and December 28, 1996
Sales for the year ended December 27, 1997 were $75.6 million compared to $100 million for the year ended December 28, 1996. The decline in sales from 1996 to 1997 was due primarily to the sale of ACPI's key and letter, numbers and signs business in August, 1997.
The gross profit for the year ended December 27, 1997 was $20.2 million or 26.7% of sales compared to $28.5 million or 28.4% of sales for the year ended December 28, 1996. The gross profit for 1997 was reduced by the sale of the key and letters, numbers and signs business, which carried higher gross profit margins than the remaining operations.
Operating expenses were $18.0 million for the year ended December 27, 1997 compared to $22.7 million for the year ended December 28, 1996. Operating expenses were 23.7% and 22.6% of net sales for the years ended December 27, 1997 and December 28, 1996, respectively. The reduction in operating expenses from 1996 to 1997 was primarily the result of the sale of certain ACPI operating assets in August, 1997.
The net profit was $1.5 million for the year ended December 27, 1997 compared to $4.2 million for the year ended December 28, 1996. The profit for the year ended December 27, 1997 was reduced by a loss of $2.4 million on the sale of the key and letters, numbers and sign businesses
and interest expense of $1.7 million . The profit for the year ended December 28, 1996 included a gain of $472,000 on the sale of businesses and a $2.1 million interest expense.
ACPI for fiscal years ended December 28, 1996 and December 30, 1995
Sales for the year ended December 28, 1996 were $100 million compared to $105 million for the year ended December 30, 1995 (including amounts which are not included in the consolidated financial statements of Vista 2000, Inc.) Sales were $26.0 million for the period from September 30, 1995 (acquisition date) to December 30, 1995. The decline in sales was primarily attributable to a reduction in sales of the KA-BAR product line and the loss of one half of Wal-Mart's key business. The loss of the Wal-Mart key business was due to the introduction by an ACPI competitor of improved key identification and cutting technology.
The gross profit for the year ended December 28, 1996 was $28.5 million or 28.4% compared to $26.9 million or 25.6% for the year ended December 30, 1995 (including amounts which are not included in the consolidated financial statements of Vista 2000, Inc.) The gross profit was $7.2 million or 27.6% for the period from September 30, 1995 (acquisition date) to December 30, 1995.
Operating expenses were $22.7 million for the year ended December 28, 1996 compared to $25 million for the year ended December 30, 1995 (including amounts which were not included in the consolidated financial statements for Vista 2000, Inc.) Operating expenses were $6.0 million for the period from September 30, 1995 (acquisitions date) to December 30, 1995. Operating expenses were 22.6% and 23.8% of net sales for the years ended December 28, 1996 and December 30, 1995 respectively. Operating expenses for the period September 30, 1995 to December 30, 1995 were 23.1% of net sales. Operating expenses for the year ended December 28, 1996 were favorably affected by certain purchase accounting adjustments, primarily those related to valuation of long-term assets, which result in significant decrease in annual depreciation on existing assets. Operating results were also favorably affected by reductions in operating cost from fewer employees in 1996, saving $750,000.
Pretax income (loss) was $4.2 million for the year ended December 28, 1996 and ($774,000) for the year ended December 30, 1995 (including amounts which were not included in the consolidated financial statements of Vista 2000, Inc.). Pre-tax income for the period from September 30, 1995 (acquisition date) to December 30, 1995 was $620,000.
FINANCIAL CONDITION
Consolidated for the year ended December 27, 1997
Consolidated working capital at December 27, 1997 was $17.4 million exclusive of the $3.1 million ACPI revolver debt which matures in May, 2000. Due to the sale of assets which secured the ACPI credit facility, the line of credit limit was reduced from $30 million to $10 million in August, 1997. As of December 27, 1997, $3.1 million was drawn under the line of credit.
Regarding the use of the Company's income tax loss carryforward, during 1995 and 1996 the Company experienced a change in control, as defined under Section 382 of the Internal Revenue Service Code. Additionally, another change in control occurred during 1997 upon issuance of the common stock in settlement of the class action lawsuit. As a result, the utilization of a significant portion of the tax loss carryforwards will be limited on an annual basis and may expire unused.
Consolidated for the year ended December 28, 1996
Consolidated working capital at December 28, 1996 was $30.6 million exclusive of the $20.4 million ACPI revolver debt. The ACPI credit facility was replaced in May 1997. The new loan agreement expires in May, 2000.
During 1996, Vista raised approximately $21.2 million, net of issuance costs, through convertible preferred stock offerings and common stock offerings issued pursuant to the exemption from registration of Regulation S under the Act. The proceeds of these offerings were used to fund operating losses and working capital requirements.
Separate Company Analysis
ACPI for the year ended December 27, 1997
$16.0 million of consolidated working capital is from ACPI. As of December 27, 1997, ACPI had $6.9 million available under its $10.0 million revolving line of credit, of which $2.0 million was restricted to secure letters of credit issued in conjunction with the sale of the ACPI key and letters, numbers and signs businesses.
The line of credit bears interest at the Fleet National Bank Prime Rate plus .5% or LIBOR plus 2.5% and is collateralized by accounts receivable, inventory, equipment and real estate. The interest rate at December 27, 1997 was 9.0%. Borrowings under the line of credit are based on a formula which includes eligible accounts receivable and inventories. The revolving credit facility provides for intercompany advances to Vista/ACPI affiliates based upon a percentage of excess cash flow as defined in the credit agreement.
ACPI for the year ended December 28, 1998
$30.0 million of consolidated working capital is from ACPI. As of December 28, 1996, ACPI had $8.5 million available under its $28.9 million revolving line of credit. Borrowings under the line of credit are based on a formula which includes eligible accounts receivable and inventories. The line of credit bears interest at the base rate plus 3/8% (8.625% at December 28, 1996) and is collateralized by accounts receivable, inventories and equipment and is guaranteed by each of ACPI's subsidiaries. The ACPI revolving credit facility does not provide for intercompany advances to non-ACPI Vista affiliates other than for payment of dividends and trading transactions occurring through the normal course of business.
The existing line of credit was replaced on May 7, 1997 with a new line of credit in the total amount of $30 million. The line bears interest at the Fleet National Bank prime rate plus .5% or LIBOR plus 2.5% and is collateralized by accounts receivable, inventory, equipment and real estate. Borrowings under the line of credit are based on a formula which includes eligible accounts receivable and inventories. The revolving credit facility provides for intercompany advances to non-ACPI Vista affiliates based upon a percentage of excess cash flow as defined in the credit agreement.
Vista for the year ended December 27, 1997
Working capital at Vista at December 27, 1997 was $1.4 million. Staffing costs and most overhead costs have been reduced or eliminated, thereby minimizing working capital requirements. If required, working capital could be obtained through dividends from Vista's ACPI subsidiary.
Parent Company, FSPI and Intelock ("Vista Group") for the year ended December 28, 1996
Working capital at the Vista Group at December 28, 1996 was $100,000. Due to the sale of FSPI assets and the closing and sale of Intelock, their cash requirements are minimal. The staffing costs and overhead of the parent company have been substantially reduced. Working capital for the Vista Group is derived primarily through dividends and cost reimbursements from ACPI for expenses advanced or paid on behalf of ACPI.
Alabaster for the year ending December 27, 1997
Due to the sale of Alabaster in June, 1997, the Company's working capital at December 27, 1997 did not include any assets or liabilities of Alabaster.
Alabaster for the year ending December 28, 1996
Working capital at Alabaster at December 28, 1996 was $500,000. In September 1996, Alabaster entered into a revolving credit and demand loan agreement. The amount of the credit was $2.5 million. As of December 28, 1996, availability under the credit agreement was $1.25 million of which $908,000 had been borrowed. Interest was at the greater of 9% or prime plus 3-1/4%. The
agreement was secured by substantially all of the assets of Alabaster and was guaranteed by Vista. The agreement expired June, 1997 when Alabaster was sold.
Year 2000
The Company's primary software applications are not currently year 2000 compliant. To resolve this issue, the Company is in the process of selecting new software which is planned for implementation during the second half of 1998 and first half of 1999. Total implementation costs are expected to be in the $250,000 to $500,000 range including software, hardware and training.
In addition to addressing the Year 2000 problem, this new software will benefit the Company by providing improved system integration as well as significant enhancements to the current software applications. The Company believes the schedule for implementation should allow completion prior to the development of any potential Year 2000 dating anomalies.
Outlook for 1998
Since the date of the election of the incumbent Board of Directors, the Company has been involved in a major restructuring, which has included the sale of its interest in FSPI, Intelock, Alabaster and a significant portion of the assets of ACPI. The sale of these assets, while resulting in a loss, enabled the Company to substantially reduce its outstanding debt and improve its prospects for future profitability.
Consolidated revenues are expected to decline sharply from the prior year because of the operations sold in 1997. The Company's revenues and earnings will principally reflect its concentration in the glove, boot and rainwear business. These businesses are seasonal and dependent upon weather patterns and other factors beyond the Company's control.
During 1998, the Company will continue to pursue initiatives to streamline and focus the business. These initiatives include improvements in distribution and logistics, and consolidation of corporate headquarters with the primary operating subsidiaries.
For 1998 and future periods, the Company intends to focus on improved earnings. To do so, management will evaluate a number of alternatives including expanded sales and marketing programs, product line expansion, licensing opportunities, and potential acquisition and disposition opportunities. There can be no assurance as to the success of such alternatives, if implemented, due to, among other factors, capital constraints faced by the Company to maintain adequate liquidity and the market reaction from competitors in the industry who are, in certain cases, larger than the Company with greater capital resources.
SIGNIFICANT SUBSEQUENT EVENTS
On February 25, 1998, W.R. Hill and Company, Inc. sold its interest in Alabaster to A.I. Holdings, Inc. ("AI"), a company comprised of a management group from Alabaster. The Company gave its consent for AI to assume the first mortgage (see Acquisitions and Dispositions in this Form 10-K) on Alabaster's land and buildings. On April 1, 1998, the Company was advised that Alabaster had filed for bankruptcy protection under Chapter 11 of the Federal Bankruptcy Statutes. As a result of these events, the Company has taken a reserve against the face value of the note which Management believes will be sufficient to cover any losses on the collection of the note.
On April 9, 1998, the Company was notified by Axxess of a claim against the Company related to the purchase by Axxess of the key and letter, numbers and signs businesses of the Company's ACPI subsidiary. The Company believes that it will ultimately prevail and has instituted claims of its own. However, the results of arbitration and litigation are unpredictable and should Axxess prevail, its claim would have a material adverse impact on the Company.
In April, 1998, the Company hired Mr. Bruce Lancaster to serve as its Chief Financial Officer, replacing Mr. Larry Cobb, who had served in this capacity since April, 1996. Prior to joining the Company, Mr. Lancaster served as Vice President of Finance and Administration for Acme Boot Company, Inc. from December 1995 to April 1998, and previously as Vice-President of Finance and Controller for Kinark Corporation from 1989 to 1995. Mr. Lancaster's previous experience includes two years with the Texas Society of CPA's, four years with Perry Equipment Corporation and four years with United States Steel Corporation. Mr. Lancaster received BA and MBA degrees from Texas A&M University and is a CPA, licensed in the State of Texas.
In accordance with the terms of the June 30, 1997 agreement covering the sale of ACPI assets to Axxess Technologies, Inc., the Company has changed the names of its wholly-owned subsidiaries as follows:
Boss Manufacturing Holdings, Inc., f/k/a American Consumer Products, Inc. Boss Manufacturing Marketing, Inc., f/k/a Product Merchandisers, Inc. Boss Manufacturing Real Estate II, Inc., f/k/a ACPI Real Estate, Inc.
Item 8.
Item 8. Financial Statements and Supplemental Data.
The following consolidated financial statements of the Company and its Accountants' Opinion are set forth in Part IV, Item 14, of this Report:
(i) Consolidated Statements of Operations, Cash Flows and Shareholders' Equity for the year ended December 27, 1997 the year ended December 28, 1996 and the year ended December 30, 1995.
(ii) Consolidated Balance Sheet - December 27, 1997 and December 28, 1996.
(iii) Notes to the Consolidated Financial Statements; and Unqualified Opinion of Independent Accountants dated February 19, 1998.
Item 9.
Item 9. Changes in And Disagreements With Auditors on Accounting And Financial Disclosures.
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The information as to directors of the registrant is set forth below. The information as to the executive officers of the registrant is included in Part I hereof under the caption "Executive Officers of the Registrant." Directors are elected by the stockholders at each annual meeting and serve until the next annual meeting of stockholders, or until their successors are duly elected and qualified. At the present time, the Company's Board of Directors consists of six directors. The following table sets forth certain information concerning the members of the Board of Directors of the Company at December 27, 1997:
- ---------------------- (1) Mr. Graziadio and Mr. Mikles are first cousins; otherwise, there are no family relationships existing between the officers and directors of the Company.
Item 11.
Item 11. Executive Compensation.
Compensation Tables
The compensation paid in fiscal 1997 to the Company's Chief Executive Officer and to each of the other executive officers and of the subsidiaries whose total compensation exceeded $100,000 are as follows:
THE SUBSIDIARIES
- --------------------------- (1) On June 6, 1996, Mr. Graziadio was elected Chief Executive Officer by the Board of Directors. Compensation for his services is as periodically determined by the Board's Compensation Committee, based on the type and extent of services Mr. Graziadio provided.
(2) Compensation shown for Mr. Gidumal was paid to companies in which Mr. Gidumal is a principal for activities prior to Mr. Gidumal being elected as an officer and director. (See Item 13. Certain Relationships and Related Transactions.) Mr. Gidumal was elected President of the Company effective November 1, 1997.
(3) All figures in this column reflect options to purchase shares of Common Stock.
There were 4,800,000 options granted to the Executive Officers of the Company and its subsidiaries during the fiscal year ending December 27, 1997. The Company has no stock appreciation rights ("SARs") outstanding.
The following sets forth the value of options exercised during the year and unexercised options held by the named executive officers on December 27, 1997:
Aggregated Options/SAR Exercises in the last Fiscal Year and Fiscal Year-End Option/SAR Values
- ------------------------ (1) Assumes a market price of $.0625 per share based on unofficial trading history less the option exercise price of $.03 per share.
(2) All figures in this column reflect options to purchase shares of Common Stock.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of May 13, 1998, certain information regarding the bene-ficial ownership of Common Stock by (i) each person known by the Company to be beneficial owner of more than five percent of the outstanding shares of Common Stock, (ii) each director; (iii) each Named Executive Officer; and (iv) all directors and executive officers as a group. This table includes 787,500 currently exercisable options granted to directors of the Company on December 31, 1996.
(1) Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. Under the rules of the Securities and Exchange Commission, a person is deemed to be a "beneficial" owner of securities if he or she has or shares the power to vote or direct the voting of such securities or the power to direct the disposition of such securities. A person is deemed to be the beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. More than one person may be deemed to be a beneficial owner of the same securities.
(2) Includes presently exercisable options to acquire 262,500 shares of Common Stock.
(3) Includes presently exercisable options to acquire 525,000 shares of stock.
(4) Mr. Graziadio disclaims the beneficial ownership of approximately 1,582,686 of these shares which are owned by Ginarra Holdings, Inc. and an additional 511,378 shares which are owned by the Graziadio Family Trust.
Item 13.
Item 13. Certain Relationships and Related Transactions.
In July 1996, the Board of Directors contracted with a turnaround management company, S. Gidumal & Company, Inc., and its affiliate, Strategic Turnarounds & Investment Corp. (collectively "STIC"), to assist with the restructuring of the Company, including operations, financing, litigation, strategic planning and divestitures. Mr. Shyam Gidumal is a principal with STIC and in September 1996 became a member of the Board of Directors of ACPI and other subsidiaries of ACPI. In November, 1997, Mr. Gidumal became a member of the Board of Directors of Vista and was elected President of the Company. STIC was involved in the resolution of the Class Action Litigation, sale of the assets of FSPI, financings involving ACPI and Alabaster, and the sale of the key and numbers, letters and signs business of ACPI. STIC was paid approximately$1,035,000 and $308,000, respectively for its services in 1997 and 1996. In addition, in December 1996, Mr. Gidumal was granted options to acquire 2,400,000 shares of common stock of the Company at an exercise price of $.03 per share. Of the options granted, 1,200,000 were immediately exercisable, with the balance exercisable on December 31, 1997. As of May 13, 1998, Mr. Gidumal had exercised his options and acquired 2,400,000 shares of the Company's common stock.
The Company has received a claim for payment of legal fees from former members of the Company's Board of Directors, pursuant to inquiries made by the SEC. The Company may be obligated to pay certain of these legal fees but does not believe these fees will materially impair the Company's overall performance.
During May 1997, four of the Company's directors, together with Mr. Gidumal and an unaffiliated third party, (the "Individual Purchasers") purchased approximately 57% of the Company's outstanding Convertible Preferred Stock directly from the security holders to settle potential and substantial legal and fraud claims against the Company related to activities which occurred prior to the date the Company's current management and Board of Directors assumed control of the Company. During July 1997, the Individual Purchasers purchased an additional 1,250 preferred shares, or approximately 30% of the Company's outstanding Convertible Preferred Stock directly from the security holder. As a result of these purchases, subsequent conversions and additional common shares issued for release of claims, each of the Individual Purchasers acquired 1,457,085 shares of the Company's common stock or an aggregate of 8,742,510 shares for all of the Individual Purchasers.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules And Reports on Form 8-K.
(a) List of financial statements, financial statement schedules and exhibits:
(i) List of financial statements.
The following consolidated financial statements of Vista 2000, Inc. and Report of Independent Accountants are attached to this report as follows:
Consolidated Statements of Operations, Cash Flows and Shareholders' Equity - year ended December 27, 1997, the year ended December 28, 1996 and the year ended December 30, 1995;
Consolidated Balance Sheet - December 27, 1997 and December 28, 1996;
Notes to the Consolidated Financial Statements; and
Report of Independent Accountants dated February 19, 1998.
(ii) list of financial statement schedules
The following financial statement schedules of Vista 2000, Inc. for the years ended December 27, 1997, December 28, 1996, and December 30, 1995 are included pursuant to Item 8:
Schedules not listed above have been omitted because they are not applicable or are not required for the information required to set forth therein is included in the Financial Statements or notes thereto.
The following consolidated financial statements schedules of Vista 2000, Inc. are included in this report:
Unqualified Opinion of Independent Accountants and Financial Statements Schedule
(b) Reports on Form 8-K:
A report on Form 8-K containing information on the June 19, 1997 sale of the Company's Alabaster subsidiary was filed September 19, 1997.
A report on Form 8-K containing information on the August 25, 1997 sale of the key and numbers, letters and signs assets of the Company's ACPI subsidiary was filed on September 25, 1997.
(c) Exhibits:
The exhibits required by Item 601 of Regulation SKB are filed herewith. (See Index of Exhibits.)
(d) Financial Statement Schedules:
The Financial Statement Schedules required by Regulation SX are filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Vista 2000, Inc.
By (Signature and Title) /s/ G. Louis Graziadio, III ------------------------------------------------------ G. Louis Graziadio, III, Chief Executive Officer Date: June 17, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title) /s/ G. Louis Graziadio, III ------------------------------------------------------ G. Louis Graziadio, III, Chairman of the Board Date: June 17, 1998
By (Signature and Title ) /s/ Shyam H. Gidumal ------------------------------------------------------ Shyam H. Gidumal, President and Director Date: June 17, 1998
By (Signature and Title) /s/ Perry A. Lerner ------------------------------------------------------ Perry A. Lerner, Director Date: June 17, 1998
By (Signature and Title) /s/ Lee E. Mikles ------------------------------------------------------ Lee E. Mikles, Director Date: June 17, 1998
By (Signature and Title) /s/ Paul A. Novelly ------------------------------------------------------ Paul A. Novelly, Director Date: June 17, 1998
By (Signature and Title) /s/ Richard D. Squires ------------------------------------------------------ Richard D. Squires, Director Date: June 17, 1998
[LETTERHEAD] [LOGO]
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS VISTA 2000, INC. AND SUBSIDIARIES December 27, 1997 and December 28, 1996
[ADDRESS]
[LETTERHEAD] [LOGO]
Report of Independent Certified Public Accountants
Board of Directors Vista 2000, Inc.
We have audited the accompanying consolidated balance sheets of Vista 2000, Inc. and subsidiaries as of December 27, 1997 and December 28, 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 27, 1997. 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 consolidated financial position of Vista 2000, Inc. and subsidiaries as of December 27, 1997 and December 28, 1996, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 27, 1997 in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Atlanta, Georgia February 19, 1998
[ADDRESS]
Vista 2000, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands except per share data)
ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these statements.
Vista 2000, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollar amounts in thousands except per share data)
The accompanying notes are an integral part of these statements.
Vista 2000, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 27, 1997, December 28, 1996 and December 30, 1995 (Dollars and share amounts in thousands)
Vista 2000, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 27, 1997, December 28, 1996, and December 30, 1995 (Dollars and share amounts in thousands)
The accompanying notes are an integral part of this statement.
Vista 2000, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands)
Vista 2000, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Dollar amounts in thousands)
Vista 2000, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Dollar amounts in thousands)
The accompanying notes are an integral part of these statements.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Vista 2000, Inc. and its subsidiaries, (the Company), are engaged primarily in the manufacture, distribution and sale of specialty consumer products including pet products, balloons, gloves, boots and rainwear. The Company's customers are primarily mass merchandisers and do-it-yourself retailers located throughout North America.
Public Offerings
On October 24, 1994, the Company completed an initial public offering of its common stock. The offering resulted in the sale of 1,000,000 units at $5.50 per unit before underwriting discounts and other offering expenses. Each unit consisted of one share of Company common stock and Series A Warrants to purchase two Company common shares. Each warrant entitled the holder to purchase, for a period of 48 months ending October 26, 1998, one share of common stock at an exercise price of $7.00 per share during the first 24 months and $10.00 per share thereafter, subject to adjustment in certain circumstances. In December, 1994, an additional 150,000 of the units, representing the underwriters' over-allotment option with respect to the offering, were sold.
During 1995 the Company completed four preferred stock offerings and one common stock offering pursuant to the exemption from registration under Regulation S of the Securities Act of 1933. $24,296 and $6,787, net of issuance costs, were raised through the preferred stock offerings and the common stock offerings, respectively.
During 1996, the Company completed one preferred stock offering and one common stock offering pursuant to the exemption from registration under Regulation S of the Securities Act of 1993. $19,400 and $1,800, net of issuance costs, were raised through the preferred stock offering and common stock offering, respectively.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
1) Nature of Business and Summary of Significant Accounting Policies - Continued
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Vista 2000, Inc. ("Vista"), and its wholly-owned subsidiaries, American Consumer Products, Inc. and subsidiaries ("ACPI"), Alabaster Industries, Inc. ("Alabaster"), Family Safety Products, Inc. ("FSPI"), and Intelock Technologies ("Intelock"), collectively ("the Company"). All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
During 1996 and 1997, Vista disposed of substantially all of the operating assets of all subsidiaries with the exception of Boss Manufacturing, a subsidiary of ACPI and the Warren Pet division of ACPI.
Fiscal Year
The Company maintains a 52/53 week year ending on the last Saturday in the calendar year. Fiscal years 1997, 1996 and 1995 each contained 52 weeks.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Revenue Recognition
The Company recognizes revenue and provides for the estimated cost of returns and allowances in the period the products are shipped. Approximately 21% of the Company's revenue was from two customers in 1996, accounting for approximately 11% and 10%, respectively, of total revenue. Approximately 15% of revenue was from one customer in 1995. No single customer accounted for 10% or more of the Company's revenue in 1997.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
1) Nature of Business and Summary of Significant Accounting Policies - Continued
Inventories
Inventories are stated at the lower of average cost or market. Cost for approximately 80% and 83% of inventories at December 27, 1997 and December 28, 1996, respectively, have been determined using the last-in, first-out (LIFO) method. Cost for the remainder of the inventories has been determined primarily using the first-in, first-out (FIFO) method.
Had the Company used the first-in, first-out (FIFO) method of accounting for all inventories, gross profit would have been substantially the same for all years presented.
Advertising Costs
The Company expenses the cost of advertising the first time advertising takes place. Costs of trade shows and developing advertising materials are expensed at the time of the trade shows or as the advertising materials are produced and distributed to customers. Advertising expense for 1997, 1996 and 1995 was $651, $1,950 and $1,685, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets when it is more likely than not that the asset will not be realized.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(1) Nature of Business and Summary of Significant Accounting Policies-Continued
Property, Equipment, Depreciation and Amortization
Property and equipment are recorded at historical cost. The Company provides for depreciation and amortization using the straight-line method over the following estimated useful lives:
Depreciation expense was $1,910, $2,108 and $611 for 1997, 1996 and 1995, respectively.
Warranty Costs and Returns
The Company provides for estimated warranty costs and returns at the time of sale. Accrued costs applicable to warranty obligations and returns are classified as accrued liabilities and are not material.
Research and Development Costs
Research and development costs are charged to expense as incurred and totaled $396, $590 and $297 for 1997, 1996 and 1995, respectively.
Foreign Currency Translation
Assets and liabilities of the Company's Canadian subsidiary are translated into U.S. dollars at fiscal year end exchange rates. Income and expense accounts are translated into U.S. dollars at average rates of exchange prevailing during the year. Adjustments resulting from translating the Canadian accounts are reflected as a foreign currency translation adjustment in stockholders' equity. Translation adjustments of the Mexican subsidiary, for which the functional currency is U.S. dollars, and transaction gains and losses are included in the results of operations for the year.
Net exchange losses included in the results of operations were not significant in any of the reported periods.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
1) Nature of Business and Summary of Significant Accounting Policies - Continued
Earnings Per Share
The Company adopted Statement of financial Accounting Standards No. 128 (SFAS 128), Earnings Per Share, in the fourth quarter of 1997. Basic net earnings per common share is based upon the weighted average number of common shares outstanding during the period. Diluted net earnings per common share is based upon the weighted average number of common shares outstanding plus dilutive potential common shares, including options and warrants outstanding during the period. All comparative earnings per share data for prior periods presented has been restated.
Use of Estimates in the Preparation of Financial Statements
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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The Company's financial instruments include cash, cash equivalents and long-term debt. The carrying value of cash and cash equivalents approximates fair value due to the relatively short period to maturity of the instruments. The carrying value of the Company's long-term obligations approximates fair value based upon borrowing rates currently available to the Company for borrowings with comparable maturities.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(2) Inventories
Inventories consist of the following :
(3) Property and Equipment
Property and Equipment consists of the following:
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(4) Notes Payable and Long-term Liabilities
Note Payable
Note payable at December 28, 1996 represented borrowings under a revolving credit and demand loan agreement (the Agreement) entered into by Alabaster with a financial institution which provided for borrowings of up to $2,500. This Agreement was assumed by the purchaser of Alabaster in 1997.
Long-term Debt
Long-term debt, including capital lease obligations, consists of the following:
Scheduled principal payments of long-term debt are as follows:
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(4) Long-term Debt - Continued
At December 31, 1996, the ACPI revolving credit agreement represented an agreement with two banks that provided for borrowings on a revolving line of credit of up to $28,900. Interest at the banks' base rate plus 3/8% (effective rate of 8.6% at December 28, 1996) and a loan commitment fee of 3/8% on the unused portion of the revolving credit commitment were payable quarterly. In May 1997, the Company entered into a loan and security agreement (the "1997 Agreement") with another bank to refinance the existing revolving credit facility. The 1997 Agreement, which expires in May 2000, was amended in August 1997, concurrent with the sale of certain ACPI assets (see Note 12). The 1997 Agreement, as amended, provides for a credit facility up to $10,000, based on a formula that includes eligible accounts receivable and inventory. Interest is payable monthly at the bank's prime rate plus .5% or, at the ACPI's option, LIBOR plus 2.50% (effective rate of 9% at December 27, 1997). Available interest rates may decrease based upon financial performance of the Company as defined. ACPI will incur an annual facility fee of $33 payable at the beginning of each contract year and a loan commitment fee of 3/8% per annum on the unused portion of the credit facility. The 1997 Agreement provides for certain restrictive covenants including, among others, limitations as to intercompany transfers and capital expenditures and maintenance of certain minimum financial ratios. The Company has received waivers for all events of noncompliance at December 27, 1997.
The credit facility is secured by essentially all the assets of ACPI and its subsidiaries and is guaranteed by each of the ACPI subsidiaries. The bank has also committed to $3,500 for letters of credit as part of the maximum borrowings under the line of credit. At December 27, 1997, borrowings of $3,110 and an outstanding letter of credit totaling $2,000 were outstanding under the 1997 Agreement.
(5) Commitments and Contingencies
Operating Leases
The Company leases certain office and operating facilities and certain equipment under operating lease agreements which expire on various dates through 2000 and require the Company to pay all maintenance costs. Rent expense under these leases was approximately $1,021, $1,379 and $809 for 1997, 1996 and 1995, respectively.
Future commitments under noncancellable operating leases as of December 27, 1997 are $126, $50 and $27 for 1998, 1999 and 2000, respectively.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(5) Commitments and Contingencies - Continued
Operating Leases - Continued
ACPI leased two facilities from related parties. The Company was responsible for repairs and maintenance, taxes and insurance of these facilities. Expenses for these operating leases were $639 and $735 in 1996 and 1995. ACPI purchased one of these facilities during 1996 and purchased the second of these facilities during 1997 (see Note 9).
Class Action Lawsuit
In April 1996, the Company together with certain officers, directors and third parties were named as a defendant in seventeen (17) class action lawsuits filed by stockholders of the Company in the United States District Court for the Northern District of Georgia. The lawsuits alleged that the Company violated the Federal Securities Laws, particularly Sections 10-b and 20-a of the Securities Exchange Act of 1934, as amended, and the rules and regulations, including Rules 10-b-5 thereunder as well as common law claims.
In August 1996, the court certified the plaintiffs as representatives of a class of all persons who purchased the Company's common stock or warrants during the period October 24, 1994 through June 8, 1996, except for the defendants and certain officers, directors and related parties. The Company and the other defendants reached an agreement in principle to settle the action in December 1996. Pursuant to the settlement, the Company issued a sufficient amount of shares of its common stock to the class to convey ownership of forty percent (40%) of the common stock of the Company to the class, based on common shares outstanding at December 1, 1996. During 1997, the Company issued approximately 14,654,000 common shares in accordance with the settlement. Approximately $903 has been charged to 1996 operations related to this settlement and was included in accrued liabilities at December 28, 1996. The Company's insurance carrier contributed $300 to the settlement to cover certain expenses related to the settlement. The settlement is in satisfaction of all claims of the class. The district court approved the settlement and the judgment became final on April 14, 1997.
Preferred Stockholders
During 1997, Vista settled all claims with its former preferred stockholders. The former preferred stockholders agreed to release Vista from all claims in exchange for the issuance of approximately 5,795,000 shares of common stock. Approximately $362 has been charged to 1997 operations related to this settlement. Additionally, all outstanding preferred shares were exchanged for approximately 3,095,000 common shares.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(5) Commitments and Contingencies - Continued
Sale of ACPI
During 1997, certain assets of ACPI were sold (see Note 12). The sale agreement provided for certain post closing adjustments to account for changes in assets and liabilities between the date of the agreement and the closing of the sale. The Company and the purchaser are currently disputing the amount of the post closing adjustments. Additionally, the purchaser has asserted claims against the Company for alleged breaches of representations and warranties in connection with the purchase agreement. Management believes these assertions to be without merit and intends to vigorously defend itself. However, the ultimate outcome of these disputes and claims cannot be determined at this time. Accordingly, no provision for any liabilities that may result on the ultimate outcome of these uncertainties has been provided in these financial statements.
Other Litigation
In July 1996, the Company commenced an action against Richard P. Smyth, a former officer and director, alleging that Mr. Smyth committed fraudulent and unlawful acts resulting in substantial harm to the Company and its shareholders. In September 1996, Mr. Smyth filed a counterclaim seeking, among other things, indemnification in connection with the class action lawsuit described above. The Company intends to vigorously pursue its action and contest the allegations in the counterclaim; however, management and legal counsel are unable to determine the possible outcome of this matter at this time.
The Company is also a defendant or has been notified of claims in several other actions against it. In the opinion of management, the ultimate outcome of these actions will not have a material adverse effect on the financial position of the Company.
SEC Investigation
The Company has been notified by the Securities and Exchange Commission ("SEC") that it had commenced a formal private investigation of the Company. The Company intends to cooperate with the SEC in this matter. The Company cannot predict the eventual outcome of this investigation. Independently, the Company through its Audit Committee has conducted an internal investigation of the facts and circumstances surrounding the investigation.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(6) Stockholder's Equity
Warrants
At December 30, 1995, warrants for the purchase of 36,408 shares of Company common stock that were issued in conjunction with debentures sold by the Company were issued and outstanding. These warrants expired as unexercised in January 1997. In addition, in March 1994, the Company issued 235,598 of its 1994 convertible debenture warrants to all the former debenture holders that acquired common stock of the Company on September 30, 1993 pursuant to their right of conversion. The 1994 convertible debenture warrants each provide for the purchase of one share of common stock at an exercise price of $2.50 per share and expire in March 1999.
2,000,000 Series A warrants were outstanding at December 27, 1997, which were issued in connection with the Company's initial public offering. The warrants are exercisable at an exercise price of $10.00 per share through October, 1998. Additionally, the Company agreed to sell to the Underwriters, as additional compensation, warrants to acquire units representing up to 100,000 shares of common stock at $9.08 per share and up to 200,000 shares of common stock underlying the Series A warrants at $11.55 per share. These warrants expire in October 1999.
During 1995, the Company issued warrants to various consultants to acquire up to 645,529 common shares at prices per share ranging from $2.00 to $12.00. A $40 expense was recorded during 1995 as a result of the issuance of these warrants. During 1996 and 1995, warrants were exercised to acquire 20,000 and 250,000 common shares, respectively.
Common Stock Issued for Services in Lieu of Cash
During 1995, the Company issued 280,000 shares of common stock to various consultants at per share market values at the agreement dates ranging from $1.88 to $2.06. In connection with the issuance of these shares, the Company recorded professional fees totaling $560.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(6) Stockholder's Equity - Continued
Stock Options
The Company has adopted two stock option plans providing for the issuance of options covering up to 8,000,000 shares of common stock to be issued to officers, directors, or consultants to the Company. Various vesting conditions apply to these options, based on either tenure or certain performance criteria. For options granted to employees at strike prices less than the fair market value of the underlying shares on the date of the grant, the difference in value is recognized as compensation expense over the applicable vesting periods. Options granted to nonemployees are recognized over the related service period based on the estimated fair value of the options This resulted in charges to operations amounting to $104, $808 and $900 for 1997, 1996 and 1995, respectively.
Stock option transactions are summarized as follows:
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(6) Stockholder's Equity - Continued
Stock Options - Continued
The following table summarizes information about stock options outstanding at December 27, 1997:
The Company uses the intrinsic value method in accounting for its stock options issued to employees. In applying this method, no compensation cost has been recognized related to the granting of options to employees. Had compensation cost for the Company's stock options plans been determined based on the fair value at the grant dates for awards to employees under those plans, the Company's net loss and loss per share would have resulted in the pro forma amounts indicated below:
For purposes of the pro forma amounts above, the fair value of each option grant was estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995; expected volatility of 295%, 295% and 107%, risk-free interest rates of 5.9%, 5.9% and 6.6%; and expected lives of 2 years.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(6) Stockholder's Equity - Continued
Stock Rescissions
During 1996, certain shareholders rescinded approximately 220,000 shares of common stock previously issued and returned the shares to the Company. The Company holds these shares in treasury at amounts which were recorded when the shares and related options were issued, totaling approximately $933.
Series Convertible Preferred Stock:
The Company has designated 142,000 of its 500,000 authorized preferred shares as follows:
The remaining 358,000 authorized preferred shares have not been designated as a series. The preferred stock was recorded net of issuance costs.
The Company's preferred stock was issued in several series pursuant to separate subscription agreements.
During 1997, the Company issued approximately 3,095,000 common shares in exchange for all of the remaining outstanding preferred stock. Additionally, the Company issued approximately 5,796,000 common shares to certain former preferred stockholders as settlement of any and all outstanding claims, resulting in a charge to operations of $362.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(7) Earnings Per Share
The following table sets forth the computation of basic and diluted loss per share.
(8) Employee Retirement Savings Plan
ACPI and Boss contribute to employee retirement plans covering substantially all of its employees. Charges to consolidated operations for these plans were as follows:
The contributions to the union sponsored, multi-employer pension plan were determined based upon the number of employees working per week. Participation in the multi-employer pension plan was attributable to ACPI only, and was assumed by the purchaser of the ACPI assets in August 1997 (see Note 12).
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(9) Related Party Transactions
During 1997 and 1996, fees incurred to stockholders and directors totaled approximately $1,358 and $225, respectively.
In October 1996, ACPI, through one of its wholly-owned subsidiaries, purchased certain land and manufacturing facilities from a partnership controlled by certain officers of ACPI for $1,773 cash and assumption of a $3,227 mortgage note. This facility was previously leased by ACPI from the related party. These related parties are no longer affiliated with the Company.
During 1997, ACPI, through one of its wholly-owned subsidiaries, purchased a second manufacturing facility from a corporation controlled by certain officers of ACPI for $1,158 cash and assumption of a $842 mortgage note. This facility was previously leased by ACPI from the related parties. These related parties are no longer affiliated with the Company.
At December 27, 1997, the Company has a note receivable outstanding from a former officer. This note is fully reserved pending final settlement with the Company.
(10) Income Taxes
The Company's temporary differences result in a net deferred income tax asset which is reduced to zero by a related valuation allowance, summarized as follows:
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(10) Income Taxes - Continued
Included in the tax credit carryforward is approximately $236 of alternative minimum tax credits and research and experimentation credits available to reduce future income taxes payable. These credits do not have an expiration date.
Income tax expense for 1997 and 1996 consists primarily of current state taxes attributable to ACPI and its subsidiaries.
At December 27, 1997, the Company had operating loss carryforwards for U.S. income tax purposes of approximately $47,365 available to reduce future taxable income, which expire as follows:
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(10) Income Taxes - Continued
Included in the operating loss carryforward is $1,436 of losses which expire in 2002 and which can only be utilized by the Boss Manufacturing subsidiary of ACPI.
The Company has experienced a change in control, as defined under Section 382 of the Internal Revenue Service Code, during 1995 and 1996. As a result, the utilization of the net operating losses which expire in 2011 and prior are limited to approximately $1,600 annually. Additionally, management believes that a change in control also occurred during 1997, which will limit the utilization of the net operating loss which expires in 2012 and could further limit the utilization of the net operating losses which expire in 2011 and prior. As a result of these limitations, a significant portion of the tax loss carryforwards could expire unused.
(11) Writedown of Operating Assets
During 1996, Alabaster continued to incur significant operating losses. Management's estimates of future operations did not support the carrying amount of Alabaster's net assets. Accordingly, a charge of $1,817 was recorded in the fourth quarter of 1996, representing management's estimate of the excess of Alabaster's net assets over their estimated net realizable value.
In September 1996, the Company closed the operations of Intelock and wrote down all remaining Intelock assets to their estimated net realizable value. Vista incurred a charge of $659 as a result of this write down. The assets and liabilities of Intelock included in the accompanying December 28, 1996 consolidated balance sheet were not significant. Intelock, which was acquired by Vista in 1995, was a manufacturer and distributor of digital locking devices.
Alabaster and Intelock were sold during 1997 (see Note 12).
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(12) Acquisitions and Dispositions
In August, 1997, Vista sold substantially all of the assets of ACPI, with the exception of it's Warren Pet Division and Boss Manufacturing, an ACPI subsidiary, for approximately $23,618 in cash, net of transaction costs of approximately $1,186, plus the assumption of approximately $3,260 of liabilities by the purchaser. Vista recorded a loss of approximately $1,840 on the sale of ACPI, including expenses related to the sale. Expenses related to the sale of ACPI included $1,044 paid to a stockholder and an affiliate of a stockholder of Vista.
In June, 1997, Vista sold all of the outstanding common stock of Alabaster for $2,000, consisting of $500 cash and a $1,500 promissory note. The promissory note requires monthly payments of $14, including interest at 10%, through July 1999, at which time all outstanding principal and interest is due. The promissory note is collateralized by certain real property of Alabaster. Vista recorded a loss on the sale of Alabaster of approximately $2,080, including expenses related to the sale.
In April, 1997, Vista sold all of its Intelock common stock for $5 cash and a $95 promissory note. All outstanding principal is due in April, 1998. Vista recorded a gain of approximately $128 on the sale of Intelock.
In August 1996, the Company sold substantially all the assets of FSPI for $1,800 cash and a $100 promissory note. The purchaser also assumed substantially all operating liabilities of FSPI. Vista recognized a loss on the sale of FSPI assets of $8,783. FSPI was a manufacturer and distributor of gas detection devices and other home safety products.
In May 1996, ACPI sold the inventory, tooling and other supplies of a product line for $1,059 in cash. The sale resulted in a gain of $472.
The assets and liabilities remaining from the FSPI and the disposed product line operations included in the accompanying December 28, 1996 consolidated balanced sheet were not significant.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(12) Acquisitions and Dispositions - Continued
During fiscal 1995 Vista completed four acquisitions and made one disposition which are summarized below.
Effective September 30, 1995, Vista acquired all of the outstanding common stock of ACPI, including its Boss Manufacturing subsidiary and Warren Pet division, through a cash tender offer totaling approximately $13,834 exclusive of acquisition costs. ACPI manufactures and distributes consumer hardware products including key blanks, related key accessories, knives, letters, numbers, signs, gloves and pet products as well as other items.
Effective July 31, 1995, Vista acquired all of the outstanding common stock of Alabaster in exchange for 400,000 shares of common stock issued by Vista valued at $2 per share or $800, exclusive of acquisition costs. Alabaster manufactures and distributes injection molded plastic products for the housewares industry.
Effective June 30, 1995, Vista acquired all of the outstanding common stock of Intelock and certain manufacturing assets owned by the former parent of Intelock in exchange for 219,200 shares of common stock of Vista and warrants to acquire 138,400 common shares of Vista, together valued at $1,097, exclusive of $5 cash paid and acquisition costs. Intelock manufactures and distributes digital locking devices.
The acquisitions of ACPI, Alabaster and Intelock were accounted for as purchases. Accordingly, each of the purchase prices were allocated to assets and liabilities based on their estimated fair values at the date of acquisition. Results of operations of ACPI, Alabaster and Intelock have been included in the consolidated financial statements from the respective date of each acquisition.
Effective May 1995, Vista acquired all of the outstanding common stock of Promotional Marketing, Inc. (PMI) and executed a non-competition agreement with former principals of PMI for a total of $610 exclusive of acquisition costs. PMI provided direct marketing services to a variety of customers. The acquisition has been accounted for as a purchase using the equity method of accounting. Effective November 30, 1995, PMI sold substantially all of its operating assets net of operating liabilities back to a company owned by the former principals of PMI in exchange for a guaranty of payment on a note receivable held by Vista. Vista recognized a loss of $1,147 on the sale of PMI. The accompanying 1995 consolidated statement of operations includes PMI's results of operations for the seven month period from the acquisition date to the date of disposition of substantially all the operating assets and liabilities of PMI.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(12) Acquisitions and Dispositions - Continued
Pro forma Results of Operations (Unaudited)
The pro forma results of operations which follow assume that the acquisition of Boss Manufacturing and the Warren Pet division of ACPI occurred on January 1, 1995, and the disposition of all other subsidiaries and divisions occurred on December 31, 1994. Accordingly, the pro forma results of operations which follow include the results of operations of Vista, Boss and Warren Pet. In addition to combining the historical results of operations of the companies, the pro forma calculations include adjustments for the estimated effects on the Company's historical results of operations for depreciation, interest and other purchase accounting adjustments related to the acquisitions. These results are not necessarily indicative of the results that would have occurred if the transactions had occurred at the beginning of each period presented nor are the results indicative of future results.
UNAUDITED
(13) New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued the following Statements of Financial Accounting Standards (SFAS):
SFAS 130, Reporting Comprehensive Income, which is effective for fiscal years beginning after December 15, 1997. SFAS 130 requires companies to include details about comprehensive income that arise during a reporting period. Comprehensive income includes revenue, expenses, gains and losses that bypass the income statement and are reported directly in a separate component of equity.
Vista 2000, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 27, 1997 and December 28, 1996 (Dollars amounts in thousands except per share data)
(13) New Accounting Pronouncements - Continued
SFAS 131, Disclosure About Segments of An Enterprise and Related Information, which is effective for fiscal years beginning after December 15, 1997. SFAS 131 requires companies to report information about an entity's different types of business activities and the different economic environments in which it operates, referred to as operating segments.
Management does not expect the adoption of these new standards to have a material impact on the Company's results of operations or financial condition.
Report of Independent Certified Public Accountants on Schedule
Board of Directors Vista 2000, Inc.
In connection with our audit of the consolidated financial statements of Vista 2000, Inc. and subsidiaries referred to in our reported dated February 19, 1998, which is included in the annual report to security holders and incorporated by reference in Part II of this form, we have also audited Schedule II for the years ended December 27, 1997, December 28, 1996 and December 30, 1995. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.
GRANT THORNTON
Atlanta, Georgia February 19, 1998
Vista 2000, Inc., and subsidiaries
CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(1) - bad debt write offs and reduction in estimate of allowance requirements.
INDEX TO EXHIBITS
- -------------------- (a) Exhibit previously filed as part of and is incorporated herein by reference to the Company's Registration Statement on Form SB-2 (Registration No. 33-73118-A). The exhibit number contained in parenthesis refers to the exhibit number in such Registration Statement.
(b) Exhibit previously filed as part of and is incorporated herein by reference to the Company's Current Report on Form 8-K dated June 9, 1996. The exhibit number contained in parenthesis refers to the Exhibit number in such Form 8-K.
(c) Exhibit previously filed as part of and is incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form SC-2 (Registration No. 33-73118-A). The exhibit number contained in parenthesis refers to the exhibit numbers in such Registration Statement.
(d) Exhibit previously filed as part of and is incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form SC-2 (Registration No. 33-73118-A). The exhibit number contained in parenthesis refers to the exhibit numbers in such Registration Statement.
(e) Exhibit previously filed as part of and is incorporated herein by reference to the Company's Current Report on Form 10-Q for the quarter ended March 30, 1996. The exhibit number contained in parenthesis refers to the Exhibit number in such Form 10-Q.
(f) Exhibit previously filed as part of and is incorporated herein by reference to the Company's Current Report on Form 10-Q for the quarter ended September 28, 1996. The exhibit number contained in parenthesis refers to the Exhibit number in such Form 10-Q.
(g) Exhibit previously filed as part of and is incorporated herein by reference to the Company's Current Report on Form 10-Q for the quarter ended June 28, 1997. The exhibit number contained in parenthesis refers to the Exhibit number in such Form 10-Q.
(h) Exhibit previously filed as part of and is incorporated herein by reference to the Company's Current Report on Form 8-K dated June 19, 1997. The exhibit number contained in parenthesis refers to the Exhibit number in such Form 8-K.
(i) Exhibit previously filed as part of and is incorporated herein by reference to the Company's Current Report on Form 8-K dated August 25, 1997. The exhibit number contained in parenthesis refers to the Exhibit number in such Form 8-K.