================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
October 28, 2004
----------------------------
Sunningdale, Inc.
(Exact name of registrant as specified in charter)
Delaware
(State or other Jurisdiction of Incorporation or Organization)
1-9431 94-3012230
(Commission File Number) (IRS Employer Identification No.)
(Address of Principal
Executive Offices and zip code)
Billhurst Studio
Lingfield Common Road
Lingfield Surrey RH7 6B7
UK
+44 1342 833855
(Registrant's telephone
number, including area code)
936A Beachland Boulevard, Suite 13
Vero Beach, FL 32963
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|_| Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17
CFR 240.14a-12(b))
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
================================================================================
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Information included in this Form 8-K may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
This information may involve known and unknown risks, uncertainties and other
factors which may cause the Company's actual results, performance or
achievements to be materially different from future results, performance or
achievements expressed or implied by any forward-looking statements.
Forward-looking statements, which involve assumptions and describe the Company's
future plans, strategies and expectations, are generally identifiable by use of
the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology. These forward-looking
statements are based on assumptions that may be incorrect, and there can be no
assurance that any projections included in these forward-looking statements will
come to pass. The Company's actual results could differ materially from those
expressed or implied by the forward-looking statements as a result of various
factors. Except as required by applicable laws, the Company undertakes no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
Section 3 - Securities and Trading Markets
Item 3.02 Unregistered Sales of Equity Securities
On October 28, 2004 (the "Closing"), Sunningdale, Inc., a Delaware
corporation ("Company") consummated the transactions contemplated by that
certain Share Exchange Agreement ("Exchange Agreement"), dated September 22,
2004, by and among the Company, Advanced Aluminium Group Limited ("AAG"), the
stockholders of AAG, and Keating Reverse Merger Fund, LLC ("KRM Fund"). Pursuant
to the terms of the Exchange Agreement, the Company acquired all of the
outstanding capital stock of AAG in exchange for the Company's issuance to the
AAG stockholders of 2,295,000 shares of the Company's common stock. The issuance
of the Company's shares of common stock to AAG's stockholders was exempt from
registration under the Securities Act of 1933, as amended ("Securities Act")
pursuant to Section 4(2) thereof.
Following the Closing, the stockholders of AAG own 2,295,000 shares of
the Company's common stock, or 90% of the outstanding shares of the Company's
common stock, and the stockholders of the Company immediately prior to Closing
("Existing Stockholders") own 255,000 shares of the Company's common stock, or
10% of the outstanding shares of the Company's common stock.
Under the Exchange Agreement, the Existing Stockholders also have
anti-dilution protection in the event the Company: (i) issues any securities in
any offering during the twelve (12) month period following the Closing, or (ii)
issues any securities in connection with the license and/or acquisition by the
Company of technology related to electricity-generating roadway ramps following
Closing (collectively, the "Events"). In such cases, the Company is required to
issue to the Existing Stockholders, in proportion to their respective ownership
interests prior to Closing, such additional number of shares of common stock of
the Company so that the Existing Stockholders shall own, in the aggregate, ten
percent (10%) of the issued and outstanding shares of common stock of the
Company, on a fully diluted basis, after giving effect to the Events.
Section 5 - Corporate Governance and Management
Item 5.01 Changes In Control
Effective as of the Closing, Kevin R. Keating resigned as sole
director of the Company, and the newly-appointed board of directors of the
Company consists of Nicholas A. Shrager, Charles K. Howe, and David W. Beale.
Two director positions will remain vacant following the Closing, but these
vacant positions are expected to be filled within thirty (30) days following
Closing. Pursuant to the Exchange Agreement and a certain Voting Agreement among
AAG, the stockholders of AAG and the KRM Fund (the "Voting Agreement"), one of
the vacant director positions will be filled by a person designated by KRM Fund,
which person shall be an independent director and a financial expert, qualified
and available to serve on the Company's audit and compensation committee, and
otherwise acceptable to the AAG stockholders ("KRM Fund Designee"). Under the
terms of the Voting Agreement, the AAG stockholders have agreed to vote their
shares of the Company's Common Stock to elect the KRM Fund Designee to the
Company's board for a period of one year following the Closing. Under the terms
of the Exchange Agreement, the remaining vacant director position will be filled
by a person selected by the AAG stockholders and will be an independent
director.
The Company intends to form an audit committee shortly after Closing.
The Company's newly-appointed board of directors has determined that its members
do not include a person who is an "audit committee financial expert" within the
meaning of the rules and regulations of the SEC. The board of directors has
determined that each of its members is able to read and understand fundamental
financial statements and has substantial business experience that results in
that member's financial sophistication. One of the director positions to be
filled within 30 days of the Closing will be a director who is an "audit
committee financial expert". Accordingly, the board of directors believes that
each of its members have the sufficient knowledge and experience necessary to
fulfill the duties and obligations that an audit committee would fulfill.
In connection with the Closing, the Company also entered into a
financial advisory agreement with Keating Securities, LLC ("Keating
Securities"), a registered broker-dealer, under which Keating Securities will be
compensated by the Company for its advisory services rendered to the Company in
connection with these transaction. The transaction advisory fee is $150,000. The
financial advisory agreement also appoints Keating Securities as the Company's
exclusive placement agent for private and public offerings of the Company's
securities during the one year period following the Closing.
The Company filed an Information Statement with the U.S. Securities and
Exchange Commission on October 6, 2004 pursuant to Section 14(f) of the Exchange
Act, and Rule 14f-1 promulgated thereunder, announcing the proposed. The
Information statement was mailed on October 6, 2004 to the Company's
stockholders of record as of October 5, 2004
Other than the transactions and agreements disclosed in this Form 8-K,
the Company knows of no arrangements which may result in a change in control of
the Company.
Business Overview
AAG is a diversified producer of aluminum extrusions and manufactured
parts located in the United Kingdom. Formed in October 2003, AAG brought
together several well-established companies in order to provide complete
one-stop aluminum extrusion services. AAG operates through the following wholly
owned subsidiaries:
Seco Aluminium Limited. Since 1965, Seco Aluminium Limited ("Seco") has
been a leading provider of aluminum extrusion design and production services and
specializes in meeting just-in-time delivery schedules. Seco provides complete
supply-chain management including component design, fabrication, warehousing and
delivery. Seco currently has about 130 employees. AAG acquired Seco in October
2003.
WHJ Fagg and Son. WHJ Fagg and Son ("Fagg"), formed in 1965, provides
precision engineering, tool making and volume production of machined aluminum
components primarily for the automotive industry. Fagg currently has about 60
employees. AAG acquired Fagg in January 2004.
Extrusions Direct. Extrusions Direct, a division of Seco, specializes
in extrusion design, aluminum forming and machining, and aluminum welding and
provides complete product manufacturing, assembly, warehousing and delivery.
Climatix. Climatix specializes in the architectural design and
manufacturing of heating and ventilating air conditioning systems.
Aluminum is a high strength, lightweight, corrosive resistant,
structural material that continues to replace steel, wood and other traditional
materials due to its design versatility, low cost tooling and recycling ability.
Aluminum extrusions are used by AAG's customers in a variety of products and
industries including aerospace, automotive, hospitals, railway coaches and
architectural applications (doors, windows and conservatories).
AAG's companies are ISO accredited and its facilities are located in
Essex, United Kingdom. It is presently negotiating for the purchase of a new
factory in the Czech Republic in order to supply new and existing clients whose
manufacturing facilities are located in the Czech Republic and southern Poland.
Item 5.02 Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers.
In connection with the Closing of the transactions under the Exchange
Agreement, Kevin R. Keating, the Company's sole director and its President,
Secretary and Treasurer resigned effective as of the Closing. The resignation by
Kevin R. Keating of his director and officer positions was not due to any
disagreement with the Company.
Prior to his resignation as a director Mr. Keating appointed the
following persons to serve on the board of directors of the Company: Messrs.
Nicholas A. Shrager, Charles K. Howe, and David W. Beale. The newly-appointed
board of directors has also appointed new principal officers of the Company
effective as of the Closing.
The following are the biographies of the newly elected directors and
principal officers:
Nicholas A. Shrager, age 57, is the Chairman, Chief Executive Officer
and President of the Company. Mr. Shrager was one of the two co-founders and
directors of Advanced Aluminium Group Limited in 2003, serving as Chief
Executive Director of the company and each of its subsidiaries. He has served as
Chairman of Riverside Business Solutions, a consulting firm, since 1999. From
1994 to 1999, Mr. Shrager was a consultant with Riverside Management Consultants
Limited, assisting clients in the areas of corporate strategy, acquisitions and
marketing. From 1991 to 1994, Mr. Shrager was a Director of Old Nick's, a very
successful enterprise focusing on retail liquor and beer sales. From 1987 until
its sale in 1991, Mr. Shrager served as Chairman of The Shrager Group, a timber
business in the United Kingdom. Mr. Shrager received an MBA from Southbank
University in London where he specialized in international marketing.
Stephen B. Goodacre, age 47, is the Chief Financial Officer and
Treasurer of the Company. Since April 2002, Mr. Goodacre has been the Director
of Blackwater Consulting Ltd., a financial recruitment and consultancy business.
Mr. Goodacre was employed by Lehman Brothers Inc. from 1990 to 2002, where he
held various positions including Head of International Management Accounting,
Finance & Operations, Director for Lehman's Global Equity Derivatives operation
and Head of European Expense Management. Mr. Goodacre was promoted to Vice
President in 1994 and Senior Vice President in 2000. Prior to joining Lehman, he
spent seven years with Philip Morris, serving last as UK Financial Planning
Manager.
Charles K. Howe, age 69, is a Director, Executive Vice President and
Secretary of the Company. Mr. Howe was one of the two co-founders and directors
of Advanced Aluminium Group Limited in 2003. Since 1985, he has been a director
of CH Resources Ltd, a business consultancy, through which he has held
directorships in a number of manufacturing companies. From 1971 to 1985, he was
a board member and then Chief Executive Officer of Crystalate Holdings plc, a
United Kingdom public company primarily engaged in the production of plastic
moulding and the business of acoustic and electronic components, particularly
for the telephone industry. He is a classics graduate from Cambridge University
and a Past Master of the Worshipful Company of Horners in the City of London,
and Chairman of its Educational Charity Trust.
David W. Beale, age 63, is a Director of the Company. Mr. Beale has
served as a director of Advanced Aluminium Group Limited since its acquisition
of Seco Aluminium Limited in 2003 where Mr. Beale was employed in various senior
positions since 1996. Prior thereto, he held senior positions with Boal UK Ltd
(1992 to 1996), Stanton plc (1987 to 1992) and GEC Turbine Generators Ltd (1980
to 1987). He is the current Senior Vice President of the Aluminium Federation, a
national non-profit organization representing the aluminum industry in the
United Kingdom. He is a graduate of Oxford University and a Chartered Engineer
Two director positions will remain vacant following the Closing, but
these vacant positions are expected to be filled within thirty (30) days
following Closing. Pursuant to the Exchange Agreement and the Voting Agreement,
one of the vacant director positions will be filled by a person designated by
KRM Fund, which person shall be an independent director and a financial expert,
qualified and available to serve on the Company's audit and compensation
committee, and otherwise acceptable to the AAG stockholders ("KRM Fund
Designee"). Under the terms of the Voting Agreement, the AAG stockholders have
agreed to vote their shares of the Company's Common Stock to elect the KRM Fund
Designee to the Company's board for a period of one year following the Closing.
Under the terms of the Exchange Agreement, the remaining vacant director
position will be filled by a person selected by the AAG stockholders and will be
an independent director.
None of the new officers or directors have been involved in any
transaction with the Company or any of its directors, executive officers or
affiliates that is required to be disclosed pursuant to the rules and
regulations of the Securities and Exchange Commission, other than with respect
to the transactions that have been described herein. None of the new directors
and officers has been convicted in a criminal proceeding, excluding traffic
violations or similar misdemeanors, or has been a party to any judicial or
administrative proceeding (except for matters that were dismissed without
sanction or settlement) during the past five years, that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
Effective as of the Closing, the Company entered into an employment
agreement with Nicholas A. Shrager and Charles K. Howe. The terms of each of
those employment agreements is as follows:
Nicholas A. Shrager
Mr. Shrager is to be retained as the Chairman of the Company at an
annual salary of $150,000. His annual salary shall increase automatically to
$200,000 if certain revenue targets for the Company established by the board of
directors are achieved for the 2005 fiscal year. Mr. Shrager will be entitled to
a bonus equal to 25% of his annual base salary, provided certain financial
performance measures relating to the Company's revenues and EBITDA are reached,
beginning with the 2004 fiscal year of the Company. Mr. Shrager will be entitled
to participate in all benefit plans maintained by the Company for senior
personnel, including, without limitation, any stock incentive plan maintained by
or to be adopted by the Company. He shall be entitled to six (6) weeks paid
vacation annually, and the Company shall secure "key man" life insurance on Mr.
Shrager's life in an amount to be determined. With respect to termination, if
Mr. Shrager is terminated "without cause" or voluntarily terminates his
employment with the Company for "good reason" (such terms to be defined), he
shall be entitled to severance equal to: (a) 50% of his annual base salary if
such termination occurs on or prior to June 30, 2005; (b) 100% of his base
salary plus prior year's bonus if such termination occurs on July 1, 2005 but
before January 1, 2006; and (c) 100% of his base salary plus his average bonus
for the prior two fiscal years of the Company if such termination occurs on or
after January 1, 2006. Mr. Shrager's Employment Agreement will provide for
standard restrictive covenants concerning non-solicitation of business,
non-enticement of personnel, confidentiality and non-disclosure, and
non-competition. It is expected that the terms of Mr. Shrager's Employment
Agreement will be reviewed and approved by the Company's board of directors in
connection with the execution of a definitive agreement incorporating the
foregoing terms.
Charles K. Howe
Mr. Howe shall be employed by the Company as an executive-level
consultant. The terms of his employment agreement with the Company shall
substantially mirror the terms of the employment agreement described above for
Mr. Shrager, except that Mr. Howe's annual consulting fee initially shall be
$100,000, which shall increase automatically to $150,000 per year if certain
revenue targets for the Company established by the board of directors are
achieved for the 2005 fiscal year.
The Board has not yet determined the Board committees to which each new
director will be named. Upon such determination, the Company shall file an
amendment to this Form 8-K.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change of Fiscal
Year.
Effective as of the Closing, the board of directors of the Company
changed the fiscal year end of the Company from September 30 to December 31,
effective for the fiscal year ending December 31, 2004. These change of fiscal
year was effected so that the Company's fiscal year end would be consistent with
the fiscal year end of AAG, whose financial statements will become the
historical financial statements of the Company following the Closing.
Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Page
----
Report of Independent Registered Public Accounting Firm ...................................................F-1
Consolidated Balance Sheets - Consolidated balance sheets of Advanced Aluminium
Group Ltd. and its Subsidiaries as of June 30, 2004 (unaudited) and December 31, 2003,
and of Seco Aluminium Ltd. (as Predecessor Company) as of October 19, 2003 and
December 31, 2002.......................................................................................F-2
Consolidated Statements of Operations - Consolidated statements of operations of Advanced
Aluminium Group Ltd. and its Subsidiaries for the six months ended June 30, 2004
(unaudited) and for the period from October 20, 2003 (inception) to December 31, 2003,
and of Seco Aluminium Ltd. (as Predecessor Company) for the six months ended
June 30, 2003 (unaudited) and for the period from January 1, 2003 to October 19, 2003
and for the year ended December 31, 2002................................................................F-3
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income
(Loss) - Consolidated statements of stockholders' equity (deficit) and comprehensive income
(loss) of Advanced Aluminium Group Ltd. and its Subsidiaries for the period from
October 20, 2003 (inception) to December 31, 2003 and for the six months ended
June 30, 2004 (unaudited)...............................................................................F-4
Consolidated Statements of Cash Flows - Consolidated statements of cash flows of
Advanced Aluminium Group Ltd. and its Subsidiaries for the six months ended
June 30, 2004 (unaudited) and for the period from October 20, 2003 (inception) to
December 31, 2003, and of Seco Aluminium Ltd. (as Predecessor Company) for the six
months ended June 30, 2003 (unaudited) and for the period from January 1, 2003 to
October 19, 2003 and for the year ended December 31, 2002...............................................F-5
Notes to Consolidated Financial Statements.................................................................F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Advanced Aluminium Group Ltd.
We have audited the accompanying consolidated balance sheet of Advanced
Aluminium Group Ltd. and its subsidiaries (the "Company") as of December 31,
2003, and the related consolidated statements of operations, stockholders'
equity (deficit) and comprehensive income (loss), and cash flows for the period
from October 20, 2003 (inception) to December 31, 2003; and the accompanying
consolidated balance sheets of Seco Aluminium Ltd. (Predecessor Company) as of
October 19, 2003 and December 31, 2002 and the related consolidated statements
of operations and cash flows for the period from January 1, 2003 to October 19,
2003 and for the year ended December 31, 2002. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 the Company as of
December 31, 2003, and the consolidated results of their operations and their
cash flows for the period from October 20, 2003 (inception) to December 31,
2003; and the consolidated financial position of the Predecessor Company as of
October 19, 2003 and December 31, 2002 and the results of their operations and
their cash flows for the period from January 1, 2003 to October 19, 2003, and
for the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
MOORE STEPHENS, P. C.
Certified Public Accountants.
/s/ MOORE STEPHENS, P. C.
New York, New York
September 7, 2004
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Advanced Aluminium Group, Ltd.
------------------------------
and Subsidiaries Predecessor Company
---------------- -------------------
June 30, December 31, October 19, December 31
-------- ------------ ----------- -----------
2 0 0 4 2 0 0 3 2 0 0 3 2 0 0 2
-------- -------- -------- --------
(Unaudited)
-----------
Assets:
Current Assets:
Cash and Cash Equivalents $ 341 $ 150 $ 25 $ --
Accounts Receivable - Net 7,154 6,312 6,549 5,342
Inventories 2,049 1,618 1,293 1,450
Current Deferred Taxes 27 8 6 20
Other Current Assets 30 156 215 238
-------- -------- -------- --------
Total Current Assets 9,601 8,244 8,088 7,050
Property, Plant and Equipment - Net 4,543 3,063 3,850 3,945
Intangible Assets, Net of Accumulated
Amortization of $50 556 -- -- --
Non-Current Deferred Taxes -- 55 57 1
-------- -------- -------- --------
TOTAL ASSETS $ 14,700 $ 11,362 $ 11,995 $ 10,996
======== ======== ======== ========
Liabilities and Stockholders' Equity (Deficit):
Current Liabilities:
Short-Term Borrowings and Credit
Agreements $ 4,858 $ 6,332 $ 2,271 $ 2,329
Accounts Payable 5,174 4,445 4,326 3,950
Income Taxes Payable 112 75 92 --
Current Portion of Long-Term Debt 363 -- -- --
Other Current Liabilities 903 675 550 621
-------- -------- -------- --------
Total Current Liabilities 11,410 11,527 7,239 6,900
Long-Term Debt, Less Current
Portion 3,749 -- -- --
Non-Current Deferred Taxes 78 -- -- --
-------- -------- -------- --------
Total Liabilities 15,237 11,527 7,239 6,900
-------- -------- -------- --------
Stockholders' Equity (Deficit):
Common Stock, $2 Per Share Stated
Value; 1,000 Shares Authorized, Issued
and Outstanding 2 2 1,569 1,569
Retained Earnings (Deficit) (536) (164) 2,614 2,195
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment (3) (3) 573 332
-------- -------- -------- --------
Total Stockholders' Equity (Deficit) (537) (165) 4,756 4,096
-------- -------- -------- --------
Total Liabilities and Stockholders'
Equity $ 14,700 $ 11,362 $ 11,995 $ 10,996
======== ======== ======== ========
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Advanced Aluminium Group, Ltd.
------------------------------
and Subsidiaries Predecessor Company
---------------- ---------------------------------------------------
Six months October 20, Six months January 1,
---------- ----------- ---------- ----------
ended 2003 to ended 2003 to Year ended
----- ------- ----- ------- ----------
June 30, December 31, June 30, October 19, December 31,
-------- ------------ -------- ----------- ------------
2 0 0 4 2 0 0 3 2 0 0 3 2 0 0 3 2 0 0 2
-------- -------- -------- -------- --------
(Unaudited) (Unaudited)
----------- -----------
Net Sales $ 14,544 $ 4,194 $ 10,179 $ 17,053 $ 21,746
Cost of Sales 13,032 4,004 9,270 15,311 20,845
-------- -------- -------- -------- --------
Gross Profit 1,512 190 909 1,742 901
Selling, General and
Administrative Expenses 1,668 268 654 1,055 1,333
-------- -------- -------- -------- --------
Income (Loss) from
Operations (156) (78) 255 687 (432)
Interest Expense 280 122 64 148 126
-------- -------- -------- -------- --------
Income Before Income
Taxes (436) (200) 191 539 (558)
Provision For Income Tax
Expense (Benefit) (64) (36) 42 120 (48)
-------- -------- -------- -------- --------
Net Income (Loss) $ (372) $ (164) $ 149 $ 419 $ (510)
======== ======== ======== ======== ========
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE
INCOME (LOSS)
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Accumulated Total
----------- -----
Comprehensive Retained Other Stockholders'
------------- -------- ----- -------------
Income Common Stock Earnings Comprehensive Equity
------ ------------ -------- ------------- ------
(Loss) Shares Amount (Deficit) (Loss) (Deficit)
------ ------ ------ --------- ------ ---------
Inception - October 20, 2003 $ -- -- $ -- $ -- $ -- $ --
Issuance of Common Stock
For Cash -- 1,000 2 -- -- 2
Net Loss (164) -- -- (164) -- (164)
Effect of Currency
Translation in Period (3) -- -- -- (3) (3)
------- ------- ------- ------- ------- -------
$ (167)
=======
Balances -
December 31, 2003 1,000 2 (164) (3) (165)
Net Loss (Unaudited) $ (372) (372) (372)
Effect of Currency
Translation In Period
(Unaudited) -- -- -- -- -- --
------- ------- ------- ------- ------- -------
$ (372)
=======
Balances - June 30,
2004 (Unaudited) 1,000 $ 2 $ (536) $ (3) $ (537)
======= ======= ======= ======= =======
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Advanced Aluminium Group, Ltd.
------------------------------
and Subsidiaries Predecessor Company
---------------- -------------------------------------------
Six months October 20, Six months January 1,
---------- ----------- ---------- ----------
ended 2003 to ended 2003 to Year ended
----- ------- ----- ------- ----------
June 30, December 31, June 30, October 19, December 31,
-------- ------------ -------- ----------- ------------
2 0 0 4 2 0 0 3 2 0 0 3 2 0 0 3 2 0 0 2
------- ------- ------- ------- -------
(Unaudited) (Unaudited)
----------- -----------
Operating Activities:
Net Income (Loss) $ (372) $ (164) $ 149 $ 419 $ (510)
Adjustments to Reconcile Net
Income (Loss) to Cash From
Operations:
Depreciation and Amortization 606 111 417 657 817
Changes in Assets and Liabilities:
Decrease (Increase):
Receivables 291 541 123 (877) 730
Inventories 5 (231) 87 226 (17)
Other Current Assets 238 66 207 (3) (65)
Increase (Decrease):
Accounts Payable 59 (107) (375) 154 (579)
Taxes 18 (19) -- 88 (48)
Other Current Liabilities 136 86 90 (101) 119
------- ------- ------- ------- -------
Net Cash - Operating
Activities 981 283 698 563 447
------- ------- ------- ------- -------
Investing Activities:
Cash Paid for Seco
Acquisition, Net of Cash Acquired -- (3,874) -- -- --
Cash Paid for Fagg
Acquisition, Net of Cash Acquired (732) -- -- -- --
Capital Expenditures (826) (87) (280) (362) (595)
------- ------- ------- ------- -------
Net Cash - Investing
Activities (1,558) (3,961) (280) (362) (595)
------- ------- ------- ------- -------
Financing Activities:
Net Changes to Short-Term
Borrowings (2,782) 3,570 (433) (177) 116
Borrowing of Long-Term Debt 3,726 -- -- -- --
Payment of Long-Term Debt (175) -- -- -- --
Issuance of Common Stock -- 2 -- -- --
------- ------- ------- ------- -------
Net Cash - Financing
Activities 769 3,572 (433) (177) 116
------- ------- ------- ------- -------
Effect Of Exchange Rates
Changes on Cash (1) 231 15 1 32
------- ------- ------- ------- -------
Net Increase (Decrease) in
Cash - Forward $ 191 $ 125 $ -- $ 25 $ --
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Advanced Aluminium Group, Ltd.
------------------------------
and Subsidiaries Predecessor Company
---------------- --------------------------------------------
Six months October 20, Six months January 1,
---------- ----------- ---------- ----------
ended 2003 to ended 2003 to Year ended
----- ------- ----- ------- ----------
June 30, December 31, June 30, October 19, December 31,
-------- ------------ -------- ----------- ------------
2 0 0 4 2 0 0 3 2 0 0 3 2 0 0 3 2 0 0 2
------- ------- ------- ------- -------
(Unaudited) (Unaudited)
----------- -----------
Net Increase (Decrease) in
Cash - Forwarded $191 $125 $ -- $ 25 $ --
Cash - Beginning of Periods 150 25 -- -- --
---- ---- ---- ---- ----
Cash - End of Periods $341 $150 $ -- $ 25 $ --
==== ==== ==== ==== ====
Supplemental Cash Flow Information:
Cash paid during the periods for:
Interest $284 $116 $ 64 $141 $126
Income Taxes $ -- $ -- $ -- $ -- $ --
Debt Issued for Fagg
Acquisition $675 $ -- $ -- $ -- $ --
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(1) Business
Advanced Aluminium Group Ltd (the "Company"), through its operating
subsidiaries, is a diversified producer of aluminum extrusions and manufactured
parts. The Company's two principal operating subsidiaries are Seco Aluminium
Ltd. ("Seco" or the "Predecessor Company") and W.H.J. Fagg & Son Ltd. ("Fagg"),
both of which are located in England. The Company's customers are also based in
England. Seco is a provider of aluminum extrusion design and production
services, providing complete supply-chain management including component design,
fabrication, warehousing and delivery. Fagg provides precision engineering, tool
making and volume production of machined (primarily aluminum) components
principally for the automotive industry. Fagg was acquired effective February 1,
2004.
(2) Organization and Basis of Presentation
The Company is incorporated under the laws of England.
Effective October 20, 2003, the Company acquired all of the outstanding capital
stock of Advanced Aluminium Industries, Ltd. ("AAI"). AAI's activities as of the
date of acquisition consisted solely of the ownership of Seco, which was
acquired by AAI on October 20, 2003.
Since October 20, 2003 ("Inception") the Company's activities consisted solely
of activities related to the operation of AAI and Seco. Such activities, which
were not significant, have been included in the consolidated statement of
operations for the Company for the period from inception through December 31,
2003. The primary operating activities included in the consolidated statement of
operations for the Company for the period from Inception through December 31,
2003 are those of Seco, which became an indirect subsidiary of the Company,
through its AAI subsidiary, on October 20, 2003.
The consolidated balance sheets as of October 19, 2003 and December 31, 2002 and
the consolidated statements of operations and cash flows for the period from
January 1, 2003 to October 19, 2003, the six months ended June 30, 2003 and the
year ended December 31, 2002 represent the financial position and results of
operations and cash flows of the Predecessor Company through the date of
acquisition. The consolidated balance sheets as of June 30, 2004 and December
31, 2003 and consolidated statements of operations and cash flows for the period
from Inception to December 31, 2003 and the six months ended June 30, 2004
represent the consolidated financial position and results of operations and cash
flows for the Company and its wholly-owned direct and indirect subsidiaries.
The Company's direct wholly-owned subsidiaries include:
Direct Subsidiary Country of Incorporation Principal Activity
----------------- ------------------------ ------------------
Advanced Aluminium Industries Limited England Investment holding company
Advanced Aluminium Estates Limited England Real estate holding company
Advanced Aluminium Power Limited England Dormant
Advanced Aluminium Climatix Limited England Dormant
Advanced Aluminium Limited England Service company
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(2) Organization and Basis of Presentation (Continued)
The Company's indirect wholly-owned subsidiaries include:
Country of
----------
Indirect Subsidiary Incorporation Principal Activity Owned By
------------------- ------------- ------------------ --------
SECO Aluminium Limited England Aluminium extruder AAI
W.H.J. Fagg & Son Ltd. England Aluminium machined parts AAI
Extrusions Direct Limited England Aluminium extrusion services Seco
Supply 2000 Limited England Aluminium extrusion services Seco
The accounts of Fagg have been included since February 1, 2004 the date on which
AAI acquired all of the outstanding capital stock of Fagg.
The financial statements as of June 30, 2004 and for six months ended June 30,
2004 and 2003 are unaudited, however, in the opinion of the management of the
Company and its subsidiaries, all adjustments (consisting solely of normal
recurring adjustments) necessary to a fair presentation of the financial
statements for these interim periods have been made. The results for the interim
period ended June 30, 2004 are not necessarily indicative of the results to be
obtained for a full fiscal year.
(3) Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements of the
Company include the accounts of its wholly-owned direct and indirect
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Foreign Currency - The Company headquarters and principal business operations
are located in England. Although most purchase contracts for aluminum are
denominated in U.S. dollars, all other expenses and all revenues are denominated
in UK Pound Sterling. As such, management has determined that the functional
currency for financial reporting purposes is the UK Pound Sterling. Translation
into U.S. dollars have been translated in the following manner: assets and
liabilities using the exchange rates in effect at the balance sheet date,
stockholders equity at historical rates, and results of operations and cash
flows at the average exchange rates during the period. The effect of exchange
rate changes are reflected as a separate component of stockholders' equity.
Use of Estimates - The preparation of the financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the periods reported. Actual results could differ from those
estimates.
Cash and Cash Equivalents - The Company considers all highly liquid debt
securities purchased with an original maturity of three months or less to be
cash equivalents.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(3) Significant Accounting Policies (Continued)
Inventories - Inventories consist primarily of raw materials (principally
aluminum billets, extrusions and bar stock) and work in process/finished goods,
(aluminum extrusions and machined parts). Inventories are stated at the lower of
cost (first-in, first-out method) or market. Inventories consist of:
Advanced Aluminium
------------------
Group Ltd
---------
and Subsidiaries Predecessor Company
---------------- -------------------
June 30, December 31, October 19, December 31,
-------- ------------ ----------- ------------
2 0 0 4 2 0 0 3 2 0 0 3 2 0 0 2
------- ------- ------- -------
(Unaudited)
-----------
(In thousands of U.S. dollars)
Raw Materials $ 1,078 $ 555 $ 424 $ 581
Work in Process and Finished Goods 971 1,063 869 869
----------- ------------ ------------ -----------
Totals $ 2,049 $ 1,618 $ 1,293 $ 1,450
=========== ============ ============ ============
Income Taxes - The Company accounts for income taxes under the liability method,
whereby current and deferred tax assets and liabilities are determined based on
tax rates and laws enacted as of the balance sheet date. Deferred tax expense
(benefit) represents the change in the deferred tax asset/liability balance.
Property, Plant and Equipment - Property and equipment is stated at cost.
Depreciation is computed principally using the straight-line method. The
estimated useful lives are:
Buildings and Improvements 50 Years
Equipment, Furniture and Fixtures 3 to 15 Years
Vehicles 3 to 5 Years
Expenditures for maintenance and repairs which do not materially extend the
useful lives of property, plant and equipment are charged to earnings. When
property or equipment is sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the respective accounts with the
resulting gain or loss reflected in earnings. Property, plant and equipment
consists of the following:
Advanced Aluminium
------------------
Group Ltd
---------
and Subsidiaries Predecessor Company
---------------- -------------------
June 30, December 31, October 19, December 31,
-------- ------------ ----------- ------------
2 0 0 4 2 0 0 3 2 0 0 3 2 0 0 2
------- ------- ------- -------
(Unaudited)
-----------
(In thousands of U.S. dollars)
Land, Buildings and Improvements $ 1,124 $ 811 $ 1,658 $ 1,572
Equipment, Furniture and Fixtures 9,185 7,472 7,017 6,326
Vehicles 111 52 83 79
----------- ------------ ------------ ------------
Totals 10,420 8,335 8,758 7,977
Less Accumulated Depreciation (5,877) (5,272) (4,908) (4,032)
----------- ------------ ------------ ------------
Property, Plant and Equipment - Net $ 4,543 $ 3,063 $ 3,850 $ 3,945
=========== ============ ============ ============
Depreciation expense was $556,000 for the six months ended June 30, 2004,
$111,000 for the period ended December 31, 2003, $417,000 for the six months
ended June 30, 2003, $657,000 for the period from January 1, 2003 to October 20,
2003, and $817,000 for the year ended December 31, 2002.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(3) Significant Accounting Policies (Continued)
Intangibles - Intangibles, which consist of customer lists, are recorded at cost
and are amortized utilizing the straight-line method over a period of 5 years.
When changing circumstances warrant, the Company evaluates the carrying value
and the period of amortization based on the current and expected future
undiscounted cash flows from operations to determine whether a revised estimate
of carrying value or useful life is required.
Year ended Total
---------- -----
December 31, (In thousands of U.S. dollars)
------------ ----------------------------
2004 (including $50 recorded through June 30, 2004) $111
2005 121
2006 121
2007 121
2008 121
Thereafter 11
----
Total $606
====
Revenue Recognition - The Company recognizes revenue after its product is
shipped and collectibility is reasonably assured.
Net Revenues - Net revenues include the amounts charged for products shipped to
customers, plus recoveries of the freight charges to ship the product from the
manufacturing facility to the customer.
Cost of Sales - Cost of sales includes the direct cost of the product, including
material, labor, overhead, depreciation and the freight charges to ship the
product to the customer.
Selling, General and Administrative Expenses - Selling general and
administrative expenses include costs for sales and administrative employee
wages, benefits, legal, accounting and consulting services and other general and
administrative costs.
Impairment of Long-Lived Assets - The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When such factors and
circumstances exist, the projected undiscounted future cash flows associated
with the future use and disposal of the related asset or group of assets is
compared to their respective carrying amounts. Impairment, if any, is measured
as the excess of the carrying amount over the fair value, based on market value
when available, or discounted expected cash flows, of those assets and is
recorded in the period in which the determination is made.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(3) Significant Accounting Policies (Continued)
Fair Value of Financial Instruments - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No.107, "Disclosure about Fair Value of Financial
Instruments," which requires disclosing fair value, to the extent practicable,
for financial instruments which are recognized or unrecognized in the balance
sheet. The fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or settled, nor
does the fair value amount consider the tax consequences of realization or
settlement.
In assessing the fair value of these financial instruments, the Company used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash and cash equivalents, related party and trade and notes payable, it was
assumed that the carrying amount approximated fair value for the majority of
these instruments because of their short maturities.
The fair value of long-term debt is based upon current rates at which the
Company could borrow funds with similar remaining maturities. It was assumed
that the carrying amount approximated fair value for these instruments.
Research and Development Costs - The Company does not have a research and
development department. The development activity generally relates to designing
new products, which is principally done by employees with general administrative
or other operating responsibility. As such, the Company does not separately
account for such costs. However, management believes the total amount expended
on these activities are not significant. All such costs are expensed as
incurred.
Advertising - The Company expenses advertising costs as incurred. Advertising
expenses were approximately $6,000 for the six months ended June 30, 2004,
$2,000 for the period from October 20, 2003 to December 31, 2003, $4,000 for the
six months ended June 30, 2003, $6,000 for the period from January 1, 2003 to
October 19, 2003, and $12,000 for the year ended December 31, 2002.
Stock-Based Compensation - The Company accounts for its employee stock-based
compensation using the intrinsic value method in accordance with Accounting
Principles Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to
Employees, and related Interpretations." The Company makes disclosures regarding
employee stock-based compensation using the fair value method in accordance with
SFAS 123, "Accounting for Stock-Based Compensation."
Earnings (Loss) Per Share - Basic earnings (loss) per share is computed by
dividing net income (loss) by the weighted-average number of vested common
shares outstanding for the period. Diluted earnings (loss) per share is computed
giving effect to all potentially dilutive common stock.
Recent Accounting Pronouncements - In May 2003, the Financial Accounting
Standards Board ("FASB") issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
changes the accounting guidance for certain financial instruments that, under
previous guidance, could be classified as equity or "Mezzanine" equity by now
requiring those instruments to be classified as liabilities (or assets in some
circumstances) on the balance sheet. Further, SFAS 150 requires disclosure
regarding the terms of those instruments and settlement alternatives. SFAS 150
is generally effective for all financial instruments entered into or modified
after May 31, 2003, and is otherwise effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS 150 did not
have a material impact on the Company's financial position, results of
operations or cash flows.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(3) Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued) - In April 2003, the FASB issued
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends SFAS 133 to clarify the definition of a derivative
and incorporate many of the implementation issues cleared as a result of the
Derivatives Implementation Group process. This statement is effective for
contracts entered into or modified after June 30, 2003, and should be applied
prospectively after that date. The adoption of SFAS 149 is not expected to have
a material effect on the financial statements.
In December 2002, the FASB issued SFAS 148 "Accounting for Stock-Based
Compensation-- Transition and Disclosure--an amendment of SFAS 123." SFAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation from the
intrinsic value-based method of accounting prescribed by APBO 25. As allowed by
SFAS 123, the Company has elected to continue to apply the intrinsic value-based
method of accounting, and has adopted the disclosure requirements of SFAS 123.
The Company currently does not anticipate adopting the provisions of SFAS 148.
In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS 146 provides new guidance on the recognition
of costs associated with exit or disposal activities. The standard requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of commitment to an exit or disposal
plan. SFAS 146 supersedes previous accounting guidance provided by the EITF
Issue 94-3 "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." EITF Issue 94-3 required recognition of costs at the date of
commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. Early
application is permitted. The adoption of SFAS 146 by the Company is not
expected to have a material impact on the Company's financial position, results
of operations, or cash flows.
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements 4, 44,
and 64, Amendment of FASB Statement 13, and Technical Corrections." Among other
things, this statement rescinds FASB Statement 4, "Reporting Gains and Losses
from Extinguishment of Debt" which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in APB Opinion 30, "Reporting the Results of Operations --Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," will now be used to classify
those gains and losses. The provisions of SFAS 145 related to the classification
of debt extinguishment are effective for years beginning after May 15, 2002. The
adoption of SFAS 145 by the Company is not expected to have a material impact on
the Company's financial position, results of operations, or cash flows.
(4) Acquisitions
On October 20, 2003, the Company purchased all of the outstanding shares of the
Predecessor Company through its wholly-owned AAI subsidiary, for cash of
approximately $3.9 million, including acquisition costs of approximately
$125,000. Accordingly, the results of operations of Seco are included in the
consolidated financial statements of the Company from the date of acquisition.
Because the total purchase price was less than the net book value of the
Predecessor Company, no allocation of the purchase price was made, and the
amount paid below net book value of approximately $913,000 was recorded as a
reduction to land, buildings and improvements.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(4) Acquisitions (Continued)
On January 31, 2004, the Company purchased all of the outstanding shares of
W.H.J. Fagg & Son Ltd. ("Fagg") through its wholly-owned AAI subsidiary, for a
total investment of approximately $1.4 million including transaction related
costs of $64,000. Payment was made in the form of cash of $739,000 and notes in
the amount of $675,000. Fagg provides precision engineering, tool making and
volume production of machined aluminum components principally for the automotive
industry. Fagg's engineering and machining capabilities are complementary to the
extrusion business of Seco. The investment in excess of the net book value of
Fagg has been allocated to intangible assets, representing the value assigned to
Fagg's customer list, and is being amortized over five years using the
straight-line method. The results of operations of Fagg are included in the
consolidated financial statements of the Company beginning February 1, 2004.
The following condensed balance sheet information has been derived from the
audited balance sheet of Fagg as of January 31, 2004.
The assets acquired including the cost in excess of net assets acquired and
liabilities assumed in the acquisition of Fagg are as follows:
(In thousands of U.S.dollars)
---------------------------
Tangible Assets acquired at Fair Value $ 2,725
Cost in excess of net assets acquired (customer lists) 606
Liabilities Assumed at Fair Value (1,917)
------------
Total Purchase Price $ 1,414
============
Selected unaudited proforma combined results of operations for the years ended
December 31, 2003 and 2002, assuming that the Predecessor Company and Fagg
acquisitions occurred on January 1, 2003 and 2002, including activity subsequent
to their actual acquisitions is as follows:
Year Ended
----------
December
--------
2003 2002
---- ----
(In thousands of U.S. dollars)
----------------------------
Net Sales:
Predecessor Company and the Company from Inception $ 21,308 $ 21,746
Fagg 5,034 3,388
-------- --------
Combined $ 26,342 $ 25,134
======== ========
Net Income:
Predecessor Company and the Company from Inception $ (108) $ (1,001)
Fagg (155) (100)
-------- --------
Combined $ (263) $ (1,101)
======== ========
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(4) Acquisitions (Continued)
Changes in the equity accounts of Predecessor Company, in thousands of U.S.
dollars are as follows:
Accumulated
-----------
Comprehensive Other Total
------------- ----- -----
Income Preferred Stock Common Stock Retained Comprehensive Stockholder's
------ --------------- ------------ -------- ------------- -------------
(Loss) Shares Amount Shares Amount Earnings Income Equity
------- ------ ------- ------- ------- ------- ------- -------
Balance at
January 1, 2002 $ -- -- $ -- 90,910 $ 1,569 $ 2,705 $ (112) $ 4,162
Net Loss (510) -- -- -- -- (510) -- (510)
Effect of Currency
Translation 444 -- -- -- -- -- 444 444
------- ---- ------- ------- ------- ------- ------- -------
Balance at December 31,
2002 $ (66) -- -- 90,910 1,569 2,195 332 4,096
=======
Net Income $ 419 -- -- -- -- 419 -- 419
Effect of Currency
Translation 241 -- -- -- -- -- 241 241
------- ---- ------- ------- ------- ------- ------- -------
Balance at October 19,
2003 $ 660 -- $ -- 90,910 $ 1,569 $ 2,614 $ 573 $ 4,756
======= ==== ======= ======= ======= ======= ======= =======
(5) Concentrations
(A) Concentration of Credit Risk - Financial instruments that potentially
subject the Company to significant concentrations of credit risk consists
principally of cash and cash equivalents and accounts receivable.
The Company and its subsidiaries maintain their cash and cash equivalents in
accounts with two major financial institutions in England and, principally in
the form of demand deposit accounts. Deposits in these banks may exceed the
amounts of insurance provided on such deposits. The Company has not experienced
any losses on its deposits of cash and cash equivalents.
The Company believes that the concentration of credit risk in its accounts
receivables is substantially mitigated by the Company's evaluation process,
relatively short collection terms, the high level of credit worthiness of its
customers and in the case of Seco the purchase of credit insurance for its
accounts receivable. The Company performs ongoing credit evaluations of its
customers' financial condition, but generally requires no collateral. The
Company records an allowance for doubtful accounts specific to the accounts
receivable balances outstanding based upon the results of its evaluation of its
customers' financial condition. As of June 30, 2004, December 31, 2003, October
19, 2003 and December 31, 2002, the allowance for doubtful accounts was:
$34,000, $0, $22,000 and $0 respectively.
(B) Concentration of Sources of Labor - Approximately 50% of the employees of
Seco, an indirect subsidiary of the Company are members of a trade union. Seco
is not a party to any collective bargaining agreement with this trade union.
Management believes that it has a good relationship with its employees.
(C) Concentration of Sources of Materials - Seco, a subsidiary of the Company,
purchases aluminum billets from five smelters. Though these billets are commonly
used by extruders, a disruption in the supply from these smelters could cause
production delays or a material increase in production costs. The Company has
entered into contracts with these smelters to minimize such risk [See Note 6].
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(6) Commitments and Contingencies
Operating Leases - The Company leases various vehicles and equipment under
operating leases. Rent expense for such vehicles and equipment was $64,000 for
the six months ended June 30, 2004, $10,000 for the period from October 20, 2003
to December 31, 2003, $24,000 for the six months ended June 30, 2003, $45,000
for the period from January 1, 2003 to October 19, 2003, and $56,000 for the
year ended December 31, 2002.
Future minimum lease payments under operating leases at December 31, 2003 are as
follows:
Years Ending Amount
December 31, ------
------------ (In Thousands of U.S. dollars)
2004 $ 31
2005 8
2006 2
2007 2
Thereafter --
---------
Total $ 43
=========
The Company also leases the office and manufacturing facility for Fagg, under an
operating lease that may be cancelled upon one month's notice any time after
April 30, 2004. The monthly rent for this facility is approximately $7,000. Rent
expense for the five month period ended June 30, 2004 was approximately $35,000.
Purchase Contracts - Seco, an indirect subsidiary of the Company, requires a
supply of aluminum billets as raw materials for their production process. Though
these billets are generally available on the open market, the Company has
entered into purchase contracts with five smelters to reduce the risk of a
disruption in supply. These contracts are for the delivery of billets per month
at an agreed rate for up to twelve months into the future. Production cost per
ton is set under an annual master agreement with each smelter. In advance of
production, the Company places material orders with the smelter, at which time
the cost of aluminum is determined.
At June 30, 2004 and December 31, 2003, there were purchase agreements totaling
approximately $3,090,000 and $829,000 respectively.
(7) Debt
The Company has a Credit Agreement with a bank that allows the Company to borrow
against customer accounts receivable of Seco, subject to certain restrictions.
Under the terms of the Credit Agreement, the Company may borrow up to a maximum
of $7,200,000, subject to the availability of eligible customer receivables.
Interest is charged at the rate of 2% above the Base Rate of the Bank of England
(6.75% at June 30, 2004 and 5.75% at December 31, 2003). The Company pays a
commitment fee equal to 0.14% of the eligible accounts receivable, at the time
the accounts receivable are reported to the bank. The amounts outstanding under
this agreement are secured by all of the outstanding accounts receivable of
Seco. The term of the Credit Agreement is open, but can be terminated by either
party with 90 days notice. As of June 30, 2004, December 31, 2003 and October
20, 2003, there was $3,760,000, $6,332,000 and $2,271,000 outstanding under the
Credit Agreement. As of June 30, 2004 and December 31, 2003, the Company had
unused borrowing availability of $-0- and $340,000, respectively.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(7) Debt (Continued)
The Company also has a Credit Agreement with another bank that allows the
Company to borrow against customer accounts receivable of Fagg, subject to
certain restrictions. Under the terms of the Credit Agreement, the Company may
borrow up to a maximum of $630,000, subject to the availability of eligible
customer receivables. Interest is charged at the rate of 2.20% above the Base
Rate of the Bank of England (6.95% at June 30, 2004). The Company pays a
commitment fee equal to 0.50% of the eligible accounts receivable, at the time
the accounts receivable are reported to the bank. The amounts outstanding under
this agreement are secured by all of the outstanding accounts receivable of
Fagg. The term of the Credit Agreement is open, but can be terminated by either
party with 90 days notice. As of June 30, 2004, there was $517,000 outstanding
under the Credit Agreement. As of June 30, 2004, the Company had unused
borrowing availability of $113,000.
As of June 30, 2004, December 31, 2003, October 19, 2003 and December 31, 2002
the weighted average interest rate for the credit agreements was 6.77%, 6.75%,
6.75% and 7.75%, respectively.
The Company has an overdraft agreement with a bank that allows the Company to
borrow up to $180,000. As of June 30, 2004, there was $176,000 outstanding under
the agreement. The proceeds are to be used to financed building reconstruction
and will be converted into a mortgage upon completion of the construction. The
outstanding balance bears interest at 2% above the Base Rate of the Bank of
England (6.75% at June 30, 2004). There were no balances outstanding for periods
prior to June 30, 2004.
In connection with the acquisition of Fagg in January 2004, the Company issued
notes payable to the former owners in the original amount of approximately
$675,000. The notes do not bear interest and are payable in monthly installments
of approximately $54,000 beginning February, 2004. The notes are secured by
fifty percent of the common shares of Fagg. As of June 30, 2004, the unpaid
balance was $405,000.
Long-term debt consisted of the following at June 30, 2004, December 31, 2003,
October 19, 2003 and December 31, 2002:
Advanced Aluminum
Group Ltd Predecessor Company
--------------------------- -------------------------------
June 30, December 31, October 19, December 31,
2004 2003 2003 2003
----------- ------------ ------------- ------------
(Unaudited)
(In thousands of U.S. dollars)
Mortgage Loan, 6.435% Due January 2019 $ 3,506 $ -- $ -- $ --
Machinery and Equipment Loans 606 -- -- --
----------- ------------ ------------- ------------
Total Long-Term Debt 4,112 -- -- --
Less: Amounts Due Within One Year (363) -- -- --
----------- ------------ ------------- ------------
Long-Term Portion $ 3,749 $ -- $ -- $ --
=========== ============ ============= ============
The mortgage loan is secured by the real estate, including land, buildings and
improvements of the facilities located in Whittam, England, and has a 15 year
term. The interest rate on the mortgage is fixed for five years, after which
time the Company has the option to accept a fixed rate based upon the then
market rates or accept a variable rate at the Bank of England Base Rate plus
1.5%.
The machinery and equipment loans are secured by certain machinery and equipment
of Fagg. The agreements range from 3 to 5 years with interest ranging between 5%
and 8%.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(7) Debt (Continued)
Following are the principal amounts due under long-term debt due as of June 30,
2004 by fiscal year:
Years Ending Amount
December 31, ------
------------ (In thousands of U.S. dollars)
2004 $ 286
2005 325
2006 274
2007 236
2008 224
Thereafter 2,767
-----------
Total $ 4,112
===========
(8) Common Stock
The Company has 1,000 shares of common stock authorized and issued as of June
30, 2004 and December 31, 2003. The Company does not have any equity incentive
plans or other stock based compensation plans. There are no outstanding warrants
for the purchase of common stock.
The Predecessor Company had 90,910 shares authorized issued and outstanding at
October 19, 2003 and December 31, 2002 of its $2 per share stated value common
stock. The Predecessor Company had 700,000 shares of preferred, $1 per share
stated value stock authorized, but none issued or outstanding.
(9) Income Taxes
Income tax expense (benefit) consisted of the following:
October 20, January 1,
2003 to 2003 to Year ended
December 31, October 19, December 31,
2003 2003 2002
------------ --------------- --------------
(In thousands of U.S. dollars)
Current Tax Expense (Benefit) $ (54) $ 165 $ (11)
Deferred Tax Expense (Benefit) 18 (45) (37)
------------ --------------- --------------
Total Tax Expense (Benefit) $ (36) $ 120 $ (48)
============ =============== ==============
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(9) Income Taxes (Continued)
Current tax expense (benefit) was computed as follows:
October 20, January 1,
2003 to 2003 to Year ended
December 31, October 19, December 31,
2003 2003 2002
------------ --------------- --------------
(In thousands of U.S. dollars)
Pre-Tax Book Income (Loss) $ (200) $ 539 $ (463)
Statutory Rate 30% 30% 20%
------------ --------------- --------------
Subtotal (60) 162 (92)
Effect of:
Nondeductible Expenses 2 10 13
Excess of Tax Depreciation Over Bank 10 56 33
Change in Estimates (3) (34) 35
Operating Loss Carryforward (1) (10) --
Other (2) (19) --
------------ --------------- --------------
Totals $ (54) $ 165 $ (11)
============ =============== ==============
Deferred tax expense (benefit) was computed as follows:
October 20, January 1,
2003 to 2003 to Year ended
December 31, October 19, December 31,
2003 2003 2002
------------ --------------- --------------
(In thousands of U.S. dollars)
Effect of:
Timing Differences $ 18 $ (41) $ (37)
Change in Tax Rate -- (4) --
------------ --------------- --------------
Totals $ 18 $ (45) $ (37)
============ =============== ==============
Current deferred tax assets consisted of the following:
Advanced Aluminium
Group, Ltd. Predecessor Company
-------------------------- ---------------------------
June 30, December 31, October 19, December 31,
2004 2003 2003 2002
------------ ------------ ------------ ------------
(Unaudited)
(In thousands of U.S. dollars)
Fagg Tax Operating Losses,
at 19% Statutory Rate $ 20 $ -- $ -- $ --
Seco/Predecessor Company Timing
Differences at 30%, 30%, 30% and
20% Statutory Rates, Respectively 7 8 6 20
------------ ------------ ------------ ------------
Totals $ 27 $ 8 $ 6 $ 20
============ ============ ============ ============
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(9) Income Taxes (Continued)
Non-current deferred tax assets (liabilities) consisted of the following:
Advanced Aluminium
Group, Ltd. Predecessor Company
-------------------------- ---------------------------
June 30, December 31, October 19, December 31,
2 0 0 4 2 0 0 3 2 0 0 3 2 0 0 2
------------ ------------ ------------ ------------
(Unaudited)
(In thousands of U.S. dollars)
Fagg Differences between Book and Tax
Accumulated Depreciation at 19%
Statutory Rate $ (96) $ -- $ -- $ --
Seco/Predecessor Differences between Book
and Tax Accumulated Depreciation at 30%,
0%, 30% and 20% Statutory Rates, Respectively 18 55 57 1
------------ ------------ ------------ ------------
Totals $ (78) $ 55 $ 57 $ 1
============ ============ ============ ============
(10) Retirement Plans
The Company has defined contribution plans covering certain employees. The
Company's annual contribution to the defined contribution plans is based on the
matching of employee minimum contributions up to 2% of annual salary and
amounted to $37,000 for the six months ended June 30, 2004, $13,000 for the
period from October 20, 2003 to December 31, 2003, $31,000 for the six months
ended June 30, 2003, $50,000 for the period from January 1, 2003 to October 19,
2003, and $64,000 for the year ended December 31, 2002.
(11) Subsequent Event (Unaudited)
On September 22, 2004, the Company entered into a Share Exchange Agreement
("Exchange Agreement") with Sunningdale, Inc., a Delaware corporation
("Sunningdale"), the stockholders of the Company, and Keating Reverse Merger
Fund, LLC ("KRM Fund"). Under the Exchange Agreement, Sunningdale will, at
closing, acquire all of the outstanding capital stock of the Company in exchange
for Sunningdale's issuance to the Company's stockholders of 2,295,000 shares of
Sunningdale's common stock.
Sunningdale has 255,000 shares of its common stock outstanding. Accordingly,
immediately following the closing, the Company's stockholders will own 90% of
the issued and outstanding shares of Sunningdale's common stock, and the
existing stockholders of Sunningdale will own the remaining 10%. The purchase of
the shares of the Company by Sunningdale will be treated for accounting and
financial reporting purposes as a reverse acquisition of Sunningdale by the
Company, since the former stockholders of the Company will control Sunningdale
after the transaction. Under this accounting treatment, the Company is deemed
for accounting purposes to be the acquiring entity and Sunningdale the acquired
entity.
Completion of the transactions contemplated under the Exchange Agreement are
subject to the satisfaction of certain contingencies including, without
limitation, the Company's delivery of audited and pro forma financial
information acceptable to Sunningdale, and compliance with regulatory
requirements. The directors of the Company and Sunningdale have approved the
Exchange Agreement and the transactions contemplated thereunder.
. . . . . . . . . .
W.H.J. FAGG & SON LTD.
--------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Page
----
Report of Independent Registered Public Accounting Firm .................... 2
Balance Sheet as of January 31, 2004........................................ 3
Statement of Operations for the year ended January 31, 2004................. 4
Statement of Stockholders' Equity and Comprehensive Income (Loss)........... 5
Statements of Cash Flows for the year ended January 31, 2004................ 6
Notes to Financial Statements............................................... 7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
W.H.J. Fagg & Son Ltd.
We have audited the accompanying balance sheet of W.H.J. Fagg & Son Ltd. (the
"Company") as of January 31, 2004, and the related statements of operations,
stockholders' equity, and comprehensive income (loss) and cash flows for year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of W.H.J. Fagg & Son Ltd. as of
January 31, 2004, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
MOORE STEPHENS, P. C.
Certified Public Accountants.
/s/ MOORE STEPHENS, P. C.
Cranford, New Jersey
September 7, 2004
W.H.J. FAGG & SON, LTD.
--------------------------------------------------------------------------------
BALANCE SHEET AS OF JANUARY 31, 2004.
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 7
Accounts Receivable - Net 1,109
Inventories 417
Deferred Tax Asset 14
Other Current Assets 15
--------
Total Current Assets 1,562
Property, Plant and Equipment - Net 1,177
--------
Total Assets $ 2,739
========
Liabilities and Stockholders' Equity (Deficit):
Current Liabilities:
Short Term Borrowings $ 544
Accounts Payable 615
Current Portion of Long-Term Debt 211
Other Current Liabilities 93
--------
Total Current Liabilities 1,463
Long-Term Debt, Less Current Portion 368
Deferred Tax Liability 100
--------
Total Liabilities 1,931
--------
Stockholders' Equity:
Preferred Stock, $1.46 Per Share Stated Value, 200,000 Shares
Authorized, None Issued or Outstanding --
Common Stock, $1.46 Per Share Stated Value, 300,000 Shares
Authorized, 200,000 Issued and Outstanding 292
Retained Earnings 351
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment 165
--------
Total Stockholders' Equity 808
--------
Total Liabilities and Stockholders' Equity $ 2,739
========
The Accompanying Notes are an Integral Part of the Financial Statements.
W.H.J. FAGG & SON, LTD.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 2004.
(IN THOUSAND OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Net Sales $ 5,034
---------
Cost of Sales 3,925
---------
Gross Profit 1,109
Selling, General and Administrative Expenses 984
---------
Income from Operations 125
Interest Expense 120
---------
Income Before Income Taxes 5
Provision For Income Taxes 10
---------
Net Loss $ (5)
=========
The Accompanying Notes are an Integral Part of the Financial Statements.
W.H.J. FAGG & SON, LTD.
--------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) FOR THE YEAR
ENDED JANUARY 31, 2004.
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Cumulative
Comprehensive Preferred Stock Common Stock Retained Translation
Income/(Loss) Shares Amount Stock Amount Earnings Adjustment Total
------------- ------ ---------- ----------- -------- --------- ----------- ----------
Balance -
January 31, 2003 $ -- -- $ -- 200,000 $ 292 $ 422 $ 85 $ 799
Net Loss (5) -- -- -- -- (5) -- (5)
Dividends Paid -- -- -- -- -- (66) -- (66)
Effect of Currency
Translation in the
Period 80 -- -- -- -- -- 80 80
-------- -------- ---------- ------------ -------- --------- ----------- ---------
$ 75
========
Balance -
January 31, 2004 -- $ -- 200,000 $ 292 $ 351 $ 165 $ 808
======== ========== =========== ======== ========= =========== =========
The Accompanying Notes are an Integral Part of the Financial Statements.
W.H.J. FAGG & SON, LTD.
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 2004.
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Operating Activities:
Net Loss $ (5)
Adjustments to Reconcile Net Loss to Cash From Operations:
Depreciation 184
Changes in Assets and Liabilities:
Decrease (Increase):
Receivables (248)
Inventories 156
Other Current Assets 155
Increase (Decrease):
Accounts Payable 120
Other Current Liabilities (35)
---------
Net Cash - Operating Activities 327
---------
Investing Activities:
Capital Expenditures (220)
---------
Financing Activities:
Net Changes To Short Term Borrowings (142)
Increase In Long Term Debt 334
Payment Of Long-Term Debt (230)
Payment Of Dividends (66)
---------
Net Cash - Financing Activities (104)
---------
Effect of Exchange Rate Changes on Cash 1
---------
Net Change in Cash and Cash Equivalents 4
Cash and Cash Equivalents - Beginning of Year 3
---------
Cash and Cash Equivalents - End of Year $ 7
=========
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest $ 120
Income Taxes $ --
The Accompanying Notes are an Integral Part of the Financial Statements.
W.H.J. FAGG & SON LTD.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(1) Business
W.H.J. Fagg & Son Ltd. (the "Company"), a privately held corporation organized
under the laws of England, provides precision engineering, tool making and
volume production of machined aluminum components principally for its Great
Britain based automotive industry clients.
(2) Significant Accounting Policies
Foreign Currency - The Company headquarters and principal business operations
are located in England. Although all purchase contracts for raw materials are
denominated in U.S. dollars, all other expenses and all revenues are denominated
in UK Pound Sterling. As such, management has determined that the functional
currency for financial reporting purposes is the UK Pound Sterling. Translation
into U.S. dollars have been translated in the following manner: assets and
liabilities using the exchange rates in effect at the balance sheet date,
stockholders equity at historical rates, and results of operations and cash
flows at the average exchange rates during the period. The effect of exchange
rate changes are reflected as a separate component of shareholders equity.
Use of Estimates - The preparation of the financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash and cash equivalents and accounts receivable.
Cash and Cash Equivalents - The Company considers all highly liquid debt
securities purchased with an original maturity of three months or less to be
cash equivalents.
Accounts Receivable - Accounts receivables consist of uncollateralized customer
obligations due under normal trade terms, generally requiring payment within 60
days of the invoice date. Past due receivables do not bear interest. Management
reviews trade receivables periodically and reduces the carrying amount by a
valuation allowance that reflects management's best estimate of the amount that
may not be collectable. As of January 31, 2004, the allowance for doubtful
accounts was $-0-.
Inventories - Inventories consist of raw materials and work in process/ finished
goods Inventories are stated at the lower of cost (first-in, first-out method)
or market. Inventories consist of:
(In thousands of U.S. dollars)
Raw materials $ 332
Work in process and finished goods 85
-----------
Total $ 417
===========
Income Taxes - The Company accounts for income taxes under the liability method,
whereby current and deferred tax assets and liabilities are determined based on
tax rates and laws enacted as of the balance sheet date. Deferred tax expense
represents the change in the deferred tax asset/liability balance.
W.H.J. FAGG & SON LTD.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(2) Significant Accounting Policies (Continued)
Property, Plant and Equipment - Property and equipment is stated at cost.
Depreciation is computed principally using the straight-line method. The
estimated useful lives are:
Equipment, furniture & fixtures 3 to 15 years
Vehicles 3 to 5 years
Expenditures for maintenance and repairs which do not materially extend the
useful lives of property, plant and equipment are charged to earnings. When
property or equipment is sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the respective accounts with the
resulting gain or loss reflected in earnings. Property, plant and equipment
consists of the following:
(In thousands of U.S. dollars)
Equipment, Furniture and Fixtures $ 3,047
Vehicles 25
------------
Total 3,072
Less: Accumulated Depreciation (1,895)
------------
Property, Plant and Equipment, Net $ 1,177
============
Depreciation expense was $184,000 for the year ended January 31, 2004.
Revenue Recognition - The Company recognizes revenue after its product is
shipped and collectibility is reasonably assured.
Net Revenues - Net revenues include the amounts charged for products shipped to
customers, plus recoveries of the freight charges to ship the product from the
manufacturing facility to the customer.
Cost of Sales - Cost of product sales includes the direct cost of the product,
including material, labor, overhead and the freight charges to ship the product
to the customer.
Selling, General and Administrative Expenses - Selling general and
administrative expenses include costs for sales and administrative employee
wages, benefits, legal, accounting and consulting services and other general and
administrative costs.
Impairment of Long-Lived Assets - The company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When such factors and
circumstances exist, the projected undiscounted future cash flows associated
with the future use and disposal of the related asset or group of assets is
compared to their respective carrying amounts. Impairment, if any, is measured
as the excess of the carrying amount over the fair value, based on market value
when available, or discounted expected cash flows, of those assets and is
recorded in the period in which the determination is made.
W.H.J. FAGG & SON LTD.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(2) Significant Accounting Policies (Continued)
Fair Value of Financial Instruments - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No.107, "Disclosure About Fair Value of Financial
Instruments," which requires disclosing fair value, to the extent practicable,
for financial instruments which are recognized or unrecognized in the balance
sheet. The fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or settled, nor
does the fair value amount consider the tax consequences of realization or
settlement.
In assessing the fair value of these financial instruments, the Company used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash and cash equivalents, related party and trade and notes payable, it was
assumed that the carrying amount approximated fair value for the majority of
these instruments because of their short maturities.
The fair value of long-term debt is based upon current rates at which the
Company could borrow funds with similar remaining maturities. It was assumed
that the carrying amount approximated fair value for these instruments.
Research and Development Costs - The Company does not have a research and
development department. The development activity generally relates to designing
new products, which is principally done by employees with general administrative
or other operating responsibility. As such, the Company does not separately
account for such costs. However, management believes the total amount expended
on these activities are not significant. All such costs are expensed as
incurred.
Advertising - The Company expenses advertising costs as incurred. Advertising
expenses were approximately $4,000 for the year ended January 31, 2004.
Recent Accounting Pronouncements - In May 2003, the Financial Accounting
Standards Board ("FASB") issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
changes the accounting guidance for certain financial instruments that, under
previous guidance, could be classified as equity or "Mezzanine" equity by now
requiring those instruments to be classified as liabilities (or assets in some
circumstances) on the balance sheet. Further, SFAS 150 requires disclosure
regarding the terms of those instruments and settlement alternatives. SFAS 150
is generally effective for all financial instruments entered into or modified
after May 31, 2003, and is otherwise effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS 150 did not
have a material impact on the Company's financial position, results of
operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends SFAS 133 to
clarify the definition of a derivative and incorporate many of the
implementation issues cleared as a result of the Derivatives Implementation
Group process. This statement is effective for contracts entered into or
modified after June 30, 2003, and should be applied prospectively after that
date. The adoption of SFAS 149 is not expected to have a material effect on the
financial statements.
In December 2002, FASB issued SFAS 148 "Accounting for Stock-Based
Compensation-- Transition and Disclosure--an amendment of SFAS 123." SFAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation from the
intrinsic value-based method of accounting prescribed by APBO 25. As allowed by
SFAS 123, the Company has elected to continue to apply the intrinsic value-based
method of accounting, and has adopted the disclosure requirements of SFAS 123.
The Company currently does not anticipate adopting the provisions of SFAS 148.
W.H.J. FAGG & SON LTD.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(2) Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued) - In July 2002, the FASB issued
SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS 146 provides new guidance on the recognition of costs associated with exit
or disposal activities. The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of commitment to an exit or disposal plan. SFAS 146 supersedes
previous accounting guidance provided by the EITF Issue 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." EITF Issue 94-3
required recognition of costs at the date of commitment to an exit or disposal
plan. SFAS 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. Early application is permitted. The adoption
of SFAS 146 by the Company is not expected to have a material impact on the
Company's financial position, results of operations, or cash flows.
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements 4, 44,
and 64, Amendment of FASB Statement 13, and Technical Corrections." Among other
things, this statement rescinds FASB Statement 4, "Reporting Gains and Losses
from Extinguishment of Debt" which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in APB Opinion 30, "Reporting the Results of Operations --Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," will now be used to classify
those gains and losses. The provisions of SFAS 145 related to the classification
of debt extinguishment are effective for years beginning after May 15, 2002. The
adoption of SFAS 145 by the Company is not expected to have a material impact on
the Company's financial position, results of operations, or cash flows.
(3) Commitments and Contingencies
Operating Leases - The Company leases its office and manufacturing facility ,
under an operating lease that may be cancelled upon one month's notice any time
after April 30, 2004. The monthly rent for this facility is approximately
$7,000. Rent expense for the facility was $84,000 for the year ended January 31,
2004.
(4) Debt
The Company has a Credit Agreement with a bank that allows the Company to borrow
against customer accounts receivable , subject to certain restrictions. Under
the terms of the Credit Agreement, the Company may borrow up to a maximum of
$550,000, subject to the availability of eligible customer receivables. Interest
is charged at the rate of 2.20% above the Base Rate of the Bank of England
(5.95% at January 31, 2004). The Company pays a commitment fee equal to 0.50% of
the eligible accounts receivable, at the time the accounts receivable are
reported to the bank. The amounts outstanding under this agreement are secured
by all of the outstanding accounts receivable. The term of the Credit Agreement
is open, but can be terminated by either party with 90 days notice. As of
January 31, 2004, there was $544,000, outstanding under the line of credit.
W.H.J. FAGG & SON LTD.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(4) Debt (Continued)
The Company finances certain manufacturing equipment under various equipment
financing arrangements. Future amounts payable by year are as follows:
Year ended (In thousands of U.S. dollars)
January 31, -----------------------------
-----------
2005 $ 211
2006 168
2007 107
2008 58
2009 35
-------------
Total $ 579
=============
(5) Income Taxes
Income tax expense (benefit) consisted of the following:
Year ended
January 31, 2004
(In thousands of U.S. dollars)
------------------------------
Current Tax $ --
Deferred Tax 10
-------------
Total $ 10
=============
The current deferred tax asset of the Company was computed at the UK statutory
rate of 19% and consisted of tax operating loss carryforwards. The noncurrent
deferred tax liability was also computed at the statutory rate and consisted of
tax deprecation in excess of book
(6) Retirement Plans
The Company has a defined contribution plan covering certain employees. The
Company's annual contribution to the defined contribution plan is based on the
matching of employee minimum contributions up to 2% of annual salary and
amounted to $8,000 for the year ended January 31, 2004.
(7) Subsequent Events
Effective February 1, 2004, all of the outstanding shares of the Company were
sold to a wholly-owned subsidiary of Advanced Aluminum Group Ltd., for a total
amount of approximately $1,350,000. Payment was made in the form of cash of
$675,000 and notes in the amount of $675,000.
. . . . . . . . .
(b) Pro forma financial information.
PRO FORMA COMBINED FINANCIAL STATEMENTS
On September 22, 2004, Sunningdale, Inc., a Delaware corporation ("Sunningdale")
entered into a Share Exchange Agreement ("Exchange Agreement") with Advanced
Aluminium Group Limited ("AAG"), the stockholders of AAG, and Keating Reverse
Merger Fund, LLC ("KRM Fund"). Under the Exchange Agreement, Sunningdale will,
at closing, acquire all of the outstanding capital stock of AAG in exchange for
Sunningdale's issuance to the AAG stockholders of 2,295,000 shares of
Sunningdale's common stock. A copy of the Exchange Agreement was filed as
Exhibit 2.1 to the Form 8-K Current Report filed with the United States
Securities and Exchange Commission on September 22, 2004.
The purchase of the shares of AAG by Sunningdale will be treated for accounting
and financial reporting purposes as a reverse acquisition of Sunningdale by AAG,
since the former AAG stockholders will control Sunningdale after the
transaction. Under this accounting treatment, AAG is deemed for accounting
purposes to be the acquiring entity and Sunningdale the acquired entity. The
financial statements of Sunningdale after the transaction will reflect AAG on a
historical basis and will include the results of operations of Sunningdale from
the effective date of the transaction. As Sunningdale has not pursued any
revenue generating activity in the last six months, the merger will be treated
as a recapitalization of AAG, with no goodwill recorded.
The following pro forma combined financial information represents Sunningdale's
pro forma combined balance sheet as of June 30, 2004 and statements of
operations for the six months ended June 30, 2004 and the year ended December
31, 2003, after giving effect to the transaction. This pro forma information
should be read in conjunction with the consolidated financial statements of AAG
contained elsewhere in the Form 8-K.
The following pro forma combined balance sheet gives effect to the transaction
as if it occurred on June 30, 2004. The accompanying pro forma combined
statements of operations give effect to the transaction as if it occurred at the
beginning of the periods presented. The financial statements include adjustments
directly attributable to the transaction and that are expected to have a
continuing impact on the combined company.
The pro forma information is based on historical financial statements. The
information has been prepared in accordance with the rules and regulations of
the SEC and is provided for comparison and analysis purposes only. The pro forma
information does not purport to be indicative of the results that actually would
have occurred had the combination been effected at the beginning of the periods
presented.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
--------------------------------------------------------------------------------
PRO FORMA BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
AAG and
Subsidiaries Sunningdale
June 30, June 30, Pro Forma Pro Forma
2004 2004 Adjustments Combined
------- ------- ----------- ---------
(Unaudited)
Assets:
Current Assets $ 9,601 $ 1 $ -- $ 9,602
Property, Plant and Equipment - Net 4,543 -- -- 4,543
Intangible Assets 556 -- -- 556
----------------- --------------- --------------- ---------------
Total Assets $ 14,700 $ 1 $ -- $ 14,701
================= =============== =============== ===============
Liabilities:
Current Liabilities:
Short-Term Borrowings $ 4,858 $ -- $ -- $ 4,858
Current Portion of Long-Term Debt 363 363
Accounts Payable and Other Current
Liabilities 6,189 10 -- 6,199
----------------- --------------- --------------- ---------------
Total Current Liabilities 11,410 10 -- 11,420
Non-Current Deferred Taxes 78 -- -- 78
Long-Term Debt 3,749 -- -- 3,749
----------------- -------------- --------------- ---------------
Total Liabilities 15,237 10 -- 15,247
----------------- --------------- --------------- ---------------
Shareholders' Equity:
Common Stock 2 -- (2)(A) --
Additional Paid In Capital -- 512 (512)(B) --
Accumulated Deficit (536) (521) 514 (C) (543)
Other Comprehensive Loss:
Cumulative Translation Adjustment (3) -- -- (3)
----------------- --------------- --------------- ---------------
Total Stockholders' Deficit (537) (9) -- (546)
----------------- --------------- --------------- ---------------
Total Liabilities and Stockholders'
Deficit $ 14,700 $ 1 $ -- $ 14,701
================= =============== =============== ===============
Recapitalization adjustments for the purchase of AAG by Sunningdale under the
reverse acquisition method, computed as follows:
(A) Common Stock - A calculated amount to result in 2,550,000 shares of common
stock outstanding after completion of the transaction multiplied by the par
value of $0.0001.
(B) Additional Paid in Capital - Elimination of Sunningdale's Additional Paid in
Capital account so that AAG's historical balance carries forward.
(C) Accumulated Deficit - Elimination of Sunningdale's accumulated deficit
account so that AAG's historical balance carries forward, plus an amount
calculated to force the Total Assets and Total Liabilities and Stockholders'
Deficit to balance.
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
--------------------------------------------------------------------------------
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
The following Pro forma Statements of Operations have been prepared assuming
that the acquisitions of Seco Aluminium Ltd ("Seco") and WHJ Fagg & Son ("Fagg")
by AAG and the transaction with Sunningdale had been completed as of the
beginning of each period presented. There are no pro forma adjustments to the
historical Statement of Operations for the six months ended June 30, 2004, other
in the computation of earnings per share, where the weighted average number of
shares outstanding for each period assumes the number of shares that will be
outstanding after the closing of the transaction.
AAG and Pro Forma Pro Forma
Subsidiaries Seco Fagg Combined Sunningdale Combined
----------- ----------- ----------- ----------- ----------- -----------
October 20, January 1,
2003 to 2003 to Year ended Year ended Year ended Year ended
December 31, October 20, January 31, Pro Forma December 31, September 30, December 31,
2 0 0 3 2 0 0 3 2 0 0 4 Adjustments 2 0 0 3 2 0 0 3 2 0 0 3
----------- ----------- ----------- ----------- ----------- ----------- -----------
As Reported As Reported As Reported As Reported
Net Sales $ 4,194 $ 17,053 $ 5,034 $ -- $ 26,281 $ -- $ 26,281
Cost of Sales 4,004 15,311 3,925 -- 23,240 -- 23,240
----------- ----------- ----------- ---------- ----------- ----------- -----------
Gross Profit 190 1,742 1,109 -- 3,041 -- 3,041
Selling, General and
Administrative Expenses 268 1,055 984 101(C) 2,408 79 2,487
----------- ----------- ----------- ---------- ----------- ----------- -----------
Income (Loss) From
Operations (78) 687 125 (101) 633 (79) 554
Interest Expense 122 148 120 487(A) 877 -- 877
----------- ----------- ----------- ---------- ----------- ----------- -----------
Income (Loss) Before
Income Taxes (200) 539 5 (588) (244) (79) (323)
Provision For Income Taxes (36) 120 10 (94)(B) -- -- --
----------- ----------- ----------- ---------- ----------- ----------- -----------
Net Income (Loss) $ (164) $ 419 $ (5) $ (494) $ (244) $ (79) $ (323)
=========== =========== =========== ========== =========== =========== ===========
Loss Per Share $ (0.58) $ (0.13)
=========== ===========
Weighted Average Number of
Shares Outstanding (1) 136,800 2,550,000
=========== ===========
Explanation of pro forma adjustments:
(A) To adjust interest expense for the additional debt related to the
acquisitions as if the debt was outstanding for the full year.
(B) To eliminate the income tax provision/benefit reported by each company to
reflect the pro forma loss before income taxes.
(C) To record amortization of intangible assets of Fagg.
(1) The "as reported" number of shares outstanding reflects a 1 for 5 reverse
split during January 2004.
344892.5
ADVANCED ALUMINIUM GROUP LTD AND SUBSIDIARIES
--------------------------------------------------------------------------------
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
AAG and
Subsidiaries Sunningdale
Six Months Ended Six Months Ended
June 30, June 30, Pro Forma Pro Forma
2004 2004 Adjustments Combined
------------- ----------- ----------- ---------
(Unaudited)
As Reported As Reported
Net Sales $ 14,544 $ -- $ -- $ 14,544
Cost of Sales 13,032 -- -- 13,032
-------------- --------------- -------------- ---------------
Gross Profit 1,512 -- -- 1,512
Selling, General and Administrative
Expenses 1,668 43 -- 1,711
--------------- --------------- --------------- ---------------
Income (Loss) From Operations (156) (43) -- (199)
Interest Expense 280 -- -- 280
--------------- --------------- --------------- ---------------
Income (Loss) Before Income Taxes (436) (43) -- (479)
Provision for Income Taxes (64) -- -- (64)
--------------- --------------- --------------- ---------------
Net Income (Loss) $ (372) $ (43) $ -- $ (415)
=============== =============== =============== ===============
Net Loss Per Share $ (0.22) $ (0.16)
=============== ===============
Weighted Average Shares Outstanding (1) 200,000 2,550,000
=============== ===============
(1) The "as reported" number of shares outstanding reflects a 1 for 5 reverse
split during January 2004.
(c) Exhibits.
---------
2.1 Share Exchange Agreement by and between Sunningdale, Inc., Keating
Reverse Merger Fund, LLC, Advanced Aluminium Group Limited, and the
stockholders of Advanced Aluminium Group Limited dated September 22,
2004*
2.2 Financial Advisory Agreement by and between Sunningdale, Inc. and
Keating Securities, LLC dated October 28, 2004.
2.3 Voting Agreement by and between Sunningdale, Inc., Keating Reverse
Merger Fund, LLC, and the stockholders of Advanced Aluminium Group
Limited dated October 28, 2004.
* Included in Form 8-K filed by Sunningdale, Inc. on September 22,
2004 Announcing the Execution of the Share Exchange Agreement and
hereby incorporated by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Sunningdale, Inc. has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Sunningdale, Inc.
Date: October 28, 2004 By: /s/ Nicholas A. Shrager
-------------------------------------
Nicholas A. Shrager
Chief Executive Officer and President
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
2.2 Financial Advisory Agreement by and between Sunningdale, Inc. and
Keating Securities, LLC dated October 28, 2004
2.3 Voting Agreement by and between Sunningdale, Inc., Keating Reverse
Merger Fund, LLC, and the stockholders of Advanced Aluminium Group
Limited dated October 28, 2004