EXHIBIT 7.3
FORTUNE DIVERSIFIED INDUSTRIES, INC AND SUBSIDIARIES
Pro Forma Consolidated Financial Statements
TABLE OF CONTENTS
Basis of Preparation...........................................................1
Financial Statements
Pro forma consolidated balance sheet that assumes the combination
occurred on May 31, 2003...................................................2
Pro forma consolidated statement of operations for the twelve
months ended August 31, 2002, which combines FDVI's results of
operations for the twelve months ended August 31, 2002, with Nor-Cote's
results of operations for the twelve months ended August 31, 2002..........3
Pro forma consolidated statement of operations for the nine months
ended May 31, 2003 that combines the unaudited results of operations
of FDVI from the nine-month period of September 1, 2002 to
May 31, 2003 with Nor-Cote's results of operations for the nine-month
period of October 1, 2002 to June 30, 2003.................................4
Notes to Pro Forma Consolidated Financial Statements.......................5
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PREPARATION
The following unaudited pro forma consolidated financial statements give effect
to the purchase by Fortune Diversified Industries, Inc. and Subsidiaries
("FDVI") of Nor-Cote International, Inc. and its subsidiaries ("Nor-Cote"). Pro
forma adjustments related to the pro forma consolidated balance sheet are
computed assuming the combination was consummated at May 31, 2003. The pro forma
consolidated balance sheet combines FDVI's unaudited balance sheet as of May 31,
2003 with Nor-Cote's balance sheet as of June 30, 2003. The pro forma
consolidated statement of operations assumes that the combination occurred on
August 31, 2002. The pro forma consolidated statement of operations for the
twelve months ended August 31, 2002 combines FDVI's results of operations for
the twelve months ended August 31, 2002, with Nor-Cote's results of operations
for the twelve months ended August 31, 2002. The pro forma consolidated
statement of operations for the nine months ended May 31, 2003 combines the
unaudited results of operations of FDVI from the nine-month period of September
1, 2002 to May 31, 2003 with Nor-Cote's results of operations for the nine-month
period of October 1, 2002 to June 30, 2003.
The pro forma consolidated statements of operations are not necessarily
indicative of operating results that would have been achieved had the
combination been consummated as of the beginning of the periods presented and
should not be construed as representative of future operations. Further, interim
results are not necessarily indicative of results to be realized for a full year
due to the effects of, among other things, seasonality.
These pro forma consolidated financial statements should be read in conjunction
with the historical consolidated financial statements and the related notes
thereto of FDVI, which are included in FDVI's Annual Report on Form 10-KSB/A,
and the historical financial statements and the related notes thereto of
Nor-Cote included herein.
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FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
Fortune Nor-Cote
May 31, June 30, Proforma Proforma
2003 2003 Adjustments Combined
CURRENT ASSETS
Cash and equivalents $ 196,000 $ 1,014,000 $ -- $ 1,210,000
Accounts receivable, net 2,672,000 1,596,000 -- 4,268,000
Inventory, net 844,000 1,118,000 -- 1,962,000
Other current assets 123,000 371,000 -- 494,000
Deferred income taxes -- 157,000 (157,000)(d) --
------------ ------------ ------------ ------------
Total Current Assets 3,835,000 4,256,000 (157,000) 7,934,000
------------ ------------ ------------ ------------
OTHER ASSETS
Notes receivable -- 146,000 -- 146,000
Property and equipment, net 584,000 2,361,000 -- 2,945,000
Goodwill 1,358,000 -- 4,681,000 (a) 6,039,000
Other intangible assets, net 668,000 -- 549,000 (a) 1,217,000
Other assets 12,000 83,000 -- 95,000
------------ ------------ ------------ ------------
Total Other Assets 2,622,000 2,590,000 5,230,000 10,442,000
------------ ------------ ------------ ------------
TOTAL ASSETS $ 6,457,000 $ 6,846,000 $ 5,073,000 $ 18,376,000
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit $ 1,333,000 $ -- $ 894,000 (b) $ 2,227,000
Accounts payable 492,000 495,000 -- 987,000
Current maturities of capital lease obligations 8,000 94,000 -- 102,000
Current maturities of long-term debt 441,000 494,000 -- 935,000
Accrued payroll and related expenses 67,000 -- -- 67,000
Deferred Revenue 187,000 -- -- 187,000
Related party unearned revenue 41,000 -- -- 41,000
Accrued expenses 147,000 1,277,000 -- 1,424,000
------------ ------------ ------------ ------------
Total Current Liabilities 2,716,000 2,360,000 894,000 5,970,000
------------ ------------ ------------ ------------
LONG-TERM LIABILITIES:
Fair value of interest rate swap -- 213,000 -- 213,000
Deferred income taxes 55,000 -- 55,000
Long-term debt, less current maturities - related party -- -- 1,800,000 (b) 1,800,000
Long-term debt, less current maturities 2,315,000 1,627,000 -- 3,942,000
------------ ------------ ------------ ------------
Total Long-term Liabilities 2,315,000 1,895,000 1,800,000 6,010,000
------------ ------------ ------------ ------------
TEMPORARY EQUITY 480,000 -- -- 480,000
STOCKHOLDERS' EQUITY
Common stock 656,000 25,000 223,000 (c) 879,000
(25,000)
Preferred stock 7,000 (7,000) --
Additional paid-in capital and warrants outstanding 6,425,000 -- 4,904,000 (c) 11,329,000
Retained earnings (6,135,000) 18,126,000 (18,126,000) (6,135,000)
(157,000)(d) (157,000)
Accumulated other comprehensive income (loss) -- (283,000) 283,000 --
------------ ------------ ------------ ------------
946,000 17,875,000 (12,905,000) 5,916,000
Less: Treasury stock at cost -- (9,494,000) 9,494,000 --
Less: Unearned ESOP shares -- (5,790,000) 5,790,000 --
------------ ------------ ------------ ------------
Total Stockholders' Equity 946,000 2,591,000 2,379,000 5,916,000
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,457,000 $ 6,846,000 $ 5,073,000 $ 18,376,000
============ ============ ============ ============
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FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
AUGUST 31, 2002
(UNAUDITED)
8/02 Fortune Kingston Nor-Cote
Includes 1 11 months 12 months Proforma Proforma
Month-Kings 9-1-01 to 7-31-02 ended 8/31/02 Adjustments Combined
NET REVENUE $ 2,342,000 $ 9,560,000 $ 11,570,000 $ -- 23,472,000
COST OF REVENUE 2,107,000 8,153,000 6,073,000 -- 16,333,000
------------ ------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) 235,000 1,407,000 5,497,000 -- 7,139,000
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 1,673,000 1,570,000 4,813,000 55,000 (e) 8,111,000
------------ ------------ ------------ ------------ ------------
Operating Income (Loss) (1,438,000) (163,000) 684,000 (55,000) (972,000)
OTHER INCOME (EXPENSE)
Interest income 51,000 2,000 136,000 -- 189,000
Interest expense (23,000) (38,000) (534,000) (100,000)(f) (695,000)
Royalty income -- -- 260,000 -- 260,000
Gains on investments in marketable securities, net (597,000) -- (159,000) -- (765,000)
Net loss on sale of equipment (23,000) (1,000) (278,000) -- (302,000)
Other income (45,000) 9,000 113,000 -- 77,000
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) (637,000) (28,000) (462,000) (100,000) (1,227,000)
------------ ------------ ------------ ------------ ------------
Net Income (Loss) before Provision for Income Taxes (2,075,000) (191,000) 222,000 -- (2,044,000)
PROVISION FOR INCOME TAXES -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (2,075,000) $ (191,000) $ 222,000 $ (155,000) $ (2,044,000)
============ ============ ============ ============ ============
BASIC LOSS PER SHARE (based on 88,321,444 shares
outstanding) $ (0.02)
============
DILUTED INCOME PER SHARE (based on 90,555,015 shares
outstanding) $ (0.02)
============
At August 31, 2002, all common stock equivalents were anti-dilutive.
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FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MAY 31, 2003
(UNAUDITED)
Proforma Proforma
Fortune Nor-Cote Adjustments Combined
NET REVENUE $ 10,318,000 $ 7,881,601 $ -- $ 18,199,601
COST OF REVENUE 7,321,000 4,304,178 -- 11,625,178
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) 2,997,000 3,577,423 -- 6,574,423
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 2,493,000 3,733,225 41,000 (g) 6,267,225
------------ ------------ ------------ ------------
Operating Income (Loss) 504,000 (155,802) (41,000) 307,198
OTHER INCOME (EXPENSE)
Interest income -- 61,051 -- 61,051
Interest expense (114,000) (170,864) (80,000)(h) (364,864)
Gains on investments in marketable securities, net -- 125,873 -- 125,873
Other income 81,000 15,467 -- 96,467
------------ ------------ ------------ ------------
Total Other Income (Expense) (33,000) 31,527 (80,000) (81,473)
------------ ------------ ------------ ------------
Net Income (Loss) before Provision for Income Taxes 471,000 (124,275) 225,725
INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 471,000 $ (124,275) $ (121,000) $ 225,725
============ ============ ============ ============
BASIC INCOME PER SHARE (based on 88,321,444 shares outstanding) $ 0.00
============
DILUTED INCOME PER SHARE (based on 90,555,015 shares outstanding) $ 0.00
============
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Notes to Unaudited Pro Forma Consolidated Financial Statements
1. Pro Forma Adjustments:
Balance sheet adjustments:
(a) Adjustment reflects goodwill and net intangible assets recorded
customer list at the purchase date. Amount is based on the estimate
fair value of Nor-Cote's assets over the estimated fair value of
consideration exchanged by FDVI for 100% of Nor-Cote's common and
preferred stock.
(b) Adjustment reflects financing obtained for cash payment to Nor-Cote
shareholders. The proceeds were used to pay (1) Nor-Cote's sole
common stockholder and (2) participants of Nor-Cote's employee stock
ownership plan for 100% of allocated preferred shares at the date of
the purchase.
(c) Adjustment represents total stock issued to common stock holders and
preferred stock holders of Nor-Cote at the purchase date and the
estimated fair value of restricted stock issued to key Nor-Cote
employees at the date of the purchase. Common stock proforma
adjustment represents par value of $.01 per share on 22,293,179
shares issued ($223,000). Additional paid in capital adjustment
represents $0.22 per share on the 22,293,179 shares issued
($4,904,000). The total value of FDVI's common stock on the purchase
date was $0.23 per share.
(d) Adjustment reflects 100% valuation allowance recorded on Nor-Cote's
deferred tax asset at the date of the purchase.
Statement of operation adjustments - year ended August 31, 2002:
(e) Adjustment reflects twelve months of amortization expense for
intangible asset related amortized over a ten year life.
(f) Adjustment reflects twelve months of interest expense on the $1.8M
related party note payable related to (b) above, at approximately a
rate per annum equal to three percent over one-month LIBOR.
(g) Adjustment reflects the incremental provision for federal and state
income taxes, considering (1) the related effects of a consolidated
income tax filing with FDVI and (2) increase in the valuation
allowance as defined in (d) above.
Statement of operation adjustments - nine month period ended May 31, 2003:
(h) Adjustment reflects twelve months of amortization expense for
intangible related to (a) above, amortized over a ten year life.
(i) Adjustment reflects twelve months of interest expense on the $1.8M
related party note payable related to (b) above, at approximately a
rate per annum equal to three percent over one-month LIBOR.
(j) Adjustment reflects the incremental provision for federal and state
income taxes, considering (1) the related effects of a consolidated
income tax filing with FDVI and (2) increase in the valuation
allowance as defined in (d) above.
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