SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Act of 1934
Date of Report (earliest event reported) May 31, 1996
------------
DK INDUSTRIES, INC.
-------------------
(Exact name of registrant as specified in its charter)
Colorado 0-15891 84-0891674
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1580 Lincoln Street, Suite 900, Denver, Colorado 80203
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 863-1869
-----------------------------
425 John Deere Road, Fort Collins, Colorado 80424
(Former name or former address, if changed since last report.)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The financial statements filed herewith complete the financial statement
filing requirements of the Registrant's 8-K dated May 31, 1996.
(a) Financial Statements of Businesses Acquired.
Audited consolidated financial statements for GDC Holdings Corporation
for the ten month period ended September 30, 1995 and the years ended November
30, 1994 and November 30, 1993.
(b) Pro Forma Financial Information
Pro forma condensed combined statements of operations for the interim six
months ended March 31, 1996 and 1995 together with an interim pro forma
condensed combined balance sheet as of March 31, 1996.
(c) Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DK INDUSTRIES, INC.
-----------------------------------------------
(Registrant)
Date: September 25, 1996 By: /s/ James W. Muzzy
--------------------------------------------
James W. Muzzy, Vice President and
Principal Financial Officer
2
TABLE OF CONTENTS
Item 7(a):
Consolidated Financial Statements, GDC Holdings Corporation and Subsidiary:
Page
Independent Auditor's Report F-2
Consolidated Balance Sheets, September 30, 1995 and November 30, 1994 F-3
Consolidated Statements of Operations, ten month period ended
September 30, 1995 and for the years ended November 30, 1994 and 1993 F-4
Consolidated Statements of Stockholders' Equity, ten month period
ended September 30, 1995 and for the years ended November 30, 1994 and 1993 F-5
Consolidated Statements of Cash Flows, ten month period ended September 30,
1995 and for the years ended November 30, 1994 and 1993 F-6
Notes to Consolidated Financial Statements, ten month period ended
September 30, 1995 and for the years ended November 30, 1994 and 1993 F7-14
Item 7(b):
Unaudited Pro Forma Condensed, Combined Financial Information:
Unaudited Pro Forma Condensed, Combined Balance Sheet, March 31, 1996 F-15
Unaudited Pro Forma Condensed, Combined Statement of Operations,
for six month period ended March 31, 1996 F-16
Unaudited Pro Forma Condensed, Combined Statement of Operations,
for six month period ended March 31, 1995 F-17
Notes to Unaudited Pro Forma Financial Information F-18
3
DELOITTE &
TOUCHE LLP Suite 3700 Telephone : (504)581-2727
One Shell Square Facsimile: (504)561-7293
701 Poydras Street
New Orleans, Louisiana 70139-3700
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
GDC Holdings Corporation:
We have audited the accompanying consolidated balance sheets of GDC Holdings
Corporation and its wholly owned subsidiary, GDC Enviro-Solutions, Inc.
(formerly GDC Engineering Inc.) as of September 30, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the ten month period 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. The consolidated
financial statements of GDC Engineering Inc. for the years ended November 30,
1994 and 1993, were audited by other auditors, whose report dated February 8,
1995 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GDC Holdings
Corporation as of September 30, 1995, and the results of their operations and
their cash flows for the ten month period then ended in conformity with
generally accepted accounting principles.
As discussed in Note 2, in 1995 the Company changed its method of accounting for
depreciation.
/s/ Deloitte & Touche LLP
March 15, 1996
F-2
GDC HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND NOVEMBER 30, 1994
- --------------------------------------------------------------------------------
ASSETS 1995 1994
CURRENT ASSETS:
Cash $ 115,919 $ 137,616
Receivables (no allowance deemed necessary):
Trade 1,062,872 2,464,663
Retainage 600,000 684,035
Unbilled 455,500 534,800
Other 338,821 1,129,404
Prepaid expenses 99,890 227,276
Other current assets 316,311 154,105
----------- -----------
Total current assets 2,989,313 5,331,899
Property, plant and equipment, net 6,921,803 7,211,552
Debt issuance cost, net 210,326 288,230
Other assets 189,428 470,904
----------- -----------
$10,310,870 $13,302,585
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable and long-term
debt (amounts to shareholders $915,737
in 1995 and 1994) $ 1,786,975 $ 1,508,380
Accounts payable and accrued expenses 927,988 2,226,998
----------- -----------
Total current liabilities 2,714,963 3,735,378
----------- -----------
Long-term debt, excluding current maturities 4,011,691 5,017,163
Deferred income taxes 714,120 502,805
Deferred revenue - 1,505,872
Commitments and contingencies - -
STOCKHOLDERS' EQUITY:
Common stock, no par value, 10,000,000 shares
authorized, 1,271,387 shares in 1995 and
1,140,000 shares in 1994 issued
and outstanding (Note 6) 187,664 30,000
Unearned compensation, restricted stock award (157,664) -
Retained earnings 2,840,096 2,511,367
----------- -----------
Total stockholders' equity 2,870,096 2,541,367
----------- -----------
$10,310,870 $13,302,585
=========== ===========
See notes to consolidated financial statements.
F-3
GDC HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
TEN MONTH PERIOD ENDED SEPTEMBER 30, 1995 AND FOR THE
YEARS ENDED NOVEMBER 30, 1994 AND 1993
- --------------------------------------------------------------------------------
1995 1994 1993
CONTRACT REVENUE $8,628,165 $14,832,839 $20,171,151
COST OF CONTRACT REVENUE 5,544,236 11,165,785 16,975,915
---------- ----------- -----------
Gross profit 3,083,929 3,667,054 3,195,240
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,394,765 3,139,033 3,716,855
---------- ----------- -----------
Net operating income (loss) 689,164 528,021 (521,615)
---------- ----------- -----------
OTHER (INCOME) DEDUCTIONS:
Interest 563,188 667,499 853,256
Minority interest in loss
of subsidiary - (21,224) (19,010)
Gain on sale of subsidiary - (81,711) -
Other, net 75,557 146,280 (160,955)
---------- ----------- -----------
638,745 710,844 673,291
---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT 50,419 (182,823) (1,194,906)
INCOME TAX (EXPENSE) BENEFIT (20,362) 44,790 345,365
---------- ----------- -----------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 30,057 (138,033) (849,541)
CUMULATIVE EFFECT ON PRIOR YEARS
OF CHANGING TO DIFFERENT
DEPRECIATION METHOD (Note 2) 298,674 - -
---------- ----------- -----------
NET INCOME (LOSS) $ 328,729 $ (138,033) $ (849,541)
========== =========== ===========
PER SHARE AMOUNTS:
Income (loss) per common
share - primary and fully
diluted:
Income (loss) before cumulative
effect of a change in
accounting principle $ 0.03 $ (0.12) $(0.75)
Cumulative effect on prior
years of change in
method of depreciation 0.26 - -
---------- ----------- -----------
Net income (loss) $ 0.29 $ (0.12) $(0.75)
========== =========== ===========
Proforma amounts assuming a new
depreciation method is applied
retroactively:
Net income (loss) $ 467 $ (689,369)
=========== ===========
Income (loss) per common
share - primary
and fully diluted $ - $ (0.60)
=========== ===========
See notes to consolidated financial statements.
F-4
GDC HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TEN MONTH PERIOD ENDED SEPTEMBER 30, 1995 AND THE
YEARS ENDED NOVEMBER 30, 1994 AND 1993
- --------------------------------------------------------------------------------
Common Unearned
Stock at Compensation -
Paid-in Restricted Retained
Amount Stock Award Earnings Total
Balances at December 1, 1992 $ 30,000 $ - $3,521,741 $3,551,741
Accretion and redemption right on certain
common stock - (21,000) (21,000)
Purchase and retirement of treasury stock - (1,800) (1,800)
Net loss - - (849,541) (849,541)
-------- --------- ---------- ----------
Balance at November 30, 1993 30,000 2,649,400 2,679,400
Net loss - - (138,033) (138,033)
-------- --------- ---------- ----------
Balance at November 30, 1994 30,000 2,511,367 2,541,367
Issuance of stock to employee 157,664 - - 157,664
Unearned compensation arising from issuance of
common shares under restricted stock award - (157,664) - (157,664)
Net income - 328,729 328,729
-------- --------- ---------- ----------
Balance at September 30, 1995 $187,664 $(157,664) $2,840,096 $2,870,096
======== ========== ========== ==========
See notes to consolidated financial statements.
F-5
GDC HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEN MONTH PERIOD ENDED SEPTEMBER 30, 1995 AND FOR THE
YEARS ENDED NOVEMBER 30, 1994 AND 1993
- --------------------------------------------------------------------------------
1995 1994 1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 328,729 $ (138,033) $ (849,541)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Cumulative effect of change in
accounting principles (298,672) - -
Depreciation and amortization 829,223 1,698,633 1,851,719
Loss on sale of fixed assets 25,076 - -
Deferred income taxes 20,362 (44,790) 340,942
Minority interest in loss of
subsidiary - (21,224) (19,010)
Changes in assets and liabilities:
Receivables 2,355,709 (635,734) (664,159)
Prepaid expenses 127,386 28,331 7,523
Refundable income taxes - 800,000 (800,000)
Other assets 119,270 108 (317,557)
Accounts payable and accrued
expenses (1,299,010) 135,252 (139,900)
Income taxes payable - - (27,000)
Other liabilities - - (94,510)
Decrease in deferred revenue (1,505,872) - -
----------- ----------- -----------
Net cash provided by (used in)
operating activities 702,201 1,822,543 (711,493)
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of subsidiary - 45,000 -
Purchase of property, plant and
equipment (20,585) (33,520) (741,825)
Proceeds from sale of property,
plant and equipment 23,564 13,200 -
----------- ----------- -----------
Net cash provided by (used in)
investing activities 2,979 24,680 (741,825)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments to repurchase redeemable
common stock - - (960,000)
Proceeds from issuance of
long-term debt 272,200 124,754 7,077,793
Principal payments on long-term
debt (999,077) (2,163,861) (4,350,044)
Payments to repurchase common
stock - - (1,800)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (726,877) (2,039,107) 1,765,949
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (21,697) (191,884) 312,631
CASH AT BEGINNING OF PERIOD 137,616 329,500 16,869
----------- ----------- -----------
CASH AT END OF PERIOD $ 115,919 $ 137,616 $ 329,500
=========== =========== ===========
CASH PAID FOR INTEREST $ 306,458 $ 688,323 $ 759,623
=========== =========== ===========
See notes to consolidated financial statements.
F-6
GDC HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TEN MONTH PERIOD ENDED SEPTEMBER 30, 1995 AND THE
YEARS ENDED NOVEMBER 30, 1994 AND 1993
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GDC Holdings Corporation, through its subsidiary, GDC Enviro-Solutions, Inc.
(formerly GDC Engineering Inc.) (the Company) is an environmental technology
firm focused on providing its customers services on turnkey projects and
solutions in the waste management, waste cleanup and geotechnical fields.
The Company is involved in waste reduction, waste recycling, waste
destruction, and site rehabilitation in response to current environmental
concerns. Its significant accounting policies are described in the
paragraphs that follow:
Principles of Consolidation - The financial statements include the accounts
of the Company and its wholly owned subsidiary, GDC Enviro-Solutions, Inc.
(Note 14) and, until the date of its sale in 1994, its majority-owned
subsidiary, BCI Environmental Construction, Inc. (BCI) (Note 9). All
significant intercompany balances and transactions have been eliminated. In
1995, the Company changed its year end to September and, accordingly, the
results of operations and cash flows for 1995 are for the ten month period
then ended.
Revenue and Cost Recognition - Revenues are primarily related to waste
processing activities and are recognized on a per hour or per unit of waste
material processed. Revenue from cost plus contracts are recognized on the
basis of cost incurred during the period.
Contract costs include all direct material, labor, and equipment costs and
those indirect costs related to contract performance such as indirect labor,
supplies, tool costs and equipment depreciation. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements, may result in revisions to costs and income and
are recognized in the period in which the revisions are determined.
Use of Estimate - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost and include expenditures for renewals and betterments which
substantially increase the useful lives of existing plant and equipment.
Depreciation is determined using the straight-line method for machinery and
equipment with estimated lives of 3 to 10 years. Incineration equipment
systems are depreciated over their useful lives by the unit of production
method.
F-7
Debt Issuance Cost - Debt issuance cost relates to a 1992 long-term debt
issuance. This cost totaled $467,390 and is being amortized over the life of
the loan. The accumulated amortization was $257,064 and $179,160 at 1995 and
1994, respectively.
Income Taxes - The Company uses the asset and liability method to account
for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amount of existing assets and
liabilities and their respective bases. Deferred tax assets and liabilities
are measured using tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of change in tax
assets is recognized in income in the period that includes the enactment
date.
Net Income (Loss) Per Common Share - Primary and fully diluted net income
(loss) per common share is based on the weighted average number of shares
outstanding after consideration of the dilutive effect of stock warrants
(after giving effect for the reorganization referred to in Note 14). The
weighted average number of common shares used in the calculation was
1,165,329, 1,140,000 and 1,140,060 for 1995, 1994 and 1993, respectively.
Primary and fully diluted net income (loss) per common share does not
include either the outstanding restricted stock award, as the condition for
lifting the restriction is currently not being met, or the 502,333 shares
issued in exchange for debt as discussed in Note 4.
Statements of Cash Flows - For purposes of the statements of cash flows, the
Company considers all short-term, highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentrations of credit risk are accounts
receivables. The Company continuously evaluates the credit worthiness of its
customers' financial conditions and generally does not require collateral.
The Company's allowance for doubtful accounts is based on current market
conditions, and losses on uncollectible accounts have consistently been
within management's expectations.
Fair Value of Financial Instruments - The carrying value of the Company's
financial instruments including cash, accounts receivable and payable, and
notes payable approximate fair market value due to their short term nature
or variable interest rates.
Reclassifications - Certain amounts in the 1994 and 1993 consolidated
financial statements have been reclassified to conform with the current year
presentation.
New Accounting Pronouncements - The Financial Accounting Standards Board has
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" and SFAS No. 123, "Accounting for
Stock Based Compensation." The Company does not anticipate that the adoption
of these statements in 1996 will have a significant effect on its financial
position, results of operations or cash flows.
F-8
2. PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1995 and November 30, 1994
consist of the following:
1995 1994
Incineration equipment $ 8,163,896 $ 8,192,346
Machinery and equipment 4,121,667 4,124,155
Furniture and fixtures 487,145 498,941
Vehicles 257,323 366,336
Leasehold improvements 106,293 115,797
----------- -----------
13,136,324 13,297,575
Less accumulated depreciation (6,214,521) (6,086,023)
----------- -----------
$ 6,921,803 $ 7,211,552
=========== ===========
Depreciation expense amounted to $751,318 in 1995, $1,605,161 in 1994 and
$1,756,374 in 1993. Substantially all of the machinery and equipment is
pledged to secure long-term debt.
Effective December 1, 1994, the Company changed its method of depreciation
on its incineration equipment systems from 10 year straight-line to a unit
of production method. This change was made to better reflect the estimated
use during periods in which such assets will remain in service. The
cumulative effect of the change on prior years of $489,625 net of income
taxes of $190,953 ($.26 per share after giving effect to the reorganization
referred to in Note 14) is included in the accompanying statement of
operations in 1995. The change had the effect of reducing depreciation
expense and increasing net income in 1995 by approximately $341,464 ($.29
per share after giving effect to the reorganization referred to in Note 14).
3. DEFERRED REVENUE
During 1994, an existing customer asked the Company to deactivate and defer
future performance on a previously signed contract. The Company agreed to
this request and further agreed that cash payments received by the Company
under the terms of this agreement, could be applied to future contract
services between the Company and this customer. As inducement for the
Company signing this agreement, the customer agreed to make cash payments
totaling $1,505,872. This total amount was deferred at November 30, 1994 to
be recognized as income when the contract was canceled or when the potential
future obligation of the Company to provide contract services had expired.
In 1995, the Company collected the deferred payment and negotiated an
amendment to this agreement whereby the Company would have no potential
future obligation relating to the $1,505,872. Accordingly, this amount has
been included in contract revenue in 1995.
F-9
4. LONG-TERM DEBT
Long-term debt as of September 30, 1995 and November 30, 1994 consist of the
following:
1995 1994
Note payable due in monthly installments, including
interest, of approximately $84,000. Interest is at
prime plus 3% (11.5% at September 30, 1995).
Guaranteed by the majority stockholder. $ 3,037,639 $ 3,595,780
Note payable due in monthly installments, including
interest, of approximately $19,000. Interest is at
prime (8.5% at September 30, 1995). 477,776 637,036
Various subordinated notes payable to the majority
stockholder. Interest is at prime (8.75% at
September 30, 1995). (This note was converted into
502,333 shares of common stock on March 12, 1996.) 915,738 915,738
Notes payable due in monthly installments ranging
from approximately $7,200 to $11,000, with imputed
interest ranging from 13% to 17%. 695,313 859,027
Note payable to a bank under a $750,000 line of
credit. Interest at the bank's prime plus 2%
(11% at September 30, 1995). Advances under
the line are limited to 70% of eligible accounts
receivable. The note matures July 1, 1996. 672,200 400,000
Note payable due in monthly installments, including
interest, of approximately $14,000. This note was
paid in full in 1995. - 117,962
----------- -----------
5,798,666 6,525,543
Less current maturities of long-term debt (1,786,975) (1,508,380)
----------- -----------
$ 4,011,691 $ 5,017,163
=========== ===========
Substantially all of the Company's accounts receivable and property, plant
and equipment are pledged as security for notes payable and long-term debt.
One of the Company's notes payable had provided the lender with a profit
participation fee. This one time option could have been exercised at any
time from December 1994 through December 1997. The profit participation fee
entitled the lender to 10% of the proceeds from the sale of all or
substantially all of the assets of the Company less certain debt of the
Company, or 10% of a multiple of operating cash flows for the preceding
twelve month period. Through September 30, 1995 the lender had not exercised
this option. However, on March 15, 1996, the Company restructured this
agreement and fixed the profit participation fee at $500,000, payable in
level monthly installments through December 1996. Additionally, the maturity
dates of the loan has been extended through 2003. Under the terms of the
agreement of the Company was prohibited from the payment of any dividends at
September 30, 1995.
F-10
This agreement also contains various other restrictions and covenants with
which the Company must comply. At September 30, 1995, the Company was not in
compliance with some of these covenants. On March 15, 1996, an amendment to
this agreement was executed, which provided additional flexibility with
respect to certain covenants and waived any technical defaults of those
covenants which existed or may exist through March 15, 1996. Management
believes that these covenants will be met in the future.
In addition, on March 12, 1996 approximately $1.1 million of notes and
accrued interest payable to shareholders were exchanged for 502,333 shares
of the Company's common stock. This conversion of debt would have had a $.01
and $.08 per share effect on income per common share on income before
cumulative effect and cumulative effect, respectively, if this conversion
had occurred at the beginning of the period.
The aggregate maturities of notes payable and long-term debt, without regard
to the restructure or conversion as referred to above, for each of the years
subsequent to September 30, 1995, are as follows:
Year Ending
September 30,
1996 $1,750,274
1997 1,177,786
1998 2,870,605
----------
$5,798,666
==========
5. INCOME TAXES
The Company has provided for Federal and state income taxes (benefit) as
follows:
Fiscal
-------------------------------------
1995 1994 1993
Current $ - $ - $(790,000)
Deferred 20,363 (44,790) 444,635
------- -------- ---------
Provision for income taxes $20,363 $(44,790) $(345,365)
======= ======== =========
A reconciliation between the amount of reported income taxes and the amount
computed by multiplying the income (loss) before income taxes by the
statutory federal rate for periods ending 1995, 1994, and 1993 is as
follows:
1995 1994 1993
Income taxes (benefit) at statutory
federal rate of 34% $17,142 $(62,160) $(335,670)
Increase (reduction) in income taxes
resulting from:
State and local income taxes, net of
Federal income tax benefit (1,008) (3,284) (38,750)
Other, net 4,229 20,654 29,055
------- -------- ---------
$20,363 $(44,790) $(345,365)
======= ======== =========
F-11
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1995 and November 30, 1994 are represented below:
1995 1994
Deferred tax liability -
Tax over book depreciation $(1,422,886) ($1,184,325)
Deferred tax assets:
Net operating loss carryforwards 288,246 248,987
Alternative minimum tax credit carryforwards 372,060 372,060
Other, net 48,460 60,473
----------- ------------
Total deferred tax asset 708,766 681,520
----------- ------------
Net deferred tax liability $ (714,120) $ (502,805)
=========== ============
There is no valuation allowance for the deferred tax assets at September 30,
1995 and November 30, 1994 as management believes that they will be realized
through future operations and the reversal of taxable temporary differences.
At September 30, 1995, the Company has net operating loss carryforwards for
Federal income tax purposes of $800,682 which are available through 2006 to
offset future federal income taxes. The Company also has alternative minimum
tax credit carryforwards of $372,060 which are available to reduce Federal
regular income taxes, over an indefinite period.
6. STOCKHOLDERS' EQUITY
After giving the effect for the reorganization referred to in Note 14, the
authorized capital stock of the Company consists of 10,000,000 shares of no
par value common stock of which 1,271,387 (1,773,720 after the effect of the
conversion referred to in Note 14) and 1,140,000 shares were issued and
outstanding at September 30, 1995 and November 30, 1994, respectively.
In accordance with the terms of a certain employee agreement, the Company
issued 131,387 shares of restricted no par value common stock in 1995 in
consideration of future services and events. These restricted shares are
held in custody by the Company until the terms of the restriction is
satisfied. If the terms under which the award was granted are not satisfied,
the shares will be forfeited. When these shares were issued, unearned
compensation equivalent to the current value of the stock was charged to
stockholders' equity. Compensation expense will be recorded at the market
value of the shares at the date when it becomes probable that the stock will
not be forfeited.
In July 1995, the Company issued to two outside directors warrants to
purchase 100,000 shares of common stock at $1.20 per share - the estimated
fair market value of the Company's common stock at the date of the grant
after giving the effect for the reorganization referred to in Note 14.
F-12
7. BUSINESS AND CREDIT CONCENTRATIONS
Most of the Company's customers are located in the Southern United States.
During 1995, 1994 and 1993, the Company had major customers each of whose
purchases exceeded 10% of total sales. Sales to their customers were as
follows:
% of Sales
to Total Sales
---------------------------------------------------
1995 1994 1993
----------------- --------------- ---------------
Customer 1 $2,907,000 34% $8,362,000 56% $6,253,000 31%
Customer 2 1,227,000 14 1,926,000 13 - -
Customer 3 1,939,000 22 3,288,000 22 - -
Customer 4 1,468,000 17 - - - -
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising in the ordinary
course of business. Management has assessed the range of loss, if any,
related to other pending legal matters and has concluded that the impact of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
The Company has several noncancelable operating leases, primarily for office
space leased from the majority shareholder for approximately $210,000 per
year, that expire over the next 3 years. In addition, the Company leases
various pieces of equipment on a month-to-month basis as the work load
requires. Rental expense for 1995, 1994 and 1993 was $558,000, $937,000 and
$1,431,000, respectively. Future minimum lease payments under noncancelable
operating leases for the years ending September 30, are as follows:
1996 $224,000
1997 218,000
1998 218,000
--------
$660,000
========
The Company has entered into agreements with various officers and employees
for periods of two to three years. The agreements provide for certain annual
salaries and a bonus equal to an allocated portion of the Company's annual
net profit. The employee agreements provide that the employees are not to
compete in businesses related to the Company's activities during the
employment period and for a period of two years following the termination of
the employment contracts.
9. SALE OF MAJORITY OWNED SUBSIDIARY
On October 7, 1994, the Company sold its 80% interest in BCI to the minority
shareholder. In exchange for its interest, the Company received $45,000 in
cash and a note receivable of $109,000.
F-13
10. BENEFIT PLAN
The Company has a non-contributory Profit Sharing Plan and Trust (the Plan)
which substantially covers all employees who are at least 21 years of age
and have completed one year of service. The Company can contribute to the
Plan at its discretion and employees vest in the Company's contribution
based upon their years of service. There were no Company contributions in
fiscal year 1995, 1994 or 1993.
11. PENDING MERGER
On September 7, 1995, the Company signed a letter of intent, with DK
Industries, Inc., (DK), in which DK will acquire 100% of the Company in
exchange for common stock of DK. The resulting ownership structure would
provide GDC Holdings Corporation stockholders with approximately 75% of the
equity of the surviving entity. The acquisition is subject to, among other
things, completion of a definitive agreement and approval of all parties
thereto.
12. PENDING ACQUISITION
On September 25, 1995, the Company entered into an option agreement to
purchase all of the issued and outstanding stock of NBL Technologies, Inc.
for $500,000. The purchase price will be paid $150,000 in cash and the
remainder in the Company stock. The agreement provides that the Company's
stock must be publicly traded and is to be valued at the mean between the
bid and asked price for such stock on the day prior to closing of this sale.
13. RESULTS OF OPERATIONS AND FINANCIAL RESTRUCTURING
As shown in the financial statements, during the ten months ended September
30, 1995, the Company had net income of $30,057 before cumulative effect of
change in accounting principles. This income included a $1,505,872 contract
termination fee that is reflected in revenues. During fiscal 1995 a new
management team embarked on a four point plan aimed at stabilizing and
positioning the Company, through the acquisition of a broad range of
technologies, to become a full service, single source solution,
environmental company. The focus of the plan is to (1) reduce overhead and
implement new cost controls, (2) revamp the Company's marketing
organization, (3) restructure existing debt and expand existing equipment
and receivable lines, and (4) raise additional equity to bolster working
capital and provide for expansion. Although the sufficiency of these actions
cannot be predicted with absolute certainty, management is of the opinion
that these measures will sufficiently sustain the Company's ability to
satisfy its working capital and debt service requirements.
14. REORGANIZATION
On March 12, 1996, the shareholders of GDC Enviro-Solutions, Inc. approved
certain changes to the corporate structure, including the creation of a
holding company, GDC Holdings Corporation. The shareholders retained the
same ownership interest in the holding company as prior to the
reorganization whereby 1,271,387 shares of common stock of GDC Holdings were
issued in exchange for the 3,814,160 outstanding shares of GDC Enviro-
Solutions. The Company has accounted for this transaction similar to a
pooling of interest and the exchange of stock has been retroactively
applied. All capital stock and per share data have been restated for the
effect of this exchange. In addition, as discussed in Note 4, certain debt
was exchanged for 502,333 shares of stock.
F-14
DK Industries, Inc.
Pro Forma Condensed Combined Balance Sheet
MARCH 31, 1996 (Unaudited):
- ---------------------------
DK Industries
GDC Holdings DK Pro forma Condensed Combined
ASSETS Corporation Industries Entries Pro forma
------ ------------ ---------- ----------- ------------------
Current Assets:
Cash & cash equivalents $0 $0 $0
Accounts receivable 1,858,408 1,858,408
Other receivables 202,612 202,612
Prepaid expenses 157,977 157,977
Other current assets 560,390 560,390
------------ ---------- ---------- ------------
Total Current Assets 2,779,387 0 0 2,779,387
Property & equipment, net 6,654,501 6,654,501
Retainage on contracts 0 0
Other assets 1,200,776 1,200,776
------------ ---------- ---------- ------------
Total Assets $10,634,664 $0 $0 $10,634,664
============ ========== ========== ============
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Current Liabilities:
Current prtn., long-term debt $841,724 $841,724
Line of credit payable 609,400 609,400
Accounts payable 680,644 $45,655 $128,108 854,407
Accrued expenses 1,343,321 1,343,321
------------ ---------- ---------- ------------
Total Current Liabilities 3,475,089 45,655 128,108 3,648,852
Long-term debt, net of current 3,015,750 3,015,750
Deferred income taxes 562,966 (38,000) 524,966
Stockholders' Equity:
Common stock, par value 187,664 240,324 (380,506) 47,482
Addtl. Paid-in Capital 1,063,457 1,579,928 (1,485,401) 1,157,984
Unearned compensation (157,664) (157,664)
Retained earnings 2,487,402 (1,853,872) 1,763,764 2,397,294
------------ ---------- ---------- ------------
3,580,859 (33,620) (102,143) 3,445,096
Less: Treasury stock 0 (12,035) 12,035 0
------------ ---------- ---------- ------------
Total Stockholders' Equity 3,580,859 (45,655) (90,108) 3,445,096
------------ ---------- ---------- ------------
Total Liab. & Stock. Equity $10,634,664 $0 $0 $10,634,664
============ ========== ========== ============
F-15
DK Industries, Inc.
Pro Forma Condensed Combined Statement of Operations
Six Months Ended March 31, 1996 (Unaudited):
- --------------------------------------------
DK Industries
GDC Holdings DK Pro forma Pro forma Condensed
Corporation Industries Entries Combined
------------ ---------- ---------- -------------------
Contract revenue $2,960,559 $2,960,559
Cost of contract revenue 1,913,564 1,913,564
----------- -------- ---------- -----------
Gross Profit 1,046,995 0 0 1,046,995
Selling, general & admin exp. 1,109,468 $10,143 1,119,611
----------- -------- ---------- -----------
Operating Income (Loss) (62,473) (10,143) 0 (72,616)
Other income (expenses):
Interest expense (226,490) (226,490)
Miscellaneous, net (214,883) (128,108) (342,991)
----------- -------- ---------- -----------
Total Other Income (Expense) (441,373) 0 (128,108) (569,481)
----------- -------- ---------- -----------
Income (Loss) Before Taxes (503,846) (10,143) (128,108) (642,097)
Income (Taxes) Credit 151,154 38,000 189,154
----------- -------- ---------- -----------
Net Income (Loss) ($352,692) ($10,143) ($90,108) ($452,943)
=========== ======== ========== ===========
Pro forma income (loss) per share ($0.237)
===========
Pro forma weighted average shares outstanding 1,913,632
===========
F-16
DK Industries, Inc.
Pro Forma Condensed Combined Statement of Operations
Six Months Ended March 31, 1995 (Unaudited):
- --------------------------------------------
DK Industries
Condensed
GDC Holdings DK Pro forma Combined
Corporation Industries Entries Pro forma
------------ ------------ ------------ -------------
Contract revenue $6,559,760 $6,559,760
Cost of contract revenue 4,690,339 4,690,339
----------- ---------- ---------- -----------
Gross Profit 1,869,421 0 0 1,869,421
Selling, general & admin exp 1,569,976 $ 0 1,569,976
----------- ---------- ---------- -----------
Operating Income (Loss) 299,445 0 0 299,445
Other income (expenses):
Interest expense (273,011) (273,011)
Miscellaneous, net (109,050) (109,050)
----------- ---------- ---------- -----------
Total Other Income (Expense) (382,061) 0 (382,061)
----------- ---------- ---------- -----------
Income (Loss) Before Taxes (82,616) 0 (82,616)
Income (Taxes) Credit 28,916 28,916
----------- ---------- ---------- -----------
Net Income (Loss) ($53,700) $0 $0 ($53,700)
=========== ========== ========== ===========
Pro forma income (loss) per share ($0.031)
===========
Pro forma weighted average shares outstanding 1,740,384
===========
F-17
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
1. In May, 1996, DK Industries, Inc. (Registrant) consummated a reverse
merger with GDC Holdings Corporation (GDC). Shareholders in GDC were issued
1,773,720 shares in Registrant in exchange for all of the outstanding stock of
GDC. As a result of the reverse merger, GDC becomes the surviving entity for
accounting purposes.
2. The accompanying unaudited condensed combined pro forma balance sheet
presents the financial position of the Registrant as if the merger had occurred
on March 31, 1996. Because of the reverse merger, the capital structure of
Registrant was eliminated in consolidation. The additional paid-in capital of
GDC was reduced by $45,655 to reflect the net liabilities of Registrant assumed
by GDC. The pro forma statements of operations combined the statements of
Registrant and GDC for the interim six month periods ended March 31, 1996 and
1995.
3. These statements are not necessarily indicative of future operations
or the actual results that would have occurred had the transactions been
consummated at the beginning of the periods indicated. The pro forma condensed
combined financial statements should be read in conjunction with the audited
historical financial statements of Registrant and notes thereto included in the
annual report of Registrant on Forms 10-K dated June 30, 1995 and June 30, 1994,
and the audited consolidated financial statements for GDC Holdings Corporation
and its subsidiary included in this 8-K A.
F-18