UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to_____________
Commission file number 0 - 24012
DEEP WELL OIL & GAS, INC.
(formerly ALLIED DEVICES CORPORATION)
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(Exact name of registrant as specified in its charter)
Nevada 13 - 3087510
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
31 Walmer Rd., Unit 6, Toronto, Ontario, M5R 2W7, Canada
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(Address of principal executive offices - Zip code)
(416) 928 - 3095
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ___
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Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
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The aggregate market value of the voting stock held by non-affiliates of
the Registrant (based upon the closing price of the Registrant's common stock on
December 31, 2003 of $0.55 per share) was approximately $90,878. Shares of
common stock held by each executive officer and director of the outstanding
common stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of December 31, 2003, the Registrant had approximately 2,165,233 shares
of Common Stock, $.001 par value per share outstanding. This figure accounts
for, or takes into consideration, a reverse split of the Company's common stock
that occurred and became effective on November 21, 2003. For financial statement
purposes, the Company has shown 6,165,233 shares of common stock issued and
outstanding. This incorporates an additional 4 million shares that are to be
issued by the Company as ordered by the Bankruptcy Court.
DEEP WELL OIL & GAS, INC.
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INDEX
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PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters 6
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis or Plan of Operation 9
Item 7A. Quantitative and Qualitative Disclosure About Market Risks 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 32
Item 9A. Controls and Procedures 33
PART III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners and Management 34
Item 13. Certain Relationships and Related Transactions 35
Item 14. Principal Accountant Fees and Services 35
PART IV
Item 15. Exhibits and Reports on Form 8-K 36
SIGNATURES 36
PART I
ITEM 1. BUSINESS
HISTORY
Deep Well Oil & Gas, Inc. ("Deep Well Oil & Gas", "Deep Well" or the "Company")
(formerly "Allied Devices Corporation") was originally incorporated on July 18,
1988 under the laws of the state of Nevada as Worldwide Stock Transfer, Inc.
These articles were complicated and lengthy, the type of provisions one would
expect to find in by-laws, and consisted of 14 pages, single-spaced. On October
25, 1990, an amendment to our articles was made changing our name to Illustrious
Mergers, Inc. At that time an article prohibiting preemptive rights was also
added.
On June 18, 1991, a company known as Allied Devices Corporation was merged with
and into Illustrious Mergers, Inc., and our name was at that time changed to
Allied Devices Corporation. On August 19, 1996, a company called Absolute
Precision, Inc., was merged with and into us and we retained our name; however,
as a result of that transaction, our principal offices were relocated to New
York.
We thereafter engaged in substantial business operations, primarily in the
manufacture and distribution of standard and custom precision mechanical
assemblies and components throughout the United States, however, on February 19,
2003, we filed a Petition for Relief under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court in and for the Eastern District of
New York titled In re: Allied Devices Corporation, et al., Chapter 11, Case No.
03-80962-511 ("the Bankruptcy Action").
REORGANIZATION
On July 23, 2003, a Liquidating Plan of Reorganization ("Plan") was filed and
submitted to the Bankruptcy Court for the Court's approval. See Exhibit 2.1
attached hereto, a full and complete copy of such Plan. See also Form 8-K/A
filed by the Company on November 25, 2003 for additional information.
On September 10, 2003, after notice to all creditors and a formal hearing, U.S.
Bankruptcy Judge Melanie L. Cyganowski issued an "Order Confirming Liquidating
Plan of Reorganization" in the Bankruptcy Action (hereinafter "Bankruptcy
Order"). In conjunction with that Bankruptcy Order, the Company's liabilities,
among other things, were paid off and extinguished. See Exhibit 2.2 attached
hereto and incorporated by reference, a full and complete copy of such
Bankruptcy Order.
The Bankruptcy Order, among other things, implements a change of control whereby
Champion Equities, a Utah limited liability company ("Champion"), a Mr. David
Roff, of Toronto, Canada ("Roff"), and a group of new investors, took control of
the Company. The principal provisions of the Plan, which are authorized and
implemented by the Bankruptcy Order, are the following, which is not an
exhaustive list thereof:
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a) the termination of present management and the present Board of Directors
and appointment of Mr. David Roff in their place and stead;
b) giving a Utah entity known as Champion Industries ("Champion"), the power
and authority to appoint such other directors, in addition to Mr. Roff, as
Champion, in its sole discretion deems appropriate;
c) the reverse split of the Company's common capital stock 1-for-30 on the
basis of 5,048,782 shares issued and outstanding immediately prior to the
Bankruptcy Order;
d) authorizing Champion to amend the Company's Articles of Incorporation and
Bylaws to (i) effect a quasi-reorganization for accounting purposes, (ii)
provide the maximum indemnification or other protections to the Company's
officers and directors that is allowed under applicable law, (iii) conform
to the provisions of the Plan and the corollary Confirmation Order, (iv)
set the authorized stock of the Company, post-reverse split, at fifty
million (50,000,000) common capital shares; and (v) take all action
necessary and appropriate to carry out the terms of the Plan;
e) authorizing Champion, without solicitation of or notice to shareholders, to
issue (i) 2,000,000 post-reverse split shares of the Company's common stock
to the Company's new management, and (ii) 4,000,000 post-reverse split
shares, legend free, in the sole and unfettered discretion of Champion;
f) the Company's Board of Directors, was authorized, without seeking or
obtaining shareholder approval to take any and all actions necessary or
appropriate to effectuate amendments to the Company's Certificate of
Incorporation and/or Bylaws called for under the Plan and the Company's
Board of Directors and officers was authorized to execute, verify,
acknowledge, file and publish any and all instruments or documents that may
be required to accomplish the same; and
g) the Company's charter is to be amended in conformance with applicable
bankruptcy rules and the amended charter or bylaws shall, among other
provisions, authorize the issuance of any new shares while simultaneously
prohibiting the issuance of nonvoting equity securities to the extent
required by section 1123(a)(6) of the United States Bankruptcy Code.
After the entry of the Bankruptcy Order, the Company drafted and submitted a
form of Restated and Amended Articles of Incorporation to the Secretary of State
of Nevada implementing the foregoing, including but not limited to other
provisions required of the Company under the Bankruptcy Order.
As a result of the Bankruptcy Order giving Mr. Roff the power and authority to
change the Company's name and direction, we decided to change our name from
"Allied Devices Corporation" to "Deep Well Oil and Gas, Inc." Accordingly, in
the form of Restated and Amended Articles of Incorporation filed with the State
of Nevada in October, we changed our name to "Deep Well Oil and Gas, Inc." Our
2
form of Restated and Amended Articles of Incorporation was accepted by the
Nevada Secretary of State on October 22, 2003, pursuant to provisions of Nevada
corporate law allowing the amending of corporate articles on the basis of orders
entered by U.S. Bankruptcy Courts. A complete copy of our accepted form of
Restated and Amended Articles of Incorporation, signed by Mr. Roff and stamped
by the Nevada Secretary of State, is attached hereto as Exhibit 3.1.
Prior to the Bankruptcy Order adopting the Liquidating Plan of Reorganization,
there were 5,048,782 outstanding shares of our common stock. Following the
Bankruptcy Order and the acceptance by the Nevada Secretary of State of our form
of Restated and Amended Articles which implements the 1-for-30 reverse split of
our shares, and rounding up any fractional shares to the nearest share and also,
after the issuance of 2 million shares to Mr. Roff as ordered by the Bankruptcy
Court, there are now 2,165,233 issued and outstanding shares of the Registrant's
common stock. For financial statement purposes, the Company has shown 6,165,233
shares of common stock issued and outstanding. This incorporates the additional
4 million shares that are to be issued by the Company as ordered by the
Bankruptcy Court.
As part of the implementation of the Bankruptcy Order, the Company's stock
symbol was changed from ALDVQ to DWOG. The Company's stock is quoted on the
"Pink Sheets".
FRESH START
Upon emergence from Chapter 11 proceedings on September 10, 2003, the Company
adopted fresh-start reporting in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, Financial Reporting By
Entities in Reorganization Under the Bankruptcy Code (SOP 90-7). In connection
with the adoption of fresh-start reporting, a new entity has been deemed created
for financial reporting purposes. For financial reporting purposes, the Company
adopted the provisions of fresh-start reporting effective September 10, 2003.
All periods presented prior to September 10, 2003, have been designated
Predecessor Company.
BUSINESS
The Company is no longer operating as Allied Devices Corporation, the
Predecessor Company, and has emerged from Chapter 11 protection as a development
stage company with no assets and liabilities. The past results of the
Predecessor Company are no longer relevant to the operations of the Company.
As a result of the Bankruptcy Order and the implementation of the Liquidating
Plan of Reorganization, we are currently headquartered in Toronto, Canada at the
address set forth above. We intend to enter into the oil and gas exploration
business once our restructuring is completed. At this time, we presently intend
to look for properties or projects involving "heavy oil" projects. "Heavy oil"
is a dark black, viscous oil that does not flow well and which has a high carbon
to hydrogen ratio, along with a high amount of carbon residues, asphaltenes,
sulphur, nitrogen, heavy metals, aromatics and/or waxes. Heavy oil is younger in
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age than the typical oil people are familiar with. It is found at relatively
shallow depths in the earth where there is not as much heat and pressure. In
this regard, reference is made the website "Heavyoil.com". As the world's oil
supplies become depleted, we believe that there will be more reliance on heavy
oil. No assurance can be made or given that we will successfully engage in the
oil and gas business or the heavy oil business, nor can any assurance be given
that even if we are remotely or relatively successful, that we will have a
profit or that our stock will appreciate in value.
At this time, the Company is in discussions to acquire properties or projects
involving "heavy oil" projects.
RISKS
The Company has no recent operating history and no representation is made, nor
is any intended, that the Company will in fact be able to carry on future
business activities successfully.
Development stage companies like the Company compete to obtain favorable
business opportunities. The Company faces competition from other development
stage companies similarly situated.
The Company is unable to ascertain the exact number of competitor companies, or
whether or when such competitors' competitive positions could improve or change.
Thus, The Company may be unable to acquire merger or other partners or otherwise
locate business combinations on terms acceptable to management. Accordingly,
such competition, although customary with development stage companies, could
result in delays, increased costs, or other types of adverse consequences
affecting The Company and its financial condition.
Need for Additional Capital or Financing and Risks Associated Therewith
Management does not presently intend to borrow funds to compensate any persons,
consultants, promoters or affiliates in relation to the implementation of its
plans. However, if the Company engages outside advisors or consultants in its
search for opportunities, it may be necessary for the Company to attempt to
raise additional funds. As of the date hereof, the Company has not made any
arrangements or definitive agreements to use outside advisors or consultants or
to raise any capital. In the event the Company does need to raise capital, most
likely the only method available to the Company would be the private sale of its
securities. These possible private sales would more than likely have to be to
persons known by the director or other shareholders of the Company or to venture
capitalists that would be willing to accept the substantial risks associated
with investing in a company with limited history, no current operations and
nominal capital.
Because of the nature of the Company as a development stage company, it is
unlikely that it could make a public offering of securities or be able to borrow
any significant sum from either a commercial or private lender. Management will
attempt to acquire funds or financing, if necessary, on the best available
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terms. However, there can be no assurance that the Company will be able to
obtain additional funding or financing when and if needed, or that such funding,
if available, can be obtained on terms reasonable or acceptable to the Company.
Although not presently anticipated, a possibility exists that the Company would
offer and sell additional securities to its existing shareholders or their
affiliates or possibly even "accredited investors."
Risks of Penny Stock Investing
The Company's common stock is considered to be a "penny stock" because it meets
one or more of the definitions in the Exchange Act Rule 3a51-1, a Rule made
effective on July 15, 1992. These include but are not limited to the following:
(i) the stock trades at a price less than five dollars ($5.00) per share; (ii)
it is NOT traded on a "recognized" national exchange; (iii) it is NOT quoted on
the NASD's automated quotation system (NASDAQ), or even if so, has a price less
than five dollars ($5.00) per share; OR (iv) is issued by a company with net
tangible assets less than $2,000,000, if in business more than three years
continuously, or $5,000,000, if in business less than a continuous three years,
or with average revenues of less than $6,000,000 for the past three years. The
principal result or effect of being designated a "penny stock" is that
securities broker-dealers cannot recommend the stock but must trade in it on an
unsolicited basis.
Risks Related to Broker-Dealer Requirements Involving Penny Stocks / Risks
Affecting Trading and Liquidity
Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated thereunder by the Commission require broker-dealers dealing in penny
stocks to provide potential investors with a document disclosing the risks of
penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. These rules may have the effect of reducing the level of trading
activity in the secondary market, if and when one develops.
Potential investors in the Company's common stock are urged to obtain and read
such disclosure carefully before purchasing any shares that are deemed to be
"penny stock." Moreover, Commission Rule 15g-9 requires broker-dealers in penny
stocks to approve the account of any investor for transactions in such stocks
before selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Pursuant to the
Penny Stock Reform Act of 1990, broker-dealers are further obligated to provide
5
customers with monthly account statements. Compliance with the foregoing
requirements may make it more difficult for investors in the Company's stock to
resell their shares to third parties or to otherwise dispose of them in the
market or otherwise.
EMPLOYEES
The Company currently has one part time employee. We expect to hire from time to
time, independent consultants and contractors during the stages of implementing
our plans.
ITEM 2. PROPERTY
Administrative operations are conducted from the offices of a consulting firm
known as Brave Consulting located at Mr. Roff's offices in Toronto, Canada. We
expect to operate for as long as possible from these offices to minimize
operating expenses. We do not currently pay rent for these offices and do not
anticipate paying rent to Mr. Roff or Brave Consulting for any such offices in
the future. Our operations do not currently require office or laboratory space
to meet our objectives, and therefore administration from these offices is
sufficient. At some point in the future, as may be necessary to implement and
carry our plans to engage in the oil and gas business, we may require additional
office space requiring rental expense, but we do not anticipate any such need
during the next six to nine months. We will however, incur common office
operating expenses such as telephone, office supplies, postage, etc.
ITEM 3. LEGAL PROCEEDINGS
See Item 1 of Part I hereof titled "Business" and Item 7 of Part II hereof
titled "Management's Discussion and Analysis or Plan of Operation" for a
detailed discussion of the Company's Bankruptcy Action.
The company is not currently aware of any legal proceedings or claims that the
company believes will have, individually or in the aggregate, a material adverse
effect on the company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PREDECESSOR COMPANY
6
The Company's common stock was originally listed on the National Association of
Securities Dealers Automated SmallCap Market ("NASDAQ") as of November 17, 1994.
Following the downturn in sales and profits in 2001-2002, the Company no longer
met the listing criteria for NASDAQ's SmallCap Market and accordingly the
Company's stock was delisted to the OTC Bulletin Board ("OTC-BB") on September
16, 2002. Subsequent to the delisting, the Company did not file its Form 10-Q
for the quarter ended December 31, 2002 on a timely basis, and accordingly, the
Company's stock was delisted to the Pink Sheets on March 25, 2003.
SUCCESSOR COMPANY
The Company's stock is currently quoted on the Pink Sheets under the symbol
DWOG. The Company's trading ranges by quarter for fiscal 2003 and 2002 were as
follows:
High Low
Fiscal 2002
First Quarter $1.45 $0.65
Second Quarter $1.16 $0.40
Third Quarter $0.70 $0.35
Fourth Quarter $0.47 $0.05
Fiscal 2003
First Quarter $0.24 $0.12
Second Quarter $0.13 $0.01
Third Quarter $0.03 $0.002
Fourth Quarter $0.002 $0.0003
The Company has not paid cash dividends since inception. The Company intends to
retain all of its earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. The payment of
any future dividends will be at the discretion of the board of directors and
will depend upon a number of factors, including future earnings, the success of
the company's business activities, capital requirements, the general financial
condition and future prospects of the company, general business conditions and
such other factors as the board of directors may deem relevant.
As of October 16, 2003, we had approximately 423 holders of record of the
Successor Company's common stock.
RECENT SALES OF UNREGISTERED SECURITIES
On September 10, 2003, the Company issued 2 million shares of common stock to
Mr. David Roff pursuant to the Bankruptcy Order. For financial statement
purposes, the Company has shown 6,165,233 shares of common stock issued and
outstanding. This incorporates the additional 4 million shares that are to be
issued by the Company as ordered by the Bankruptcy Court.
7
ITEM 6. SELECTED FINANCIAL DATA
The Company emerged from Chapter 11 proceedings with no assets and no
liabilities and a new plan of operation. Upon emergence from Chapter 11
proceedings on September 10, 2003, we adopted fresh-start reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, Financial Reporting By Entities in Reorganization Under the
Bankruptcy Code. The Company has included selected financial data for the
Successor Company. The following selected financial data should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere in this Form 10-K.
Deep Well Oil & Gas, Inc.
(formerly Allied Devices Corporation)
(Development Stage Company)
Predecessor Predecessor Predecessor Predecessor Predecessor
Successor Company Company Company Company Company
Company Period Year Year Year Year
Period Sep. 10 - Oct. 1, 2002 - ended ended ended ended
Sep. 30 Sep. 9 Sep. 30 Sep. 30 Sep. 30 Sep. 30
2003 2003 2002 2001 2000 1999
(Unaudited) (Unaudited) (Audited) (Audited) (Audited) (Audited)
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<s> <c> <c> <c> <c> <c> <c>
STATEMENT OF OPERATIONS DATA:
Net sales $ -- $ 9,244,193 $ 18,246,189 $ 29,868,056 $ 32,575,127 $ 22,827,298
Gross profit $ -- $ 1,117,981 $ 845,392 $ 4,958,005 $ 9,795,720 $ 7,897,701
Selling, general and administrative expenses $ -- $ 3,255,696 $ 6,175,483 $ 8,031,342 $ 7,507,908 $ 6,013,032
Interest expense, net $ -- $ 527,986 $ 1,809,372 $ 1,706,338 $ 1,220,592 $ 1,007,807
Net income (loss) $ (50,000) $ 1,272,197 $ (8,469,056) $ (3,656,111) $ 638,594 $ 560,417
Net income (loss) per share - basic $ (0.01) $ 0.26 $ (1.71) $ (0.74) $ 0.13 $ 0.11
Basic weighted average number of shares
of common stock outstanding 6,165,233 4,948,392 4,948,392 4,935,965 4,847,592 4,913,524
Net income (loss) per share - diluted $ (0.01) $ 0.26 $ (1.71) $ (0.74) $ 0.12 $ 0.11
Diluted weighted average number of shares
of common stock outstanding 6,165,233 4,948,392 4,948,392 4,935,965 5,537,748 4,948,546
BALANCE SHEET DATA:
Total assets $ -- $ -- $ 24,755,243 $ 34,300,780 $ 31,866,647 $ 26,471,002
Total debt $ -- $ -- $ 22,389,292 $ 23,901,833 $ 14,154,233 $ 12,508,974
Stockholders' deficit $ -- $ -- $ (1,272,197) $ 7,196,859 $ 10,956,620 $ 10,318,026
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
All statements contained herein that are not historical facts, including, but
not limited to, statements regarding the Company's current business strategy,
the Company's projected sources and uses of cash, and the Company's plans for
future development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; competitive factors; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships; general business and
economic conditions; and factors described from time to time in the reports
filed by the Company with the Securities and Exchange Commission. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, which statements are made pursuant to the Private Litigation Reform
Act of 1995 and, as a result, are pertinent only as of the date made.
REORGANIZATION
On February 19, 2003, the Company filed a Petition for Relief under Chapter 11
of the U.S. Bankruptcy Code in the United States Bankruptcy Court in and for the
Eastern District of New York titled In re: Allied Devices Corporation, et al.,
Chapter 11, Case No. 03-80962-511 ("the Bankruptcy Action").
On July 23, 2003, a Liquidating Plan of Reorganization ("Plan") was filed and
submitted to the Bankruptcy Court for the Court's approval. See Exhibit 2.1
attached hereto, a full and complete copy of such Plan. See also Form 8-K/A
filed by the Company on November 25, 2003 for additional information.
On September 10, 2003, after notice to all creditors and a formal hearing, U.S.
Bankruptcy Judge Melanie L. Cyganowski issued an "Order Confirming Liquidating
Plan of Reorganization" in the Bankruptcy Action (hereinafter "Bankruptcy
Order"). In conjunction with that Bankruptcy Order, the Company's liabilities,
among other things, were paid off and extinguished. See Exhibit 2.2 attached
hereto and incorporated by reference, a full and complete copy of such
Bankruptcy Order.
The Bankruptcy Order, among other things, implements a change of control whereby
Champion Equities, a Utah limited liability company ("Champion"), a Mr. David
Roff, of Toronto, Canada ("Roff"), and a group of new investors, took control of
the Company. The principal provisions of the Plan, which are authorized and
implemented by the Bankruptcy Order, are the following, which is not an
exhaustive list thereof:
9
a) the termination of present management and the present Board of Directors
and appointment of Mr. David Roff in their place and stead;
b) giving a Utah entity known as Champion Industries ("Champion"), the power
and authority to appoint such other directors, in addition to Mr. Roff, as
Champion, in its sole discretion deems appropriate;
c) the reverse split of the Company's common capital stock 1-for-30 on the
basis of 5,048,782 shares issued and outstanding immediately prior to the
Bankruptcy Order;
d) authorizing Champion to amend the Company's Articles of Incorporation and
Bylaws to (i) effect a quasi-reorganization for accounting purposes, (ii)
provide the maximum indemnification or other protections to the Company's
officers and directors that is allowed under applicable law, (iii) conform
to the provisions of the Plan and the corollary Confirmation Order, (iv)
set the authorized stock of the Company, post-reverse split, at fifty
million (50,000,000) common capital shares; and (v) take all action
necessary and appropriate to carry out the terms of the Plan;
e) authorizing Champion, without solicitation of or notice to shareholders, to
issue (i) 2,000,000 post-reverse split shares of the Company's common stock
to the Company's new management, and (ii) 4,000,000 post-reverse split
shares, legend free, in the sole and unfettered discretion of Champion;
f) the Company's Board of Directors, was authorized, without seeking or
obtaining shareholder approval to take any and all actions necessary or
appropriate to effectuate amendments to the Company's Certificate of
Incorporation and/or Bylaws called for under the Plan and the Company's
Board of Directors and officers was authorized to execute, verify,
acknowledge, file and publish any and all instruments or documents that may
be required to accomplish the same; and
g) the Company's charter is to be amended in conformance with applicable
bankruptcy rules and the amended charter or bylaws shall, among other
provisions, authorize the issuance of any new shares while simultaneously
prohibiting the issuance of nonvoting equity securities to the extent
required by section 1123(a)(6) of the United States Bankruptcy Code.
After the entry of the Bankruptcy Order, the Company drafted and submitted a
form of Restated and Amended Articles of Incorporation to the Secretary of State
of Nevada implementing the foregoing, including but not limited to other
provisions required of the Company under the Bankruptcy Order.
As a result of the Bankruptcy Order giving Mr. Roff the power and authority to
change the Company's name and direction, we decided to change our name from
"Allied Devices Corporation" to "Deep Well Oil and Gas, Inc." Accordingly, in
the form of Restated and Amended Articles of Incorporation filed with the State
of Nevada in October, we changed our name to "Deep Well Oil and Gas, Inc." Our
form of Restated and Amended Articles of Incorporation was accepted by the
Nevada Secretary of State on October 22, 2003, pursuant to provisions of Nevada
10
corporate law allowing the amending of corporate articles on the basis of orders
entered by U.S. Bankruptcy Courts. A complete copy of our accepted form of
Restated and Amended Articles of Incorporation, signed by Mr. Roff and stamped
by the Nevada Secretary of State, is attached hereto as Exhibit 3.1.
Prior to the Bankruptcy Order adopting the Liquidating Plan of Reorganization,
there were 5,048,782 outstanding shares of our common stock. Following the
Bankruptcy Order and the acceptance by the Nevada Secretary of State of our form
of Restated and Amended Articles which implements the 1-for-30 reverse split of
our shares, and rounding up any fractional shares to the nearest share and also,
after the issuance of 2 million shares to Mr. Roff as ordered by the Bankruptcy
Court, there are now 2,165,233 issued and outstanding shares of the Registrant's
common stock. For financial statement purposes, the Company has shown 6,165,233
shares of common stock issued and outstanding. This incorporates the additional
4 million shares that are to be issued by the Company as ordered by the
Bankruptcy Court.
PLAN OF OPERATION
The Company is no longer operating as Allied Devices Corporation, the
Predecessor Company, and has emerged from Chapter 11 protection as a development
stage company with no assets and liabilities. Accordingly, the Company has
prepared this Plan of Operations to discuss its current plans. The past results
of the Predecessor Company are no longer relevant to the operations of the
Company.
As a result of the Bankruptcy Order and the implementation of the Liquidating
Plan of Reorganization, we are currently headquartered in Toronto, Canada at the
address set forth above. We intend to enter into the oil and gas exploration
business once our restructuring is completed. At this time, we presently intend
to look for properties or projects involving "heavy oil" projects. "Heavy oil"
is a dark black, viscous oil that does not flow well and which has a high carbon
to hydrogen ratio, along with a high amount of carbon residues, asphaltenes,
sulphur, nitrogen, heavy metals, aromatics and/or waxes.
Heavy oil is younger in age than the typical oil people are familiar with. It is
found at relatively shallow depths in the earth where there is not as much heat
and pressure. In this regard, reference is made the website "Heavyoil.com". As
the world's oil supplies become depleted, we believe that there will be more
reliance on heavy oil. No assurance can be made or given that we will
successfully engage in the oil and gas business or the heavy oil business, nor
can any assurance be given that even if we are remotely or relatively
successful, that we will have a profit or that our stock will appreciate in
value.
11
At this time, the Company is in discussions to acquire properties or projects
involving "heavy oil" projects. Reference is made to our Form 8-K/A filed on
EDGAR on November 25, 2003.
OFFICES
Administrative operations are conducted from the offices of a consulting firm
known as Brave Consulting located at Mr. Roff's offices in Toronto, Canada. We
expect to operate for as long as possible from these offices to minimize
operating expenses. We do not currently pay rent for these offices and do not
anticipate paying rent to Mr. Roff or Brave Consulting for any such offices in
the future. Our operations do not currently require office or laboratory space
to meet our objectives, and therefore administration from these offices is
sufficient. At some point in the future, as may be necessary to implement and
carry our plans to engage in the oil and gas business, we may require additional
office space requiring rental expense, but we do not anticipate any such need
during the next six to nine months. We will however, incur common office
operating expenses such as telephone, office supplies, postage, etc.
RAISING CAPITAL
The Company currently lacks the capital resources to implement and carry out its
business plan as described herein. Operations to date have involved
identification of properties and leases we wish to investigate for oil and gas
potential. We believe we have sufficient capital resources funded through
current shareholders to perform initial investigations in this regard. At some
point in the future we expect to raise additional capital, either through debt,
equity or any combination thereof. In the event that additional capital is
raised at some time in the future, existing shareholders will experience
dilution of their interest in the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
12
SELLERS & ANDERSEN L.L.C.
- ---------------------------
Certified Public Accountants and Business Consultants
Member SEC Practice Section of the AICPA 941 East 3300 South, Suite 202
Salt Lake City, Utah 84106
Telephone 801 486-0096
Fax 801 486-0098
Board of Directors
Deep Well Oil & Gas, Inc.
Toronto, Ontario, Canada
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of Deep Well Oil & Gas, Inc.
(development stage company) at September 30, 2003 and the statements of
operations, stockholders' equity, and cash flows for the period September 10,
2003 to September 30, 2003. 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 auditing standards generally accepted
in the United States of America. 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 over all
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Deep Well Oil & Gas, Inc. at
September 30, 2003 and the statements of operations, and cash flows for the
period September 10, 2003 to September 30, 2003 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company will need additional
working capital for its planned activity, which raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are described in the notes to the financial statements. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Salt Lake City, Utah
December 18, 2003 s\Sellers & Andersen L.L.C.
13
Deep Well Oil & Gas, Inc.
(formerly Allied Devices Corporation)
(Development Stage Company)
Consolidated Balance Sheets
Successor Predecessor Predecessor
Company Company Company
Sep. 30 Sep. 9 Sep. 30
2003 2003 2002
(Unaudited) (Unaudited) (Audited)
- -----------------------------------------------------------------------------------------------------------
Assets
Current
Cash $ -- $ -- $ 1,536,299
Accounts receivable, net of allowance for doubtful accounts
of $nil, $nil and $58,000, respectively -- -- 2,291,625
Inventories -- -- 5,620,833
Prepaid expenses and other assets -- -- 299,511
Income tax refund receivable -- -- 294,000
- -----------------------------------------------------------------------------------------------------------
Total current assets -- -- 10,042,268
- -----------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost, net of accumulated
depreciation and amortization -- -- 9,368,554
Goodwill and other intangibles, net of accumulated amortization --
of $nil, $nil and $1,686,160, respectively -- -- 5,280,653
Other assets -- -- 63,768
- -----------------------------------------------------------------------------------------------------------
Total assets $ -- $ -- $ 24,755,243
- -----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' (Deficit) Equity
Current
Accounts payable $ -- $ -- $ 2,017,381
Accrued expenses and other current liabilities -- -- 1,184,787
Current portion of long-term debt and capital lease obligations -- -- 16,478,259
- -----------------------------------------------------------------------------------------------------------
Total current liabilities -- -- 19,680,427
- -----------------------------------------------------------------------------------------------------------
Long-term debt and accrued interest -- -- 5,911,033
Other liabilities -- -- 435,980
- -----------------------------------------------------------------------------------------------------------
Total liabilities -- -- 26,027,440
- -----------------------------------------------------------------------------------------------------------
Stockholders' (Deficit) Equity
Common stock, $.001 par value, authorized 50,000,000 shares,
issued and outstanding 6,165,233 shares 6,165 5,049 5,049
Additional paid-in capital 43,835 3,520,970 3,520,970
Retained deficit (50,000) (3,396,848) (4,669,045)
- -----------------------------------------------------------------------------------------------------------
Subtotal -- 129,171 (1,143,026)
Treasury stock, at cost -- (129,171) (129,171)
- -----------------------------------------------------------------------------------------------------------
Total stockholders' deficit -- -- (1,272,197)
- -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' deficit $ -- $ -- $ 24,755,243
- -----------------------------------------------------------------------------------------------------------
14
Deep Well Oil & Gas, Inc.
(formerly Allied Devices Corporation)
(Development Stage Company)
Consolidated Statements of Operations
Predecessor Predecessor Predecessor
Successor Company Company Company
Company Period Year Year
Period Sep. 10 - Oct. 1, 2002 - ended ended
Sep. 30 Sep. 9 Sep. 30 Sep. 30
2003 2003 2002 2001
(Unaudited) (Unaudited) (Audited) (Audited)
- -------------------------------------------------------------------------------------------------------------------------
Net sales $ -- $ 9,244,193 $ 18,246,189 $ 29,868,056
Cost of sales -- 8,126,212 14,897,237 22,191,192
Inventory write-downs -- -- 2,503,560 2,718,859
- -------------------------------------------------------------------------------------------------------------------------
Gross profit -- 1,117,981 845,392 4,958,005
Selling, general and administrative expenses -- 3,255,696 6,175,483 8,031,342
Write-downs 50,000 -- 2,323,765 --
Restructuring expense -- -- -- 914,785
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (50,000) (2,137,715) (7,653,856) (3,988,122)
---------------------------------------------------------------------------------------------------------------------
Other (income) expense -- -- (173,458) (7,536)
Interest expense (net) -- 527,986 1,809,372 1,706,338
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) before reorganization items and income taxes (50,000) (2,665,701) (9,289,770) (5,686,924)
- -------------------------------------------------------------------------------------------------------------------------
Reorganization items
Inventory write-downs -- 4,231,528 -- --
Write-downs (recoveries) -- (8,169,426) -- --
- -------------------------------------------------------------------------------------------------------------------------
-- (3,937,898) -- --
Income taxes -- -- (820,714) (2,030,813)
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (50,000) $ 1,272,197 $ (8,469,056) $ (3,656,111)
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share - basic $ (0.01) $ 0.26 $ (1.71) $ (0.74)
- -------------------------------------------------------------------------------------------------------------------------
Basic weighted average number of shares
of common stock outstanding 6,165,233 4,948,392 4,948,392 4,935,965
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share - diluted $ (0.01) $ 0.26 $ (1.71) $ (0.74)
- -------------------------------------------------------------------------------------------------------------------------
Diluted weighted average number of shares
of common stock outstanding 6,165,233 4,948,392 4,948,392 4,935,965
- -------------------------------------------------------------------------------------------------------------------------
15
Deep Well Oil & Gas, Inc.
(formerly Allied Devices Corporation)
(Development Stage Company)
Consolidated Statements of Stockholders' (Deficit) Equity
Common stock
$0.001 par value
-------------------------
Total
Additional Retained Stockholders'
Number Paid-in Treasury (Deficit) (Deficit)
of Shares Amount Capital Stock Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
PREDECESSOR COMPANY
Balance, September 30, 2000 4,947,942 $ 4,948 $ 3,624,721 $ (129,171) $ 7,456,122 $ 10,956,620
Net loss (3,656,111) (3,656,111)
Sale of common stock 800 1 2,599 -- -- 2,600
Shares issued for acquisition 100,000 100 399,900 -- -- 400,000
Stock price guarantee
related to acquisition -- -- (506,250) -- -- (506,250)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 5,048,742 5,049 3,520,970 (129,171) 3,800,011 7,196,859
Net loss (8,469,056) (8,469,056)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2002 5,048,742 5,049 3,520,970 (129,171) (4,669,045) (1,272,197)
UNAUDITED
Net income, Oct. 1, 2002 - Sep. 9, 2003 -- -- -- -- 1,272,197 1,272,197
- --------------------------------------------------------------------------------------------------------------------------------
Balance, September 9, 2003 5,048,742 5,049 3,520,970 (129,171) (3,396,848) --
SUCCESSOR COMPANY (UNAUDITED)
Reverse stock split (4,883,509) (4,884) -- -- -- (4,884)
Acquisition of corporate entity -- -- 43,835 -- -- 43,835
Adoption of fresh start accounting -- -- (3,520,970) 129,171 3,396,848 5,049
Issuance of common stock 6,000,000 6,000 -- -- 6,000
Net loss, Sep. 12, 2003 - Sep. 30, 2003 -- -- -- -- (50,000) (50,000)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2003 6,165,233 $ 6,165 $ 43,835 $ -- $ (50,000) $ --
- --------------------------------------------------------------------------------------------------------------------------------
16
Deep Well Oil & Gas, Inc.
(formerly Allied Devices Corporation)
(Development Stage Company)
Consolidated Statements of Cash Flows
Predecessor Predecessor Predecessor
Successor Company Company Company
Company Period Year Year
Period Sep. 10 - Oct. 1, 2002 - ended ended
Sep. 30 Sep. 9 Sep. 30 Sep. 30
2003 2003 2002 2001
(Unaudited) (Unaudited) (Audited) (Audited)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net (loss) income (50,000) 1,272,197 (8,469,056) (3,656,111)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization -- 837,864 2,850,147 2,469,080
Allowance for doubtful accounts -- -- (2,000) (7,000)
Provision (benefit) for income taxes -- -- 885,400 (1,112,400)
Write-downs of assets and goodwill 50,000 11,593,671 4,827,325 2,718,859
Recoveries of liabilities -- (4,411,031) -- --
Loss (gain) on sale of equipment -- 2,717,630 (189,903) (7,536)
Recoveries of debt and capital lease obligations -- (13,838,168) -- --
Unrealized loss (gain) on interest rate collar -- (16,003) 47,248 200,000
Changes in assets and liabilities, net of effects from
acquisitions:
Decrease (increase) in:
Accounts receivable -- 2,291,625 (158,352) 2,814,891
Inventories -- 1,389,305 298,297 (833,626)
Prepaid expenses and other current assets -- (89,650) 249,921 (393,263)
Income tax refund receivable -- 294,000 311,503 (605,503)
Other assets -- 1,185 (80) 141,047
(Decrease) increase in:
Accounts payable and accrued expenses -- 773,261 715,649 (1,583,237)
Other liabilities -- -- 47,102 50,411
Income taxes payable -- -- -- (881,801)
- --------------------------------------------------------------------------------------------------------------------------
Total adjustments 50,000 1,543,689 9,882,257 2,969,922
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities -- 2,815,886 1,413,201 (686,189)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures -- (9,640) (66,936) (515,648)
Business acquisitions, net of cash acquired -- -- -- (682,975)
Proceeds from sale of equipment -- 4,260,911 -- 180,000
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities -- 4,251,271 (66,936) (1,018,623)
- --------------------------------------------------------------------------------------------------------------------------
Financing Activities
Increase (decrease) in bank borrowings -- -- 200,000 3,900,000
Principal payments on long-term debt and capital
lease obligations -- (8,603,456) (64,688) (2,777,363)
Proceeds from equipment financing -- -- -- 224,111
Deferred financing costs -- -- -- 2,600
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities -- (8,603,456) 135,312 1,349,348
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash -- (1,536,299) 1,481,577 (355,464)
Cash, beginning of period -- 1,536,299 54,722 410,186
- --------------------------------------------------------------------------------------------------------------------------
Cash, end of period -- -- 1,536,299 54,722
- --------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid (received) during the year:
Interest $ -- $ 527,986 $ 1,312,161 $ 1,332,334
Income taxes $ -- $ -- $ (2,511,770) $ 691,480
Supplemental schedule of non-cash investing and financing:
Equipment (returned) acquired under capital leases $ -- $ -- $ (1,891,889) $ 4,153,000
Debt change from equipment returned and acquired $ -- $ -- $ 2,081,791 $ --
Consideration in connection with acquisition paid with debt $ -- $ -- $ 60,000 $ 3,816,000
17
DEEP WELL OIL & GAS, INC.
(FORMERLY ALLIED DEVICES CORPORATION)
(DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. UNAUDITED FINANCIAL STATEMENTS
The Company is filing unaudited financial statements for the period October 1,
2002 to September 9, 2003 and the period September 10, 2003 to September 30,
2003. The Company's public auditing firm has not yet completed its registration
with the Public Company Accounting Oversight Board ("PCAOB") and is unable to
sign an audit opinion of the Company until such time as it is registered with
the PCAOB.
2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Deep Well Oil & Gas, Inc. (formerly Allied Devices Corporation) (the "Company")
is a development stage company that intends to engage in the oil and gas
exploration business. At this time, the Company is in discussions to acquire
properties or projects involving "heavy oil" projects.
Prior to September 10, 2003, the Predecessor Company, known as Allied Devices
Corporation, was engaged primarily in the manufacture and distribution of
standard and custom precision mechanical assemblies and components throughout
the United States. The Predecessor Company was comprised of Allied Devices
Corporation ("ADCO"), and its wholly owned subsidiaries, Empire - Tyler
Corporation ("Empire") and APPI, Inc. ("APPI"), (collectively the "Predecessor
Company").
REORGANIZATION
On February 19, 2003, the Company filed a Petition for Relief under Chapter 11
of the U.S. Bankruptcy Code in the United States Bankruptcy Court in and for the
Eastern District of New York titled In re: Allied Devices Corporation, et al.,
Chapter 11, Case No. 03-80962-511 ("the Bankruptcy Action").
On July 23, 2003, a Liquidating Plan of Reorganization ("Plan") was filed and
submitted to the Bankruptcy Court for the Court's approval. See Form 8-K/A filed
by the Company on November 25, 2003 for additional information.
On September 10, 2003, after notice to all creditors and a formal hearing, U.S.
Bankruptcy Judge Melanie L. Cyganowski issued an "Order Confirming Liquidating
Plan of Reorganization" in the Bankruptcy Action (hereinafter "Bankruptcy
Order"). In conjunction with that Bankruptcy Order, the Company's liabilities,
among other things, were paid off and extinguished.
18
The Bankruptcy Order, among other things, implements a change of control whereby
Champion Equities, a Utah limited liability company ("Champion"), a Mr. David
Roff, of Toronto, Canada ("Roff"), and a group of new investors, took control of
the Company. The principal provisions of the Plan, which are authorized and
implemented by the Bankruptcy Order, are the following, which is not an
exhaustive list thereof:
a) the termination of present management and the present Board of Directors
and appointment of Mr. David Roff in their place and stead;
b) giving a Utah entity known as Champion Industries ("Champion"), the power
and authority to appoint such other directors, in addition to Mr. Roff, as
Champion, in its sole discretion deems appropriate;
c) the reverse split of the Company's common capital stock 1-for-30 on the
basis of 5,048,782 shares issued and outstanding immediately prior to the
Bankruptcy Order;
d) authorizing Champion to amend the Company's Articles of Incorporation and
Bylaws to (i) effect a quasi-reorganization for accounting purposes, (ii)
provide the maximum indemnification or other protections to the Company's
officers and directors that is allowed under applicable law, (iii) conform
to the provisions of the Plan and the corollary Confirmation Order, (iv)
set the authorized stock of the Company, post-reverse split, at fifty
million (50,000,000) common capital shares; and (v) take all action
necessary and appropriate to carry out the terms of the Plan;
e) authorizing Champion, without solicitation of or notice to shareholders, to
issue (i) 2,000,000 post-reverse split shares of the Company's common stock
to the Company's new management, and (ii) 4,000,000 post-reverse split
shares, legend free, in the sole and unfettered discretion of Champion;
f) the Company's Board of Directors, was authorized, without seeking or
obtaining shareholder approval to take any and all actions necessary or
appropriate to effectuate amendments to the Company's Certificate of
Incorporation and/or Bylaws called for under the Plan and the Company's
Board of Directors and officers was authorized to execute, verify,
acknowledge, file and publish any and all instruments or documents that may
be required to accomplish the same; and
g) the Company's charter is to be amended in conformance with applicable
bankruptcy rules and the amended charter or bylaws shall, among other
provisions, authorize the issuance of any new shares while simultaneously
prohibiting the issuance of nonvoting equity securities to the extent
required by section 1123(a)(6) of the United States Bankruptcy Code.
After the entry of the Bankruptcy Order, the Company drafted and submitted a
form of Restated and Amended Articles of Incorporation to the Secretary of State
of Nevada implementing the foregoing, including but not limited to other
provisions required of the Company under the Bankruptcy Order.
19
FRESH START REPORTING
Upon emergence from Chapter 11 proceedings, the Company adopted fresh-start
reporting in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, Financial Reporting By Entities in
Reorganization Under the Bankruptcy Code (SOP 90-7). In connection with the
adoption of fresh-start reporting, a new entity has been deemed created for
financial reporting purposes. For financial reporting purposes, the Company
adopted the provisions of fresh-start reporting effective September 10, 2003.
All periods presented prior to September 10, 2003, including the financial
information contained in this quarterly report, have been designated Predecessor
Company.
In adopting the requirements of fresh-start reporting as of September 10, 2003,
the Company was required to value its assets and liabilities at fair value and
eliminate its accumulated deficit as of September 10, 2003. The Company emerged
from Chapter 11 proceedings with no assets and liabilities pursuant to the
Bankruptcy Order and its balance sheet at that time is stated as such.
PRINCIPLES OF CONSOLIDATION
The Successor Company has no subsidiaries.
The consolidated financial statements include the accounts of the Predecessor
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
INVENTORIES
During the first quarter of fiscal 2002, the Predecessor Company changed its
method of inventory costing from last-in first-out (LIFO) to first-in first-out
(FIFO). Prior periods have been restated to reflect this change.
Inventories are valued at the lowerf of cost (first-in, first-out (FIFO) method)
or market in the Predecessor Company.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost in the Predecessor Company.
Depreciation and amortization of property, plant and equipment was computed
using the straight-line method over the estimated useful lives of the assets.
The estimated lives were as follows:
Machinery and equipment 3 - 10 years
Tools, molds and dies 8 years
Furniture, fixtures and office equipment 5 - 7 years
Buildings and improvements 30 years
20
Leasehold improvements Shorter of the lease term or the estimated useful
life of the improvement
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax loss and credit carry forwards. Deferred tax assets and
liabilities are measured using enacted 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 a
change in tax rate is recognized in income in the period that includes the
enactment date.
On September 30, 2003, the Successor Company had an available net operating loss
carry forward of $50,000. The tax benefit of $15,000 from the carry forwards has
been fully offset by a valuation reserve because the use of the future tax
benefit is undeterminable since the Company has no operations. The loss
carryover will expire in 2023.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share amounts are computed based on the weighted
average number of shares actually outstanding. Diluted net income (loss) per
share amounts are computed using the weighted average number of common shares
and common equivalent shares outstanding unless the exercise becomes
antidilutive and then only the basic per share amounts are shown in the report.
GOODWILL
The Successor Company has adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets". On September 10, 2003, the
Successor Company assigned the $50,000 purchase price for the corporate entity
as goodwill to its sole reporting unit. At the same time, the Successor Company
conducted an impairment test and determined that the goodwill balance was fully
impaired due to uncertainty with regard to future cash flows and a general lack
of financial resources. In accordance with this impairment, the Successor
Company wrote off the entire goodwill balance against earnings.
The Predecessor Company implemented FAS No. 142 on October 1, 2002. During the
first quarter of the Predecessor Company's fiscal 2003, the entire balance of
$5,230,653 of goodwill was written off as the amount was impaired. As of
September 30, 2002, the net carrying value of goodwill was $5,230,653, which is
net of a write off in fiscal 2002 of $2,323,765 related to an impairment.
Amortization expense during the year ended September 30, 2002, was approximately
$696,000.
21
LONG-LIVED ASSETS
The Predecessor Company reviewed the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicated that the carrying amount of the assets may
not be recoverable. Any long-lived assets held for disposal were reported at the
lower of their carrying amounts or fair value less cost to sell. The Predecessor
Company recorded an asset impairment loss of $2,323,765 for the year ended
September 30, 2002.
REVENUE RECOGNITION
The Predecessor Company recognized sales upon shipment of products. All sales
were shipped F.O.B. shipping point and were not sold subject to a right of
return unless the products are defective. The Predecessor Company's level of
returns arising from defective products had historically been immaterial.
SHIPPING AND HANDLING COSTS
The Predecessor Company recorded its shipping and handling fee costs as required
under EITF No. 00-10, "Accounting for Shipping and Handling Fee Costs."
Accordingly, shipping and handling fee costs were recorded in Sales and Cost of
Sales.
ADVERTISING EXPENSES
Advertising expenses are expensed as incurred in the Predecessor Company.
STOCK BASED COMPENSATION
The Successor Company has no stock based compensation plans.
The Predecessor Company accounted for stock based compensation using the
intrinsic value method as permitted by SFAS No. 123 and accounted for such
transactions in accordance with Accounting Principles Board ("APB") No. 25 and,
as required by SFAS No. 123, provided pro forma information regarding net income
(loss) as if compensation costs for the Predecessor Company's stock plan had
been determined in accordance with the fair value method presented by SFAS No.
123.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
22
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Predecessor Company's financial instruments,
including cash, receivables, payables and short-term debt, approximated fair
value as of September 30, 2002. The carrying value of the Predecessor Company's
long-term debt, approximated fair value as of September 30, 2002 based upon the
borrowing rates available to the Predecessor Company for bank loans with similar
terms and average maturities.
CONCENTRATIONS OF RISK
The Predecessor Company extended credit based on an evaluation of its customer's
financial condition, generally without requiring collateral. Exposure to losses
on receivables was principally dependent on each customer's financial condition.
The Predecessor Company monitored its exposure for credit losses and maintained
allowances for anticipated losses. No individual customer was considered to be a
significant risk.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect that the adoption of other recent accounting
pronouncements will have a material impact on its financial statements.
3. REORGANIZATION ITEMS
As a result of the Bankruptcy Action, the Predecessor Company recognized
reorganization charges for asset write-downs during the period October 1, 2002
to September 9, 2003 as follows:
Period
October 1, 2002 -
September 9, 2003
- ----------------------------------------------------------------
Write downs:
Inventory $4,231,528
Prepaid expenses and other assets 479,139
Property, plant and equipment 1,602,351
Goodwill and other intangibles 5,280,653
---------
$11,593,671
===========
During the period October 1, 2002 to June 30, 2003, the Predecessor Company sold
property, plant and equipment for proceeds of $4,260,911 and recognized a loss
on sale of property, plant and equipment of $2,717,630. The loss on sale of
property, plant and equipment was offset by a waiver of certain prepetition long
term debt owed to a creditor (see below).
As a result of the Bankruptcy Action, the Predecessor Company recognized
recoveries of certain liabilities for the period October 1, 2002 to September 9,
2003 as follows:
23
Period
October 1, 2002 -
September 9, 2003
- -----------------------------------------------------------------------------
Recoveries:
Accounts payable $2,874,206
Accrued expenses and other current liabilities 1,048,891
Other liabilities 487,934
----------
$4,411,031
==========
During the period October 1, 2002 to September 9, 2003, the Predecessor Company
paid $8,603,456 in principal to its secured lenders and capital leaseholders
from proceeds of equipment sales and working capital. As a result of the
Bankruptcy Action, the Predecessor Company recognized recoveries of $8,195,138
of long term debt and capital lease obligations. The Predecessor Company also
sold certain assets to an unsecured creditor, and as part of the sale, received
a waiver of $5,643,030 in prepetition long term debt owed to the creditor.
4. CAPITAL STOCK
The outstanding common capital stock on February 19, 2003 (the date the Company
filed for bankruptcy) was 5,048,742 shares. As part of the settlement from the
bankruptcy the Company completed a reverse stock split, reducing the outstanding
shares to 165,233, and the rights to issue 6,000,000 post split common shares,
in exchange for $50,000, resulting in total outstanding shares of 6,165,233. On
the report date the 6,000,000 shares were in the process of being issued, and
for reporting purposes the shares are shown as outstanding on September 30,
2003.
5. ASSET IMPAIRMENT LOSS
In accordance with FAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", the Predecessor Company
recorded an impairment loss of $2,323,765 on the goodwill of APPI (including
goodwill from its Martin Machine, Inc. acquisition). Business trends of APPI
indicated that the undiscounted future cash flows for this business were less
than the carrying value of the long-lived assets related to that business. The
loss recognized was the difference between the carrying value of APPI's net
assets and the estimated fair value of those assets based on discounted
estimated future cash flows.
6. PREDECESSOR COMPANY RESTRUCTURING
In the third quarter of fiscal 2001, the Predecessor Company developed and began
to implement a cost savings initiative to increase long-term profitability. The
Predecessor Company closed three manufacturing facilities and consolidated these
operations into a new facility in Sanford, Maine, following an orderly
transition of production to the new facility.
24
Other restructuring costs associated with downsizing included severance for
layoffs throughout the Predecessor Company and professional fees incurred in
restructuring and forbearance negotiations. The Predecessor Company estimated
the costs associated with the restructuring to be approximately $915,000 and
recorded this expense for the year ended September 30, 2001. The restructuring
expense consisted of $243,000 in moving costs paid and $672,000 in accrued
expenses and liabilities. The accrual in fiscal 2001 included approximately
$392,000 ($142,000 in severance, $50,000 in moving costs, and $200,000 in
professional fees with approximately $86,000 remaining at the end of fiscal
2002), and $280,000 in lease abandonment costs (approximately $138,000 remaining
at the end of fiscal 2002).
7. PREDECESSOR COMPANY ACQUISITIONS
On July 8, 1998, with an effective date of July 1, 1998, the Predecessor Company
acquired the assets and business of APPI from Atlantic Precision Products, Inc.,
a manufacturer of high precision, machined components for original equipment
manufacturers with advanced engineering requirements. The price of net assets
acquired (including assumption of specified liabilities) was made up of cash,
stock, and performance consideration. The consideration was $7,237,500 in cash
and 250,000 shares of the Predecessor Company's common stock. The common stock
portion of the consideration was recorded at $4 per share, the value guaranteed
by the Predecessor Company. On July 9, 2001, the Predecessor Company settled the
stock price guarantee portion of the APPI acquisition by issuing a note to the
seller in the amount of $506,250 with interest thereon at 7% per annum. The note
represented the difference between the guaranteed stock price of $4 per share
and the average stock price from July 6 to July 9, 2001 for 250,000 shares of
stock. The Predecessor Company had recorded this as a long term note payable and
reduction of stockholders' equity. The note was subject to a subordination
agreement between the seller and the Predecessor Company's lending institution.
The performance consideration was a stipulated percentage of the future earnings
(as defined) for APPI for three years. The Predecessor Company's policy with
respect to any such contingent consideration was to record a liability for such
amounts as the defined earnings were achieved. After September 30, 2001 no
further contingent consideration was accrued. As of that date, contingent
consideration of $5,981,061 was recorded as additional goodwill, of which
$1,521,998 was paid in cash and $4,459,063 was delivered in the form of five
year notes, subordinated to the bank credit facility, due through September 30,
2006 bearing interest at 7% per annum, in accordance with the terms of the asset
purchase agreement. The total amount of goodwill amounted to $8,827,797.
On November 15, 2000, the Predecessor Company acquired Martin Machine, Inc.,
("Martin Machine") located in Raymond, Maine. The acquisition was accounted for
using the purchase method of accounting, and results of operations of this
25
company have been included in the Predecessor Company's consolidated financial
statements from the date of acquisition. Original purchase consideration
amounted to $1,031,000, including the value of 100,000 shares of common stock
(issued immediately following closing), $400,000 in cash, and a $300,000 five
year note payable subordinated to the bank credit facility (Notes 8 and 10), due
through September 30, 2006, bearing interest at 7% per annum. Subsequent to the
closing the Predecessor Company paid an additional $18,912 in cash, which was
recognized as additional goodwill. The total excess of cost over the fair value
of assets acquired amounted to $448,374, which has been recorded as goodwill.
The Predecessor Company recorded an impairment loss of $2,323,765 on the
goodwill of APPI (including goodwill from its Martin Machine, Inc. acquisition)
during fiscal 2002.
The Predecessor Company wrote off all goodwill during the first quarter of 2003
as a result of impairment. See note 2 for additional detail.
8. PREDECESSOR COMPANY INVENTORIES
Inventories are summarized as:
September 30, September 30,
2003 2002
---------------------------------------------------------------------------
Raw materials - $634,604
Work-in-process - 1,043,629
Finished goods - 3,942,600
---- ---------
- $5,620,833
==== ==========
The Predecessor Company wrote off $4,231,528 and $2,503,560 for the period
October 1, 2002 to September 9, 2003 and the year ended September 30, 2002,
respectively, of inactive, slow moving and excess inventories.
9. PREDECESSOR COMPANY PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
September 30, September 30,
2003 2002
------------------------------------------------------------------------------
Machinery and equipment - $17,201,771
Tools, molds and dies - 1,317,591
Furniture, fixtures and office equipment - 675,933
Leasehold improvements - 266,144
Building and improvements - 94,520
Land - 5,000
--- ----------
- 19,560,959
Less: accumulated depreciation and amortization - 10,192,405
--- ----------
Property, plant and equipment (net) - 9,368,554
=== ==========
26
Included in machinery and equipment and office equipment at September 30, 2002
is approximately $8,931,000 of equipment under capital lease agreements. At
September 30, 2002, the related accumulated depreciation amounts were
approximately $3,174,000. During fiscal 2002, property, plant and equipment
decreased approximately $2,184,000 and accumulated depreciation decreased
approximately $261,000 as a result of returning to a lessor certain
under-utilized equipment on a capitalized lease in exchange for retirement of
the full amount of related debt outstanding. The Predecessor Company recorded a
related gain of approximately $173,000, net of disposition costs.
During the period October 1, 2002 to September 9, 2003, the Predecessor Company
wrote off $1,602,351 of property, plant and equipment as a result of the
Bankruptcy Action, sold property, plant and equipment for proceeds of $4,260,911
and recognized a loss on sale of property, plant and equipment of $2,717,630.
The loss on sale of property, plant and equipment was offset by a waiver of
certain prepetition long term debt owed to a creditor (see note 2 for additional
information).
Depreciation and amortization expense totaled $837,864, $1,989,000 and
$1,906,000 for the period October 1, 2002 to September 9, 2003 and the years
ended September 30, 2002 and 2001, respectively.
10. PREDECESSOR COMPANY CREDIT FACILITIES
In July 1998, the Predecessor Company entered into a new credit agreement with
its existing lender and repaid all amounts due with respect to its previous
credit facility. The new credit agreement provided for a revolving credit loan
and a term note. During fiscal 1999, the revolving credit facility was amended.
Beginning in October 2001, the Predecessor Company and its lenders undertook to
negotiate a Forbearance Agreement, prompted by the Predecessor Company's default
on certain financial covenants contained in its lending agreements. Borrowings
under the revolving credit loan were $7,000,000 at September 30, 2002.
Under the terms of the five and one-half year (66 months) term note, the
Predecessor Company originally borrowed $6,250,000. Interest thereon is computed
at the higher of the bank's prime rate plus 1/2% or a LIBOR rate plus 2.50%. The
weighted average interest rate for fiscal 2002 was 5.17%. The term note was
payable in twenty quarterly installments of principal, which began in March
1999. The quarterly principal installments increased ratably from $150,000 per
quarter during the first year to $400,000 per quarter for the last year plus a
final installment of $950,000 on December 31, 2003. The Predecessor Company had
not made any principal payments since September 30, 2001.
The proceeds of the term note and a portion of the funds drawn against the
revolving credit loan were used to finance the APPI acquisition. In conjunction
with the issuance of the term note, the Predecessor Company issued the lender
warrants to purchase 125,000 shares of its common stock. The value of the
warrants totaled $97,000 and was accounted for as deferred financing costs
(included in other assets) that was being amortized over the term of the credit
agreement.
27
During the period October 1, 2002 to September 9, 2003, the Predecessor Company
paid $8,603,456 in principal to its secured lenders and capital leaseholders
from proceeds of equipment sales and working capital. As a result of the
Bankruptcy Action, the Predecessor Company recognized recoveries of $8,195,138
of long term debt and capital lease obligations. The Predecessor Company also
sold certain assets to an unsecured creditor, and as part of the sale, received
a waiver of $5,643,030 in prepetition long term debt owed to the creditor. (See
note 2 for additional information.)
The Successor Company emerged from the Chapter 11 proceedings with no assets and
no liabilities and has no credit facility or debt obligations.
11. PREDECESSOR COMPANY LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consisted of:
September 30, September 30,
2003 2002
-----------------------------------------------------------------------------------------------
Revolving credit loan - $7,000,000
Term note - 3,712,500
Acquisition notes plus accrued interest - 5,890,697
Capital lease obligations with varying monthly payments and
interest rates ranging from 7.2% to 9.9% per annum
maturing 2003 through
2006; secured by an interest in specific
machinery and equipment - 5,786,095
--- ----------
Subtotal - 22,389,292
Less: current maturities - 16,478,259
--- ----------
Long-term debt and capital lease obligations - 5,911,033
=== =========
Deferred financing costs (gross) included in other assets amounted to $297,223
at September 30, 2002. Accumulated amortization amounted to $226,701 at
September 30, 2002.
The Predecessor Company was in default on certain of its debt agreements at
September 30, 2002, the outstanding amount of which had all been classified as
current.
The Successor Company emerged from the Chapter 11 proceedings with no assets and
no liabilities and has no credit facility or debt obligations. (See notes 2 and
9 for additional information.)
12. LEASES
The Predecessor Company rented facilities in Hicksville, New York and in
Sanford, Maine under various operating lease agreements expiring through April
2011. In addition, the Predecessor Company was also obligated for two leases in
buildings it no longer occupied in Maine. As part of a restructuring in 2001,
the Predecessor Company expensed $280,000, representing the full amount due
28
under the remaining lease obligations. Rent expense amounted to approximately
$632,000, $983,000 and $1,003,000 for the period October 1, 2002 to September 9,
2003 and the years ended September 30, 2002 and 2001, respectively.
The Successor Company has no leases.
13. STOCK BASED COMPENSATION
The Successor Company does not have a stock based incentive compensation plan.
All outstanding options, warrants and other instruments that were convertible
into the Predecessor Company's common stock were cancelled pursuant to the
Bankruptcy Order.
In October 1993, the Board of Directors of the Predecessor Company adopted an
incentive stock option plan. The Plan, as amended in December 1995, January
1998, and February 2001, allowed the Board of Directors to issue options to
purchase an aggregate of 2,000,000 shares of the Predecessor Company's common
stock to key employees.
As of September 30, 2002, the Predecessor Company had issued options to purchase
an aggregate of 1,746,750 shares of the Predecessor Company's common stock to
employees and members of the Predecessor Company's Board of Directors. The
Predecessor Company estimated the fair value of each stock option at the grant
date by using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 2002 and 2001: no dividend yield,
expected volatility of approximately 80.00% to 46.00%, risk free interest rates
of 4.72% to 6.29%, with an expected life of 7.5 to 10 years. If compensation
cost for the Predecessor Company's Stock Option Plan had been determined in
accordance with SFAS No. 123, net income would have been reduced in 2002 and
2001 by approximately $76,000 and $86,000, respectively, and net (loss) income
per diluted share would have been $(1.73) and $(.76) for each year,
respectively.
The following table summarizes information about stock options outstanding at
September 30, 2002:
Options Outstanding Options Exercisable
Weighted Average Weighted Weighted
Remaining Average Average
Number Contractual Life Exercise Number Exercise
Exercise Price Outstanding (years) Price Exercisable Price
$0.35 4,600 2.5 $ 0.35 4,600 $ 0.35
$0.35-2.44 55,400 4.6 1.55 55,400 1.55
$1.88-2.19 44,500 5.3 1.91 44,500 1.91
$1.06-1.31 210,500 6.6 1.15 208,400 1.16
$1.03-2.03 944,400 2.4 1.08 944,400 1.08
$1.00 130,000 9.0 1.00 108,000 1.00
$0.55-0.91 303,750 9.5 0.67 260,417 0.64
1,693,150 4.9 $ 1.05 1,625,717 $ 1.05
29
Changes in qualified and non-qualified options and warrants outstanding are
summarized as follows:
Warrants Options
Weighted
average
Exercise Option price Exercise
Shares Price Shares per share price
Outstanding September 30, 2000 125,000 $ 2.00 1,437,900 $0.35 - $3.00 $ 1.34
Granted -- -- 130,000 $ 1.00 $ 1.00
Cancelled -- -- (112,500) $1.06 - $2.88 $ 2.76
Outstanding September 30, 2001 125,000 $ 2.00 1,455,400 $0.35 - $3.00 $ 1.20
Granted -- -- 303,750 $0.55 - $0.91 $ .67
Cancelled -- -- (66,000) $1.03 - $3.00 $ 2.60
Outstanding September 30, 2002 125,000 $ 2.00 1,693,150 $0.35 - $2.44 $ 1.05
At September 30, 2002, there were 1,625,717 options exercisable at a weighted
average exercise price of $1.05. The weighted average fair value of options
granted during fiscal 2002 and 2001 was $ .25 and $ .82, respectively.
14. COMMITMENTS
The Predecessor Company had a discretionary 401(k) plan. For the years ended
September 30, 2002 and 2001, the Predecessor Company contributed $73,153 and
$110,835, respectively.
15. TAXES (BENEFIT) ON LOSS
Provisions for income taxes (benefit) on loss in the consolidated statement of
operations consist of the following:
Period
October 1, 2002 - September 30, September 30,
September 9, 2003 2002 2001
--------------------------------------------------------------------------------------------------
Current:
Federal - $(1,686,714) $(854,496)
State - (19,000) (64,317)
--- ----------- ---------
Total current: - (1,705,714) (918,813)
--- ----------- ---------
Deferred:
Federal - 823,000 (1,034,000)
State - 62,000 (78,000)
--- ----------- ---------
Total deferred - 885,000 (1,112,000)
--- ----------- ---------
Total taxes (benefit) on income (loss)
- $(820,714) $(2,030,813)
=== ========== ============
30
Deferred tax (assets) liabilities consist of the following:
September 30, September 30,
2003 2002
------------------------------------------------------------------------------------------------
Tax depreciation in excess of book - $1,226,000
Impairment of goodwill (15,000) (871,000)
Investment tax credit carryforward - (36,000)
Restructuring - (46,000)
Provision for accounts receivable - (22,000)
Inventory capitalization - (68,000)
Other temporary differences -- net - (134,000)
Accrued expenses - (190,000)
Net operating loss carryforward - (2,484,000)
Less valuation allowance 15,000 2,625,000
========= ----------
Net deferred tax (assets) $ - $ -
========= ==========
The Successor and Predecessor Companies provided a 100% valuation allowance
against the net deferred tax assets.
16. GOING CONCERN
The Company intends to seek business opportunities that will provide a profit,
however, the Company does not have the working capital necessary to be
successful in this effort, which raises substantial doubt about its ability to
continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining
additional working capital and the management of the Company has developed a
strategy, which it believes will accomplish this objective through short term
related party loans, and equity funding, which will enable the Company to
operate for the coming year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective March 20, 2003, BDO Seidman, LLP (the "Predecessor Accountant")
resigned as the independent auditors for the Company. Sellers and Andersen, LLC
(the "Successor Accountant") were appointed as the Company's new independent
accountants. The Company's Board of Directors approved this action on November
10, 2003. During the last two fiscal years ended September 30, 2002 and 2001 and
the subsequent periods to March 20, 2003 (i) there were no disagreements between
the Company and BDO Seidman, LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of BDO Seidman, LLP would have caused BDO
Seidman, LLP to make reference to the matter in its reports on the Company's
financial statements, and (ii) BDO Seidman, LLP's reports did not contain an
adverse opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope, or accounting principles. During the last two most
recent fiscal years ended September 30, 2002 and 2001 and the subsequent periods
to March 20, 2003, there were no reportable events as the term described in Item
304(a)(1)(iv) of Regulation S-B. BDO Seidman, LLP's opinion in its report on the
Company's financial statements for the year ended September 30, 2002 and 2001,
expressed substantial doubt with respect to the Company's ability to continue as
a going concern.
31
The Company has not previously consulted with the Successor Accountant regarding
the application of accounting principles to a specific completed or contemplated
transaction or the type of audit opinion that might be rendered on the Company's
financial statements.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Mr. David Roff, the Company's current President, CEO and CFO has
concluded, based on his evaluation as of a date within 90 days prior
to the filing of this report, that the Company's disclosure controls
and procedures are effective to ensure that information required to be
disclosed by the Company in the reports filed or submitted by it under
the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported as specified in the Securities and
Exchange Commission's rules and forms, and include controls and
procedures designed to ensure that information required to be
disclosed by the Company in such reports is accumulated and
communicated to the Company's management, as appropriate, to allow
timely decisions regarding required disclosure.
(b) Changes in internal controls over financial reporting.
Since the Company filed its Form 10-K for the year ended September 30,
2002, the Company has entered and emerged from Chapter 11 protection
under the U.S. Bankruptcy Code with a new board of directors and new
management. The Company contracted the past management of the Company,
including its CFO, to assist in the preparation of the financial
statements presented herein (for the Predecessor Company) and believes
that the control environment that existed to prepare this financial
information has not materially affected, or is not reasonably likely
to materially affect, our internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive
officers and directors of the Company are as follows:
Name Age Position
David Roff 32 President, CEO, Chairman of the Board,
Sole Director and CFO
32
Brief biographies of the Executive Officers and Directors of the Company are set
forth below. All Directors hold office until the next Annual Stockholders'
Meeting or until their death, resignation, retirement, removal, disqualification
or until their successors have been elected and qualified. Vacancies in the
existing Board may be filled by majority vote of the remaining Directors.
Officers of the Company serve at the will of the Board of Directors. There are
no written employment contracts outstanding.
David Roff, age 32, is the co-president of a private consulting firm called
Brave Consulting. Brave Consulting invested in, started and manages four private
Internet companies. Mr. Roff has held this position since 2001. From 1998 until
2001, Mr. Roff founded and was vice president of an investor relations and
public relations firm. From 1995 until 1998, Mr. Roff was a management
consultant for Coopers & Lybrand Consulting where he advised large financial
institutions, mutual funds, pension funds and other organizations on technology,
internal control strategies and where he additionally provided computer audit
support. Mr. Roff has a Bachelor of Arts degree from the University of Western
Ontario located in London, Ontario. He is also a Canadian Chartered Accountant.
ITEM 11. EXECUTIVE COMPENSATION
No executive officer currently receives any cash compensation or other benefits
from the Company. Cash compensation amounts will be determined in the future
based on the services to be rendered and time devoted to the affairs of the
Company and the availability of funds. Other elements of compensation, if any,
will be determined at that time or at other times in the future.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of the shares of the
Company's Common Stock owned of record and beneficially by each person or entity
owning more than 5% of such shares and by all executive officers, officers and
directors, as a group at December 31, 2003:
Number of Shares Percentage of Shares
Name Beneficially Owned Beneficially Owned (1)
David Roff (2) 2,000,000 92.4%
All officers and directors
as a group (1 person) 2,000,000 92.4%
(1) Based on 2,165,233 common shares outstanding on December 31, 2003.
(2) The address for David Roff is c/o Deep Well Oil & Gas, Inc., 31 Walmer Rd.,
Suite 6, Toronto, Ontario, Canada, M5R 2W7.
33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table is a summary of the fees billed to us by Sellers & Andersen,
LLC for professional services for the fiscal years ended September 30, 2003 and
September 30, 2002:
Fee Category Fiscal 2003 Fees Fiscal 2002 Fees
Audit Fees $4,075 -
Audit-Related Fees - -
Tax Fees - -
All Other Fees - -
- -
Total Fees $4,075 -
====== ===
Audit Fees. Consists of fees billed for professional services rendered
for the audit of our financial statements and review of the interim financial
statements included in quarterly reports and services that are normally provided
by Sellers & Andersen, LLC in connection with statutory and regulatory filings
or engagements.
Audit-Related Fees. Consists of fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of our consolidated financial statements and are not reported under "Audit
Fees." These services include employee benefit plan audits, accounting
consultations in connection with acquisitions, attest services that are not
required by statute or regulation, and consultations concerning financial
accounting and reporting standards.
Tax Fees. Consists of fees billed for professional services for tax
compliance, tax advice and tax planning. These services include assistance
regarding federal, state and international tax compliance, tax audit defense,
customs and duties, mergers and acquisitions, and international tax planning.
All Other Fees. Consists of fees for products and services other than
the services reported above. In fiscal 2003 and 2002, there were no other fees
other than as reported above.
34
PART IV
ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
o 2.1 - July 23, 2003, Liquidating Plan of Reorganization of Allied Devices
Corporation, now known as Deep Well Oil and Gas, Inc.
o 2.2 - September 10, 2003, Order and Plan of Reorganization of the U.S.
Bankruptcy Court in and for the Eastern District of New York, In re: Allied
Devices Corporation, Chapter 11, Case No. 03-80962-511
o 3.1 - Restated and Amended Articles of Incorporation filed with and
accepted by the Secretary of State of Nevada on October 22, 2003, changing
the name to "Deep Well Oil and Gas, Inc." and otherwise implementing the
Plan
o 31 - Certification of President and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
o 32 - Certification of President and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
REPORTS ON FORM 8-K
The Company has filed the following Form 8-K's since it filed a Form 10-K for
the year ended September 30, 2002 with the SEC on January 14, 2003:
o February 20, 2003 - Form 8-K filed to announce the Company's voluntary
filing for relief under Chapter 11 of the U.S. Bankruptcy Code.
o April 15, 2003 - Form 8-K filed with a press release announcing that the
Company's auditors had declined to continue as auditors of the Company and
that the Company intended at the time to wind down its operations and
liquidate its assets.
o November 18, 2003 - Form 8-K filed to announce the Company's emergence from
Chapter 11 of the U.S. Bankruptcy Code, the change in control of the
Company, the change in the Company's certifying accountant and the changes
in the Company's directors.
o November 25, 2003 - Form 8-K/A filed to amend the Company's discussion of
the change in the Company's certifying accountant.
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 thereunto duly authorized.
DEEP WELL OIL & GAS, INC.
(Registrant)
Dated: January 26, 2004 By: /s/ DAVID ROFF
-------------------
David Roff
President, CFO and Sole Director
35