<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 8-K/A
--------
AMENDMENT NO. 2
TO
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JANUARY 19, 1999
(DATE OF EARLIEST EVENT REPORTED: AUGUST 31, 1998)
GROUP MAINTENANCE AMERICA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 1-13565 76-0535259
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
8 GREENWAY PLAZA, SUITE 1500
HOUSTON, TEXAS 77046
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 860-0100
===============================================================================
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 31, 1998, Group Maintenance America Corp. (the "Company")
completed the acquisition of Romanoff Electric Corp., an Ohio corporation
("Romanoff"). The Company acquired Romanoff pursuant to a merger (the "Merger")
of Romanoff Electric Acquisition Corp.("REAC"), a wholly-owned subsidiary of
the Company, with and into Romanoff. The Merger was effected in accordance with
the Agreement and Plan of Merger (the "Merger Agreement") dated as of August 31,
1998, among the Company, REAC, Romanoff, and the shareholders of Romanoff. A
copy of the Merger Agreement has been filed as an exhibit to this Current Report
on Form 8-K and is incorporated herein by reference. Romanoff was the surviving
corporation of the Merger. The purchase price paid or to be paid by the Company
for Romanoff consists of $17.4 million in cash, $4.0 million in notes payable
and 0.8 million shares of the Company's common stock, par value $.001 per share
("Common Stock").
Substantially all of the stockholders of Romanoff prior to the Merger will
be employed by the surviving corporation after the Merger. After the Merger,
Romanoff shall continue to lease a facility from a partnership of which three
former shareholders of Romanoff (Matthew Romanoff, Cynthia Romanoff and Pamela
Romanoff) own partnership interests.
Romanoff is engaged in the business of providing electrical and
communication network installation, maintenance and repair services for large
commercial and industrial customers in the Toledo, Ohio marketplace. The assets
of Romanoff consist primarily of cash, accounts receivable, inventory,
equipment, vehicles and goodwill. The Company expects that Romanoff will
continue to conduct its business in substantially the same manner as conducted
before the Merger.
The cash portion of the consideration paid by the Company in connection
with the Merger was provided pursuant to loans made under a Credit Agreement
dated as of June 12, 1998 (the "Credit Agreement") among the Company, certain
subsidiaries of the Company, Chase Bank of Texas, National Association, as
Agent, Paribas and ABN AMRO Bank, N.V., as Co-Agents, and the banks named
therein (the "Lenders"). Under the Credit Agreement, a syndicate of banks
agreed to provide up to $125 million of financing to the Company on a secured
basis. A list of the Lenders is set forth on Exhibit 99 which is incorporated
herein by reference.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of businesses acquired.
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Romanoff Electric Corp.:
We have audited the accompanying balance sheets of Romanoff Electric Corp. as
of December 31, 1996 and 1997, and the related statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Romanoff Electric Corp. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
January 8, 1999
4
<PAGE>
ROMANOFF ELECTRIC CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ ----------
(unaudited)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 177,052 $ 61,043 $ 242,807
Accounts receivable-trade, net of allowance for doubtful accounts of $104,631
at December 31, 1996 and 1997 and June 30, 1998, respectively................... 7,008,345 7,109,958 6,410,565
Accounts receivable - other...................................................... 43,231 31,383 193,091
Inventories...................................................................... 212,783 228,950 203,760
Costs and estimated earnings in excess of billings on uncompleted contracts...... 2,092,224 1,260,337 1,942,862
Prepaid expenses and other current assets........................................ 1,284 2,953 234
----------- ----------- -----------
Total current assets........................................................... 9,534,919 8,694,624 8,993,319
PROPERTY AND EQUIPMENT, NET....................................................... 1,647,865 1,783,677 1,851,589
CASH SURRENDER VALUE OF LIFE INSURANCE............................................ 380,947 1,244,950 1,290,550
OTHER LONG-TERM ASSETS............................................................ 11,500 11,500 11,500
----------- ----------- -----------
Total assets................................................................... $11,575,231 $11,734,751 $12,146,958
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
-----------------------------------
CURRENT LIABILITIES:
Accounts payable................................................................. $ 2,328,144 $ 2,388,988 $ 1,682,106
Accrued expenses................................................................. 2,017,996 2,010,168 2,427,815
Accrued income taxes payable..................................................... 37,965 11,631 34,338
Billings in excess of costs and estimated earnings on uncompleted contracts...... 1,282,396 1,154,329 824,370
Current maturities of long-term debt............................................. 250,000 100,000 -
----------- ----------- -----------
Total current liabilities...................................................... 5,916,501 5,665,116 4,968,629
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Class A common stock - no par value; stated value $200 per share; 1,105,
1,095 and 1,120 shares issued and outstanding, respectively..................... 221,000 219,000 224,000
Class B common stock - no par value; stated value $200 per share; 209,
229 and 274 shares issued and outstanding, respectively......................... 41,800 45,800 54,800
Paid-in capital.................................................................. 3,950 31,950 267,650
Retained earnings................................................................ 5,391,980 5,772,885 6,631,879
----------- ----------- -----------
Total shareholders' equity..................................................... 5,658,730 6,069,635 7,178,329
----------- ----------- -----------
Total liabilities and shareholders' equity..................................... $11,575,231 $11,734,751 $12,146,958
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ROMANOFF ELECTRIC CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
------------------------------------------- -------------------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES...................................... $28,066,805 $33,575,001 $33,008,426 $16,646,981 $18,799,888
COST OF SERVICES.............................. 24,126,991 26,860,381 25,430,111 12,699,405 14,188,674
----------- ----------- ----------- ----------- -----------
Gross profit............................ 3,939,814 6,714,620 7,578,315 3,947,576 4,611,214
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................... 2,611,250 4,322,335 4,930,455 2,343,373 2,902,550
----------- ----------- ----------- ----------- -----------
Income from operations.................. 1,328,564 2,392,285 2,647,860 1,604,203 1,708,664
OTHER INCOME (EXPENSE):
Interest income............................. 11,133 6,180 29,470 14,735 8,622
Interest expense............................ (145,427) (172,723) (29,775) (5,456) (2,459)
Other, net.................................. 13,525 260,732 (3,490) (12,190) 350,179
----------- ----------- ----------- ----------- -----------
Income before income tax provision...... 1,207,795 2,486,474 2,644,065 1,601,292 2,065,006
INCOME TAX PROVISION.......................... 26,300 52,800 25,600 15,503 50,000
----------- ----------- ----------- ----------- -----------
NET INCOME.................................... $ 1,181,495 $ 2,433,674 $ 2,618,465 $ 1,585,789 $ 2,015,006
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ROMANOFF ELECTRIC CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net unrealized
Common stock gains on Total
--------------------- Paid-in Retained marketable shareholders'
Shares Amount Capital Earnings securities equity
------ ------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.................... 1,314 $262,800 $ 3,950 $ 5,774,747 $ 157,835 $ 6,199,332
Net income................................... - - - 1,181,495 - 1,181,495
Change in unrealized holding gains on
securities available for sale.............. - - - - 42,106 42,106
Distributions to shareholders
Cash........................................ - - - (660,700) - (660,700)
Net assets of division...................... - - - (2,322,236) - (2,322,236)
----- -------- -------- ----------- ----------- -----------
Balance, December 31, 1995.................... 1,314 $262,800 3,950 3,973,306 199,941 4,439,997
Net income................................... - - - 2,433,674 - 2,433,674
Change in unrealized holding gains on
securities available for sale.............. - - - - (199,941) (199,941)
Distributions to shareholders................ - - - (1,015,000) - (1,015,000)
----- -------- -------- ----------- ----------- -----------
Balance, December 31, 1996.................... 1,314 $262,800 3,950 5,391,980 - 5,658,730
Issuance of stock............................ 10 2,000 28,000 - - 30,000
Net income................................... - - - 2,618,465 - 2,618,465
Distributions to shareholders................ - - - (2,237,560) - (2,237,560)
----- -------- -------- ----------- ----------- -----------
Balance, December 31, 1997.................... 1,324 $264,800 31,950 5,772,885 - 6,069,635
Issuance of stock (unaudited)................ 70 14,000 235,700 - - 249,700
Net income (unaudited)....................... - - - 2,015,006 - 2,015,006
Distributions to shareholders (unaudited).... - - - (1,156,012) - (1,156,012)
----- -------- -------- ----------- ----------- -----------
Balance, June 30, 1998 (unaudited)............ 1,394 $278,800 $267,650 $ 6,631,879 $ - $ 7,178,329
===== ======== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ROMANOFF ELECTRIC CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
-------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 1,181,495 $ 2,433,674 $ 2,618,465 $ 1,585,789 $ 2,015,006
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................................. 247,039 342,050 435,609 181,676 231,660
(Gain) Loss on sale of property and equipment............. (4,243) (5,406) 3,490 - -
Gain on disposal of marketable securities................. - (237,600) - - -
Charitable contribution of marketable securities.......... - 277,372 - - -
Increase in cash surrender value of life insurance policy. (86,964) (92,034) (100,949) (45,600) (45,600)
Change in operating assets and liabilities:
(Increase) decrease in -
Accounts receivable-trade............................ (1,518,562) (1,222,429) (101,613) 612,963 699,393
Accounts receivable-other............................ 134,838 69,101 11,848 (28,781) (161,708)
Inventories.......................................... (24,844) 92,056 (16,167) (41,283) 25,190
Costs and estimated earnings in excess of
billings on uncompleted contracts................. 23,306 (230,158) 703,820 962,696 (1,012,484)
Prepaid expenses and other current assets............ (1,029) 7,331 (1,669) 1,050 2,719
Increase (decrease) in -
Accounts payable..................................... 804,594 210,478 60,844 (902,532) (706,882)
Income taxes payable................................. - 37,965 (26,334) 20,696 22,706
Accrued expenses..................................... (218,129) 677,367 (7,828) 36,857 417,648
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities........ 537,501 2,359,767 3,579,516 2,383,531 1,487,648
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (514,373) (681,617) (575,038) (188,978) (299,572)
Proceeds from sale of property and equipment................ 6,050 13,075 127 - -
Payments for life insurance................................. - - (763,054) - -
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities............ (508,323) (668,542) (1,337,965) (188,978) (299,572)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt.................. 627,119 54,533 50,000 - -
Repayment of debt........................................... - (593,328) (200,000) (847,372) (100,000)
Proceeds from issuance of stock............................. - - 30,000 - 249,700
Distributions to shareholders............................... (660,700) (1,015,000) (2,237,560) (897,107) (1,156,012)
---------- ---------- ---------- ---------- ----------
Net cash used in financing activities............ (33,581) (1,553,795) (2,357,560) (1,744,479) (1,006,312)
---------- ---------- ---------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......................... (4,403) 137,430 (116,009) 450,074 181,764
CASH AND CASH EQUIVALENTS, beginning of period................... 44,025 39,622 177,052 177,052 61,043
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period......................... $ 39,622 $ 177,052 $ 61,043 $ 627,126 $ 242,807
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................... $ 144,499 $ 166,417 $ 29,774 $ 5,456 $ 2,459
Income taxes................................................ $ 26,300 $ 14,835 $ 47,955 $ 5,193 $ 27,293
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY
Distribution of net assets of division on January 1, 1995
to shareholders
Working Capital, including $13,641 in cash.................. $ 1,874,924 $ - $ - $ - $ -
Net Property and Equipment.................................. 447,312 - - - -
---------- ---------- ---------- ---------- ----------
Net Assets Distributed...................................... $ 2,322,236 $ - $ - $ - $ -
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS
(All information with respect to the interim periods ended June 30, 1997 and
1998 is unaudited)
1. BUSINESS AND ORGANIZATION
Romanoff Electric Corp. ("the Company") is a full-service unionized electrical
contractor serving principally northwest Ohio and southeast Michigan. The
Company performs work under cost-plus-fee contracts, fixed price contracts,
and time and material contracts. The length of individual contracts varies,
but typically is less than one year.
2. SUMMARY OF SIGNIFICANT POLICIES
Interim Financial Information
The interim financial statements for the six months ended June 30, 1997 and
1998 and as of June 30, 1998 are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the financial position,
results of operations and cash flows with respect to the interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue and Cost Recognition
Revenues from fixed price contracts are recognized on the percentage of
completion method. The completed percentage is measured by the percentage of
cost incurred to date as compared to the estimated total cost for each
contract, including work for approved change orders. Revenue from cost-plus-
fee contracts are recognized on the basis of costs incurred during the period
plus the fee earned, measured by the cost-to-cost method. Revenue from time
and material contracts is accrued at the end of each month based on chargeable
costs incurred through month end. Time and material contracts are billed for
the number of man hours and costs incurred.
Contract costs include all direct material, subcontract and labor costs and a
provision for indirect costs such as indirect labor and equipment costs.
Selling, general and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from contract
penalty provisions, and final contract settlements may result in revisions to
costs and revenues and are recognized in the period in which the revisions are
determined.
Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers
investments in money market accounts and certificates of deposits purchased
with an original maturity of three months or less to be cash equivalents.
9
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Accounts Receivable
Accounts receivable consists of the following at December 31, 1996 and 1997:
1996 1997
Accounts receivable - billed ................ $ 6,328,570 $ 6,243,975
Retainage receivable......................... 784,406 970,614
Allowance for doubtful accounts.............. (104,631) (104,631)
---------- ----------
$ 7,008,345 $ 7,109,958
========== ==========
Inventories
Inventories consist of parts and supplies for general use and items for
specific jobs. Inventories are stated at lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets. Expenditures for
major renewals and improvements, which extend the useful lives of existing
equipment, are capitalized and depreciated. The estimated useful lives of
assets are as follows:
Years
Autos and trucks................... 5
Machinery and equipment............ 5-7
Furniture and fixtures............. 5-7
Leasehold improvements............. 10
Expenditures for repairs and maintenance are charged to expense when incurred.
Upon retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Cash Surrender Value of Life Insurance
Cash surrender value of life insurance is recorded at cash value as stated by
the insurance carrier.
Income Taxes
The shareholders of the Company have elected to be taxed for federal and state
tax purposes as an S Corporation whereby the shareholders' respective
equitable shares in the taxable income of the Company are reportable on the
their individual tax returns. The Company has made distributions to the
shareholders each year at least in the amounts necessary to pay personal
income taxes payable on the Company's taxable income. The Company is subject
to local taxes. As of December 31, 1996 and 1997, deferred taxes are
insignificant.
Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash, accounts receivable, cash
surrender value of life insurance and costs and estimated earnings in excess
of billings on uncompleted contracts.
10
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Accounts receivable and costs and estimated earnings in excess of billings on
uncompleted contracts result primarily from contracts with customers
principally in the Company's service area in northwest Ohio and southeast
Michigan. Credit is extended to customers after an evaluation for credit
worthiness; however, the Company does not require collateral or other security
from customers.
Revenues from customers that represent 10% or more of total revenues for each
of the three years ended December 31, 1995, 1996 and 1997 are as follows:
1995 1996 1997
---- ---- ----
Customer A.................. 6.2% 14.7% 1.2%
Customer B.................. 16.6% 4.9% 5.4%
Customer C.................. 0.0% 23.8% 6.3%
3. MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities. All of
the Company's marketable securities (all of which were equity securities and
investments in mutual funds) were classified as available for sale with
unrealized gains or losses recorded as a separate component of shareholders'
equity. In December 1996, the Company made a charitable contribution of its
marketable securities with a cost of $39,773 and a market value of $277,373.
The Company recorded a gain on the disposal of marketable securities of
$237,600 and a charitable contribution of $277,372.
4. EMPLOYEE BENEFIT PLANS
The Company maintains a profit sharing/retirement plan for the benefit of its
full-time employees who qualify under its terms and conditions. Eligibility
in the plan is limited to personnel over 20-1/2 years old, with 6 months or
more of service, who are exempt employees not covered by any other qualified
plan. Total annual contributions to the plan range, at the discretion of the
Company, from 5% to 15% of annual compensation of covered participants.
Contributions were $172,492, $204,732 and $224,068 for the years ended
December 31, 1995, 1996 and 1997, respectively. The Company also offers a
401(k) plan under which eligible employees contribute up to 10% of their
salary.
The Company contributes to several union-administered pension plans covering
all of its union employees. Pension expense charged to operations was
$758,654, $1,292,598 and $1,129,149 for the years ended December 31, 1995,
1996 and 1997, respectively. Governmental regulations impose certain
requirements relative to multi-employer plans. In the event of a plan's
termination or employer withdrawal, the Company may be liable for a portion of
the plan's unfunded vested benefits, if any. There are no unfunded vested
pension liabilities under these plans at December 31, 1997.
5. LEASES
The Company leases its facilities from a related partnership, pursuant to
leases which expire in 2002 and which provide for payments of taxes,
maintenance, and insurance by the Company. Rental expense recorded under
these leases for each of the years ended December 31, 1995, 1996 and 1997, was
$140,193. As of December 31, 1997, the total minimum rental commitment for
operating leases which is due in future years is as follows:
Years ending December 31,
1998.................... $ 140,193
1999.................... 145,800
2000.................... 151,632
2001.................... 157,680
2002.................... 163,980
--------
$ 759,285
========
11
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS - (Continued)
6. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
A summary of the status of uncompleted contracts as of December 31, 1996 and
1997 is as follows:
1996 1997
---- ----
Costs incurred................... $ 7,654,104 $10,341,573
Estimated earnings recognized.... 662,613 1,622,110
---------- ----------
8,316,717 11,963,683
Less billings on contracts....... 7,506,889 11,857,675
---------- ----------
$ 809,828 $ 106,008
========== ==========
These costs and estimated earnings on uncompleted contracts are included in
the accompanying balance sheet under the following captions:
1996 1997
---- ----
Costs and estimated earnings in
excess of billings on uncompleted
contracts......................... $ 2,092,224 $ 1,260,337
Billings in excess of costs and
estimated earnings on uncompleted
contracts......................... (1,282,396) (1,154,329)
---------- ----------
$ 809,828 $ 106,008
========== ==========
7. PROPERTY AND EQUIPMENT
The principal categories of property and equipment as of December 31, 1996 and
1997 are as follows:
1996 1997
---- ----
Machinery and Equipment...................... $ 1,970,622 $ 2,228,955
Furniture and Fixtures....................... 279,676 215,127
Automobiles and Trucks....................... 1,136,959 1,287,812
Leasehold Improvements....................... 413,263 407,178
---------- ----------
3,800,520 4,139,072
Less: Accumulated depreciation .............. 2,152,655 2,355,395
---------- ----------
Total Property and Equipment, net......... $ 1,647,865 $ 1,783,677
========== ==========
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
12
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS - (Continued)
9. TRANSACTIONS WITH RELATED PARTIES
The Company rents certain office equipment on a monthly basis from Mishpocheh
Leasing Company ("Mishpocheh"), a related partnership. Rent expense pursuant
to this lease charged to operations for the years ended December 31, 1995,
1996 and 1997, was $50,090, $62,950 and $76,991, respectively. See also Note
5.
The Company provided certain administrative services to Romanoff
Electric/Columbus, Inc. ("REC"), a former division of the Company that was
spun off in 1995 (see note 12). Such amounts are included as a reduction of
operating expenses and totaled $82,560, $75,400 and $60,000 for the years
ended December 31, 1995, 1996 and 1997, respectively. Subsequent to December
31, 1997, REC has been acquired by EMCOR, the agreement pursuant to which such
services has been provided was terminated effective June 30, 1998, and the
Company has received payment in full for all amounts receivable from REC.
Accounts receivable from affiliates, included in the caption "Accounts
Receivable, Other" in the accompanying balance sheets, consist of the
following at December 31, 1996 and 1997:
1996 1997
---- ----
REC......................... $ 39,431 $ 28,783
Shareholder................. 3,400 --
Mishpocheh.................. -- 2,150
------- -------
$ 42,831 $ 30,933
======= =======
There were no accounts payable to related parties at December 31, 1996 and
1997.
13
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS - (Continued)
10. BORROWINGS UNDER BANK LINE OF CREDIT
The Company has a total of $5,000,000 in revolving credit agreements and lines
of credits with banks, as follows:
<TABLE>
<CAPTION>
Amount Drawn at Amount Drawn at
December 31, 1996 December 31, 1997
----------------- -----------------
<S> <C> <C>
Fifth Third Bank of Toledo, N.A., $1,000,000 credit agreement
providing for revolving credit through June 2000, unsecured,
bearing interest at a rate of one-half percent below the bank's prime
rate (prime rate of 8.5% at December 31, 1997), commitment fee of
0.25% on average daily unadvanced balance, paid quarterly.................... $ 50,000 $ 100,000
Fifth Third Bank of Toledo, N.A., $1,000,000 line of credit through
June 2000, unsecured, bearing interest at a rate of one-half percent
below the bank's prime rate (prime rate of 8.5% at December 31, 1997)........ -- --
Key Bank, $2,000,000 line of credit through June 2000, unsecured,
bearing interest at a rate of either the bank's prime rate (8.5% at
December 31, 1997), or LIBOR plus 2.25%, at the option of the Company........ -- --
Capital Bank, $1,000,000 line of credit through June 2000,
unsecured, bearing interest at the bank's prime rate (8.5% at
December 31, 1997)........................................................... 200,000 --
---------- ----------
$ 250,000 $ 100,000
========== ==========
</TABLE>
11. COMMON STOCK
Classes A and B common stock are identical in participation and ownership
rights. Different restrictions apply to the ability to transfer shares.
Class A shareholders are not required to be employees of the Company and may
transfer shares to other Class A shareholders or linear descendants. Class B
shareholders are required to be employees of the Company and may not transfer
or sell any shares without the consent of all shareholders. If employment of
the class B shareholder is terminated for any reason, then the Company is
obligated to purchase the stock from the shareholder based upon its book
value. The total shares authorized for Class A and B are 3,000 shares.
12. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents, cash
surrender value of life insurance, and borrowings under bank lines of credit.
The Company believes the carrying values of these instruments on the
accompanying balance sheets at December 31, 1996 and 1997 approximate their
fair values.
13. DISTRIBUTIONS TO SHAREHOLDERS
On January 1, 1995, the Company completed the spinoff of its Columbus
operations in a tax-free distribution to its shareholders. The newly created
company was named REC.
14
<PAGE>
ROMANOFF ELECTRIC CORP.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Under the agreement and plan of reorganization and corporate separation, the
Company transferred to REC $2,332,236 of net assets at historical cost,
including $13,641 in cash, in exchange for 1,314 shares of REC common stock.
Each common shareholder of the Company received one share of REC common stock
for each share of the common stock of the Company held on December 15, 1994,
which was the record date of the distribution.
14. SUBSEQUENT EVENT
Effective August 31, 1998, Group Maintenance America Corp. (GroupMAC) acquired
all of the outstanding shares of the Company for a combination of cash and
common stock of GroupMAC.
15
<PAGE>
(c) Exhibits.
The following exhibits are filed with this report:
2.1* Agreement and Plan of Merger dated as of August 31, 1998 among the
Company, Romanoff Electric Acquisition Corp., Romanoff Electric Corp.
and the shareholders of Romanoff Electric Corp.
23 Consent of KPMG, LLP.
99* List of Lenders under the Credit Agreement.
- ---------
* Incorporated by reference to the Company's Form 8-K dated September 15, 1998.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GROUP MAINTENANCE AMERICA CORP.
By: /s/ Randolph W. Bryant
----------------------------------
Randolph W. Bryant
Senior Vice President
and General Counsel
Date: January 19, 1999
17
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Group Maintenance America Corp.
We consent to incorporation by reference in the registration statements (No.
333-41749, No. 333-41751, No. 333-58651, No. 333-60537 and No. 333-69421) on
Form S-8 and (No. 333-69533) on Form S-4 of Group Maintenance America Corp. of
our report dated January 8, 1999, relating to the balance sheets of Romanoff
Electric Corp. as of December 31, 1996 and 1997, and the related statements of
operations, shareholders' equity and cash flows for each of the years in the
three year period ended December 31, 1997, which report appears in the current
report on Form 8-K/A of Group Maintenance America Corp. dated January 19, 1999.
KPMG LLP
Houston, Texas
January 19, 1999
