UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
AUGUST 17, 2000
GLOBAL INDUSTRIAL SERVICES, INC.
(FORMERLY PASSANT ACQUISITION CORP.)
(Exact name of registrant as specified in its charter)
Nevada 000-29983 98-0203485
(State of (Commission (I.R.S. Employer
organization) File Number) Identification No.)
200-1311 Howe St., Vancouver, B.C. Canada V6Z 2P3
(Address of principal executive offices)
Registrant's telephone number, including area code (604) 684-2004
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On August 16, 2000 the sole stockholder of Passant Acquisition
Corp. sold his interest to Global Industrial Services, Inc. for
$50,000 in cash consideration and Gregory M Wilson resigned as
President, Secretary, Treasurer and Sole Director and Terry Kirby
became a Director, President, Secretary, Treasurer.
Pursuant to the Agreement and Plan of Reorganization (the
"Agreement") dated as of August 16, 2000 between Global
Industrial Services, Inc, ("GIS"), a Nevada corporation, and
Passant Acquisition Corp. ("PASSANT"), a Nevada corporation, all
the outstanding shares of common stock of PASSANT were exchanged
for the sum of $50,000.00.
A copy of the Agreement has been filed as an exhibit to this Form
8-K and incorporated in its entirety.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 16, 2000, the Company was acquired through a
reorganization agreement with Global Industrial Services, Inc.
The Board of Directors approved the purchase of the Company by
Global Industrial Services, Inc.
ITEM 5. OTHER EVENTS
As of August 16, 2000, the Company will change its corporate
address to 200-1311 Howe St., Vancouver, B.C. Canada V6Z 2P3.
ITEM 6. RESIGNATIONS OF REGISTRANTS' DIRECTORS
On August 16, 2000, the Company's sole officer and director
decided to increase the board to 2 members and appointed Terry
Kirby to fill the vacancy created by the expansion of the board
to 2 members.
On August 16, 2000, the Company accepted the resignation of Mr.
Gregory M. Wilson as a member of the board and as sole officer of
the Company, effective immediately. The remaining director
decided not to fill the vacancy left by Mr. Wilson's resignation.
Terry Kirby was also elected as President, Secretary and
Treasurer.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
a) Financial Statements for the period ended March 31, 2000 and
December 31, 1999 for Global Industrial Services, Inc. are hereby
attached to this Form 8-K. These statements are combined to
include audited statements for Global Industrial with those of AK
Drilling, Inc. and Stothert Group, Inc., two companies that were
acquired prior to the Agreement.
b) Pro-Forma Financial Statements for the combined companies.
c) Audited Financial Statements for Global Industrial Services,
Inc. for the periods March 31, 2000, December 31, 1999, and
December 31, 1998. These do not include the effect of the
acquisitions of AK Drilling, Inc. and the Stothert Group, Inc.
d) Audited Financial Statements for AK Drilling, Inc. for the
years ended December 31, 1999 and December 31, 1998.
e) Audited Financial Statements for Stothert Group, Inc. for
the years ended December 31, 1999 and December 31, 1998.
GLOBAL INDUSTRIAL SERVICES INC.
FINANCIAL STATEMENTS
INDEX
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DEFICIENCY) 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 -
18
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Global Industrial Services Inc.
We have audited the accompanying balance sheets of Global
Industrial Services Inc. (formerly Charger Ventures, Inc.), as of
December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity (deficiency) and cash flows for
the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
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 Global Industrial Services Inc. as of December 31, 1999 and
1998, and the results of its operations and cash flows for the
years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As described in
Note 1 to the financial statements, the Company has suffered
recurring losses from operations and has no established source of
revenue. This raises substantial doubt about its ability to
continue as a going concern. Management's plans in regards to
these matters are also described in Note 1. These financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
MERDINGER, FRUCHTER, ROSEN & CORSO,
P.C.
Certified Public Accountants
Los Angeles, California
June 23, 2000
GLOBAL INDUSTRIAL SERVICES INC.
BALANCE SHEETS
<TABLE>
<S> <C> <C> <C> <C>
AK
Drilling,
Inc.
June 30, December December
31, 31,
ASSETS 2000 1999 1998 1999
-------- -------- ----------- ----------
CURRENT ASSETS
(unaudited)
Cash and cash equivalents $ 131,957 $ 215 $ - $ -
Accounts receivable 1,205,195 - - 407,173
Prepaid expenses 21,129 11,041 2,027 -
Inventory 128,828 - - 42,281
Advances to related party - 66,218 - -
--------- -------- ---------- ----------
Total Current Assets 1,487,109 77,474 2,027 449,454
PROPERTY AND EQUIPMENT, NET 3,087,406 - - 2,738,802
INVESTMENTS 107,904 - 3,381 -
OTHER ASSETS 32,852 - - 14,960
GOODWILL, net of accumulated
amortization of $32,855 952,787 - - -
--------- -------- ---------- ----------
TOTAL ASSETS $5,668,058 $ 77,474 $ 5,408 $3,203,216
========= ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ - $ - $ - $ 167,435
Accounts payable 892,561 1,716 - 136,149
Payable on investments 1,348,950 - - -
Current potion of long term 242,570 - - 309,021
debt
Deferred revenue 97,922 - - -
Advances payable - related 678,474 - - -
party
--------- -------- --------- ----------
Total current liabilities 3,260,477 1,716 - 612,605
Long term debt, less current 1,314,832 - - 994,169
portion
--------- -------- --------- ----------
Total liabilities 4,575,309 1,716 - 1,606,774
--------- -------- --------- ----------
COMMITMENTS AND CONTINGENCIES - - - -
STOCKHOLDERS' EQUITY
Common stock, $.001 par
value;
50,000,000 shares
authorized;
9,279,346; 4,020,000
and2,150,000
shares issued and 9,280 4,020 2,150 10,000
outstanding
Additional paid-in capital 1,523,625 33,934 17,470 -
Foreign currency translation
adjustment (82) - - -
Common stock subscription - 90,000 - -
Accumulated deficit (440,074) (52,196) (14,212) 1,586,442
--------- -------- ---------- ----------
Total Stockholders' Equity
(Deficiency) 1,092,749 75,758 5,408 1,596,442
--------- -------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,668,058 $77,474 $ 5,408 $3,203,216
========= ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
- 2 -
GLOBAL INDUSTRIAL SERVICES INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Additional Common Currency
Common Stock Paid-in Stock Translation Accumulated
Shares Amount Capital Adjustment Deficit Total
Subscriptions
Balance at July
14,
1998 - $ - $ - $ - $ -- $ - $ -
Capital stock
issued pursuant to
offering
memorandum,
For repayment of
advances -
$0.01 (net of
issuance costs) 2,150,0 2,15 17,470 - - - 19,6202,000
00 0
Net loss - - - - - (14,212) (14,212)
Balance at
December
31, 1998 2,150,0 2,15 17,470 - - (14,212) 5,408
Capital stock
issued pursuant to
offering
memorandum,
For cash - at 1,870,0 1,87 16,464 - - - 18,334
$0.01 00 0
(net of issuance
costs)
Common stock - - - 90,000 - - 9,000
subscription
Net loss - - - - - (37,984) (37,984)
4
Balance at
December
31, 1999 4,020,000 4,020 33,934 90,000 - (52,196) 75,758
Sale of common 75,000 75 74,925 - - - 75,000
stock
Issuance of stock
options - - 125,000 - - - 125,000
Issuance of shares 400,000 400 89,600 (90,000) - - -
Issuance of shares
for acquisitions 4,688,538 4,689 1,056,550 - - - 1,061,239
Issuance of shares
in settlement
of payables 95,808 96 143,616 - - - 143,712
Foreign currency
translation
adjustment - - - - (82) - (82)
Net loss - - - - - (387,878 ) (387,878)
Balance at
June 30, 2000 9,279,346 $ 9,280 $1,523,625 $ - $ (82) $ (440,074) $ 1,092,749
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 4 -
GLOBAL INDUSTRIAL SERVICES INC.
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C> <C>
AK Drilling, Inc.
For the Six For the Six For the Year
Months Ended For the Years Ended Months Ended
Ended
June 30, December 31, June 30, December 31,
2000 1999 1998 1999 1999
------------ ------------- ----------- --------- ----------
( Unaudited ) ( Unaudited )
Revenue $ 1,644,153 $ - $ - $ 2,579,556 $ 4,337,530
Cost of revenue 886,992 - - 942,354 2,533,475
Gross profit 757,161 - - 1,637,202 1,804,055
General and administrative
expense 891,672 37,984 14,212 818,911 909,819
Impairment expense 225,000 - - - -
Interest expense 28,367 - - 56,890 128,194
--------- -------- --------- ---------- ----------
(Loss) income from
operations
before income taxes (387,878 ) (37,984 ) (14,212 ) 761,401 766,042
Provision for income taxes - - - - -
--------- --------- --------- ---------- ----------
Net (loss) income $ (387,878 ) $ (37,984 ) $ (14,212 ) $ 761,401 766,042
========= ========= ========= ========== ==========
Net loss per common share -
basic and diluted $ (0.05 ) $ (0.01 ) $ (0.01 ) $ N/A N/A
========= ========= ========= ========== ==========
Weighted average number of
common shares
Outstanding -
basic and diluted 7,556,464 3,085,000 2,150,000 N/A N/A
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 3 -
GLOBAL INDUSTRIAL SERVICES INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
AK Drilling, Inc.
For the Six For the Six For the Year
Months Ended For the Years Ended Months Ended Ended
June 30, December 31, June 30, December 31,
2000 1999 1998 1999 1999
------------ --------------------- --------- ----------
-- -
( Unaudited ) (Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net (loss) income $ (387,878 ) $ (37,984 ) $ (14,21 ) $ 761,401 $ 766,042
2
Adjustments to reconcile net
loss to net cash used
in operating activities:
Depreciation and amortization 79,357 82,500 231,660
Bad debt - - 31,020
Impairment of investment 225,000 5,881 - - -
Stock-based compensation 125,000 - - - -
Changes in assets and
liabilities
Accounts receivable 228,780 (616,595 ) (346,013 )
Inventory (27,396 ) (79,335 ) (35,481 )
Other assets 15,174 (9,014 ) (2,027 ) (21,833 ) (17,017 )
Deferred revenue (275,611 ) - -
Accounts payable (923 ) 1,716 - 56,787 72,594
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (18,497 ) (39,401 ) (16,239 ) 182,925 702,885
------- ------
CASH FLOWS FROM
INVESTING ACTIVITIES
Property and equipment 81,797 (2,500 ) (3,381 ) (7,380 ) (705,393 )
Net cash in acquisitions (44,288 ) - - - -
NET CASH USED IN
INVESTING ACTIVITIES 37,509 (2,500 ) (3,381 ) (7,380 ) (705,393 )
------ ------ ------ ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Cash overdraft - - (20,188 ) 147,247
Sale of common stock 75,000 18,334 19,620 - -
Stock subscription - 90,000 - - -
Note payable proceeds - - - 104,096
Note payable repayments (91,530 ) - - (79,372 ) (8,550 )
Distributions - - - - (240,205 )
Investments in subsidiaries (615,350 ) - - - -
Advances from related party 744,692 (66,218 ) 19,620 - -
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 112,812 42,116 19,620 (99,560 ) 2,588
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (82 ) - - - -
NET INCREASE IN CASH 131,742 215 - 75,985 -
Cash - beginning 215 - - - -
------ ------ ------ ---------- ---------
Cash - ending $ 131,957 $ 215 $ - $ 75,985 -
======= ====== ====== =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 5 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Global Industrial Services, Inc. (formerly Charger
Ventures, Inc.), ("Global" or the "Company"), was a
development stage company under the provisions of
Statement of Financial Accounting Standards ("SFAS")
No. 7 for the years ended December 31, 1999 and 1998.
In the second quarter of 2000, the Company acquired two
operating entities and is no longer in the development
stage. The Company was incorporated under the laws of
the State of Nevada on July 24, 1998. On March 30,
2000, the Company changed its name to Global Industrial
Services Inc.
Basis of Presentation
The accompanying consolidated financial statements include
the accounts of Global Industrial Services Inc. and its
wholly-owned subsidiaries. Those subsidiaries are Stothert Group,
Inc. ("Stothert") and AK Drilling, Inc. ("AK Drilling"). Stothert
is comprised of the following entities:
<TABLE>
<S> <C>
Stothert
Management Ltd. (SML)
Stothert
Engineering Ltd. (SEL)
Mutual Forest
Industries Ltd. (MFI)
Stothert
Schultz International Inc. (SSI)
Stothert
Power Corp.
J.R. Lewis &
Associates Ltd. (JRL)
988650 Enterprises Ltd.
</TABLE>
All significant intercompany accounts and transactions
have been eliminated in consolidation.
As reflected in the accompanying financial statements,
the Company has had recurring losses from operations, a
negative cash flow from operations and no established
source of revenues. These matters raise substantial
doubt about the Company's ability to continue as a
going concern.
In view of the matters described in the preceding
paragraph, recoverability of a major portion of the
recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon continued
operations of the Company, which, in turn, is dependent
upon the Company's ability to continue to raise capital
and generate positive cash flows from operations. The
consolidated financial statements do not include any
adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and
classifications of liabilities that might be necessary
should the Company be unable to continue its existence.
Management plans to take the following steps that it
believes will be sufficient to provide the Company with
the ability to continue in existence:
a) Raise additional capital through the sale of capital stock
b) Acquire operating companies through the issuance of capital
stock and cash
- 6 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Lines of Business
The Company, through its subsidiary Stothert, provides
engineering, construction and project management services
for the pulp and paper industry with particular focus on
recausticizing plants and lime kilns. Stothert provides
a full range of services including feasibility studies,
detailed engineering, due diligence, mill audits, project
management services, turnkey supply and construction,
operations and training services, and project financing.
Stothert's business is conducted in Vancouver, Canada.
The Company's subsidiary AK Drilling operates primarily
in the mineral exploration and water drilling industry.
Its offices are located in Montana.
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 amount 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 reported
period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
The Company measures its financial assets and
liabilities in accordance with generally accepted
accounting principles. For certain of the Company's
financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable,
payables on investments and advances to and from
related parties, the carrying amounts approximate fair
value due to their short maturities.
Cash and Cash Equivalents
The Company considers all highly liquid investments
purchased with original maturities of three months or
less to be cash equivalents.
Concentration of Credit Risk
From time to time the Company places its cash in what
it believes to be credit-worthy financial institutions.
However, cash balances may exceed FDIC insured levels
at various times during the year.
Inventory
Inventory is stated at the lower of cost or market. Cost
is determined on a first-in, first-out basis.
Inventory consists principally of piping and drilling supplies.
Revenue Recognition
The Company records revenue as services are performed. Contract
revenue is recognized using the percentage of completion method.
Billings to customers in advance of services performed are
credited to deferred revenue.
- 7 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation and Amortization
Property and equipment are stated at cost and are depreciated
using the straight-line and declining balance methods over their
estimated useful lives. Drilling equipment is depreciated over
10 to 15 years. Office equipment is depreciated over 5 to 7 years.
Computer software and hardware is depreciated over 3 to 5 years.
The costs of maintenance and repairs are charged to expense when
incurred; costs of renewals and betterments are capitalized. Upon
the sales or retirement of property and equipment, the cost and
related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is included in operations.
Goodwill
Goodwill represents the excess cost over the fair value of net assets
acquired. Goodwill is being amortized on the straight-line basis over
a period of 5 years. The carrying value of goodwill is reviewed if
facts and circumstances suggest that it may be impaired. Negative
operating results and negative cash flows from operations, among
other factors, could be indicative of the impairment of goodwill.
If this review indicates that goodwill will not be recoverable, the
carrying value would be reduced.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", long-lived assets to be
held and used are analyzed for impairment whenever
events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. When
required, impairment losses on assets to be held and
used are recognized based on the fair value of the
assets and long-lived assets to be disposed of are
reported at the lower of carrying amount or fair
value less cost to sell.
Income Taxes
The Company accounts for income taxes pursuant to SFAS
No. 109, "Accounting for Income Taxes". Deferred taxes
are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary
differences, and deferred tax liabilities are
recognized for taxable temporary differences.
Temporary differences are the differences between the
reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management,
it is more likely than not that some portion of all of
the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of
enactment.
- 8 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Translation of Foreign Currency
The Company translates the foreign currency financial
statements of its Canadian subsidiary in accordance
with the requirements of SFAS No. 52, "Foreign Currency
Translation". Assets and liabilities are translated at
current exchange rates, and related revenues and expenses
are translated at average exchange rates in effect during the
period. Resulting translation adjustments are recorded as a
separate component in stockholders' equity. Foreign currency
transaction gains and losses are included in the statement of
operations.
Stock-Based Compensation
The Company has adopted the intrinsic value method of
accounting for stock-based compensation in accordance
with Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees" and
related interpretations.
Net Loss Per Common Share
The Company calculates net loss per share based on SFAS
No. 128, "Earnings Per Share". Basic loss per share is
computed by dividing net loss attributable to common
stockholders by the weighted average number of common
shares outstanding. Diluted loss per share is computed
similar to basic loss per share except that the
denominator is increased to include the number of
additional common shares that would have been
outstanding if the potential common shares had been
issued and if the additional common shares were
dilutive.
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set
of general-purpose financial statements.
Impact of Year 2000 Issue
During the year ended December 31, 1999, the Company
conducted an assessment of issues related to the Year
2000 and determined that it was necessary to modify or
replace portions of its software in order to ensure
that its computer systems will properly utilize dates
beyond December 31, 1999. The Company completed Year
2000 systems modifications and conversions in 1999.
Costs associated with becoming Year 2000 compliant were
not material. At this time, the Company cannot
determine the impact the Year 2000 will have on its key
customers or suppliers. If the Company's customers or
suppliers don't convert their systems to become Year
2000 compliant, the Company may be adversely impacted.
The Company is addressing these risks in order to
reduce the impact on the Company.
NOTE 2 - DUE FROM RELATED COMPANY
Advances to and from a related company are non-interest
bearing, unsecured and due on demand. The related
company is controlled by one of the stockholders of the
Company.
- 9 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INCOME TAXES
The components of the provision for income taxes is as
follows:
<TABLE>
<S> <C> <C>
June 30, December
31,
2000 1999
Current Tax Expense
U.S. Federal $ - $ -
State and Local - -
Total Current - -
Deferred Tax Expense
U.S. Federal - -
State and Local - -
Total Deferred -
Total Tax Provision from Continuing $ - $ -
Operations
------- --------
Federal Income Taxes Rate 34.0 % 34.0
%
Effect of Valuation Allowance ( )% ( )
34.0 34.0 %
------ -------
Effective Income Tax Rate - -
====== =======
</TABLE>
Deferred tax assets and liabilities reflect the net
effect of temporary differences between the carrying
amount of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Significant components of the Company's deferred tax
assets and liabilities are as follows:
<TABLE>
<S> <C> <C>
Deferred tax assets
Loss carryforwards $ 63,100 $ 17,700
Less: valuation allowance ( ) ( )
63,100 17,700
-------- -------
Net deferred tax assets $ - $ -
======== =======
</TABLE>
The Company has provided a valuation allowance for the
deferred tax asset since management has not been able to
determine whether the asset is realizable.
AK Drilling, with the consent of its shareholder, had
elected under the Internal Revenue Code to be an S
corporation. In lieu of corporation's income taxes, the
shareholders of an S corporation are taxed on their
proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income
taxes has been included in the financial statements for
the periods prior to the acquisition by Global. The S
corporation election has been terminated on that date.
- 10 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - STOCK OPTION PLANS
Under the Stock Plan maintained by the
Company, the Company can grant incentive stock options
and non-qualified stock options to officers, key
employees, consultants and directors of the Company at a
price not less than $0.25 per share.
The maximum number of shares which may be
issued under the plan is 2,000,000.
On January 14, 2000, the Company granted options to
purchase 2,000,000 shares of common stock. 500,000
shares are exercisable at $0.25 per share and 1,500,000
shares are exercisable at $0.50 per share. The options
vested immediately and expire in three years.
Pursuant to APB 25, the Company has recorded
compensation expense of $125,000 during the period ended
June 30, 2000.
A summary of stock option transactions are as follows:
<TABLE>
<S> <C>
Six Months Ended
June 30,
2000
Outstanding, beginning -
Granted at an exercise
price of $0.25 500,000
Granted at an exercise price
of $0.50 per share 1,500,000
---------
Outstanding, ending 2,000,000
=========
Exercisable, ending 2,000,000
=========
</TABLE>
The Company accounts for its stock option
transactions under the provisions of APB No. 25. The
following pro forma information is based on estimating
the fair value of grants based upon the provisions of
SFAS No. 123. The fair value of each option granted
during the periods indicated has been estimated as of
the date of grant using the Black-Scholes option pricing
model with the following assumptions:
<TABLE>
<S> <C>
Risk free interest rate 6.375%
Life of the options 2 years
Expected dividend yield 0%
Expected volatility 0%
Weighted fair value of options $0.12
granted
</TABLE>
- 11 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - STOCK OPTION PLANS (Continued)
Accordingly, the Company's pro forma net loss and net
loss per share assuming compensation cost was
determined under SFAS No. 123 would have been the
following:
<TABLE>
<S> <C>
Net loss $(333,455)
Net loss per basic share
Weighted average option price per
share
Granted $
0.44
Exercised -
Cancelled -
Outstanding at end of period 0.44
Exercisable at end of period 0.44
Weighted average remaining life
of options outstanding 30 months
</TABLE>
NOTE 5 - ACQUISITIONS
During the second quarter of 2000, Global completed the
acquisition of AK Drilling, Inc. and Stothert Group,
Inc. Both acquisitions are recorded using the purchase
method of accounting under the provisions of APB
Opinion No. 16.
On April 6, 2000, the Company completed its acquisition
of AK Drilling, Inc., a company engaged in the contract
drilling for minerals and water. According to the
terms of this acquisition, the Company acquired all of
the capital stock of AK Drilling, Inc. for a total
consideration of $1,150,000 in cash plus 1,000,000
shares of common stock of the Company valued at $0.64
per share (fair value at the acquisition date). At
June 30, 2000, $802,650 of the cash portion of the
purchase price remained unpaid.
On April 26, 2000, the Company completed its
acquisition of Stothert Group, Inc., an engineering
firm. According to the terms of this acquisition, the
Company acquired all of the capital stock of Stothert
Group, Inc. for a total consideration of $814,300 in
cash plus 227,000 shares of common stock of the Company
valued at $0.88 per share (fair value at the
acquisition date). At June 30, 2000, $546,300 of the
cash portion of the purchase price remained unpaid.
The estimated fair value of assets acquired and
liabilities assumed is summarized as follows:
- 12 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - ACQUITISIONS (Continued)
<TABLE>
<S> <C> <C>
AK Stothert
Drilling Group
Cash $(81,018) $36,729
Accounts receivable 436,710 997,265
Inventory 101,432 -
Fixed assets 2,691,344 109,660
Other receivables 5,511 -
Other assets 43,093 117,414
Accounts payable (122,311) (856,816)
Taxes payable (56,352) -
Notes payable (1,230,909) (3,322)
Deferred revenue - (373,533)
Goodwill - 985,642
$1,787,500 $1,013,039
</TABLE>
Goodwill recorded through acquisitions is $985,642 and
is being amortized over five years. Amortization
expense recorded in the statement of operations for the
period ended June 30, 2000 totals $32,855.
The operations of the acquired entities have been
included in the statement of operations from the dates
of acquisition.
Additionally, the Company issued 95,808 shares of
stock, valued at $143,712, to former shareholders of
Stothert to settle accounts payable and accrued
expenses.
Proforma information as if the acquisitions had
occurred at the beginning of the periods presented is
as follows:
<TABLE>
<S> <C> <C> <C>
Six months ended Year ended
June 30, December
31,
2000 1999 1999
Revenue $3,525,63 $4,112,424 $8,061,549
9
Net (loss) income (125,229) 718,894 (550,920)
(Loss) income per share (0.02) 0.13 (0.13)
</TABLE>
- 13 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C> <C>
June 30, December
31,
2000 1999
Drill Rigs $2,448,010 $2,436,77
1
Auto & Trucks 444,744 461,331
Equipment 771,599 436,245
Computer Equipment and 353,607 -
Software
Office Equipment,
Furniture
and Fixtures 309,883 8,254
Office Building 1,735 1,735
4,329,578 3,344,336
Less: Accumulated (1,242,172) (605,534)
Depreciation
Net Property and $3,087,406 $2,738,80
Equipment 2
</TABLE>
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C> <C>
June 30, December
31,
2000 1999
FCB Consolidation $815,193 $896,004
FCB Trucks 49,141 54,963
Center Capital 3 290,809 308,056
Dateline364,850 -
Foremost Line 18,839 -
Security Bank - Truc 7,790 10,353
Security Bank - Truc 10,780 16,307
---------- ----------
Total 1557,402 1,285,683
Current Portion 242,570 291,514
---------- ----------
Long-Term Portion $1,314,832 $994,169
========== ==========
Maturities of long-term debt are
as follows:
2000 $226,031
2001 237,846
2002 247,414
2003 268,855
2004 & Thereafter 305,537
----------
$1,285,683
==========
</TABLE>
- 14 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLDATED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT (Continued)
The Company entered into capital lease agreements with
Center Capital Corporation in connection with the
purchase of drilling rigs. The notes bear interest at
rates ranging from 8.5% to 11.25% per annum and are
payable in monthly installments totaling $170,220 in
1999 and $232,200 in 1998. The loans are secured by
liens on the drilling rigs and other equipment. During
1999, the Company consolidated the capitalized leases
along with other notes so as to lower the interest
rate. The capital lease balance that was consolidated
as of September 30, 1999 was an aggregate amount of
$271,169. The unconsolidated capital lease balance as
of December 31, 1999 was $308,056.
The Company has entered into a capital lease obligation
to Elsing Drilling & Pump Co., Inc. in connection with
the purchase of miscellaneous equipment. The Company
had agreed upon the 60-month capital lease on July 1,
1998. The note bears interest at a rate of 9.5% with
monthly installments of $7,326 per month, including
interest. The balance due as of December 31, 1998 was
$362,521. The note balance of $326,364 as of September
30, 1999 was consolidated in a note with First Citizens
Bank (see below).
The Company was obligated to First Citizens Bank under
a 36-month promissory note dated February 13, 1996 in
the principal amount of $132,257. The note bears
interest at the rate of 9.75% per annum with monthly
payments of $4,467. The balance due as of December 31,
1998 was $8,878. The Company has settled the note as
of the due date of February 13, 1999.
The Company is obligated to Security Bank under a 60-
month promissory note dated April 23, 1996 in the
principal amount of $49,103. The note bears interest
at a fixed rate of 8.75% with monthly payments of
$1,020. The balance due as of December 31, 1999 and
1998 were $16,307 and $26,616.
The Company is obligated to Security Bank under a 60-
month promissory note dated November 7, 1996 in the
principal amount of $24,086. The note bears interest
at a fixed rate of 7.5% with monthly payments of $485.
The balance due as of December 31, 1999 and 1998 were
$10,353 and $15,172.
The Company is obligated to Security Bank under a 60-
month promissory note dated April 15, 1997 in the
principal amount of $31,087. The note bears interest
at a fixed rate of 9.7% with monthly payments of $658.
The balance due as of December 31, 1999 and 1998 were $
-0- and $22,371. The note balance of $18,439 as of
September 30, 1999 was consolidated in a note with
First Citizens Bank (See below).
- 15 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT (Continued)
The Company is obligated to Security Bank under a 62-
month promissory note dated June 17, 1997 in the
principal amount of $400,000. The note bears interest
at a fixed rate of 9.5% with monthly payments of
$8,427. The balance due as of December 31, 1999 and
1998 were $-0- and $317,697. The note balance of
$281,279 as of September 30, 1999 was consolidated in a
note with First Citizens Bank (see below).
The Company is obligated to Western Security under a 48-
month promissory note dated December 30, 1997 in the
principal amount of $25,086. The note bears interest
at a fixed rate of 8.45% with monthly payments of $617.
The balance due as of December 31, 1999 and 1998 was $-
0- and $19,525. The note balance of $13,541 as of
September 30, 1999 was consolidated in a note with
First Citizens Bank (see below).
The Company is obligated to First Citizens Bank under a
60-month promissory note dated January 4, 1999 in the
principal amount of $65,165. The note bears interest
at a fixed rate of 7.75% with monthly payments of
$1,314. The balance due as of December 31, 1999 was
$54,963.
The Company is obligated to First Citizens Bank under a
60-month promissory note dated September 30, 1999 in
the principal amount of $944,030. The note bears
interest at a fixed rate of 8.25% with monthly payments
of $19,253. The balance due as of December 31, 1999
was $896,004. The note was created to consolidate
obligations noted above.
The Company is obligated to Dateline Drilling pursuant
to a capital lease dated May 20, 2000. Terms call for
24 monthly payments of $16,652 commencing May 20, 2000.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operational Leases
AK Drilling rents on-site office and living
quarters on a per-job basis. The terms of the leases
range from a month-to-month to a maximum of a 6-month
lease.
Stothert leases premises under an operating lease which
expires in 2005. The aggregate minimum annual rental payments
over the next five years are CAD $252,000 per annum.
Stothert has issued standby letters of credit totaling $239,600
relating to contracts that are already completed or will be
completed in 2000. These standby letters of credit will
reduce to $211,800 on June 30, 2000 and will expire on December 31,
2002.
Stothert is currently involved in a dispute with a
customer regarding the provision of services. The
dispute is being handled by Stothert's professional
liability insurers. Negotiations are in progress to
settle the claim within the insurance policy limits.
- 16 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INVESTMENTS
Stothert invested CAD $160,000 in 160,000 non-voting preferred
shares of Lakes Ranch Ltd. on August 30, 1996. Lakes Ranch Ltd.
is owned and controlled by a shareholder of the Company.
Global exercised an option to acquire 28% of Sharpshooter Resources,
Inc., from a shareholder, on January 11, 2000. This acquisition has
been valued at the shareholder's historical cost basis of $225,000.
Due to the uncertainty of the recoverability of this investment, it
has been fully impaired at June 30, 2000.
NOTE 10 - GEOGRAPHIC AREAS AND INDUSTRY SEGMENTS
The Company currently operates in two principal
segments, engineering services and contract drilling.
The Company's foreign operations are conducted by
Global and Stothert.
For the period ended June 30, 2000:
<TABLE>
<S> <C>
Revenues from external customers
Drilling $847,853
Engineering 796,300
----------
$1,644,153
===========
Interest expense:
Drilling $28,367
Engineering -
---------
$28,367
=========
Depreciation and amortization:
Drilling $41,250
Engineering 5,252
---------
$46,502
=========
Segment profit (loss) before taxes:
Drilling $90,155
Engineering 128,361
Corporate (606,394)
----------
$(387,878)
==========
Segment assets:
Drilling $3,494,199
Engineering 2,111,165
Corporate 62,694
----------
$5,668,058
==========
</TABLE>
- 17 -
GLOBAL INDUSTRIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - GEOGRAPHIC AREAS AND INDUSTRY SEGMENTS
The following geographic area data for trade revenues
is based on product or service delivery location and
property, plant, and equipment is based on physical
location.
<TABLE>
<S> <C>
Revenues from external
customers:
United States $847,853
Canada 796,300
$1,644,153
Segment assets:
United States $3,494,199
Canada 2,173,859
$5,668,058
</TABLE>
- 18 -
AK DRILLING, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
AK DRILLING, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
INDEX
INDEPENDENT AUDITOR'S REPORT 1
BALANCE SHEET 2
STATEMENT OF OPERATIONS 3
STATEMENT OF STOCKHOLDERS' EQUITY 4
STATEMENT OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-11
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
AK DRILLING, INC.
We have audited the accompanying balance sheets of AK DRILLING,
INC. as of December 31, 1999 and 1998 and the related statements
of income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our 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 AK
DRILLING, INC. as of December 31, 1999 and 1998 and the results of
its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
July 12, 2000
AK DRILLING, INC.
BALANCE SHEET
<TABLE>
<S>
<C> <C>
December 31, December 31,
1999 1998
ASSETS
CURRENT ASSETS
Accounts receivable, net of $407,173 $91,310
allowances for doubtful accounts
of $70,465 and $40,316
Inventory 42,281 6,800
Total Current Assets 449,454 98,110
PROPERTY AND EQUIPMENT, less 2,738,802 2,264,073
accumulated depreciation of
$605,534 and $374,870
Other Assets 14,960
-
TOTAL ASSETS $ 3,203,216 $ 2,362,183
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Cash overdraft 167,435 20,188
Accounts payable and accrued 136,149 63,555
expenses
Notes payable - bank 17,507 26,058
Current portion of long-term debt 291,514 451,104
Total Current Liabilities 612,605 560,905
Long-term debt 994,169 730,673
Total Liabilities 1,606,774 1,291,578
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Common stock, no par value 10,000 10,000
Retained earnings 1,586,442 1,060,605
Total Stockholders' Equity 1,596,442 1,070,605
TOTAL LIABILITIES AND $ 3,203,216 $ 2,362,183
STOCKHOLDERS' EQUITY
</TABLE>
The Accompanying Notes are an Integral Part of the Financial
Statements.
- 2 -
AK DRILLING, INC.
STATEMENT OF INCOME
FOR THE YEARS ENDED
<TABLE>
<S>
<C> <C>
December 31, December 31,
1999 1998
REVENUES
Mineral drilling $3,893,927 $3,382,612
Water drilling 443,603 -
Total Revenue 4,337,530 3,382,612
COST OF SALES
Supplies and general 1,216,069 984,856
expenses
Direct labor 1,087,730 838,362
Depreciation and 229,676 168,767
amortization
Total Cost of Sales 2,533,475 1,991,985
GROSS PROFIT 1,804,055 1,390,627
EXPENSES
General and administrative 619,875 674,527
expenses
Repairs and maintenance 296,710 182,440
Depreciation and 1,984 4,295
amortization
Total Expense 918,569 861,262
INCOME FROM OPERATIONS 885,486 529,365
BEFORE OTHER INCOME
(EXPENSE) AND PROVISION
FOR INCOME TAXES
OTHER INCOME (EXPENSE)
Interest expense (128,194) (116,916)
Other 8,750 (975)
Total Other Income (119,444) (117,891)
(expense)
INCOME BEFORE PROVISION 766,042 411,474
FOR INCOME TAXES
PROVISION FOR INCOME TAXES - -
NET INCOME $766,042 $411,474
</TABLE>
The Accompanying Notes are an Integral Part of the Financial
Statements.
- 3 -
AK DRILLING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Common Retained Distribution Total
Shares Amount Earnings to Stockholders'
Shareholders Equity
Balance at December 10,000 $10,000 $769,964 ($35,000) $744,964
31, 1997
Net loss for the 411,474 411,474
year
Distributions to (85,833) (85,833)
stockholders
Balance at December 10,000 10,000 1,181,438 (120,833) 1,070,605
31, 1998
Net loss for the 766,042 766,042
year
Distributions to (240,205) (240,205)
stockholders
Balance 31, 1999 10,000 10,000 $1,947,480 (361,038) 1,596,442
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
- 4 -
AK DRILLING, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
<TABLE>
<S>
<C> <C>
December31,1999 December31,1998
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $766,042 $411,484
Adjustments to reconcile net
income to net Cash provided by
operating activities:
Depreciation, depletion and 231,660 173,062
amortization
Bad debt 31,020 40,315
(Increase) decrease in (346,013) 35,049
receivables
(Increase) decrease in inventory (35,481) 98,000
(Increase) in other assets (17,017) 9,307
Increase in accounts payable and 72,594 19,707
accrued expenses
Net cash provided by operating 702,805 786,924
activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property and (705,393) (565,479)
equipment
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase (decrease) in cash 147,247 (39,026)
overdraft
Proceeds from borrowings 104,096 258,859
Distributions to stockholders (240,205) (85,833)
Repayment of debt (8,550) (355,445)
Net cash provided by financing 2,588 (221,445)
activities
Net increase (decrease) in cash - -
and cash equivalents
CASH AND CASH EQUIVALENTS - - -
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS - END - -
OF PERIOD
CASH PAID DURING THE PERIOD FOR:
Interest Expense $114,297 $111,070
Income Taxes $- $-
</TABLE>
The Accompanying Notes are an Integral Part of the Financial
Statements.
- 5 -
AK DRILLING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
AK Drilling, Inc. (the "Company") was incorporated
under the laws of Montana in December 20, 1995. The
Company operates primarily in mineral exploration and
water drilling. The Company conduct business in
Colorado, Utah and Nevada. The corporate office is
situated in Montana
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.
Cash and Cash Equivalents
Cash and
Cash Equivalents include cash in banks and other cash equivalents which
mature within three months of the date of purchase.
Inventory
Inventory
is stated at the lower of cost or market. Cost is determined on a first-
in, first-out basis.
Inventory
consists of piping and drilling supplies in the amount of $42,281 and
$6,800 in December 31, 1999 and 1998, respectively.
Revenue Recognition
The
Company records revenue as services are performed. Contract revenue is
recognized using the percentage of completion method.
Depreciation and Amortization
Property
and equipment are stated at cost and are depreciated using the straight-
line method over their estimated useful lives. Drilling equipment is
depreciated over 10-15 years. Office equipment is depreciated over 5
years.
The costs
of maintenance and repairs are charged to expense when incurred; costs of
renewals and betterments are capitalized. Upon the sales or retirement of
property and equipment, the cost and related accumulated depreciation are
eliminated from the respective accounts and the resulting gain or loss is
included in operations.
- 6-
AK DRILLING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
The
Company's financial instruments consist of cash, accounts receivable,
accounts payable and long-term debt. The carrying amounts of cash,
accounts receivable and accounts payable approximate fair value due to the
highly liquid nature of these short term instruments. The fair value of
long-term borrowings was determined based upon interest rates currently
available to the Company for borrowings with similar terms. The fair value
of long-term debt approximates the carrying amounts as of December 31, 1999
and 1998.
Long-Lived Assets
Long-lived
assets to be held and used are reviewed for impairment whenever events or
changes in circumstances indicate that the related carrying amount may not
be recoverable. When required, impairment losses on assets to be held and
used are recognized based on the fair value of the assets and long-lived
assets to be disposed of are reported at the lower of carrying amount of
fair value less cost to sell.
S Corporation-Income Tax Status
The Company, with the consent of its shareholder, has
elected under the Internal Revenue Code to be an S
corporation. In lieu of corporation income taxes, the
shareholders of an S corporation are taxed on their
proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income
taxes has been included in the financial statements.
Concentration of Credit Risk
The
Company places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances may exceed FDIC insured levels at
various times during the year.
NOTE 2 - CONCENTRATIONS
The Company derives approximately 80% of its mineral
drilling revenue from one customer. The Company also
purchases greater than 60% of its supplies and
equipment from two vendors.
- 7 -
AK DRILLING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C> <C>
December December
31, 1999 31, 1998
Drill Rigs $2,436,771 $2,067,921
Auto & Trucks 461,331 368,044
Equipment 436,245 192,989
Office Equipment 8,254 8,254
Office Building 1,735 1,735
----- -----
3,344,336 2,638,943
Less: Accumulated (605,534) (374,870)
Depreciation
Net Property and $2,738,802 $2,264,073
Equipment
</TABLE>
NOTE 4 - NOTES PAYABLE - BANKS
Notes payable - banks - consist of the following at:
<TABLE>
<S> <C> <C>
December 31, December 31,
1999 1998
Security Bank $- $4,945
Foremost 8,843 -
First Citizens Bank 8,664 21,113
$17,507 $26,058
</TABLE>
The Company has a $49,103 line-of-credit with Security Bank
that is to expire May 7, 2001. Interest is due monthly at a rate
of 2% over the prime rate (effective rate of 10.5% at December
31, 1999). Advances drawn under this line as of December 31,
1999 and 1998 were $ 0 and $4,945. The line of credit is secured
by the equipment of the Company.
The Company has a line of credit with Foremost, the
Company's major parts supplier. The vendor extends the
Company's credit line as needed.
The Company has a $100,050 line-of-credit with First
Citizens Bank. The line-of-credit was set to expire
August 18, 1999 and has since been extended through
August 18, 2000. Interest is due monthly at a fixed
rate of 9.25%. Advances drawn under this line as of
December 31, 1999 and 1998 were $8,664 and $21,113.
The line of credit is secured by all unsecured
inventory, accounts receivable and equipment.
- 8 -
AK DRILLING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C> <C>
December December
31, 1999 31, 1998
FCB Consolidation $896,004 $-
FCB Trucks 54,963 -
Center Capital 1 - 159,500
Center Capital 2 - 243,090
Center Capital 3 308,056 -
Elsing - 362,521
FCB 1 - 8,878
FCB 3 - 6,407
Security Bank - Intl - 22,371
Security Bank - Rig - 317,697
Security Bank - Truc 10,353 15,172
Security Bank - Truc 16,307 26,616
Western Security - D - 19,525
Total 1,285,683 1,181,777
Current Portion 291,514 451,104
Long-Term Portion $994,169 $730,673
Maturities of long-term debt
are as follows:
2000 $226,031
2001 237,846
2002 247,414
2003 268,855
2004 & Thereafter 305,537
$1,285,683
</TABLE>
The Company entered into capital lease agreements with
Center Capital Corporation in connection with the
purchase of drilling rigs. The notes bear interest at
rates ranging from 8.5% to 11.25% per annum and are
payable in monthly installments totaling $170,220 in
1999 and $232,200 in 1998. The loans are secured by
liens on the drilling rigs and other equipment. During
1999, the Company consolidated the capitalized leases
along with other notes so as to lower the interest
rate. The capital lease balance that was consolidated
as of September 30, 1999 was an aggregate amount of
$271,169. The unconsolidated capital lease balance as
of December 31, 1999 was $308,056.
- 9 -
AK DRILLING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - LONG-TERM DEBT (Continued)
The Company has entered into a capital lease obligation
to Elsing Drilling & Pump Co., Inc. in connection with
the purchase of miscellaneous equipment. The Company
had agreed upon the 60-month capital lease on July 1,
1998. The note bears interest at a rate of 9.5% with
monthly installments of $7,326 per month, including
interest. The balance due as of December 31, 1998 was
$362,521. The note balance of $326,364 as of September
30, 1999 was consolidated in a note with First Citizens
Bank (see below).
The Company was obligated to First Citizens Bank under
a 36-month promissory note dated February 13, 1996 in
the principal amount of $132,257. The note bears
interest at the rate of 9.75% per annum with monthly
payments of $4,467. The balance due as of December 31,
1998 was $8,878. The Company has settled the note as
of the due date of February 13, 1999.
The Company is obligated to Security Bank under a 60-
month promissory note dated April 23, 1996 in the
principal amount of $49,103. The note bears interest
at a fixed rate of 8.75% with monthly payments of
$1,020. The balance due as of December 31, 1999 and
1998 were $16,307 and $26,616.
The Company is obligated to Security Bank under a 60-
month promissory note dated November 7, 1996 in the
principal amount of $24,086. The note bears interest
at a fixed rate of 7.5% with monthly payments of $485.
The balance due as of December 31, 1999 and 1998 were
$10,353 and $15,172.
The Company is obligated to Security Bank under a 60-
month promissory note dated April 15, 1997 in the
principal amount of $31,087. The note bears interest
at a fixed rate of 9.7% with monthly payments of $658.
The balance due as of December 31, 1999 and 1998 were $
-0- and $22,371. The note balance of $18,439 as of
September 30, 1999 was consolidated in a note with
First Citizens Bank (See below).
The Company is obligated to Security Bank under a 62-
month promissory note dated June 17, 1997 in the
principal amount of $400,000. The note bears interest
at a fixed rate of 9.5% with monthly payments of
$8,427. The balance due as of December 31, 1999 and
1998 were $-0- and $317,697. The note balance of
$281,279 as of September 30, 1999 was consolidated in a
note with First Citizens Bank (see below).
The Company is obligated to Western Security under a 48-
month promissory note dated December 30, 1997 in the
principal amount of $25,086. The note bears interest
at a fixed rate of 8.45% with monthly payments of $617.
The balance due as of December 31, 1999 and 1998 was $-
0- and $19,525. The note balance of $13,541 as of
September 30, 1999 was consolidated in a note with
First Citizens Bank (see below).
- 10 -
NOTE 5 - LONG-TERM DEBT (Continued)
The Company is obligated to First Citizens Bank under a
60-month promissory note dated January 4, 1999 in the
principal amount of $65,165. The note bears interest
at a fixed rate of 7.75% with monthly payments of
$1,314. The balance due as of December 31, 1999 was
$54,963.
The Company is obligated to First Citizens Bank under a
60-month promissory note dated September 30, 1999 in
the principal amount of $944,030. The note bears
interest at a fixed rate of 8.25% with monthly payments
of $19,253. The balance due as of December 31, 1999
was $896,004. The note was created to consolidate
obligations noted above.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Operational Leases
The Company rents on-site office and living
quarters on a per-job basis. The terms of the leases
range from a month-to-month to a maximum of a 6-month
lease.
NOTE 7 - SUBSEQUENT EVENTS
Since the beginning of the year, the Company is
currently under negotiations with Global Industrial
Services ("Global"). Global is planning to acquire AK
Drilling in a stock purchase. In mid-March, a
tentative agreement had been reached, but is pursuant
to Global fulfilling its financing needs.
- 11 -
STOTHERT GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
STOTHERT GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
INDEX
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED BALANCE SHEETS 2-3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-12
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
STOTHERT GROUP INC.
We have audited the accompanying consolidated balance sheets of
STOTHERT GROUP INC. as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of STOTHERT GROUP INC. as of December 31, 1999
and 1998, and the consolidated results of its operations and its
cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 11 to the financial statements, the Company has suffered
recurring losses from operations and its limited capital
resources raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these
matters are also described in Note 11. The financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
June 23, 2000
STOTHERT GROUP INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
December December
31, 1999 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $147,244 $ -
Accounts receivable 910,424 2,607,182
Work in process - 232,873
Prepaid expenses and other current 8,716 25,268
assets
Total Current Assets 1,066,384 2,865,323
Property and equipment, at cost, 117,639 132,978
net of accumulated Depreciation
of $552,249 and $481,235
Investment, at cost 110,858 104,541
TOTAL ASSETS $1,294,881 $3,102,842
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
- 2 -
STOTHERT GROUP INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
December December
31, 1999 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $- $ 211,071
Accounts payable and accrued expenses 778,048 1,168,813
Due to related company 146,958 185,040
Deferred revenue 35,634 74,355
Loan payable 277,143 280,954
TOTAL LIABILITIES 1,237,783 1,920,233
Commitments and Contingencies - -
STOCKHOLDERS' EQUITY
Preferred stock - CAD $.001 par value, 770 770
Authorized 8,000,000 shares; 1,100,000
issued and outstanding
Common Stock - Class A CAD $0.001 par 980 980
value, Authorized 5,000,000 shares;
1,400,000 issued and outstanding
Common Stock - Class B CAD $.001 par
value,
Authorized 5,000,000 shares; 1,680,000 1,176 1,176
issued and outstanding
Additional paid-in capital 1,222 1,222
Retained earnings 453,978 1,573,812
Cumulative foreign currency translation ( 63,996) ( 100,472)
adjustment
394,130 1,477,488
Less: Common stock of parent company (337,032) (294,879)
held by subsidiary
Total Stockholders' Equity 57,098 1,182,609
TOTAL LIABILITIES AND STOCKHOLDERS' $ 1,294,881 $ 3,102,842
EQUITY
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
- 3 -
STOTHERT GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
Year Ended Year Ended
December 31, December 31,
1999 1998
NET SALES $3,724,019 $3,377,102
COST OF SALES 3,216,040 2,723,356
GROSS PROFIT 507,979 653,746
GENERAL AND ADMINISTRATIVE EXPENSE 1,627,813 663,805
Net loss $(1,119,834) $(10,059)
COMMON SHARES
Basic 3,080,000 3,080,000
Diluted 3,080,000 3,080,000
NET LOSS PER COMMON SHARE
Basic $(.36) $(.0032)
Diluted $(.36) $(.0032)
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
- 4 -
STOTHERT GROUP INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
<TABLE>
<S> <C> <C>
Year Ended Year Ended
December 31, December 31,
1999 1998
Net Loss ($1,119,834) ($10,059)
Foreign Currency Translation (63,996) (100,472)
Adjustment
Comprehensive Loss ($1,183,830) ($110,531)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
- 5 -
STOTHERT GROUP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Preferred Preferred Common A Common A Common B Common B
Shares Amount Shares Amount Shares Amount
Balance, December 31, 1997 1,100,000 $770 1,400,000 $980 1,680,000 $1,176
Net Loss for the year
Cumulative foreign currency
adjustment
Common stock of parent held
by subsidiary
Balance at December 31, 1998 1,100,000 $770 1,400,000 $980 1,680,000 $1,176
Net Loss for the year
Cumulative foreign currency
adjustment
Common stock of parent held
by subsidiary
Balance at December 31, 1999 1,100,000 $770 1,400,000 $980 1,680,000 $1,176
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional Retained Foreign Shares Held Total
Paid-In Earnings Currency by Subsidiary Shareholders'
Capital Adjustment Equity
Balance, December 31, 1997 $1,222 $1,583,871 $ $(84,054) $1,503,965
Net Loss for the year (10,059) (10,059)
Cumulative foreign currency (100,472) (100,472)
adjustment
Common stock of parent held (210,825) (210,825)
by subsidiary
_______ __________ ____________ _____________ _____________
Balance at December 31, 1998 $1,222 $1,573,812 $(100,472) $(294,879) $1,182,609
Net Loss for the year $(1,119,834) (1,119,834)
Cumulative foreign currency 36,476 36,476
adjustment
Common stock of parent held (42,153) (42,153)
by subsidiary
_______ __________ ____________ _____________ _____________
Balance at December 31, 1999 $1,222 $453,978 $(63,996) $(337,032) $57,098
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
- 6 -
STOTHERT GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C>
Year Ended Year Ended
December 31, December 31,
1999 1998
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(1,119,834) $( 10,059)
Adjustments to reconcile net
income loss:
Depreciation and amortization 40,739 52,266
Changes in certain assets and
liabilities:
Decrease in accounts receivable 2,264,733 ( 424,941)
Decrease in work in process ( 217,500) ( 226,779)
Decrease in prepaid expenses 17,615 27,420
Decrease in accounts payable ( 422,926) 592,460
Decrease in accrual liabilities ( 27,774) 115,720
Decrease in due to related ( 48,250) 191,005
parties
Decrease in deferred revenue ( 42,137) (407,015)
Net Cash Provided (Used) by 444,666 (89,923)
Operating Activities
CASH FLOWS FROM INVESTMENT
ACTIVITIES:
Net change of shares held by ( 42,153) ( 210,825)
subsidiary
Addition to fixed assets ( 18,072)
-
Net cash used by investment ( 42,153) ( 228,897)
activities
CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase (decrease) in cash ( 211,071) 211,071
deficit
Loan Payable ( 20,796) 80,533
Net cash provided (used) by ( 231,867) 291,604
financing activities
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH ( 23,401) ( 61,302)
NET INCREASE IN CASH AND CASH 147,245 ( 88,518)
EQUIVALENTS
CASH AND CASH EQUIVALENTS - 88,518
BEGINNING OF YEAR -
CASH AND CASH EQUIVALENTS - END $ 147,244 $ -
OF YEAR
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
- 7 -
STOTHERT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying
consolidated financial statements include the accounts of STOTHERT GROUP INC.
("The Company"), a holding company organized under the laws of British
Columbia on August 22, 1966 and its subsidiaries.
Stothert Management Ltd. (SML)
Stothert Engineering Ltd. (SEL)
Mutual Forest Industries Ltd. (MFI)
Stothert Schultz International Inc. (SSI)
Stothert Power Corp.
J.R. Lewis & Associates Ltd. (JRL)
988650 Enterprises Ltd.
All significant intercompany
accounts and transactions have been eliminated in consolidation.
b) Line of Business
The Company provides engineering,
construction and project management services for the pulp and paper industry
with particular focus on recausticizing plants and lime kilns. The Company
provides a full range of services including feasibility studies, detailed
engineering, due diligence, mill audits, project management services, turnkey
supply and construction, operations and training services, and project
financing.
c) 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.
d) Cash and Cash Equivalents
The Company considers all highly
liquid investments purchased with original maturities of three months or less
to be cash equivalents.
e) Property and Equipment
Property and equipment is stated
at cost. Depreciation is computed using the declining balance basis at the
following annual rates.
Useful Life
Furniture and equipment 20% - 30% 7 years
Computer software and hardware 50% 3-5 years
Maintenance and repairs are
charged to expense as incurred.
- 8 -
STOTHERT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f) Revenue Recognititon
Revenue is recognized as services
are performed. Billings to customers in advance of services performed are
credited to deferred revenue.
g) Bank Overdraft
The Company maintains overdraft
positions at certain banks. Such overdraft positions are included in current
liabilities.
h) Translation of Foreign Currency
The Company translates the
foreign currency financial statements of its Canadian subsidiaries, in
accordance with the requirements of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation". Assets and liabilities are
translated at current exchange rates, and related revenues and expenses are
translated at average exchange rates in effect during the period. Resulting
translation adjustments are recorded as a separate component in stockholders'
equity. Foreign currency transaction gains and losses are included in the
statement of operations.
i) Income Taxes
Income taxes are provided for
based on the liability method of accounting pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". The
liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the reported amount of assets and liabilities and their tax basis.
j) Fair Value of Financial Instruments
The carrying value of cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses,
advances from related parties and loans payable approximates fair value due to
the relatively short maturity of these instruments.
k) Earnings Per Share
The computation of basic earnings
per share is computed by dividing income available to common stockholders by
the weighted average number of outstanding common shares during the period.
Diluted earnings per share gives effect to all dilutive potential common
shares outstanding during the period. The computation of diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would
have an anti-dilutive effect on earnings.
l) Comprehensive Income
The Company has adopted Statement
of Financial Accounting Standard No. 130, "Reporting Comprehensive Income"
("FAS 130"). FAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements.
- 9 -
STOTHERT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
m) Long-lived Assets
Long-lived assets to be held and
used are reviewed for impairment whenever events or changes in circumstances
indicate that the related carrying amount may not be recoverable. When
required, impairment losses on assets to be held and used are recognized based
on the fair value of the assets and long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less cost to sell.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<S> <C> <C>
December 31, December 31,
1999 1998
Computer Equipment & Software $353,219 $317,176
Furniture and Fixtures
316,669 297,037
------- -------
669,888 614,213
Less: Accumulated Depreciation
552,249 481,235
$117,639 $132,978
</TABLE>
Depreciation expense for the year
ended December 31, 1999 and 1998 was $40,739 and $52,266, respectively.
NOTE 3 - BANK INDEBTEDNESS
The Company has drawn CAD
$400,000 and CAD $430,000 in 1999 and 1998, respectively, from its operating
lines of credit. The loans are repayable on demand, secured by accounts
receivable, general assignment of book debts and bears interest at the bank's
prime lending rate plus 2% (1998 - prime plus 1%) per annum. The Company is
in default under provision of the credit which requires a minimum level of
shareholders funds. The bank called the loan and payment in full was made on
May 15, 2000.
NOTE 4 - FOREIGN OPERATIONS
Substantially all of the
Company's operations take place throughout Canada, and the majority of its
identifiable assets are in Canada.
NOTE 5 - INVESTMENT
The Company invested CAD $160,000
in 160,000 non-voting preferred shares of Lakes Ranch Ltd. on August 30, 1996.
Lakes Ranch Ltd. is owned and controlled by a majority shareholder of the
Company.
- 10 -
STOTHERT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 6 - INCOME TAXES
At December 31, 1999 and 1998, the Company had net
carryforward losses of approximately CAD $4,721,511 and
CAD $2,842,250, respectively. The full realization of
the tax benefit associated with the carryforward
depends predominantly upon the Company's ability to
generate taxable income during the carryforward period.
The Company has tax
losses carried forward available for application against respective companies'
future years' taxable incomes expiring at various dates up to and including
2006. The potential benefits of these losses have not been recorded in these
financial statements.
For the year ended
December 31, 1998, the Company utilized CAD $545,000 of tax loss carried
forward which eliminated current taxes that would have otherwise been payable
in the amount of CAD $202,000.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a) The Company leases
premises under an operating lease which expires in 2005. The aggregate minimum
annual rental payments over the next five years are CAD $252,000 per annum.
b) The Company has issued standby letters of credit totaling
$239,600 relating to contracts that are already completed or will
be completed in 2000. These standby letters of credit will
reduce to $211,800 on June 30, 2000 and will expire on December
31, 2002.
c) The Company is currently involved in a
dispute with a customer regarding the provision of services. The
dispute is being handled by the Company's professional liability
insurers. Negotiations are in progress to settle the claim
within the insurance policy limits.
NOTE 8 - STOCKHOLDERS' EQUITY
Authorized
8,000,000 non-cumulative preferred shares of CAD $0.001 each
redeemable at par
5,000,000 Class A voting common stock of CAD $0.001 each
5,000,000 Class B non-voting common shares of CAD $0.001 each
<TABLE>
<S> <C> <C>
1999 1998
Issued
1,100,000 preferred shares $770 $770
1,400,000 Class A common shares 980 980
1,680,000 Class B common shares 1,176 1,176
$2,926 $2,926
</TABLE>
- 11 -
STOTHERT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company
provided services in the amount of $243,935 and $1,050,137 in 1999 and
1998, respectively, to companies under common control. The total amount
receivable from the related parties was $-0- and $1,744,846 at December 31,
1999 and 1998, respectively. Accounts receivable from a related party in
the amount of $753,938 and $-0- in 1999 and 1998, respectively, was charged
to bad debt expense.
Interest
expense on amounts due to shareholders and related party amounted $59,210
and $25,389 in 1999 and 1998, respectively.
NOTE 10 - BAD DEBT - RELATED PARTY
The bad debt
expense referred to in Note 9 resulted from an entity owned by the
government of British Columbia withdrawing from a joint project with the
related party. The Company has commenced litigation against the
governmental entity and believes that it has a reasonable chance of
recovering a substantial amount; however, no provision for this litigation
has been recorded in the financial statements.
NOTE 11 - GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As of December 31, 1999, the
Company has incurred operating losses for the past two years and has a
working capital deficit of $171,399. Based upon the Company's plan of
operation, the Company estimates that existing resources, together with
funds generated from operations will not be sufficient to fund the
Company's working capital. The Company has been acquired by a publicly-
traded company. The new parent is anticipating raising funds through
equity offerings to fund the Company's operations. There can be no
assurances that sufficient funds will be available on terms acceptable to
the parent or at all. If the company is unable to obtain such funds, the
Company will be forced to scale back operations, which would have an
adverse effect on the Company's financial condition and results of
operations.
NOTE 12 - SUBSEQUENT EVENTS
On April 28,
2000, the shareholders of the Company agreed to tender the shares to Global
Industrial Services, Inc.
- 12 -
EXHIBITS
10.1 Agreement and Plan of Reorganization
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized.
Global Industrial Services, Inc.
By: /s/ ____________________
Terry Kirby, President
Date: ____________, 2000
