SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
Current Report Pursuant to Section 13 OR 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) May 31, 1996
Commission File No. 0-27958
FLANDERS CORPORATION
North Carolina 0-27958 13-3368271
(State of incorporation.) Commission File Number (IRS Employer
Identification Number)
531 Flanders Filters Road
Washington, North Carolina 27889
(Address, including zip code, of principal executive offices)
Registrant's telephone number, including area code: (919) 946-8081
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 31, 1996, Flanders Corporation (the "Company") completed the acquisition
of all of the outstanding capital stock of Charcoal Service Corporation, a North
Carolina Corporation ("CSC"), along with certain land and buildings formerly
owned by the shareholders of CSC, pursuant to a stock purchase agreement dated
March 22, 1996, as amended. The acquisition was effective as of June 1, 1996.
The purchase price for CSC was U.S. $4,435,690, subject to a post-closing
purchase price adjustment (the "Purchase Price"), and was paid in cash. The
post-closing purchase price adjustment consisted of 100,000 shares of the
Company's common stock, to be issued and held in escrow as a valuation
allowance, pending the realized value of future cash flows. The Company also
capitalized $143,474 of offering expenses, consisting of legal fees,
professional fees and other miscellaneous offering-related expenses. The
acquisition by the Company of CSC has been accounted for by the Company as a
purchase.
CSC is a highly focused company specializing in "containment" air filtration
systems and services. Containment systems are high quality, high efficiency
systems used to filter and contain dangerous particulate and/or gaseous
contaminants. CSC designs, manufactures, tests and installs custom and
off-the-shelf containment filtration systems, frequently as a single-source
supplier. As a single source supplier, CSC is responsible for each compoment in
the system and can therefore guarantee a reliable, efficient system. CSC also
refills or replaces spent media both on site and at its main facility, where
appropriate. CSC's offices are located at its 44,282 square foot manufacturing
facility in Bath, North Carolina. The Company plans to continue operating CSC as
a subsidiary at its current location.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of business acquired
Financial statements at February 29, 1996, April 30, 1995 and April 30,
1994:
Independent Auditor's Report
Balance sheets
Statements of income
Statements of retained earnings
Statements of cash flows
Notes to financial statements
Unaudited financial statements at June 30, 1996:
Balance sheet at June 30, 1996
Statement of income for the four months ended June 30, 1996
Statement of cash flows for the four months ended June 30, 1996
(b) Pro Forma Financial Information:
Unaudited pro forma statement of income for year ended December 31, 1995
Unaudited pro forma statement of income for six months ended June 30, 1996
Unaudited pro forma balance sheet at June 30, 1996
(c) Exhibits
Exhibit 2.1 Stock Purchase Agreement dated March 22, 1996, by and
between Flanders Corporation and the Shareholders of
Charcoal Service Corporation Previously Filed
Exhibit 5.1 Consent of McGladrey & Pullen, L.L.P.
Page 2
<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.
FLANDERS CORPORATION
By: /s/ Steven K. Clark
Its: Chief Financial Officer
Page 3
<PAGE>
CHARCOAL SERVICE CORPORATION
FINANCIAL REPORT
FEBRUARY 29,1996,
APRIL 30,1995 and APRIL 30,1994
<PAGE>
CHARCOAL SERVICE CORPORATION
OFFICERS
James R. Edwards
President
John Cherry
Vice President
Pam Butler Karen Waters
Secretary Treasurer
CONTENTS
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income 3
Statements of retained earnings 4
Statements of cash flows 5 - 6
Notes to financial statements 7 - 12
<PAGE>
MCGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Charcoal Service Corporation
Bath, North Carolina
We have audited the accompanying balance sheets of Charcoal Service Corporation
as of February 29, 1996, April 30, 1995 and April 30, 1994, and the related
statements of income, retained earnings, and cash flows for the ten months ended
February 29, 1996 and for each of the two years in the period ended April 30,
1995. 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 Charcoal Service Corporation as
of February 29, 1996, April 30, 1995 and April 30, 1994, and the results of its
operations and its cash flows for the ten months ended February 29, 1996 and for
each of the two years in the period ended April 30, 1995, in conformity with
generally accepted accounting principles.
/s/ McGladrey & Pullen, L.L.P.
New Bern, North Carolina
March 25, 1996, except for the first
paragraph of Note 15, as to which the
date is June 1, 1996, and the second
paragraph of Note 15, as to which the
date is July 24, 1996.
1
<PAGE>
CHARCOAL SERVICE CORPORATION
BALANCE SHEETS
February 29, 1996 and April 30, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 92,470 $ 172,582 $ 551,551
Receivables:
Trade (Note 4) 706,630 632,805 634,720
Other 21,067 12,557 92,329
Notes receivable, stockholders (Note 11) 435,689 298,875 -
Inventories (Note 2) 1,518,834 1,449,558 1,219,452
Deferred income taxes (Note 7) 19,324 30,562 15,932
Income tax refund claim 8,647 5,443 -
Prepaid expenses 15,665 2,464 4,013
------------- ------------- -------------
Total current assets 2,818,326 2,604,846 2,517,997
Notes receivable, stockholders (Note 11) - - 320,903
Leasehold improvements and equipment, net (Note 3) 770,812 483,232 588,926
------------- ------------- -------------
$ 3,589,138 $ 3,088,078 $ 3,427,826
============= ============= =============
LIABILITIES AND STOCKHOLDERS'EQUITY
- ---------------------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt $ - $ - $ 63,000
Accounts payable (Note 5) 588,078 116,731 258,238
Accrued expenses (Note 6) 112,938 137,090 134,138
Income taxes payable - - 3,984
------------- ------------- -------------
Total current liabilities 701,016 253,821 459,360
------------- ------------- -------------
Long-Term Debt, less current maturities - - 131,250
------------- ------------- -------------
Deferred income taxes (Note 7) 74,324 72,138 88,014
------------- ------------- -------------
Commitments (Notes 4, 8 and 12)
Stockholders' Equity (Notes 8 and I 1)
Common stock, $1 par value; authorized 100,000
shares; issued 1,000 shares 1,000 1,000 1,000
Retained earnings 2,812,798 2,761,119 2,748,202
------------- ------------- -------------
2,813,798 2,762,119 2,749,202
------------- ------------- -------------
$ 3,589,138 $ 3,088,078 $ 3,427,826
============= ============= =============
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
CHARCOAL SERVICE CORPORATION
STATEMENTS OF INCOME
Ten Months Ended February 29, 1996 and Years Ended April 30, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 4,098,879 $ 3,761,628 $ 4,608,206
Cost of Goods Sold (Notes 9, 10, 11 and 12) 2,684,682 2,334,854 2,926,831
------------- ------------- -------------
Gross profit 1,414,197 1,426,774 1,681,375
Selling, general and administrative expenses
(Notes 9, 10, 11 and 12) 1,420,231 1,481,317 1,630,302
Operating income (loss) (6,034) (54,543) 51,073
Nonoperating income (expenses):
Interest income (Note 11) 25,788 35,265 26,433
Other income 70,626 52,079 12,618
Interest expense (6,504) (13,833) (18,450)
Involuntary conversion gain (Note 14) - - 167,697
------------- ------------- -------------
Income before income taxes 83,876 18,968 239,371
Federal and state income taxes (Note 7) 32,197 6,051 66,612
------------- ------------- -------------
Net income $ 51,679 $ 12,917 $ 172,759
============= ============= =============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
CHARCOAL SERVICE CORPORATION
STATEMENTS OF RETAINED EARNINGS
Ten Months Ended February 29, 1996 and Years Ended April 30, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning $ 2,761,119 $ 2,748,202 $ 2,575,443
Net income 51,679 12,917 172,759
------------- ------------- -------------
Balance, ending $ 2,812.798 $ 2,761,119 $ 2,748,202
============= ============= =============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
CHARCOAL SERVICE CORPORATION
STATEMENTS OF CASH FLOWS
Ten Months Ended February 29, 1996 and Years Ended April 30, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 51,679 $ 12,917 $ 172,759
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 116,695 121,280 119,769
Interest income on shareholder loans (19,256) (20,119) (22,777)
Loss on sale of equipment - 5,625 20,783
Involuntary conversion gain - - (167,697)
Deferred income taxes 13,424 (30.506) 34,628
Changes in working capital components:
Trade and other receivables (82,335) 81,687 242,011
Inventories (69,276) (230,106) 92,651
Income tax refund claim (3,204) (5,443) 76,855
Prepaid expenses (13,201) 1,549 (2,506)
Accounts payable 471,347 (141,507) (19,572)
Accrued expenses (24,152) 2,952 (16,381)
Income taxes payable - (3,984) 3,984
------------- ------------- -------------
Net cash provided by (used in)
operating activities 441,721 (205,655) 534,507
------------- ------------- -------------
Cash Flows from Investing Activities
Purchase of leasehold improvements and equipment (404,275) (21,211) (210,563)
Maturities of certificate of deposit - - 300,000
Proceeds from sale of leaschold improvements
and equipment - - 3,159
Disbursements on notes receivable from stockholders (117,558) - (102,922)
Proceeds from notes receivable from stockholders - 42,147 -
Insurance proceeds received from involuntary conversion - - 195,361
------------- ------------- -------------
Net cash provided by (used in)
investing activities (521,833) 20,936 185,035
------------- ------------- -------------
Cash Flows from Financing Activities
Proceeds from line of credit 344,000 - 408,000
Principal payments on line of credit (344,000) - (533,000)
Principal payments on long-term borrowings - (194,250) (63,000)
------------- ------------- -------------
Net cash used in financing activities - (194,250) (188,000)
------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents (80,112) (378,969) 531,542
</TABLE>
(Continued)
5
<PAGE>
CHARCOAL SERVICE CORPORATION
STATEMENTS OF CASH FLOWS
Ten Months Ended February 29, 1996 and Years Ended April 30, 1995 and 1994
(Continued)
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Cash Equivalents
Beginning 172,582 551,551 20,009
------------- ------------- -------------
Ending $ 92,470 $ 172,582 $ 551,551
============= ============= =============
Supplemental Disclosures of Cash Flow Information
Cash paid (refunded) for:
Interest $ 6,504 $ 14,451 $ 18,821
============= ============= =============
Income taxes, net of refunds 1996 $5,443;
1994 $76,855 $ 21,977 $ 45,984 $ (48,855)
============= ============= =============
Supplemental Schedules of Noncash Investing Activities
Increase in notes receivable, stockholders
in lieu of receiving interest payments $ 19,256 $ 20,119 $ 22,777
============= ============= =============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
CHARCOAL SERVICE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of Business: The Company's primary business activity is manufacturing
high-efficiency air filtration products for control of gaseous and particulate
contaminants for national and international customers and providing related
services. The Company sells its products primarily to contractors and industrial
users in North America. The Company's work is performed under fixed-price
contracts with payment provisions based on the terms the Company negotiates with
individual customers. The length of the Company's contracts varies but typically
is less than one year.
A summary of the Company's significant accounting policies follows:
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: The Company maintains its cash in bank deposit
accounts, which at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash and cash equivalents. For
purposes of reporting cash flows, the Company considers all cash accounts which
are not subject to withdrawal restrictions and certificates of deposit which
have an original maturity of three months or less to be cash equivalents.
Inventories: Inventories are valued at lower of cost (first-in, first-out
method) or market.
Leasehold Improvements and Equipment: Leasehold improvements and equipment are
stated at cost. Depreciation is computed by the straight-line method over
estimated useful lives.
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards 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 or 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.
7
<PAGE>
CHARCOAL SERVICE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 2. Inventories
Inventories consists of the following at February 29, 1996, April 30, 1995 and
April 30, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ 415,307 $ 549,426 $ 458,695
Work in progress 885,850 741,751 517,218
Finished goods 217,677 158,381 243,539
------------- ------------- -------------
$ 1,518,834 $ 1,449,558 $ 1,219,452
============= ============= =============
</TABLE>
Note 3. Leasehold Improvements and Equipment
Leasehold improvements and equipment consists of the following at February 29,
1996, April 30, 1995 and April 30, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Leasehold improvements and equipment:
Leasehold improvements $ 357,826 $ 357,064 $ 356,052
Machinery and equipment 995,446 637,197 661,210
Automobiles and trucks 37,379 37,379 37,379
Office furniture, fixtures and equipment 241,782 196,518 191,808
------------- ------------- -------------
1,632,433 1,228,158 1,246,449
Less accumulated depreciation 861,621 744,926 657,523
------------- ------------- -------------
$ 770,812 $ 483,232 $ 588,926
============= ============= =============
</TABLE>
Note 4. Revolving Credit Agreement and Pledged Assets
The Company has a revolving credit agreement with a bank, which expires
September 30, 1996. This agreement provides for maximum borrowings based on the
lessor of a defined borrowing base or $400,000. Interest is charged at the
bank's prime rate (8.25% at February 29, 1996) plus .625%. The revolving credit
agreement is collateralized by trade receivables. At February 29, 1996, there
was no balance outstanding under this agreement.
8
CHARCOAL SERVICE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 5. Accounts Payable
Accounts payable consists of the following at February 29, 1996, April 30, 1995
and April 30, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts payable, trade $ 534,593 $ 110,422 $ 169,747
Commission payable 25,285 6,309 28,233
Customer deposits 28,200 - 60,258
------------- ------------- -------------
$ 588,078 $ 116,731 $ 258,238
============= ============= =============
</TABLE>
Note 6. Accrued Expenses
Accrued expenses consists of the following at February 29, 1996, April 30, 1995
and April 30, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonuses (Note 9) $ 82,500 $ 95,000 $ 100,000
Vacation 8,124 15,090 14,167
Profit sharing (Note 10) 12,500 15,000 10,000
Salaries & wages 6,893 8,802 4,889
Other accrued expenses 2,921 3,198 5,082
------------- ------------- -------------
$ 112,938 $ 137,090 $ 134,138
============= ============= =============
</TABLE>
Note 7. Income Tax Matters
Total deferred tax assets and liabilities as of February 29, 1996, April 30,
1995 and April 30, 1994, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Inventory allowances $ 18,678 $ - $ -
Accrued expenses 2,845 5,878 10,174
Deferred revenue on long-term contracts - 24,684 -
Net economic loss carryforwards - - 5,758
------------- ------------- -------------
21,523 30,562 15,932
Less valuation allowance (2,199) - -
------------- ------------- -------------
19,324 30,562 15,932
Deferred tax liabilities:
Leasehold improvements and equipment (74,324) (72,138) (88,014)
------------- ------------- -------------
$ (55,000) $ (41,576) $ (72,082)
============= ============= =============
</TABLE>
9
<PAGE>
CHARCOAL SERVICE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 7. Income Tax Matters (Continued)
The components giving rise to the net deferred tax liabilities described above
have been included in the accompanying balance sheets at February 29, 1996,
April 30, 1995 and April 30, 1994 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 19,324 $ 30,562 $ 15,932
Noncurrent liabilities (74,324) (72,138) (88,014)
------------- ------------- -------------
$ (55,000) $ (41,576) $ (72,082)
============= ============= =============
</TABLE>
The provision for income taxes charged to operations for the ten months ended
February 29, 1996, and the years ended April 30, 1995 and April 30, 1994,
consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense $ 18,773 $ 36,557 $ 31,984
Deferred tax expense (benefit) 13,424 (30,506) 34,628
------------- ------------- -------------
$ 32,197 $ 6,051 $ 66,612
============= ============= =============
</TABLE>
The provision for income taxes for the ten months ended February 29, 1996 and
the years ended April 30, 1995 and 1994 differs from the amount obtained by
applying the U.S. federal income tax rate to pre-tax income due to the
following:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 28,517 $ 6,449 $ 81,386
Increase (reductions) in tax resulting from:
Nondeductible expenses 336 955 -
State income taxes net of federal
tax benefit 4,341 1,666 -
Change in valuation allowance 2,198 - -
Benefit of income taxed at lower rates (11,903) (3,019) (14,774)
Effect of changes in tax rates for future
periods 8,708 - -
------------- ------------- -------------
$ 32,197 $ 6,051 $ 66,612
============= ============= =============
</TABLE>
Note 8. Stock Repurchase Agreement
The company has entered into an agreement under which it has agreed to purchase
all shares of common stock owned by its Vice- President upon the termination of
his employment. At February 29, 1996, the Vice-President owned 350 shares of
stock. The purchase price shall be the stock's book value, determined using
generally accepted accounting principles, plus or minus 25% based upon the
conditions of his termination.
10
<PAGE>
CHARCOAL SERVICE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 9. Discretionary Bonuses
The Company pays discretionary cash bonuses to its employees. The amount of
these cash bonuses included in cost of goods sold and operating expenses totaled
$82,500 for the ten months ended February 29, 1996, and $95,000 and $ 1 00,000
for the years ended April 30, 1995, and 1994, respectively.
Note 10. Profit-Sharing Plan
The Company has a contributory profit-sharing plan for those employees who meet
the eligibility requirements set forth in the plan. Substantially all of the
Company's full-time employees are covered by the plan. The Company's
contribution, which is at the discretion of the Company's Board of Directors, is
limited to 15% of participants' base salary. Participants' interest become fully
vested after six years of service and may be withdrawn upon attaining age 55.
The Company's contribution was $12,500 for the ten months ended February 29,
1996, $15,000 for year ended April 30, 1995, and $10,000 for the year ended
April 30, 1994.
Note 11. Related Party Transactions and Balances
The Company had unsecured notes receivable from stockholders totaling $435,689,
$298,875 and $320,903 at February 29, 1996, April 30, 1995 and April 30, 1994,
respectively. The notes bear interest rates ranging from 6.42% to 6.60%. The
outstanding principal and interest are due April 30, 1996.
The Company conducts its operations from facilities rented from stockholders
under month-to-month agreements. Rental expense under these agreements was
$86,629 for the ten months ended February 29, 1996 and $113,032 for the years
ended April 30, 1995 and 1994.
On February 14, 1996, the stockholders of the Company entered into a tentative
agreement to sell their stock to Flanders Corporation. See Note 15.
Note 12. Lease Commitments and Total Rental Expense
The total rental expense charged to operations totaled $93,763 for the 10 months
ended February 29, 1996, and $121,495 and $123,687 for the years ended April 30,
1995, and 1994, respectively. As of February 29, 1996, the Company did not have
any material lease commitments.
11
<PAGE>
CHARCOAL SERVICE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 13. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash equivalents: The carrying amount approximates fair value because of the
short maturity of those instruments.
Notes receivable stockholders: The carrying amount approximates fair value
because of the short maturity of those instruments.
Note 14. Involuntary Conversion
During the fiscal year ended April 30, 1994, a building leased by the Company
was destroyed by fire. At the time of the fire, the building contained equipment
and leasehold improvements owned by the Company, which were totally destroyed.
The Company was fully insured for the replacement cost of these assets and
agreed to a settlement of $195,361.
The nonoperating gain of $167,697 represents insurance settlement proceeds in
excess of the aggregate book value of equipment and leasehold improvements
destroyed by the fire. The Company is not required to pay income taxes on this
gain until the ultimate disposition of the replacement assets.
Note 15. Subsequent Events
On June 1, 1996 the stockholders of the company sold all of their outstanding
shares to Flanders Corporation.
During April 1996, the Company entered into a long term note agreement, due
March 2001, with a financing company for the purchase of manufacturing equipment
for the principal amount of $340,200. The terms of the agreement stipulate sixty
(60) monthly installments in the amount of $5,670 each, plus the entire amount
of interest accrued on this note at the time of each installment. Interest on
this Note shall accrue on the principal balance at a rate which is two hundred
sixty-seven (267) points over the One Month London Interbank Offered Rate
("LIBOR") as such rate shall vary from month to month. This note is
collateralized by substantially all present and future accounts, accounts
receivable, and contract rights. The amount of this obligation was included in
accounts payable at February 29, 1996.
12
<PAGE>
CHARCOAL SERVICE CORPORATION
Unaudited Financial Statements
June 30, 1996
<PAGE>
Charcoal Service Corporation
Balance Sheet
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
- -------------------------------------------------------------------------------
<S> <C>
Current assets
Cash and cash equivalents $ 16,816
Receivables:
Trade 804,843
Other 452,481
Inventories 1,906,767
Deferred taxes 19,324
Other current assets 80,589
-------------
Total current assets 3,280,820
Intangible assets 716,179
Property and equipment, net of accumulated depreciation and
amortization of $62,000 2,026,329
-------------
$ 6,023,328
=============
LIABILITIES AND STOCKHOLDERS'EQUITY
- -------------------------------------------------------------------------------
Current liabilities
Current maturities of long-term debt $ 68,040
Accounts payable 523,484
Income taxes payable 69,000
Accrued expenses 74,974
-------------
Total current liabilities 735,498
-------------
Long-term debt, less current maturities 255,150
Deferred income taxes 340,000
Stockholder's equity
Common stock, $1 par value; authorized 100,000 shares;
issued and outstanding 1,000 shares 1,000
Additional paid-in capital 4,578,164
Retained earnings 113,516
-------------
Total stockholders' equity 4,692,680
-------------
$ 6,023,328
=============
</TABLE>
<PAGE>
Charcoal Service Corporation
Statement of Income
Four Months Ended June 30,1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Net sales $ 1,608,320
Cost of goods sold 1,146,237
-------------
Gross Profit 462,083
-------------
Operating expenses 343,480
-------------
Operating income 118,603
-------------
Nonoperating income (expense):
Other income (expense) 71,246
Interest expense (7,333)
-------------
63,913
-------------
Income before income taxes 182,516
Income taxes 69,000
-------------
Net income 113,516
=============
</TABLE>
<PAGE>
Charcoal Service Corporation
Statement of Cash Flows
Four Months Ended June 30,1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET CASH (USED) BY
OPERATING ACTIVITIES $ (72,800)
CASH USED BY INVESTING ACTIVITIES
Purchase of equipment (2,854)
-------------
NET INCREASE (DECREASE) IN CASH (75,654)
CASH AT BEGINNING OF PERIOD 92,470
-------------
CASH AT END OF PERIOD $ 16,816
=============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
INTEREST PAID $ 7,333
=============
CASH PAID FOR INCOME TAXES $ -
=============
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITY:
Conversion of trade payable obligation
to note payable $ 323,190
=============
</TABLE>
<PAGE>
FLANDERS CORPORATION
Unaudited Pro Forma Condensed Consolidated Statements of Income
December 31, 1995 and June 30, 1996
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 1996
<PAGE>
Unaudited Pro Forma Financial Information
The Unaudited Pro Forma Consolidated Statements of Income for the year ended
December 31, 1995 and the six months ended June 30, 1996 and the Unaudited Pro
Forma Consolidated Balance Sheet as of June 30, 1996 for Flanders Corporation
are set forth below.
The Unaudited Pro Forma Consolidated Balance Sheet has been prepared as of June
30, 1996, and does not differ materially from the Company's Consolidated Balance
Sheet as of June 30, 1996.
The Unaudited Pro Forma Consolidated Statements of Income have been prepared
assuming that the Acquisition had occurred on the first day of the periods
presented therein. These Unaudited Pro Forma Consolidated Statements of Income
do not purport to represent the operations of the Company had the Acquisition,
in fact, occurred at the beginning of the respected periods, or to project the
results of operations for any future period.
Flanders Corporation
Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Historical
-----------------------------
Pro Forma
Company CSC Adjustments Pro Forma
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 38,494,261 $ 5,076,557 $ - $ 43,570,818
Cost of goods sold 28,953,729 3,334,545 - 32,288,274
-------------- -------------- -------------- --------------
Gross profit 9,540,532 1,742,012 - 11,282,544
Other Operating Revenue 141,549 - - 141,549
General and administrative expenses 7,262,668 1,659,503 (71,287)<F1><F2> 8,850,884
-------------- -------------- -------------- --------------
Operating income 2,419,413 82,509 71,287 2,573,209
Nonoperating income (expense):
Interest income - 28,859 191,766 <F3> 220,625
Other income 43,852 67,358 - 111,210
Interest expense (633,029) (7,970) - (640,999)
-------------- -------------- -------------- --------------
(589,177) 88,247 191,766 (309,164)
-------------- -------------- -------------- --------------
Income before income taxes 1,830,236 170,756 263,053 2,264,045
Income taxes 684,582 59,912 99,960 844,454
-------------- -------------- -------------- --------------
Net income $ 1,145,654 $ 110,844 $ 163,093 $ 1,419,591
============== ============== ============== ==============
Earnings per weighted average
common and common equivalent
share outstanding: $ 0.12 $ 0.12
============== ==============
Weighted average common and
common equivalent shares
outstanding: 9,831,996 1,537,315 11,369,311
============== ============== ==============
<FN>
<F1>
To reflect amortization and depreciation of write-up of market value of plant and equipment.
<F2>
To reflect removal of leases paid on buildings included in purchase of CSC of $113,032.
<F3>
To reflect interest income from cash net of purchase of CSC received in offering.
</FN>
</TABLE>
<PAGE>
Flanders Corporation
Pro Forma Condensed Consolidated Statement of Income
Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Historical
-----------------------------
Pro Forma
Company CSC Adjustments Pro Forma
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 24,844,592 $ 2,196,604 $ - $ 27,041,196
Cost of goods sold 18,839,169 1,537,623 - 20,376,792
-------------- -------------- -------------- --------------
Gross profit 6,005,423 658,981 - 6,664,404
General and administrative expenses 4,204,988 477,660 (19,041)<F1><F2> 4,663,607
Operating income 1,800,435 181,321 19,041 2,000,797
Nonoperating income (expense):
Interest income 17,282 2,988 63,922<F3> 84,192
Other income 303,847 76,416 - 380,263
Interest expense (138,235) (8,418) - (146,653)
-------------- -------------- -------------- --------------
182,894 70,986 63,922 317,802
-------------- -------------- -------------- --------------
Income before income taxes 1,983,329 252,307 82,963 2,318,599
Income taxes 748,876 96,000 31,526 876,402
-------------- -------------- -------------- --------------
Net income $ 1,234,453 $ 156,307 $ 51,437 $ 1,442,197
============== ============== ============== ==============
Earnings per weighted average
common and common equivalent
share outstanding:
Primary $ 0.08 $ 0.08
============== ==============
Fully Diluted $ 0.07 $ 0.08
============== ==============
Weighted average common and
common equivalent shares
outstanding:
Primary 15,921,741 1,537,315 17,459,056
============== ============== ==============
Fully Diluted 16,504,376 1,537,315 18,041,691
============== ============== ==============
<FN>
<F1>
To reflect amortization and depreciation of write-up of market value of plant
and equipment.
<F2>
To reflect removal of leases paid during January and February 1996 on buildings
included in purchase of CSC of $43,314.
<F3>
To reflect 5 months' interest income from cash net of purchase of CSC received
in offering.
</FN>
</TABLE>
<PAGE>
Flanders Corporation
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1996
<TABLE>
<CAPTION>
Historical
-----------------------------
Pro Forma
ASSETS Company CSC Adjustments Pro Forma
- ------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 389,202 $ 16,816 $ 406,018
Investment in subsidiaries 4,579,164 - (4,579,164)<F1> -
Receivables:
Trade 11,995,879 804,843 (97,199)<F1> 12,703,523
Other 516,120 16,792 - 532,912
Notes receivable, inter-company 435,689 (435,689)<F1> -
Inventories 3,342,207 1,906,767 - 5,248,974
Deferred income taxes 137,961 19,324 - 157,285
Other current assets 264,007 80,589 - 344,596
-------------- -------------- -------------- --------------
Total current assets 21,224,540 3,280,820 (5,112,052) 19,393,308
Intangible Assets 1,109,786 716,179 1,825,965
Other assets 23,116 - - 23,116
Property plant and equipment, net 6,763,264 2,026,329 - 8,789,593
-------------- -------------- -------------- --------------
$ 29,120,706 $ 6,023,328 $ (5,112,052) $ 30,031,982
============== ============== ============== ==============
LIABILITIES AND STOCKHOLDERS'EQUITY
- -------------------------------------
Current liabilities
Notes payable $ 2,757,369 $ - $ - $ 2,757,369
Current maturities of long-term debt 190,986 68,040 - 259,026
Accounts payable 4,201,794 523,484 (97,199) 4,628,079
Income taxes payable 553,961 69,000 - 622,961
Other current liabilities 2,024,596 74,974 (435,689) 1,663,881
Total current liabilities 9,728,706 735,498 (532,888) 9,931,316
Long-Term Debt, less current maturities 1,210,104 255,150 - 1,465,254
Deferred income taxes 163,934 340,000 - 503,934
Commitments
-------------- -------------- -------------- --------------
Total liabilities 11,102,744 1,330,648 (532,888) 11,900,504
-------------- -------------- -------------- --------------
Stockholders' Equity
Capital stock 13,533 1,000 (1,000) 13,533
Paid-in capital 11,991,664 4,578,164 (4,578,164) 11,991,664
Retained earnings 6,012,765 113,516 - 6,126,281
-------------- -------------- -------------- --------------
Total Stockholders' Equity 18,017,962 4,692,680 (4,579,164) 18,131,478
-------------- -------------- -------------- --------------
$ 29,120,706 $ 6,023,328 $ (5,112,052) $ 30,031,982
============== ============== ============== ==============
<FN>
<F1>
Elimination of inter-company payables, receivables and equity investments.
</FN>
</TABLE>
Exhibit 5.1
Consent of McGladrey & Pullen, L.L.P.
<PAGE>
McGladrey & Pullen, L.L.P. RSM
Certified Public Accountants and Consultants International
INDEPENDENT AUDITOR'S CONSENT
To the Board of
Charcoal Service Corporation
Bath, North Carolina
We agree to the inclusion in this Form 8-K of our report, dated March 25, 1996,
except for the first pragraph of Note 15, as to which the date is June 1, 1996,
and the second paragraph of Note 15 as to which the date is July 24, 1996, on
our audit of the financial statements of Charcoal Service Corporation.
/s/ McGladrey & Pullen, L.L.P.
New Bern, North Carolina
August 7, 1996
