FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 33-16736
GULFSTAR INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2442288
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20505 U.S. 19N. #12-283, Clearwater, FL. 34624
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 441-4442
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-K.
[X]
The number of shares outstanding of the registrant's classes of common stock as
of September 30, 1996 is 9,509,123 shares of $.032 par value common stock.<PAGE>
PART I
Item 1. Business.
(a) General Development of Business
Gulfstar Industries, Inc. (formerly Tier Environmental Services, Inc.) (the
"Company"), was incorporated under the laws of Delaware on December 3, 1986.
The Company was formed to seek potential business opportunities which in the
opinion of management may provide a profit to the Company.
On July 14, 1989, the Company entered into an Agreement and Plan of Re-
organization with Models World, Inc. ("MWI"), pursuant to which the Company
acquired all the issued and outstanding shares of MWI.
On October 1, 1993, the Company spun off all of its subsidiaries and has
as a result recorded a quasi-reorganization as of that date.
The Company is presently a holding corporation consisting of two wholly
owned operating subsidiaries; Plant Technical Services, Inc. in Texas, and Tier
Environmental of Florida. The Texas subsidiary is an engineering consulting and
placement service and the Florida subsidiary has been involved in environmental
clean-up.
MBT Associates
On June 2, 1993, the Company entered into a merger and acquisition plan to
acquire all of the shares and assets of MBT Associates ("MBT"), a real estate
holding company, located in Northern New Jersey. The Company authorized and
issued Six Hundred Thousand (600,000) shares of Convertible Preferred Stock of
the Company with a par value of Ten ($10.00) U.S. Dollars per share, in exchange
for all of the issued and outstanding stock of MBT. In addition, the Company
entered into a property management agreement with Blackstone Legal Research &
Management ("Blackstone"). This Agreement had a five (5) year term with a
renewal option for an additional five (5) years. The current management of
Blackstone is headed by the former majority shareholders of MBT.
As of September 25, 1995, the Company agreed with the initial selling
shareholder, MBT Associates to retroactively rescind the acquisition. Acquired
in June of 1993, MBT was spun off for the exact terms it had originally been
acquired for, namely the redemption of 600,000 shares of preferred stock and
cancellation of the note, of which no payment had been made, for $2,000,000.
Tier Environmental of Florida
On September 26, 1994, the Company acquired all of the issued and
outstanding shares of Tier Environmental Services, Inc. ("Tier of Florida"), a
Florida corporation. The Company issued 1,491,032 restricted shares of the
Company's common stock in exchange for all of the issued and outstanding common
shares of Tier of Florida.
Gulfstar Industries, Inc. (Parent Company)
On September 29, 1994 the Company changed its name to Tier Environmental
Services, Inc. to reflect the above-mentioned merger and the new direction of
the Company.
On January 10, 1996 the Company changed its name to Gulfstar Industries,
Inc., to reflect the acquisition of Plant Technical Services, Inc., and to avoid
further confusion between the holding company's name and that of its Florida
subsidiary.
Plant Technical Services, Inc.
On September 27, 1995, the Company entered into a merger and acquisition
plan to acquire all the shares and assets of Plant Technical Services, Inc.
("PTS"), an engineering and technical services firm consulting to the power
industry, located in the Dallas/Ft. Worth area of North-Central Texas. The
Company issued Seventy Five Thousand (75,000) shares of convertible preferred
stock at a par value of Ten Dollars ($10) per share, in addition to Seven
Hundred Fifty Thousand (750,000) shares of common stock as per Rule 144, to the
shareholders of PTS, in exchange for all the issued and outstanding stock of
PTS. The cash and note consideration, in addition to the shares issued was a
total of One Million Two Hundred Twenty Thousand Dollars ($1,220,000) to be
paid as follows: One Hundred Thousand Dollars ($100,000) at closing: Two
Hundred Twenty Thousand Dollars ($220,000) within One Hundred Eighty (180)
days from the closing date, and the balance of Nine Hundred Thousand Dollars
($900,000) in the form of a note, to be paid in installments over a five year
period commencing on March 1, 1996. The initial management of PTS was headed
by the former majority shareholder of PTS and the existing managerial staff
at the time of the acquisition.
On May 15, 1996 the Company terminated the president and former shareholder
and the Company is involved in litigation which it plans on resolving by
renegotiating the terms of this agreement. The Company has withheld payments on
the note above during this period until such time a resolution has been reached.
(b) Public Offering of Securities
On August 28, 1987, the Company filed a Form S-18 Registration Statement
under the Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Registration Statement"). The Registration Statement was
declared effective on April 6, 1988. Pursuant to the Registration Statement,
the Company offered and sold 10,000,000 Units (250,000 units adjusted for the
1 for 40 reverse stock split), each Unit consisting of one share of $.0001
($.004 adjusted for 1 for 40 reverse split) par value Common Stock and one-
half Class A Warrant, one-half Class B Warrant and one-half Class C Warrant
(the Class A Warrants, Class B Warrants and Class C Warrants are collectively
referred to herein as the "Warrants"), at a price of $.02 ($.80 adjusted for
the 1 for 40 reverse split) per Unit. The period for exercise of all the
Warrants has expired without any of the Warrants being exercised.
At the closing of such public offering on July 25, 1988, the Company
received aggregate net proceeds of $138,242 after deduction of expenses totaling
approximately $61,758 which consisted primarily of broker commissions and a
non-accountable expense allowance to the underwriter, and filing, legal,
accounting, printing and miscellaneous expenses.
(c) Other Matters
On November 25, 1989, the shareholders and directors of the Company
approved a proposal to reverse split the Company's common stock on a 1 for 40
basis, increase the exercise price of the Class A, B, and C Warrants to $1.60,
$2.40 and $3.20 respectively and increase the par value of the Common Stock to
$.004 per share.
On September 9, 1994 there was a reverse split of eight to one (8:1) that
resulted in a par value of $.032 from the previous par value of $.004. All
amounts related to common stock issued and outstanding as well as earnings per
share figures for 1993 have been restated to reflect the above split.
During the year ended September 30, 1992 the Company issued 1,354,000
restricted shares of its common stock as a result of the merger with HBL (See
Note 2). In addition, the Company issued 3,310,000 restricted shares of its
common stock to individuals who provided services to the Company in prior
years. As of September 30, 1993 the total number of shares outstanding was
9,892,495. After the 8:1 reverse split, effective September 8, 1994 (See Note
1) this number became 1,236,562. On September 22, 1994, there were an
additional 350,000 shares that the Company issued as part of a Regulation S
registration. Also, an additional 1,311,570 shares were issued as part of
several S-8 registration statements that the Company authorized for
individuals that had provided services for it during the last several years.
On September 26, 1994, as part of the agreement with Tier Environmental
Services, Inc. of Florida (See Note 3 in financial statement notes) the
Company issued 1,491,032 restricted shares of its common stock to the Tier
shareholders. On January 26, 1995 the Company issued 325,000 shares as part
of an S-8 registration, to various entities for services provided for the
Company as per their consulting agreements. On that same date the Company
also issued 75,000 restricted shares under Rule 144 for work to be performed
on behalf of the Company. On April 18, 1995, May 5, 1995, and May 8, 1995
the Company issued an aggregate 625,000 shares in connection with Regulation
S agreements with five offshore investment entities. On May 10, 1995 the
Company requested the retirement of 136,466 restricted shares from a
shareholder who was issued the shares as part of a performance contract which
was never finalized and is presently in dispute. On September 22, 1995 the
Company issued 800,000 shares as part of four separate consulting agreements
for work performed for the Company. On September 27, 1995, as part of the
agreement with PTS, the Company issued an additional 750,000 shares of common
stock and 75,000 shares of convertible preferred stock to the previous PTS
shareholders. On September 28, 1995 the Company retired the 600,000 MBT
convertible preferred shares, in connection with the spinning out of MBT. In
June of 1996 the Company issued 110,000 shares to a law firm and a consultant
for services performed during the period.
(d) Competition
The Company has many competitors who are engaged in the various areas of
its business in the United States and Canada. Many of these competitors have
substantially greater financial and technical resources, and marketing
capabilities than the Company. Competitors with superior resources may be able
to utilize such resources to market these products and idea, and gain a
competitive edge over the Company.
(e) Employees
The Company has consultants in the Florida subsidiary, and up to 15 full-
time employees in the Texas subsidiary. In addition, and through its
subsidiaries, the Company from time to time, hires 500 to 600 employees in the
Texas subsidiary and subcontractors, as needed in both subsidiaries. The
Company expects to use consultants, attorneys and accountants as necessary,
and does not anticipate a need to engage any additional full-time employees
at this time.
Item 2. Properties.
The Company maintained its offices at 20505 U.S. 19N., #12-283, Clearwater,
FL. 34624. The operational division of the Tier subsidiary is located at 2901
West Busch Blvd., #711, Tampa, FL. 33618, and the operational headquarters of
PTS are located at 500 Grapevine Highway, Suite 335, Hurst, Texas 76054.
Item 3. Legal Proceedings.
The Company has presently commenced an action against its former president
of its MBT subsidiary. The former president of the PTS subsidiary has commenced
an action for wrongful termination and the Company intends to vigorously defend
its position and has commenced a countersuit alleging misrepresentation in
connection with the acquisition of PTS. Both subsidiaries are defendants in
various litigations with debtors, over contract obligations and performance
clauses.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information. The Company's Common Stock is traded in the
over-the-counter market.
The following sets forth the high and low bid quotations for each quarter
for the three-year period through September 30, 1996, based upon information
received from the National Quotation Bureau. Such quotations reflect inter-
dealer prices, and do not include retail mark-up, mark-down or commission.
They may not represent actual transactions.
High Bid Low Bid
1996 First Quarter $1.000 $ .656
Second Quarter $ .843 $ .578
Third Quarter $ .828 $ .359
Fourth Quarter $ .421 $ .198
1995 First Quarter $3.437 $ .50
Second Quarter $2,968 $ .125
Third Quarter $1.250 $ .25
Fourth Quarter $ .968 .062
1994 First Quarter $ .187 $ .015
Second Quarter $ .500 $ .031
Third Quarter $ .625 $ .062
Fourth Quarter $5.620* $3.500*
*(reflects 8:1
reverse split)
(b) Shareholders. As of September 30, 1996, the Company had 9,509,123
shares of common stock outstanding, held by approximately 1100 persons of
record, including brokerage firms and/or clearing houses holding the
Company's common shares in "street name" for their clients. The Company
believes that there are approximately 3,500 beneficial owners of its common
stock. In addition, the Company had authorized and issued 75,000 shares of
Convertible Preferred stock in 1995 as part of the PTS transaction.
(c) Dividends. The Company has not paid or declared any dividends upon
its Common Stock since its inception and does not contemplate or anticipate
paying any dividends upon its Common Stock in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Plan
of Operations.
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying financial
statements, as well as information relating to the plans of the Company's
current management. The Company's operating divisions include Tier
Environmental, Inc. for both periods presented and the Company's Texas
subsidiary, Plant Technical Services, Inc. for the year ended September 30,
1996.
ABOUT THE SUBSIDIARIES
TIER Environmental Services, Inc.
The primary revenue of this environmental subsidiary comes from its work
in direct cooperation with the Florida legislature towards reimbursement for
eligible sites for environmental clean-up. The Governor's executive order dated
March 8, 1995 in reference to the Inland Protection Trust Fund (the "fund")
referendum has caused some confusion during the fiscal year ended.
On March 29, 1995 Governor Chiles signed into law 95-2, Laws of Florida (SB
1290). This law revises Florida Statute 376 as it relates to continued and
future site rehabilitation tasks for eligible sites. Chapter 95-2 does not
specifically amend or change the reimbursement regulations set forth in Chapter
62-773, F.A.C.
It should also be noted that the Legislature, DEP and representatives from
the petroleum clean-up industry worked during the last Legislative session to
pay off the entire outstanding backlog of reimbursement claims through a bond
issue, which included most "packages" the Company had in place through
December 31, 1996.
In December, 1996, the former method of funding under this program ended
by statutory deadline, with certain exceptions permitting April 15, 1997.
Funding for substantially all projects which had been in process through
January 1996 was required to be completely funded by outside investors and
submitted to the state of Florida for review and approval by December 31, 1996.
Going forward the current method of operation will require not only prior
site approval by Florida, but also the Company, if it can obtain work in this
format, will have to obtain approval in advance which remedial efforts will be
reimbursable by the state.
Plant Technical Services
The primary revenue sources of this subsidiary comes from placing temporary
employees with utilities in North America with high demands at peak periods for
engineering professionals.
During the fourth quarter 1995 the Company's former president spent a
substantial portion of his time pursuing one acquisition in Mexico, the Hemyc
Group (see form 10-K for the fiscal year ended September 30, 1995) which in turn
the Company has since rescinded. The Company has also continued to complete or
resolve a joint venture it had started with the Hemyc Group which was
substantially delayed as for the fiscal year ended September 30, 1995, due to
the fiscal instability of the Hemyc group. The Company has pursued and
received a
Item 6. Management's Discussion and Analysis of Financial Condition and
Plan of Operations. - (continued)
novation of the Hemyc portion of the contract and plans on dealing with the
utility directly. The Company is negotiating with several providers whom they
may wish to complete the project with or sell to outright.
RESULTS OF OPERATIONS
Year Ended September 30, 1996 vs. September 30, 1995
The Company's historical results from operations for the year ended
September 30, 1996 consisted a loss of $2,605,068 on total revenues of
$4,754,717, as compared with a loss of $1,089,633 on revenues of $3,650,189 for
the comparable period ended September 30, 1995. The revenue figures for the
period ended September 30, 1995 do not include the sales of the PTS subsidiary.
One reason for the increase in loss for 1996 was that at year end the
company took charges against the goodwill and bonding premium (long lived
intangible assets) in the form of an impairment loss of $ 1,430,349. This
represents one half of the recorded value for goodwill and 100% the remaining
bonding premium capitalized in connection with the acquisition on September 24,
1994 for the Florida subsidiary due to the change in the way Florida will
administer the program which has provided the major revenue of the Company.
The proforma results of operations for the prior year accentuates the
decline in sales in the current year for both of the subsidiary's as the
proforma results indicate a comparative proforma loss of $1,481,800 on
proforma revenues of $10,246,210 for the corresponding year ended September
30, 1995.
Liquidity and Working Capital and Plan of Operation
The Company's working capital declined during the year ended September 30,
1996. At September 30, 1995 the Company had a deficit of $1,238,546 as compared
to a deficit of $1,959,620 at September 30, 1996.
The Company has obtained a novation on the Mexican contract, which permits
the Company to deal with the ultimate customer; a viable Mexican utility and
after reversing the joint venture activity, the corresponding payable from the
Mexican project is less than the book value (cost) of the assets associated with
the project. Presently, the Company seeks an outright buyer or co-venturer to
purchase and complete the project or reimburse the Company in a joint venture
project which would reduce this burden on Company's the working capital.
At this juncture for PTS, management is considering a tax free divisive
reorganization which could separate the Texas subsidiary into two corporations;
mainly the Mexican project in one and the engineering services in another.
The Company plans to increase its traditional volume of engineering
services of its PTS subsidiary and has obtained a factoring agreement with
Pearce Financial Services of Florida on all utility contracts which should
assist the funding of operations until such time the company can obtain
profitability.
The Company completed an offering of stock in early 1996 which provided
approximately $200,000 of working capital to the Company.
Management believes, if necessary, they can pursue additional financing
alternatives, including equity funding, if operations alone cannot fund the
Company's on going liquidity needs.
Inflation
The rate of inflation has had little impact on the Company's results of
operations and is not expected to have a significant impact on continuing
operations.
Disclosures Regarding Forward-Looking Statements
The disclosures included in this Form 10-KSB, incorporated documents
included by reference herein and therein, contain forward-looking statements
within the meaning of Section 27A of the securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
are of similar import. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted with accuracy and
some of which might not even be anticipated. Future events and actual results,
financial and otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in this Form 10-KSB and other matters
detailed from time-to-time in the Company's Securities and Exchange filings,
including the Company's periodic filings on Form 10-QSB and 10-KSB.
Item 7. Financial Statements.
(a)(1) The following documents are filed as part of this report:
a. Consolidated Financial Statements of the Registrant,
Gulfstar Industries, Inc.
Pages
Report of Schuhalter, Coughlin & Suozzo, LLC F-1
Consolidated Balance Sheet of Gulfstar Industries,
Inc. as of September 30, 1996 F-2
Consolidated Statements of Operations of Gulfstar
Industries, Inc. for the years ended
September 30, 1996 and 1995 F-3
Consolidated Statements of Changes in Stockholders'
Equity of Gulfstar Industries, Inc. for the period
from October 1, 1994 to September 30, 1996 F-4
Consolidated Statements of Cash Flows of Gulfstar
Industries, Inc. for the years ended
September 30, 1996 and 1995 F-5
Notes to the Financial Statements of Gulfstar
Industries, Inc. F-6 - F-22
b. Interim Financial Statements.
Not Applicable
c. Financial Statements of Businesses Acquired and to be Acquired
Not Applicable
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Gulfstar Industries, Inc.
We have audited the accompanying consolidated balance sheet of Gulfstar
Industries, Inc. and subsidiaries as of September 30, 1996 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years ended September 30, 1996 and September 30, 1995 in the
accompanying index to financial statements (Item 7). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the financial statements of Tier Environmental Services, Inc. of Florida,
a wholly owned subsidiary, which statements reflect total revenues of $3,650,189
for the year ended September 30, 1995. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Tier Environmental Services, Inc. of Florida
for the year ended September 30, 1995 is based solely on the reports of those
other auditors.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements listed in the accompanying index to financial statements
(Item 7) present fairly, in all material respects, the consolidated financial
position of Gulfstar Industries, Inc. and subsidiaries as of September 30, 1996
and the consolidated results of its operations and cash flows for the years
ended September 30, 1996 and 1995 in conformity with generally accepted
accounting principles.
As more fully described in Note 14, the state of Florida changed the program
which provides the primary source of revenue to the Florida subsidiary. At this
time the company can not estimate how much revenue if any it will derive under
the new program, nor the effect upon the carrying value of goodwill in that
subsidiary.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred substantial operating losses and has
experienced a working capital deficit at September 30, 1996 of $1,959,620. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters are also described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/Schuhalter, Coughlin & Suozzo, LLC
SCHUHALTER, COUGHLIN & SUOZZO, LLC
Raritan, New Jersey
January 9, 1997 except for note 14 as
to which the date is March 11, 1997
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
Assets
Current Assets
Cash $ 1,657
Accounts receivable, net of allowance for doubtful
accounts of $8,000 507,470
Contracts in process 1,493,814
Escrow deposits and other receivables, net of
reserve for escrow loss of $96,108 305,212
Other current assets 17,428
Total Current Assets 2,325,581
Property and equipment, at cost, net of accumulated
depreciation and amortization of $299,057 77,321
Investment in equipment - Mexican project 685,525
Other Assets
Database, net of accumulated amortization of $71,428 428,572
Goodwill, net of accumulated amortization
of $1,593,431 1,822,933
Financing premium, net of accumulated amortization
of $250,000 -
Deposits and other assets 1,729
Total Assets $5,341,661
The accompanying notes are an integral part of these financial statements.
<PAGE>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 874,446
Notes payable 136,561
Contracts payable 1,493,814
Amounts due to related parties 763,399
Note payable to stockholder - current portion 386,139
Accounts payable and accrued expenses -
Mexican project 630,842
Total Current Liabilities 4,285,201
Note payable to stockholder, net of current portion 540,000
Stockholders' Equity
Common stock, par value $.032 per share;
authorized 10,000,000 shares, issued and
outstanding 9,509,123 304,292
Convertible preferred stock, authorized 1,000,000
shares, par value $10.00; 75,000 shares issued
and outstanding 750,000
Additional paid in capital 3,314,934
Retained deficit (October 1, 1993) (59,033)
Retained deficit, subsequent to quasi-reorganization (3,793,733)
Total Stockholders' Equity 516,460
Total Liabilities and Stockholders' Equity $5,341,661
<PAGE>
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For For
the Year the Year
Ended Ended
September 30, September30,
1996 1995
Contract Revenues Earned $ 4,728,060 $ 3,650,189
Other Income 26,657 -
Total Revenue 4,754,717 3,650,189
Cost of contract revenues earned 4,054,494 3,263,097
Gross Profit 700,223 387,092
Operating Expenses
Selling and administrative expenses 1,430,004 1,255,143
Depreciation and amortization 320,178 197,701
Interest expense 189,515 13,853
Provision for bad debts 14,619 8,000
Loss from operations (1,254,093) (1,087,605)
Impairment loss (1,430,349) -
(Loss) before taxes (2,684,442) (1,087,605)
Benefit from (provision for) income taxes 79,374 (2,028)
Net (Loss) $(2,605,068)$(1,089,633)
(Loss) per share $ (.28)$ (.20)
Weighted average shares outstanding 9,192,737 5,380,101
The accompanying notes are an integral part of these financial statements.
<PAGE>
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Preferred Stock
Shares Amount Shares Amount
Balance, October 1, 1994
(restated) 4,026,990 $ 128,864 - $ -
Issuance of common stock 4,372,133 139,908 - -
Issuance of preferred stock - - 75,000 750,000
Net loss for year ended
September 30, 1995 - - - -
Balance, September 30, 1995 8,399,123 268,772 75,000 750,000
Issuance of common stock 1,110,000 35,520 - -
Net loss for year ended
September 30, 1996 - - - -
Balance, September 30, 1996 9,509,123 $ 304,292 75,000 $ 750,000
The accompanying notes are an integral part of these financial statements.
<PAGE>
Retained
Quasi- Deficit
Additional Reorganization Subsequent
Paid In (10-1-93) To Quasi-
Capital Adjustment Reorganization Total
$2,967,082 $ (59,033) $ (99,032) $2,937,881
860,053 - - 999,961
(720,000) - - 30,000
- - (1,089,633) (1,089,633)
3,107,135 (59,033) (1,188,665) 2,878,209
207,799 - - 243,319
- - (2,605,068) (2,605,068)
$3,314,934 $ (59,033) $(3,793,733) $ 516,460
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
September 30,
1996 1995
OPERATING ACTIVITIES
Cash Flows Used In Operating Activities:
Net loss $(2,605,068)$(1,089,633)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 320,178 197,701
Expense paid by issuance of common stock 44,419 325,200
Allowance for escrow loss 96,108 -
Provision for bad debts 14,619 8,000
Loss on assets disposed 1,498 -
Impairment loss 1,430,349 -
Decrease (increase) in contracts in
progress 3,307,281 (1,064,716)
Decrease (increase) in accounts receivable 407,370 (85,544)
(Increase) decrease in other receivables
and escrow deposits (354,669) 40,945
(Decrease) increase in contracts payable (3,241,958) 1,023,505
Increase in accounts payable and accrued
expenses 366,424 59,911
(Decrease) increase in deferred taxes (61,940) 2,208
Decrease in escrow account - 7,702
Decrease (increase) in other assets 7,184 (17,585)
Net cash used in operating activities (268,205) (592,306)
INVESTING ACTIVITIES
Cash Flows Used In Investment Activities:
Acquisition of fixed assets (11,219) (3,083)
Investment in Mexican project (54,683) -
Net cash used in investing activities (65,902) (3,083)
FINANCING ACTIVITIES
Cash Flows Used In Financing Activities:
Issuance of common stock, net of direct
offering costs of $35,100 in 1996 and
$147,200 in 1995 198,900 770,913
Payment of financing premiums in
connection with acquisition - (415,000)
Repayment of stockholder loans (2,000) (16,850)
Proceeds from loan payable -
related parties 110,583 425,486
Repayment of notes payable (35,482) (21,439)
Cash paid to shareholder to purchase
subsidiary - (100,000)
Net cash provided by financing activities 272,001 643,110
Net (decrease) increase in cash and
cash equivalents (62,106) 47,721
Cash and cash equivalents, beginning of year 63,763 16,042
Cash and cash equivalents, end of year $ 1,657 $ 63,763
The accompanying notes are an integral part of these financial statements.
<PAGE>
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted principles which contemplates continuation of the
company as a going concern. Since the reorganization (October 1, 1993)
through September 30, 1996, the Company has lost $3,793,733 on a
consolidated basis. For the year ended September 30, 1996 the
consolidated entity has sustained total losses of $2,605,068 and
additionally the company has a working capital deficit of $1,959,620 as of
that date. The company's Texas subsidiary, PTS, has experienced reduced
volume in its core engineering professional placement business as well as
substantial delays in a Joint Venture for a Mexican utility. The company's
Florida subsidiary , which has derived the majoritive share of its revenue
from the clean up of petroleum contamination at authorized sites in
Florida, has completed the funding of projects it has had under the pre-
existing Florida reimbursement program. Effective January 1, 1997 Florida
has changed its program for authorizing site work. The company has yet to
obtain a qualified project under the new program.
Management plans to raise additional capital through the sale of its
common stock and the obtainment of long term financing on the investment
in equipment-Mexican project, or alternatively find a buyer for the entire
Mexican project in its PTS subsidiary. Management is also considering a
divisive re-organization of the PTS subsidiary to segregate the Mexican
project from the placement services division of that company. Also, in
the Texas subsidiary, the PTS management plans to improve its gross profit
and refocus its efforts on its core professional placement services at
margins sufficient to provide profitable operations. Management also
plans to obtain some efficiencies of operations by consolidating some of
the compatible functions and expenses of its subsidiaries. Management
plans to reduce overhead in its Florida subsidiary and only take on such
work it considers profitable in that company.
In view of these matters, realization of the assets in the accompanying
balance sheet is dependent upon future profitable operations of the
Company's subsidiaries. Management believes that actions presently being
taken to realize value from its investments, and settling its debts by
limiting certain debts and issuing stock will provide the opportunity for
the company to continue as a going concern.
NOTE 2 - NATURE OF BUSINESS
Gulfstar Industries, Inc. (the "Company") was originally incorporated
under the laws of the State of Delaware on December 3, 1986 as Flair
Communications, Inc.
After the completion of its public offering in August of 1987 as Flair
Communications, the Company went through management and operational
changes and on October 1, 1993 underwent a quasi-reorganization.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - NATURE OF BUSINESS - (Continued)
On September 26, 1994, the Company acquired all of the issued and
outstanding shares of Tier Environmental Services, Inc. ("Tier of
Florida"), a Florida corporation. The Company issued 1,491,032 restricted
shares of the Company's common stock in exchange for all of the issued and
outstanding common shares of Tier of Florida.
On September 29, 1994 the Company changed its name to Tier Environmental
Services, Inc. to reflect the above-mentioned merger and the new direction
of the Company.
On September 27, 1995, the Company entered into a merger and acquisition
plan to acquire all the shares and assets of Plant Technical Services,
Inc. ("PTS"), an engineering and technical services firm consulting to the
power industry, located in Texas. The Company issued Seventy Five
Thousand (75,000) shares of convertible preferred stock at a par value of
Ten Dollars ($10) per shares, Seven Hundred Fifty Thousand (750,000)
shares of common stock pursuant to SEC Rule 144, as well as cash and debt
of $1,220,000 to the shareholders of PTS, in exchange for all the issued
and outstanding stock of PTS.
In February 1996, the Company changed its name to Gulfstar Industries,
Inc.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Acquisition of Tier Environmental Services, Inc.
On September 26, 1994 Gulfstar Industries, Inc. acquired all of the common
stock of Tier Environmental Services, Inc. through an acquisition and
redemption by Tier Environmental Services, Inc. of its common stock
totaling approximately $2,982,400 in value, exclusive of acquisition
costs. Tier's principal business is to provide environmental remediation
services in the State of Florida, at petroleum contaminated sites
designated by the State of Florida as sites subject to authorized
reimbursement under the Inland Protective Trust Fund. The acquisition was
accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16. The agreement also called for the additional issuance of
Gulfstar stock to Tier shareholders if the Company spun off a former
subsidiary, which in turn the Company did on September 25, 1995. As such,
the Company is required to issue an additional 357,133 shares which were
included in the accompanying balance sheet and valued at $142,855. The
excess (approximately $2,845,220) of the total acquisition cost over the
recorded value of assets acquired was allocated to goodwill and was being
amortized over 20 years. After reviewing the carrying value at September
30, 1996 over one half of the unamortized balance was written off to
impairment loss due to the uncertainty of the effect of the change in the
Florida program will have on the Company. The accompanying balance sheets
include the assets and liabilities of Tier at September 30, 1996. The
statement of operations includes Tier's results of operations for the
years ended September 30, 1996 and 1995 since Tier was acquired on
September 26, 1994.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Acquisition of Tier Environmental Services, Inc. - (Continued)
Acquisition costs aggregating $250,000 ($75,000 in 1995 and $175,000 in
1994) have been capitalized as a result of this acquisition. Additional
acquisition costs aggregating $340,000 and $516,250 were charged to
additional paid in capital in 1995 and 1994 respectively. Such
capitalized acquisition costs relate to financing costs associated with
the acquisition, which represent premiums paid to a finance company to
assist the funding of these projects and were being amortized over 5
years. Due to the change in the funding method of this program the
balance was written off at September 30, 1996 and is included in
impairment loss.
Acquisition of Plant Technical Services, Inc.
Plant Technical Services, Inc. is engaged in the professional engineering
business, providing consulting, design, start-up support, operation,
maintenance, contract personnel and construction management service to
technical industries throughout the United States.
On September 29, 1995 Gulfstar acquired all of the common stock of Plant
Technical Services, Inc. (PTS) through an acquisition and redemption by
PTS of its stock with the issuance of 750,000 shares of Gulfstar common
stock, 75,000 shares of Gulfstar $10.00 preferred stock and cash and notes
of $1,220,000, exclusive of acquisition costs. The acquisition was
accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16. The excess (approximately $1,277,000) of the total
acquisition cost over the recorded value of assets acquired was allocated
$500,000 to a proprietary database PTS developed which is being amortized
over seven years and $571,144 (which has been reduced by $199,006 for the
accrued loss on a long term contract net of a $6,772 deferred tax benefit)
to goodwill which is being amortized over 20 years. The accompanying
balance sheet includes the assets and liabilities of PTS at September 30,
1996. The statement of operations for the year ended September 30, 1995
does not include PTS since PTS was acquired on September 29, 1995.
The historical income statements for the year ended September 30, 1995 do
not include the revenue and expenses of the PTS subsidiary. In addition
to combining the historical results of operations of the two companies,
the pro forma calculations include adjustments for the estimated effect on
the Company's historical results of operations for amortization and
interest related to the acquisition. The pro forma results of operations,
that follow below assume that both the acquisitions had occurred at the
beginning of the year ended September 30, 1995.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Condensed Historical and Pro Forma Information
For the For the
Year Ended Year Ended
September 30, September 30,
1996 1995
Historical (Pro Forma)
Total Revenue $ 4,754,717 $10,246,210
Cost of Revenue 4,054,494 8,604,605
Operating Expenses 1,954,316 3,093,405
Impairment Loss 1,430,349 -
Benefit from Taxes (79,374) -
Net (Loss) $(2,605,068) $ 1,451,800
(Loss) Per Share $ (.28) $ (.27)
Weighted Average Shares Outstanding 9,192,737 5,380,101
The following is a summary of the financial position of Tier at September
30, 1994 and PTS at September 30, 1995 before giving effect to recording
the acquisition transactions:
Tier Environmental Services, Inc.
September 30, 1994
Current assets $4,386,308
Property and equipment 21,923
Other assets 1,729
Total 4,409,960
Current liabilities 4,129,925
Stockholders' equity 280,035
Total $4,409,960
Plant Technical Services, Inc.
September 30, 1995
Current assets $ 459,208
Property and equipment 75,963
Other Assets 764,394
Total 1,299,565
Current liabilities 1,225,493
Stockholders' equity 74,072
Total $1,299,565
<PAGE>
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Principles of Consolidation
The accompanying consolidated balance sheet as of September 30, 1996
includes the accounts of the Company and the following subsidiaries with
results of operations included for the period subsequent to the
acquisition date:
Date of Acquisition
TIER Environmental Services, Inc. September 26, 1994
Plant Technical Services, Inc. September 29, 1995
As discussed below and in Note 8 the accompanying financial statements do
not include the accounts of MBT Associates, Inc. In September 1995, the
company retroactively rescinded the acquisition agreement with MBT
Associates, Inc. entered into in June 1993 and subsequently instituted
suit against MBT and its president ( a former president and director of
Gulfstar) seeking damages for financial impropriety.
All significant intercompany accounts and transactions have been
eliminated.
Restatement and Reclassification of Financial Statement Presentation
On October 1, 1993, by unanimous consent of the board of directors, which
at the time represented a majority of the shareholders of the Company, the
Company spun off all of its subsidiaries except for MBT Associates. These
subsidiaries, namely Models World Magazine, Flair Entertainment and H.B.
London & Co. were spun off to a shareholder and director.
On September 25, 1995, the Company agreed with the initial selling
shareholder of MBT Associates to spin off this subsidiary to him.
Management was not able to ascertain from the preceding independent
auditor of record, who is now deceased, certain information pertaining to
the prior years consolidated financial statements, which included the
assets and liabilities of MBT Associates (See Note 8). The present
management did undertake to verify the parent company's records and has
contacted the preceding auditor for purposes of the parent company's
financial records other than those of the MBT subsidiary.
During the period that MBT was the legal subsidiary of the company, the
parent company did not exercise control over the subsidiary and as such
the transaction is being accounted for as if the Company has retroactively
rescinded the acquisition, in light of the fact that acquired in June of
1993, MBT Associates was spun off for the exact terms it had originally
been acquired for, namely the redemption of 650,000 shares of preferred
stock and cancellation of the note, of which no payments had been made,
for $2,000,000.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Restatement and Reclassification of Financial Statement Presentation -
(Continued)
The above activities have been excluded from this consolidated financial
statement and prior retained deficits, common stock and additional paid in
capital have been restated to reflect this readjustment as a quasi-
organization.
Revenue Recognition
During 1995, the Company's revenues were derived mainly from the
reimbursement of subcontractor costs, plus a 15% fee, by the State of
Florida on eligible contracts with site owners in the Company's Florida
subsidiary, Tier Environmental Services. Revenues from cost-plus-fee
contracts are recognized as costs are incurred during the period plus the
fee earned. Contract costs consist mainly of subcontractor costs. On
contracts with direct labor charges, revenues are recognized to the extent
of hours incurred at allowable billing rates. "Contracts in Progress"
represents the reimbursement due on subcontractor billings. "Contracts
Payable" represents payments due to subcontractors. During 1996, the
Company's primary revenues were derived mainly from engineering placement
services, and were based upon standard billing rates charged by the hours
worked. Corresponding expenses were recorded for all hours included in
revenue. Additionally, during 1995 some revenue was recorded in the
Florida subsidiary on a basis consistent with 1995.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit, and all highly liquid debt instruments
with original maturities of three months or less.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation.
Maintenance, repairs and minor replacements are charged to operations as
incurred; major replacements and betterments are capitalized.
Depreciation of fixed assets is provided on the straight-line method over
estimated useful lives of 5 to 7 years. The cost of assets sold or
retired and related accumulated depreciation are removed from the accounts
at the time of disposition, and any resulting gain or loss is reflected in
income for the period.
Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
If the sum of the expected future undiscounted cash flows is less than the
carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Goodwill
Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases.
Goodwill is amortized on a straight-line basis over 20 years. Goodwill is
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the sum of
the expected future undiscounted cash flows is less than the carrying
amount of the goodwill, a loss is recognized for the difference between
the fair value and carrying value of the goodwill.
Financial Instruments
The following methods and assumptions were used by the Company to estimate
fair values of financial instruments as discussed herein:
Cash and equivalents: The carrying amount approximates fair value because
of the short period to maturity.
Amounts due to related parties: The carrying value of the loans from
related parties, based upon the terms at which those same loans would be
made currently, approximate their fair value.
Escrow deposits: The carrying value of escrow deposits was evaluated for
the risk of loss, including prepaid interest charges, the Company expects
to incur prior to the release and receipt of such escrow.
Income Taxes
SFAS No. 109 "Accounting for Income Taxes" was issued by the Financial
Accounting Standards Board in February, 1992. SFAS No. 109 requires the
asset and liability method of accounting for income taxes. Under this
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable
to future years to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. The Company
adopted SFAS No. 109 for the year ended September 30, 1994.
Concentration of Credit Risk and Economic Dependence
Accounts receivable of Tier Environmental Services consist primarily of
the Company's 15% markup on subcontractor costs, as allowed by the State
of Florida. The subsidiaries existence is dependent upon the continued
funding of petroleum-contaminated sites by the State of Florida. From
time to time the state legislature has revised the statute which provides
this funding and presently the fund has a legislated life of 30 years from
the balance sheet date. The state, however, did change the method in
which it will administer this program.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Concentration of Credit Risk and Economic Dependence - (Continued)
The Company's subsidiary PTS is engaged in the professional engineering
business, providing consulting, design, start-up support, operation,
maintenance, contract personnel and construction management service to
technical industries throughout the United States. The Company performs
ongoing credit evaluations of its customers' financial condition and
requires no collateral.
The Company has major customers, each of which accounted for more than 10%
of sales in 1996. Sales to these customers totaled $1,770,322 for the
year ended September 30, 1996. Accounts receivable from these customers
totaled $106,693 at September 30, 1996.
The Company is dependent upon a secured creditor, not demanding payment on
its demand note, which the creditor is a company affiliated with a
stockholder and director of the Company.
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 statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Significant estimates included in the financial statements include the
value ascribed the consideration of the Company's stock issued in
connection with the acquisition of Tier in September, 1994 as well as the
contingent shares issued in September 1995, the value ascribed to the
Company's stock issued in connection with the acquisition of PTS in
September, 1995, and the value ascribed to services provided the company
which were compensated by the issuance of the Company's stock in the
statement of operations for both the years ended September 30, 1996 and
1995. Other significant estimates include the anticipated loss on a long
term contract, short fall accruals, allowance for escrow loss and the
valuation allowance for deferred tax assets.
Accounts payable and accrued expenses
Accounts payable and accrued expenses consisted of the following at
September 30, 1996:
Trade accounts payable $ 171,408
Accrued shortfall 313,107
Administrative (expenses) 6,042
Accrued payroll 101,656
Payroll taxes withheld 74,202
Accrued interest 158,194
Accrued 401K contributions 49,837
$ 874,446
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Earnings Per Share
Earnings per share amounts are computed based on the weighted average
shares outstanding plus shares that would be outstanding assuming
conversion of the preferred stock which are considered common stock
equivalents.
Schedule of Non Cash Investing and Financing Activities:
For the Years Ended
September 30,
1996 1995
2,155,000 shares in 1995 of common
stock issued for services in connection
with stock offerings and acquisitions
services and a like amount was
credited to common stock and charged
to additional paid in capital - $1,551,600
The value ascribed to the issuance of
stock in connection with the
acquisition of PTS subsidiary in 1995 - $ 330,000
Contingent shares of common stock issued
to Tier shareholders in 1995 - $ 142,855
110,000 and 485,000 shares issued in 1996
and 1995 respectively, for services
charged to operating expenses $ 44,419 $ 325,200
Reduction of and accrued expenses due to
the novation of the Mexican contract
with Hemyc $ 269,357 -
Reduction of contract receivable due to
the novation of the Mexican contract
with Hemyc $ 214,668 -
Reclassification of contract receivable
to investment in equipment - Mexican
project due to the novation of the
contract mentioned above $ 630,842 -
NOTE 4 - CAPITAL STOCK
Common Stock
In December 1986 the Company authorized 3,000 shares and issued 1,000
shares of no par common stock. In 1987 the Company also sold 10,000 units
of common stock and warrants in a public offering, which after giving
effect to splits increased the outstanding shares of the Company to
3,625,000 and the authorized shares to 10,000,000 with a par value of
$.004.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - CAPITAL STOCK - (Continued)
Common Stock - (Continued)
After additional issuances of stock from 1987 through 1993, and after
adjusting for the effect of an eight to one reverse split recorded on
September 22, 1994, the Company had 1,844,776 shares outstanding on
October 1, 1993 with a par value $.032. On this date, additional paid in
capital was charged with retained deficit amounts other than par value
pursuant to the quasi-reorganization discussed in Note 3.
During 1994, the Company sold 350,000 shares in an overseas offering which
generated gross proceeds of $700,000 to the Company. Direct offering
costs of $129,237 were incurred bringing net proceeds to the Company of
$570,763.
In connection with services rendered with the above transaction and the
acquisition discussed in Note 3, the Company issued 341,182 shares of
stock for services valued at $682,364. A corresponding charge to
additional paid in capital for the same amount was recorded.
In 1994, in connection with the Company's acquisition of TIER
Environmental Services, Inc. (Florida) the Company issued 1,491,032 shares
of common stock as discussed in Note 3. These shares are subject to the
restrictions of SEC rule 144.
In 1995 the Company sold 625,000 shares in an overseas offering which
generated gross proceeds of $918,613 to the company. Direct offering
costs of $147,700 were incurred bringing net proceeds to the Company of
$770,913.
In 1995 the Company issued 2,155,000 shares of common stock for services
in connection with the overseas offerings and the acquisition of PTS
discussed in Note 3. These shares were valued at $1,551,600 and a
corresponding charge to additional paid in capital for the same amount was
recorded.
In connection with the acquisition of TIER of Florida discussed in Note 3,
357,133 shares of common stock were to be issued to the shareholders of
TIER in 1996. The accompanying balance sheet reflects this transaction as
if it had occurred on September 30, 1995.
In 1996 and 1995 the Company issued 110,000 and 485,000 shares of common
stock for services which were charged to operating expenses, respectively.
The Company sold 1,000,000 shares in January and February 1996 in an
overseas offering which generated gross proceeds to the company of
$234,000. Direct offering costs of $35,100 were incurred bringing net
proceeds to the Company of $198,900.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - CAPITAL STOCK - (Continued)
Reserved shares
In connection with the acquisition of TIER, discussed in Note 3, 357,133
shares of common stock became due during 1995. These shares, if and when
issued, will be subject to restriction under SEC rule 144 and have been
treated as outstanding as of September 30, 1996 and have yet to be issued.
The Company has requested its transfer agent to withhold from issuance or
alternatively block from future sale 136,466 shares issued for services.
This action is pending the outcome of a countersuit with the disavowed
shareholder. These shares are treated as outstanding as of September 30,
1996.
In connection with the lawsuits and potential settlements anticipated
thereon discussed in Note 8, management and the adverse parties have both
indicated a willingness to resolve certain amounts in dispute with the
issuance of common stock. The Company may have to increase its authorized
shares of common stock above the existing 10,000,000 total in order to
settle these matters.
Preferred Stock
The certificate of incorporation of the Company authorizes its board of
directors to issue for value 1,000,000 shares of preferred stock, $10 par
value. Preferred stock may be issued in series with such designations,
relative rights, preferences and limitations as may be fixed from time to
time by the board of directors of the Company. In connection with the
acquisition of PTS, the Company issued 75,000 shares which are convertible
into common stock on a one to one basis.
NOTE 5 - TRANSACTIONS WITH RELATED PARTIES
The Company paid $35,100 in 1996 and $147,700 in 1995 to a company
affiliated with a stockholder and former officer for fees in connection
with the issuance of stock to overseas investors.
In 1995 the Company also issued 410,000 shares to the above stockholder
for services in connection with the Company's acquisitions. The 410,000
shares were valued at $295,000 and charged to additional paid in capital.
During the year ended September 30, 1995, $325,200 was charged to
operations based upon the value ascribed to services of a director and
administrative assistant performed during the period for which they were
issued 485,000 shares.
During the year ending September 30, 1996, $44,419 was charged to
operations based upon the value ascribed to 110,000 shares which were
issued to a law firm and a consultant for services performed during the
period.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - TRANSACTIONS WITH RELATED PARTIES - (Continued)
Included in amounts due to related parties at September 30, 1996 for
expenses advanced by a company affiliated with a stockholder and director
of the company is $754,399 and $9,000 advanced from a corporate
stockholder. Other than the $9,000 from the corporate stockholder, these
amounts bear an interest rate of prime and are due upon demand.
Note payable to stockholder (the former sole stockholder of PTS) includes
$7,145 of a non-interest bearing instrument. Additionally, this note has
been reduced by amounts reserved for the anticipated loss on long term
contract and $918,944 remains which represents the balance on the
acquisition note after such reduction, bearing interest at 8%. $72,760 of
interest was accrued on this note and is included in interest expense and
accrued expenses for the year ending September 30, 1996.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1996 consisted of the following:
Furniture and fixtures $ 83,930
Office equipment 15,160
Equipment 273,806
Software 1,820
Leasehold improvements 1,662
Total 376,378
Less: accumulated depreciation (299,057)
$ 77,321
NOTE 7 - LEASES
The Company leases certain of its office facilities and office equipment
under operating leases. Future minimum lease payments as of September 30,
1996 are:
Year
1997 $ 17,556
1998 17,556
1999 17,556
2000 5,852
Total $ 58,520
Rent expense for all premises leases for 1996 and 1995 was approximately
$36,164 and $22,000 respectively. Rent expenses for equipment leases for
1995 was $10,674.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company's Tier subsidiary is a defendant in various lawsuits from
vendors who are seeking moneys which are payable, by the State of Florida,
for services related to the assessment and clean-up of petroleum
contamination. The services for which payments are sought are generally
authorized for reimbursement pursuant to legislative enactments. The
lawsuits have mostly resulted from the State of Florida delaying payments
and by eliminating the payment of interest. The Company has been
successful in eliminating similar lawsuits as its "funding packages" are
factored, as discussed in Note 10 and submitted to the State of Florida.
Also in lieu, the Company can pay the plaintiffs the amount due and then
recoup most or all of these funds from the State of Florida. Management
believes that the lawsuits will be settled within the next fiscal year
without significant effect on the Company's financial statements.
The Company is also a defendant in four cases not related to reimbursement
from the State of Florida. These cases involve allegations of direct
debts of the Company. The original debts of the plaintiff's have been
recorded on the Company's financial statements. The management of the
Company is negotiating to resolve these cases and expects settlement prior
to court proceedings.
The State of Florida has notified the Company of approximately $220,000 of
expenses included in funded packages that will not be approved for
reimbursement. The investor's who funded the packages will seek
reimbursement from the Company on these shortfalls.
Included in the Company's Statement of Operations for 1995 are expenses
totaling approximately $75,000 for professional and consultant fees
related to an unsuccessful attempt to obtain bond financing for funding
packages in lieu of investor funds.
The Company's subsidiary PTS has various claims and pending actions
incident to the business operations of the Company including equipment
delivered for the Mexican project. One supplier obtained a judgement of
$388,904, which is included in the amounts already recorded as payables
for this project. In the opinion of management, the Company's potential
liability in all pending actions and claims has been properly accrued for.
The Company's subsidiary PTS has entered into an employment agreement with
its President for a period of five years beginning September 29, 1995 that
provides for a minimum annual salary of $150,000 and also benefits,
performance bonuses and a commission of 1% of the purchase price on all
acquisitions completed on behalf of the Company. The Company terminated
the president in May of 1996 and is involved in litigation with their
former president. The former president is seeking salary under the terms
of the employment agreement and under a cross complaint the Company is
seeking a reduction in the note payable, discussed in Note 5, pursuant to
its lawsuit which among other things alleges breech of contract, failure
to disclose a pending lawsuit as well as misrepresentation of financial
conditions.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES - (Continued)
The Company's subsidiary PTS has also entered into an employment agreement
with its Vice President for a period of three years commencing September
29, 1995 that provides for annual compensation of $72,000 plus benefits
and an option to purchase common stock of the Company valued at $100,000
issued in the form of a warrant.
In connection with the spin off of its MBT subsidiary discussed in Note 3,
the Company subsequently became aware of the possibility of financial
improprieties and potential misstatements in financial statements
previously issued. The Company has initiated a lawsuit against the former
president of this subsidiary to whom the other subsidiary had been spun
off to. The suit alleges, amongst other items, that the president did not
make available financial information as required in its agreement to the
parent company. The Company is seeking $5,000,000 in damages, in a
lawsuit filed in Florida. Both the former president and the former
subsidiary corporation have defaulted and the Company is proceeding to
obtain a default judgement against them. The Company cannot at this time
reasonably predict whether it will be able to collect this judgement.
NOTE 9 - INCOME TAXES
Provision for income taxes relating to the company's Tier subsidiary
consists of the following:
1996 1995
(Income tax expense) benefit from taxes
- deferred $ 61,440 $ (2,028)
Provision for income tax differs from income tax expense that would result
from applying domestic statutory rates to pretax income from continuing
operations as follows:
1996 1995
Effect of non-deductible expenses $ - $ 506
Deferred tax effects of temporary
differences 79,374 (2,534)
(Provision for) benefit from income
taxes $ 79,374 $ (2,028)
Deferred taxes consist of the following at September 30, 1996:
Total deferred tax assets $1,313,129
Less: valuation allowance (1,171,276)
141,853
Total deferred tax liabilities (141,853)
Net deferred tax liability $ -
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
Deferred tax assets and liabilities are attributable to temporary
differences relating to accounts receivable and accounts payable that
arise primarily because one of the Company's subsidiaries is on a cash
basis for federal income tax purposes. The other subsidiary has deferred
tax assets which are attributable to temporary differences relating to the
anticipated loss on long term contracts. The approximate tax affects of
these temporary differences are reflected in the figures for total
deferred tax assets and total deferred tax liabilities above. In
addition, the Company has net operating loss carryovers of approximately
$6,426,658 available to offset taxable income. At the date of the quasi-
reorganization discussed in Note 3 the Company had available net operation
loss carryforwards of $3,050,140 after which the tax benefits will be
reported as a direct addition to contributed capital if the tax benefits
are recognized in a subsequent year. Deferred tax assets are provided on
net operating loss carryforwards for tax purposes of $3,376,518 which have
arisen subsequent to the quasi-reorganization.
NOTE 10 - FINANCING OF RECEIVABLES
Sale of Receivables:
During 1992, the company's PTS subsidiary began selling all or part of its
trade receivables to a financial institution. Under the terms of the
agreement, the Company receives 85% of the sold receivable on a
nonrecourse basis. Of the remaining 15%, 2% is retained by the financial
institution as a fee charged to the company and 13% is remitted to the
Company upon receipt from the Company's customer. As of September 30,
1996 included in other receivables is a balance due from financial
institutions of $48,774
Outside Funding of Vendors By Investors:
The Company's Tier subsidiary has paid premiums to finance companies to
fund certain project receivables upon completion approval by the state of
Florida. No amounts are outstanding as of September 30, 1996 on such
receivables. In connection with this sale the unamortized bonding
premiums were written off to zero and included in impairment loss.
The Receivables of the Tier subsidiary have been used as collateral to
fund the payment of certain contracts payable to vendors which in turn
have been funded by outside investors.
In connection with the funding and closing of individual contracts,
$291,237 has been escrowed for various potential charges by Florida or the
funder of which the company estimates $96,108 to be the allowance for
escrow loss.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - DEFINED EMPLOYEE CONTRIBUTION PLANS
Effective May 1, 1990, the Company's PTS subsidiary adopted the Comerica
Bank-Texas Profit Sharing and 401(k) Master Defined Contribution Plan and
Trust. All employees are eligible for participation. The Company may
make matching contributions equal to the participant's eligible
contributions, which may not exceed 5% of the participant's compensation
for the plan year. No matching contributions to the plan were made during
the year ending September 30, 1996.
NOTE 12 - NOTES PAYABLE
Notes payable consists of the following at September 30, 1995:
Note payable, 8% interest, originally due
December 1, 1994, unsecured and in arrears $ 48,000
Note payable, 9% interest, originally due
December 23, 1993, unsecured and in arrears 25,000
Note payable, 9% interest, originally due
November 18, 1993, unsecured and in arrears 33,000
Note payable, 8% interest, originally due
December 22, 1994, unsecured and in arrears 30,561
$ 136,561
NOTE 13 - SEGMENT INFORMATION
The Company operated principally in two industries, engineering placement
services and remediation of gasoline contaminated properties. Operations
in the engineering placement service involve the placement of qualified
people from the company's pool of professionals at utility companies in
North America for a fee. Operations in remediation services involves
managing for a fee clean up on approved sites and subsequent reimbursement
in the State of Florida. Total revenue by industry includes both sales to
unaffiliated customers, as reported in the Company's consolidated income
statement.
Operating profit is total revenue less operating expenses. In computing
operating profit, none of the following items has been added or deducted:
general corporate expenses, interest expense, income taxes. Depreciation
and amortization for engineering placement services and remediation
services, respectively was $123,666 and $196,401. Capital expenditures
for the two industries was $11,277 and $0, respectively.
Identifiable assets by industry are those assets that are used in the
Company's operations in each industry.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - SEGMENT INFORMATION - (Continued)
To reconcile industry information with consolidated amounts, eliminations
have been made for intercompany advances and intercompany charges.
Engineering
Placement Remediation Elimi-
Services Services nations Consolidated
Sales to
unaffiliated
customers $3,672,357 $1,082,360 $ 0 $4,754,717
Intersegment
sales - - - -
Total revenue $3,672,357 $1,082,360 $ 0 $4,754,717
Operating loss (215,321) (2,106,746) 66,282 (2,255,785)
General corporate
expenses 239,142
Interest expense 189,515
Income from
continuing
operations
before income
taxes (2,684,442)
Identifiable
assets at
September 30,
1996 $2,174,249 $3,349,289 $(181,877)$5,341,661
Total assets at
September 30,
1996 5,341,661
NOTE 14 - SUBSEQUENT EVENTS
In December 1996, the president of the Florida subsidiary resigned along
with the remaining full time employees of this division. The Company has
engaged and will engage a consultant to review administer the remaining
contracts in progress, and follow up potential short falls and escrows
relating to the projects, as funded under Florida's prior reimbursement
plan.
Effective January 1, 1997 the Company will solicit, yet has to obtain,
contracts under the new program and cannot reasonably predict the cash
flow from this division. The effect of this may be to cease all current
reserve in the Florida subsidiary. The Company has included in impairment
loss one-half of the remaining value of goodwill recorded when this
subsidiary was acquired as well as 100% of the remaining bonding premiums
paid to provide funding under the prior method of funding these contracts.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
NONE
PART III
Item 9. Directors and Executive Officers of Registrant.
(a) Directors and Officers. The following schedule sets forth the name
of each director and officer of the Company and the nature of all positions, and
offices with the Company presently held by them during the fiscal year ended
September 30, 1996. Each director and officer, except Amin Bishara who was
appointed temporarily to fill a vacancy, has been elected until the next annual
meeting of shareholders of the Company, or until his successor shall have been
elected and qualified. As part of the acquisition agreement with Plant
Technical Services, Inc., of Texas, some of the previous directors have
resigned and new directors have been appointed in their place as of September
30, 1996.
The executive officers and directors of the Company are as follows:
Name Age Position Held
Warren Douglas Cattanach 51 Director and Officer
(resigned December, 1996)
George E. Fiske 60 Director and Officer
(resigned January, 1997)
Amin T. Bishara 51 Director (Temporary)
(terminated May, 1996)
Frank Corris 49 President of Plant
Technical Services, Inc.
(retired April, 1997)
William O'Callaghan 55 Outside Director
Martin Sportschuetz 35 Outside Director
Jochen Brenner 30 Outside Director
Warren Douglas (Doug) Cattanach, had been the President and CEO of Tier of
Florida since January of 1994. He had served as Vice President and Construction
Coordinator of Tier since June of 1992. Previous to that position was the Vice
President, Chief Estimator and Project Manager of the Greater Bay Construction
Company, where he was involved in commercial construction projects of up to
$5m.
His experience as Project Coordinator and General Manager was gained while
working for Innovative Remodeling and Design, Inc.; Soltesz/Brandt Development
Corporation; and Chattan Development Corporation, during the period from June
1989 until September 1991. On December 26, 1996, Mr. Cattanach resigned as
president of Tier of Florida.
Amin T. Bishara joined the Company as a temporary Director on September 27,
1995, pending stockholder approval, as part of the acquisition and merger
agreement with Plant Technical Services, Inc. Mr. Bishara was the majority
shareholder of PTS and originally stayed on as the President of the subsidiary
and was assigned a seat on the Board of Directors. On May 19, 1996 Mr. Bishara
was terminated. The Company is presently in litigation with Mr. Bishara.
Martin Sportschuetz became a director in March, 1996 and represents the
interest of various German clients who have invested in the Company since 1993.
Item 9. Directors and Executive officers of Registrant. - (continued)
Mr. Jochen A. Brenner became a director of the Company in connection with
the shareholders' meeting of March 15, 1996, in representation for the interest
of German clients who have been purchasing the Company's securities in the open
market since 1993. Mr. Brenner is the founder and chief executive officer of
SFU Group, Ltd. SFU manages funds for a number of other private investors,
including investments in real estate, energy, and currency trading. Mr.
Brenner attended the University of Hohenheim, Stuttgart, where he studied
economics from 1986 to 1989.
Item 10. Executive Compensation.
Securities
of property
Salaries, insurance
fees, benefits or
director's repayment
Name of individual fees, of
or number of Capacities in commission personal
persons in group which served and Bonuses Benefits
Warren Douglas Cattanach Director/Officer $ 105,470 0
Amin T. Bishara Director (Temporary) 73,500 0
Frank Corris Officer 70,970 0
Officers and Directors
as a group $ 249,940 0
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Management
The following table sets forth the number of Common Shares of the Company
owned by record, or to the knowledge of the Company, beneficially, by each
Officer or Director of the Company and by each person owning five percent or
more of the Company's outstanding shares, as of September 30, 1996.
Amount and Nature of Percentage of
Name and Address Beneficial Ownership Class Owned
Warren Douglas Cattanach 609,250 7.09%
Amin T. Bishara 750,000 8.73%
All officers and directors as a group own 1,359,250 or 15.82% of the
outstanding shares of the Company.
Item 12. Certain Relationships and Related Transactions.
The Company paid $35,100 in 1996 and $147,700 in 1995 to a company
affiliated with a stockholder and former officer for fees in connection with the
issuance of stock to overseas investors.
In 1995 the Company also issued 410,000 shares to the above stockholder for
services in connection with the Company's acquisitions. The 410,000 shares were
valued at $295,000 and charged to additional paid in capital.
Item 12. Certain Relationships and Related Transactions. - (continued)
During the year ended September 30, 1995, $325,200 was charged to
operations based upon the value ascribed to services of a director and
administrative assistant performed during the period for which they were issued
485,000 shares.
During the year ending September 30, 1996, $44,419 was charged to
operations based upon the value ascribed to 110,000 shares which were issued to
a law firm and a consultant for services performed during the period.
Included in amounts due to related parties at September 30, 1996 for
expenses advanced by a company affiliated with a stockholder and director of the
company is $754,399 and $9,000 advanced from a corporate stockholder. Other
than the $9,000 from the corporate stockholder, these amounts bear an
interest rate of prime and are due upon demand.
Note payable to stockholder (the former sole stockholder of PTS) includes
$7,145 of a non-interest bearing instrument. Additionally, this note has been
reduced by amounts reserved for the anticipated loss on long term contract and
$918,944 remains which represents the balance on the acquisition note after such
reduction, bearing interest at 8%.
Accounts receivable of Tier Environmental Services consist primarily of the
Company's 15% markup on subcontractor costs, as allowed by the State of
Florida. The subsidiaries existence is dependent upon the continued funding
of petroleum-contaminated sites by the State of Florida. From time to time
the state legislature has revised the statute which provides this funding and
presently the fund has a legislated life of 30 years from the balance sheet
date. The state, however, did change the method in which it will administer
this program.
The Company has major customers, each of which accounted for more than 10%
of sales in 1996. Sales to these customers totaled $1,770,322 for the year
ended September 30, 1996. Accounts receivable from these customers totaled
$106,693 at September 30, 1996.
The Company is dependent upon a secured creditor not demanding payment on
its demand note. The creditor is a company affiliated with a stockholder and
director of the Company.
<PAGE>
PART IV
Item 13. Exhibits.
(a)(1) The following is a list of exhibits filed as part of this
Annual Report on Form 10-KSB. Where so indicated by footnote,
exhibits which were previously filed are incorporated by
reference.
Exhibit Number
Reference Description
(3a)* Articles of Incorporation, as amended
(3b)* By-laws, as amended
(4)* Specimen of Common Stock certificate
(101)* Agreement and merger plan between Tier Environmental Services,
Inc. and Plant Technical Services, Inc.
(10m)* Employment Agreement with:
(a) Amin Bishara
(b) Frank Corris
(11) 1.) Computation of Earnings Per Share
(12)* Agreement of Sale between Tier Environmental Services, Inc.
and MBT
Associates, Inc.
(27) 1.) Financial Data Schedule for the fiscal year ended September
30, 1996
* The above items were previously filed and are hereby incorporated by
reference.
1. Enclosed herewith
<PAGE>
Item 14.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be singed on
its behalf by the undersigned, thereunto duly authorized.
Gulfstar Industries, Inc.
(Registrant)
By:
Dated:
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated
NAME CAPACITY
William O'Callaghan Acting Chairman
<PAGE>
Exhibit 11.
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For the Years Ended
September 30,
1996 1995
Computation of primary earnings per common share
Average shares outstanding $ 9,193 $ 5,380
Total $ 9,193 $ 5,380
Net (Loss) $ 2,605 $(1,090)
Net (loss) per share $ (.28) $ (.20)
1. Earnings per share are based on the weighted average shares outstanding
for all periods presented giving recognition for the conversion of 75,000
preferred shares to common stock in 1995.
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,657
<SECURITIES> 0
<RECEIVABLES> 2,009,284
<ALLOWANCES> 8,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,325,581
<PP&E> 1,044,903
<DEPRECIATION> 299,057
<TOTAL-ASSETS> 5,341,661
<CURRENT-LIABILITIES> 4,285,201
<BONDS> 0
<COMMON> 304,292
0
750,000
<OTHER-SE> 3,314,934
<TOTAL-LIABILITY-AND-EQUITY> 5,341,661
<SALES> 4,728,060
<TOTAL-REVENUES> 4,754,717
<CGS> 4,054,494
<TOTAL-COSTS> 6,008,810
<OTHER-EXPENSES> 1,954,316
<LOSS-PROVISION> 1,430,349
<INTEREST-EXPENSE> 189,515
<INCOME-PRETAX> (2,684,442)
<INCOME-TAX> (79,374)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,605,068)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
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