FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest event reported) July 24, 1996
REALCO, INC.
(Exact name of registrant as specified in its charter)
New Mexico 0-27552 85-0316176
(State of other jurisdictions (Commission (IRS Employer
Of incorporation) File Number) Identification No.)
1650 University Blvd., N.M., Suite 100, Albuquerque, New Mexico 87102
(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code 505-242-4561
Item 2. Acquisition or Disposition of Assets.
(a) On July 24, 1996, the Registrant signed an agreement to acquire all of the
outstanding and issued common shares of Amity, Inc., an Albuquerque, New Mexico
general contractor specializing in light commercial and residential remodel
construction.
(i) The assets of the acquired business consists primarily of cash;
accounts receivable; vehicles and miscellaneous tools.
(ii) The registrant has agreed to exchange series "D" convertible
preferred stock, $10.00 per share liquidation value bearing 3%
cumulative dividend, in exchange for 200 common shares of the acquired
business, such shares representing the sole stock issued and
outstanding of Amity, Inc. The number of preferred shares and value of
such shares, shall be issued upon the completion of the Amity, Inc.
Financial audit of its fiscal years ended June 30, 1995 and June 30,
1996. Upon completion of the audits, estimated to be completed by
September 15, 1996, the Registrant will issue to the seller, preferred
shares as described above in the amount equal to the audited net worth
of Amity, Inc., plus $100,000 to be combined with the audited net
worth, which sum will represent the fair market value of the assets
acquired.
(iii) The sole stockholder of Amity, Inc. Is Vincent J. DiGregory.
DiGregory is not related to or affiliated with any director, officer
or associate of the Registrant. DiGregory has signed a three year
employment agreement with Amity, Inc. In addition, DiGregory will
receive an annual bonus of 20% in excess of $200,000 annual pre-tax
earnings of Amity, Inc. At the anniversary of each of the three years
of employment by DiGregory, DiGregory will Receive 16,666.
Unregistered warrants to purchase stock of the Registrant, terms and
conditions of the issued warrants will be similar to those warrants
currently issued and outstanding, which warrants were offered on
February 2, 1996 as part of an Initial Public Offering of the
Registrant.
(iv) The securities to be issued in consideration of the transaction
shall be authorized from the Registrants authorized and unissued
preferred stock. Such issued shares to be issued shall be restricted
as to sale and disposition.
(b) Equipment consisting of tools, vehicles and office equipment will continue
to be employed for the purpose described in (a)(i) above.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
Amity, Inc.
Independent Auditors' Report
Balance Sheets, June 30, 1996 and 1995
Statements of Earnings and Retained Earnings, Years ended June 30, 1996 and 1995
Statements of Cash Flows, Years ended June 30, 1996 and 1995
Notes to Financial Statements
(b) Pro Forma Financial Information. The following unaudited pro forma
information has been included as required by the rules of the Securities and
Exchange Commission and is provided for comparative purposes only. The unaudited
pro forma information presented is based upon and should be read in conjunction
with the respective historical financial statements and related notes thereto of
each of the Registrant and Amity, Inc. The pro forma information presented does
not purport to represent the actual results which would have occurred if the
acquisition of Amity, Inc. had been consummated on the dates before the periods
indicated, nor is it indicative of the operating results in any future period.
Introduction
Pro-Forma Condensed Consolidated Balance Sheets - Unaudited, June 30, 1996
Pro-Forma Condensed Consolidated Statements of Operations - Unaudited , Year
Ended September 30, 1995
Pro-Forma Condensed Consolidated Statements of Operations - Unaudited, Nine
Months Ended June 30, 1996
Notes to Pro-Forma Condensed Consolidated Financial Statements - Unaudited
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed in its behalf by the undersigned hereunto duly
authorized.
Realco, Inc. James A. Arias
---------------------------------
James A. Arias, President
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
AMITY, INC.
June 30, 1996 and 1995
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
Amity, Inc.
We have audited the accompanying balance sheets of Amity, Inc., as of June 30,
1996 and 1995, and the related statements of earnings and retained earnings and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amity, Inc., as of June 30,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
August 2, 1996
Amity, Inc.
BALANCE SHEETS
June 30,
ASSETS 1996 1995
-------- --------
CURRENT ASSETS
Cash and cash equivalents ........................ $ 71,159 $ 83,533
Accounts receivable (note F) ..................... 17,652 4,112
Receivable from officer and shareholder .......... 56 17,642
Prepaid insurance ................................ 1,670 5,561
Costs and estimated earnings in excess of
billings on uncompleted contracts (note B) ..... 349,542 330,085
-------- --------
Total current assets ...... 440,079 440,933
PROPERTY AND EQUIPMENT - AT COST
Furniture and fixtures ........................... 21,319 18,215
Equipment ........................................ 17,935 6,040
Vehicles ......................................... 42,852 21,788
-------- --------
82,106 46,043
Less accumulated depreciation .................. 27,133 9,069
-------- --------
54,973 36,974
Lots held for development (note C) ............... 131,000 131,000
-------- --------
185,973 167,974
-------- --------
$626,052 $608,907
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable ................................. $347,247 $265,989
Accrued expenses ................................. 54,820 54,651
Income taxes payable ............................. -- 8,058
Deferred income taxes (note E) ................... 10,054 27,930
Billings in excess of costs and estimated
earnings on uncompleted contracts (note B) ..... 223 --
Current maturities of long-term debt (note D) .... 3,268 51,276
-------- --------
Total current liabilities ............ 415,612 407,904
NOTE PAYABLE TO RELATED PARTY (note C) ................... 61,000 61,000
LONG-TERM DEBT, less current maturities (note D) ......... 6,471 9,728
SHAREHOLDER'S EQUITY
Common stock - $1 par value; authorized,
500,000 shares; issued and outstanding,
200 shares ..................................... 200 200
Additional paid-in capital ....................... 4,128 4,128
Retained earnings ................................ 138,641 125,947
-------- --------
142,969 130,275
-------- --------
$626,052 $608,907
======== ========
The accompanying notes are an integral part of these statements.
Amity, Inc.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Year ended June 30,
1996 1995
----------- -----------
Construction revenues ............................ $ 3,615,224 $ 1,958,135
Costs of contract revenues earned ................ 3,403,457 1,790,185
----------- -----------
Gross profit ...................... 211,767 167,950
Selling, general, and administrative expenses .... 194,847 45,386
----------- -----------
Operating profit .................. 16,920 122,564
Other (income) expense
Interest income .......................... (4,994) (1,495)
Miscellaneous ............................ (1,544) 8
Interest expense ......................... 11,582 13,013
Loss on disposition of asset ............. -- 461
----------- -----------
5,044 11,987
----------- -----------
Earnings before income taxes ...... 11,876 110,577
Provision for income taxes
Current expense .......................... 17,058 19,738
Deferred tax (benefit) expense ........... (17,876) 11,875
----------- -----------
(818) 31,613
----------- -----------
NET EARNINGS ...................... 12,694 78,964
Retained earnings at beginning of year ........... 125,947 46,983
----------- -----------
Retained earnings at end of year ................. $ 138,641 $ 125,947
=========== ===========
The accompanying notes are an integral part of these statements.
Amity, Inc.
STATEMENTS OF CASH FLOWS
Year ended June 30,
1996 1995
--------- ---------
Cash flows from operating activities
Net earnings ....................................... $ 12,694 $ 78,964
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation ................................... 18,064 7,231
(Increase) decrease in
Receivables ................................. 4,308 (21,754)
Prepaid insurance ........................... 3,891 (5,561)
Net billings related to costs and
estimated earnings on uncompleted
contracts ................................. (19,234) (197,732)
Increase (decrease) in
Accounts payable ...................... 81,258 187,720
Accrued expenses ...................... (8,320) 11,382
Income taxes payable .................. 169 (7,781)
Deferred taxes ........................ (17,876) 11,875
--------- ---------
Net cash provided by operating
activities ........................ 74,954 64,344
Cash flows from investing activities
Acquisition of property and equipment .............. (36,063) (38,806)
Acquisition of lots ................................ -- (131,000)
Loss on sale of equipment .......................... -- 461
--------- ---------
Net cash used in investing activities (36,063) (169,345)
Cash flows from financing activities
Proceeds from note payable and long-term debt ...... -- 143,076
Payments on note payable and long-term debt ........ (51,265) (21,072)
--------- ---------
Net cash (used in) provided by
financing activities .............. (51,265) 122,004
--------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS .............. (12,374) 17,003
Cash and cash equivalents at beginning of year ....... 83,533 66,530
--------- ---------
Cash and cash equivalents at end of year ............. $ 71,159 $ 83,533
========= =========
Cash paid during the year for:
Interest ........................................... $ 18,482 $ 5,863
Income taxes ....................................... 25,378 11,680
The accompanying notes are an integral part of these statements.
Amity, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 and 1995
NOTE A - OPERATING ACTIVITIES AND SUMMARY OF ACCOUNTING POLICIES
Amity, Inc. ("Amity") was organized June 20, 1991. Amity engages in commercial
and residential construction in the greater Albuquerque, New Mexico area. The
majority of Amity's revenues are generated from commercial contracts in the
Albuquerque area. Receivables from these customers may generally be
collateralized by a contractor's lien on the project.
1. Revenue and Cost Recognition
These financial statements reflect the use of the percentage-of-completion
method for significant construction contracts; accordingly, income is recognized
in the ratio that costs incurred bear to estimated total costs. The aggregate of
costs incurred and income recognized on uncompleted contracts in excess of
related billings is shown as a current asset, and the aggregate of billings on
uncompleted contracts in excess of related costs incurred and income recognized
is shown as a current liability. Certain short-term smaller contracts are
accounted for on the completed-contract method, which does not vary
significantly from the percentage-of-completion basis of accounting.
Contract costs include all direct material, subcontractor, supplies, and labor
costs and those indirect costs relating to contract performance. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, estimated
profitability, and final contract settlements may result in revisions to costs
and income and are recognized in the period in which the revisions are
determined.
2. Property and Equipment
Depreciation is provided principally on the straight-line method over the
estimated useful lives of three to five years.
3. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures; accordingly, actual results
could differ from those estimates.
4. Income Taxes
Amity provides for deferred income taxes under the liability method by applying
enacted tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. Temporary differences result primarily from certain expenses not
currently deductible for tax purposes, differences between the bases of property
and equipment for financial reporting and tax reporting, and the use of the
completed-contract method for tax reporting.
5. Cash Equivalents
Amity considers money market accounts to be cash equivalents.
6. Fair Value of Financial Instruments
Amity's financial instruments consist of cash and cash equivalents, a note
payable to a related party, and long-term debt, all of which are reported in the
financial statements at amounts which approximate fair value.
All such financial instruments are held for purposes other than trading.
NOTE B - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
June 30,
---------------------------
1996 1995
----------- -----------
Costs incurred on uncompleted contracts ......... $ 1,807,966 $ 976,685
Estimated earnings .............................. 18,208 105,779
----------- -----------
1,826,174 1,082,464
Less billings to date ........................ 1,476,855 752,379
----------- -----------
$ 349,319 $ 330,085
=========== ===========
Included in accompanying balance sheets
under the following captions
Costs and estimated earnings in excess
of billings on uncompleted contracts ...... $ 349,542 $ 330,085
Billings in excess of costs and estimated
earnings on uncompleted contracts ......... (223) --
----------- -----------
$ 349,319 $ 330,085
=========== ===========
NOTE C - NOTE PAYABLE TO RELATED PARTY
The note payable to related party: includes interest at 10% which is payable
annually; is collateralized by the lots held for development; and is payable
upon sale of the lots.
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following at June 30:
1996 1995
------- -------
Note payable to finance company, payable
in monthly installments of $337, including
interest at 9% through May, 1999; collateralized
by a vehicle ........................................... $ 9,739 $12,715
Revolving $150,000 note payable to bank, interest
payable monthly at prime plus 2%; collateralized
by residence of stockholder ............................ -- 48,289
------- -------
9,739 61,004
Less current maturities ............................. 3,268 51,276
------- -------
$ 6,471 $ 9,728
======= =======
Future maturities of long-term debt at June 30, 1996 are as follows:
Year ending June 30
1997 $ 3,268
1998 3,574
1999 2,897
----------
$ 9,739
==========
NOTE E - INCOME TAXES
Components of net deferred taxes are as follows at June 30:
1996 1995
--------- ---------
Assets
Costs in excess of billings .......... $ 364,088 $ 172,002
Valuation allowance .................. (2,223) (6,921)
--------- ---------
$ 361,865 $ 165,081
========= =========
Liabilities
Billings in excess of costs .......... $ 366,319 $ 189,541
Property and equipment ............... 5,600 3,470
--------- ---------
$ 371,919 $ 193,011
========= =========
The valuation allowance decreased $4,698 and increased $6,921 during the years
ended June 30, 1996 and 1995, respectively. The effective tax rate is less than
expected for 1996 primarily as a result of this change in the valuation
allowance.
NOTE F - RELATED PARTY TRANSACTIONS
During the year ended June 30, 1996, Amity had two uncompleted contracts with
related parties for which revenues of $1,795,395 and costs of $1,778,745 were
recognized. Costs and estimated earnings in excess of billings on these
contracts were $313,857 at June 30, 1996.
Amity uses limited office space in a building owned by a related party; no rent
is charged for this space. At June 30, 1996, Amity was owed approximately $2,300
by related parties relating to construction contracts.
NOTE G - SUBSEQUENT EVENTS
As of July 1, 1996, all the common stock of Amity was acquired by Realco, Inc.
("Realco"). Realco is primarily engaged in the real estate industry as a general
residential home building contractor and as a commercial and residential real
estate brokerage.
Unaudited Pro-Forma Consolidated
Financial Information
Realco, Inc. and Subsidiaries
and
Amity, Inc.
The following unaudited pro-forma consolidated balance sheet as of June 30, 1996
and the pro-forma statements of operations for the year ended September 30,
1995, and the nine months ended June 30, 1996, give effect to the acquisition of
all of the outstanding capital stock of Amity, Inc. ("Amity") by Realco, Inc.
("Realco").
The acquisition of Amity has been accounted for as a purchase under generally
accepted accounting principles. Cost in excess of the net assets acquired was
approximately $100,000.
The pro-forma consolidated financial statements do not purport to be indicative
of the results that would actually have been obtained if the combination had
been in effect on the dates indicated, or that may be obtained in the future.
The pro-forma calculations presented are for comparative purposes only. The
pro-forma statements are based upon the financial statements of the Company and
Amity and should be read in conjunction with those financial statements and
related notes.
The pro-forma condensed consolidated statements of operations for the year ended
September 30, 1995, include the condensed statement of operations of Amity for
the year ended June 30, 1995. The pro-forma condensed statements of operations
for the nine months ended June 30, 1996, include a condensed portion of the
statement of operations of Amity.
REALCO, INC. AND SUBSIDIARIES
AND AMITY, INC.
PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA
--------------------------------- -------------------------------------
REALCO AMITY ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
(Unaudited) (Uaudited)
<S> <C> <C> <C> <C>
ASSETS
- ------
ASSETS:
Cash and cash equivalents ................ $ 6,016,968 $ 71,159 $ 6,088,127
Inventories .............................. 9,974,897 480,542 10,455,439
Property & equipment, net ................ 766,947 54,973 821,920
Other assets ............................. 6,361,431 19,378 100,000 (1) 6,480,809
------------ ------------ ------------
$ 23,120,243 $ 626,052 $ 23,846,295
============ ============ ============
LIABILITIES & STOCKHOLDERS'
EQUITY
- ---------------------------
LIABILITIES:
Accounts payable & accrued
liabilities ............................ $ 2,055,493 $ 402,067 $ 2,457,560
Construction advances &
notes ayable ........................... 3,461,339 9,739 3,471,078
9.5% subordinated notes .................. 5,750,000 -- 5,750,000
Other liabilities ........................ 857,970 71,277 929,247
------------ ------------ ------------
12,124,802 483,083 12,607,885
STOCKHOLDERS' EQUITY ....................... 10,995,441 142,969 (100,000)(1) 11,238,410
------------ ------------ ------------
$ 23,120,243 $ 626,052 $ 23,846,295
============ ============ ============
</TABLE>
See accompanying footnotes to unaudited pro-forma financial statements.
REALCO, INC. AND SUBSIDIARIES
AND AMITY, INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA
--------------------------------- -----------------------------
REALCO AMITY ADJUSTMENTS COMBINED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES ................................................. $ 13,808,746 $ 1,958,135 $ 15,766,881
COSTS AND EXPENSES ....................................... 13,933,953 1,847,558 6,667 (2) 15,788,178
------------ ------------ ------------
(LOSS) EARNINGS BEFORE INCOME TAX
EXPENSE ............................................... (125,207) 110,577 (21,297)
INCOME TAX (BENEFIT) EXPENSE ............................. (59,517) 31,613 (27,904)
------------ ------------ ------------
(LOSS) EARNINGS BEFORE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE ........................ (65,690) 78,964 6,607
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ................................... (15,870) -- (15,870)
------------ ------------ ------------
NET (LOSS) EARNINGS ...................................... $ (49,820) $ 78,964 $ 22,477
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE ......................... $ (0.03) $ 0.01
============ ============
Weighted average common shares outstanding ............... 1,845,000 1,845,000
</TABLE>
See accompanying footnotes to unaudited pro-forma financial statements.
REALCO, INC. AND SUBSIDIARIES
AND AMITY, INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA
----------------------------- -------------------------------
REALCO AMITY ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES .................................................. $16,413,878 $ 2,711,418 $19,125,296
COSTS AND EXPENSES ........................................ 16,177,214 2,702,511 5,000 (2) 18,884,725
----------- ----------- -----------
EARNINGS BEFORE INCOME TAX
EXPENSE ................................................. 236,664 8,907 240,571
INCOME TAX EXPENSE (BENEFIT) .............................. 80,500 (614) 79,886
----------- ----------- -----------
NET EARNINGS .............................................. $ 156,164 $ 9,521 $ 160,685
=========== =========== ===========
EARNINGS PER COMMON SHARE ................................. $ 0.07 $ 0.07
=========== ===========
Weighted average common shares outstanding ................ 2,381,496 2,381,496
</TABLE>
See accompanying footnotes to unaudited pro-forma financial statements.
(1) To reflect the purchase of all of the outstanding and issued common shares
of Amity, Inc. in exchange for preferred stock with a per share liquidating
value of $100,000 in excess of the Amity shareholder's equity on the date
acquired as of June 30, 1996.
(2) To reflect amortization of good will over fifteen (15) years.
