SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
(Date of Report (Date of Earliest event reported) April
2, 1997
REALCO, INC.
(Exact name of registrant as specified in its charter)
New Mexico 0-27552 85-0316176
(State of other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1650 University Blvd., N.M. Suite 100
Albuquerque, New Mexico 87102
(Address of principal executive offices)
Registrant's telephone number including area code
505-242-4561
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
Mull Realty Company, Inc.
Page
Independent Auditors' Report F-1
Balance Sheets, December 31, 1996 and 1995 F-2
Statements of Operations and Retained Earnings, Year
ended December 31, 1996 and 1995 F-3
Statement of Cash Flows, Year ended
December 31, 1996 and 1995 F-4
Notes to Financial Statements F-5 - F-7
(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 Mull
Realty Company, Inc. The pro-forma information presented does
not purport to represent the actual results which would have
occurred if the acquisition of Mull Realty Company, Inc. had been
consummated on the dates before the periods indicated, nor is it
indicative of the operating results in any future period.
Introduction P-1
Pro-Forma Condensed Consolidated Balance Sheet - Unaudited,
September 30, 1996 P-2
Pro-Forma Condensed Consolidated Statements of
Operations - Unaudited , Year Ended
September 30, 1996 P-3
Notes to Pro-Forma Condensed Consolidated Financial
Statements - Unaudited P-4
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. /s/James A. Arias
-----------------------
James A. Arias, President
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
MULL REALTY COMPANY, INC.
December 31, 1996 and 1995
Report of Independent Certified Public Accountants
Board of Directors
Mull Realty Company, Inc.
We have audited the accompanying balance sheets of Mull Realty
Company, Inc., as of December 31, 1996 and 1995, and the related
statements of operations 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 Mull Realty Company, Inc., as of December 31, 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
January 16, 1997
MULL REALTY COMPANY, INC.
BALANCE SHEETS
December 31,
<TABLE>
ASSETS 1996 1995
<S> <C> <C>
_______ ______
CURRENT ASSETS
Cash and cash equivalents (note A3) $205,912 $289,589
Accounts receivable (note A4) 23,895 48,212
Income taxes receivable (notes A5 and B) 63,509 31,972
Deferred income taxes (notes A5 and B) 25,866 55,847
Restricted cash (note A3) 2,010 1,555
________ ________
Total current assets 321,192 427,175
PROPERTY AND EQUIPMENT - AT COST (note A6)
Office equipment and furniture 227,158 221,989
Leasehold improvements 144,850 143,851
________ _______
372,008 365,840
Less accumulated depreciation 327,955 299,013
________ _______
44,053 66,827
OTHER ASSETS
Deferred income taxes (notes A5 and B) 11,819 4,745
Deposits 5,360 5,319
Notes receivable 1,367 1,956
Other 126 4,956
________ ________
18,672 16,976
________ ________
$383,917 $510,978
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 80,793 $173,950
Escrow funds and deposits held for others
(note A3) 2,670 1,555
_________ ________
Total current liabilities 83,463 175,505
COMMITMENTS (note C) - -
STOCKHOLDERS' EQUITY
Common stock - $1 par value; authorized,
1,000,000 shares; issued and outstanding,
5,000 shares 5,000 5,000
Additional paid-in capital 31,667 31,667
Retained earnings 263,787 298,806
________ ________
300,454 335,473
________ ________
$383,917 $510,978
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
MULL REALTY COMPANY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Year ended December 31,
<TABLE>
1996 1995
______ ______
<S> <C> <C>
Brokerage commissions and fees $6,225,122 $5,600,963
Cost of brokerage revenues 4,278,584 3,803,862
_________ _________
Gross profit 1,946,538 1,797,101
Selling, general, and administrative expenses 2,032,701 1,751,827
_________ _________
Operating profit (loss) (86,163) 45,274
Other income, net 14,592 10,725
_________ ________
Earnings (loss) before income taxes (71,571) 55,999
Provision for income taxes (notes A5 and B)
Current benefit (59,459) (3,852)
Deferred expense 22,907 31,045
_________ ________
(36,552) 27,193
_________ ________
NET EARNINGS (LOSS) (35,019) 28,806
Retained earnings at beginning of year 298,806 270,000
_________ ________
Retained earnings at end of year $ 263,787 $ 298,806
=========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
MULL REALTY COMPANY, INC.
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<S> <C> <C>
1996 1995
_______ _______
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings (loss) $ (35,019) $ 28,806
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities
Depreciation and amortization 33,773 39,340
Loss on sale of property and equipment - 875
Changes in operating assets and liabilities
(Increase) decrease in restricted cash (455) 3,389
(Increase) decrease in accounts receivable 24,317 (37,241)
(Increase) decrease in income taxes
receivable (31,537) 26,326
(Increase) decrease in deposits ( 41) 1,115
Decrease in deferred tax assets 22,907 31,046
Decrease in other assets - 1,349
Decrease in accounts payable and accrued
liabilities (93,158) (320,680)
Increase (decrease) in escrow funds and
deposits held for others 1,115 (3,389)
_________ _________
Net cash used in operating activities (78,098) (229,064)
Cash flows from investing activities
Proceeds from sale of property and equipment - 878
Purchases of property and equipment (6,168) (43,738)
Receipts on notes receivable 589 450
________ ________
Net cash used in investing activities (5,579) (42,410)
________ ________
NET DECREASE IN CASH AND
CASH EQUIVALENTS (83,677) (271,474)
Cash and cash equivalents at beginning of year 289,589 561,063
_______ _______
Cash and cash equivalents at end of year $205,912 289,589
======= =======
Cash received during the year for income taxes $ 28,000 $ 30,000
======= =======
</TABLE>
The accmpanying notes are an integral part of this statement.
MULL REALTY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Mull Realty Company, Inc. (the "Company") was organized
February 3, 1981 and does business as The Prudential Mull-
Smith Realtors. The Company engages in residential and
commercial real estate brokerage sales in the greater
Phoenix, Arizona area through a franchise from Prudential Real
Estate Affiliates, Inc.
A summary of the significant accounting policies consistently
applied in the preparation of the accompanying financial
statements follows.
1. Basis of Presentation
_____________________
The Company maintains its books on the income tax (cash)
basis but prepares its financial statements in accordance
with generally accepted accounting principles.
2. Revenue Recognition
___________________
Brokerage commissions and fees earned from real estate
brokerage services are recognized at the time of closing the
underlying real estate contracts.
3. Cash and Cash Equivalents
_________________________
The Company considers money market accounts to be cash
equivalents. The Company maintains its cash and cash
equivalents in bank deposit accounts which may exceed
federally insured limits.
In the ordinary course of operations, the Company collects and
holds in escrow funds associated with real estate
contract deposits. These balances are reflected as
restricted cash with a corresponding liability.
4. Accounts Receivable
___________________
The Company provides allowances on specific accounts when the
Company believes that collection of the account is doubtful.
No allowance was required at December 31, 1996 or 1995.
5. Deferred Income Taxes
_____________________
The Company provides for deferred income taxes under the
liability method by applying presently enacted tax rates
to temporary differences between the financial statement
carrying amounts and the tax bases of such assets and
liabilities.
6. Property and Equipment
______________________
Depreciation is provided in amounts sufficient to relate the
cost of depreciable assets to operations over their
estimated useful lives of five to seven years using straight-
line and accelerated methods. Leasehold improvements are
depreciated over the lease term or the useful life, if
shorter.
7. 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
amounts reported in the financial statements and
accompanying notes; accordingly, actual results could differ
from those estimates.
NOTE B - INCOME TAXES
Components of net deferred income taxes are as follows
at December 31:
<TABLE>
<S> <C> <C>
1996 1995
_______ ______
Assets
Accrued expenses $ 34,741 $ 74,799
Charitable contributions carryover 3,265 1,803
Property and equipment 8,554 2,942
_________ _________
$ 46,560 $ 79,544
========= =========
Liabilities
Accrued revenues $ 8,875 $ 18,952
========= =========
</TABLE>
The tax provision for 1996 and 1995 is greater than expected
because of state income taxes and the phaseout of graduated
rates.
No valuation allowance for deferred tax assets was necessary at
December 31, 1996, 1995, or 1994.
NOTE C - COMMITMENTS
The Company leases office facilities, a vehicle, and certain
equipment pursuant to leases accounted for as operating leases,
which expire at various dates through August 2000. Rental
expense for the years ended December 31, 1996 and 1995 was
$215,162 and $217,089, respectively.
Future minimum rental payments under noncancelable operating
leases are as follows at December 31, 1996:
Year ending December 31
1997 $169,880
1998 66,708
1999 54,912
2000 36,608
_________
$328,108
========
NOTE D - SUBSEQUENT EVENT
Subsequent to December 31, 1996, a letter of intent was
signed to sell all of the common stock of the Company
to Realco, Inc. ("Realco"). Realco is primarily engaged in the
real estate industry as a residential and commercial
construction contractor and real estate broker in the
Albuquerque, New Mexico area.
Unaudited Pro-Forma Consolidated
Financial Information Realco, Inc. and Subsidiaries
and
Mull Realty Company, Inc.
The following unaudited pro-forma consolidated balance sheet as
of September 30, 1996 and the pro-forma statements of operations
for the year ended September 30, 1996, give effect to the
acquisition of all of the outstanding capital stock of Mull
Realty Company, Inc. ("Mull") by Realco, Inc. ("Realco").
The acquisition of Mull has been accounted for as a purchase
under generally accepted accounting principles. Cost in excess of
the net assets acquired was approximately $892,097.
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 Realco and Mull 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, 1996, include the condensed
statement of operations of Mull for the year ended December 31,
1996.
[TITLE] REALCO, INC. AND SUBSIDIARIES
AND MULL REALTY COMPANY, INC.
PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA
REALCO MULL ADJUSTMENTS COMBINED
(Unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS
ASSETS:
Cash and cash equivalents $ 4,967,439 $ 205,912 (359,144) (1) $ 4,814,207
Inventories 10,321,533 - 10,321,533
Property & equipment, net 795,816 44,053 839,869
Other assets 6,523,132 133,952 892,097 (1) 7,549,181
---------- -------- -----------
$ 22,607,920 $ 383,917 $23,524,790
---------- -------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable & accrued
liabilities $ 1,784,917 $ 80,793 $ 1,865,710
Construction advances &
notes payable 3,389,012 - 3,389,012
9.5% subordinated notes 5,627,240 5,627,240
Other liabilities 674,094 2,670 (532,953) (1) 1,209,717
------------ -------- ---------
11,475,263 83,463 12,091,679
STOCKHOLDERS' EQUITY 11,132,657 300,454 11,433,111
------------ -------- ----------
$ 22,607,920 $ 383,917 $23,524,790
------------ -------- ----------
</TABLE>
See accompanying footnotes to unaudited pro-forma financial statements.
[TITLE] REALCO, INC. AND SUBSIDIARIES
AND MULL REALTY COMPANY INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA
REALCO MULL ADJUSTMENTS COMBINED
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 24,256,642 $ 6,239,714 $30,496,356
COSTS AND EXPENSES 24,100,500 6,311,285 59,473 (2) 30,471,258
---------- --------- ----------
EARNINGS (LOSS) BEFORE 156,142 (71,571) 25,098
INCOME TAX EXPENSE
INCOME TAX EXPENSE (BENEFIT) 24,000 (36,552) (12,552)
---------- --------- ---------
NET EARNINGS (LOSS) 132,142 (35,019) 37,650
PREFERRED STOCK DIVIDEND
REQUIREMENT 117,846 - 117,846
---------- -------- --------
NET EARNINGS (LOSS) APPLICABLE
TO COMMON SHARES $ 14,296 $ (35,019) $ (80,196)
---------- -------- --------
EARNINGS (LOSS) PER
COMMON SHARE $ 0.01 $ (0.03)
---------- --------
Weighted average common shares
outstanding 2,498,005 2,498,005
</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 Mull Realty Company, Inc. for $359,144 cash plus
$532,953 of debt which was $892,097 in excess of Mull shareholder's
equity on the date acquired as of December 31,1996.
(2) To reflect amortization of goodwill over fifteen (15) years.
