SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
AMENDMENT NO. 2
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
February 3, 1998 ( November 19, 1997 )
DATE OF REPORT (Date of earliest event reported)
----------------------
EIF HOLDINGS, INC.
(Exact name of registrant as specified in its Charter)
Commission File Number 0-22388
HAWAII 99-0273889
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
53 Stiles Road, Suite 101
Salem, NH 03079
(Address of principal executive offices)
(603) 890-3680
(Issuer's telephone number)
15201 Pipeline Lane, Ste. B, Huntington Beach, CA 92649
(Former name,former address and former fiscal year if changed since last report)
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On December 4, 1997, EIF Holdings, Inc. (the "Company"), filed a Current Report
on Form 8-K (the "Original Form 8-K) and an amendment to the Original Form 8-K
("Form 8-K/A") with the Securities and Exchange Commission, which reported the
acquisition by the Company of J.L. Manta, Inc. ("Manta"), an Illinois
corporation. This Amendment No. 2 to the Original Form 8-K hereby amends and
supplements the Original Form 8-K and the Form 8-K/A.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
In accordance with the requirements of Item 7 (a), the Company hereby
incorporates into this Amendment No. 2 to the Original Form 8-K, the audited
financial statements of Manta for the years ended June 30, 1997 and 1996.
Independent Auditor's Report......................................... 4
Balance Sheets....................................................... 5
Statements of Income................................................. 6
Statements of Shareholder Equity..................................... 7
Statements of Cash Flow.............................................. 8
Notes to Financial Statements........................................ 9
(b) PRO FORMA FINANCIAL INFORMATION
In accordance with the requirements of Item 7 (b), the Company hereby
incorporates into this Amendment No. 2 to the Original Form 8-K, the unaudited
pro forma condensed combined financial statements. The unaudited pro forma
condensed combined balance sheet includes the accounts of the Company and Manta
as of September 30, 1997 and June 30, 1997 respectively. The unaudited pro forma
condensed combined statements of operations include the operations of the
Company and Manta for the year ended September 30, 1997 and June 30, 1997
respectively.
Introduction to the Unaudited Pro Forma Condensed
Combined Financial Statements...................................... 17
Unaudited Pro Forma Condensed Combined Balance Sheet................ 18
Unaudited Pro Forma Condensed Combined Balance Sheet................ 19
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements......................................................... 20
(c) EXHIBITS
Exhibit
Number Description
------- -----------
10.1 Stock Purchase Agreement, dated September 30, 1997, among
EIF Holdings, Inc. ("EIF") and each of the stockholders of
JL Manta, Inc. (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.2 $6.5 Million Convertible Promissory Note issued by EIF to
Deere Park Capital Management, Inc., as nominee for EIFH
Joint Venture, L.L.C. and Certain Reg. D Hedge
Funds.(incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.3 $2.5 Million Promissory Note from EIF to Deere Park Capital
Management, Inc. ("Deere Park").(incorporated by reference
to Exhibit 10.3 to the Company's Current Report on Form 8-K
Amendment No.1 ("Form 8-K/A") filed on December 4, 1997).
10.4 Convertible Promissory Note of EIF, issued to Leo J.
Manta.(incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.5 Convertible Promissory Note of EIF, issued to Steven A.
Manta.(incorporated by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.6 Convertible Promissory Note of EIF, issued to Michael J.
Chakos.(incorporated by reference to Exhibit 10.6 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
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10.7 Convertible Promissory Note of EIF, issued to John L.
Manta.(incorporated by reference to Exhibit 10.7 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.8 Convertible Promissory Note of EIF, issued to the Alexander
Manta Trust.(incorporated by reference to Exhibit 10.8 to
the Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.9 Convertible Promissory Note of EIF, issued to the Erica
Manta Trust.(incorporated by reference to Exhibit 10.9 to
the Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.10 Convertible Promissory Note of EIF, issued to the Zachary
Manta Trust.(incorporated by reference to Exhibit 10.10 to
the Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.11 Convertible Promissory Note of EIF, issued to Allen
DeLange.(incorporated by reference to Exhibit 10.11 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.12 Convertible Promissory Note of EIF, issued to Jon S.
Claypool.(incorporated by reference to Exhibit 10.12 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.13 Pledge Agreement by and among EIF and Deere Park Capital
Management, Inc., regarding $2.5 Million Promissory
Note.(incorporated by reference to Exhibit 10.13 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.14 Security Agreement between the Company and Deere
Park.(incorporated by reference to Exhibit 10.14 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.15 Pledge Agreement by and among EIF, Deere Park Equities,
L.L.C. and Deere Park Capital Mgmt as nominee for EIFH Joint
Venture and certain Reg. D Hedge Funds, regarding $6.5
million Note.(incorporated by reference to Exhibit 10.15 to
the Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.16 Registration Right Agreement between EIF and each of the
sellers.(incorporated by reference to Exhibit 10.16 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.17 Form of Guaranty(incorporated by reference to Exhibit 10.17
to the Company's Current Report on Form 8-K Amendment
No.1 ("Form 8-K/A") filed on December 4, 1997).
10.18 Employment Agreement between the Company and John L.
Manta.(incorporated by reference to Exhibit 10.18 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.19 Employment Agreement between the Company and Michael J.
Chakos.(incorporated by reference to Exhibit 10.19 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
10.20 Security Agreement executed by the Company in favor of
Harris.(incorporated by reference to Exhibit 10.20 to the
Company's Current Report on Form 8-K Amendment No.1
("Form 8-K/A") filed on December 4, 1997).
99.1 Press Release issued by the registrant on November 20, 1997
announcing the acquisition of JL Manta, Inc.(incorporated by
reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K Amendment No.1 ("Form 8-K/A") filed on December
4, 1997).
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[letterhead of Callero & Callero LLP]
Independent Auditor's Report
- ----------------------------
Board of Directors
J. L. Manta, Inc.
Hammond, Indiana
Gentlemen:
We have audited the accompanying consolidated balance sheet of J. L. Manta
Inc., as of June 30, 1997 and 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit 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 audit provides 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 J. L. Manta Inc. at June 30,
1997 and 1996, and the results of its operations and cash flows for the years
then ended in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements, taken as a whole. The supplementary information listed in
the foregoing Table of Contents is presented for purposes of additional analysis
and is not required part of the basic financial statements. In our opinion, the
supplementary information is fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
/s/ Callero & Callero LLP
-------------------------
August 15, 1997
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ITEM 7. FINANCIAL STATEMENTS
J. L. MANTA, INC.
BALANCE SHEETS
June 30,
----------------------------
1997 1996
------------ ------------
ASSETS
Current assets:
Cash on hand................................... $ 1,043,870 $ 755,644
Accounts receivable, trade..................... 8,164,577 8,570,500
Retainages receivable.......................... 1,088,653 1,198,601
Allowance for doubtful accounts................ (83,000) (83,000)
Costs and estimated earnings in excess
of billings on uncompleted contracts.......... 896,399 626,719
Notes, loans and miscellaneous receivables..... 465,461 73,648
Refundable corporate income taxes.............. -- 35,336
Deferred compensation.......................... 176,760 176,760
Prepaid expenses............................... 82,509 35,668
------------ ------------
Total current assets...................... 11,835,229 11,389,876
------------ ------------
Investments....................................... 427,836 427,836
------------ ------------
Fixed assets:
Buildings...................................... 315,000 315,000
Autos and trucks............................... 5,055,823 4,345,232
Painting and construction equipment............ 5,536,312 4,958,517
Office equipment and improvements.............. 1,024,182 707,427
------------ ------------
11,931,317 10,326,176
Accumulated depreciation....................... (6,586,426) (5,699,189)
------------ ------------
5,344,891 4,626,987
Land........................................... 35,000 35,000
------------ ------------
5,379,891 4,661,987
------------ ------------
Other assets:
Deposits....................................... 33,204 29,269
Prepaid expenses............................... 96,200 108,800
Cash surrender value of life insurance
net of loans.................................. 174,716 188,756
Deferred compensation.......................... -- 176,753
Due from officers and stockholders............. 428,191 395,605
Other miscellaneous receivables................ 50,789 67,551
Goodwill, net of accumulated amortization
of $97,720 and $73,290 respectively........... 268,732 293,162
------------ ------------
1,051,832 1,259,896
------------ ------------
Total assets................................... $ 18,694,788 $ 17,739,595
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank............................ $ -- $ 2,500,000
Current maturities long-term debt.............. 1,517,257 1,062,104
Accounts payable............................... 3,267,956 2,121,076
Employee taxes and insurance withheld.......... 164,919 256,816
Accrued expenses............................... 1,558,153 1,990,845
Billings in excess of costs and estimated
earnings on uncompleted contracts............. 549,616 526,852
Accrued income taxes........................... 35,927 --
Deferred income taxes.......................... 346,000 344,000
------------ ------------
Total current liabilities................. 7,439,828 8,801,693
Long-term liabilities:
Long term debt................................. 4,226,609 2,251,038
Annuity payable................................ 530,483 490,054
Deferred income taxes.......................... 429,000 375,000
Accrued expenses............................... 18,352 31,402
------------ ------------
5,204,444 3,147,494
------------ ------------
Stockholders' equity:
Common stock, stated value $50 per share,
authorized 9,000 shares, issued 5,632.34
of which 2,988.96 are in the treasury......... 281,617 281,617
Additional paid-in capital..................... 1,202,395 1,202,395
Retained earnings.............................. 5,859,599 5,599,491
------------ ------------
7,343,611 7,083,503
Treasury stock................................. (1,293,095) (1,293,095)
------------ ------------
Total liabilities and stockholders' equity.... $ 18,694,788 $ 17,739,595
============ ============
The accompanying notes are an integral part of these financial statements.
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J. L. MANTA, INC.
STATEMENTS OF OPERATIONS
For the Years Ended June 30,
----------------------------
1997 1996
------------ ------------
Contracting revenue............................... $ 43,167,954 $ 42,136,075
Direct costs...................................... 34,634,177 33,096,950
------------ ------------
Gross profit before shop facility costs.......... 8,533,777 9,039,125
Shop facility costs............................... 1,906,313 1,800,080
------------ ------------
Gross profit..................................... 6,627,464 7,239,045
General and administrative expenses............... 5,729,843 5,588,470
------------ ------------
Income from operations........................... 897,621 1,650,575
Other income (expense):
Interest income.................................. 42,353 47,422
Interest expense................................. (498,586) (562,785)
Management and miscellaneous income.............. 70,712 99,510
Loss on sale of fixed assets..................... (8,992) (528,180)
------------ ------------
(394,513) (944,033)
------------ ------------
Income before taxes.............................. 503,108 706,542
Provision for income taxes........................ 243,000 266,800
------------ ------------
Net income....................................... 260,108 439,742
============ ============
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
J. L. MANTA, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years ended June 30, 1997
Additional
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance July 1, 1995............... $ 279,925 $ 1,167,197 $ 5,159,749 $ (359,700) $ 6,247,171
Issuance of 33.84 shares of
common stock...................... 1,692 35,198 -- -- 36,890
Purchase of 739.46 shares of
treasury stock................... -- -- -- (933,395) (933,395)
Net Income......................... -- -- 439,742 -- 439,742
------------ ------------ ------------ ------------ ------------
Balance June 30, 1996.............. 281,617 1,202,395 5,599,491 (1,293,095) 5,790,408
Net Income......................... -- -- 260,108 -- 260,108
------------ ------------ ------------ ------------ ------------
Balance June 30, 1997.............. $ 281,617 $ 1,202,395 $ 5,859,599 $ (1,293,095) $ 6,050,516
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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J. L. MANTA, INC.
STATEMENT OF CASH FLOWS
For the Years Ended June 30,
-----------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 260,108 $ 439,742
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 1,433,876 1,363,176
Loss on sale of fixed assets................... 8,992 528,180
Deferred taxes................................. 56,000 (73,200)
Interest expense on annuity payable............ 40,429 --
(Increase) decrease in assets:
Receivables................................ 140,820 (110,432)
Due from affiliates........................ -- (146,349)
Costs over billings........................ (269,680) 103,838
Other assets............................... 187,953 348,511
Increase (decrease) in liabilities:
Accounts payable........................... 1,146,880 170,341
Accrued expenses........................... (445,742) 1,096,327
Other liabilities.......................... (33,206) 126,005
------------ ------------
Net cash used in operating activities...... 2,526,430 3,846,139
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets............... 21,041 29,757
Purchase of capital items, net of trade-ins...... (2,150,395) (1,146,369)
Advances to officers............................. (32,586) (81,540)
------------ ------------
Net cash used in investing activities...... (2,161,940) (1,198,152)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock....................... -- (150,000)
Issuance of common stock......................... -- 36,890
Proceeds from installment loans.................. 3,691,594 649,120
Net repayments on lines of credit................ (2,500,000) (2,500,000)
Principal payments on loans...................... (1,267,858) (1,016,172)
------------ ------------
Net cash provided by financing activities.. (76,264) (2,980,162)
------------ ------------
Net increase in cash.............................. 288,226 (332,175)
Cash at beginning of period....................... 755,644 1,087,819
------------ ------------
Cash at end of period............................. $ 1,043,870 $ 755,644
============ ============
The accompanying notes are an integral part of these financial statements.
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J. L. MANTA, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Business Activity
J. L. Manta, Inc. was incorporated under the laws of the State of Illinois on
June 10, 1946 and files its tax returns as a subchapter C corporation with a
June 30 year end. The Company is a multi-state service company specializing in
painting, fireproofing, hydroblasting and vacuum services. Major industries
served include refining, petrochemicals, utilities, paper mills, steel
production, food processing and public works.
(2) Summary of Significant Accounting Policies
(a) Method of Accounting for Construction Contracts:
The Company reports earnings from construction contracts on the
percentage-of-completion accounting method. Revenue is recorded on the
percentage-of-completion method determined by the ratio of costs incurred
to date on the contracts to management's estimates to total contract costs.
Periodic reviews of estimated final costs and profits during the term of
contracts have the effect of including, in current and subsequent period,
cumulative adjustments necessary to reflect the revised estimates. The
asset , "costs and estimated earnings in excess of billings on uncompleted
contracts", represents revenues recognized in excess of amounts billed. The
liability "billings in excess of costs and estimated earnings on
uncompleted contracts", represents billings in excess of revenues
recognized. Provision is made for significant estimated losses through
contract completion in the year first recognized.
Revenues from time and material contracts are recognized currently as the
work is performed.
(b) Fixed Assets and Depreciation:
All fixed assets are carried at cost; major additions, betterments and
renewals are capitalized. Depreciation for both financial reporting and
income tax purposes is computed using both the straight-line and
accelerated methods based on the estimated useful life of the assets as
follows:
Building - 40 years
Autos and Trucks - 3 to 10 years
Painting and Construction Equipment - 5 to 10 years
Office Equipment and Improvements - 5 to 15 years
Depreciation expense of $1,409,446 and $1,338,746 was charged against
operations in 1997 and 1996, respectively.
(c) Goodwill:
Goodwill represents the excess of the cost of HMS Services over the fair
market value of their net assets. Goodwill is being amortized on the
straight-line method over 15 years. Amortization expense of $24,430 was
charged against operations in 1997 and 1996.
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(d) Cash Equivalents:
For financial statement purposes, the company considers all highly liquid
investments with maturities of three months or less from date of purchase
as cash equivalents. The Company did not have any cash equivalents at June
30, 1997 or 1996.
(e) 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.
(3) Costs and Estimated Earnings on Uncompleted Contracts
1997 1996
------------ ------------
Costs incurred on uncompleted contracts...... $ 31,123,481 $ 25,440,629
Estimated earnings to date................... 5,433,197 6,277,010
------------ ------------
36,565,678 31,717,639
Billings to date............................. 36,218,895 31,617,772
------------ ------------
$ 346,783 $ 99,867
============ ============
Included in the accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... $ 896,399 $ 626,719
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... 549,616 526,852
------------ ------------
$ 346,783 $ 99,867
============ ============
(4) Investments
J. L. Manta, Inc. owns stock in a captive insurance company at a cost of
$36,000. See Note 13.
Included in investments is land and a building purchased from a related party in
1993. This property will not be used in operations but is held for appreciation
purposes. The market value of the land and building approximates its cost of
$391,836.
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(5) Notes Payable - Bank
1997 1996
------------ ------------
The Company maintains an unsecured line
of credit of $4,000,000 payable on demand
($5,500,000 at June 30, 1996). Interest is
payable quarterly at the prime rate. At
June 30, 1997, the effective rate of
interest was 8.5% (8.25% at June 30, 1996)....... $ -- $ 2,500,000
============ ============
(6) Long-Term Debt
1997 1996
------------ ------------
Various installment loans, secured by
vehicles and equipment with interest
rates ranging from 4.5% to 10.5%.
Monthly payments at 6/30/97 amounted
to $111,563 ($87,084 at 6/30/96)................. $ 3,243,866 $ 2,910,920
Equipment term loan payable in quarterly
installments of $125,000 plus interest at
the prime rate (8.5% at June 30, 1997)
due June 30, 2002. The loan is collater-
lized by various equipment not pledged as
security on other loans.......................... 2,500,000 --
Equipment term loan, guranteed by two
stockholders and a former stockholder,
payable in monthly installments of
$16,667 plus interest at 1% over prime
(9.25% at June 30 1996) due July 31, 1998........ -- 400,000
Loan payable for purchase of affiliated
company stock, payable in 36 monthly
installments of $2,222........................... -- 2,222
------------ ------------
Total....................................... 5,743,866 3,313,142
Current Maturities.......................... 1,517,257 1,062,104
------------ ------------
Long-Term Debt.............................. $ 4,226,609 $ 2,251,038
============ ============
Annual maturities of long-term debt for the years ending June 30, are as
follows:
1998........................................ $ 1,517,257
1999........................................ 1,322,033
2000........................................ 1,072,827
2001........................................ 940,670
2002........................................ 770,379
Thereafter.................................. 120,700
------------
$ 5,743,866
============
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(7) Annuity Payable
As part of a stock redemption agreement entered into on June 17, 1996, the
Company agreed to purchase a lifetime annuity on behalf of a former
officer/stockholder. The annuity is recorded at the present value of the future
payments which begin in the year 2007. See Note 10 for an explanation of the
agreement.
(8) Operating Lease Agreements
The Company rents substantial amounts of job site equipment under month to month
operating leases. Total rent expense under all operating leases amounted to
$1,912,085 and $1,426,220 for the years ended June 30, 1997 and 1996,
respectively.
The Company leases warehouse space from a related party under a lease providing
for base monthly rentals of $5,000. The monthly base rent is increased yearly by
4% until termination on May 15, 2006. The Company also pays all operating costs
and real estate taxes for their space. Warehouse space is also being leased at
various other locations with lease terms varying from month to month to a July
31, 2002 expiration date.
The minimum future rentals under the above operating leases amount to the
following:
1998........................................ $ 160,112
1999........................................ 170,348
2000........................................ 179,504
2001........................................ 188,792
2002........................................ 118,212
Thereafter.................................. 393,420
------------
$ 1,210,388
============
(9) Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
under Financial Accounting Standards No. 109.
The provision for income taxes consists of the following:
1997 1996
------------ ------------
Current
Federal..................................... $ 124,000 $ 270,000
State 63,000 70,000
------------ ------------
187,000 340,000
Deferred 56,000 (73,200)
------------ ------------
$ 243,000 $ 266,800
============ ============
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The income tax provision differs from the expense that would result from
applying the federal statutory tax rate (34%) to income before income taxes due
to Internal Revenue Service audit adjustments, state income taxes and certain
expenses which are not deductible for federal income tax purposes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and tax purposes in different periods. The
differences result principally from different depreciation methods for financial
accounting and tax purposes, retainages receivable which are recognized when
collected for income tax purposes, bad debt and other reserves that are not
deductible for income taxes, differences in the amortization of goodwill for
book and tax purposes and an annuity payable deductible for tax purposes when
paid.
The components of deferred tax balances at June 30, 1997 and 1996 are as
follows:
1997 1996
------------ ------------
Deferred tax assets:
Allowance for Bad Debts..................... $ 32,400 $ 32,400
Other Reserves.............................. 41,400 85,800
Accrued Past Service Costs.................. 12,200 17,300
Basis in Stock Investment................... 29,400 29,400
Goodwill.................................... 26,700 22,200
Annuity Payable............................. 15,700 --
------------ ------------
$ 157,800 $ 187,100
------------ ------------
Deferred tax liabilities:
Retainages Receivable....................... (424,600) (467,100)
Depreciation................................ (508,200) (439,000)
------------ ------------
(932,800) (906,100)
------------ ------------
NET DEFERRED TAX LIABILITIES $ 775,000 $ 719,000
============ ============
Current net deferred tax liabilities were $346,000 and $344,500 at June 30, 1997
and 1996. Non-current deferred tax liabilities were $429,000 and $375,000 at
June 30, 1997 and 1996.
(10) Stock Redemption Commitments
On June 17, 1996, J. L. Manta, Inc. entered into a Redemption Agreement to
repurchase 739.46 shares of outstanding common stock from a former officer and
shareholder. The redemption price consists of cash of $150,000, buildings and
land with a fair value of $185,000, forgiveness of an indebtedness of $108,341
and the present value of a life annuity obligation of $490,054.
Provisions under the redemption life annuity obligation require annual payments
commencing in June, 2007 of $100,000 to the former shareholder, if deceased, of
$75,000 to his spouse, subject to recalculation for such change or for any
voluntary or mandatory (as defined) prepayment, and to its termination upon the
death of the last annuitant.
Included in the Redemption Agreement is a ten year Consulting Agreement
requiring annual payments of $100,000 commencing January 1, 1996 to the former
shareholder, if deceased, to his spouse or estate. The agreement has provisions
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<PAGE>
for voluntary or mandatory (as defined) prepayment, and for the termination (as
defined) of the consultant's payments.
Both the Redemption Agreement annuity obligation and the Consulting Agreement
are covered by a Guaranty, Indemnity and Security Agreement. The agreement has
certain restrictive covenants such as, but not limited to, confidential
information, property transactions and the solicitation of customers and
employees. The reaquired treasury shares are pledged as security for the
Redemption Agreement annuity obligation and the Consulting Agreement.
(11) Profit Sharing and Retirement Agreements
A qualified profit sharing plan was adopted in December 1982 for eligible
non-union employees. The plan allows credit for past years of employment and
contains a minimum guarantee upon retirement. At the date of the adoption of the
plan, the present value of the past service costs was $227,152, which was
amortized over a ten year period. At June 30, 1997, approximately $31,000
($45,000 at June 30, 1996) of the past service cost was unfunded. The Company's
expense under the plan amounted to $167,703 and $235,614 for the years ended
June30, 1997 and 1996, respectively. J. L. Manta, Inc. also maintains an
employee 401(k) plan, to which as of 1997 the Company matches one-half of the
employees deferral up to a maximum of one percent of eligible compensation. The
matching portion amounted to $44,038 and $54,261 for 1997 and 1996.
(12) Related Party Transactions
For the years ended June 30, the Company had transactions with affiliated
companies for equipment, repairs, management fees and subcontract work in the
approximate amounts as follows:
1997 1996
------------ ------------
Billings...................................... $ -- $ 46,000
============ ============
Purchases..................................... $ -- $ 522,000
============ ============
The Company received interest income from certain shareholders and affiliated
companies for the year ended June 30, 1997 in the approximate amount of $41,000
($44,000 in 1996).
(13) Insurance
J. L. Manta, Inc. has joined with thirty-one other companies (twenty-nine in
1996) to place their workers compensation, general liability, auto and equipment
insurance coverage through a group captive, United Trades Insurance Company.
Under the program, premiums are paid based on standard insurance rates. Letters
of credit in certain amounts are also provided by each member. In Manta's case,
the letter of credit is in the amount of $1,086,647. The amount of the letter of
credit is subject to a negotiated increase. After approximately 28% of the
premiums being paid in fixed costs and taxes, including excess loss reinsurance,
the remainder is applied to insurance claim funds, segregated by each
participant member of the group. These funds will pay claims up to $300,000. For
three years after policy expiration, claims are paid and losses reserved against
the claim funds, after which the remaining balances are refunded to the members.
Page 14
<PAGE>
In the event losses surpass the claim fund balance, a portion of the other
members' equity and the deficit member's letter of credit will be drawn upon.
Each policy year stands alone for claims and eventual refunds.
(14) Letter of Credit
J. L. Manta, Inc. has an outstanding letter of credit for insurance purposes,
not reflected in the accompanying financial statements, in the amount of
$1,086,647 and $1,077,077 for the years ended June 30, 1997 and 1996. See Note
13.
(15) Supplemental Cash Flows Data
1997 1996
------------ ------------
Supplemental cash flows information is as follows:
Interest paid ................................ $ 459,465 $ 549,249
Income taxes paid............................. $ 115,737 $ 187,246
Supplemental schedule of non-cash investing and
Financing activities:
Additional installment loans paid direct for
purchase of equipment....................... $ 6,988 $ 366,362
Assumption of installment loans for purchase
of fixed assets net of capital lease
payoff...................................... $ -- $ 33,306
Treasury stock acquired in exchange for the
following:
Present value of an annuity............. $ -- $ 490,054
Land and buildings...................... $ -- $ 185,000
Forgiveness of stockholder debt......... $ -- $ 108,341
(16) Contingencies
The Company is involved in pending legal proceedings, which include health and
safety matters, which are being handled and defended in the ordinary course of
business. Although the ultimate outcome of these lawsuits cannot be determined
at this time, management does not believe that the outcome of the litigation
will have a material effect on the Company's financial statements.
(17) Deferred Compensation
The Company entered into an agreement with its chief financial officer on
February 28, 1993 whereby he received 15% of the outstanding stock of the
company at book value. The officer's interest in the shares vests over 60
months. The remaining non-vested value of the shares has been recorded as
deferred compensation on the Company's balance sheet.
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<PAGE>
(18) Backlog
Backlog represents the amount of revenue the Company expects to realize from
work to be performed on uncompleted contracts in progress at year end and from
contractual agreements on which work has not yet begun. The Company also entered
into additional contracts between July 1, 1996 and August 15, 1997. At August
15, 1997, the Company's backlog amounted to approximately $10,700,000.
Additionally, the Company has on-going maintenance contracts not included above.
(19) Concentrations of Credit Risk
The Company maintains cash balances at various financial institutions. Accounts
are insured by the Federal Deposit Insurance Corporation only up to $100,000.
The Company operates and grants credit to customers throughout the Continental
United States.
Page 16
<PAGE>
EIF HOLDINGS, INC. AND J. L. MANTA, INC.
Introduction to the Unaudited Pro Forma Condensed
Combined Financial Statements
The following unaudited pro forma condensed combined balance sheet includes the
accounts of EIF Holdings, Inc (the "Company") and J.L. Manta, Inc. ("Manta") as
of September 30, 1997 and June 30, 1997 respectively. The unaudited pro forma
condensed combined statements of operations include the results of operations of
the Company and Manta for the year ended September 30, 1997 and June 30, 1997
respectively. The unaudited pro forma condensed combined balance sheet has been
prepared to give effect to the purchase by the Company of all of the outstanding
shares of Manta as if the transaction occurred on September 30, 1997. The
unaudited pro forma condensed combined statement of operations has been prepared
as if the combination occurred on October 1, 1996. The unaudited pro forma
condensed combined financial information has been prepared utilizing the audited
historical financial statements and accompanying notes. Management has not
included estimates for increased revenue or cost savings it expects to achieve
from marketing and operational synergies resulting from the combination.
The unaudited pro forma condensed combined financial information has been
prepared using the purchase method of accounting for the acquisition of Manta.
Under the purchase method of accounting, the assets and liabilities assumed are
recorded at their estimated fair market value at the date of acquisition. The
estimates and adjustments reflected in the pro forma condensed combined
financial statements are based on management's evaluations of the net assets
assumed. These estimates and adjustments are subject to change the upon final
allocation of the purchase price.
The unaudited pro forma condensed combined financial statements are provided for
informational purposes only and do not purport to be indicative of the Company's
financial position or results of operations that would have been reported had
this transaction occurred on the dates indicated above, nor the financial
condition or results of operations which will be reported in the future.
Page 17
<PAGE>
EIF HOLDINGS, INC. AND J. L. MANTA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
EIFH JL MANTA
September 30, June 30, PRO FORMA CONSOLIDATED
1997 1997 ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................................... $ 304,678 $ 1,043,870 $ (848,961) $ 499,587
Accounts receivable, net....................... 3,807,367 9,170,230 -- 12,977,597
Securities available for sale.................. 5,562,697 -- -- 5,562,697
Note Receivable................................ 2,562,500 465,461 (211,175) 2,816,786
Receivable, Officer............................ 70,000 -- -- 70,000
Costs and estimated earnings on contracts
in progress in excess of billings............. 52,003 896,399 -- 948,402
Prepaid and other current assets............... 726,684 259,269 -- 985,953
------------ ------------ ------------ ------------
Total current assets...................... 13,085,929 11,835,229 (1,060,136) 23,861,022
Investments....................................... -- 427,836 -- 427,836
Property, plant and equipment, net................ 603,940 5,379,891 1,176,688 7,160,519
Other noncurrent assets:
Goodwill, net.................................. 755,597 268,732 3,460,057 4,484,386
Retention bonus agreements..................... -- -- 900,000 900,000
Due from officer and stockholders.............. 210,000 428,191 (428,191) 210,000
Other assets................................... 20,520 354,909 595,583 971,012
------------ ------------ ------------ ------------
986,117 1,051,832 4,527,449 6,565,398
------------ ------------ ------------ ------------
Total assets................................... $ 14,675,986 $ 18,694,788 $ 4,644,001 $ 38,014,775
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities........ $ 2,408,077 $ 5,026,955 $ -- $ 7,435,032
Notes payable................................... 1,695,120 -- 9,000,000 10,695,120
Billings in excess of costs and estimated
earnings on contracts in progress.............. 178,921 549,616 -- 728,537
Note payable due to shareholder................. 17,609,424 -- 1,666,667 19,276,091
Reserve for contingencies....................... 1,349,000 -- 2,100,000 3,449,000
Net liabilities of discontinued operations...... 1,776,041 -- -- 1,776,041
Current maturities of long-term debt............ -- 1,517,257 (500,000) 1,017,257
Deferred income taxes........................... -- 346,000 -- 346,000
------------ ------------ ------------ ------------
Total current liabilities................. 25,016,583 7,439,828 12,266,667 44,723,078
Long term debt................................... -- 4,226,609 (1,875,000) 2,351,609
Annuity payable.................................. -- 530,483 (530,483) --
Accrued expenses................................. -- 18,352 -- 18,352
Note payable shareholder......................... -- -- 833,333 833,333
Deferred taxes................................... -- 429,000 -- 429,000
------------ ------------ ------------ ------------
Total liabilities.............................. 25,016,583 12,644,272 10,694,517 48,355,372
Stockholders' (deficit) equity
Common stock................................... 3,019,246 281,617 (281,617) 3,019,246
Additional paid-in capital..................... 804,696 1,202,395 (1,202,395) 804,696
(Accumulated deficit) retained earnings........ (14,164,539) 5,859,599 (5,859,599) (14,164,539)
------------ ------------ ------------ ------------
(10,340,597) 7,343,611 (7,343,611) (10,340,597)
Treasury stock................................. -- (1,293,095) 1,293,095 --
------------ ------------ ------------ ------------
Total stockholders' (deficit) equity............. (10,340,597) 6,050,516 (6,050,516) (10,340,597)
------------ ------------ ------------ ------------
Total liabilties and stockholders'
(deficit) equity ........................... $ 14,675,986 $ 18,694,788 $ 4,644,001 $ 38,014,775
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed combined financial information.
Page 18
<PAGE>
EIF HOLDINGS, INC. AND J. L. MANTA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
EIFH JL MANTA
September 30, June 30, PRO FORMA CONSOLIDATED
1997 1997 ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue........................................... $ 13,434,423 $ 43,167,954 $ -- $ 56,602,377
Cost of revenue................................... 8,399,561 36,540,490 -- 44,940,051
------------ ------------ ------------ ------------
Gross profit..................................... 5,034,862 6,627,464 -- 11,662,326
Selling, general and administrative expenses...... 6,738,610 5,729,843 272,644 (5) 12,741,097
------------ ------------ ------------ ------------
(1,703,748) 897,621 (272,644) (1,078,771)
Other:
Other income(expense)............................ 10,189 104,073 -- 114,262
Interest Expense................................. (1,434,992) (498,586) (432,673)(6) (2,366,251)
------------ ------------ ------------ ------------
Loss before income taxes.......................... (3,128,551) 503,108 (705,317) (3,330,760)
Income taxes (benefit)............................ -- 243,000 (124,000)(7) 119,000
------------ ------------ ------------ ------------
Net income (loss)................................ $ (3,128,551) $ 503,108 $ (581,317) $ (3,449,760)
============ ============ ============ ============
Net loss per share................................ $ (0.13) $ (0.14)
============ ============
Weighted average number of common
shares outstanding.............................. 24,618,201 24,618,201
============ ============
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed combined financial information.
Page 19
<PAGE>
EIF HOLDINGS, INC. AND J. L. MANTA, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(1) The unaudited pro forma financial information has been prepared based upon
the audited financial statements of the Company and Manta for the year
ended September 30, 1997 and June 30, 1997 respectively.
(2) Pursuant to the terms of a Stock Purchase Agreement, the Company acquired
all of the issued and outstanding common stock, no par value per share, of
Manta (the "Manta Stock") from the stockholders of Manta (the "Manta
Stockholders")for consideration of $4,725,321 in cash and $2,235,312 in
convertible promissory notes of the Company, payable in installments with a
final payment due on November 18, 2000 (the "Stockholder Notes"). Subject
to the approval by the Company's stockholders of an amendment to EIF's
charter authorizing the requisite amount of stock, at any time after June
30, 1998 the holders of the Stockholder Notes may convert any principal
payment due under the Stockholder Notes into shares of EIF's common stock,
no par value per share (the "EIF Stock"), at a conversion price equal to
the closing transaction price of the EIF Stock on the date a conversion
notice is received by EIF (the "Conversion Price"). Concurrent with the
closing of the Acquisition, certain Manta Stockholders and key employees
entered into Retention Bonus Agreements with EIF providing for bonus
payments in the aggregate amount of $900,000 to be made by the Company over
a three year period. The non-compete provisions associated with the
Retention Bonus Agreements extend over a six year period.
Also concurrently with the Acquisition, in connection with financing
provided to the Company, the Company issued a $6,500,000 Convertible
Promissory Note. The Note bears interest at the rate of 5 1/4% per annum,
becomes due on May 18, 1999 and is secured by a pledge of all of the Manta
Stock. Subject to approval of the Company's Stockholders of an amendment to
EIF's charter authorizing the requisite amount of preferred and common
stock, the Note is convertible into 5 1/4% preferred convertible stock at a
conversion price of One Dollar $1.00 per share, with such preferred
convertible stock convertible into EIF common stock.
Also in connection with the acquisition, the Company issued $2,500,000
Promissory Note. The note bears interest at the rate of Nine Percent (9%)
per annum and becomes due on February 16, 1998. The loan amount represented
by the note was used by the Company to refinance certain indebtedness of
Manta.
The following is the preliminary allocation of the purchase price to the
assets and liabilities acquired:
Consideration Transferred by the Company:
Cash.................................. 387,000
Notes due to Manta shareholders....... 2,500,000
Notes payable......................... 6,500,000
------------
9,387,000
============
Allocation of Purchase Price:
Net Assets of Manta................... 5,950,255
Increase in value of fixed assets..... 1,176,688
Increase in other accrued liabilities. (2,100,000)
Retention bonus agreements............ 900,000
Recognition of goodwill............... 3,460,057
------------
9,387,000
============
(3) To record an increase to fixed assets to reflect the estimated fair value
of certain of Manta's property and equipment.
(4) To record a $500,000 warranty reserve for certain work performed by Manta
that is guaranteed for a three year period and a $1,600,000 contingency
reserve for various ongoing litigation.
(5) To record the amortization of Goodwill and Retention Bonuses over 20 and 6
year periods respectively.
(6) To record an increase in interest expense resulting from the issuance of
the notes under the terms of the Agreement.
(7) To record the estimated income tax benefit for the pro forma combined
adjustments.
Page 20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EIF HOLDINGS, INC.
By: /s/ J. Drennan Lowell
----------------------
J. Drennan Lowell
Vice President, Chief Financial Officer,
Treasurer and Secretary.
Dated: February 3, 1998
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