SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
SEPTEMBER 25, 1997
--------------------
(Date of Report)
FI-TEK VI, INC.
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(Exact Name of Registrant as specified in its charter)
DELAWARE
---------------------------------------------
(State or other jurisdiction of incorporation)
33 - 37513 - D 84-1148204
------------------------------------------------------------
(Commission File Number) (IRS Employer Identification Number)
12600 WEST COLFAX, SUITE C-500, LAKEWOOD, CO 80215
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(Address of principal executive offices including zip code)
(303) 233-0400
--------------------------------------------------
(Registrant's telephone number including area code)
NOT APPLICABLE
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(Former name or former address, if changed since last report)
This report consists of 38 sequentially numbered pages.
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
- ---------------------------------------------
On September 25, 1997, Fi-Tek VI, Inc. ("the Company") and
Psychrometric Systems, Inc. ("PSI"), a Nevada corporation, consummated an
Agreement and Plan of Reorganization (the "Agreement") whereby the Company
acquired all of the issued and outstanding shares of common stock of PSI in
exchange for 261,382,500 shares of the Company's "restricted" Common Stock
and 1,000,000 shares of a newly-authorized Series A non-voting preferred
stock (the "Preferred Stock"). Each share of Preferred Stock is
convertible to 290 shares of Common Stock upon attainment of gross annual
sales of $60,000,000, but only if such annual sales goal is reported not
later than the due date of the Company's Annual Report on Form 10-K for the
fiscal year ending in 2002, and is subject to redemption by the Company at
a price of $.0001 per share in the event the required sales level is not
attained.
Concurrently with the closing of the Agreement, the former officers
and directors of the Company resigned, and the following persons were
appointed and elected to the positions indicated:
Name Age Position
---- --- --------
George A. Kast 40 President, Chief Executive
Officer and a Director
Gary L. Brown 40 Chief Operating Officer,
Secretary and General Counsel
William D. Landry 46 Chief Financial Officer, Treasurer
and a Director
The directors of the Company are elected to hold office until the next
annual meeting of shareholders or until a successor has been elected and
qualified. Officers of the Company are elected annually by the Board of
Directors and hold office until their successors are duly elected and
qualified.
The following sets forth biographical information concerning the
Company's directors and executive officers for at least the past five
years.
GEORGE A. KAST, the founder of PSI, has been an officer and director
of PSI since its incorporation in 1993 and is currently the President and
Chief Executive Officer of the Company. Prior to forming PSI, from 1983 to
1992, Mr. Kast was the vice-president of GEA/Thermal-Dynamic Towers,
Inc.("TDT"), Lakewood, Colorado where he was responsible for all marketing
activities and directly experienced in project management and design of
cooling towers, including the design and creation of the pultruded
fiberglass structural cooling towers.
-2-
<PAGE>
GARY L. BROWN has been Chief Operating Officer and General Counsel of
PSI since 1996. From 1993 to 1996, he was the general counsel of Fischbach
Corporation, which included Fischbach & Moore, Natkin & Company, Ficon
Corporation and Fischbach Power Services, among others. Prior to joining
the Fischbach companies, Mr. Brown was engaged in private practice for ten
years with the firm of Gorsuch, Kirgis, Campbell, Walker & Grover in
Denver, Colorado. Mr. Brown received a B.S.J. degree from the University
of Kansas in journalism in 1979 and a J.D. degree from Washburn University
in 1983.
WILLIAM D. LANDRY has been the Chief Financial Officer of the PSI
since January 1997. From 1994 to 1996, he was chief financial officer with
Fischbach Corporation and related entities and from 1989 to 1994, he was
chief financial officer for John Brown, Inc., Houston, Texas, an
international engineering and construction firm. He received a B.S.B.A.
degree (with distinction) in accounting from the University of Southwestern
Louisiana in 1973. Mr. Landry is a certified public accountant licensed in
the states of Texas and Louisiana.
There are no family relationships between the officers and directors
of the Company; however, George A. Kast's sister is married to Gary L.
Brown's brother.
No arrangement or understanding exists between any of the above
officers and directors pursuant to which any one of those persons was
selected to such office or position. None of the directors hold
directorships in other companies.
The Company presently has no nominating, audit or compensation
committee. The new Board of Directors plans to consider implementation of
these committees.
BUSINESS OF THE COMPANY
The Company is in the business of designing, selling, manufacturing
and building industrial cooling towers, repairs and maintenance in the
retrofit of existing industrial cooling towers and cooling tower components
for these and similar facilities. The Company markets its products and
services worldwide to the following industries: electric power utilities;
process (such as agricultural, industrial and pharmaceutical process
industries); petrochemical; chemical; heating, ventilation and
air-conditioning ("HVAC"); manufacturing; pulp & paper and other industries
utilizing cooling towers. Typical customers include companies such as
Archer Daniels Midland ("ADM"), Amoco, Mitsubishi, Mobil, Texaco, Bechtel,
Fluor Daniel, Inc. and other large corporations around the world.
The Company plans on expanding its product line offerings into the
integrated non-chemical water treatment and modular cooling tower market.
It has signed a letter of intent to investigate a possible business venture
with the developer and inventor of proprietary and patented technology that
treats and disinfects water primarily in cooling tower applications without
using chemical treatment. While there can be no assurance that any business
venture will develop, the Company and the developer and inventor of the
technology would most likely hold the controlling interests if a business
venture were to be formed.
-3-
<PAGE>
The Company was founded in January 1993 by George A. Kast, President
and Chief Executive Officer. Mr. Kast and members of his family have been
in the cooling tower industry since 1983. The predecessor company,
Thermal-Dynamic Towers, Inc. was sold to GEA AG a large European conglomerate
in 1991.
The Company was named as one of America's 50 Hottest New Small
Businesses by ENTREPRENEUR magazine in early 1996, achieving a ranking of
#30 within the group of 50. The Small Business Administration named the
Company "The Small Business Exporter of the Year" in 1997 for region VIII,
which includes Colorado.
The Company intends to change the name of the Company to "Global Water
Technologies, Inc." The Board of Directors of the Company believes that
the proposed name change will facilitate identification of the Company with
the Company's present and anticipated business.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements: The following financial statements of
Psychrometric Systems, Inc. are included herewith:
Page
----
(i) Report of Independent Certified Public Accountants 7
Balance Sheet - December 31, 1996 8-9
Statement of Operations for the Year ended
December 31, 1996 10
Statement of Retained Earnings (Deficit) for the
Year ended December 31, 1996 11
Statement of Cash Flows for the Year ended
December 31, 1996 12
Notes to Financial Statements 13-20
(ii) Report of Independent Certified Public Accountants 21
Balance Sheet - December 31, 1995 22-23
Statement of Operations for the Year ended
December 31, 1995 24
Statement of Retained Earnings (Deficit) for the
Year ended December 31, 1995 25
Statement of Cash Flows for the Year ended
December 31, 1995 26-27
Notes to Financial Statements 28-34
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<PAGE>
(iii) Balance Sheet (unaudited) - June 30, 1997 35-36
Statement of Income (unaudited) - for the
Six Months Ended June 30, 1997 37
(b) ProForma Financial Information:
Fi-Tek, VI, Inc. ProForma Financial Information as
of June 30, 1997 38
-5-
<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.
Date: October 3, 1997 FI-TEK VI, INC.
By /s/ GEORGE A. KAST
-----------------------------------
George A. Kast
President and Chief Executive Officer
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<PAGE>
BAUERLE AND COMPANY, P.C.
[letterhead]
- --------------------------------------------------------------------------
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
Board of Directors
Psychrometric Systems, Inc.
We have audited the accompanying balance sheet of Psychrometric
Systems, Inc., as of December 31, 1996, and the related statements of
operations, retained earnings (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the 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 Psychrometric
Systems, Inc., as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ BAUERLE AND COMPANY, P.C.
Bauerle and Company, P.C.
March 1, 1997
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
------
CURRENT ASSETS
Cash $ 61,188
Accounts Receivable:
Trade $2,862,080
Retainage 150,847
Other 52,435
----------
3,065,362
Less: Allowance for Doubtful Accounts 10,000
----------
TOTAL ACCOUNTS RECEIVABLE 3,055,362
Prepaid Expenses 111,847
Inventory 163,816
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 1,986,163
----------
TOTAL CURRENT ASSETS 5,378,376
PROPERTY AND EQUIPMENT - AT COST
Office Furniture and Equipment 413,511
Machinery and Equipment 109,830
Vehicles 186,455
Leasehold Improvements 43,259
----------
753,055
Less: Accumulated Depreciation 180,959
----------
PROPERTY AND EQUIPMENT (NET) 572,096
OTHER ASSETS
Deposits 9,096
Certificate of Deposit - Pledged 211,369
----------
TOTAL OTHER ASSETS 220,465
----------
TOTAL ASSETS $6,170,937
==========
The accompanying notes are an integral part of the financial statements.
-8-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable:
Trade $3,613,587
Retainage 87,312
----------
TOTAL ACCOUNTS PAYABLE $3,700,899
Notes Payable - Due Within One Year 135,539
Payroll Taxes Payable 25,281
Other Accrued Liabilities 131,981
Accrued Commissions Payable 307,766
Income Taxes Payable 167,513
Billings in Excess of Costs and
Estimated Earnings on Uncompleted
Contracts 152,579
----------
TOTAL CURRENT LIABILITIES 4,621,558
LONG-TERM LIABILITIES
Notes Payable - Due After One Year 1,165,515
Deferred Income Taxes 6,136
----------
TOTAL LONG-TERM LIABILITIES 1,171,651
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY
Capital Stock, No Par Value; 25,000
Shares Authorized; 5,094 Shares
Issued 467,060
Preferred Stock, No Par Value; 10,000
Shares Authorized; 50 Shares Issued 5,000
Retained Earnings (Deficit) (94,332)
----------
TOTAL STOCKHOLDERS' EQUITY 377,728
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,170,937
==========
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------
CONSTRUCTION REVENUE $16,520,544 100.0%
COST OF CONSTRUCTION 12,654,634 76.6
---------- -------
GROSS PROFIT 3,865,910 23.4
GENERAL AND ADMINISTRATIVE
EXPENSES
Advertising and
Promotion $ 154,329
Bad Debt Expense 121,067
Computer Expenses 6,684
Depreciation 99,428
Dues and Subscriptions 5,861
Equipment Leasing 8,102
Insurance 249,391
Miscellaneous 12,256
Office Supplies and
Expense 83,843
Payroll Taxes 135,523
Professional Fees 55,055
Rent 129,672
Salaries 1,899,530
Shop Expense 46,336
Taxes, Fees and Licenses 47,328
Telephone 78,858
Travel and Entertainment 285,728
Recruiting/Relocation/
Education 31,169
R&D Center Idaho 14,702
----------
3,464,862
Less: Amounts Allocated
to Cost of
Construction 204,500
----------
GENERAL AND
ADMINISTRATIVE
EXPENSES - NET 3,260,362 19.7
---------- -------
INCOME FROM OPERATIONS 605,548 3.7
OTHER INCOME (EXPENSE)
Interest Income 11,819
Interest (Expense) (157,577)
Miscellaneous Income 1,923
(Loss) on Sale of Assets (1,276)
----------
OTHER INCOME
(EXPENSE) - NET (145,111) ( .9)
INCOME BEFORE INCOME TAXES 460,437 2.8
PROVISION FOR INCOME TAXES 154,453 .9
---------- -------
NET INCOME $ 305,984 1.9%
========== =======
The accompanying notes are an integral part of the financial statements.
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
STATEMENT OF RETAINED EARNINGS (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT)
- BEGINNING OF YEAR ($ 400,316)
NET INCOME FOR THE YEAR 305,984
----------
RETAINED EARNINGS (DEFICIT)
- END OF YEAR ($ 94,332)
==========
The accompanying notes are an integral part of the financial statements.
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 305,984
Non-Cash Items Included in Net Income:
Loss on Sale of Fixed Assets 1,276
Depreciation 99,428
(Decrease) in Deferred Income Taxes ( 20,250)
(Increase) Decrease in Assets:
Accounts Receivable 1,917,939
Prepaid Expenses ( 11,991)
Inventory ( 111,439)
Costs and Estimated Earnings in
Excess of Billings on
Uncompleted Contracts ( 630,250)
Deposits ( 1,238)
Increase (Decrease) in Liabilities:
Accounts Payable ( 437,691)
Payroll Taxes Payable ( 724)
Other Accrued Liabilities ( 1,877)
Accrued Commissions Payable ( 63,353)
Billings in Excess of Costs and
Estimated Earnings on Uncompleted
Contracts ( 577,314)
Income Taxes Payable 167,513
----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 636,013
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of Stockholder Loan $ 36,000
Purchase of Property and Equipment ( 299,826)
Purchase of Certificates of Deposit ( 5,841)
----------
NET CASH (USED IN)
INVESTING ACTIVITIES ( 269,667)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes Payable 195,515
Repayment of Notes Payable ( 96,860)
Repayment on the Lines-of-Credit ( 432,260)
Issuance of Common Stock 3,560
----------
NET CASH (USED IN)
FINANCING ACTIVITIES ( 330,045)
----------
NET INCREASE IN CASH 36,301
CASH AT BEGINNING OF YEAR 24,887
----------
CASH AT END OF YEAR $ 61,188
==========
SUPPLEMENTAL DISCLOSURES:
- -------------------------
Interest Paid $ 157,577
==========
Income Taxes Paid $ 7,190
==========
The accompanying notes are an integral part of the financial statements.
-12-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
1 COMPANY HISTORY, USE OF ESTIMATES AND SIGNIFICANT ACCOUNTING POLICIES.
- ---------------------------------------------------------------------------
COMPANY HISTORY. The Company was incorporated under the laws of
the State of Nevada on January 11, 1993. The Company has authorized
25,000 shares of no par value common stock and 10,000 of preferred
stock. The Company operates as an engineer and constructor of
commercial cooling towers in the national and international market.
CONCENTRATION OF CREDIT RISK. Financial instruments that
potentially subject the Company to credit risk, consist primarily of
the following:
CASH. From time to time, the Company may maintain cash
balances in a financial institution in excess of the FDIC insured
limit.
ACCOUNTS RECEIVABLE. The Company's receivables are due from
various business entities under contractual agreements. The
Company files liens on projects where collection problems are
anticipated. The lien serves as collateral for the receivable.
REVENUE AND COST RECOGNITION. Revenues from long-term contracts
are recognized on the percentage-of-completion method for individual
contracts, commencing when progress reaches a point where experience
is sufficient to estimate final results with reasonable accuracy.
Revenues are recognized in the ratio that costs incurred bear to total
estimated costs. Changes in job performance, 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.
On certain new cooling tower projects, the Company is allowed to
bill a percentage of the contract amount, usually 10% to 15%, when the
engineering and drawing phase of the project is complete. It is the
Company's policy to recognize the gross profit for the engineering
phase when that phase is completed. On larger projects, this
engineering and drawing phase is segregated and accounted for as a
separate profit center.
Contract costs include all direct materials, subcontracts, labor
costs and those indirect costs related to contract performance.
General and administrative costs are charged to expenses as incurred.
Profits on short-term contracts are recorded on the substantial
completion of each contract. Revenues from time and material
contracts are recognized currently as the work is performed.
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- -------------------------------------------------------------------------
1 COMPANY HISTORY, USE OF ESTIMATES AND SIGNIFICANT ACCOUNTING POLICIES.
- -------------------------------------------------------------------------
(CONT'D.)
REVENUE AND COST RECOGNITION. (CONT'D.)
At the time a loss on a contract becomes known, the entire amount
of the estimated ultimate loss on both short and long-term contracts
is accrued.
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.
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 statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INCOME TAXES. During the year, the Company filed for a change in
accounting methods. The new method, percentage-of-completion, will be
the same as used for financial statement purposes. In accordance with
IRS regulations, the deferred income from the prior year will be
recognized over a four year period. The Company also depreciates it's
property and equipment on an accelerated method for income tax
purposes. A provision for deferred taxes on these timing differences
has been recorded.
INVENTORY. Inventory is stated at the lower of cost (first-in,
first-out method) or market value. The inventory consists primarily
of parts and lumber for the use on future jobs.
DEPRECIATION. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets.
CASH EQUIVALENTS. For the purpose of the Statement of Cash
Flows, the Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
ADVERTISING COSTS. The Company's advertising costs consist
mainly of international marketing and trade shows. The Company
expenses the costs over a 12 month period. At December 31, 1996, the
Company has included $82,415 in prepaid advertising costs. The
current year expense related to advertising costs was $154,329.
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
2 PROPERTY AND EQUIPMENT.
- ----------------------------
The following is a summary of property and equipment, net of
accumulated depreciation, as of December 31, 1996:
Office Furniture and Equipment $ 167,810
Machinery and Equipment 277,913
Vehicles 41,261
Leasehold Improvements 85,112
----------
$ 572,096
==========
Depreciation expense charged to operations for the year ended
December 31, 1996 was $99,428.
3 NOTES PAYABLE.
- -------------------
The following is a summary of notes payable at December 31, 1996:
First Interstate Bank (payable in monthly
installments of $623, including interest
at 7.5%; secured by a vehicle) $ 39,220
GMAC (payable in monthly installments of
$555, including interest at 9.75%;
secured by a vehicle) 20,376
GMAC (payable in monthly installments of
$563, including interest at 9.75%;
secured by a vehicle) 20,300
GMAC (payable in monthly installments of
$565, including interest at 9.75%;
secured by a vehicle) 20,352
GMAC (payable in monthly installments of
$361, including interest at 10.75%;
secured by a vehicle) 11,530
GMAC (payable in monthly installments of
$577, including interest at 9.75%;
secured by a vehicle) 20,808
GMAC (payable in monthly installments of
$565, including interest at 9.75%;
secured by a vehicle) 20,352
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
3 NOTES PAYABLE. (CONT'D.)
- -----------------
Norwest Bank - Lakewood (payable in
monthly installments of $8,334, including
interest at 1.0% above the prime rate;
secured by furniture and equipment,
inventory, accounts receivable and
assignment of a life insurance policy; 90%
guaranteed by SBA) $ 299,849
Norwest Bank - Lakewood - Line-of-Credit * 848,267
----------
1,301,054
Less: Current Maturities Included in
Current Liabilities 135,539
----------
Notes Payable - Due After One Year $1,165,515
==========
*The Company has negotiated two lines of credit with Norwest
Bank-Lakewood. A $772,000 line-of-credit is secured by the Company's
certificate of deposit of $211,369 and a stockholder's personal
certificate of deposit of $560,170, has an interest rate of 7.35%, and
matures on January 3, 1998. A $110,000 line-of-credit is secured by
a stockholder's personal certificate of deposit of $109,606, has an
interest rate of 7.35% and matures on January 3, 1998. The
outstanding balance on these lines of credit at December 31, 1996 was
$848,267.
The following is a summary of the future maturities of notes
payable for the years ending December 31:
1997 $ 135,539
1998 987,433
1999 143,090
2000 31,416
2001 3,576
----------
$1,301,054
==========
4 LONG-TERM OPERATING LEASES.
- ------------------------------
The Company has entered into a 60 month lease for its office
space for approximately $14,519 per month. The Company has also
entered into a 60 month lease with a stockholder for a research and
testing facility located in Idaho. The lease requires monthly
payments of $1,238.
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
4 LONG-TERM OPERATING LEASES. (CONT'D.)
- ------------------------------
The following is a schedule by year of future minimum lease
payments required under this lease:
December 31, 1997 $ 231,081
December 31, 1998 189,087
December 31, 1999 189,087
December 31, 2000 14,856
December 31, 2001 11,142
----------
$ 635,253
==========
5 INCOME TAXES.
- ----------------
The components of the net deferred tax liability at December 31,
1996, is as follows:
Deferred Tax Liability $ 283,285
Less: Deferred Tax Asset ( 277,149)
Valuation Allowance on Deferred
Tax Asset -
----------
Net Deferred Tax Liability $ 6,136
==========
The above amount is included in the accompanying Balance Sheet
under the following caption:
Long-Term Liabilities:
Deferred Tax Liability $ 6,136
==========
The provision for income taxes consisted of the following at
December 31, 1996:
Current Income Taxes Payable $ 174,703
(Decrease) in Deferred Income Taxes ( 20,250)
----------
$ 154,453
==========
The Company also has a net operating loss of $1,382,781 available
to carryforward. This loss has been used to reduce deferred income
for tax purposes. If not utilized, the losses will expire on December
31:
2010 $ 1,382,781
===========
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
6 COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS.
- ---------------------------------------------------------
Uncompleted contracts at December 31, 1996, are summarized as
follows:
Costs Incurred to Date $8,089,803
Gross Profit Recognized to Date 3,533,787
----------
Total Costs Plus Gross Profit
Recognized to Date 11,623,590
Billings to Date 9,790,006
----------
$1,833 584
==========
The above amount is included in the accompanying Balance Sheet
under the following captions:
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts $1,986,163
Billings in Excess of Costs and
Estimated Earnings on Uncompleted
Contracts 152,579
----------
$1,833,584
==========
7 CERTIFICATES OF DEPOSITS - PLEDGED.
- --------------------------------------
The certificate of deposit, with an outstanding balance of
$211,369, is pledged as security on the Company's line-of-credit
agreement with Norwest Bank-Lakewood.
8 LITIGATION AND CLAIMS.
- -------------------------
The Company is engaged in three major claims which are disputed
by the respective owners. The three claims, as tendered to the
owners, are comprised of change order requests in the aggregate amount
of $780,227. The Company has filed suit with respect to tow of these
matters involving Potomac electric Company (PEPCO) and the City of
Lakeland, Florida. The remaining claim has been subject to settlement
discussions which to date have not been fruitful. Litigation
concerning that claim is likely. The aggregate amounts reflected in
the Company's accounts receivable for the claims referenced above are
$438,495.
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<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
8 LITIGATION AND CLAIMS. (CONT'D.)
- ------------------------------------
The Company is in settlement discussions with the City of
Lakeland and has received an offer approximately equivalent to the
amount recorded in the accounts receivable. The remainder of the
major claims remain in settlement discussion or in litigation. The
contract balance in the amount of $114,000 plus interest which is owed
to the Company resulting from the base contract work on the PEPCO
project is not seriously disputed. That amount is included in the
aggregate accounts receivable referenced above.
Finally, the Company has certain additional accounts receivable
which have increased the contract values by approximately $144,529.
The Company has received offers or acknowledgments in the amount of
$104,000. The remaining amounts are subject to successful completion
of start up and testing on an installation constructed by PSI. The
test concerning that installation will occur during the first six
months of 1997.
9 RELATED PARTY TRANSACTIONS.
- ------------------------------
The preferred stockholder has pledged two personal certificates
of deposit in the amount of $669,776 as security for two of the
Company's lines-of-credit. For the year ended December 31, 1996, the
Company authorized a fee of $49,875 to the stockholder for this
pledge, which is included in interest expense. In addition, $4,065 of
the fee is included on the balance sheet in accounts payable.
The Company leases a research and testing facility from a
stockholder with monthly payments of $1,238.
10 COMMON STOCK.
- -----------------
During the year ended December 31, 1996, the Company issued 459
shares of common stock for $3,560.
-19-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
11 401(K) PLAN.
- ----------------
On July 1, 1996, the Company implemented a 401(K) profit sharing
plan. The current plan covers all full time employees over the age of
21 who have completed six months of service to the Company. The
Company may contribute to the plan upon the Board of Directors'
discretion. At December 31, 1996, the Company did not make any
contributions to the plan.
12 FAIR VALUE OF FINANCIAL INSTRUMENTS.
- ----------------------------------------
The carrying amount of notes payable at December 31, 1996,
approximate their fair value, since the interest rate charged per the
agreements is similar to the Company's current borrowing rate.
13 BACKLOG.
- ------------
The following schedule summarizes changes in backlog on contracts
during the year ended December 31, 1996. Backlog represents the
amount of revenue the Company expects to realize from work to be
performed on uncompleted contracts in progress at year end from
contractual agreements on which work has not yet begun.
Backlog Balance at December 31, 1995 $ 7,705,087
New Contracts During the Year 14,955,222
-----------
22,660,309
Less: Contract Revenue Earned During
the Year 16,520,544
-----------
Backlog Balance at December 31, 1996 $ 6,139,765
===========
-20-
<PAGE>
BAUERLE AND COMPANY, P.C.
[letterhead]
- --------------------------------------------------------------------------
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
Board of Directors
Psychrometric Systems, Inc.
We have audited the accompanying balance sheet of Psychrometric
Systems, Inc., as of December 31, 1995, and the related statements of
operations, retained earnings (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the 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 Psychrometric
Systems, Inc., as of December 31, 1995, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Our audit was made primarily for the purpose of forming an opinion on
the basic financial statements taken as a whole. The accompanying
supplementary financial information is not considered necessary for a fair
presentation of the basic financial statements and is presented for
analytical purposes only. The supplementary information was derived from
the accounting records tested by us as part of our audit of the
aforementioned financial statements, and in our opinion is fairly stated in
all material respects in relation to the basic financial statements taken
as a whole.
/s/ BAUERLE AND COMPANY, P.C.
Bauerle and Company, P.C.
April 4, 1996
-21-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
------
CURRENT ASSETS
Cash $ 24,887
Accounts Receivable:
Trade $4,502,380
Retainage 465,772
Other 15,149
----------
4,983,301
Less: Allowance for Doubtful
Accounts 10,000
----------
TOTAL ACCOUNTS RECEIVABLE 4,973,301
Prepaid Expenses 99,856
Inventory 52,377
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 1,355,913
----------
TOTAL CURRENT ASSETS 6,506,334
PROPERTY AND EQUIPMENT - AT COST
Office Furniture and Equipment 299,716
Machinery and Equipment 88,534
Vehicles 83,932
Leasehold Improvements 7,129
----------
479,311
Less: Accumulated Depreciation 106,337
----------
PROPERTY AND EQUIPMENT (NET) 372,974
OTHER ASSETS
Deposits 7,858
Certificate of Deposit - Pledged 205,528
Due From Stockholder 36,000
----------
TOTAL OTHER ASSETS 249,386
----------
TOTAL ASSETS $7,128,694
==========
The accompanying notes are an integral part of the financial statements.
-22-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable:
Trade $4,081,925
Retainage 56,665
----------
TOTAL ACCOUNTS PAYABLE $4,138,590
Notes Payable - Due Within One Year 677,032
Payroll Taxes Payable 26,005
Other Accrued Liabilities 133,858
Accrued Commissions Payable 371,119
Deferred Income Taxes 10,109
Billings in Excess of Costs and
Estimaged Earnings on
Uncompleted Contracts 729,893
----------
TOTAL CURRENT LIABILITIES 6,086,606
LONG-TERM LIABILITIES
Notes Payable - Due After One Year 957,627
Deferred Income Taxes 16,277
----------
TOTAL LONG-TERM LIABILITIES 973,904
----------
TOTAL LIABILITIES 7,060,510
STOCKHOLDERS' EQUITY
Capital Stock, No Par Value; 25,000
Shares Authorized; 4,635 Shares Issued 463,500
Preferred Stock, No Par Value; 10,000
Shares Authorized; 50 Shares Issued 5,000
Retained Earnings (Deficit) ( 400,316)
----------
TOTAL STOCKHOLDERS' EQUITY 68,184
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $7,128,694
==========
-23-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- -----------------------------------------------------------------------------
CONSTRUCTION REVENUE $17,427,482 100.0%
COST OF CONSTRUCTION 15,150,719 86.9
---------- -------
GROSS PROFIT 2,276,763 13.1
GENERAL AND ADMINISTRATIVE
EXPENSES
Advertising and
Promotion $ 137,872
Bad Debt Expense 10,000
Computer Expenses 3,367
Depreciation 65,169
Dues and Subscriptions 4,137
Equipment Leasing 6,566
Insurance 113,012
Miscellaneous 3,768
Office Supplies and
Expense 93,003
Payroll Taxes 93,198
Professional Fees 14,300
Rent 111,552
Salaries 1,282,209
Shop Expense 29,932
Taxes, Fees and Licenses 26,262
Telephone 68,751
Travel and Entertainment 148,453
----------
2,211,821
Less: Amounts Allocated
to Cost of
Construction 317,000
----------
TOTAL GENERAL AND
ADMINISTRATIVE
EXPENSES 1,894,821 10.9
---------- -------
INCOME FROM OPERATIONS 381,942 2.2
OTHER INCOME (EXPENSE)
Interest Income 7,686
Interest (Expense) (136,041)
Miscellaneous Income 114
----------
OTHER INCOME
(EXPENSE) - NET (128,271) ( .7)
---------- -------
INCOME BEFORE INCOME TAXES 253,671 1.5
PROVISION FOR INCOME TAXES 77,202 .5
---------- -------
NET INCOME $ 176,469 1.0%
========== =======
The accompanying notes are an integral part of the financial statements.
-24-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
STATEMENT OF RETAINED EARNINGS (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1995
- -----------------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT)
- BEGINNING OF YEAR ($ 576,785)
NET INCOME FOR THE YEAR 176,469
----------
RETAINED EARNINGS (DEFICIT)
- END OF YEAR ($ 400,316)
==========
The accompanying notes are an integral part of the financial statements.
-25-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 176,469
Non-Cash Items Included in Net Income:
Depreciation 65,169
Increase in Deferred Income Taxes 77,202
Allowance for Doubtful Accounts 10,000
(Increase) in Assets:
Accounts Receivable (3,602,506)
Prepaid Expenses ( 41,718)
Inventory ( 12,081)
Costs and Estimated Earnings in
Excess of Billings on
Uncompleted Contracts (1,110,112)
Deposits -
Increase (Decrease) in Liabilities:
Accounts Payable 3,058,079
Payroll Taxes Payable ( 22,071)
Other Accrued Liabilities 95,511
Accrued Commissions Payable 252,683
Billings in Excess of Costs and
Estimated Earnings on
Uncompleted Contracts 475,136
----------
NET CASH (USED IN)
OPERATING ACTIVITIES ( 578,240)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of Stockholder Loan $ 61
Purchase of Property and Equipment ( 162,420)
Purchase of Certificates of Deposit ( 2,928)
----------
NET CASH (USED IN)
INVESTING ACTIVITIES ( 165,287)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes Payable 369,415
Repayment of Notes Payable ( 88,383)
Advances Under Line-of-Credit
Agreement 480,527
----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES $ 761,559
----------
The accompanying notes are an integral part of the financial statements.
-26-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
- -----------------------------------------------------------------------------
NET INCREASE IN CASH $ 18,032
CASH AT BEGINNING OF YEAR 6,855
----------
CASH AT END OF YEAR $ 24,887
==========
SUPPLEMENTAL DISCLOSURES:
- -------------------------
Interest Paid $ 119,652
==========
Income Taxes Paid $ -
==========
The accompanying notes are an integral part of the financial statements.
-27-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- -----------------------------------------------------------------------------
1 COMPANY HISTORY AND SIGNIFICANT ACCOUNTING POLICIES.
- -------------------------------------------------------
COMPANY HISTORY. The Company was incorporated under the laws of
the State of Nevada on January 11, 1993. The Company has issued 4,635
shares of no par value, common stock in exchange for equipment with a
fair market value of $10,000 and cash of $453,500. On August 31,
1994, the Company issued 50 shares of preferred stock in exchange for
$5,000 cash. The Company operates as an engineer and constructor of
commercial cooling towers in the national and international market.
CONCENTRATION OF CREDIT RISK. Financial instruments that
potentially subject the Company to credit risk, consist primarily of
the following:
CASH. From time to time, the Company may maintain cash
balances in a financial institution in excess of the FDIC insured
limit.
ACCOUNTS RECEIVABLE. The Company's receivables are due from
various business entities under contractual agreements. The
Company files liens on projects where collection problems are
anticipated. The lien serves as collateral for the receivable.
REVENUE AND COST RECOGNITION. Revenues from long-term contracts
are recognized on the percentage-of-completion method for individual
contracts, commencing when progress reaches a point where experience
is sufficient to estimate final results with reasonable accuracy.
Revenues are recognized in the ratio that costs incurred bear to total
estimated costs. Changes in job performance, 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.
On certain new cooling tower projects, the Company is allowed to
bill a percentage of the contract amount, usually 10% to 15%, when the
engineering and drawing phase of the project is complete. It is the
Company's policy to recognize the gross profit for the engineering
phase when that phase is completed. On larger projects, this
engineering and drawing phase is segregated and accounted for as a
separate profit center.
Contract costs include all direct materials, subcontracts, labor
costs and those indirect costs related to contract performance.
General and administrative costs are charged to expenses as incurred.
Profits on short-term contracts are recorded on the substantial
completion of each contract. Revenues from time and material
contracts are recognized currently as the work is performed.
-28-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
- -----------------------------------------------------------------------------
1 COMPANY HISTORY AND SIGNIFICANT ACCOUNTING POLICIES. (CONT'D.)
- -------------------------------------------------------
At the time a loss on a contract becomes known, the entire amount
of the estimated ultimate loss on both short and long-term contracts
is accrued.
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.
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 statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INCOME TAXES. The Company's income tax returns are prepared on
the completed-contract method rather than the percentage-of-completion
method used for financial statement purposes. The completed-contract
method permits the Corporation to report earnings only from those
contracts completed within the year. The Company also depreciates
it's property and equipment on an accelerated method for income tax
purposes. A provision for deferred taxes on these timing differences
has been recorded.
INVENTORY. Inventory is stated at the lower of cost (first-in,
first-out method) or market value. The inventory consists primarily
of parts and lumber for the use on future jobs.
DEPRECIATION. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets.
CASH EQUIVALENTS. For the purpose of the Statement of Cash
Flows, the Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
-29-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
- -----------------------------------------------------------------------------
2 PROPERTY AND EQUIPMENT.
- --------------------------
The following is a summary of property and equipment, net of
accumulated depreciation, as of December 31, 1995:
Office Furniture and Equipment $ 228,840
Machinery and Equipment 77,985
Vehicles 59,338
Leasehold Improvements 6,811
----------
$ 372,974
==========
Depreciation expense charged to operations for the year ended
December 31, 1995, was $65,169.
3 NOTES PAYABLE.
- -----------------
The following is a summary of notes payable at December 31, 1995:
First Interstate Bank (payable in monthly
installments of $623, including interest
at 7.5%; secured by a vehicle) $ 19,004
GMAC (payable in monthly installments of
$592, including interest at 9.75%;
secured by a vehicle) 17,023
GMAC (payable in monthly installments of
$534, including interest at 9.75%;
secured by a vehicle) 15,362
Norwest Bank - Lakewood (payable in
monthly installments of $8,334, including
interest at 1.0% above the prime rate;
secured by furniture and equipment,
inventory, accounts receivable and
assignment of life insurance policy; 90%
guaranteed by SBA) 302,743
Norwest Bank - Lakewood - Line-of-Credit * 1,280,527
----------
1,634,659
Less: Current Maturities Included in
Current Liabilities 677,032
----------
Notes Payable - Due After One Year $ 957,627
==========
-30-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
- -----------------------------------------------------------------------------
3 NOTES PAYABLE. (CONT'D.)
- -----------------
*The Company has negotiated three lines of credit with Norwest
Bank-Lakewood. A $720,000 line-of-credit is secured by the Company's
certificate of deposit of $205,528 and a stockholder's personal
certificate of deposit of $519,369, has an interest rate of 6.27%, and
matures on January 3, 1997. A $100,000 line-of-credit is secured by
a stockholder's personal certificate of deposit of $100,000, has an
interest rate of 5.79% and matures on May 15, 1996. A $550,000
line-of-credit is secured by export inventory, export receivables,
assignment of letters of credit, assignment of life insurance policy,
a personal guarantee by the stockholder and 90% guaranteed by the SBA,
has an interest rate of 1% above the prime rate and matures on April
17, 1996. The outstanding balance on these lines of credit at
December 31, 1995 was $1,280,527.
The following is a summary of the future maturities of notes
payable for the years ending December 31:
1996 $ 677,032
1997 838,551
1998 116,357
1999 2,719
----------
$1,634,659
==========
4 LONG-TERM OPERATING LEASES.
- -----------------------------
The Company has entered into a 60 month lease for its office
space. The following is a schedule by year of future minimum lease
payments required under this lease:
December 31, 1996 $ 131,672
December 31, 1997 174,231
December 31, 1998 174,231
December 31, 1999 145,194
----------
$ 625,328
==========
5 INCOME TAXES.
- ----------------
The components of the net deferred tax liability at December 31,
1995, is as follows:
Deferred Tax Liability $ 476,263
Less: Deferred Tax Asset ( 449,877)
Valuation Allowance on Deferred
Tax Asset -
----------
Net Deferred Tax Liability $ 26,386
==========
-31-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
- -----------------------------------------------------------------------------
5 INCOME TAXES. (CONT'D.)
- ----------------
The amounts on the previous page are included in the accompanying
Balance Sheet under the following captions:
Current Liabilities:
Deferred Tax Liability $ 10,109
==========
Long-Term Liabilities:
Deferred Tax Liability $ 16,277
==========
The provision for income taxes consisted of the following at
December 31, 1995:
Current Income Taxes Payable $ -
Increase in Deferred Income Taxes 77,202
----------
$ 77,202
==========
The Company also has a net operating loss of $ 1,789,506
available to carryforward. These losses have been used to reduce
deferred income for tax purposes. If not utilized, the losses will
expire on December 31:
2008 $ 295,350
2009 81,891
2010 1,412,265
----------
$1,789,506
==========
6 COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS.
- ---------------------------------------------------------
Uncompleted contracts at December 31, 1995, are summarized as
follows:
Costs Incurred to Date $7,305,721
Gross Profit Recognized to Date 1,850,378
----------
Total Costs Plus Gross Profit
Recognized to Date 9,156,099
Billings to Date 8,530,079
----------
$ 626,020
==========
-32-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
- -----------------------------------------------------------------------------
6 COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS. (CONT'D.)
- ---------------------------------------------------------
The amounts on the previous page are included in the accompanying
Balance Sheet under the following captions:
Costs and Estimated Earnings in
Excess of Billings on
Uncompleted Contracts $ 1,355,913
Billings in Excess of Costs and
Estimated Earnings on
Uncompleted Contracts 729,893
----------
$ 626,020
==========
7 CERTIFICATES OF DEPOSITS - PLEDGED.
- --------------------------------------
The certificate of deposit, with an outstanding balance of
$205,528, is pledged as security on the Company's line-of-credit
agreement with Norwest Bank-Lakewood.
8 LITIGATION AND CLAIMS.
- -------------------------
The Company has filed a claim in connection with the Chico State
University project. The owner of the project cancelled the work to be
performed by the Company subsequent to the issuance of a purchase
order. The Company expects its claim to be approximately $100,000.
At December 31, 1995, $61,227 of costs had been charged to this job
and are included in the balance sheet in accounts receivable. During
the year, an offer was made to settle the claim which was not accepted
by the Company. This offer was approximately equivalent to the
additional legal costs incurred for this claim.
During the year, the Company filed a claim in connection with the
Formosa Plastic Projects. The owner is disputing change orders on the
jobs for additional work performed. The Company has included
approximately $95,000 in the contract amount which is reflected on the
balance sheet in accounts receivable.
The Company also has additional disputes on other contracts,
resulting from change orders. On these jobs, the Company has
increased the contracts by approximately $289,900. The amount is
reflected on the balance sheet in accounts receivable. At December
31, 1995, the ultimate outcome of the above claims and disputes is
unknown, however, management believes their position can be
substantiated.
-33-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
===========================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
- -----------------------------------------------------------------------------
9 RELATED PARTY TRANSACTIONS.
- ------------------------------
The preferred stockholder has pledged two personal certificates
of deposit in the amount of $619,369 as security for two of the
Company's lines-of-credit.
For the year ended December 31, 1995, the Company paid the
stockholder a fee of $47,000 for this pledge. This amount is included
in interest expense.
At December 31, 1995, a stockholder owed the Company $36,000.
This note is non-interest bearing, with no formal repayment terms.
10 COMMITMENTS.
- ----------------
The Company has a commitment to purchase a forward exchange
contract of approximately $ 296,000, to hedge against currency
fluctuations. The contract matures on July 29, 1996. The Company's
commitment is related to a project being built in Canada. At December
31, 1995, the fair value of the contract was equivalent to the
Company's commitment.
11 FAIR VALUE OF FINANCIAL INSTRUMENTS.
- ----------------------------------------
The Company's loan to a stockholder, $36,000, described in Note
9, is reported at cost. Because of uncertainties as to the period over
which repayment will occur and the potential for an adjustment of
interest depending on economic factors, management does not believe it
is practicable to estimate fair value.
The carrying amount of notes payable at December 31, 1995,
approximate their fair value, since the interest rate charged per the
agreements is similar to the Company's current borrowing rate.
The Company's commitment to purchase a forward exchange contract
approximated the fair value of the project contract at December 31,
1995.
-34-
<PAGE>
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
BALANCE SHEET
June 30, 1997
ASSETS
CURRENT ASSETS
Cash $267,493
Accounts Receivable
Trade $3,664,374
Retainage 298,891
Other 42,476
----------
Total Accounts
Receivable 4,005,741
Prepaid Expenses 162,941
Inventory 307,495
Costs & Earnings in
Excess of Billings 1,388,507
----------
TOTAL CURRENT ASSETS $6,132,177
FIXED ASSETS
Furniture and Equipment $472,244
Machinery and Equipment 125,665
Trucks and Autos 186,455
Leasehold Improvements 48,494
----------
$832,868
Less: Accumulated
Depreciation $ (249,970)
----------
TOTAL FIXED ASSETS 582,888
OTHER ASSETS
Certificates of Deposit
- Pledged $217,025
Deposits 11,153
Due From Stockholder 61,860
----------
TOTAL OTHER ASSETS 290,038
----------
TOTAL ASSETS $7,005,103
==========
-35-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
BALANCE SHEET
June 30, 1997
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable
Trade $4,884,360
Retainage 52,584
----------
Total Accounts
Payable $4,936,944
Payroll Taxes Payable 22,702
Other Accrued
Liabilities 133,764
Accrued Commissions 244,643
Notes Payable -
Current Portion 539,246
Billings in Excess of
Costs and Earnings 340,522
Income Taxes Payable 165,132
----------
TOTAL CURRENT
LIABILITIES $6,382,953
TOTAL TERM LIABILITIES
Notes Payable -
Due After One Year 247,380
Deferred Income Taxes 6,136
----------
TOTAL LONG-TERM
LIABILITIES 253,516
----------
TOTAL LIABILITIES $6,636,469
STOCKHOLDERS EQUITY
Common Stock $467,060
Preferred Stock 5,000
Retained Earnings
(Deficit) (103,426)
----------
TOTAL STOCKHOLDERS
EQUITY 368,634
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $7,005,103
==========
-36-
<PAGE>
PSYCHROMETRIC SYSTEMS, INC.
STATEMENT OF INCOME
For the Six Months Ending 06/30/97
CONSTRUCTION REVENUE $8,112,349
COST OF CONSTRUCTION 6,199,290
----------
GROSS PROFIT $1,913,059
ADMINISTRATIVE EXPENSES
Salaries $1,101,165
Payroll Taxes 78,432
Travel/Entertainment 152,564
Advertising/Promotion 119,508
Dues/Subscriptions 6,000
Office Supplies 22,594
Insurance - General 71,121
Leased Equipment 4,967
Professional Fees 51,942
Computer Maintenance 18,772
Telephone 53,395
Group Insurance 51,895
Postage 16,428
Licenses/Fees/Taxes 21,009
Rent 87,116
Research and Development 24,871
Recruiting/Relocation
/Training 5,121
Shop Expenses 26,586
Depreciation 69,011
Bad Debt Expense 13,283
Miscellaneous 6,454
Less: Allocation to Cost
of Construction (142,500)
----------
TOTAL ADMINISTRATIVE
EXPENSES $1,859,534
----------
INCOME FROM OPERATIONS $53,525
OTHER INCOME (EXPENSE)
OTHER INCOME 6,881
OTHER EXPENSE -
INTEREST EXPENSE (71,104)
----------
INCOME BEFORE
TAXES(LOSS) ($10,698)
PROVISION FOR INCOME
TAXES(CREDIT) (1,604)
----------
NET INCOME (LOSS) ($9,094)
==========
-37-
<PAGE>
Fi-Tek VI, Inc.
Proforma Financial Information
As of June 30, 1997
The accompanying combined condensed financial information gives effect to
the business combination of Fi-Tek VI, Inc. and Psychrometric Systems, Inc.
as if the transaction had occurred as of January 1, 1997. It should be
read in connection with the unaudited financial statements for
Psychrometric Systems, Inc. for the six month period ended June 30, 1997,
and with the audited financial statements for Fi-Tek VI, Inc. filed as part
of Form 10-KSB. The pro forma information is not necessarily indicative of
the results that would have been reported had such events actually occurred
on January 1, 1997, nor is it indicative of the combined entity's future
results.
Proforma
Historical Combined
----------------------------- --------------
Psychrometric Fi-Tek VI,
Systems, Inc. Inc. year
six months ended
ended June 30, June 30,
1997 1997 Combined
------------- ----------- -------------
Assets:
Current Assets $6,132,177 $ 14,044 $6,146,221
Property Plant &
Equipment 582,888 0 582,888
Intangibles and
Other Assets 290,038 0 290,038
$7,005,103 $14,044 $7,019,147
---------- ---------- ----------
Liabilities and
Stockholders' Equity
Current Liabilities $6,382,953 308 $6,383,261
Long-term Liabilities 253,516 0 253,516
Stockholders' Equity 368,634 13,736 382,370
---------- ---------- ----------
$7,005,103 $14,044 $7,019,147
---------- ---------- ----------
Revenues $8,112,349 $0 $8,112,359
Cost of Sales 6,199,290 0 6,199,280
---------- ---------- ----------
Gross Profit 1,913,059 0 1,913,079
Selling, General and
Administrative Expense 1,859,534 4,319 1,863,853
---------- ---------- ----------
Operating Income 53,525 (4,319) 49,226
Other Income (Expense) (64,223) 314 (63,929)
Income Tax Benefit 1,604 0 1,604
---------- ---------- ----------
Net Income ($9,094) ($4,005) ($13,099)
---------- ---------- ----------
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