SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
September 21, 1998
Date of Report (Date of earliest event reported)
CELTIC INVESTMENT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-37436-C 36-3729989
--------------- --------------- ------------
State of Commission File No. IRS Employer
Incorporation Identification No.
17W220 22nd Street, Suite 420
Oakbrook Terrace, IL 60181
(Address of principal executive offices)
(630) 993-9010
(Registrant's telephone number)
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Item 2. Acquisition or Disposition of Assets
On October 5, 1998, the Registrant filed a Form 8-K to report on its
acquisition of Goodman Factors, Inc.. The Registrant did not file copies of the
financial statements of Goodman Factors, Inc. and pro forma financial statements
of the Registrant and Goodman Factors, Inc. with such Form 8-K. This Amended
Form 8-K is filed for the purpose of filing such financial statements.
Item 7. Financial Statements and Exhibits
(a) Pro Forma Financial Statements.
Celtic Investment, Inc. and Goodman Factors, Inc.
For the 12 months ended June 30, 1998 - Unaudited
For the three months ended September 30, 1998 - Unaudited
(b) Financial Statements.
Goodman Factors, Inc.- December 31, 1996 and December 31, 1997-
Audited.
Goodman Factors, Inc. - Unaudited Condensed Statements of Income
and Cash Flow for the period of January 1, 1998 to September 21,
1998.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Dated: December 3, 1998 CELTIC INVESTMENT, INC.
By /s/ Douglas P. Morris
Douglas P. Morris
President
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PRO FORMA FINANCIAL DATA
(Unaudited)
On September 21, Celtic Investment, Inc. (Company or Celtic) completed the
acquisition of all of the issued and outstanding stock of Goodman Factors, Inc.
(Goodman). The purchase price was approximately $21,500,000 in cash, notes and
assumption of liabilities. The transaction was accounted for as a purchase.
Celtic has a June 30 year end. Goodman has a calendar year end. No pro
forma balance sheet is presented since the effect of the acquisition is included
in the balance sheet of Celtic filed in its September 30, 1998 10-QSB.
The fiscal year ending June 30, 1998 and the three month ending September
30, 1998 pro forma income statements were prepared using the historical
statements of Celtic and Goodman assuming the transaction occurred on July 1,
1997. Celtic's historical information was previously reported on Form 10-KSB and
Form 10-QSB, respectively.
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CELTIC INVESTMENT, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for twelve month period ending June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Celtic Goodman Pro Forma Celtic
Investment Factors Adjustment Investment
-------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Total Revenues $ 3,731,195 $ 4,847,221 $ 0 $ 8,578,416
Interest expense 565,794 699,756 1,381,000(1) 2,646,550
-------------- ------------- --------------- --------------
Income after interest expense 3,165,401 4,147,465 (1,381,000) 5,931,866
(2,358,753)(2)
Total operating expenses 3,042,862 4,118,747 603,333 (3) 5,406,189
-------------- ------------- --------------- --------------
Pretax income from continuing
operations $122,539 28,718 374,420 525,677
Income tax credits (394,963) N/A 401,000 (4) 6,037
-------------- ------------- --------------- --------------
Net income from continuing
operations 517,502 28,718 (26,580) 519,640
-------------- ------------- --------------- --------------
Convertible Preferred 0 0 180,000 (5) 180,000
Dividends
-------------- ------------- --------------- --------------
Net earnings from continuing
operations applicable to
Common shareholders 517,502 28,718 (206,580) 339,640
Net earnings from continuing
operations per share:
Primary earnings per
share: 0.13 0.01 (0.05) 0.09
--------------- ------------- --------------- --------------
Fully diluted earnings per 0.13 0.01 (0.05) 0.09
share
--------------- ------------- --------------- --------------
Weighted average shares
outstanding 3,924,971 0 0 3,924,971
--------------- ------------- --------------- --------------
</TABLE>
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CELTIC INVESTMENT, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for three month period ending September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
ProForma
Celtic Goodman Pro Forma Celtic
Investment Factors Adjustment Investment
------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Total Revenues: $1,167,508 $1,448,524 $0 $2,616,032
Interest expense 182,483 213,082 345,000(1) 740,565
------------- -------------- ------------- -----------
Income after interest 985,025 1,235,442 (345,000) 1,875,467
expense
(945,099)(2)
Total operating expenses 924,918 1,339,486 150,833(3) 1,470,138
------------- -------------- ------------- -----------
Pretax income from
continuing operations 60,107 (104,044) 449,266 405,329
Income Tax 24,000 N/A 239,606(4) 263,606
------------- -------------- ------------- -----------
Net income 36,107 (104,044) 209,660 141,723
------------- -------------- ------------- -----------
Convertible Preferred 15,335 0 29,665(5) 45,000
Dividends
------------- -------------- ------------- -----------
Net earning applicable to
Common shareholders 20,772 (104,044) 179,995 96,723
Primary earnings per share 0.01 (0.02) 0.04 0.03
------------- -------------- ------------- -----------
Fully diluted earnings per 0.01 (0.02) 0.04 0.03
share
------------- -------------- ------------- -----------
Weighted average shares
outstanding 3,918,804 0 0 3,918,804
------------- -------------- ------------- -----------
</TABLE>
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Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year ending June 30, 1998 and
the Three Months Ended September 30, 1998
Note A. These notes to condensed pro forma financial statements are not intended
to disclose all data of significance related to the historical financial
statements of the entities. The notes and related condensed pro forma financial
statements should be read in conjunction with the historical interim and annual
financial statements of Celtic Investments, Inc. filed with the Commission on
Form 10- KSB and 10-QSB.
Note B. The historical carrying values of assets acquired and liabilities
assumed of Goodman approximated their fair values. The total purchase price was
$21,950,000 including acquisition costs of $300,000.
Fair value of assets acquired $12,900,000
Intangibles acquired (goodwill) 9,050,000
The purchase price was funded by:
Proceeds from debt and liabilities assumes or created 16,450,000
Notes payable issued to former Goodman shareholders 3,750,000
Proceeds from sale of preferred stock 1,750,000
Note C. Pro forma income statement adjustments - The condensed income statement
for Goodman included in the pro forma condensed Consolidated Statements of
Operations for the three months ended September 30, 1998 is for the period from
August 1, 1998 through September 21, 1998, the date of the purchase. (The
results of operations for the period from September 22, 1998 to September 30,
1998 are included in Celtic's interim financial statements for the quarter then
ended.)
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(1) To adjust for additional interest expense at 17% on $8,250,00 in debt as a
result of the notes payable issued in the acquisition of Goodman Factors,
Inc.
(2) To adjust for the salaries paid to the owners of Goodman Factors, Inc.
that are in excess of the amounts in new employment contracts as part of
the Goodman Factors, Inc. acquisition.
(3) To adjust for the goodwill expense related to the acquisition of Goodman
Factors, Inc. ($11,750,000 purchase price plus $300,000 in direct
acquisition costs less $3,000,000 in Goodman equity) amortization for 15
years. This adjustments reflects the amortization of cost in excess of net
assets acquired resulting from the transaction.
(4) Adjustment to record the net income tax provision for the pro forma
adjustments to income before taxes.
(5) To adjust for payment of preferred dividend ($2,000,000 at 9% per year).
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INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Goodman Factors, Inc.
Dallas, Texas
We have audited the accompanying balance sheets of Goodman Factors, Inc. as of
December 31, 1997 and 1996, and the related statements of income, retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Goodman Factors, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
McGladrey & Pullen, LLP
Chicago, Illinois
March 30, 1998
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GOODMAN FACTORS, INC.
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
- ------ --------------------------
<S> <C> <C>
Cash $ 1,674,098 $283,989
Accounts receivable 12,751,097 14,323,984
Receivables from other financial institutions 104,918 -
Other assets 6,445 4,350
----------- -----------
Total current assets 14,536,558 14,612,323
----------- -----------
Furniture, fixtures and equipment, net of accumulated
depreciation; 1997 $33,413; 1996 $62,307 10,915 20,962
----------- -----------
Total assets 14,547,473 14,633,285
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, stockholders $3,150,000 2,500,000
Due to clients 3,127,212 4,108,325
Due to other financial institutions - 830,399
------------ -----------
Total current liabilities 6,277,212 7,438,724
------------ -----------
Notes payable 5,000,000 4,000,000
Stockholders' Equity
Common stock, $2.50 par value, authorized 1,000,000
shares; issued and outstanding 1997 and 1996 100,000
shares 250,000 250,000
Retained earnings 3,020,261 2,944,561
------------ -----------
3,270,261 3,194,561
------------ -----------
$14,547,473 $14,633,285
============ ===========
</TABLE>
See Notes to Financial Statements.
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GOODMAN FACTORS, INC.
STATEMENT OF INCOME
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Revenues: 1997 1996
--------------- ------------------
<S> <C> <C>
Earned discount income $3,071,009 $3,248,639
Servicing fees 1,752,912 1,848,027
--------------- ------------------
Total Revenue 4,823,921 5,096,666
Interest expense 798,340 940,735
--------------- ------------------
Revenue after interest expense 4,025,581 4,155,931
Provision for credit losses 122,586 255,542
--------------- ------------------
Revenue after interest expense and
provision for credit losses 3,902,995 3,900,389
--------------- ------------------
Operating Expenses:
Salaries and employee benefits 3,369,296 3,530,008
Occupancy 32,215 30,818
Finders fees 89,754 65,664
Professional fees 56,631 33,556
Other 279,399 234,828
--------------- ------------------
Total operating expenses 3,827,295 3,894,874
--------------- ------------------
Net income 75,700 5,515
=============== ==================
</TABLE>
See Notes to Financial Statements.
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GOODMAN FACTORS, INC
STATEMENT OF CASH FLOWS
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 75,700 $ 5,515
Adjustments to reconcile net income loss
to net cash (used in) operating activities:
Provision for credit losses 122,586 255,542
Depreciation 20,003 14,497
Loss on disposal of equipment 482 -
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable 1,450,301 (1,020,161)
Receivables from other financial
institutions (104,918) -
Other assets (2,095) (4,050)
(Increase) decrease in:
Due to clients (981,113) 737,167
Due to other financial institutions (830,399) (78,858)
-----------------------------------
Net cash (used in) operating activities (249,453) (90,348)
-----------------------------------
Cash Flows From Investing Activities
Purchase of furniture, fixtures and equipment (16,491) (4,713)
Proceeds from disposal of equipment 6,053 -
------------------------------------
Net cash (used in) investing activities (10,438) (4,713)
------------------------------------
Cash Flows From Financing Activities
Net borrowing (repayments) under notes payable 1,000,000 (1,000,000)
Proceeds from issuance of notes payable 650,000 575,000
------------------------------------
Net cash provided by (used in)
financing activities 1,650,000 (425,000)
------------------------------------
Net increase (decrease) in cash 1,390,109 (520,061)
Cash:
Beginning 283,989 804,050
------------------------------------
Ending $ 1,674,098 283,989
====================================
Supplemental Disclosure of Cash Flow Information
Cash Paid for interest $ 798,340 $ 940,735
See Notes to Financial Statements.
</TABLE>
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GOODMAN FACTORS, INC.
STATEMENTS OF RETAINED EARNINGS
Years Ended December 31, 1997 and 1996
1997 1996
- ------------------------------------------------------------------------------
Balance, beginning 2,944,561 2,939,046
Net income 75,700 5,515
----------------------------------
Balance, ending 3,020,261 2,944,561
==================================
See Notes to Financial Statements
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GOODMAN FACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business. Goodman Factors, Inc. (the Company) purchase accounts
receivable, with and without recourse, from clients throughout the United
States, with approximately two-thirds located in Texas, and approximately
forty-five percent of all clients in the apparel industry. The Company purchases
approximately twenty-five percent of the accounts receivable without recourse.
The Company pays for a portion of the accounts receivable when purchased and the
balance, net of fees and interest, after the accounts receivable have been
collected. The Company requires a security interest in all of the client's
accounts and notes receivable as part of the factoring arrangement and usually
obtains personal guarantees from the client's stockholders.
Significant accounting policies are as follows:
Accounting estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of business and credit risk: The Company maintains its cash in
bank accounts at one financial institution which may, at times, exceed federally
insured limits.
Furniture, fixtures and equipment: Furniture, fixtures and equipment are stated
at cost. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets.
Factoring operations: Income from factored invoices is recorded as earned in
accordance with the related agreements with clients. Income, which is comprised
of earned discount income and servicing fees is earned when receivables are
purchased and over the time that a receivable remains unpaid. The terms
typically include a discount which ranges from 1.3% to 5.0% of the face value of
the invoices at the time of purchases, and a servicing fee which is normally an
interest charge at a periodic annual rate of prime plus 3.5%. Generally after 90
days, uncollected receivables are charged to the due to clients liability. A
provision for credit losses on factored invoices is charged to income in an
amount sufficient to provide for anticipated losses on such invoices. The
Company determines those invoices that are uncollectible based upon a detailed
review. Any write-offs are charged to the allowance for credit losses on such
invoices. Upon collection of the purchased invoices, amounts collected in excess
of factoring income and the initial payment are remitted to clients. Such
amounts may, in some instances, be applied to offset uncollected factored
invoices.
Income tax status: The Company, with the consent of its stockholders, has
elected to be taxed under sections of the federal and state income tax laws
which provide that in lieu of corporation income taxes, the stockholders
separately account for their pro rata shares of the Company's items of income,
deduction, losses and credits. Therefore, these statements do not include any
provision for corporation income taxes except for certain state taxes which are
included in other operating expenses in the accompany statements of income.
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Note 2. Accounts Receivable
Accounts receivable at December 31, 1997 and 1996, are summarized as follows:
1997 1996
----------------- ----------------
Factored invoices on a recourse basis $9,194,602 $10,290,179
Factored invoices on a nonrecourse basis 3,683,739 4,178,239
----------------- ----------------
12,878,341 14,468,418
Less allowance for credit losses (127,244) (144,434)
----------------- ----------------
$12,751,097 $14,323,984
================= ================
The following is an analysis of the activity in the allowance for credit losses:
Years Ended December 31,
1997 1996
---------------------------------
Balance at beginning of year $144,434 $136,836
Provision for credit losses 122,586 255,542
Recoveries 103,541 54,009
Charge-offs (243,317) (301,953)
---------------------------------
Balance at end of year $127,244 $144,434
=================================
Note 3.Notes Payable and Long-Term Debt
The Company has unsecured demand notes payable to a stockholder totaling
$2,500,000. $1,250,000 of these notes are subordinated to the bank line of
credit. The subordinated portion of the notes payable bears interest, payable
monthly, at prime plus 3.0%, and the remaining portion bears interest, payable
monthly at prime plus .5%.
The Company has a $650,000 unsecured demand note payable to a stockholder. The
note bears interest at prime plus .5%, payable monthly.
The Company has an $8,000,000 revolving note payable with a bank, collateralized
by substantially all of the Company's assets, along with a $3,000,000 guaranty
by one of the Company's stockholders, that is due May 3, 1999. The Company can
borrow in aggregate the lesser of $8,000,000 or its borrowing base, essentially
75% of eligible factored accounts receivable. At December 31, 1997, the
outstanding balance was $5,000,000. The revolving note payable bears interest,
payable monthly at LIBOR plus 2.5%. The revolving note payable requires the
Company to maintain certain financial covenants including minimum tangible net
worth and a fixed charge coverage ratio.
The prime rate was 8.5% and the LIBOR rate was 5.72% at December 31, 1997.
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Note 4. Commitments and Related Expenses
In October, 1997, the Company entered into a lease for office space under an
operating lease agreement expiring on October 31, 2000.
Total lease commitments are:
Years ending December 31:
1998 $ 51,750
1999 58,507
2000 62,597
--------------------
$ 172,854
====================
Rent expense including insurance and real estate taxes for the years ended
December 31, 1997 and 1996, amounted to approximately $33,000 and $31,000,
respectively.
Note 5. Retirement Plan
The Company sponsors a profit sharing plan covering substantially all of its
employees. The Plan's investments are held and managed by a third-party trustee.
Plan contributions are at the discretion of management. Contributions for the
years ended December 31, 1997 and 1996, were $108,438 and $90,921, respectively.
Note 6. Bonuses
The Company pays discretionary bonuses to its officer-stockholders. These
bonuses totaled approximately $2,129,000 and $2,367,000 for the years ended
December 31, 1997 and 1996, respectively.
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GOODMAN FACTORS, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
For Period January 1, 1998 through September 21, 1998
- ------------------------------------------------------------------------------
Revenue:
Earned discount income $2,223,034
Servicing Fees 1,542,648
------------
Total revenue 3,772,682
Interest expense 580,765
------------
Revenue after interest expense 3,192,182
Provision for credit losses 73,082
------------
Revenue after interest expense and provision for
credit losses 3,119,100
____________
Operating Expense
Salaries and employee benefits 2,833,284
Occupancy 64,029
Finders fees 79,214
Professional fees 62,883
Other 349,160
------------
Total operating expenses 3,388,570
Net loss $269,470
============
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GOODMAN FACTORS, INC.
UNAUDITED STATEMENT OF CASHFLOW
For Period of January 1, 1998 through September 21, 1998
- ------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ (2,781,865)
Cash Flow from Finance Activities
Net Borrowing from Financial Institutions 1,750,000
--------------
Net decrease in cash 1,031,865
Cash:
Beginning 1,674,098
---------------
Ending $ 642,233
===============
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GOODMAN FACTORS, INC.
Notes to Condensed Financial Statements (Unaudited)
For the Period January 1, 1998 through September 21, 1998
- ------------------------------------------------------------------------------
Note (1) Condensed Financial Statements
The condensed financial statements of Goodman Factors, Inc. ("Goodman") included
herein have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and have not been examined or
reviewed by independent public accountants. In the opinion of management, all
adjustments necessary to present fairly the results of operations have been
made. Pursuant to SEC rules and regulations certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from these statements. In the opinion of management, the disclosures contained
herein, when read in conjunction with financial statements and notes included in
Goodman's 1997 audited financial statements filed herewith are adequate to make
the information presented not misleading. It is suggested therefore, that these
statements be read in conjunction with the statements and notes included with
those financial statements.
Note (2) Acquisition. Goodman was a closely held finance company specializing in
factoring accounts receivable. On September 21, 1998, Goodman entered into an
agreement for the sale of 100% of the issued and outstanding shares of common
stock of Goodman to Celtic Investment, Inc. The accompanying financial
statements present Goodman's operations from January 1, 1998 through the date of
sale.
19
