Securities and Exchange Commission
Washington D.C. 20549
Form 8-K/A
(AMENDMENT NO. 2)
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of the earliest event reported)
June 28, 1996
__________________
The Stephan Co.
Florida 1-4436 59-0676812
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
incorporation) Number)
1850 W. McNab Road
Fort Lauderdale, Florida 33309
(Address of principle executive offices) (Zip Code)
(954) 971-0600
(Registrant's telephone number, including area code)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Audited financial statements for the period May 18, 1994
(Inception) through December, 1994 and for the year ended December 31, 1995.
Unaudited balance sheet and statement of operations for the
interim period January 1, 1996 through June 27, 1996 (Date of acquisition).
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM INCEPTION MAY 18, 1994 TO DECEMBER 31, 1994
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM INCEPTION MAY 18, 1994 TO DECEMBER 31, 1994
CONTENTS
Page
Accountants' Report 1
Balance Sheets 2
Statements of Operations 4
Statements of Retained Earnings 8
Statements of Cash Flows 9
Notes to Financial Statements 13
Will, Gallagher & Pitzer, Inc.
Certified Public Accountants
Suite 110, Manor Oak II
1910 Cochran Road
Pittsburgh, PA. 15220
INDEPENDENT AUDITORS' REPORT
To the Board of Directors & Stockholders of
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
Pittsburgh, Pennsylvania
We have audited the accompanying combined balance sheets of SORBIE
ACQUISITION COMPANY AND SUBSIDIARIES as of December 31, 1995 and
December 31, 1994, and the related combined statements of operations,
retained earnings, and cash flows for the year and period then ended.
These combined 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
combined financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
combined 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 combined financial statements referred
to above paragraph present fairly, in all material respects,
the financial position of SORBIE ACQUISITION COMPANY AND
SUBSIDIARIES as of December 31, 1995 and December 31, 1994,
and the results of its operations and its cash flows for the
year and period then ended in conformity with generally
accepted accounting principles.
Pittsburgh, Pennsylvania
September 11, 1996
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
___________ ___________
CURRENT ASSETS
Cash $ 29,087 $ 165,415
Accounts receivable 513,228 731,198
Net of allowance for doubtful
accounts of $217,965 and
$0 respectively
Inventory - Note A and B 855,616 1,251,354
Prepaid expenses 35,795 17,500
Prepaid royalty 14,410 103,117
Deferred income taxes - Note G 0 0
___________ ___________
TOTAL CURRENT ASSETS 1,448,136 2,268,584
___________ ___________
PROPERTY AND EQUIPMENT - Note A and E
Automobile 43,000 23,500
Furniture and fixtures 51,841 44,788
Leasehold improvements 2,449 2,449
___________ ___________
97,290 70,737
Less: Accumulated depreciation 32,340 8,842
___________ ___________
NET PROPERTY AND EQUIPMENT 64,950 61,895
___________ ___________
OTHER ASSETS - Note A
Goodwill 2,644,317 2,713,001
Organization costs 87,860 107,384
___________ ___________
TOTAL OTHER ASSETS 2,732,177 2,820,385
___________ ___________
TOTAL ASSETS $ 4,245,263 $ 5,150,864
=========== ===========
See accountants' report and notes to consolidated financial statements.
-2-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
BALANCE SHEETS - CONTINUED
DECEMBER 31, 1995 AND 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
___________ ___________
CURRENT LIABILITIES
Accounts payable $ 1,915,521 $ 966,280
Note payable - bank - Note C 200,000 200,000
Note payable - officer - Note F -0- 100,000
Note payable - shareholder - Note F -0- 70,000
Note payable - convertible debt 52,000 78,000
Accrued expenses 175,037 124,008
Accrued wages - officer - Note M 387,500 145,833
Current portion of long term debt 1,157,068 506,335
___________ ___________
TOTAL CURRENT LIABILITIES 3,887,126 2,190,456
___________ ___________
Long term debt - Note D 2,603,170 3,260,224
TOTAL LIABILITIES 6,490,296 5,450,680
SHAREHOLDERS' EQUITY
Common stock - Note H 6,400 6,400
Preferred stock - Note H 226,000 200,000
Additional paid-in capital 388,600 388,600
Retained earnings (deficit) (2,866,033) (894,816)
___________ ___________
TOTAL SHAREHOLDERS' EQUITY (2,245,033) (299,816)
___________ ___________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,245,263 $ 5,150,864
=========== ===========
See accountants' report and notes to consolidated financial statements.
-3-
SORBIE ACQUISITION COMPANY AN SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Percent
1995 of Sales
___________ ___________
SALES $ 7,689,730 100.00%
COST OF GOODS SOLD 4,395,070 57.16
___________ ___________
GROSS PROFIT 3,294,660 42.84
___________ ___________
SELLING AND ADMINISTRATIVE EXPENSES
Salaries and commissions 1,116,980 14.52
Interest expense 453,641 5.90
Freight 376,277 4.89
Travel 338,841 4.41
Shows expense 453,735 5.90
Education 219,007 2.85
Consulting 72,626 .94
Rent - building 171,500 2.23
Research and development 52,234 .68
Amortization 88,208 1.15
Advertising and promotion 439,793 5.72
Insurance 87,486 1.14
Telephone 78,266 1.02
Office expense 1,589 .02
Postage 54,883 .71
Payroll taxes 53,731 .70
Professional fees 63,694 .83
Employment fees 33,047 .43
Show support expense 85,243 1.11
Supplies 31,164 .41
Miscellaneous 19,819 .25
Depreciation 23,498 .31
Training 14,582 .19
Rent - equipment 20,269 .26
Repairs and maintenance 9,744 .13
Employee benefits 5,222 .06
Entertainment 35,674 .46
Utilities 5,243 .06
Dues and subscriptions 1,285 .02
___________ __________
TOTAL SELLING AND ADMINISTRATIVE
EXPENSES 4,407,281 57.30
___________ __________
See accountants' report and notes to consolidated financial statements.
-4-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS - CONTINUED
FOR THE YEAR ENDED TO DECEMBER 31, 1995
Percent
1995 of Sales
__________ __________
NET LOSS FROM OPERATIONS (1,112,621) (14.46)
OTHER INCOME AND EXPENSE
Interest 227 .00
Royalties (503,436) (6.55)
Bad debts (315,467) (4.10)
__________ _________
TOTAL OTHER INCOME AND EXPENSE-NET (818,676) (10.65)
__________ _________
LOSS BEFORE INCOME TAXES (1,931,297) (25.11)
INCOME TAX BENEFIT 0 .00
__________ _________
NET LOSS $(1,931,297) (25.11)%
========== =========
See accountants' report and notes to consolidated financial statements.
-5-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MAY 18, 1994) TO DECEMBER 31, 1994
Percent
1994 of Sales
___________ __________
SALES $ 3,023,495 100.00%
COST OF GOODS SOLD 1,916,061 63.37
___________ __________
GROSS PROFIT 1,107,434 36.63
___________ __________
SELLING AND ADMINISTRATIVE EXPENSES
Salaries and commissions 456,189 15.09
Interest expense 194,191 6.42
Freight 193,490 6.40
Travel 171,595 5.68
Shows expense 164,437 5.44
Consulting 92,727 3.07
Rent - building 64,140 2.12
Research and development 56,755 1.88
Relocation expense 45,726 1.51
Amortization 44,104 1.46
Advertising and promotion 38,259 1.27
Insurance 37,833 1.25
Telephone 33,093 1.09
Office expense 25,333 .84
Postage 23,221 .77
Payroll taxes 22,093 .73
Professional fees 17,787 .59
Employment fees 16,393 .54
Show support expense 14,249 .47
Supplies 12,566 .42
Miscellaneous 9,784 .32
Depreciation 8,842 .29
Training 7,893 .26
Rent - equipment 6,465 .21
Employee benefits 4,289 .14
Entertainment 3,763 .13
Utilities 1,602 .05
Dues and subscriptions 1,161 .04
___________ _________
TOTAL SELLING AND ADMINISTRATIVE
EXPENSES 1,767,980 58.48
___________ _________
See accountants' report and notes to consolidated financial statements.
-6-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS - CONTINUED
FOR THE PERIOD FROM INCEPTION (MAY 18, 1994) TO DECEMBER 31, 1994
Percent
1994 of Sales
__________ __________
NET LOSS FROM OPERATIONS (660,546) (21.85)
OTHER INCOME AND EXPENSE
Interest 878 .03
Royalties (221,738) (7.33)
__________ _________
TOTAL OTHER INCOME AND EXPENSE-NET (220,860) (7.30)
__________ _________
LOSS BEFORE INCOME TAXES (881,406) (29.15)
INCOME TAX BENEFIT 0 .00
__________ _________
NET LOSS $ (881,406) (29.15)%
========== =========
See accountants' report and notes to consolidated financial statements.
-7-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
FOR THE PERIOD FROM INCEPTION (MAY 18, 1994) TO DECEMBER 31, 1994
Balance, May 18, 1994 $ -0-
1994 Net Loss (881,406)
1994 Dividends (13,410)
_____________
Balance, December 31, 1994 $ (894,816)
_____________
1995 Net Loss (1,931,297)
1995 Dividends (39,920)
_____________
Balance, December 31, 1995 $(2,866,033)
=============
See accountants' report and notes to consolidated financial statements.
-8-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
1995
____________
Cash Flows From Operating Activities:
Net loss $(1,931,297)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 23,498
Bad Debts 217,965
(Increase) decrease in:
Accounts receivable 5
Inventory 395,738
Prepaid expenses and other current assets 70,412
Other assets 88,208
Increase (decrease) in:
Accounts payable 949,241
Accrued expenses 51,029
Accrued wages - officer 241,667
___________
Net adjustment 2,037,763
___________
Net cash used by operating activities 106,466
Cash Flows From Investing Activities:
Purchase of equipment (26,553)
___________
Net cash used by investing activities (26,553)
___________
Cash Flows From Financing Activities:
Repayment of capital lease (6,321)
Repayments of short-term debt (170,000)
Dividends paid (39,920)
___________
(216,241)
___________
See accountants' reports and notes to financial statements.
-9-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
STATEMENT OF CASH FLOWS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1995
1995
_________
Net increase (decrease) in cash $(136,328)
Cash, beginning of year 165,415
_________
Cash, end of year $ 29,087
=========
Supplemental Disclosure of Cash Flow Information
Interest paid $ 453,641
=========
See accountants' report and notes to financial statements.
-10-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MAY 18, 1994) TO DECEMBER 31, 1994
1994
____________
Cash Flows From Operating Activities:
Net loss $ (881,406)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 8,842
(Increase) decrease in:
Accounts receivable (731,198)
Inventory (1,251,354)
Prepaid expenses and other current assets (120,617)
Other assets (2,820,385)
Increase (decrease) in:
Accounts payable 966,280
Accrued expenses 124,008
Accrued wages - officer 145,833
___________
Net adjustment (3,678,591)
___________
Net cash used by operating activities (4,559,997)
Cash Flows From Investing Activities:
Purchase of equipment (70,737)
___________
Net cash used by investing activities (70,737)
___________
Cash Flows From Financing Activities:
Proceeds from sale of common stock 595,000
Borrowings from line of credit 200,000
Borrowings from long-term debt 3,828,000
Borrowings from short-term debt 540,000
Net borrowings from capital lease 16,559
Repayments of short-term debt (370,000)
Dividends paid (13,410)
___________
4,796,149
___________
See accountants' report and notes to financial statements.
-11-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
STATEMENT OF CASH FLOWS - CONTINUED
FOR THE PERIOD FROM INCEPTION (MAY 18, 1994) TO DECEMBER 31, 1994
1994
________
Net increase (decrease) in cash $ 165,415
Cash, beginning of year -0-
________
Cash, end of year $ 165,415
========
Supplemental Disclosure of Cash Flow Information
Interest paid $ 111,183
========
See accountants' report and notes to financial statements.
-12-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity - Trevor Sorbie of America, Inc.
is a manufacturer and wholesale distributor of hair care products.
Basis of Presentation - The accompanying consolidated financial
statements include the accounts of:
Name of Entity Type of Entity
________________________________ ____________________
Trevor Sorbie of America, Inc. C-Corporation
Trevor Sorbie S A, Inc. C-Corporation
Sorbie Acquisition Company C-corporation
Trevor Sorbie of America, Inc. is a wholly owned subsidiary of
Sorbie Acquisition Company. All significant intercompany
transactions have been eliminated in consolidation.
Trevor Sorbie S A, Inc. was incorporated July 14,
1994 and had no activity in 1994. The Corporation did have activity
during 1995. All significant intercompany transactions have been
eliminated in consolidation.
Allowance for Doubtful Accounts - Bad debts are
provided on the allowance method based on historical experience and
management's evaluation of outstanding accounts receivable. The
allowance for doubtful accounts is $217,965 and $-O-, at December 31, 1995
and 1994, respectively.
Cash Equivalents - For cash flows purposes, the Company
considers investments with an original maturity date of three
months or less to be a cash equivalent.
Concentration of Credit Risk - In the course of its
operations, the Company grants credit to its customers,
substantially all of whom are beauty salon chains.
Inventory - Inventory is carried at the lower cost or market,
cost being determined on the first-in, first-out (FIFO) basis.
Equipment and Leasehold Improvements - Equipment and leasehold
improvements are recorded to cost. Equipment is depreciated over
the estimated useful life of the asset using the straight-line
method.
-13-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995 AND 1994
Accounting 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.
Intangibles - Intangible assets consist of goodwill and
organization costs. Goodwill is being amortized over a
forty year period using the straight-line method. Organization
costs are being amortized over a six year period using the
straight-line method.
Income taxes - The company accounts for its income
taxes using the financial accounting standards board statement of
financial accounting standards number 109, "Accounting For Income
Taxes" (SFAS No. 109), which requires the establishment of a
deferred tax asset or liability for the recognition of future
deductible or taxable amounts and operating loss and tax credit
carryforwards. Deferred tax expense or benefit is recognized as a
result of the changes in the assets and liabilities during the year.
NOTE B - INVENTORIES
Inventories consist of the following:
1995 1994
_________ ________
Raw materials and supplies $ 170,074 $265,128
Finished goods 685,542 986,226
_________ ________
Total $ 855,616 $1,251,354
========= ==========
NOTE C - NOTE PAYABLE - BANK
The company has a line of credit with Northside Deposit Bank
for $200,000. An interest rate of prime plus two percent is
payable monthly. The outstanding balance at December 31, 1995 and
1994 was $200,000.
-14-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995 AND 1994
NOTE D - LONG-TERM DEBT
Long-term debt as of December 31, 1995 and 1994:
Promissory note - payable in equal 1995 1994
semi-annual installments of $325,000 due ________ _________
January 31 and July 31, commencing
January 31, 1996. Interest is payable
quarterly at a rate of prime plus two
percent. See Note K $3,250,000 $3,250,000
Promissory note - payable on
June 30, 1996. Interest is payable
monthly at a rate of 14 percent 500,000 500,000
See Note K
Capital lease - Note E 10,238 16,559
__________ _________
3,760,238 3,766,559
Less current portion 1,157,068 506,335
__________ __________
LONG TERM DEBT $2,603,170 $3,260,224
========== ==========
Future principal payments are as follows:
Year ending
December 31
___________
1996 $ 1,157,068
1997 653,170
1998 650,000
1999 650,000
2000 650,000
___________
$ 3,760,238
===========
NOTE E - CAPITAL LEASE
Trevor Sorbie of America, Inc. has entered into a
lease for equipment. The term is 3 years. Based on the
provisions of
-15-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995 AND 1994
NOTE E - CAPITAL LEASE - continued
statement number 13, issued by the financial accounting
standards board, the leases meet the criteria of capital leases
and, accordingly, have been recorded as such. The assets
are stated on the balance sheet at a cost of $19,026. Depreciation
of $7,135 has been recognized to date.
Future minimum lease payments under the capital lease,
together with the present value of minimum lease payments
subsequent to December 31, 1995 are as follows:
1996 $ 7,816
1997 3,256
_________
11,072
Less an explicit interest
rate of 10.8% interest 1,365
_________
Present value of minimum
lease payments $ 9,707
=========
NOTE F - RELATED PARTY TRANSACTIONS
The Corporation had a note payable to the President and
majority shareholder. At December 31, 1994 the balance on the note
was $100,000. The note bears interest at a rate of 12%.
This note was repaid during 1995.
The corporation had a note payable to a
shareholder. At December 31, 1994 the balance on the note was $70,000.
The note bears interest at a rate of 12% through July 15, 1995.
This note was repaid during 1995.
NOTE G - INCOME TAXES
The net current and noncurrent deferred tax asset and net
noncurrent deferred tax liability as presented in the accompanying
balance sheets consist of the following amounts of deferred tax
assets and liabilities:
-16-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995 AND 1994
NOTE G - INCOME TAXES - continued
1995 1994
__________ __________
Deferred tax assets $1,086,942 $337,454
Deferred tax liabilities (3,735) (6,585)
Valuation allowance (1,083,207) (330,869)
__________ __________
$ 0 $ 0
========== ==========
The deferred tax asset balances are primarily the result of
temporary differences in inventory, property and equipment and
accrued expenses for book and tax purposes and net operating loss
carryforwards. The deferred tax liability balance is the result of
differences using accelerated depreciation methods for federal and
state tax purposes.
The components of the income tax provision (benefit) for
income taxes for the year ended December 31, 1995 and 1994 are as
follows:
1995 1994
__________ _________
Current
Federal $ -0- $ -0-
State -0- -0-
__________ _________
Net current income tax provision
(benefit) -0- -0-
Deferred
Federal (827,021) (250,095)
State (256,186) (80,774)
__________ _________
Net deferred income tax benefit (1,083,207) (330,869)
__________ _________
Total income tax benefit $(1,083,207) $(330,869)
=========== =========
-17-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995 AND 1994
NOTE G - INCOME TAXES - continued
As of December 31, 1995, the company has a state loss
carryforward of $2,332,334 that may be used to offset
against future taxable income. The loss carryforward will
begin to expire in the year ending December 31, 1997.
As of December 31, 1995, the company has a federal loss
carryforward of $2,332,334 that may be used to offset
against future taxable income. The loss carryforward will
begin to expire in the year ending December 31, 2009.
NOTE H - CAPITAL STOCK
The following is a summary of the various classes of
capital stock at December 31, 1995 and 1994.
Preferred Stock
1995 1994
========= =========
Preferred stock (Class A) - no par value,
1,000 shares authorized, 8 shares
issued and outstanding $ 200,000 $ 200,000
Preferred stock (Class C) - $26,000 par
value, 1,000 shares authorized, 1 share
issued and outstanding 26,000 -0-
_________ _________
Total Preferred Stock $ 226,000 200,000
========= =========
Common Stock
1995 1994
========= =========
Common stock - no par value, 10,000
shares authorized, 6,400 shares issued
and outstanding $ 6,400 $ 6,400
========= =========
-18-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995 AND 1994
NOTE I - SALES TO A MAJOR CUSTOMER
Sales to one customer consisted of approximately 15.1%
and 12.5% of total sales for 1995 and 1994, respectively.
NOTE J - MAJOR SUPPLIER
Two vendors accounted for approximately 100% of
the Company's raw materials purchases for 1995 and 1994.
NOTE K - SUBSEQUENT EVENT
On June 27, 1996, Stephan Co. purchased 100% of the
Company's stock. At the time of purchase no payments had
been made on the promissory notes.
NOTE L - NOTE PAYABLE - CONVERTIBLE DEBT
This note payable is convertible into 2 shares of
preferred stock (Class B) $26,000 par value.
NOTE M - ACCRUED WAGES - WAGES - OFFICER
The Company and the President have entered into an
employment agreement. The portion unpaid has been accrued.
NOTE N - RESTATEMENT
Subsequent to the issuance of the reviewed financial
statements for the year ended December 31, 1994, it was
determined that deferred tax benefits may not be utilized
and 100% allowance should be made. In addition, the accrued
wages to the officer were erroneously omitted. These
restatements result in additional losses of $330,869 and
$145,833, respectively.
-19-
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1996 THRU JUNE 27, 1996
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
BALANCE SHEET
ASSETS
June 27,
1996
___________
CURRENT ASSETS
Cash and cash equivalents $ 129,399
Accounts receivable, net 588,771
Inventories, net 1,137,731
Prepaid expenses and other
current assets 14,480
___________
TOTAL CURRENT ASSETS 1,870,381
PROPERTY, PLANT AND EQUIPMENT, net 56,489
INTANGIBLE ASSETS, net 2,615,699
NOTE RECEIVABLE -
OTHER ASSETS 79,725
___________
TOTAL ASSETS $ 4,622,294
===========
(UNAUDITED)
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
June 27,
1996
____________
CURRENT LIABILITIES
Trade accounts payable
and accrued expenses $ 2,491,115
Stephan debenture 500,000
Finance lease - Northside 6,805
Note payable - Northside 200,000
Note payable - convertible debt 52,000
Current portion long term debt 750,000
____________
TOTAL CURRENT LIABILITIES 3,999,920
LONG TERM DEBT 2,500,000
____________
TOTAL LIABILITIES 6,499,920
STOCKHOLDERS' EQUITY
Common stock 6,400
Additional paid in capital 388,600
Preferred stock - Class A 200,000
Preferred stock - Class C 26,000
Retained earnings (2,498,626)
____________
TOTAL STOCKHOLDERS' EQUITY (1,877,626)
____________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,622,294
============
(UNAUDITED)
SORBIE ACQUISITION COMPANY AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
For the Period Jan 1 thru June 26, 1996
=======================================
NET SALES $ 2,234,193
COST OF GOODS SOLD 937,073
___________
GROSS PROFIT 1,297,120
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,905,742
___________
OPERATING INCOME (608,622)
OTHER INCOME(EXPENSE)
Interest income -
Other income 7,908
___________
INCOME BEFORE TAXES (600,714)
INCOME TAXES -
___________
NET INCOME $ (600,714)
===========
(UNAUDITED)
(b) Pro Forma Financial Information
On June 27, 1996, the Registrant, pursuant to stock
purchase and other agreements, acquired all of the
outstanding capital stock of Sorbie Acquisition Co. and
Subsidiaries ("Sorbie") for 32,632 shares of common stock of
the Registrant, in addition to other consideration. Sorbie
had been a major customer of the Registrant.
The following pro forma financial statements represent
historical financial statements of the Registrant and Sorbie
as if the transaction had taken place as of the beginning of
1994 and for the year-ended December 31, 1995. The
Registrant accounted for the acquisition as a purchase and
recorded approximately $775,000 as the cost in excess of the
fair market value of the assets acquired. The pro forma
financial statements reflect amortization of goodwill over a
30 year period.
The pro forma statements may not be indicative of the
results that would have occurred if the acquisition had been
effective as of the dates indicated, or the results of
operation that may be obtained in the future. The pro forma
financial statements should be read in conjunction with the
information filed with the 8-K dated June 28, 1996,
as well as the first amendment to that 8-K, filed August 22,
1996.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
STEPHAN CO. & SORBIE
SUBSIDIARIES ACQ CO. PRO
HISTORICAL RESTATED ADJUST FORMA
12/31/95 12/31/95 COMB -MENTS CONSLD
DR (CR) 1995
----------------------------------------------------
ASSETS
Cash & cash equivalents $7,711 $ 29 $7,740 0,000 7,740
Accounts receivable, net 5,414 513 5,927 a (1,662) 4,265
Inventory 7,059 856 7,915 0,000 7,915
Prepaid expenses &
other current assets 252 50 302 0,000 302
Property & equipment, net 2,098 65 2,163 0,000 2,163
Note Receivable 500 0,000 500 b (500) 0,000
Goodwill & other assets 19,428 2,732 22,160 b 738 22,898
___________________________________________________
TOTAL ASSETS 42,462 4,245 46,707 (1,424) 45,283
===================================================
LIABILITIES & EQUITY
Accounts payable
& accrued exp. 3,662 2,478 6,140 a 1,662 4,478
Notes & current
debt payable 1,013 1,409 2,422 b 500 1,922
Taxes payable 120 0,000 120 d 638 (518)
Long term debt 9,112 2,603 11,715 b 750 10,447
__________________________________________________
TOTAL LIABILITIES 13,907 6,490 20,397 3,550 26,776
Stockholders' equity 28,555 (2,245) 26,310 a,b (2,125) 24,185
__________________________________________________
TOTAL LIABILITIES
& S/H EQUITY 42,462 4,245 46,707 1,425 45,282
==================================================
UNAUDITED PRO FORMA CONSOLIDATED PROFIT & LOSS
(in thousands, except per share data)
STEPHAN CO. & SORBIE
SUBSIDIARIES ACQ CO. PRO
HISTORICAL RESTATED ADJUST FORMA
12/31/95 12/31/95 COMBINED -MENTS CONSLD
DR (CR) 1995
-----------------------------------------------------
Net Sales $26,197 $ 7,690 $33,887 c $ 3,572 $30,315
Less: Cost of Sales 12,653 4,395 17,048 c (3,572) 13,476
_____________________________________________________
GROSS PROFIT 13,544 3,295 16,839 0,000 16,839
Selling, general &
administrative exp. 7,433 5,226 12,659 c (141) 12,518
Other expenses 92 -0- 92 92
Other income 407 -0- 407 c 175 232
_____________________________________________________
Income before taxes 6,426 (1,931) 4,495 34 4,461
Federal & State
income taxes 2,111 -0- 2,111 d (638) 1,473
_____________________________________________________
NET INCOME 4,315 (1,931) 2,384 (604) 2,988
=====================================================
Net income per share $ 1.05 N/A N/A N/A $ .72
=====================================================
Weighted average
shares outstanding 4,128 33 N/A N/A 4,160
=====================================================
ADJUSTMENTS TO PRO FORMA FINANCIAL STATEMENTS
(a) Elimination of intercompany accounts receivable and accounts payable.
(b) Net effect of investment elimination entry.
(c) Elimination of intercompany sales and purchases and other related
transactions.
(d) Tax effect of current operating loss.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
STEPHAN CO. & SORBIE
SUBSIDIARIES ACQ CO. PRO
HISTORICAL RESTATED ADJUST FORMA
12/31/94 12/31/94 COMBINED -MENTS CONSLD
DR (CR) 1994
------------------------------------------------------
ASSETS
Cash & cash equivalents $ 6,293 $ 165 $ 6,458 $ 0,000 $ 6,458
Accounts receivable, net 4,311 731 5,042 a (742) 4,300
Inventory 5,651 1,251 6,902 6,902
Property & equipment, net 1,878 62 1,940 1,940
Goodwill & other assets 10,941 2,942 13,883 a,b 328 14,211
_____________________________________________________
TOTAL ASSETS 29,074 5,151 34,225 (414) 33,811
=====================================================
LIABILITIES & EQUITY
Accounts payable
& accrued exp. 2,513 1,485 3,998 a 742 3,256
Notes & current
debt payable 544 706 1,250 a 500 750
Taxes payable 553 -0- 553 d 280 273
Long term debt 811 3,260 4,071 b 750 3,321
_____________________________________________________
TOTAL LIABILITIES 4,421 5,451 9,872 2,272 7,600
Stockholders' equity 24,653 (300) 24,353 a (1,858) 26,211
_____________________________________________________
TOTAL LIABILITIES
& S/H EQUITY 29,074 5,151 34,225 (414) 33,811
=====================================================
UNAUDITED PRO FORMA CONSOLIDATED PROFIT & LOSS
(in thousands, except per share data)
STEPHAN CO. & SORBIE
SUBSIDIARIES ACQ CO. PRO
HISTORICAL RESTATED ADJUST FORMA
12/31/94 12/31/94 COMBINED MENTS CONSLD
DR (CR) 1994
------------------------------------------------------
Net Sales $24,341 $ 3,023 $ 27,364 c $ 1,012 $26,352
Less: Cost of Sales 10,708 1,916 12,624 c (1,012) 11,612
_____________________________________________________
GROSS PROFIT 13,633 1,107 14,740 0,000 14,740
Selling, general &
administrative exp. 7,556 1,989 9,545 c 56 9,489
Other income 122 1 123 -0- 123
_____________________________________________________
Income before taxes 6,199 (881) 5,318 56 5,374
Federal & State
income taxes 2,123 -0- 2,123 d 281 1,842
_____________________________________________________
NET INCOME $4,076 $ (881) $ 3,195 $ 337 $ 3,532
=====================================================
Net income per share $ 1.00 N/A N/A N/A $ .86
=====================================================
Weighted average
shares outstanding 4,067,819 N/A 21,733 N/A 4,089,552
=====================================================
ADJUSTMENTS TO PRO FORMA FINANCIAL STATEMENTS
(a) Elimination of intercompany accounts receivable and accounts payable.
(b) Net effect of investment elimination entry.
(c) Elimination of intercompany sales and purchases and other related
transactions.
(d) Tax effect of current operating loss.
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the state of Florida on
September 16, 1996
The Stephan Co.
By:
/s/ David Spiegel
David Spiegel
Chief Financial Officer
