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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
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CURRENT REPORT
(Amendment No. 1)
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 24, 2007
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GALES INDUSTRIES INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
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Delaware 000-29245 20-4458244
State of Incorporation Commission File Number IRS Employer I.D. Number
1479 North Clinton Avenue
Bayshore, New York 11706
Address of principal executive offices
Registrant's telephone number: (631) 968-5000
(Former Name or Former Address, if Changed Since Last Report)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Explanatory Note
This amendment supplements the Current Report on Form 8-K filed by Gales
Industries Incorporated ("we," "our," "us," "Gales" or the "Company") with the
Securities and Exchange Commission on April 18, 2007, in which we disclosed the
completion of our acquisition of all the outstanding capital stock of Sigma
Metals, Inc., to file the financial statements and other information required by
Item 9.01.
Item 9.01 Financial Statements and Exhibits
Financial Statements.
(a) Financial statements of Sigma Metals, Inc.
(b) Unaudited Pro Forma Condensed Consolidated Financial Information and
Notes.
SIGMA METALS, INC.
FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION
FOR THE YEARS ENDED
DECEMBER 31, 2006
DECEMBER 31, 2005
SIGMA METALS, INC.
Table of Contents
For the Years Ended
December 31, 2006
December 31, 2005
PAGES
-----
Auditors' Report 1
Comparative Balance Sheets 2-3
Comparative Statements of Income and Retained Earnings 4
Comparative Statements of Cash Flows 5-6
Notes to Financial Statements 7-11
Supplementary Information:
Comparative Schedules of Expenses 12-13
1
Independent Auditors' Report
Board of Directors
Sigma Metals, Inc.
We have audited the accompanying Comparative Balance Sheets of Sigma
Metals, Inc. as of December 31, 2006 and December 31, 2005 and the related
Statements of Income and Retained Earnings, and Cash Flows for each of the years
then ended. These financial statements are the responsibility of the Sigma
Metals, Inc. management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 Sigma Metals, Inc. as of
December 31, 2006 and December 31, 2005, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
the accompanying schedules of expenses is presented only for supplementary
analysis purposes. Such information has not been subjected to the inquiry and
analytical procedures applied in the review of the basic financial statements,
but was compiled from information that is the representation of management,
without audit or review. Accordingly, we do not express an opinion or any other
form of assurance on the supplementary information.
Respectfully submitted,
BILDNER & GIANNASCO, LLP
Certified Public Accountants
Jericho, New York
March 19, 2007
2
SIGMA METALS, INC.
Comparative Balance Sheets
ASSETS DECEMBER 31, 2006 DECEMBER 31, 2005
------ ----------------- -----------------
CURRENT ASSETS
Cash and Cash Equivalents $ 44,798 $ 21,477
Accounts Receivable 2,392,947 975,951
Inventory 2,812,873 1,355,606
Prepaid Expenses 27,818 16,325
---------- ----------
TOTAL CURRENT ASSETS $5,278,436 $2,369,359
---------- ----------
FIXED ASSETS - AT COST
Property and Equipment $ 290,775 $ 200,320
Less: Accumulated Depreciation 158,780 135,018
---------- ----------
FIXED ASSETS - NET $ 131,995 $ 65,302
---------- ----------
OTHER ASSETS
Security Deposits $ 22,763 $ 19,117
Other Assets 851 400
---------- ----------
TOTAL OTHER ASSETS $ 23,614 $ 19,517
---------- ----------
TOTAL ASSETS $5,434,045 $2,454,178
========== ==========
The accompanying audit report and notes are an integral
part of these statements.
3
SIGMA METALS, INC.
Comparative Balance Sheets
LIABILITIES AND
STOCKHOLDERS' EQUITY DECEMBER 31, 2006 DECEMBER 31, 2005
-------------------- ----------------- -----------------
CURRENT LIABILITIES
Accounts Payable $2,035,030 $1,081,994
Notes Payable - SBA 7,345 17,054
Notes Payable - State Bank - Software 26,196 --
Notes Payable - State Bank 897,800 666,702
Lease Payable -- 3,061
Accrued Operating Expenses 282,592 157,552
---------- ----------
TOTAL CURRENT LIABILITIES $3,248,963 $1,926,363
---------- ----------
LONG-TERM LIABILITIES
Advances from Stockholders $ 257,000 $ 250,000
Notes Payable - SBA -- 7,338
---------- ----------
TOTAL LONG-TERM LIABILITIES $ 257,000 $ 257,338
---------- ----------
TOTAL LIABILITIES $3,505,963 $2,183,701
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock ($300 par value;
100 shares authorized and outstanding) $ 30,000 $ 30,000
Retained Earnings 1,898,082 240,477
---------- ----------
TOTAL STOCKHOLDERS' EQUITY $1,928,082 $ 270,477
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,434,045 $2,454,178
========== ==========
4
SIGMA METALS, INC.
Comparative Statements of Income and Retained Earnings
FOR THE YEAR ENDED
------------------
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
REVENUE $ 17,979,414 $ 11,783,651
------------ ------------
COST OF GOODS SOLD
Inventory, Beginning 1,355,606 $ 753,041
Purchases 13,375,354 8,769,224
Testing & Tolling $ 295,646 $ 194,838
Manufacturing Overhead 608,761 542,239
------------ ------------
$ 15,635,367 $ 10,259,342
Less: Inventory, Ending 2,812,873 1,355,606
------------ ------------
COST OF GOODS SOLD $ 12,822,494 $ 8,903,736
------------ ------------
GROSS PROFIT $ 5,156,920 $ 2,879,915
------------ ------------
EXPENSES
Selling 923,847 770,409
General and Administrative 2,218,053 1,865,417
Interest 129,490 139,553
Franchise Tax 425 425
------------ ------------
TOTAL EXPENSES $ 3,271,815 $ 2,775,804
------------ ------------
NET INCOME FOR YEAR $ 1,885,105 $ 104,111
DISTRIBUTIONS (227,500) (66,000)
RETAINED EARNINGS, BEGINNING OF YEAR 240,477 202,366
------------ ------------
RETAINED EARNINGS, END OF YEAR $ 1,898,082 $ 240,477
============ ============
The accompanying audit report and notes are an integral
part of these statements.
5
SIGMA METALS, INC.
Comparative Statements of Cash Flows
FOR THE YEAR ENDED
------------------
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income for Year $ 1,885,105 $ 104,111
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Depreciation 23,761 17,338
Changes in Assets and Liabilities:
(Increase) Decrease In -
Accounts Receivable (1,416,996) 225,960
Inventory (1,457,267) (602,565)
Prepaid Expenses (11,493) 1,315
Other Current Assets (451) (400)
Deposits (3,646) (4,847)
Increase (Decrease) In -
Accounts Payable 953,037 101,237
Lease Payable (3,061) 3,061
Accrued Operating Costs 125,040 87,604
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (Forward) $ 94,029 $ (67,186)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment $ (90,455) $ (26,123)
----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (Forward) $ (90,455) $ (26,123)
----------- -----------
6
SIGMA METALS, INC.
Comparative Statements of Cash Flows
(Continued)
FOR THE YEAR ENDED
------------------
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (Forward) $ 94,029 $ (67,186)
--------- ---------
NET CASH (USED) BY
INVESTING ACTIVITIES (Forward) $ (90,455) $ (26,123)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Bank Debt $ 231,098 $ 179,500
Increase (Decrease) in Notes Payable Equipment 9,149 (16,365)
Increase in Shareholders Loans 7,000 10,626
Distributions (227,500) (66,000)
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES $ 19,747 $ 107,761
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 23,321 $ 14,452
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 21,477 7,025
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 44,798 $ 21,477
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 122,490 $ 139,553
--------- ---------
Income Taxes Paid $ 425 $ 425
--------- ---------
The accompanying audit report and notes are an integral
part of these statements.
7
SIGMA METALS, INC.
Notes to Financial Statements
For the Years Ended
December 31, 2006
December 31, 2005
1- SIGNIFICANT ACCOUNTING POLICIES
Background of Company
Sigma Metals, Inc. ("The Company") is a stocking aircraft metals warehouse with
value added capability. The Company also services the critical needs of aircraft
manufacturers and the major airlines. The Company is located in Deer Park, New
York. Its customer base consists of both foreign and domestic Corporations.
Cash & Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments with an
original maturity of three month or less. Cash consists of aggregate cash
balances in the Company's bank accounts and cash equivalents consist primarily
of money market accounts.
Accounts Receivable
Accounts receivable are presented at face value, net of the allowance for
doubtful accounts. The allowances for doubtful accounts are established through
provisions charged against income and are maintained at a level believed
adequate by management to absorb estimated bad debts based on current economic
conditions. Management considers all accounts to be collectible and, therefore,
has not established a provision for uncollectible accounts.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of trade accounts receivable. The Company grants credits to
its customers, which are located in and out of the United States. The Company
does have foreign sales, but they are primarily with large corporations that the
Company has done business with for a number of years. The majority of these
transactions are insured.
Inventory
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and
amortization. The Company maintains a policy to capitalize all property and
equipment purchases in excess of $1,000. Expenditures for repairs and
improvements in excess of $1,000 that add to the productive capacity or extend
the useful life of an asset are capitalized. Repair and maintenance charges are
expensed as incurred. Property under a capital lease is capitalized and
amortized over the lease terms. Upon disposition, the cost and related
accumulated depreciation are removed from the accounts and any related gain or
loss is reflected in earnings. Depreciation on property and equipment is
calculated on the straight-line method over the estimated useful lives of the
assets.
8
Property and Equipment - (Continued)
Depreciation and Amortization are provided by charges to operations over the
estimated useful lives, principally on the straight-line method. The estimated
useful lives are:
Tools 5 Years
Furniture, Fixtures and Office Equipment 5 Years
Transportation Equipment 5 Years
Machinery and Equipment 7 Years
Leasehold Improvements 3-15 Years
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment at the facility level
annually or when events or circumstances indicate that the carrying value of
such assets may not be fully recoverable. Impairment is evaluated based on the
sum of undiscounted estimated future cash flows expected to result from use of
the assets compared to their carrying value. If impairment is recognized, the
carrying value of the impaired asset is reduced to their fair value, based on
discounted estimated future cash flows.
Finance Costs
Costs connected with obtaining and executing debt arrangements are capitalized
and amortized on the straight-line basis over the term of the related debt.
Revenue Recognition
The Company generally recognizes revenue when products are shipped and the
customer takes ownership and assumes risk of loss, collection of the relevant
receivable is probable, persuasive evidence of an arrangement exists, and the
sales price is fixed or determinable.
Expenses
Selling, general, and administrative costs are charged to expense as incurred.
Use of Estimates
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. The more significant management estimates are the useful
lives of property and equipment, provisions for inventory obsolescence,
unamortized finance costs, accrued expenses, and various contingencies. Actual
results could differ from those estimates. Changes in facts and circumstances
may result in revised estimates, which are recorded in the period in which they
become known.
Fair Value of Financial Instruments
The Company has estimated the fair value of financial instruments using
available market information and other valuation methodologies in accordance
with Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments."
9
Fair Value of Financial Instruments -- (Continued)
Management of the Company believes that the fair value of financial instruments,
consisting of cash, accounts receivable, accounts payable and accrued
liabilities, approximates carrying value due to the immediate or short-term
maturity associated with these instruments and that the notes payable is carried
at fair value in that is carries interest rates that are comparable to similar
instruments with similar maturities.
Income Taxes
The Company has elected to be taxed as a Small Business Corporation and,
consequently, no Federal tax liability is reflected on the Comparative
Statements of Income and Retained Earnings.
2- INVENTORY
Inventory consists primarily of sheet metal and is considered all raw materials.
Raw Material (Sheet Metal) 2006 2005
---- ----
$2,812,873 $1,355,606
3- PROPERTY AND EQUIPMENT
A schedule of Property and Equipment as of December 31, 2006 and December 31,
2005 is set forth below:
2006 2005
---- ----
Tools, Machinery and Equipment $ 107,702 $ 92,724
Furniture, Fixtures and Office Equipment 112,578 59,337
Transportation Equipment 17,006 7,006
Leasehold Improvements 53,489 41,253
Total Property, and Equipment $ 290,775 $ 200,320
Less: Accumulated Depreciation (158,780) (135,018)
Property. and Equipment. Net $ 131,995 $ 65,302
Depreciation and amortization expense for the years ended December 31, 2006 and
December 31, 2005 was $23,761 and $17,338, respectively.
4- LINES OF CREDIT
The Company had a Bank Line of Credit expiring on May 31, 2006 with a maximum
borrowing limit of $800,000 and interest at one and one half over prime. The
prime interest rate at December 31, 2006 and December 31, 2005 was 8.25% and
7.25% respectively. The Line of Credit was renewed for a maximum borrowing limit
of $900,000 and interest at one and one half over prime. This new Line of Credit
is due to expire on May 31, 2007. As of December 31, 2006 and 2005 the balance
was $897,800 and $666,702, respectively.
10
4- LINES OF CREDIT - (Continued)
The Line of Credit is secured by a first security interest in all assets. The
Line of Credit is due on demand or, if no demand is made, in one payment of all
outstanding principal plus accrued unpaid interest on May 31, 2007, at which
time it is subject to annual review, pending receipt of the subject's financial
statements.
5- NOTES PAYABLE - SOFTWARE
In March of 2006, the Company financed the purchase of new computer software
with State Bank of Long Island in the amount of $50,000. The terms of the Note
are 2 years at 8% payable monthly in the amount of $2,261.36. As of the Balance
Sheet date, the current balance was $26,196. Interest incurred amounted to
$2,311.37.
Scheduled amortization payments for the following years are set forth below:
December 31, 2007 $25,980
December 31, 2008 216
6- LONG TERM DEBT
The Company has an SBA Loan of $50,000, payable in monthly installments of
$1,477 that started on June 17, 2004 with an interest rate of 4%. The loan is
secured by the Company's assets. This loan matures in May of 2007.
Scheduled amortization payments for the following years are set forth below:
2006 2005
---- ----
December 31, 2006 -- $17,054
December 31, 2007 $7,345 7,345
Retirement Plan
The Company adopted a 401(k) Profit Sharing Plan effective June 6, 1994. The
terms of the Plan are as follows:
CONTRIBUTION: Up to 25% of Plan Participations' Compensation.
ALLOCATION- EMPLOYER: 3.32% of Annual Compensation greater than Cov. Comp.
plus 3.32070% of Annual Compensation. Cov. Comp. is
based upon $72,001 year.
NORMAL RETIREMENT AGE: 65 or 5 years of Participation, if later.
FORFEITURES: Allocated to Participants' Accounts.
ELIGIBILITY: All Non-Union Employees over the Age of 21 who completed
1 year of service.
DEATH BENEFIT: 100% of the Total Account
11
Retirement Plan -- (Continued)
DISABILITY: 100% of the Total Account
EMPLOYEES CONTRIBUTIONS: Up to 100% of Annual Compensation. (Maximum $14,000)
MATCHING CONTRIBUTIONS: 0.00% of Employee deferral up to 0.00% of Compensation
deferred.
Vesting Schedule
----------------
Year Pct Vested
---- ----------
1 0
2 20
3 40
4 60
5 80
6-15 100
The contributions for December 31, 2006 and December 31, 2005 were $76,790 and
$76,551 respectively.
Shareholder Loans
Two of the major shareholders have advanced the Company $125,000 each for
working capital. These notes are payable on demand and bear interest at a rate
of 6%. They also have been subordinated to State Bank of Long Island.
Commitments and Contingencies
The Company presently leases manufacturing and office facilities under a lease
expiring January 31, 2008, at an annual rental of approximately $22,000, plus
annual real estate tax and utilities by the lessee.
This lease is between the Company and Giaquinto -- Lusting Associates, LLC, a
Limited Liability Company.
Subsequent Events
On January 2, 2007, the Company entered into a Stock Purchase Agreement (the
"Sigma Agreement") with Gales Industries Incorporated, a Delaware Corporation
and the holders of all of the outstanding shares of Sigma Metals (the
"Shareholder"). Pursuant to the Sigma Agreement, subject to the satisfaction of
various terms and conditions, the Company will acquire from the Shareholders all
of the issued and outstanding capital stock of Sigma Metals.
The closing of the Agreement is scheduled to occur in April of 2007 or on such
other date as the Company and the Shareholders may agree. The purchase price for
all of the shares is $5,008,204, plus an amount equal to Sigma Metals' earnings
for the period from January 1, 2007, until the closing, subject to certain
adjustments as set forth in the Sigma Agreement.
SUPPLEMENTARY INFORMATION
12
SIGMA METALS, INC.
Comparative Schedules of Expenses
FOR THE YEAR ENDED
------------------
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
MANUFACTURING OVERHEAD
Material, Tools and Supplies $ 22,663 $ 19,358
Warehouse Expense 28,963 32,850
Rent 70,441 56,385
Light and Power 25,429 19,277
Factory Maintenance 28,616 32,441
Equipment Rental -- 3,080
Truck Rental 15,869 14,791
Depreciation - Machinery 14,631 13,230
Employee Benefits 27,197 21,027
Payroll Taxes 26,633 21,982
Insurance 60,097 55,023
Group Insurance 21,892 32,973
Labor - Warehouse 266,330 219,822
-------- --------
TOTAL MANUFACTURING OVERHEAD $608,761 $542,239
======== ========
SELLING EXPENSES
Commissions - Outside $103,916 $ 69,541
Commissions 438,782 338,398
Shipping Supplies 122,098 136,945
Meetings and Conferences 102,212 85,670
Automotive Expenses 73,534 54,216
Trade Shows 5,750 11,509
Payroll Taxes 43,878 33,840
Group Insurance 33,677 40,290
-------- --------
TOTAL SELLING EXPENSES $923,847 $770,409
======== ========
The accompanying audit report and notes are an integral
part of these statements.
13
SIGMA METALS, INC.
Comparative Schedules of Expenses
FOR THE YEAR ENDED
------------------
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
GENERAL AND ADMINISTRATIVE EXPENSES
Officers' Salaries $ 802,435 $ 706,385
Office Salaries 960,207 797,080
Rent 65,966 53,160
Telephone 35,477 34,582
Payroll Taxes 78,149 67,767
Profit Sharing Plan 76,790 76,551
Professional Fees 54,317 42,339
Office Expenses 28,832 23,643
Group Insurance 97,198 40,137
Sundry 3,527 4,786
Depreciation - Office 9,130 4,108
Donations 6,025 2,609
Bad Debt -- 12,270
---------- ----------
TOTAL GENERAL & ADMINISTRATIVE EXPENSES $2,218,053 $1,865,417
========== ==========
The accompanying audit report and notes are an integral
part of these statements.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements and related notes are presented to show the pro forma effects of the
acquisition of Sigma Metals, Inc. and the issuance of Series B Convertible
Preferred Stock having an initial liquidation value of $8,023,000. The pro forma
condensed consolidated statement of operations for the year ended December 31,
2006 is presented to show income from continuing operations as if the
acquisition of Sigma Metals, Inc. and the issuance of the Series B Convertible
Preferred Stock had occurred as of the beginning of the period. The pro forma
condensed consolidated balance sheet is based on the assumption that the
acquisition of Sigma Metals, Inc. and the issuance of the Series B Convertible
Preferred Stock had occurred effective December 31, 2006.
Pro forma data are based on assumptions and include adjustments as
explained in the notes to the unaudited pro forma condensed consolidated
financial statements. The pro forma data are not necessarily indicative of the
financial results that would have been attained had the acquisition of Sigma
Metals, Inc. and the issuance of the Series B Convertible Preferred Stock
occurred on the dates referenced above and should not be viewed as indicative of
operations in future periods. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the notes thereto, our
consolidated financial statements as of and for the year ended December 31, 2006
included in our Annual Report on Form 10-KSB for the year ended December 31,
2006 and the consolidated financial statements as of and for the years ended
December 31, 2006 and 2005 of Sigma Metals, Inc. filed here with.
Gales Industries Incorporated
Unaudited Pro Forma Consolidated Comparative Condensed Balance Sheet
December 31, 2006
Gales Gales Sigma
Industries Sigma Adjustments Consolidated
---------- ----- ----------- ------------
ASSETS
Current Assets
Cash and Cash Equivalents $ -- $ 44,798 $ 3,004,342 (a) $ 3,049,140
Accounts Receivable (Net of Allowance for Doubtful Accounts of
$176,458 for Gales and $25,000 for Sigma@ 12/31/2006) 3,508,957 2,392,947 -- 5,901,904
Inventory 15,257,641 2,812,873 -- 18,070,514
Prepaid Expenses and Other Current Assets 232,749 27,818 260,567
Deposits 180,456 -- -- 180,456
----------------------------------------- ------------
Total Current Assets 19,179,803 5,278,436 3,004,342 27,462,581
Property, Plant, and Equipment, net 3,565,316 131,995 -- 3,697,311
Deferred Financing Costs 369,048 -- -- 369,048
Other Assets 63,522 851 -- 64,373
Goodwill 1,265,963 -- 5,405,447 (b) 6,671,410
Deposits 448,530 22,763 -- 471,293
----------------------------------------- ------------
----------------------------------------- ------------
TOTAL ASSETS $ 24,892,182 $ 5,434,045 $ 8,409,789 $ 38,736,016
========================================= ============
Current Liabilities
Accounts Payable and Accrued Expenses $ 7,648,426 $ 2,317,622 $ -- $ 9,966,048
Notes Payable Current Portion 127,776 33,541 (33,541)(c) 127,776
Notes Payable - Revolver 5,027,463 897,800 (897,800)(c) 5,027,463
Notes Payable - Sellers AIM - Current Portion 192,400 -- 361,404 (d) 553,804
Capital Lease Obligations - Current Portion 407,228 -- -- 407,228
Due to Sellers AIM 53,694 -- -- 53,694
Dividends Payable 120,003 -- -- 120,003
Deferred Gain on Sale - Current Portion 38,033 -- -- 38,033
Income Taxes Payable 653,426 -- 653,426 653,426
----------------------------------------- ------------
Total current liabilities 14,268,449 3,248,963 (569,937) 16,947,475
Long term liabilities
Due to Sellers - Sigma - Net of Current Portion 257,000 (257,000)(c) --
Notes Payable - Net of Current Portion 645,458 -- 1,188,341 (c) 1,833,799
Notes Payable - Sellers AIM - Net of Current Portion 1,290,562 -- 1,290,562
Notes Payable - Sellers Sigma - Net of Current Portion -- -- 722,807 (d) 722,807
Capital Lease Obligations - Net of Current Portion 552,589 -- -- 552,589
Deferred Tax Liability 512,937 -- -- 512,937
Deferred Gain on Sale - Net of Current Portion 713,118 -- -- 713,118
Deferred Rent 39,371 -- -- 39,371
----------------------------------------- ------------
TOTAL LIABILITIES $ 18,022,484 $ 3,505,963 $ 1,804,211 $ 22,612,658
Series B Convertible Preferred - $.001 Par value, 2,000,000 $ -- $ -- $ 8,023 (e) $ 8,023
Shares Authorized, 802,300 Shares Issued and Outstanding
with an initial liquidation value of $8,023,000 --
'(Authorized, Issued and Oustanding for the Proforma
December 31, 2006)
Common Stock - $.001 Par value, 120,055,746 Shares Authorized, 57,269 30,000 (21,955)(f) 65,314
57,269,301 Shares Issued and Outstanding as of December 31, 2006
on a pro forma basis 65,314,694 Shares Issued and Outstanding as of
December 31,2006
Additional Paid-In Capital 7,898,702 -- -- 7,898,702
Additional Paid-In Capital Series B Preferred 7,345,637 (g) 7,345,637
Additional Paid-In Capital: Sigma Shares 1,891,955 (h) 1,891,955
Retained Earnings (Accumulated Deficit) (1,086,273) 1,898,082 (1,898,082)(i) (1,086,273)
----------------------------------------- ------------
Total Stockholders' Equity 6,869,698 1,928,082 7,325,578 16,123,358
----------------------------------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,892,182 $ 5,434,045 $ 8,409,789 $ 38,738,016
========================================= ============
0 0 0 0
Notes to Unaudited Pro Forma Consolidated Comparative Condensed Balance Sheet
(a) Represents the net cash from sale of Series B Convertible Preferred Stock
remaining after using a portion of the proceeds for the purchase of the
stock of Sigma Metals, Inc. and paying soft costs associated with the
acquisition.
(b) Represents the goodwill resulting from the excess of the purchase price
paid for the stock of Sigma over the value of the assets acquired less the
liabilities assumed.
(c) Represents the revolving loan facility put in place to pay the amounts due
third parties and the former Officers of Sigma for borrowed money.
(d) Represents the current and long term portions of the notes issued by Gales
Industries as part of the purchase price for the stock of Sigma.
(e) Represents the par value of the shares of Gales Industries Series B
Convertible Preferred stock issued, in part, to finance the purchase of
the stock of Sigma.
(f) Represents the elimination of Sigma's Stockholders' Equity ($30,000)
partially offset by the par value ($8,045) of the 8,045,393 shares issued
to the sellers as part of the purchase price for the stock of Sigma.
(g) Represents the excess of amounts paid by investors over the par value of
shares of Gales Industries Series B Convertible Preferred stock net of the
soft costs associated with the issuance of such shares.
(h) Represents the excess over par value of the fair value of the common stock
issued as part of the purchase price for the stock of Sigma.
(i) Represents the eliminations of Sigma's accumulated surplus.
Gales Industries Incorporated
Pro Forma Combined Satement Of Income
For the Year Ended December 31, 2006
Gales Gales Sigma
Industries Sigma Adjustments Consolidated
---------- ----- ----------- ------------
Net Sales $ 33,044,996 $ 17,979,414 $ 51,024,410
Cost of Sales 28,002,942 12,822,494 40,825,436
------------ ------------ ------------ ------------
Gross Profit 5,042,054 5,156,920 -- 10,198,974
Operating costs and expenses
Selling and marketing 601,011 923,847 1,524,858
General and administrative 3,789,587 2,218,053 6,007,640
------------ ------------ ------------ ------------
Income (Loss) from operations 651,456 2,015,020 0 2,666,476
Other (income) and expenses:
Interest & financing costs 1,040,108 129,490 61,094 (b) 1,230,692
Gain on Sale of Life Insurance Policy (53,047) -- (53,047)
Gain on Sale of Real Estate (300,037) -- (300,037)
Other Income (435,627) -- (435,627)
Other Expenses 246,659 425 247,084
------------ ------------ ------------ ------------
Net Income (Loss) before provision for income taxes 153,400 1,885,105 (61,094) 1,977,411
Provision for income taxes 489,969 767,396 (a) (24,450) 1,232,915
------------ ------------ ------------ ------------
Net Income (Loss) $ (336,569) $ 1,130,686 $ (36,644) $ 744,496
------------ ------------ ------------ ------------
Pro Forma dividend attributable to preferred stockholders 347,945 (c) 347,945
------------
Pro Forma net earnings attribute to common stockholders $ 396,551
============
Notes to Pro Forma Combined Statement Of Income
(a) Represents the pro forma income tax expense for Sigma, as if it were
taxable as a "C" not an "S" corp.
(b) Represents one year's interest expense on $1,084,213 of notes issued as
part of purchase price for Sigma stock, being amortizing monthly with an
interest rate of 7%.
(c) Represents the 8% preferred stock dividend for the $4,349,318 portion of
the $8,023,000 Series B Convertible Preferred Stock used to purchase
Sigma.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to its Current Report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: June 8, 2007 GALES INDUSTRIES INCORPORATED
By: /s/ Peter D. Rettaliata
Name: Peter D. Rettaliata
Title: Chief Executive Officer