UNITED STATE 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
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 10, 2004
COMMISSION FILE NUMBER 1-2199
ALLIS-CHALMERS ENERGY INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 39-0126090
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5075 WESTHEIMER, SUITE 890, HOUSTON, TEXAS 77056
------------------------------------------------
(Address of principal executive offices) (Zip code)
(713) 369-0550
--------------
Registrant's telephone number, including area code
ITEM 9.01 - FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of businesses acquired.
(1) Financial Statements of Diamond Air Drilling Service, Inc.:
Independent Auditors' Report F-1
Balance Sheets as of July 31, 2004 and the Years Ended
December 31, 2003 and 2002 F-3
Statements of Income for the Seven Months Ended July
31, 2004 and the Years Ended December 31, 2003 and 2002 F-4
Statement of Stockholder's Equity for the Seven Months Ended
July 31, 2004 and the Years Ended December 31, 2003 and 2002 F-5
Statements of Cash Flows for the Seven Months Ended
July 31, 2004 and the Years Ended December 31, 2003 and 2002 F-6
Notes to Financial Statements F-7
(2) Financial Statements of Marquis Bit Co., LLC:
Independent Auditors' Report FF-1
Balance Sheets as of July 31, 2004 and the Years Ended
December 31, 2003 and 2002 FF-3
Statements of Income for the Seven Months Ended July
31, 2004 and the Years Ended December 31, 2003 and 2002 FF-4
Statement of Stockholder's Equity for the Seven Months Ended
July 31, 2004 and the Years Ended December 31, 2003 and 2002 FF-5
Statements of Cash Flows for the Seven Months Ended
July 31, 2004 and the Years Ended December 31, 2003 and 2002 FF-6
Notes to Financial Statements FF-7
(b) Pro Forma Financial Information:
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Nine Months Ended September 30, 2004 P-1
Unaudited Pro Forma Consolidated Condensed Statement of
Financial Position as of September 30, 2004 P-2
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Year Ended December 31, 2003 P-3
Unaudited Pro Forma Consolidated Condensed Statement of
Financial Position as of December 31, 2003 P-4
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements P-5
(c) Exhibit
None
2
SIGNATURE
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 hereunto duly authorized.
ALLIS-CHALMERS ENERGY INC.
By: /s/ Munawar H. Hidayatallah
---------------------------
Munawar H. Hidayatallah
Chief Executive Officer
and Chairman
Date: January 24, 2005
3
DIAMOND AIR DRILLING SERVICES, INC.
FINANCIAL STATEMENTS
JULY 31, 2004
INDEPENDENT AUDITOR'S REPORT F-1
BALANCE SHEETS F-3
STATEMENTS OF INCOME F-4
STATEMENTS OF STOCKHOLDERS' EQUITY F-5
STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-7 - F-12
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Diamond Air Drilling Services, Inc.
We have audited the accompanying balance sheet of Diamond Air Drilling Services,
Inc. (a Texas S-Corporation) (the Company) as of July 31 2004, and December 31,
2003 and 2002 and the related statements of income, stockholders' equity, and
cash flows for the seven months ended July 31, 2004 and the years ended December
31, 2003 and 2002. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 report dated September 14, 2004, we expressed an opinion that, except for
the effects of such adjustments, if any, might have been determined to be
necessary had we been able to observe the physical inventories taken as of
December 31, 2003, 2002 and 2001, the financial statements referred to in the
first paragraph present fairly, in all material respects, the financial
position, results of operations and cash flows in conformity with accounting
principals generally accepted in the United States America. Subsequently, the
Company has provided us additional information regarding the prior years
inventories and we were able to satisfy ourselves about the inventory quantities
and values using alternative procedures. Accordingly, our present opinion on the
financial statements referred to in the first paragraph, as presented herein, is
different from that expressed in our previous report.
In our opinion the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Diamond Air
Drilling Services, Inc. as of July 31, 2004 and December 31, 2003 and 2002, and
the results of its operations and its cash flows for the seven months ended July
31, 2004 and the years ended December 31, 2003 and 2002 in conformity with
accounting principles generally accepted in the United States of America
The Company and its affiliate, Marquis Bit Co., LLC, are controlled by common
ownership who have the ability to influence the volume and price of business
done between each company. As discussed in Note 2, the Company and its affiliate
have engaged in significant transactions with each other. We have audited the
financial statements of Marquis Bit Co., LLC under a separate report dated
January 12, 2005.
/s/ Accounting & Consulting Group, LLP
--------------------------------------
Accounting & Consulting Group, LLP
Carlsbad, New Mexico
January 12, 2005
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Of Diamond Air Drilling Services, Inc.
We have audited the accompanying balance sheets of Diamond Air Drilling
Services, Inc. (a Texas S-Corporation) (the Company) as of July 31, 2004, and
December 31, 2003 and 2002 and the related statements of income, members equity,
and cash flows for the seven months ended July 31, 2004, the years ended
December 31, 2003 and 2002. 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 audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. 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.
We did not observe the taking of the work in process inventory as of December
31, 2003 and 2002 and 2001 (states at $1,146,070 and $344,948, as of December
31, 2003 and 2002, respectively), since those dates were prior to the time we
were initially engaged as auditors for the Company. We were unable to satisfy
ourselves about the work in process quantities by other auditing procedures.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to observe the physical
inventories taken as of December 31, 2003 and 2002, the financial statements
referred to in the first paragraph present fairly, in all material respects, the
financial position of Diamond Air Drilling Services, Inc. as of July 31, 2004
and December 31, 2003 and 2002 and the results of the potations and its cash
flows for the seven months ended July 31, 2004 and the years ended December 31,
2003 and 2002 in conformity with accounting principles generally accepted in the
United States of America.
The Company and its affiliate, Marquis Bit Co., LLC, are controlled by common
ownership who have the ability to influence the volume and price of business
done between each company. As discussed in Note 2, the Company and its affiliate
have engaged in significant transactions with each other. We have audited the
financial statements of Marquis Bit Co., LLC under a separate report dated
September 14, 2004.
/s/ Accounting & Consulting Group, LLP
--------------------------------------
Accounting & Consulting Group, LLP
Carlsbad, New Mexico
September 14, 2004
F-2
DIAMOND AIR DRILLING SERVICES, INC.
BALANCE SHEETS
JULY 31, 2004, DECEMBER 31, 2003 AND 2002
July 31, December 31, December 31,
2004 2003 2002
------------- ------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 123,171 $ 38,566 $ 129,612
Accounts receivable (Note 3) 826,198 704,466 547,332
Unbilled receivables 75,809 -- 3,518
Related party receivables (Note 2) 85,636 153,981 197,859
Inventories (Note 4) 1,712,465 1,146,070 344,948
Prepaid expenses 10,160 16,300 9,629
------------- ------------- -------------
TOTAL CURRENT ASSETS 2,833,439 2,059,383 1,232,898
------------- ------------- -------------
Related party receivables (Note 2) 182,844 234,607 317,003
Property, Plant and Equipment, at cost (Note 5) 295,867 245,673 223,217
Other Assets (Note 12) 24,885 31,699 27,036
------------- ------------- -------------
TOTAL ASSETS $ 3,337,035 $ 2,571,362 $ 1,800,154
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 341,184 $ 171,561 $ 164,535
Current maturities of capital lease obligations 3,447 -- --
Accounts payable 635,418 602,918 517,471
Accrued expenses 97,366 197,588 269,489
Related party payables (Note 2) 687,559 427,465 48,694
Loans from related parties (Note 2) 768,281 667,137 209,000
------------- ------------- -------------
TOTAL CURRENT LIABILITIES 2,533,255 2,066,669 1,209,189
------------- ------------- -------------
Long-Term Debt (Note 6) 312,085 309,612 410,524
Capital lease obligations (Note 5) 14,873 -- --
Commitments and Contingencies -- -- --
------------- ------------- -------------
TOTAL LIABILITIES 2,860,213 2,376,281 1,619,713
------------- ------------- -------------
STOCKHOLDERS' EQUITY
Common stock, par value $1
1,000 shares issued and outstanding 1,000 1,000 1,000
Paid-in capital 2,370 2,370 2,370
Retained earnings 473,452 191,711 177,071
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 476,822 195,081 180,441
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,337,035 $ 2,571,362 $ 1,800,154
============= ============= =============
The accompanying notes are an integral part of these financial statements.
F-3
DIAMOND AIR DRILLING SERVICES, INC.
STATEMENTS OF INCOME
FOR THE SEVEN MONTHS ENDED JULY 31, 2004
AND YEARS ENDED DECEMBER 31, 2003 AND 2002
July 31, December 31, December 31,
2004 2003 2002
------------ ------------ ------------
NET SALES (Note 8) $ 3,984,512 $ 5,470,208 $ 4,073,653
------------ ------------ ------------
Drilling expenses 2,803,729 4,592,677 3,394,507
Selling, general, and administrative 390,690 620,776 492,067
Depreciation and amortization 91,902 99,730 102,648
Interest expense 34,156 48,279 16,217
------------ ------------ ------------
Total Costs and Expenses 3,320,477 5,361,462 4,005,439
------------ ------------ ------------
Operating income 664,035 108,746 68,214
------------ ------------ ------------
Other income
Gain (loss) on sale of assets (7,104) 9,841 15,906
Interest income 11,008 23,053 5,232
------------ ------------ ------------
NET INCOME $ 667,939 $ 141,640 $ 89,352
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
DIAMOND AIR DRILLING SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED JULY 31, 2004 AND
THE YEARS ENDED DECEMBER 31, 2003 AND 2002
July 31, December 31, December 31,
2004 2003 2002
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 667,939 $ 141,640 $ 89,352
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 91,902 99,730 102,648
Gain (loss) on sale of property, plant, and
equipment (7,104) 9,841 15,906
Change in operating assets and liabilities:
Accounts receivable (197,541) (153,616) (165,294)
Inventory (566,395) (801,122) (47,471)
Prepaid expenses 6,140 (6,671) (302)
Other noncurrent assets 6,814 (4,663) (13,780)
Accounts payable 292,594 464,218 198,954
Accrued payroll and employee benefits (100,224) (71,899) 162,920
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 194,125 (322,542) 342,933
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment from loans to related parties 120,108 128,896 202,450
Loans made to related parties -- (2,622) (430,370)
Proceeds from sale of property, plant, and
equipment -- 30,494 53,804
Capital expenditures on property, plant, and
equipment (115,314) (162,521) (140,047)
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 4,794 (5,753) (314,163)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (188,522) (219,947) (111,897)
Proceeds from issuance of long-term debt 360,618 126,061 367,788
Repayment of short-term debt (200,000) (200,000) --
Proceeds from issuance of short-term debt 200,000 200,000 --
Repayment of capital lease obligations (1,358) -- --
Repayment of loans from related parties (162,667) (302,494) (6,000)
Proceeds from loans from related parties 263,813 760,629 215,000
Payment of dividend distributions to stockholders (386,198) (127,000) (398,000)
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (114,314) 237,249 66,891
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 84,605 (91,046) 95,661
Cash and Cash Equivalents at Beginning of Year 38,566 129,612 33,951
-------------- -------------- --------------
Cash and Cash Equivalents at End of Year $ 123,171 $ 38,566 $ 129,612
============== ============== ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Payments made directly to Marquis Bit Co., LLC
from a loan obtained by the Company $ -- $ -- $ 102,565
============== ============== =============
The accompanying notes are an integral part of these financial statements.
F-5
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. Diamond Air Drilling Services, Inc. (the Company)
provides air drilling services to the oil & gas drilling industry
across the Western United States. The Company employs a unique air
drilling methodology, utilizing air hammers and bits to effectively and
efficiently drill wells. The Company operates three offices in Texas,
New Mexico, and Oklahoma.
Effective December 2002, the Company entered into an agreement with
Marquis Bit Co, LLC to manufacture drill bits for the Company. The
Company pays Marquis Bit Co, LLC a set fee to fabricate the drill bits
using raw materials purchased by the Company.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include all cash
balances and highly liquid investments with an initial maturity of
three months or less. The Company places its temporary cash investments
with a high credit quality financial institution. At times such
deposits may be in excess of the Federal Deposit Insurance Corporation
(FDIC) insurance limit.
TRADE ACCOUNTS RECEIVABLE. Trade receivables and loans receivable are
carried at their estimated collectible amounts. Trade credit is
generally extended on a short-term basis; thus trade receivables do not
bear interest. Trade accounts receivable are periodically evaluated for
collectibility based on past credit history with customers and their
current financial condition.
UNBILLED RECEIVABLES. Unbilled receivables represent revenue earned in
the current period but not billed to the customer until future dates,
usually within one month.
INVENTORY. Inventories consist of air hammers, drill bits, drill bits
in process, and raw materials and are valued at the lower of cost or
market using the specific identification method.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are
recorded at cost less depreciation and amortization. Depreciation is
provided over the estimated useful life of each class of depreciable
asset and is computed using the double declining balance method.
Equipment under capital lease obligations is amortized on the double
declining balance method over the shorter period of the lease term or
the estimated useful life of the equipment. Such amortization is
included in depreciation and amortization in the financial statements.
Estimated useful lives for equipment and transportation equipment range
from three to seven years. Betterments and large renewals which extend
the life of the asset are capitalized whereas maintenance and repairs
and small renewals are expensed as incurred.
REVENUE RECOGNITION. Revenue is recognized in the financial statements
using the percentage of completion method. Net sales are arrived at by
deducting discounts, and sales taxes from gross sales.
F-6
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ADVERTISING COSTS. Advertising costs are expensed as incurred.
Advertising costs totaled $9,032 for the seven months ended July, 31,
2004 and $5,055, and $4,926 for the years ended December 31, 2003 and
2002, respectively.
INCOME TAXES. The Company has elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code. Under those provisions,
the Company does not pay federal corporate income taxes on its taxable
income. Instead, the stockholders are liable for individual federal
income taxes on their respective shares of the Company's taxable income
in their individual income tax returns. Accordingly, no provision or
liability for income taxes has been included in the financial
statements.
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.
NOTE 2: RELATED-PARTY TRANSACTIONS
The principal shareholders of the Company and entities under their
control periodically loan money to the Company for operations, or
borrow money from the Company to fund the operations of other related
entities. A summary of amounts due from related entities follows:
December 31,
------------------------------
July 31, 2004 2003 2002
------------- ------------- -------------
Note receivable from Marquis Bit Co,
LLC, variable interest rate (currently
7.25%) payable in monthly installments
of $7,315 maturing September 2005,
unsecured $ 268,480 $ 317,002 $ 395,684
Note receivables from stockholders,
due upon demand, bearing interest
of 0%, unsecured -- 64,148 111,740
Note receivables from Marquis Bit Co,
LLC, due upon demand, bearing
interest of 0%, unsecured -- 7,438 7,438
------------- ------------- -------------
Subtotal 268,480 388,588 514,862
Less current portion 85,636 153,981 197,859
------------- ------------- -------------
Related party receivables $ 182,844 $ 234,607 $ 317,003
============= ============= =============
F-7
NOTE 2: RELATED-PARTY TRANSACTIONS (continued)
A summary of accounts payable due to related entities follows:
December 31,
------------------------------
July 31, 2004 2003 2002
------------- ------------- -------------
Trade accounts payable to Marquis Bit
Co, LLC for fabrication of drill bits $ 687,559 $ 427,465 $ 48,694
------------- ------------- -------------
Related party payables $ 687,559 $ 427,465 $ 48,694
============= ============= =============
A summary of loans due to related entities follows:
December 31,
------------------------------
July 31, 2004 2003 2002
------------- ------------- -------------
Notes payable to stockholders, due on
demand, unsecured, bearing an
interest rate of 0% $ 437,342 $ 220,696 $ 99,000
Loan payable to Marquis Bit Co, LLC,
due on demand, unsecured, bearing
an interest rate of 0% 257,439 257,439 --
Loan payable to various related
entities (related due to certain
Company stockholders owning
majority interest in
entities), due on demand,
unsecured bearing an interest
rate of 0% 73,500 189,000 110,000
------------- ------------- -------------
$ 768,281 $ 667,135 $ 209,000
============= ============= =============
A summary of related party transactions for the seven months ended July
31, 2004 and years ended December 31, 2003 and 2002 follows:
December 31,
------------------------------
July 31, 2004 2003 2002
------------- ------------- -------------
Amount paid, or accrued, to Marquis Bit
Co, LLC for the fabrication of
drill bits. $ 680,573 $ 1,271,242 $ 62,472
============= ============= =============
F-8
NOTE 3: ACCOUNTS RECEIVABLE
At July 31, 2004, December 31, 2003 and 2002, accounts receivable are
comprised of the following:
December 31,
------------------------------
July 31, 2004 2003 2002
------------- ------------- -------------
Accounts receivable $ 831,086 $ 713,644 $ 550,161
Allowance for doubtful accounts (4,888) (9,178) (2,829)
------------- ------------- -------------
Total $ 826,198 $ 704,466 $ 547,332
============= ============= =============
NOTE 4: INVENTORIES
At July 31, 2004, December 31, 2003 and 2002, inventories are comprised
of the following:
December 31,
------------------------------
July 31, 2004 2003 2002
------------- ------------- -------------
Air hammers $ 376,627 $ 346,321 $ 292,719
Finished drill bits 757,040 607,478 52,229
Drill bits in process 452,018 151,563 --
Raw materials 126,780 40,708 --
------------- ------------- -------------
Total $ 1,712,465 $ 1,146,070 $ 344,948
============= ============= =============
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
At July 31, 2004, December 31, 2003 and 2002, property, plant, and
equipment are comprised of the following:
December 31,
------------------------------
July 31, 2004 2003 2002
------------- ------------- -------------
Equipment $ 99,721 $ 95,995 $ 58,956
Transportation equipment 427,714 395,331 336,304
Equipment under capital lease 19,678 -- --
------------- ------------- -------------
Total 547,113 491,326 395,260
Less: accumulated depreciation
Accumulated depreciation 247,966 245,653 172,043
Accumulated amortization 3,280 -- --
------------- ------------- -------------
Net property, plant, and equipment $ 295,867 $ 245,673 $ 223,217
============= ============= =============
F-9
NOTE 5: PROPERTY, PLANT AND EQUIPMENT (continued)
Property, plant, and equipment include a capitalized lease. The
following schedule, by year, of the future minimum payments under these
leases, together with the present value of the net minimum payments as
of July 31, 2004:
Amount
----------
Year ending July 31, $ --
2005 4,788
2006 4,788
2007 4,788
2008 4,788
2009 and thereafter 2,793
----------
Total minimum lease payments 21,945
Less amount representing interest 3,625
----------
Total present value of minimum lease payments 18,320
Less current portion of such obligations 3,447
----------
Long-term obligations $ 14,873
==========
NOTE 6: LONG TERM DEBT AND RELATED MATTERS
Long-term debt at July 31, 2004, and December 31, 2003 and 2002,
consist of the following:
December 31,
------------------------------
July 31, 2004 2003 2002
-------------- ------------- -------------
Various notes payable to banks and
financing companies for transportation
equipment, due in installments through
February, 2010 at fixed interest rates
ranging from 0.0% to 10.95%,
collateralized by transportation equipment $ 209,788 $ 147,312 $ 173,675
Variable interest rate (currently 7.25%)
note payable, due in monthly installments
of $7,315 including interest through
September 2005, collateralized by
equipment (including equipment currently
owned by Marquis Bit Co, LLC) with
depreciated costs of $261,783, inventory,
and accounts and notes receivable. This
note is personally guaranteed by a
stockholder of the Company 249,792 290,577 356,719
F-10
NOTE 6: LONG TERM DEBT AND RELATED MATTERS (continued)
December 31,
------------------------------
July 31, 2004 2003 2002
-------------- ------------- -------------
4.0% note payable, due in monthly
installments of $1,181 including interest,
through November 2005, collateralized by
accounts receivable and equipment
(including equipment currently owned by
Marquis Bit Co, LLC) with depreciated
costs of $26,406. This note is personally
guaranteed by a shareholder of the Company 18,689 26,425 38,965
Variable interest rate (Carlsbad National
Bank base rate) line of credit agreement,
$200,000 limit, expiring June 2005,
collateralized by accounts receivable,
equipment, and inventory 175,000 -- --
Miscellaneous notes payable, varying interest
rates, due various dates -- 16,859 5,700
-------------- ------------- -------------
Subtotal 691,468 483,176 577,061
Less current maturities 341,184 171,561 164,535
-------------- ------------- -------------
Total $ 350,284 $ 311,615 $412,526,000
============== ============= =============
The maturities of long-term debt for each of the succeeding five years
subsequent to July 31, 2004, are as follows: 2005 - $341,184; 2006 -
$251,410; 2007 - $42,471; 2008 - $17,095; and 2009 and beyond - $1,109.
NOTE 7: STOCKHOLDERS' EQUITY
At July 31, 2004, December 31, 2003 and 2002, the number of authorized
and issued common stock and related par value and dividends paid are as
follows:
December 31,
------------------------------
July 31, 2004 2003 2002
-------------- ------------- -------------
Common stock authorized 1,000,000 1,000,000 1,000,000
Common stock issued 1,000 1,000 1,000
Common stock outstanding 1,000 1,000 1,000
Common stock, per share par value $ 1.00 $ 1.00 $ 1.00
Cash dividends paid on common stock $ 386,198 $ 127,000 $ 398,000
F-11
NOTE 8: DEPENDENCE ON KEY CUSTOMERS
DEPENDENCE ON KEY CUSTOMERS. For the seven months ended July 31, 2004,
the three largest customers accounted for 48% of sales. For the Year
ended December 31, 2003, the three largest customers accounted for 45%
of sales. For the Year ended December 31, 2002, the two largest
customers accounted for 37% of sales.
NOTE 9: EMPLOYEE BENEFIT PLANS
The company has a retirement savings Simple plan in which substantially
all employees may participate. The company's expense for the plan
was $10,413 for the seven months ended July 31, 2004 and $18,305 and
$16,701 for the years ended December 31, 2003 and 2002, respectively.
NOTE 10: SUBSEQUENT EVENT
Effective October 31, 2004 the Company sold substantially all its
assets realizing a gain of approximately $2.1 million and ceased
operations. As of December 31, 2004 the Company was liquidated by
paying all liabilities and distributing the remaining assets to its
shareholders.
NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION
The Company acquired equipment of $19,678, $0, and $0 during the seven
months ended July 31, 2004, and the years ended December 31, 2003 and
2002, respectively, under capital lease obligations.
NOTE 12. PATENT PENDING
Included in other assets at 7/31/04 are $15,389 of costs associated
with obtaining a patent for special bit retainers fabricated for the
Company by Marquis Bit Co., LLC. The patent is currently pending.
F-12
MARQUIS BIT CO., LLC
FINANCIAL STATEMENTS
JULY 31, 2004
INDEPENDENT AUDITOR'S REPORT FF-1
BALANCE SHEETS FF-3
STATEMENTS OF INCOME AND MEMBERS' EQUITY FF-4
STATEMENTS OF CASH FLOWS FF-5
NOTES TO FINANCIAL STATEMENTS FF-6 - FF9
INDEPENDENT AUDITOR'S REPORT
To the Members
of Marquis Bit Co., LLC
We have audited the accompanying balance sheets of Marquis Bit Co., LLC (a New
Mexico Limited Liability Company) (the Company) as of July 31 2004, and December
31, 2003 and 2002 and the related statements of income, members' equity, and
cash flows for the seven months ended July 31, 2004, the year ended December 31,
2003 and the period from inception, October 1, 2002 through December 31, 2002.
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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 report dated September 14, 2004, we expressed an opinion that, except for
the effects of such adjustments, if any, as might have been determined to be
necessary had we been able to observe the work in process inventory taken as of
December 31, 2003, the financial statements referred to in first paragraph
present fairly, in all material respects, the financial position, results of
operations and cash flows in conformity with accounting principals generally
accepted in the United States of America. Subsequently, the Company has provided
us additional information regarding the work in process inventories as of
December 31, 2003 and also 2002 and we were able to satisfy ourselves about the
unbilled receivables related to this work in process using alternative
procedures. Accordingly, our present opinion on the financial statements
referred to in the first paragraph, as presented herein, is different from that
expressed in our previous report.
In our opinion the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Marquis Bit
Co., LLC as of July 31, 2004 and December 31, 2003 and 2002, and the results of
its operations and its cash flows for the seven months ended July 31, 2004 and
the year ended December 31, 2003 and the period from inception, October 1, 2002
through December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
The Company and its affiliate, Diamond Air Drilling Services, Inc, are
controlled by common ownership who have the ability to influence the volume and
price of business done between each company. As discussed in Note 2, the Company
and its affiliate have engaged in significant transactions with each other. We
have audited the financial statements of Diamond Air Drilling Services, Inc.
under a separate report dated January 12, 2005.
/s/ Accounting & Consulting Group, LLP
--------------------------------------
Accounting & Consulting Group, LLP
Carlsbad, New Mexico,
January 12, 2005
FF-1
INDEPENDENT AUDITOR'S REPORT
To the Members
Of Marquis Bit Co., LLC
We have audited the accompanying balance sheets of Marquis Bit Co., LLC (a New
Mexico Limited Liability Company) as of July 31, 2004, and December 31, 2003 and
2002 and the related statements of income, members equity, and cash flows for
the seven months ended July 31, 2004, the year ended December 31, 2003 and the
period from inception, October 1, 2002 through December 31, 2002. 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 audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. 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.
We did not observe the taking of the work in process inventory as of December
31, 2003, which directly correlates to the Company's unbilled receivables
(stated at $124,107) at that date since those dates were prior to the time we
were initially engaged as auditors for the Company. We were unable to satisfy
ourselves about the work in process quantities by other auditing procedures.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to observe the work in
process inventory taken as of December 31, 2003, the financial statements
referred to in the first paragraph present fairly, in all material respects, the
financial position of Marquis Bit Co., LLC as of July 31, 2004 and December 31,
2003 and 2002, and the results of its operations and its cash flows for the
seven months ended July 31, 2004 and the year ended December 31, 2003 and the
period from inception, October 1, 2002 through December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.
The Company and its affiliate, Diamond Air Drilling Services, Inc, are
controlled by common ownership who have the ability to influence the volume and
price of business done between each company. As discussed in Note 2, the Company
and its affiliate have engaged in significant transactions with each other. We
have audited the financial statements of Diamond Air Drilling Services, Inc.
under a separate report dated September 14, 2004.
/s/ Accounting & Consulting Group, LLP
--------------------------------------
Accounting & Consulting Group, LLP
Carlsbad, New Mexico
September 14, 2004
FF-2
MARQUIS BIT CO., LLC
Balance Sheets
July 31, 2004, December 31, 2003 and 2002
July 31, December 31, December 31,
2004 2003 2002
--------------- --------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 5,223 $ 1,504
Accounts receivable (Note 2) 358,368 303,358 48,694
Unbilled receivables 329,191 107,435 15,875
Related party notes receivable (Note 2) 257,439 257,439 --
Prepaid expenses 5,623 -- 3,269
--------------- --------------- ---------------
TOTAL CURRENT ASSETS 950,621 673,455 69,342
--------------- --------------- ---------------
Property, Plant and Equipment, net (Note 3) 261,783 305,472 386,704
Other Assets 1,323 1,485 1,011
--------------- --------------- ---------------
TOTAL ASSETS $ 1,213,727 $ 980,412 $ 457,057
=============== =============== ===============
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Bank overdraft $ 9,305 $ -- $ --
Accounts payable 15,890 38,640 46,854
Accrued expenses 14,597 9,076 6,580
Loans from related parties (Note 2) 114,836 125,020 122,119
--------------- --------------- ---------------
TOTAL CURRENT LIABILITIES 154,628 172,736 175,553
--------------- --------------- ---------------
Loans from Related Parties, net of current
portion (Note 2) 182,844 234,607 317,002
Commitments and Contingencies -- -- --
--------------- --------------- ---------------
TOTAL LIABILITIES 337,472 407,343 492,555
MEMBERS' EQUITY 876,255 573,069 (35,498)
--------------- --------------- ---------------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 1,213,727 $ 980,412 $ 457,057
=============== =============== ===============
The accompanying notes are an integral part of these financial statements.
FF-3
MARQUIS BIT CO., LLC
Statements of Income and Members' Equity
For the Seven Months Ended July 31, 2004
and Year Ended December 31, 2003 and the Period from Inception,
October 1, 2002 Through December 31, 2002
July 31, December 31, December 31,
2004 2003 2002
-------------- -------------- --------------
SALES $ 697,245 $ 1,238,695 $ 78,347
COST OF GOODS SOLD 307,058 525,593 65,947
-------------- -------------- --------------
GROSS PROFIT 390,187 713,102 12,400
-------------- -------------- --------------
Selling, general, and administrative 33,504 67,423 35,424
Depreciation and amortization 43,689 86,232 7,242
Interest expense 11,008 23,053 5,232
-------------- -------------- --------------
Total Costs and Expenses 88,201 176,708 47,898
-------------- -------------- --------------
OPERATING INCOME (LOSS) 301,986 536,394 (35,498)
Other income 1,200 72,173 --
-------------- -------------- --------------
NET INCOME (LOSS) 303,186 608,567 (35,498)
Members' equity, beginning of period 573,069 (35,498) --
-------------- -------------- --------------
MEMBERS' EQUITY, END OF PERIOD 876,255 573,069 (35,498)
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
FF-4
MARQUIS BIT CO., LLC
Statements of Cash Flows
For the Seven Months Ended July 31, 2004 and Year Ended
December 31, 2003 and the Period from Inception, October 1, 2002
Through December 31, 2002
July 31, December 31, December 31,
2004 2003 2002
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 303,186 $ 608,567 $ (35,498)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 43,689 86,232 7,242
Change in operating assets and liabilities:
Accounts receivable (276,766) (346,224) (64,569)
Prepaid expenses (5,623) 3,269 (3,269)
Other assets 162 (474) (1,011)
Accounts payable (22,750) 18,794 19,846
Accrued payroll and employee benefits 5,521 2,496 6,580
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 47,419 372,660 (70,679)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to others -- (257,439) --
Capital expenditures on property, plant, and
equipment -- (32,008) (80,088)
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES -- (289,447) (80,088)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans from related parties (120,058) (84,682) (34,259)
Proceeds from loans from related parties 58,111 5,188 186,530
Net increase in bank overdrafts 9,305 -- --
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (52,642) (79,494) 152,271
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,223) 3,719 1,504
Cash and Cash Equivalents at Beginning of Period 5,223 1,504 --
-------------- -------------- --------------
Cash and Cash Equivalents at End of Period $ -- $ 5,223 $ 1,504
============== ============== ==============
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Property and equipment acquired with
long-term debt $ -- $ -- $ 286,850
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
FF-5
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: Marquis Bit Co., LLC (the Company) is a manufacturing
facility located in Carlsbad, New Mexico established in October 2002
for the purpose of fabricating premium hammer bits for Diamond Air
Drilling Services, Inc. (a related party due to common ownership). The
Company charges a set fee to fabricate drill bits using raw materials
supplied by Diamond Air Drilling Services, Inc. Accordingly, the
Company carries no raw materials or work in process inventory. The
Articles of Incorporation provides that the Company is to dissolve on
February 11, 2034.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include all cash
balances and highly liquid investments with an initial maturity of
three months or less. The Company places its temporary cash investments
with a high credit quality financial institution. At times such
deposits may be in excess of the Federal Deposit Insurance Corporation
(FDIC) insurance limit.
TRADE ACCOUNTS RECEIVABLE. Trade receivables and loans receivable are
carried at their estimated collectible amounts. Trade credit is
generally extended on a short-term basis; thus trade receivables do not
bear interest.
UNBILLED RECEIVABLES. Unbilled receivables represent fabricated bits in
process in the current period but not billed to the customer until
future dates, usually within one month.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are
recorded at cost less depreciation and amortization. Depreciation is
provided over the estimated useful life of each class of depreciable
asset and is computed using the double declining balance method or the
straight line method, whichever method management believes to be
appropriate for each particular asset. Estimated useful lives for
equipment and leasehold improvements range from three to fifteen years.
Betterments and large renewals which extend the life of the asset are
capitalized whereas maintenance and repairs and small renewals are
expensed as incurred.
REVENUE RECOGNITION. Revenue is recognized in the financial statements
using the percentage of completion method.
INCOME TAXES. As a limited liability company, the Company's taxable
income or loss is allocated to members in accordance with their
respective percentage of ownership. Therefore, no provision or
liability for income taxes has been included in the financial
statements.
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.
FF-6
NOTE 2: RELATED-PARTY TRANSACTIONS
The members of the Company and entities under their control
periodically loan money to the Company for operations, or borrow money
from the Company to fund the operations of other related entities.
A summary of accounts receivables from related entities follows:
December 31,
------------------------------
July 31, 2004 2003 2002
================================================
Trade accounts receivable from
Diamond Air Drilling Services, Inc.
(related due to common ownership) $ 358,368 $303,358 $ 48,694
Unbilled receivables from Diamond Air
Drilling Services, Inc. (related due to
common ownership) 329,191 107,435 15,875
------------------------------------------------
Total accounts receivable from
related parties $ 687,559 $410,793 $ 64,569
================================================
A summary of loans due from related entities follows:
December 31,
------------------------------
July 31, 2004 2003 2002
================================================
Loan receivable from Diamond Air
Drilling Services, Inc. (related due to
common ownership), due upon demand,
bearing interest of 0%, unsecured
Entire balance considered current $ 257,439 $257,439 $ --
------------------------------------------------
FF-7
NOTE 2: RELATED-PARTY TRANSACTIONS (continued)
A summary of loans due to related entities follows:
December 31,
------------------------------
July 31, 2004 2003 2002
================================================
Loans payable to members, due on
demand, unsecured, bearing an
interest rate of 0% $ 29,200 $ 25,188 $ 25,000
Loan payable to various related
entities (related due to certain
Company stockholders owning
majority interest in entities), due on
demand, unsecured bearing an
interest rate of 0% -- 17,437 18,437
Loan payable to Diamond Air Drilling
Services, Inc. (related due to common
ownership), variable interest rate
(currently 7.25%) payable in monthly
installments of $7,315 maturing
September 2005, unsecured 268,480 317,002 395,684
------------------------------------------------
Subtotal 297,680 359,627 439,121
Less current maturities 114,836 125,020 122,119
------------------------------------------------
Loans from related parties $ 182,844 $ 234,607 $ 317,002
================================================
The maturities of loans from related parties for each of the succeeding
five years subsequent to July 31, 2004, are as follows: 2005 -
$114,836; 2006 - $182,844; and 2007 and beyond - $0.
A summary of related party transactions for the seven months ended July
31, 2004, the year ended December 31, 2003 and the period from
inception, October 1, 2002 through December 31, 2002 follows:
December 31,
------------------------------
July 31, 2004 2003 2002
================================================
Amount received, or accrued, from
Diamond Air Drilling Services, Inc.
(related due to common ownership)
for the fabrication of drill bits. $ 697,245 $ 1,238,695 $ 78,347
================================================
FF-8
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
At July 31, 2004, December 31, 2003 and 2002, property, plant, and
equipment are comprised of the following:
December 31,
------------------------------
July 31, 2004 2003 2002
================================================
Manufacturing equipment $ 386,789 $ 386,789 $ 381,789
Computer equipment 9,942 9,942 9,942
Leasehold improvements 2,215 2,215 2,215
------------------------------------------------
Total 398,946 398,946 393,946
Less:
Accumulated depreciation 133,550 91,126 7,061
Amortization of leasehold improvements 3,613 2,348 181
------------------------------------------------
Net property, plant, and equipment $ 261,783 $ 305,472 $ 386,704
================================================
The above property, plant, and equipment is pledged as collateral for a
loan initially borrowed by Diamond Air Drilling Services, Inc. and used
to loan to the Company for equipment acquisitions. (See Note 2).
NOTE 4: DEPENDENCE ON KEY CUSTOMERS
As discussed in Note 2, the Company has been contracted by Diamond Air
Drilling Services, Inc. to fabricate bits for Diamond Air Drilling
Services, Inc. For the seven months ended July 31, 2004, the year ended
December 31, 2003 and the period from inception, October 1, 2002
through December 31, 2002, Diamond Air Drilling Services, Inc.
accounted for 100% of the Company's sales.
NOTE 5: EMPLOYEE BENEFIT PLANS
The company has a retirement savings Simple plan in which substantially
all employees may participate. The company's expense for the plan
was $2,736 for the seven months ended July 31, 2004 and $0 and $0 for
the years ended December 31, 2003 and 2002, respectively.
NOTE 6: SUBSEQUENT EVENTS
Effective October 31, 2004 the Company sold substantially all its
assets at book value and ceased operations. As of December 31, 2004
paying all liabilities and distributing the remaining assets to its
shareholders effectively liquidated the Company.
NOTE 7: RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Certain errors resulting in unbilled receivables being understated as
of 2002 and overstated as of 2003 were discovered due to additional
information being provided by the Company. The corrections of these
errors resulted in a $15,875 increase in the net income for 2002;
$32,547 decrease in net income for 2003 and $16,672 increase in net
income for 2004.
FF-9
ALLIS-CHALMERS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Allis-Chalmers ("Company") completed an acquisition through its fifty-five
percent (55%) owned joint-venture company, AirComp LLC (the "Acquisition
Transaction"). The transaction is more fully described below.
DIAMOND AIR TRANSACTION. We purchased substantially all the assets of Diamond
Air Drilling Services, Inc. and Marquis Bit Co., L.L.C. (collectively "Diamond
Air") for $4,600,000 in cash and the assumption of approximately $450,000 in
liabilities of Diamond Air. The Company and its joint-venture partner M-I L.L.C.
contributed $2,530,000 and $2,070,000, respectively, to the equity of AirComp
L.L.C. AirComp entered into a two year employment agreement with Mr. Hawley
under which we will pay Mr. Hawley a base salary of $150,000 per year.
Diamond Air manufactures its own hammer bits and provides air hammer and hammer
bits and related services required to drill and complete oil and gas wells. We
believe Diamond Air's product line and services complement and add to AirComp's
offering of products and services and enhance its ability to offer packaged
pricing.
The accompanying unaudited pro forma consolidated condensed financial statements
illustrate the effects at the Acquisition Transaction on the Company's results
of operations and financial position. The unaudited pro forma consolidated
condensed statements of operations for the twelve months ended December 31, 2003
and the nine months ended September 30, 2004 are based on historical statements
of operations and assume that the Acquisition Transaction had occurred as of the
beginning of the period presented. The unaudited pro forma consolidated
condensed statement of financial position as of December 31, 2003 and the nine
months ended September 30, 2004 is based on the historical statement of
financial position of the Company and assumes that the Acquisition Transaction
had occurred as of the period presented.
Certain information normally included in the financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The unaudited pro forma consolidated condensed financial
statements should be read in conjunction with our audited financial statements
in our Form 10-K Annual Report including notes thereto for the year ended
December 31, 2003 and our Form 10-Q Quarterly Report including notes thereto for
the nine months ended September 30, 2004.
ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 2004
(In thousands, except per share data)
ALLIS- PRO FORMA
CHALMERS DIAMOND ALLIS-
CONSOLIDATED DIAMOND PURCHASE CHALMERS
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------ ------------
ASSETS
Cash and cash equivalents $ 12,992 $ 139 $ (139) (a) $ 10,462
(2,530) (b)
Trade Receivables 10,419 676 (224) (a) 10,871
Inventories, net - 1,650 -- 1,650
Lease receivable, net 180 - -- 180
Prepaids and other current assets 1,496 16 (16) (a) 1,496
--------------------------------------------- ------------
Total Current Assets 25,087 2,481 (2,909) 24,659
Net Property, plant and equipment 28,818 481 -- 29,299
Goodwill 10,331 - 814 (c) 11,145
Other intangibles, net 3,089 550 1,100 (c) 4,576
(163) (i)
Debt issuance costs, net 635 635
Lease receivable 590 590
Other assets 79 - -- 79
--------------------------------------------- ------------
Total Assets $ 68,629 $ 3,512 $ (1,158) $ 70,983
============================================= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $ 4,858 $ 370 $ (370) (d) $ 4,858
Trade accounts payable 2,566 447 -- 3,013
Accrued employee benefits 481 - -- 481
Accrued interest 283 - 283
Accrued expenses 1,331 112 (112) (e) 1,331
Accounts payable, related parties 406 - -- 406
--------------------------------------------- ------------
Total Current Liabilities 9,925 929 (482) 10,372
Accrued postretirement benefit obligations 510 - -- 510
Long-term debt 25,241 327 (327) (d) 25,241
Other long-term liabilities 129 - 129
Redeemable Warrant 1,500 1,500
Preferred Stock 0 - -- 0
--------------------------------------------- ------------
37,305 1,256 (809) 37,752
Minority Interest 886 - 524 (j) 1,410
- - -- --
Shareholders' equity
Common stock 130 1 (1) (f) 130
Capital in excess of par value 37,425 1,418 (1,418) (f)
4,600 (g)
- - (2,530) (h) 39,495
Accumulated earnings (deficit) (7,117) 837 (837) (f) (7,804)
(163) (i)
(524) (j)
Total Shareholders' Equity 30,438 2,256 (873) 31,821
--------------------------------------------- ------------
Total Liabilities and Shareholders' Equity $ 68,629 $ 3,512 $ (1,158) $ 70,983
============================================= ============
See notes to unaudited pro forma consolidated financial statements.
P-1
ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(In thousands, except per share data)
ALLIS- PRO FORMA
CHALMERS DIAMOND ALLIS-
CONSOLIDATED DIAMOND PURCHASE CHALMERS
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------ ------------
Sales $ 32,989 $ 5,584 $ -- $ 38,573
Cost of Sales 23,893 3,565 -- 27,458
--------------------------------------------- ------------
Gross Profit 9,096 2,018 -- 11,114
Marketing and
Administrative Expense 5,381 664 163 (i) 6,208
--------------------------------------------- ------------
Income (Loss) from Operations 3,715 1,354 (163) 4,906
Other Income
Interest Income -- -- -- --
Interest Expense (1,634) (59) 59 (k) (1,634)
Minority Interest (315) -- (524) (j) (839)
Other 224 (26) -- 198
--------------------------------------------- ------------
Income (Loss) Before Taxes 1,990 1,269 (628) 2,631
Taxes (359) -- -- (359)
--------------------------------------------- ------------
Net Income/ (Loss) 1,631 1,269 (628) 2,272
Preferred Dividend (124) -- -- (124)
--------------------------------------------- ------------
Net income/ (loss) attributed to
common shares $ 1,507 $ 1,269 $ (628) $ 2,148
============================================= =============
Pro forma net income (loss)
per common share
Basic $ 0.21 $ 0.29
========== =============
Diluted $ 0.15 $ 0.22
========== =============
Weighted average shares
outstanding
Basic 7,285 7,285
========== =============
Diluted 9,980 9,980
========== =============
See notes to unaudited pro forma consolidated financial statements.
P-2
ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2003
(In thousands, except per share data)
ALLIS- PRO FORMA
CHALMERS DIAMOND ALLIS-
CONSOLIDATED DIAMOND PURCHASE CHALMERS
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------ ------------
ASSETS
Cash and cash equivalents $ 1,299 $ 139 $ (139) (a) $ (1,231)
(2,530) (b)
Trade Receivables 8,823 676 (224) (a) 9,275
Inventories, net -- 1,650 -- 1,650
Lease receivable, net 180 -- -- 180
Prepaids and other current assets 887 16 (16) (a) 887
--------------------------------------------- ------------
Total Current Assets 11,189 2,481 (2,909) 10,761
Net Property, plant and equipment 26,339 481 -- 26,820
Goodwill 7,661 -- 814 (c) 8,475
Other intangibles, net 2,290 550 1,100 (c) 3,777
(163) (i)
Debt issuance costs, net 567 567
Lease receivable 787 787
Other assets 40 -- -- 40
--------------------------------------------- ------------
Total Assets $ 48,873 $ 3,512 $ (1,158) $ 51,227
============================================= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $ 3,992 $ 370 $ (370) (d) $ 3,992
Trade accounts payable 3,133 447 -- 3,580
Accrued employee benefits 591 -- -- 591
Accrued interest 152 -- 152
Accrued expenses 1,761 112 (112) (e) 1,761
Accounts payable, related parties 787 -- -- 787
--------------------------------------------- ------------
Total Current Liabilities 10,416 929 (482) 10,863
Accrued postretirement benefit obligations 545 -- -- 545
Long-term debt 28,241 327 (327) (d) 28,241
Other long-term liabilities 270 -- 270
Redeemable Warrant 1,500 1,500
Preferred Stock 4,171 -- -- 4,171
--------------------------------------------- ------------
45,143 1,256 (809) 45,590
Minority Interest 2,523 -- 524 (j) 3,047
- -- -- --
Shareholders' equity
Common stock 39 1 (1) (f) 39
Capital in excess of par value 9,793 1,418 (1,418) (f)
4,600 (g)
- -- (2,530) (h) 11,863
Accumulated earnings (deficit) (8,625) 837 (837) (f) (9,312)
(163) (i)
(524) (j)
Total Shareholders' Equity 1,207 2,256 (873) 2,590
--------------------------------------------- ------------
Total Liabilities and Shareholders' Equity $ 48,873 $ 3,512 $ (1,158) $ 51,227
============================================= =============
See notes to unaudited pro forma consolidated financial statements.
P-3
ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003
(In thousands, except per share data)
ALLIS- PRO FORMA
CHALMERS DIAMOND ALLIS-
CONSOLIDATED DIAMOND PURCHASE CHALMERS
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------ ------------
Sales $ 32,724 $ 5,470 $ -- $ 38,194
Cost of Sales 23,931 3,926 -- 27,857
--------------------------------------------- ------------
Gross Profit 8,793 1,544 -- 10,337
Marketing and
Administrative Expense 6,169 731 195 (i) 7,095
--
Income (Loss) from
Operations 2,624 813 (195) 3,242
--------------------------------------------- ------------
Other Income
Interest Income 3 -- -- 3
Interest Expense (2,467) (71) 71 (k) (2,467)
Minority Interest (387) -- (276) (j) (663)
Settlement on lawsuit 1,034 1,034
Other 111 (5) -- 106
--------------------------------------------- ------------
Income (Loss) Before Taxes 918 737 (400) 1,249
Taxes (370) -- -- (370)
--------------------------------------------- ------------
Net Income/ (Loss) 548 737 (400) 879
Preferred Dividend (656) -- -- (656)
--------------------------------------------- ------------
Net income/ (loss) attributed to
common shares $ (108) $ 737 $ (400) $ 223
============================================= ============
Pro forma net income (loss)
per common share
Basic $ (0.03) $ 0.06
========== ============
Diluted $ (0.03) $ 0.04
========== ============
Weighted average shares
outstanding
Basic 3,927 3,927
========== ============
Diluted 3,927 6,340
========== ============
See notes to unaudited pro forma consolidated financial statements.
P-4
ALLIS-CHALMERS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical financial
statements of the Company:
a.) Elimination of assets not purchased at closing.
b.) Reduction of cash for the Company's 55% share of the $4,600,000
paid to the sellers of Diamond Air at closing.
c.) Recognition of Goodwill and other intangible assets resulting from
the Acquisition.
d.) Elimination of debt not assumed at closing.
e.) Elimination of accrued liabilities not assumed at closing.
f.) Elimination of Diamond Air's equity for consolidation purposes.
g.) Recognition of equity contribution of the Company and M-I L.L.C.
h.) Elimination of the Company's equity contribution for consolidation
purposes.
i.) Increase in amortization due to the increase in other intangible
assets values of acquired company.
j.) To record minority interest in Diamond Air's income.
k.) Reduction in interest expense due to reduction in debt not assumed.
P-5