- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - -------------------------------------------------------------------------------- FORM 8-K/A - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- GALES INDUSTRIES INCORPORATED (Exact Name of Registrant as Specified in its Charter) - -------------------------------------------------------------------------------- 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) - -------------------------------------------------------------------------------- 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)) - --------------------------------------------------------------------------------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