Katy Industries, Inc. Form 10-K/A
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
FORM
10-K/A
Amendment
No. 1
[X] Annual
Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For
the
fiscal year ended: December
31, 2004
OR
[
] Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Commission
file number 1-5558
Katy
Industries, Inc.
(Exact
name of registrant as specified in its charter)
Delaware 75-1277589
(State
of
Incorporation) (IRS
Employer Identification Number)
765
Straits Turnpike, Suite 2000, Middlebury, CT 06762
(Address
of Principal
Executive Offices) (Zip
Code)
Registrant's
telephone number, including area code: (203) 598-0397
Securities
registered pursuant to Section 12(b) of the Act:
(Title
of
each class) (Name
of each
exchange on which registered)
Common
Stock, $1.00 par
value New
York Stock
Exchange
Common
Stock Purchase
Rights
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
YES
X
NO
___
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. [ X ]
Indicate
by check mark whether the Registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2)
YES
__
NO
X
The
aggregate market value of the voting common stock held by non-affiliates of
the
registrant* (based upon its closing transaction price on the New York Stock
Exchange Composite Tape on June 30, 2004), as of June 30, 2004 was $22,935,357.
As of March 15, 2005, 7,945,377 shares of common stock, $1.00 par value, were
outstanding, the only class of the registrant's common stock.
*
Calculated by excluding all shares held by executive officers and directors
of
the registrant without conceding that all such persons are “affiliates” of the
registrant for purposes of federal securities laws.
DOCUMENTS
INCORPORATED BY REFERENCE
Proxy
Statement for the 2005 annual meeting - Part III.
EXPLANATORY
NOTE
Pursuant
to Rule 3-09 of Regulation S-X, we are filing this amendment to include the
financial statements of Sahlman Holding Company, Inc., an equity investment
in
which Katy Industries, Inc. holds a 43% interest. The financial statements
were omitted from the original filing due to the incorrect calculation of the
significant subsidiary test resulting from the exclusion of an impairment charge
taken in 2003.
Part
IV
Item
15. EXHIBITS
AND FINANCIAL STATEMENTS SCHEDULES
(a) |
1.
Financial Statements
|
The
following financial statements of Katy are set forth in Part II, Item 8, of
this
Form 10-K:
- |
Consolidated
Balance Sheets as of December 31, 2004 and 2003
*
|
- |
Consolidated
Statements of Operations for the years ended December 31, 2004, 2003
and
2002 *
|
- |
Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2004,
2003 and 2002 *
|
- |
Consolidated
Statements of Cash Flows for the years ended December 31, 2004, 2003
and
2002 *
|
- |
Notes
to Consolidated Financial Statements
*
|
*
-
Previously filed on April 14, 2005
2.
Financial Statement Schedules
Financial
Statements of Sahlman Holding Company, Inc. required to be filed by Rule 3-09
of
Regulation S-X:
- |
Report
of Independent Auditors: Sahlman Holding Company,
Inc.
|
- |
Report
of Independent Auditors: Sahlman Seafoods of Nicaragua,
S.A.
|
- |
Consolidated
Balance Sheets as of December 31, 2004 and
2003
|
- |
Consolidated
Statements of Operations for the years ended December 31, 2004, 2003
and
2002
|
- |
Consolidated
Statements of Changes in Shareholders’ Equity for the years ended December
31, 2004, 2003 and 2002
|
- |
Consolidated
Statements of Cash Flows for the years ended December 31, 2004, 2003
and
2002
|
- |
Notes
to Consolidated Financial
Statements
|
- |
Consents
of Independent Auditors
|
3.
Exhibits
The
exhibits filed with this report are listed on the “Exhibit Index.”
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
Dated:
March 29, 2006 KATY
INDUSTRIES, INC.
Registrant
/s/
Anthony T. Castor III
Anthony
T. Castor III
President
and
Chief Executive Officer
/s/
Amir Rosenthal
Amir
Rosenthal
Vice
President, Chief Financial Officer,
General Counsel and Secretary
FINANCIAL
STATEMENT SCHEDULES
Financial
Statements of Sahlman Holding Company, Inc.
SAHLMAN
HOLDING COMPANY, INC.
TAMPA,
FLORIDA
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
INDEPENDENT
AUDITORS' REPORT
February
11, 2005
To
the
Board of Directors and Shareholders of
Sahlman
Holding Company, Inc.
We
have
audited the accompanying consolidated balance sheets of Sahlman Holding Company,
Inc. and its subsidiary (Sahlman Seafoods, Inc.) as of December 31, 2004 and
2003, and the related consolidated statements of operations, changes in
shareholders’ equity, and cash flows for the years ended December 31, 2004, 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 audits. We did not audit the financial statements of
Sahlman Seafoods of Nicaragua, S.A., a wholly owned subsidiary of Sahlman
Seafoods, Inc., which statements reflect total assets of $4,888,000 and
$6,976,000 as of December 31, 2004 and 2003 and net income (loss) of $79,000,
$(711,000) and $(564,000) (after intercompany eliminations for 2002) for the
years ended December 31, 2004, 2003 and 2002, respectively. Those statements
were audited by other auditors whose reports have been furnished to us, and
our
opinion, insofar as it relates to the amounts included for Sahlman Seafoods
of
Nicaragua, S.A., is based solely on the report of the other
auditors.
We
conducted our audits 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 audits provide a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Sahlman Holding Company, Inc.
and
its subsidiary as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for the years ended December 31, 2004, 2003
and
2002 in conformity with accounting principles generally accepted in the United
States of America.
/s/
Dwight Darby & Company
Certified
Public Accountants
Tampa,
Florida
INDEPENDENT
AUDITORS' REPORT
January
29, 2005
To
the
Board of Directors and Shareholders of
Sahlman
Seafoods of Nicaragua, S.A.
We
have
audited the accompanying balance sheet of Sahlman Seafoods of Nicaragua, S.A.
(the Company) as of December 31, 2004 and 2003, and the related statements
of
operations and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on those statements based on our
audit.
We
conducted our audit in accordance with auditing standards generally accepted
in
Nicaragua. 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 presentation of the financial
statements. 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 Sahlman Seafoods of Nicaragua,
S.A., as of December 31, 2004 and 2003, the results of its operations and cash
flows for the years then ended, in conformity with accounting standards
generally accepted in Nicaragua.
/s/
Grant
Thornton
Certified
Public Accountants
Managua,
Nicaragua
INDEPENDENT
AUDITORS' REPORT
January
29, 2003
To
the
Board of Directors and Shareholders of
Sahlman
Seafoods of Nicaragua, S.A.
We
have
audited the accompanying balance sheet of Sahlman Seafoods of Nicaragua, S.A.
(the Company) as of December 31, 2002 and 2001 and the related statements of
operations and retained earnings and cash flows for the years then ended. Those
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on those statements based on our
audits.
Except
as
discussed in the fourth paragraph, we conducted our audit in accordance with
auditing standards generally accepted in Nicaragua. 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 presentation of the financial statements. We believe
that
our audits provide a reasonable basis for our opinion.
The
enclosed financial statements are not intended to present the financial
position, statement of operations and cash flow in accordance with the
accounting principles and practices of countries and jurisdictions other than
Nicaragua. Standards, procedures and practices for auditing such financial
statements are those generally accepted and applied in Nicaragua.
During
January 2000, the Company acquired from Shrimp Boat Management, Inc. (SBM),
a
related company, 20 shrimp boats amounting to US$8,997,117, which are part
of
the property, plant and equipment shown in the enclosed balance sheet. Due
to
such boats were operating at the Republic of Guyana, under lease contract
agreement subscribed between the Company and SBM, we were unable to satisfy
ourselves regarding the physical existence and condition of such boats.
Accounting records did not allow the application of other auditing procedures
regarding the physical existence and condition of such assets as of December
31,
2001. These fixed assets at December 31, 2001, materially affected the
determination of the financial position, results of operations and cash flows
for the year then ended.
As
stated
in note 11, the Company sells most of its production to Sahlman Seafoods, Inc.
(major stockholder); so the Company has generated, mainly through its relation
with the parent company, its income and cash flows in its
operations.
Likewise,
as indicated in the preceding paragraph, the Company executed operations for
the
leasing and sale of 20 shrimp boats to Shrimp Boat Management, Inc. (SBM),
a
related company, whose effects for the years ended December 31, 2002 and 2001
were as follows:
2002 2001
Assets
Accounts
Decrease
in property, plant and equipment
US$
8,997,117 -
Decrease
in accumulated depreciation US$
1,980,000 -
Liabilities
Accounts
Decrease
in accounts payable to Shrimp Boat
Management,
Inc. US$ 7,591,670
-
Increase
in accounts payable to Sahlman
Seafoods,
Inc. US$
574,553 -
Operations
Accounts
Income
due to leasing of shrimp boats, considered
as
non-taxable for tax purposes US$ 1,800,003 1,803,618
Expense
due to shrimp boats’ depreciation
US$ 660,001
661,352
If
these
transactions had not been executed between related companies, their terms and
conditions could have been different. The aforementioned must be considered
when
analyzing the financial statements of 2002 and 2001.
In
our
opinion, except for the effects of those adjustments in the financial statements
of 2001, if any, as might have been determined to be necessary had we been
able
to satisfy ourselves regarding the physical existence and condition of fixed
assets, mentioned in the fourth paragraph, the financial statements referred
to
above present fairly, in all material respects, the financial position of
Sahlman Seafoods of Nicaragua, S.A. as of December 31, 2002 and 2001, the
results of its operations and cash flows for the years then ended, in conformity
with accounting principles generally accepted in Nicaragua.
/s/
KPMG
Certified
Public Accountants
Managua,
Nicaragua
SAHLMAN
HOLDING COMPANY, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
DECEMBER
31,
|
|
|
|
|
2004
|
|
|
2003
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
114,822
|
|
$
|
235,628
|
|
Accounts
receivable - net of allowance for
|
|
|
|
|
|
|
|
doubtful
account of $14,406 and $9,000
|
|
|
1,224,575
|
|
|
1,578,551
|
|
Inventories
|
|
|
3,079,474
|
|
|
3,204,570
|
|
Note
and other receivables, current portion
|
|
|
225,076
|
|
|
127,648
|
|
Prepaid
expenses
|
|
|
438,542
|
|
|
456,883
|
|
Recoverable
income taxes
|
|
|
48,900
|
|
|
225,626
|
|
Deferred
income taxes
|
|
|
212,395
|
|
|
221,798
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
5,343,784
|
|
|
6,050,704
|
|
|
|
|
|
|
|
|
|
NOTE
RECEIVABLE, LESS CURRENT PORTION
|
|
|
-
|
|
|
173,271
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
|
|
16,906,280
|
|
|
17,863,528
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Foreclosed
property
|
|
|
179,744
|
|
|
-
|
|
Goodwill,
net
|
|
|
165,366
|
|
|
165,366
|
|
Other,
net
|
|
|
116,875
|
|
|
115,420
|
|
|
|
|
|
|
|
|
|
|
|
|
461,985
|
|
|
280,786
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,712,049
|
|
$
|
24,368,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,200,481
|
|
$
|
942,401
|
|
Accrued
expenses
|
|
|
480,275
|
|
|
475,538
|
|
Short-term
debt
|
|
|
1,264,439
|
|
|
1,731,000
|
|
Current
maturities of long-term debt
|
|
|
246,200
|
|
|
611,617
|
|
Income
taxes payable
|
|
|
185,430
|
|
|
843,220
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,376,825
|
|
|
4,603,776
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT
|
|
|
2,146,518
|
|
|
1,745,543
|
|
|
|
|
|
|
|
|
|
DEFERRED
INCOME TAXES
|
|
|
2,783,796
|
|
|
3,162,715
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
8,307,139
|
|
|
9,512,034
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
14,404,910
|
|
|
14,856,255
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,712,049
|
|
$
|
24,368,289
|
|
The
accompanying Notes are an integral part of these Consolidated Financial
Statements
9
SAHLMAN
HOLDING COMPANY, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
YEAR
ENDED DECEMBER 31,
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
GROSS
SALES
|
|
$
|
16,925,341
|
|
$
|
15,802,189
|
|
$
|
17,612,529
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
15,368,379
|
|
|
15,200,241
|
|
|
16,147,352
|
|
Freight
and other sales expense
|
|
|
343,076
|
|
|
349,161
|
|
|
281,270
|
|
General
and administrative expense
|
|
|
1,843,940
|
|
|
2,080,068
|
|
|
2,165,342
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
17,555,395
|
|
|
17,629,470
|
|
|
18,593,964
|
|
|
|
|
|
|
|
|
|
|
|
|
GAIN
ON SALE OF ASSETS, NET
|
|
|
116
|
|
|
233,671
|
|
|
1,338,468
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(629,938
|
)
|
|
(1,593,610
|
)
|
|
357,033
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME AND (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(181,878
|
)
|
|
(131,578
|
)
|
|
(175,764
|
)
|
Other
income
|
|
|
295,738
|
|
|
130,409
|
|
|
144,556
|
|
Other
expense
|
|
|
(174,967
|
)
|
|
(147,461
|
)
|
|
(421,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAXES
|
|
|
(691,045
|
)
|
|
(1,742,240
|
)
|
|
(96,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR (BENEFIT FROM)
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
(239,700
|
)
|
|
(383,863
|
)
|
|
38,429
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(451,345
|
)
|
$
|
(1,358,377
|
)
|
$
|
(134,528
|
)
|
The
accompanying Notes are an integral part of these Consolidated Financial
Statements
10
SAHLMAN
HOLDING COMPANY, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR
ENDED DECEMBER 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
FOREIGN
|
|
|
|
|
|
TOTAL
|
|
|
|
TREASURY
STOCK
|
|
COMMON
STOCK
|
|
|
PAID-IN
|
|
|
CURRENCY
|
|
|
RETAINED
|
|
|
SHAREHOLDERS'
|
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
CAPITAL
|
|
|
TRANSLATION
|
|
|
EARNINGS
|
|
|
EQUITY
|
|
BALANCE,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JANUARY
1, 2004
|
|
|
(11,182
|
)
|
$
|
(1,805,111
|
)
|
|
80,000
|
|
$
|
8,000
|
|
$
|
1,949,000
|
|
$
|
(231,375
|
)
|
$
|
14,935,741
|
|
$
|
14,856,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(451,345
|
)
|
|
(451,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2004
|
|
|
(11,182
|
)
|
$
|
(1,805,111
|
)
|
|
80,000
|
|
$
|
8,000
|
|
$
|
1,949,000
|
|
$
|
(231,375
|
)
|
$
|
14,484,396
|
|
$
|
14,404,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JANUARY
1, 2003
|
|
|
(10,632
|
)
|
$
|
(1,717,067
|
)
|
|
80,000
|
|
$
|
8,000
|
|
$
|
1,949,000
|
|
$
|
(231,375
|
)
|
$
|
16,294,118
|
|
$
|
16,302,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PURCHASE
OF TREASURY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK
|
|
|
(550
|
)
|
|
(88,044
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(88,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,358,377
|
)
|
|
(1,358,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2003
|
|
|
(11,182
|
)
|
$
|
(1,805,111
|
)
|
|
80,000
|
|
$
|
8,000
|
|
$
|
1,949,000
|
|
$
|
(231,375
|
)
|
$
|
14,935,741
|
|
$
|
14,856,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JANUARY
1, 2002
|
|
|
(10,632
|
)
|
$
|
(1,717,067
|
)
|
|
80,000
|
|
$
|
8,000
|
|
$
|
1,949,000
|
|
$
|
(231,375
|
)
|
$
|
16,428,646
|
|
$
|
16,437,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(134,528
|
)
|
|
(134,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2002
|
|
|
(10,632
|
)
|
$
|
(1,717,067
|
)
|
|
80,000
|
|
$
|
8,000
|
|
$
|
1,949,000
|
|
$
|
(231,375
|
)
|
$
|
16,294,118
|
|
$
|
16,302,676
|
|
The
accompanying Notes are an integral part of these Consolidated Financial
Statements
11
SAHLMAN
HOLDING COMPANY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
YEAR
ENDED DECEMBER 31,
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(451,345
|
)
|
$
|
(1,358,377
|
)
|
$
|
(134,528
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities -
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,517,600
|
|
|
1,577,543
|
|
|
2,122,161
|
|
Gain
on sale of assets
|
|
|
(116
|
)
|
|
(233,671
|
)
|
|
(1,338,468
|
)
|
Deferred
income taxes
|
|
|
(369,516
|
)
|
|
(738,804
|
)
|
|
(120,803
|
)
|
(Increase)
decrease in operating assets -
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
353,976
|
|
|
(198,869
|
)
|
|
406,218
|
|
Inventories
|
|
|
125,096
|
|
|
769,009
|
|
|
(496,787
|
)
|
Other
receivables
|
|
|
(105,140
|
)
|
|
160,733
|
|
|
116,754
|
|
Prepaid
expenses
|
|
|
18,341
|
|
|
(118,780
|
)
|
|
(47,131
|
)
|
Prepaid
and recoverable income taxes
|
|
|
176,726
|
|
|
(225,626
|
)
|
|
305,542
|
|
Other
assets
|
|
|
17,066
|
|
|
(403
|
)
|
|
4,235
|
|
(Decrease)
increase in operating liabilities -
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
258,080
|
|
|
(193,165
|
)
|
|
199,108
|
|
Accrued
expenses
|
|
|
4,737
|
|
|
(15,597
|
)
|
|
27,816
|
|
Income
taxes payable
|
|
|
(657,790
|
)
|
|
724,750
|
|
|
118,470
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
887,715
|
|
|
148,743
|
|
|
1,162,587
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
(546,683
|
)
|
|
(1,014,339
|
)
|
|
(549,382
|
)
|
Proceeds
from sale of property, plant
|
|
|
|
|
|
|
|
|
|
|
and
equipment
|
|
|
1,250
|
|
|
1,102,319
|
|
|
2,340,430
|
|
Proceeds
from note receivable
|
|
|
1,239
|
|
|
7,086
|
|
|
6,511
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing
|
|
|
|
|
|
|
|
|
|
|
activities
|
|
|
(544,194
|
)
|
|
95,066
|
|
|
1,797,559
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Finance
costs
|
|
|
(33,324
|
)
|
|
(16,122
|
)
|
|
-
|
|
Proceeds
from long-term debt
|
|
|
604,660
|
|
|
400,000
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(569,102
|
)
|
|
(799,228
|
)
|
|
(3,369,819
|
)
|
Net
(payments) borrowings under line of credit
|
|
|
(466,561
|
)
|
|
220,953
|
|
|
622,962
|
|
Purchase
of treasury stock
|
|
|
-
|
|
|
(88,044
|
)
|
|
-
|
|
Payments
on short-term loan
|
|
|
-
|
|
|
-
|
|
|
(257,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(464,327
|
)
|
|
(282,441
|
)
|
|
(3,003,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH AND CASH
|
|
|
|
|
|
|
|
|
|
|
EQUIVALENTS
|
|
|
(120,806
|
)
|
|
(38,632
|
)
|
|
(43,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - BEGINNING
|
|
|
235,628
|
|
|
274,260
|
|
|
317,971
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - ENDING
|
|
$
|
114,822
|
|
$
|
235,628
|
|
$
|
274,260
|
|
The
accompanying Notes are an integral part of these Consolidated Financial
Statements
SAHLMAN
HOLDING COMPANY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(continued)
|
|
YEAR
ENDED DECEMBER 31,
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW
|
|
|
|
|
|
|
|
|
|
|
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid (refunded)
|
|
$
|
360,803
|
|
$
|
(190,131
|
)
|
$
|
(277,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
183,638
|
|
$
|
134,045
|
|
$
|
196,990
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NONCASH
|
|
|
|
|
|
|
|
|
|
|
TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
Transfer
of note receivable to other assets
|
|
|
|
|
|
|
|
|
|
|
as
a result of foreclosure on real property
|
|
$
|
179,744
|
|
$
|
-
|
|
$
|
-
|
|
The
accompanying Notes are an integral part of these Consolidated Financial
Statements
13
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
1
-
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
-
Sahlman Holding Company, Inc. (Company) owns 100% of Sahlman Seafoods, Inc.
(Sahlman or the Subsidiary), a wholesaler of shrimp and other seafood located
in
Tampa, Florida. Sahlman's customers are located throughout the United States.
Sahlman has three wholly owned foreign subsidiaries. Two are located in Guyana
and are involved in the harvesting and processing of shrimp and other seafood.
The other foreign subsidiary is located in Nicaragua and is involved in the
operation of a shrimp farm and processing plant.
Use
of
Estimates
- The
Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States of America. These principles
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosed contingent assets and
liabilities at the date of the financial statements and the reported amounts
of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Principles
of Consolidation
- The
consolidated financial statements include the accounts of the Company and its
subsidiaries after elimination of intercompany accounts and
transactions.
Cash
and Cash Equivalents
- The
Company considers all short-term highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts
Receivable
- Trade
accounts receivable are carried at their estimated collectible amounts and
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.
The
Company uses the reserve method of accounting for bad debts for financial
reporting purposes and the direct write-off method for income tax purposes.
Trade accounts receivable are charged against the allowance account when such
receivables are deemed to be uncollectible.
Inventories
-
Inventories of materials and supplies are stated at lower of cost or market,
determined under the average cost method. Inventories of finished products
are
valued at production cost under the average cost method, which is not more
than
market value. Stock in ponds consists of the direct and indirect costs incurred
in the cultivation and maintenance of shrimp.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
1
-
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Other
Assets
- Prior
to 2002, the Company amortized goodwill over a twenty-year period using the
straight-line method. However, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and other Intangible Assets"
(Statement No. 142), the Company discontinued the amortization of goodwill
effective January 1, 2002 (see Note 4).
Costs
of
acquiring loans are capitalized and amortized over the term of the loan using
the straight line method.
Property,
Plant and Equipment
-
Property, plant and equipment are stated at cost, less accumulated depreciation.
The Company computes depreciation using the straight-line method over the
estimated useful lives of the assets as follows:
Land
improvements 15
years
Building
5 - 30
years
Marine
vessels 10
- 20
years
Machinery
and equipment
5 - 20
years
For
income tax purposes, buildings, marine vessels and machinery and equipment
are
depreciated under the lives and methods of the applicable income tax regulations
in effect at the acquisition date. Effective January 1, 2003, the salvage value
was changed on the marine vessels to more accurately reflect their depreciable
value. (See Note 3)
Income
Taxes
- The
Company accounts for its income taxes in accordance with SFAS No. 109,
“Accounting for Income Taxes,” which requires the liability method of accounting
for income taxes. Under this method, deferred taxes are determined based on
the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates.
Concentration
of Credit Risk
- The
Company’s financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents. The Company places its
cash
and temporary cash investments with high credit quality institutions. At times,
such investments may be in excess of the FDIC insurance limit.
For
the
year ended December 31, 2004, one customer accounted for $2,748,000 of the
Company's sales, for the year ended December 31, 2003, three customers accounted
for $5,269,000 of the Company's sales and for the year ended December 31, 2002,
four customers accounted for $7,789,000 of the Company's sales.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
1
-
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Foreign
Currency Translation
-
Financial statements for two of the foreign subsidiaries have been remeasured
to
U.S. dollars considering the dollar as the functional currency. Under this
method, monetary assets and liabilities are remeasured as of the exchange rate
in effect as of the financial statement date; nonmonetary assets and liabilities
at the date when they were acquired or incurred; property and equipment at
its
acquisition date; and capital stock at the exchange rate in effect when
recorded. Income and expenses are recorded at an average rate for the year,
except for depreciation and amortization whose remeasurement is made at the
historical exchange rate. Under this method, gains and losses from remeasurement
are recognized in net income of the period. For the years ended December 31,
2004, 2003 and 2002, a net loss of $62,200, $51,500 and $238,900 on
remeasurement is included in other expense, respectively. The 2004, 2003 and
2002 loss on remeasurement net of income taxes is $41,000, $34,000 and $157,700,
respectively. In years prior to 1998, the foreign currency was considered the
functional currency and gains or losses on exchange were recorded as a separate
component of shareholders’ equity.
Advertising
Costs
- All of
the Company’s advertising costs are nondirect-response costs and are expensed as
incurred. Advertising costs for the years ended December 31, 2004, 2003 and
2002
were $36,498, $92,654 and $77,167, respectively.
Shipping
and Handling Costs
-
Included in "freight and other sales expense" on the statement of operations
is
shipping and handling costs of $259,513, $214,451 and $193,482 for 2004, 2003
and 2002, respectively.
Impairment
of Long-Lived Assets
- The
Company evaluates the recoverability of its long-lived assets whenever adverse
events or changes in business climate indicate that the expected undiscounted
future cash flows from the related assets may be less than previously
anticipated. If the net book value of the related asset exceeds the undiscounted
future cash flows of the asset, the carrying amount would be reduced to the
present value of its expected future cash flows and an impairment loss would
be
recognized. As of December 31, 2004 and 2003, management does not believe that
an impairment reserve is required.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
1
-
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Asset
Disposals
- During
2003, the Company sold four shrimp trawlers for $1,130,000. A portion of the
total proceeds was used to pay down the term debt upon the bank’s approval. The
cost of the four vessels sold totaled $1,768,000 with accumulated depreciation
of $900,000, leaving a net book value of $868,000. After expenses to ready
the
boats for sale, the Company recognized a gain on the sale in the amount of
$234,355.
During
2002, the Company sold ten older shrimp trawlers for $2,445,000. Net sales
proceeds in the amount of $1,874,000 were used to pay down the term debt in
accordance with the loan agreement. The cost of the ten vessels sold totaled
$3,808,000 with accumulated depreciation of $2,807,000, leaving a net book
value
of $1,001,000. After expenses to ready the boats for sale, the Company
recognized a gain on the sale in the amount of $1,338,468.
The
sale
of the vessels will reduce the high repair expense incurred in previous years
on
the vessels as well as reduce interest on the loan, enabling the Company to
improve its loan service position.
NOTE
2
-
INVENTORIES
Inventories
consist of the following:
|
|
|
2004
|
|
|
2003
|
|
Seafood
products
|
|
$
|
1,233,091
|
|
$
|
1,474,220
|
|
Supplies
|
|
|
1,751,653
|
|
|
1,635,113
|
|
Stock
in ponds
|
|
|
94,730
|
|
|
95,237
|
|
|
|
|
|
|
|
|
|
Total
inventories
|
|
$
|
3,079,474
|
|
$
|
3,204,570
|
|
NOTE
3
-
PROPERTY,
PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
|
|
2004
|
|
|
2003
|
|
Land
|
|
$
|
559,801
|
|
$
|
559,801
|
|
Land
improvements
|
|
|
1,541,082
|
|
|
1,541,082
|
|
Buildings
|
|
|
4,430,362
|
|
|
4,240,560
|
|
Marine
vessels
|
|
|
15,987,066
|
|
|
15,987,066
|
|
Machinery
and equipment
|
|
|
5,559,121
|
|
|
5,767,265
|
|
Furniture
and fixtures
|
|
|
555,342
|
|
|
748,797
|
|
Construction
in progress
|
|
|
100,184
|
|
|
322,883
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment
|
|
|
28,732,958
|
|
|
29,167,454
|
|
Less
accumulated depreciation
|
|
|
(11,826,678
|
)
|
|
(11,303,926
|
)
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
$
|
16,906,280
|
|
$
|
17,863,528
|
|
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
3
-
PROPERTY,
PLANT AND EQUIPMENT
(Continued)
Effective
January 1, 2003, the Company changed the salvage value of their shrimp trawlers
from $100,000 to $200,000. This change was made to more accurately reflect
the
value expected to be received by the Company upon the sale of their used boats
and was based on used shrimp trawler sales by the Company in recent years.
For
2003, this change resulted in a $443,000 reduction in depreciation expense
and a
reduction in the net loss after income taxes of $276,000.
Construction
in progress consists of costs incurred for expanding the shrimp processing
plant
in Nicaragua.
NOTE
4
-
OTHER
ASSETS
Other
assets consist of the following:
|
|
|
2004
|
|
|
2003
|
|
Foreclosed
property
|
|
$
|
179,744
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
566,880
|
|
$
|
566,880
|
|
Less
accumulated amortization
|
|
|
(401,514
|
)
|
|
(401,514
|
)
|
|
|
|
|
|
|
|
|
Goodwill,
net
|
|
$
|
165,366
|
|
$
|
165,366
|
|
|
|
|
|
|
|
|
|
Deferred
financing costs
|
|
$
|
85,318
|
|
$
|
51,994
|
|
Less
accumulated amortization
|
|
|
(44,479
|
)
|
|
(29,676
|
)
|
|
|
|
|
|
|
|
|
Deferred
financing costs, net
|
|
|
40,839
|
|
|
22,318
|
|
|
|
|
|
|
|
|
|
Other
assets (see Note 11)
|
|
|
76,036
|
|
|
93,102
|
|
|
|
|
|
|
|
|
|
Total
other assets, net
|
|
$
|
116,875
|
|
$
|
115,420
|
|
During
2004, the Company began foreclosure proceedings to repossess real property
in
satisfaction of a note receivable defaulted upon by the owners of the property.
Management anticipates that the foreclosure will be completed by June 2005
and
that there will be a recovery in excess of the $179,744 balance due on the
note
plus any expenses incurred. Therefore, as of December 31, 2004, $179,744 is
included on the balance sheet in other assets. It is the intention of the
Company to list the property for sale once the foreclosure is
completed.
In
accordance with the provisions of Statement No. 142, which includes requirements
to test goodwill and indefinite lived intangible assets for impairment rather
than amortize them, the Company performed the annual impairment test during
2004
and 2003. The results of this test indicated that the Company's goodwill was
not
impaired, as the fair value of the asset did exceed its carrying value.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
4
-
OTHER
ASSETS
(Continued)
As
of
December 31, 2004 and 2003, the gross carrying amount of deferred financing
costs is $85,318 and $51,994, respectively. During 2004, new loan costs were
incurred in the amount of $33,324 that are to be amortized over one to three
years. During 2003, loans with costs in the amount of $16,122 were incurred
that
are to be amortized over three years. Amortization expense related to deferred
financing costs included in other expense for the years ended December 31,
2004,
2003 and 2002 was $14,803, $9,080 and $9,843, respectively.
The
future estimated amortization expense is as follows:
2005
|
|
$
|
8,448
|
|
2006
|
|
|
8,448
|
|
2007
|
|
|
8,448
|
|
2008
|
|
|
8,448
|
|
2009
|
|
|
7,047
|
|
|
|
|
|
|
|
|
$
|
40,839
|
|
NOTE
5
-
SHORT-TERM
DEBT
In
1997,
the Company entered into the Second Amended and Restated Credit Agreement
(Second Amended Credit Agreement) (see Note 6) with SouthTrust Bank now known
as
Wachovia Bank, N.A., (SouthTrust), which provided financing under a line of
credit facility of up to $2,000,000. During 2003, the line of credit was amended
and restated by the Third Amended and Restated Credit Agreement and the First
Amendment to Third Amended and Restated Credit Agreement (Third Amended Credit
Agreement) with SouthTrust. The Company and the bank desired to amend and
restate the Second Amended Credit Agreement to concisely and accurately reflect
the current agreements of the parties. The Third Amended Credit Agreement
consolidates two term notes outstanding with SouthTrust (see Note 6) and the
line of credit was amended to allow for advances not to exceed $2,250,000.
Advances are limited based on a formula applied to assets and less any issued
letters of credit and accrue interest at the Company’s option at either LIBOR
plus 130 to 225 basis points as determined by the Company's ratio of total
liabilities to tangible net worth or the prime rate of SouthTrust.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
5
-
SHORT-TERM
DEBT
(Continued)
During
2004, the line of credit was amended and restated by the Second Amendment to
Third Amended and Restated Credit Agreement to extend additional credit to
the
Company and to modify certain provisions of the loan agreement. The Second
Amendment allows for advances not to exceed $2,500,000 for the period commencing
July 8, 2004 and ending November 4, 2004 and not to exceed $2,250,000 at all
other times. Advances accrue interest at LIBOR plus 225 basis points. At
December 31, 2004 and 2003 advances of $1,264,439 and $1,731,000 were
outstanding, respectively. The line of credit is secured by the Company's
accounts receivable, inventory and certain equipment. The line of credit matures
on July 31, 2005 and is subject to annual renewal at SouthTrust's
discretion.
NOTE
6
-
LONG-TERM
DEBT
Long-term
debt consists of the following:
|
|
|
2004
|
|
|
2003
|
|
SouthTrust
term loans
|
|
$
|
2,168,633
|
|
$
|
2,202,330
|
|
Sahlman
Seafoods of Nicaragua,
|
|
|
|
|
|
|
|
SA
bank loan
|
|
|
224,085
|
|
|
150,000
|
|
Other
|
|
|
-
|
|
|
4,830
|
|
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
|
2,392,718
|
|
|
2,357,160
|
|
Less
current maturities of long-term debt
|
|
|
246,200
|
|
|
611,617
|
|
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
$
|
2,146,518
|
|
$
|
1,745,543
|
|
SouthTrust
- During
1997, the Company paid off its revolving loan and consolidated the remaining
debt balances of the original term loan and Vessel Acquisition Facility Note
into one consolidated term loan governed by the provisions of the SouthTrust
Second Amended Credit Agreement. On January 23, 2001, the Company refinanced
the
remaining balance due on this note as of that date into a new 2001 Consolidation
Note. The total amount advanced under the agreement was $1,200,000. Advances
under the note accrue interest at the LIBOR rate plus 130 to 225 basis points
as
determined by the Company's ratio of total liabilities to tangible net worth.
The loan bore interest at 2.619% at December 31, 2003 and was to be repaid
in
equal monthly installments of $6,667 with a final payment of $800,000 due
January 23, 2006. The note was secured by real property with a Negative
Pledge Agreement on all shrimp trawlers of the Company. The outstanding balance
at December 31, 2003 was $966,667.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
6
-
LONG-TERM
DEBT
(Continued)
In
2003,
the 1999 term note and the 1999 Vessel Acquisition Facility were consolidated
and refinanced with SouthTrust into a new term note, the 2003 Term Loan. The
2003 Term Loan was governed by the provisions of the Third Amended Credit
Agreement. The original principal amount of the note was $1,287,667. The note
was renewed in August 2003 to increase the principal amount by $250,000 for
a
note balance of $1,430,362. The note accrued interest at the Company's option
at
either the LIBOR rate plus 155 to 250 basis points as determined by the
Company's ratio of total liabilities to tangible net worth or the prime rate
of
SouthTrust. At December 31, 2003, the loan bore interest at 2.7% and was to
be
repaid in equal monthly installments of $39,732. The loan was to mature on
August 15, 2006 and was unsecured; however, SouthTrust required a Negative
Pledge Agreement on all shrimp trawlers of the Company as a condition of, and
as
partial consideration for, entering into the credit agreement. At December
31,
2003, the outstanding loan balance was $1,235,663.
In
2004,
the 2001 Consolidation Note and the 2003 term loan were consolidated and
refinanced with SouthTrust into a new term note, the 2004 Consolidation Note.
The 2004 Consolidation Note is governed by the provisions of the Third Amendment
to Third Amended and Restated Credit Agreement. The original principal amount
of
the note was $2,193,000, which included an advance in the principal amount
of
$454,659. The note accrues interest at the Company's option at either the LIBOR
rate plus 155 to 250 basis points as determined by the Company's ratio of total
liabilities to tangible net worth or the prime rate of SouthTrust. At December
31, 2004, the loan bore interest at 4.7% and is to be repaid in equal monthly
installments of $12,183. The loan matures on October 28, 2009 and is secured
by
real property with a Negative Pledge Agreement on all shrimp trawlers of the
Company. The outstanding balance at December 31, 2004 was
$2,168,333.
The
loan
agreements contain certain restrictive covenants requiring the Company to meet
certain financial ratios and other matters. At December 31, 2004, the Company
was in compliance with these covenants. At December 31, 2003, the Company was
not in compliance with one of these covenants. The bank agreed to waive
compliance with this covenant.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
6
-
LONG-TERM
DEBT
(Continued)
Other
long-term debt in the amount of $150,000 originated in 2003, with an additional
$150,000 in 2004, in connection with one of the wholly-owned subsidiaries,
Sahlman Seafoods of Nicaragua, S.A. (SSN). The note matures on December 11,
2006
and is payable in 36 monthly installments bearing an annual interest rate of
9.55%. The loan is guaranteed by equipment and a mortgage on land and facilities
of SSN. In addition, a new car loan was taken out in October 2001 in the amount
of $17,386 payable in 36 monthly installments of $483 beginning on November
30,
2001 at 0% interest.
Aggregate
maturities of long-term debt during the five years ending in 2009 are as
follows:
2005
|
|
$
|
246,200
|
|
2006
|
|
|
270,285
|
|
2007
|
|
|
146,200
|
|
2008
|
|
|
146,200
|
|
2009
|
|
|
1,583,833
|
|
|
|
|
|
|
|
|
$
|
2,392,718
|
|
NOTE
7-
INCOME
TAXES
For
the
years ended December 31, 2004, 2003 and 2002, the provision for (benefit from)
income taxes consists of the following:
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(46,900
|
)
|
$
|
354,941
|
|
$
|
96,315
|
|
Foreign
|
|
|
49,377
|
|
|
-
|
|
|
50,147
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current
|
|
|
2,477
|
|
|
354,941
|
|
|
146,462
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(212,720
|
)
|
|
(693,156
|
)
|
|
(155,873
|
)
|
State
|
|
|
(10,020
|
)
|
|
(45,648
|
)
|
|
(12,404
|
)
|
Foreign
|
|
|
(19,437
|
)
|
|
-
|
|
|
60,244
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred
|
|
|
(242,177
|
)
|
|
(738,804
|
)
|
|
(108,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision for (benefit from)
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
$
|
(239,700
|
)
|
$
|
(383,863
|
)
|
$
|
38,429
|
|
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
7-
INCOME
TAXES
(Continued)
Deferred
income taxes resulting from the tax effects of temporary differences consist
of
book depreciation in excess of tax depreciation, fixed asset sales, reserves
and
accrued expenses, intercompany profit and unremitted earnings of foreign
subsidiaries. Other differences between income taxes computed using the
statutory federal and state income tax rates and the provision for income taxes
are attributed primarily to foreign income being subject only to federal income
tax. Net deferred tax liabilities and assets are $2,571,401 and $2,940,917
at
December 31, 2004 and 2003, respectively. For 2004 and 2003, a valuation
allowance of $232,000 has been provided on deferred tax assets for losses
incurred related to a foreign subsidiary. The future realization of income
tax
benefits from the losses is uncertain.
During
2003, the Company's 2000, 2001 and 2002 income tax returns were examined by
the
IRS. As a result of the examination, taxable income was recognized in 2003
in
the amount of $932,400 from unremitted earnings of a foreign subsidiary. The
effect of this change on the balance sheet is to reclassify deferred income
taxes - long term liability in the amount of $317,000 to income taxes currently
payable.
For
the
year ended December 31, 2004, the Company had a federal and state tax loss
of
approximately $139,000. The federal loss will be carried back to recover income
taxes of $46,900 paid in 2002. For state income tax purposes, this loss will
be
carried forward to offset taxable income of future years.
For
the
year ended December 31, 2003, the Company had a federal and state tax loss
of
approximately $664,000. The federal loss was carried back to recover income
taxes of $225,626 paid in 2002. For state income tax purposes, this loss will
be
carried forward to offset taxable income of future years.
A
valuation allowance for the cumulative state loss carryforward of $2,068,000,
resulting in a deferred tax asset of $114,000, is not considered necessary
as it
is anticipated that future income will absorb the losses. The state loss
carryforward expires from 2021 to 2024.
NOTE
8
-
CAPITAL
STOCK
Common
Stock
- The
Company has four classes of authorized common stock: Class A, B, C and D. Under
the Company’s Amended and Restated Certificate of Incorporation, the relative
rights and preferences of each class of stock are as follows:
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
8
-
CAPITAL
STOCK
(Continued)
Voting
Rights
- The
holders of Class A, B and C common stock will vote together as a single combined
class on all matters submitted to a vote of the shareholders, with each holder
of Class A, B and C common stock being entitled to one vote per share of such
stock held. The holders of Class D common shares have no right to vote on any
matters submitted to a vote of the shareholders.
Liquidation
Preferences
- Upon
dissolution, liquidation, or winding up of the Corporation, holders of Class
B
common stock are entitled to a minimum liquidation value of $100 per share.
Holders of Class C and D common stock are then entitled to the remaining assets
available for distribution after the distribution to holders of Class B based
upon the number of shares of C and D shares over the total number of common
shares outstanding. Remaining distributions shall be to all holders of Class
A
and B shares on the basis of the number of such shares outstanding.
Redeemable
Stock
- If any
employee ceases to be employed, then such employee’s Class A stock that was
purchased through the exercise of options will be subject to repurchase by
the
Company. The Company has the right of first refusal to purchase any or all
of
such Class A common stock held, if such employee’s termination was with or
without cause or if termination is the result of death, disability, or achieving
the age of 65. If the employee voluntarily terminates or is terminated for
cause, the repurchase price for Class A common stock will be the lesser of
the
price the employee paid for the repurchased shares plus seven percent annual
simple interest, or the value of such repurchased shares on the date 30 days
prior to the date of termination. If the employee is terminated without cause
or
if the termination is a result of death, disability, or achieving the age of
65,
the repurchase price of Class A common stock will be the value as defined in
the
Stock Options and Repurchase Agreement of such repurchased shares on the date
30
days prior to the date of termination.
Convertible
Stock
- Class
D common stock is convertible into shares of Class C common stock. Such
conversion will be effected by the surrender of the Class D common stock in
exchange for the Class C common stock upon consummation of an initial public,
Rule 144, or Regulation A offering or upon the sale of Class C common stock
to
those shares convertible to Class C shares equaling 2% or more of the
outstanding common stock having voting rights.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
8
-
CAPITAL
STOCK
(Continued)
Additional
stock information is as follows:
|
|
|
2004
|
|
|
2003
|
|
Class
A common stock:
|
|
|
|
|
|
|
|
Par
value per share
|
|
|
.10
|
|
|
.10
|
|
Shares
authorized
|
|
|
60,000
|
|
|
60,000
|
|
Shares
outstanding, net of
|
|
|
|
|
|
|
|
treasury
stock
|
|
|
27,068
|
|
|
27,068
|
|
|
|
|
|
|
|
|
|
Class
B common stock:
|
|
|
|
|
|
|
|
Par
value per share
|
|
|
.10
|
|
|
.10
|
|
Shares
authorized
|
|
|
50,000
|
|
|
50,000
|
|
Shares
outstanding, net of
|
|
|
|
|
|
|
|
treasury
stock
|
|
|
41,750
|
|
|
41,750
|
|
|
|
|
|
|
|
|
|
Class
C common stock:
|
|
|
|
|
|
|
|
Par
value per share
|
|
|
.10
|
|
|
.10
|
|
Shares
authorized
|
|
|
40,000
|
|
|
40,000
|
|
Shares
outstanding, net of
|
|
|
|
|
|
|
|
treasury
stock
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Class
D common stock:
|
|
|
|
|
|
|
|
Par
value per share
|
|
|
.10
|
|
|
.10
|
|
Shares
authorized
|
|
|
40,000
|
|
|
40,000
|
|
Shares
outstanding, net of
|
|
|
|
|
|
|
|
treasury
stock
|
|
|
-
|
|
|
-
|
|
NOTE
9
-
STOCK
OPTION PLANS
During
2001, 1999, 1998 and 1997, the Company’s stockholders approved the granting of
incentive stock options for shares of Class A common stock to key executives
and
management. Under the Stock Option and Repurchase Agreements, all options were
granted at a price of $160.08, which is considered by management to be equal
to
market value on the date of grant. All options are exercisable
immediately.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
9
-
STOCK
OPTION PLANS
(Continued)
A
summary
of option transactions during the years ended December 31, 2004 and 2003 is
shown below:
|
|
|
Number
|
|
|
Weighted
Average
|
|
|
|
|
of
Shares
|
|
|
Option
Price
|
|
Options
(granted and unexercised)
|
|
|
|
|
|
|
|
at
January 1, 2004
|
|
|
4,117
|
|
$
|
160.08
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options
(granted and unexercised)
|
|
|
|
|
|
|
|
at
December 31, 2004
|
|
|
4,117
|
|
$
|
160.08
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Weighted
Average
|
|
|
|
|
of
Shares
|
|
|
Option
Price
|
|
Options
(granted and unexercised)
|
|
|
|
|
|
|
|
at
January 1, 2003
|
|
|
4,117
|
|
$
|
160.08
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options
(granted and unexercised)
|
|
|
|
|
|
|
|
at
December 31, 2003
|
|
|
4,117
|
|
$
|
160.08
|
|
The
fair
value of the options is determined by the management of the Company. The Company
applies APB Opinion 25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock option
plans. Had compensation cost been determined based on the fair value at the
grant date consistent with the method of FASB No. 123, "Accounting for
Stock-Based Compensation," the net loss of the Company would not have been
affected in 2004 and 2003.
NOTE
10
-
EMPLOYEE
BENEFIT PLAN
The
subsidiary has a 401(k) Profit Sharing and Savings Plan (the Plan) covering
nearly all employees of the domestic company. Under the provisions of the Plan,
participants have the right to make employee contributions in whole percentages
of not less than two percent or more than fifteen percent of their gross annual
earnings, subject to limitations prescribed by law. Employees are eligible
to
participate in the Plan if they are age eighteen or older and have completed
six
months of service. Participants are immediately vested in their contributions
and earnings thereon.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
10
-
EMPLOYEE
BENEFIT PLAN
(Continued)
The
Company may elect to match the employees’ contributions, but not in excess of
two percent of the participant’s gross annual earnings. The Company
contributions to this plan were $12,553, $14,151 and $15,540 for the years
2004,
2003 and 2002, respectively.
NOTE
11
-
COMMITMENTS
AND CONTINGENCIES
Litigation
- In the
ordinary course of business, the Company and its Subsidiary are involved in
litigation primarily as a result of injuries sustained during shrimp boat
operations. The Company is self-insured for these claims. Management believes
that the reserves are adequate to cover unpaid losses that have been incurred
as
of December 31, 2004.
Insurance
Coverage
- The
Company provides insurance for workers’ compensation claims and boat reserve
claims. The Company is fully insured for group health care claims. In the
opinion of management, the reserve for workers’ compensation claims of
approximately $-0- and $180,000 and the boat reserve of $3,000 and $9,000
included in accrued expenses represent adequate provision for covering unpaid
losses which have been incurred as of December 31, 2004 and 2003, respectively.
The Company had a protection and indemnity insurance policy to cover the
employees working on the shrimp boats. This policy expired on December 15,
2001,
and the Company has decided not to renew it as all of the boats are now St.
Vincent registry, which the Company feels will virtually eliminate the risk
of
future claims in the United States.
Letters
of Credit
- The
Company was contingently liable as of December 31, 2003 for $175,000 related
to
a letter of credit which guaranteed workers’ compensation claims.
Rights
and Concessions
- SSN
has entered into contracts for the construction of shrimp farming operations
located in Nicaragua.
One
contract entered into during 1997 and 1998, is for a 1,787.5 acre land lease
for
twenty years with the government of Nicaragua. Payments of $52,606 have been
made with additional payments of 1% of the gross sales due annually to the
government once production begins. No additional amounts have been paid in
connection with the requirements of the lease, nor has any been accrued, as
construction has not begun as of December 31, 2004. Under the terms of the
lease, construction was required to begin by October 1, 1998. The Company is
undecided as to when, or if, they will begin construction.
SAHLMAN
HOLDING COMPANY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2003 AND 2002
NOTE
11
-
COMMITMENTS
AND CONTINGENCIES
(Continued)
In
November 2000, SSN was granted the right to construct a shrimp farm in exchange
for a fee of $50,000 paid to a Nicaraguan government agency.
The
payments made under these agreements are included with other assets and at
December 31, 2004 and 2003, amounted to $66,897 and $74,112 net of
amortization, respectively. Payments relating to these rights and concessions
are being amortized over 20 years using the straight-line method.
NOTE
12
-
RELATED
PARTY TRANSACTIONS
The
Company paid a shareholder a consulting fee $25,000 for the year ended
December 31, 2002. During the year ended December 31, 2002, loans from
shareholders were paid off with interest of $3,155 at 8%.
CONSENT
OF INDEPENDENT PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the Registration Statement on
Form
S-8 (Nos. 333-78709, 33-60443, and 33-60449) of Katy Industries, Inc. of our
report dated February 11, 2005, with respect to the consolidated balance sheets
of Sahlman Holding Company, Inc. as of December 31, 2004 and 2003 and the
related statements of operations for the years ended December 31, 2004, 2003
and
2002, which appears in this Form 10-K/A.
/s/
Dwight Darby & Company
Certified
Public Accountants
Tampa,
Florida
March
28,
2006
CONSENT
OF INDEPENDENT PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the Registration Statement on
Form
S-8 (Nos. 333-78709, 33-60443, and 33-60449) of Katy Industries, Inc. of our
report dated January 29, 2005, with respect to the balance sheet of Sahlman
Seafoods of Nicaragua, S.A. as of December 31, 2004 and 2003 and the related
statements of operations for the years then ended, which appears in this Form
10-K/A.
/s/
Grant
Thornton
Certified
Public Accountants
Managua,
Nicaragua
March
28,
2006
CONSENT
OF INDEPENDENT PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the Registration Statement on
Form
S-8 (Nos. 333-78709, 33-60443, and 33-60449) of Katy Industries, Inc. of our
report dated January 29, 2003, with respect to the balance sheet of Sahlman
Seafoods of Nicaragua, S.A. as of December 31, 2002 and 2001 and the related
statements of operations for the years then ended, which appears in this Form
10-K/A.
/s/
KPMG
Certified
Public Accountants
Managua,
Nicaragua
March
28,
2006