8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  February 19, 2014

KATY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-05558	75-1277589
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

305 Rock Industrial Park Drive

Bridgeton, Missouri  63044

(Address of principal executive offices) (Zip Code)

(314) 656-4321

(Registrant’s telephone number, including area code)

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:

o Written communications pursuant to Rule 425 under the Securities Act

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

This current report on Form 8-K/A amends and supplements the current report on Form 8-K filed by Katy Industries, Inc. on February 25, 2014. The current report on Form 8-K is being amended by this Form 8-K/A to include the audited and unaudited financial statements and other information required by Item 9.01 of Form 8-K concerning our acquisition on February 19, 2014 of Ft. Wayne Holdings, Inc. No other amendments to the Form 8-K are being made by this Form 8-K/A (Amendment No. 1).

Item 9.01 Financial Statements and Exhibits.

a) Financial statements of businesses acquired.

The following historical audited financial statements of Fort Wayne Holdings, Inc. and Subsidiary ("FTW") are filed as Exhibit 99.1 and are hereby incorporated herein by reference:

· Report of Independent Certified Public Accountants issued by Crowe Horwath, LLP dated March 12, 2013;

· Consolidated Balance Sheets as of December 31, 2012 and December 31, 2011;

· Consolidated Statements of Income for the years ended December 31, 2012 and December 31, 2011;

· Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2012 and December 31, 2011;

· Consolidated Statements of Cash Flows for the years ended December 31, 2012 and December 31, 2011; and

· Notes to Consolidated Financial Statements.

The following historical unaudited financial statements of FTW are filed as Exhibit 99.2 and are hereby incorporated herein by reference:

· Report of Independent Certified Public Accountants issued by Crowe Horwath, LLP dated March 12, 2013;

· Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012;

· Consolidated Statements of Income for the nine-month period ended September 30, 2013 and year ended December 31, 2012;

· Consolidated Statements of Shareholders' Equity for the nine-month period ended September 30, 2013 and the year ended December 31, 2012;

· Consolidated Statements of Cash Flows for the nine-month period ended September 30, 2013 and the year ended December 31, 2012; and

· Notes to Consolidated Financial Statements.

(b) Pro Forma Financial Information.

The following unaudited pro forma financial statements, including notes thereto, of Katy Industries, Inc. are filed as Exhibit 99.3 and are hereby incorporated herein by reference:

· Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 27, 2013;

· Unaudited Pro Forma Condensed Consolidated Statements of Operations for the nine months ended September 27, 2013 and year ended December 31, 2012; and

· Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.

(c) Exhibits.

Exhibit No.	Description
99.1	Audited financial statements of FTW Holdings, Inc. and Subsidiary as of and for the years ended December 31, 2012 and December 31, 2011.
99.2	Unaudited financial statements of FTW Holdings, Inc. and Subsidiary as of September 30, 2013 and for the nine-months then ended.
99.3	Unaudited pro forma financial statements of Katy Industries, Inc. and Subsidiaries as of and for the nine months ended September 27, 2013 and for the year ended December 31, 2012.

SIGNATURES

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.

KATY INDUSTRIES, INC.
(Registrant)
By:	/s/ James W. Shaffer
James W. Shaffer
Vice President, Treasurer and Chief Financial Officer
Date:  May 5, 2014

EX-99.1

EXHIBIT 99.1

FTW HOLDINGS, INC.

AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

FTW HOLDINGS, INC. AND SUBSIDIARY

Fort Wayne, Indiana

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

CONTENTS

INDEPENDENT AUDITOR’S REPORT		1
FINANCIAL STATEMENTS
	CONSOLIDATED BALANCE SHEETS	3
	CONSOLIDATED STATEMENTS OF INCOME	4
	CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	5
	CONSOLIDATED STATEMENTS OF CASH FLOWS	6
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7

INDEPENDENT AUDITOR’S REPORT

Board of Directors

FTW Holdings, Inc. and Subsidiary

Fort Wayne, Indiana

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of FTW Holdings, Inc. and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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 consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

1.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FTW Holdings, Inc. and Subsidiary as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ Crowe Horwath LLP

Fort Wayne, Indiana

March 12, 2013

2.

FTW HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31, 2012 and 2011

	2012			2011
ASSETS
Current assets
Cash	$	1,104,893		$	9,574
Accounts receivable, net of allowance for doubtful accounts of $16,525 in both 2012 and 2011		2,087,721			2,064,169
Inventories		1,761,888			929,219
Income tax receivable		10,775			-
Deferred tax asset		75,024			-
Prepaid expenses		20,254			21,426
Total current assets		5,060,555			3,024,388
Deferred tax asset		867,838			-
Property, plant and equipment, net		2,473,456			2,727,604
Total assets	$	8,401,849		$	5,751,992
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of term debt	$	133,500		$	133,500
Accounts payable		1,547,031			1,011,525
Accrued expenses		241,529			206,293
Total current liabilities		1,922,060			1,351,318
Long-term debt, less current maturities		775,776			909,276
Other long-term liabilities		-			488,000
Total liabilities		2,697,836			2,748,594
Shareholders' equity
Common stock, par value $.01 per share,
Class A: 4,200 shares authorized, 1,388 shares issued and 1,369 and 1,387 shares outstanding at December 31, 2012 and 2011, respectively		14			14
Class B: 1,325 shares authorized; 462 shares issued and outstanding		5			5
Treasury stock, at cost, 19 shares and 1 share at December 31, 2012 and 2011, respectively		(98,735	)		(41,200	)
Additional paid-in capital		7,281,915			7,281,915
Accumulated deficit		(1,479,186	)		(4,237,336	)
Total shareholders' equity		5,704,013			3,003,398
Total liabilities and shareholders' equity	$	8,401,849		$	5,751,992

See accompanying notes to consolidated financial statements.

3.

FTW HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2012 and 2011

	2012			2011
Net sales	$	17,114,987		$	13,901,441
Cost of goods sold		14,163,711			11,569,235
Gross profit		2,951,276			2,332,206
Operating expenses		991,192			943,834
Operating income, before interest expense		1,960,084			1,388,372
Interest expense		108,000			108,017
Income before income taxes		1,852,084			1,280,355
(Benefit from) provision for income taxes		(906,066	)		13,991
Net income	$	2,758,150		$	1,266,364

See accompanying notes to consolidated financial statements.

4.

FTW HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Years ended December 31, 2012 and 2011

	Common Stock									Treasury Stock
	Number					Number				Number					Additional
	of					of				of					Paid-in		Accumulated
	Shares					Shares				Shares					Capital		Deficit			Total
Balances, January 1, 2011		1,387		$	14		462	$	5		1	$	(41,200	)	$	7,281,915	$	(5,503,700	)	$	1,737,034
Net income		-			-		-		-		-		-			-		1,266,364			1,266,364
Balances, December 31, 2011		1,387			14		462		5		1		(41,200	)		7,281,915		(4,237,336	)		3,003,398
Treasury stock purchase		(18	)		-		-		-		18		(57,535	)		-		-			(57,535	)
Net income		-			-		-		-		-		-			-		2,758,150			2,758,150
Balances, December 31, 2012		1,369		$	14		462	$	5		19	$	(98,735	)	$	7,281,915	$	(1,479,186	)	$	5,704,013

See accompanying notes to consolidated financial statements.

5.

FTW HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2012 and 2011

	2012			2011
Cash flows from operating activities
Net income	$	2,758,150		$	1,266,364
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		362,149			351,942
Deferred income taxes		(942,862	)		-
Changes in operating assets and liabilities
Accounts receivable		(23,552	)		(733,116	)
Inventories		(832,669	)		459,360
Prepaid expenses		1,172			(7,671	)
Income tax receivable		(10,775	)		-
Accounts payable		535,507			41,655
Accrued expenses		(452,764	)		(33,254	)
Net cash provided by operating activities		1,394,356			1,345,280
Cash flows from investing activities
Purchases of property and equipment		(109,822	)		(190,568	)
Proceeds from disposal of property and equipment		1,820			-
Net cash used for investing activities		(108,002	)		(190,568	)
Cash flows from financing activities
Proceeds from line of credit		13,156,369			12,219,062
Payments on line of credit		(13,156,369	)		(13,276,960	)
Payments on long-term debt		(133,500	)		(160,994	)
Purchase of shares for treasury		(57,535	)		-
Net cash used for financing activities		(191,035	)		(1,218,892	)
Net increase (decrease) in cash		1,095,319			(64,180	)
Cash, beginning of year		9,574			73,754
Cash, end of year	$	1,104,893		$	9,574
Supplemental cash flow information:
Cash paid for interest	$	108,000		$	142,224
Cash paid for taxes		47,571			13,991

See accompanying notes to consolidated financial statements.

6.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations:  FTW Holdings, Inc. and Subsidiary (the Company) is engaged in the manufacture and sale of plastic and structural foam products to customers located in the United States of America.

Principles of Consolidation:  The consolidated financial statements include the accounts of FTW Holdings, Inc. and its wholly owned subsidiary, Fort Wayne Plastics, Inc. All material intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.  These estimates include the allowance for doubtful accounts, inventory obsolescence reserve, estimated useful lives of property, plant and equipment, deferred tax valuation allowance, and accrued property tax liabilities.  Actual results could differ from those estimates.

Inventories:  Inventories are valued at the lower of cost, first-in, first-out, (FIFO) method, or market.

Revenue Recognition and Accounts Receivable:  Revenue from the sale of the Company’s products is generally recognized as products are shipped to customers.  The Company sells to customers using credit terms customary in its industry.  From time to time, the Company sells to customers under bill and hold arrangements, in which revenue is recognized prior to shipment of the Company’s products.  Bill and hold revenue is only recognized when there is a signed agreement with the customer for the bill and hold transaction, the buyer has assumed the risks and rewards of ownership of the products, the products are ready for delivery, and it is probable that delivery will be made.  Interest is not normally charged on receivables.  Management establishes a reserve for losses on its accounts based on historic loss experience and current economic conditions.  Losses are charged against the reserve when management deems further collection efforts will not produce additional recoveries.

Property, Plant, and Equipment:  Property, plant and equipment are carried at cost.  The Company provides for depreciation using annual rates, which are sufficient to amortize the costs of depreciable assets over their estimated useful lives.  Depreciation is computed using straight-line and accelerated methods over estimated useful lives ranging from 3 to 25 years.  When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs is charged to operations as incurred; significant renewals and improvements are capitalized.

Income Taxes:  Deferred income taxes are recognized for the tax consequences in future years for differences between the tax basis and financial reporting basis of the Company’s assets and liabilities.  At December 31, 2011, the Company’s net deferred tax asset related to future periods was fully offset by a valuation allowance.  During 2012, the Company reversed the valuation allowance based upon strong financial performance and forecasted future results.  At December 31, 2012, no valuation allowance was recorded – see Note 5.

The Company follows guidance issued by the Financial Accounting Standards Board (FASB) with respect to accounting for uncertainty in income taxes.  A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

(Continued)

7.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of Indiana.  The Company is no longer subject to examination by taxing authorities for years before 2010.  The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.

The Company recognizes interest and/or penalties related to income tax matters in operating expenses.  The Company did not have any amounts accrued for interest and penalties at December 31, 2012 and 2011.

Treasury Stock:  Treasury stock is recorded at cost and consists of shares of Class A common stock.

Subsequent Events:Management has performed an analysis of the activities and transactions subsequent to December 31, 2012 to determine the need for any adjustments to and/or disclosures within the financial statements for the year ended December 31, 2012.  Management has performed their analysis through March 12, 2013, which is the date the financial statements were available to be issued.

NOTE 2 - INVENTORIES

Inventories consist of the following:

	2012		2011
Finished products	$	601,726	$	477,759
Raw materials and packaging		1,160,162		451,460
Total inventories	$	1,761,888	$	929,219

NOTE 3 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	2012			2011
Land	$	284,714		$	284,714
Building		3,117,539			3,112,189
Equipment		9,631,580			9,550,208
		13,033,833			12,947,111
Less accumulated depreciation		(10,560,377	)		(10,219,507	)
Property, plant and equipment, net	$	2,473,456		$	2,727,604

(Continued)

8.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 4 – DEBT

The Company has available a $4,000,000 revolving line of credit with a commercial bank expiring in 2013.  As described in Note 9, the thirteenth amendment reduced the availability to $2,000,000 and extended the maturity date to May 31, 2016.  At December 31, 2012 and 2011, as per the terms of the tenth amendment to the credit agreement, interest was payable, on amounts drawn, at the 3 month LIBOR rate + 4.25% (4.625% and 4.875% effective rate, respectively).

The bank line of credit contains a subjective acceleration clause and requires the Company to maintain a lock-box with the bank, whereby the Company's customers are required to remit payments directly to the bank and amounts received are applied to reduce the debt outstanding.  As a result of these terms, the bank line of credit, despite an extended maturity date, is considered to be short term debt for financial reporting purposes and has been classified accordingly in the balance sheet.

Long-term debt consists of the following, as amended:

	2012			2011
Note payable in monthly installments of $11,125 plus interest at the 3 month LIBOR rate plus 4.25% (4.625% and 4.875% effective rate at December 31, 2012 and 2011, respectively), with a final balloon payment approximating $508,776 in May 2016	$	909,276		$	1,042,776
		909,276			1,042,776
Current maturities of long-term debt		(133,500	)		(133,500	)
Long-term debt, less current maturities	$	775,776		$	909,276

The bank debt is collateralized by substantially all of the Company’s assets and is subject to financial and other restrictive covenants including maintenance of minimum net worth and cash flow.  In December 2011, the credit agreement was amended to allow for a higher amount of capital expenditures in 2011.  In April 2012, the credit agreement was amended to allow for the payment of previously accrued management fees of $488,000.  As of December 31, 2012, the Company was in compliance with its covenants.

As amended on February 19, 2013, the contractual maturities of the term debt require that the outstanding debt of $909,276 as follows:

2013	$	133,500
2014		133,500
2015		133,500
2016		508,776
	$	909,276

(Continued)

9.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 – INCOME TAX

As of December 31, 2012 and 2011, the principal types of temporary differences that give rise to deferred taxes are net operating loss carry forwards, deductibility of accrued expenses and accumulated depreciation expense.  At December 31, 2012 and 2011, the net deferred tax asset has been presented on the balance sheet as follows:

	2012			2011
Current
Current deferred tax assets	$	75,024		$	72,270
Long-term
Long-term deferred tax assets		1,019,636			1,746,704
Long-term deferred tax liabilities		(151,798	)		(167,435	)
Net long-term deferred tax asset		867,838			1,579,269
Net deferred tax asset		942,862			1,651,539
Valuation allowance		-			(1,651,539	)
Net deferred taxes	$	942,862		$	-

(Benefit from) provision for income taxes consisted of the following at December 31, 2012 and 2011:

	2012			2011
Federal
Current	$	26,425		$	6,455
Deferred		617,820			411,663
		644,245			418,118
State
Current		10,371			7,536
Deferred		90,857			60,539
		101,228			68,075
Decrease in valuation allowance		(1,651,539	)		(472,202	)
(Benefit from) provision for income taxes	$	(906,066	)	$	13,991

(Continued)

10.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 – INCOME TAX, Continued

Activity in the valuation account consisted of the following at December 31, 2012:

Valuation allowance, January 1, 2011	$	2,123,741
Decrease in valuation allowance required for the year ending December 31, 2011		(472,202	)
Valuation allowance, December 31, 2011		1,651,539
Decrease in valuation allowance required for the year ending December 31, 2012		(1,651,539	)
Valuation allowance, December 31, 2012	$	-

At December 31, 2012, the Company had a net operating loss carry forward for tax purposes available to offset future taxable income of approximately $2.6 million. This loss carry forward expires in varying amounts from 2021 through 2029.  Given the past operating earnings, the deferred tax asset related to these operating loss carry forwards has been realized during 2012.  No valuation allowance is recorded as of December 31, 2012.

NOTE 6 – EMPLOYEE BENEFITS

The Company maintains a 401(k) defined-contribution plan for the benefit of substantially all of its employees, which allows for both employee and Company contributions.  The Company’s contribution consists of a discretionary matching contribution of employee contributions, up to 6% of eligible employee compensation.  The Company made no matching contributions to the plan for 2012 and 2011.

NOTE 7 – EXECUTIVE SERVICES AGREEMENT

The Company had entered into an executive services agreement with a corporation owned by the Company’s chairman of the Board of Directors, whereby various management services are purchased for a base fee of $35,333 per month, of which $15,000 was payable monthly while the timing of the payment of the balance is contingent upon the Company meeting certain financial objectives.  The agreement was renegotiated in 2000 to require only the monthly fee of $15,000, with the previously accrued balance payable only upon certain future events, which occurred during 2012.  The accrued management fees at December 31, 2011 of $488,000 were classified as long term, and these amounts were paid in full during 2012.

(Continued)

11.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 7 – EXECUTIVE SERVICES AGREEMENT, Continued

Effective January 1, 2011, the Company entered into an executive services agreement with a corporation owned by certain members of the Company’s Board of Directors, whereby various management services are purchased for an annual fee payable in equal monthly payments.  The annual fee for 2011 was $90,000, as per the terms of the agreement.  The agreement terms also state that the annual fees for years subsequent to 2011 are to be determined by the Company’s Board of Directors, and that additional discretionary fees for special projects of up to 2% of the transaction value are also to be determined by the Company’s Board of Directors.  There were no such discretionary fees incurred by the Company in 2012 or 2011.  The Board of Directors of the Company determined that the annual fee for 2012 should be $120,000, and this amount was paid in full during 2012.  The Board of Directors has also determined that the annual fee for 2013 will be $240,000.

NOTE 8 – CONCENTRATIONS

Net sales to two customers in 2012 and 2011 (defined as a customer who provided in excess of 10% of total revenue) approximated 50% of net sales in 2012 and 39% in 2011.  In addition, approximately 53% and 35% of total accounts receivable were due from these customers at December 31, 2012 and 2011, respectively.

NOTE 9 – SUBSEQUENT EVENTS

On February 19, 2013, the Company executed the thirteenth amendment to the Credit Agreement including the terms of the revolving line of credit and Term debt as described in Note 4.  The amendment changed terms to the financial covenants, extend the maturity date to May 31, 2016, reduced revolving line of credit availability to $2,000,000, removed terms related to minimum interest payments, reduced the effective interest rate and various other term changes.  The interest rate, as amended, is equal to the sum of Daily Three Month LIBOR plus three and one half percent.

(Continued)

12.

EX-99.2

Exhibit 99.2

FTW HOLDINGS, INC.

AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013 and December 31, 2012

FTW HOLDINGS, INC. AND SUBSIDIARY

Fort Wayne, Indiana

CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013 and December 31, 2012

CONTENTS

FINANCIAL STATEMENTS
	INDEPENDENT AUDITOR’S REPORT	1
	CONSOLIDATED BALANCE SHEETS	3
	CONSOLIDATED STATEMENTS OF INCOME	4
	CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	5
	CONSOLIDATED STATEMENTS OF CASH FLOWS	6
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7

INDEPENDENT AUDITOR’S REPORT

Board of Directors

FTW Holdings, Inc. and Subsidiary

Fort Wayne, Indiana

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of FTW Holdings, Inc. and Subsidiary, which comprise the consolidated balance sheet as of December 31, 2012, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

1.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FTW Holdings, Inc. and Subsidiary as of December 31, 2012, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ Crowe Horwath LLP

Fort Wayne, Indiana

March 12, 2013

2.

FTW HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

September 30, 2013 and December 31, 2012

	(UNAUDITED)
	9/30/2013			12/31/2012
ASSETS
Current assets
Cash	$	2,445,416		$	1,104,893
Accounts receivable, net of allowance for doubtful accounts of $27,003 and $16,525 at September 30, 2013 and December 31, 2012, respectively		2,237,954			2,087,721
Inventories		1,667,976			1,761,888
Income tax receivable		-			10,775
Deferred tax asset		96,759			75,024
Prepaid expenses		112,867			20,254
Total current assets		6,560,972			5,060,555
Deferred tax asset		417,063			867,838
Property, plant and equipment, net		2,274,076			2,473,456
Other assets		29,819			-
Total assets	$	9,281,930		$	8,401,849
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of term debt	$	133,500		$	133,500
Accounts payable		1,791,608			1,547,031
Accrued expenses		307,966			241,529
Income tax payable		3,186			-
Total current liabilities		2,236,260			1,922,060
Long-term debt, less current maturities		675,651			775,776
Total liabilities		2,911,911			2,697,836
Shareholders' equity
Common stock, par value $.01 per share,Class A: 4,200 shares authorized, 1,388 shares issued and 1,369 shares outstanding		14			14
Class B: 1,325 shares authorized; 462 shares issued and outstanding		5			5
Treasury stock, at cost, 19 shares		(98,735	)		(98,735	)
Additional paid-in capital		7,281,915			7,281,915
Accumulated deficit		(813,180	)		(1,479,186	)
Total shareholders' equity		6,370,019			5,704,013
Total liabilities and shareholders' equity	$	9,281,930		$	8,401,849

See accompanying notes to consolidated financial statements.

3.

FTW HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

For the period January 1, 2013 through September 30, 2013 and for

the year ended December 31, 2012

	(UNAUDITED)
	Period Ended		Year Ended
	9/30/2013		12/31/2012
Net sales	$	13,075,090	$	17,114,987
Cost of goods sold		11,002,777		14,163,711
Gross profit		2,072,313		2,951,276
Operating expenses		938,904		991,192
Operating income, before interest expense		1,133,409		1,960,084
Interest expense		27,338		108,000
Income before income taxes		1,106,071		1,852,084
Provision for (benefit from) income taxes		440,065		(906,066	)
Net income	$	666,006	$	2,758,150

See accompanying notes to consolidated financial statements.

4.

FTW HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the period January 1, 2013 through September 30, 2013 (UNAUDITED) and for

the year ended December 31, 2012

	Common Stock									Treasury Stock
	Class A					Class B
	Number					Number				Number					Additional
	of					of				of					Paid-in		Accumulated
	Shares					Shares				Shares					Capital		Deficit			Total
Balances, January 1, 2012		1,387		$	14		462	$	5		1	$	(41,200	)	$	7,281,915	$	(4,237,336	)	$	3,003,398
Treasury stock purchase		(18	)		-		-		-		18		(57,535	)		-		-			(57,535	)
Net income		-			-		-		-		-		-			-		2,758,150			2,758,150
Balances, December 31, 2012		1,369			14		462		5		19		(98,735	)		7,281,915		(1,479,186	)		5,704,013
Net income		-			-		-		-		-		-			-		666,006			666,006
Balances, September 30, 2013		1,369		$	14		462	$	5		19	$	(98,735	)	$	7,281,915	$	(813,180	)	$	6,370,019

See accompanying notes to consolidated financial statements.

5.

FTW HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the period January 1, 2013 through September 30, 2013 and for

the year ended December 31, 2012

	(UNAUDITED)
	Period Ended			Year Ended
	9/30/2013			12/31/2012
Cash flows from operating activities
Net income	$	666,006		$	2,758,150
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		277,983			362,149
Deferred income taxes		429,040			(942,862	)
Changes in operating assets and liabilities
Accounts receivable		(150,233	)		(23,552	)
Inventories		93,912			(832,669	)
Prepaid expenses and other assets		(122,432	)		1,172
Income tax receivable/payable		13,961			(10,775	)
Accounts payable		244,577			535,507
Accrued expenses		66,437			(452,764	)
Net cash provided by operating activities		1,519,251			1,394,356
Cash flows from investing activities
Purchases of property and equipment		(78,603	)		(109,822	)
Proceeds from disposal of property and equipment		-			1,820
Net cash used for investing activities		(78,603	)		(108,002	)
Cash flows from financing activities
Proceeds from line of credit		-			13,156,369
Payments on line of credit		-			(13,156,369	)
Payments on long-term debt		(100,125	)		(133,500	)
Purchase of shares for treasury		-			(57,535	)
Net cash used for financing activities		(100,125	)		(191,035	)
Net increase in cash		1,340,523			1,095,319
Cash, beginning of period		1,104,893			9,574
Cash, end of period	$	2,445,416		$	1,104,893
Supplemental cash flow information:
Cash paid for interest	$	33,541		$	108,000
Cash paid for taxes		7,839			47,571

See accompanying notes to consolidated financial statements.

6.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013 and December 31, 2012

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations:  FTW Holdings, Inc. and Subsidiary (the Company) is engaged in the manufacture and sale of plastic and structural foam products to customers located in the United States of America.

Principles of Consolidation:  The consolidated financial statements include the accounts of FTW Holdings, Inc. and its wholly owned subsidiary, Fort Wayne Plastics, Inc. All material intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.  These estimates include the allowance for doubtful accounts, inventory obsolescence reserve, estimated useful lives of property, plant and equipment, deferred tax valuation allowance, and accrued property tax liabilities.  Actual results could differ from those estimates.

Inventories:  Inventories are valued at the lower of cost, first-in, first-out, (FIFO) method, or market.

Revenue Recognition and Accounts Receivable:  Revenue from the sale of the Company’s products is generally recognized as products are shipped to customers.  The Company sells to customers using credit terms customary in its industry.  From time to time, the Company sells to customers under bill and hold arrangements, in which revenue is recognized prior to shipment of the Company’s products.  Bill and hold revenue is only recognized when there is a signed agreement with the customer for the bill and hold transaction, the buyer has assumed the risks and rewards of ownership of the products, the products are ready for delivery, and it is probable that delivery will be made.  Interest is not normally charged on receivables.  Management establishes a reserve for losses on its accounts based on historic loss experience and current economic conditions.  Losses are charged against the reserve when management deems further collection efforts will not produce additional recoveries.

Property, Plant, and Equipment:  Property, plant and equipment are carried at cost.  The Company provides for depreciation using annual rates, which are sufficient to amortize the costs of depreciable assets over their estimated useful lives.  Depreciation is computed using straight-line and accelerated methods over estimated useful lives ranging from 3 to 25 years.  When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs is charged to operations as incurred; significant renewals and improvements are capitalized.

Income Taxes:  Deferred income taxes are recognized for the tax consequences in future years for differences between the tax basis and financial reporting basis of the Company’s assets and liabilities.  At January 1, 2012, the Company’s net deferred tax asset related to future periods was fully offset by a valuation allowance.  During 2012, the Company reversed the valuation allowance based upon strong financial performance and forecasted future results.  At September 30, 2013 and December 31, 2012, no valuation allowance was recorded – see Note 5.

The Company follows guidance issued by the Financial Accounting Standards Board (FASB) with respect to accounting for uncertainty in income taxes.  A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

(Continued)

7.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013 and December 31, 2012

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

The Company and its subsidiary are subject to U.S. federal income tax as well as income tax in the state of Indiana.  The Company is no longer subject to examination by taxing authorities for years before 2010.  The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.

The Company recognizes interest and/or penalties related to income tax matters in operating expenses.  The Company did not have any amounts accrued for interest and penalties at September 30, 2013 or December 31, 2012.

Treasury Stock:  Treasury stock is recorded at cost and consists of shares of Class A common stock.

Subsequent Events:Management has performed an analysis of the activities and transactions subsequent to September 30, 2013 to determine the need for any adjustments to and/or disclosures within the financial statements for the period ended September 30, 2013.  Management has performed their analysis through May 2, 2014, which is the date the financial statements were available to be issued.

NOTE 2 - INVENTORIES

Inventories consist of the following:

	9/30/2013			12/31/2012
Finished products	$	788,443		$	657,290
Raw materials and packaging		1,010,994			1,204,309
		1,799,437			1,861,599
Less inventory reserves		(131,461	)		(99,711	)
Total inventories	$	1,667,976		$	1,761,888

NOTE 3 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	9/30/2013			12/31/2012
Land	$	284,714		$	284,714
Construction in process		33,391			-
Building		3,117,539			3,117,539
Equipment		9,676,792			9,631,580
		13,112,436			13,033,833
Less accumulated depreciation		(10,838,360	)		(10,560,377	)
Property, plant and equipment, net	$	2,274,076		$	2,473,456

(Continued)

8.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013 and December 31, 2012

NOTE 4 – DEBT

The Company has available a $4,000,000 revolving line of credit with a commercial bank that was originally set to expire during 2013.  On February 19, 2013, the Company executed the thirteenth amendment to the Credit Agreement, amending the terms of the revolving line of credit and Term debt as described below.  The amendment changed terms to the financial covenants, extended the maturity date to May 31, 2016, reduced the revolving line of credit availability to $2,000,000, subjected the line of credit to a 60 day notification period, removed terms related to minimum interest payments, reduced the effective interest rate and various other term changes.  The interest rate, as amended, is equal to the sum of Daily Three Month LIBOR plus three and one half percent.  At December 31, 2012, as per the terms of the tenth amendment to the credit agreement, interest was payable, on amounts drawn, at the 3 month LIBOR rate plus four and one quarter percent.  The effective interest rate was 3.75% and 4.63% at September 30, 2013 and December 31, 2012, respectively.  There were no outstanding balances on the revolving line of credit at September 30, 2013 and December 31, 2012.

Long-term debt consists of the following:

	9/30/2013			12/31/2012
Note payable in monthly installments of $11,125 plus interest at the 3 month LIBOR rate plus 3.50% and 4.25% at September 30, 2013 and December 31, 2012, respectively (effective rate of 3.75% and 4.63%, respectively), with a final balloon payment approximating $464,276 in May 2016	$	809,151		$	909,276
		809,151			909,276
Current maturities of long-term debt		(133,500	)		(133,500	)
Long-term debt, less current maturities	$	675,651		$	775,776

The bank debt is collateralized by substantially all of the Company’s assets and is subject to financial and other restrictive covenants including capital expenditures and cash flow.  In April 2012, the credit agreement was amended to allow for the payment of previously accrued management fees of $488,000, which were paid in full at that time.  As of September 30, 2013, the Company was in compliance with its covenants.

The contractual maturities of term debt at September 30, 2013 are as follows:

2014	$	133,500
2015		133,500
2016		542,151
	$	809,151

(Continued)

9.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013 and December 31, 2012

NOTE 5 – INCOME TAX

As of September 30, 2013 and December 31, 2012, the principal types of temporary differences that give rise to deferred taxes are net operating loss carry forwards, deductibility of accrued expenses and accumulated depreciation expense.  At September 30, 2013 and December 31, 2012, the net deferred tax asset has been presented on the balance sheet as follows:

	9/30/2013			12/31/2012
Current
Current deferred tax assets	$	96,759		$	75,024
Long-term
Long-term deferred tax assets		540,363			1,019,636
Long-term deferred tax liabilities		(123,300	)		(151,798	)
Net long-term deferred tax asset		417,063			867,838
Net deferred tax asset	$	513,822		$	942,862

Provision for (benefit from) income taxes consisted of the following at September 30, 2013 and December 31, 2012:

	9/30/2013		12/31/2012
Federal
Current	$	16,536	$	26,425
Deferred		359,370		617,820
		375,906		644,245
State
Current		9,154		10,371
Deferred		55,005		90,857
		64,159		101,228
Decrease in valuation allowance		-		(1,651,539	)
Provision for (benefit from) income taxes	$	440,065	$	(906,066	)

(Continued)

10.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013 and December 31, 2012

NOTE 5 – INCOME TAX, Continued

At September 30, 2013 and December 31, 2012, the Company had a net operating loss carry forward for tax purposes available to offset future taxable income of approximately $1.4 million and $2.6 million, respectively. This loss carry forward expires in varying amounts from 2021 through 2029.  Given the past operating earnings and future expected earnings, no valuation allowance was recorded as of September 30, 2013 and December 31, 2012.

NOTE 6 – EMPLOYEE BENEFITS

The Company maintains a 401(k) defined-contribution plan for the benefit of substantially all of its employees, which allows for both employee and Company contributions.  The Company’s contribution consists of a discretionary matching contribution of employee contributions, up to 6% of eligible employee compensation.  The Company made no matching contributions to the plan for the period January 1, 2013 through September 30, 2013 and for the year ended December 31, 2012.

NOTE 7 – EXECUTIVE SERVICES AGREEMENT

The Company had entered into an executive services agreement with a corporation owned by the Company’s chairman of the Board of Directors, whereby various management services are purchased for a base fee of $35,333 per month, of which $15,000 was payable monthly while the timing of the payment of the balance is contingent upon the Company meeting certain financial objectives.  The agreement was renegotiated in 2000 to require only the monthly fee of $15,000, with the previously accrued balance payable only upon certain future events, which occurred during 2012, and the total accrued management fees of $488,000 were paid during 2012.

Effective January 1, 2011, the Company entered into an executive services agreement with a corporation owned by certain members of the Company’s Board of Directors, whereby various management services are purchased for an annual fee payable in equal monthly payments.  The agreement terms state that the annual fees for years subsequent to 2011 are to be determined by the Company’s Board of Directors, and that additional discretionary fees for special projects of up to 2% of the transaction value are also to be determined by the Company’s Board of Directors.  There were no such discretionary fees incurred by the Company during the period January 1, 2013 through September 30, 2013 and for the year ended December 31, 2012.  The Board of Directors of the Company determined that the annual fee for 2012 should be $120,000, and this amount was paid in full during 2012.  The Board of Directors also determined that the annual fee for 2013 should be $240,000, and $180,000 of this amount was paid during the period January 1, 2013 through September 30, 2013.

NOTE 8 – CONCENTRATIONS

Net sales to three customers during the period January 1, 2013 through September 30, 2013 and two customers for the year ended December 31, 2013 (defined as a customer who provided in excess of 10% of total revenue) approximated 41% and 50% of net sales, respectively.  In addition, approximately 28% and 53% of total accounts receivable were due from these customers at September 30, 2013 and December 31, 2012, respectively.

(Continued)

11.

FTW HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013 and December 31, 2012

NOTE 9 – SUBSEQUENT EVENTS

On February 19, 2014, the Company entered into a Stock Purchase Agreement with Continental Commercial Products, LLC (CCP), a subsidiary of Katy Industries, a publicly-traded company, in which CCP acquired all of the common stock of the Company for cash.

(Continued)

12.

EX-99.3

Exhibit 99.3

The unaudited pro forma condensed consolidated financial statements are based on the historical financial statements of Katy Industries, Inc. (the “Company”) and Fort Wayne Holdings, Inc. (“FTW”) after giving effect to the cash paid by the Company to consummate the FTW acquisition, as well as certain pro forma adjustments.

The unaudited pro forma condensed consolidated balance sheet data assumes that the acquisition of FTW occurred on September 27, 2013. The pro forma condensed consolidated balance sheet combines the historical balances of the Company as of September 27, 2013 with the historical balances of FTW as of September 30, 2013, plus pro forma adjustments.

The unaudited pro forma condensed consolidated statements of operations assumes that the acquisition of FTW occurred on January 1, 2012. As the Company has a fiscal year ending on December 31 and FTW had a fiscal year ending on December 31, the pro forma condensed consolidated financial statements include a pro forma statement of operations combining the historical results of the Company for the year ended December 31, 2012 with the historical results of FTW for the year ended December 31, 2012, plus pro forma adjustments.  In addition, they include a pro forma statement of operations combining the historical results of the Company for the nine months ended September 27, 2013 with the historical results of FTW for the nine months ended September 30, 2013, plus pro forma adjustments.

The unaudited pro forma condensed consolidated financial statements assume that the acquisition is accounted for in accordance with generally accepted accounting principles for business combinations and represents the current pro forma information based upon available information of the combining companies' results of operations during the periods presented.

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to be indicative of the results of operations or financial position for future periods or the results that actually would have been realized had the acquisition described above been consummated as of September 27, 2013 or January 1, 2012.

1

KATY INDUSTRIES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

SEPTEMBER 27, 2013

 (Amounts in Thousands)

(Unaudited)

ASSETS

	Historical			Historical			Pro Forma				Pro Forma
	KATY			FTW			Adjustments				Combined
							(Note 2)
CURRENT ASSETS:
Cash	$	1,062		$	2,445		$	(2,445	)	A	$	1,062
Accounts receivable, net		8,666			2,238			-				10,904
Inventories, net		11,385			1,668			171		B		13,224
Other current assets		681			209			(56	)	C		834
Assets held for sale		74			-			-				74
Total current assets		21,868			6,560			(2,330	)			26,098
Goodwill		-			-			2,788		F,N		2,788
Tradenames		-			-			306		E		306
Customer relationships		-			-			3,760		E		3,760
Other assets		1,617			447			226		D,G		2,290
Total other assets		1,617			447			7,080				9,144
PROPERTY AND EQUIPMENT
Land and improvements		251			285			-				536
Buildings and improvements		3,084			3,151			2,150		I		8,385
Machinery and equipment		52,145			9,677			5		I		61,827
		55,480			13,113			2,155				70,748
Less - Accumulated depreciation		(48,210	)		(10,838	)		(81	)	K		(59,129	)
Property and equipment, net		7,270			2,275			2,074				11,619
Total assets	$	30,755		$	9,282		$	6,824			$	46,861

See accompanying notes to unaudited proforma condensed consolidated financial statements.

2

KATY INDUSTRIES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

SEPTEMBER 27, 2013

 (Amounts in Thousands)

(Unaudited)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	Historical			Historical			Pro Forma				Pro Forma
	KATY			FTW			Adjustments				Combined
							(Note 2)
CURRENT LIABILITIES:
Accounts payable	$	6,710		$	1,792		$	-			$	8,502
Book overdraft		190			-			-				190
Accrued compensation		1,277			-			-				1,277
Accrued expenses		8,221			310			-				8,531
Payable to related party		2,625			-			-				2,625
Deferred revenue		186			-			-				186
Current maturities of long-term debt		-			134			(134	)	G		-
Revolving credit agreement		8,710			-			11,564		G		20,274
Total current liabilities		27,919			2,236			11,430				41,585
DEFERRED REVENUE		356			-			-				356
OTHER LIABILITIES:
Long-term debt, less current maturities		-			676			(676	)	G		-
Deferred tax liability		-			-			122		N		122
Other Liabilities		5,602			-			-				5,602
Total noncurrent liabilities		5,602			676			(554	)			5,724
Total liabilities		33,877			2,912			10,876				47,665
STOCKHOLDERS’ EQUITY
Preferred stock		108,256			-			-				108,256
Common stock		9,822			-			-				9,822
Additional paid-in capital		27,110			7,282			(7,282	)	H		27,110
Accumulated other comprehensive loss		(2,473	)		-			-				(2,473	)
Accumulated deficit		(124,400	)		(813	)		3,131		H,N		(122,082	)
Treasury stock		(21,437	)		(99	)		99		H		(21,437	)
Total stockholders' equity		(3,122	)		6,370			(4,052	)			(804	)
Total liabilities and stockholders' equity	$	30,755		$	9,282		$	6,824			$	46,861

See accompanying notes to unaudited proforma condensed consolidated financial statements.

3

KATY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 27, 2013

(Amounts in Thousands)

(Unaudited)

	Historical			Historical			Pro Forma				Pro Forma
	KATY			FTW			Adjustments				Combined
							(Note 2)
Net sales	$	59,817		$	13,075		$	-			$	72,892
Cost of goods sold		50,364			11,003			81		K		61,448
Gross profit		9,453			2,072			(81	)			11,444
Selling, general and administrative expenses		9,236			939			141		J		10,316
Severance, restructuring and related charges		321			-			-				321
Loss on disposal of assets		230			-			-				230
Operating (loss) income		(334	)		1,133			(222	)			577
Interest expense		(678	)		(27	)		(403	)	L		(1,108	)
Other, net		137			-			-				137
(Loss) income from continuing operations before income tax expense		(875	)		1,106			(625	)			(394	)
Income tax (benefit) expense from continuing operations		(17	)		(440	)		440		M		(17	)
(Loss) income from continuing operations		(892	)		666			(185	)			(411	)
Income from operations of discontinued businesses (net of tax)		373			-			-				373
Net (loss) Income	$	(519	)	$	666		$	(185	)		$	(38	)
Loss (income) per share of common stock - Basic and Diluted:	$	(0.07	)								$	(0.00	)
Weighted average common shares outstanding:
Basic and diluted		7,951										7,951

See accompanying notes to unaudited proforma condensed consolidated financial statements.

4

KATY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2012

(Amounts in Thousands)

(Unaudited)

	Historical			Historical			Pro Forma				Pro Forma
	KATY			FTW			Adjustments				Combined
							(Note 2)
Net sales	$	80,315		$	17,115		$	-			$	97,430
Cost of goods sold		68,060			14,164			108		K		82,332
Gross profit		12,255			2,951			(108	)			15,098
Selling, general and administrative expenses		15,224			991			188		J		16,403
Impairment of long-lived assets		1,934			-			-				1,934
Operating (loss) income		(4,903	)		1,960			(296	)			(3,239	)
Interest expense		(730	)		(108	)		(465	)	L		(1,303	)
Other, net		279			-			-				279
(Loss) income from continuing operations before income tax expense		(5,354	)		1,852			(761	)			(4,263	)
Income tax (benefit) expense from continuing operations		(19	)		906			(996	)	M		(109	)
(Loss) income from continuing operations		(5,373	)		2,758			(1,757	)			(4,372	)
Loss from operations of discontinued businesses (net of tax)		(9,453	)		-			-				(9,453	)
Loss on sale of discontinued business (net of tax)		(280	)		-			-				(280	)
Net (loss) income	$	(15,106	)	$	2,758		$	(1,757	)		$	(14,105	)
(Loss) income per share of common stock - Basic and Diluted:	$	(1.90	)								$	(1.77	)
Weighted average common shares outstanding:
Basic and diluted		7,951										7,951

See accompanying notes to unaudited proforma condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.  Purchase Price Allocation

The purchase price was $11.5 million in cash, subject to certain pre-closing and post-closing purchase price adjustments described in the Stock Purchase Agreement dated January 24, 2014 (the “Purchase Agreement”) by and between Continental Commercial Products, LLC, a wholly-owned subsidiary of the Company, FTW, the shareholders of FTW, and Fort Wayne Plastics, Inc. a wholly-owned subsidiary of FTW. The purchase price was funded primarily by monies borrowed under a new credit agreement.

The purchase price was allocated to FTW tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values as of the acquisition date. The excess of the purchase price over the net tangible and identifiable intangible assets will be recorded as goodwill. The purchase price was allocated as follows:

(Amounts in thousands)

Current assets	$	3,076
Property and equipment		4,349
Intangible assets		4,066
Goodwill		2,788
Total Assets Acquried		14,279
Deferred tax liabilities		(2,440	)
Total liabilities assumed		(833	)
Net assets acquired	$	11,006

Cash and other net tangible assets/liabilities: Cash and other net tangible assets and liabilities were recorded at their respective carrying amounts for the purpose of these unaudited pro forma condensed consolidated statements. It was assumed that these carrying values approximate their fair values.

Property and equipment: Property and equipment were recorded based on independent third party appraisals.

Goodwill: Goodwill represents the excess of the purchase price over the estimated fair value of tangible and identifiable intangible net assets acquired.

Identifiable intangible assets: Identifiable intangible assets acquired include customer relationships and tradenames.

Note 2.  Pro Forma Adjustments

The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial statements (amounts in thousands):

A. Represents the elimination of FTW's existing cash balances which were withdrawn by former ownership prior to closing.

B. To record step-up in finished goods inventory to reflect estimated fair value at the assumed transaction date.

C. To eliminate FTW's prepaid balances related to the transaction and current deferred tax assets.

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D. To eliminate FTW's historical debt issuance costs and long-term deferred tax assets.

E. To record the preliminary valuation of identifiable intangible assets related to the acquisition of FTW.

			Estimated Useful Life
Acquired customer-based intangible assets	$	3,760	20 years
Acquired tradenames		306		*
Total	$	4,066

* Acquired tradenames are assumed to have an indefinite life.

F. To record the valuation of goodwill related to the acquisition of FTW.

G. To record debt acquisition costs of approximately $672, to record the acquisition of debt related to the transaction of $11,006 and eliminate FTW’s historical debt of $810 that was liquidated at closing.

H. To eliminate FTW's historical equity balances.

I. To record step-up in building and equipment to reflect estimated fair value at the assumed transaction date.

J. To record the estimated amortization expense related to the identifiable intangible assets recognized upon the acquisition of FTW.

	Year Ended 12/31/2012		Nine Months Ended 9/27/2013
Estimated amortization on acquired intangible assets	$	188	$	141

K. To record the estimated depreciation expense related to the step-up in building and equipment recognized upon the acquisition of FTW.

L. To record estimated interest expense from debt issued and the amortization of debt acquisition costs. These amounts were estimated using the interest rates in effect at the inception of the loans.

M. To record the estimated income tax effect of the acquisition had FTW and the Company filed a consolidated return.

N. To record the deferred tax liability related to the acquisition of FTW and corresponding decrease in the reserve allowance against the Company’s deferred tax assets.

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