8-K/A 1 dpi-8ka_05142001.txt CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15 (d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 14, 2001 DIVERSIFIED PRODUCT INSPECTIONS, INC. ---------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 000-25429 65-0832025 ------------------------------ ---------------- -------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) file number) Identification No.) 3 Main Street Oak Ridge, TN 37830 ----------------------------------------- --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (865) 482-8480 N/A ------------------------------------------------------------------------------ (Former name or former address, if changes since last report) Copy of Communications to: Donald F. Mintmire Mintmire & Associates 265 Sunrise Avenue, Suite 204 Palm Beach, FL 33480 (561) 832-5696 ITEM 5. OTHER EVENTS This Form 8-K/A amends the Form 8-K filed on March 6, 2001 by Diversified Product Inspections, Inc., a Florida corporation formerly known as Fairfax Group, Inc. The purpose of this amendment to Form 8-K is to provide financial statements and the pro forma financial information for Diversified Product Investigations, Inc.., a Florida corporation, as required by Item 7 of Form 8-K. The Agreement for the Exchange of Common Stock dated March 6, 2001, provided that issued and outstanding stock after effecting the Agreement was 12,277,420. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of business acquired. Pursuant to the requirements of Regulation S-X 210.3.05(b), the following are audited financial statements of Diversified Product Investigations, Inc., a Florida corporation, for the two years ended December 31, 2000. The registrant acquired all of the outstanding capital stock of such entity on March 6, 2001. (b) Pro Forma financial statements as if the reverse merger had occured on January 1, 2000. Financial Statements Diversified Product Investigations, Inc. Years ended December 31, 2000 and 1999 with Report of Independent Auditors Diversified Product Investigations, Inc. Financial Statements Years ended December 31, 2000 and 1999 Contents Report of Independent Auditors...............................................F-1 Audited Financial Statements Balance Sheets...............................................................F-2 Statements of Operations.....................................................F-4 Statements of Stockholders' Equity...........................................F-5 Statements of Cash Flows.....................................................F-6 Notes to Financial Statements................................................F-8 Report of Independent Auditors The Board of Directors Diversified Product Investigations, Inc. We have audited the accompanying balance sheet of Diversified Product Investigations, Inc. (formerly known as Diversified Product Inspections, Inc.) as of December 31, 2000, and the related statements of operations, stockholders' equity 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 these financial statements based on our audit. The financial statements of Diversified Product Inspections, Inc. for the year ended December 31, 1999, were audited by other auditors whose report dated May 10, 2000, expressed an unqualified opinion on those statements, along with an explanatory paragraph describing conditions that raised substantial doubt about the Company's ability to continue as a going concern. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Diversified Product Investigations, Inc. at December 31, 2000, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 8, the Company's recurring losses and limited capital resources raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Coulter & Justus, P.C. March 20, 2001 Knoxville, TN

See accompanying Notes to Financial Statements.

See accompanying Notes to Financial Statements.

See accompanying Notes to Financial Statements.

See accompanying Notes to Financial Statements.

See accompanying Notes to Financial Statements. Diversified Product Investigations, Inc. Notes to Financial Statements December 31, 2000 1. Accounting Policies Description of Business Diversified Product Investigations, Inc. ("the Company"), formerly known as Diversified Product Inspections, Inc., specializes in conducting investigations and laboratory analysis of a wide variety of products to determine the "cause and origin" of product failures. The Company's primary customers consist of national insurance companies that are interested in subrogating claims to recover losses. Subrogation is a legal principle, which provides that, to the extent an insurer has paid for a loss, the insurer receives the policyholder's right to recover from any third party that caused the loss. The Company has accumulated a large database of known defective products that includes photos and other documentation that are used in their investigations. Additionally, the Company provides for the storage of evidence and derives revenues from the safe storage of materials. Approximately 61% and 40% of 2000 and 1999 revenues, respectively, were derived from the Company's three largest customers. Accounts Receivable Two customers account for approximately 53% of accounts receivable at December 31, 2000. It is the Company's policy not to require collateral on accounts receivable. Property and Equipment Property and equipment are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimates The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Reclassifications Certain 1999 amounts have been reclassified to conform to 2000 classifications. 2. Reorganization During March 2000, the Company entered into a stock exchange agreement with Shoe Krazy, Inc. ("Shoe Krazy") in which Shoe Krazy issued 9,241,900 shares of common stock to acquire all of the issued and outstanding shares of the common stock of the Company. As Shoe Krazy was essentially a shell company, this reorganization was considered a reverse acquisition. During February 2001, both companies entered into a separate agreement to void, cancel and terminate the original stock exchange agreement and restore all parties to their position prior to the original agreement being executed. Accordingly, these financial statements are presented as if the original stock exchange agreement never occurred. Diversified Product Investigations, Inc. Notes to Financial Statements (continued) 3. Company Stock During 2000, the Company sold 325,920 shares of stock to various individuals and companies. As part of the stock purchase agreement, one of the new stockholders obtained stock warrants which allow for the purchase of 12,500 shares of common stock of the Company at a price of $0.01 per share. These warrants expire on July 13, 2003. Additionally, another new stockholder obtained stock warrants which allow for the purchase of 50,000 shares of common stock at a price of $0.0001 per share. These warrants expires on December 11, 2003. At December 31, 1999, the Company had accrued salaries to the shareholders of $298,275. During 2000, the Company converted these accrued salaries, along with additional salary expenses for 2000 of $64,656, into 362,931 shares of common stock of the Company. On October 1, 2000, the Company entered into a one-year employment agreement with a key employee in which this employee earns 6,250 shares of common stock per month, in lieu of salary. During 2000, the Company recognized salary expense of $18,750 and issued 18,750 shares of common stock related to this arrangement. Additionally, during 2000, the Company entered into an arrangement with another key employee in which this employee earns 5,000 shares of common stock per year for five years, at which time the employee will receive an additional 50,000 shares. During 2000, the Company recognized salary expense of $5,000 and issued 5,000 shares of common stock related to this arrangement. 4. Long-Term Debt and Line of Credit Long-term debt is summarized as follows:

Diversified Product Investigations, Inc. Notes to Financial Statements (continued) 4. Long-Term Debt and Line of Credit (continued) Aggregate maturities of long-term debt as of December 31, 2000, are as follows: 2001 $15,717 2002 15,731 2003 16,111 2004 12,115 2005 10,532 $70,206 ---------

The Company utilizes two credit cards with financial institutions as lines of credit. One of the credit cards has a limit of $50,000 and bears interest at an annual rate of 12.5% as of December 31, 2000. The balance was $49,388 and $21,585 at December 31, 2000 and 1999, respectively. The second credit card has a limit of $27,500 and bears interest at an annual rate of 25.68%. This balance was $23,704 and $5,805 at December 31, 2000 and 1999, respectively. Both of these lines of credit are unsecured and require minimum monthly payments. 5. Lease Obligations The Company leases certain equipment under agreements which are classified as capital leases. These agreements expire in 2002 and 2003. The Company also leases their office and warehouse, along with certain equipment, under agreements classified as operating leases. The Company has an agreement with the office and warehouse lessor in which the Company is obligated to purchase the office and warehouse if the Company receives $3,000,000 in proceeds from a private placement offering. The purchase price will range from between $1,450,000 and $1,607,640, depending on the year the purchase takes place. This purchase obligation expires on December 31, 2004. Future minimum payments for leases, by year and in the aggregate, consist of the following as of December 31, 2000:

Diversified Product Investigations, Inc. Notes to Financial Statements (continued) 1. Lease Obligations (continued) Property and equipment includes the following amounts for capital leases: December 31 2000 1999 --------------- --------------- Equipment $44,075 $10,514 Less accumulated amortization 14,580 1,752 $29,495 $ 8,762 --------------- --------------- Amortization of these assets, computed by the straight-line method over the lesser of the life of the asset or the term of the lease, is included in depreciation and amortization expense. 6. Income Taxes For tax purposes the Company has net operating loss ("NOL") carryovers totaling approximately $545,000 which are available to offset future taxable income. The NOL carryovers expire primarily in 2020. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

The valuation allowance was increased by $167,238 in 2000 and $2,431 in 1999 due to increases in deferred tax assets for which realization was not assured. 7. Subsequent Events During March 2001, the Company entered into a reorganization agreement with a Fairfax Group, Inc. ("Fairfax"), essentially a shell company, in which the Company exchanged all of its issued andoutstanding shares of common stock for 10,327,420 shares of Fairfax stock. The reorganization is being treated as a reverse acquisition. Diversified Product Investigations, Inc. Notes to Financial Statements (continued) 7. Subsequent Events (continued) Also during March 2001, the Company entered into an agreement for the purchase of $48,500 in equipment. As part of this agreement, the Company also agreed to a one-year maintenance contract on this equipment at a cost of $1,875 per month. 8. Going Concern The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company had net losses of $590,519 and $13,469 in 2000 and 1999, respectively. This factor, among others, may indicate the Company will be unable to continue as a going concern for a reasonable period of time. Management recognizes the Company must return to profitable operations and generate additional funds in order to continue as a going concern. The Company successfully raised capital during 2000 to fund its operations and as part of its reorganization with Fairfax, the Company anticipates raising additional capital through private placement offerings. Independent Auditor's Report We have audited the accompanying balance sheet of DIVERSIFIED PRODUCT INVESTIGATIONS, INC. as of December 31, 1999 and the related statements of operations, changes in stockholders' equity, 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 these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. 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, in a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DIVERSIFIED PRODUCT INVESTIGATIONS, INC. as of December 31, 1999 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying financial statements for 1999 have been prepared assuming that the Company will continue as a going concern. As discussed in note 6, the Company's recurring losses from operations and limited capital resources raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters is also described in note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Frank L. Sassetti & Co. May 10, 2000 Oak Park, IL Fairfax Group, Inc. Pro Forma Financial Information Basis of Presentation On March 6, 2001, Fairfax Group, Inc. (the "Company") entered into a Share Exchange Agreement with Diversified Product Investigations, Inc. ("DPI"), a Florida corporation, in which the Company exchanged 10,327,420 shares of common stock for all of the outstanding stock of DPI. The business combination is a reverse merger, accounted for as a recapitalization of DPI. The accompanying unaudited pro forma condensed financial statements includes the Company and DPI. The financial statements of the Company as of December 31, 2000 have not been audited but, in the opinion of management, reflect all adjustments necessary to present fairly the condensed December 31, 2000 balance sheet. The financial statements used in the pro forma information for DPI include the audited balance sheet as of December 31, 2000 and the audited statements of operations for the years ended December 31, 2000 and 1999. These condensed pro forma financial statements should be read in conjunction with the audited financial statements and related notes for DPI. Pro Forma Condensed Financial Data The unaudited pro forma condensed balance sheet of the Company as of December 31, 2000 is based on the historical balance sheets of the Company and DPI and is presented as if the reverse merger had occurred on December 31, 2000. The pro forma information is not necessarily indicative of the financial position that would have been reported had such events actually occurred on the date specified, nor is indicative of the Company's future. The unaudited pro forma condensed statements of operations of DPI are the historical financial statements of DPI. The pro forma information is not necessarily indicative of the results of operations that would have been reported had such events actually occurred on the dates specified, nor is indicative of the Company's future.

The following adjustments were made to the unaudited pro forma condensed balance sheet: (1) Represents the reclassification of the shareholder note payable to additional paid-in capital. (2) Represents the adjustment to record the reverse merger.

SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DIVERSIFIED PRODUCT INSPECTIONS, INC. (Registrant) Dated: May 14, 2001 By: /s/ John Van Zyll -------------------------------------------- John Van Zyll, President

GENERAL CONSUMER PRODUCTS INC /FL/ 8-K/A