-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FTpsWhyyEHS5L5ZYXheoGE+f6+rzigMV9rzVGk8U8R43NZ8BBUY1k9cdFarLR5sJ r7N3ya4ktGm9+wGYiVJ3jQ== 0000950124-97-000097.txt : 19970109 0000950124-97-000097.hdr.sgml : 19970109 ACCESSION NUMBER: 0000950124-97-000097 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961030 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970108 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERSA TECHNOLOGIES INC CENTRAL INDEX KEY: 0000320357 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 391143618 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05240 FILM NUMBER: 97502635 BUSINESS ADDRESS: STREET 1: P O BOX 085012 CITY: RACINE STATE: WI ZIP: 53406-5012 BUSINESS PHONE: 4148861174 MAIL ADDRESS: STREET 1: 9301 WASHINGTON AVE STREET 2: P.O. BOX 085012 CITY: RACINE STATE: WI ZIP: 53406-5012 8-K 1 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ***************** Date of Report (Date of earliest event reported): October 30, 1996 VERSA TECHNOLOGIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 9-5240 39-1143618 - ------------------------------- ------------------------ ------------------- (State or other jurisdiction of (Commission file number) (I.R.S. Employer incorporation or organization) Identification No.) 9301 Washington Avenue, Racine, Wisconsin 53406 - ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 414/886-1174 ---------------------- 2 FORM 8-K 01/08/97 ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS As previously reported under Item 5 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (the "Form 10-Q"), the Company acquired 100% of the capital stock of Eder Industries, Inc. ("Eder") effective October 30, 1996 for $15,382,000. The stock was acquired from Richard H. Marks, Susan Marks and M & I Venture Corporation. The funds used to acquire Eder were borrowed ($4.8 million) under a revolving business note agreement with the M&I Marshall & Ilsley Bank, with the balance ($10.6 million) coming from the sale of short term cash investments. Eder, a privately held company, headquartered in Oak Creek, Wisconsin, designs and manufactures custom electronic products for original equipment manufacturers. Through their diversified customer base, Eder's electronics are used in a broad range of applications, including high quality electronics for material handling equipment, machine control, factory automation, fire control systems, power generation and control, fluid control systems, and computer-based instruments for medical applications. Eder had sales of $18,600,000 for their fiscal year ended August 31, 1996. The company employs 180 people at two manufacturing plants located in Oak Creek, Wisconsin and Milwaukee, Wisconsin. Richard H. Marks, president of Eder, will continue as president of the company under the terms of a three year employment agreement. Eder will operate as a separate subsidiary of the Company. For additional information regarding the acquisition, reference is made to the Stock Purchase Agreement, and the Employment Agreement, copies of which were filed as Exhibits 2 & 10, respectively, to the Form 10-Q, both of which are here by incorporated by reference. ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired The Financial Statements and Report of Eder Industries Inc. for the fiscal years ended August 31, 1996 and 1995 are included herewith as Exhibit 99.1. 2 3 FORM 8-K 01/08/97 (b) Pro Forma Financial Information CONSOLIDATED PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited consolidated pro forma condensed balance sheet combines the consolidated condensed balance sheet of Versa Technologies, Inc. ("Versa/Tek") as of September 30, 1996 and the condensed balance sheet of Eder as of September 30, 1996. The following unaudited consolidated pro forma condensed statements of earnings combine the consolidated condensed statements of earnings of Versa/Tek for the year ended March 31, 1996 and for the six months ended September 30, 1996, with the condensed statements of earnings of Eder for the year ended March 31, 1996 and the six months ended September 30, 1996 as if the transactions had occurred at the beginning of the respective periods. The pro forma information is based on the historical financial statements of Versa/Tek and the acquired company giving effect to the transactions under the purchase method of accounting, and the assumptions and adjustments in the accompanying notes to the pro forma consolidated condensed financial statements. The unaudited pro forma consolidated condensed balance sheet and the pro forma consolidated condensed statements of earnings have been prepared by Versa/Tek management based upon the financial statements of Versa/Tek and Eder for the periods indicated and include an allocation of the purchase price. The allocations of the purchase price assigned to the assets acquired and liabilities assumed and their related amortizations in the accompanying pro forma financial statements are based upon estimates and may be revised when the final fair value allocations are determined, as will the related income tax effects of the pro forma adjustments. The pro forma net income per common share, the pro forma consolidated condensed earnings statements and the pro forma consolidated condensed balance sheet data are presented for informational purposes only and are not necessarily indicative either of what the Company's actual results of operations would have been after giving effect to the assumptions referred to above or of the Company's future consolidated financial position or results of operations. 3 4 FORM 8-K 01/08/97 VERSA TECHNOLOGIES, INC. UNAUDITED CONSOLIDATED PROFORMA CONDENSED BALANCE SHEET SEPTEMBER 30, 1996 (Dollars in Thousands)
Pro-Forma Historical Historical Pro-Forma Consolidated Versa/Tek Eder Industries Adjustments Sept. 30, 1996 ----------------- --------------- --------------- --------------- ASSETS CURRENT ASSETS Cash and cash equivalents $10,722 $ 677 $(11,399) (a)(b) $ - Receivables, net of allowances 9,894 2,127 12,021 Inventories 8,867 2,240 11,107 Prepaid expenses and taxes 1,020 244 1,264 ---------------- --------------- -------------- -------------- Total current assets 30,503 5,288 (11,399) 24,392 PROPERTY, PLANT, AND EQUIPMENT: Land 501 175 676 Buildings 8,568 1,162 32 (c) 9,762 Machinery and equipment 37,900 1,951 (468) (c) 39,383 ---------------- --------------- -------------- -------------- 46,969 3,288 (436) 49,821 Less accumulated depreciation 25,334 1,436 (1,436) (c) 25,334 ---------------- --------------- -------------- -------------- 21,635 1,852 1,000 (c) 24,487 ---------------- --------------- -------------- -------------- INTANGIBLES 6 68 1,843 (d) 1,917 GOODWILL 869 90 8,491 (e)(f) 9,450 OTHER ASSETS 192 - (e)(f) 192 $53,205 $7,298 $ (65) $60,438 ================ =============== ============== ============== LIABILITIES AND EQUITY CURRENT LIABILITIES Note payable $ - $ 115 $ 4,060 (b) $ 4,175 Accounts payable 3,468 755 4,223 Accrued expenses 3,209 731 3,940 Income taxes (176) 150 (26) ---------------- --------------- -------------- -------------- Total current liabilities 6,501 1,751 4,060 12,312 DEFERRED INCOME TAXES 665 114 1,308 (f) 2,087 DEFERRED PENSION, DEFERRED COMPENSATION AND POSTRETIREMENT BENEFITS EXPENSE 2,899 - 2,899 SHAREHOLDERS' EQUITY: Common shares 61 3 (3) (g) 61 Additional paid-in capital 18,633 5,430 (5,430) (g) 18,633 Retained Earnings 31,018 - 31,018 ---------------- --------------- -------------- -------------- 49,712 5,433 (5,433) 49,712 Less treasury stock 6,572 - 6,572 ---------------- --------------- -------------- -------------- 43,140 5,433 (5,433) 43,140 ---------------- --------------- -------------- -------------- $53,205 $7,298 $ (65) $60,438 ================ =============== ============== ==============
4 5 FORM 8-K 01/08/97 NOTES TO UNAUDITED CONSOLIDATED PRO FORMA CONDENSED BALANCE SHEET The pro forma balance sheet gives effect to the acquisition of Eder as if it had occurred on September 30, 1996. a) To reflect the cash paid to acquire the common stock of Eder, plus other transaction costs for a combined cash outlay of $15,444,000. b) To reflect the funds borrowed to complete the acquisition. c) The allocation of the purchase price to buildings and equipment based upon their estimated appraised value at the time of the acquisition. d) The allocation of the purchase price to intangibles based upon their estimated appraised value at the time of the acquisition. e) The allocation of the remaining purchase price to goodwill. f) Net effect of tax temporary differences. g) Net effect of adjustments relating to the Eder acquisition. 5 6 FORM 8-K 01/08/97 VERSA TECHNOLOGIES, INC. UNAUDITED CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF EARNINGS YEAR ENDED MARCH 31, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro-Forma Historical Historical Pro-Forma Consolidated Versa/Tek Eder Industries Adjustments Mar. 31, 1996 ---------- --------------- ----------- ------------- NET SALES $70,699 $17,746 $ (619) (a) $87,826 Cost of Sales 51,190 13,672 (549) (a)(b) 64,313 ---------- -------------- ---------- ------------ GROSS PROFIT 19,509 4,074 (70) 23,513 Selling and administrative expenses 11,300 2,028 489 (c) 13,817 ---------- -------------- ---------- ------------ OPERATING INCOME 8,209 2,046 (559) 9,696 ---------- -------------- ---------- ------------ OTHER INCOME (DEDUCTIONS) Interest, net 813 (114) (950) (d) (251) Miscellaneous, net 117 - - 117 ---------- -------------- ---------- ------------ 930 (114) (950) (134) EARNINGS BEFORE INCOME TAXES 9,139 1,932 (1,509) 9,562 Income Taxes 3,240 772 (323) (e) 3,689 ---------- -------------- ---------- ------------ NET EARNINGS $ 5,899 $ 1,160 $(1,186) $ 5,873 ========== ============== ========== ============ NET EARNINGS PER SHARE $ 0.99 $ 0.98 ========== ============ Average shares outstanding 5,970 5,970 ========== ============
6 7 FORM 8-K 01/08/97 VERSA TECHNOLOGIES, INC. UNAUDITED CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF EARNINGS SIX MONTHS ENDED SEPTEMBER 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Pro-Forma Historical Historical Pro-Forma Consolidated Versa/Tek Eder Industries Adjustments Mar. 31, 1996 ---------- --------------- ----------- ------------- NET SALES $38,977 $10,165 $(955) (a) $48,187 Cost of Sales 28,291 7,736 (920) (a)(b) 35,107 --------- -------------- ---------- ------------ GROSS PROFIT 10,686 2,429 (35) 13,080 Selling and administrative expenses 6,007 1,172 244 (c) 7,423 --------- -------------- ---------- ------------ OPERATING INCOME 4,679 1,257 (279) 5,657 --------- -------------- ---------- ------------ OTHER INCOME (DEDUCTIONS) Interest, net 279 (63) (475) (d) (259) Miscellaneous, net 71 17 - 88 Loss on sale of business (522) (522) --------- -------------- ---------- ------------ (172) (46) (475) (693) EARNINGS BEFORE INCOME TAXES 4,507 1,211 (754) 4,964 Income Taxes 1,870 489 (208) (e) 2,151 --------- -------------- ---------- ------------ NET EARNINGS $ 2,637 $ 722 $(546) $ 2,813 ========= ============== ========== ============ NET EARNINGS PER SHARE $ 0.47 $ 0.50 ========= ============ Average shares outstanding 5,653 5,653 ========= ============
7 8 FORM 8-K 01/08/97 NOTES TO CONSOLIDATED PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED) The accompanying consolidated pro forma statements of earnings for the year ended March 31, 1996 and the six months ended September 30, 1996 have been prepared as if the transaction was consummated as of April 1, 1995. a) Elimination of intercompany sales and cost of sales between Eder and Versa/Tek. b) Reflect additional estimated depreciation and amortization expense relating to the allocations to the carrying amount of property, plant and equipment over periods of 5 to 30 years. c) Amortization of other intangibles and goodwill over periods ranging from 3 to 40 years. d) Elimination of interest income and an increase in interest expense relating to the cash used/borrowed to purchase Eder. e) To reflect the tax effect relating to the pro forma adjustments. The low percentage of tax benefit relative to the additional pro forma expenses is due to the impact of the loss of the municipal bond interest income, which was exempt from Federal income taxes. (c) Exhibits See Exhibit Index on the last page of this Current Report of Form 8-K, which is incorporated herein by reference. 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. Versa Technologies, Inc. January 8, 1997 /s/ Robert M. Sukalich - ----------------------------- ------------------------------ Date Robert M. Sukalich Vice President Finance 8 9 FORM 8-K 01/08/97 EXHIBIT INDEX Exhibit No. 2 Stock Purchase Agreement dated October 30, 1996 between the shareholders of Eder Industries, Inc. and Versa Technologies, Inc. (incorporated by reference to Exhibit 2 to Form 10-Q for the quarter ended September 30, 1996). 10 Employment Agreement between Richard H. Marks, President of Eder Industries, Inc. and Versa Technologies, Inc. dated October 30, 1996. (incorporated by reference to Exhibit 10 to Form 10-Q for the quarter ended September 30, 1996). 23 Consent of Price Waterhouse L.L.P. 99.1 Financial Statement and Report of Eder Industries, Inc. for the fiscal years ended August 31, 1996 and 1995. 9 EX-23 2 CONSENT OF INDPT. ACCOUNTANTS 1 FORM 8-K 01/08/97 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 and in the Registration Statements on Form S-8 listed below of Versa Technologies, Inc. of our report dated October 11, 1996 relating to the financial statements of Eder Industries, Inc., which appears in the Current Report on Form 8-K of Versa Technologies, Inc. dated October 30, 1996. 1. Registration Statement on Form S-8 (Registration No. 2-87421) 2. Registration Statement on Form S-3 (Registration No. 33-86446) 3. Registration Statement on Form S-8 (Registration No. 33-49024) 4. Registration Statement on Form S-8 filed December 2, 1996 relating to the 1996 Employee Stock Purchase and Payroll Savings Plan 5. Registration Statement on Form S-8 filed December 2, 1996 relating to the 1992 Employee Incentive Stock Option Plan PRICE WATERHOUSE LLP Milwaukee, Wisconsin January 8, 1997 10 EX-99.1 3 FIN. STMT & REPORT 1 EXHIBIT 99.1 EDER INDUSTRIES, INC. FINANCIAL STATEMENTS AND REPORT AUGUST 31, 1996 AND 1995 2 EDER INDUSTRIES, INC. INDEX TO FINANCIAL STATEMENTS Page Report of Independent Accountants 1 Financial Statements: Balance Sheets 2 Statements of Income 3 Statements of Shareholders' Equity 4 Statements of Cash Flows 5 Notes to Financial Statements 6-12 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Eder Industries, Inc. In our opinion, the accompanying balance sheets and the related statements of income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Eder Industries, Inc. at August 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. 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 audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Milwaukee, Wisconsin October 11, 1996 4 EDER INDUSTRIES, INC. BALANCE SHEETS ASSETS
August 31, ----------------------------- 1996 1995 --------- ---------- CURRENT ASSETS Cash $ 539,402 $ 34,911 Accounts receivable - trade less allowance for doubtful accounts of $55,000 2,364,471 2,712,455 Inventories 2,108,287 2,134,883 Prepaid income taxes 214,000 143,000 Other current assets 12,392 30,137 --------------- --------------- Total current assets 5,238,552 5,055,386 --------------- --------------- PROPERTY, PLANT AND EQUIPMENT Land 175,000 175,000 Building and improvements 1,162,236 1,162,236 Machinery and equipment 1,331,629 1,171,250 Office furniture and fixtures 438,778 414,710 Leasehold improvements 45,235 25,885 Transportation vehicles 99,669 71,375 Construction-in-progress 151 151 --------------- --------------- 3,252,698 3,020,607 Less: accumulated depreciation (1,412,582) (1,159,182) --------------- --------------- 1,840,116 1,861,425 --------------- --------------- OTHER ASSETS Intangible assets - net 158,311 164,311 --------------- --------------- $ 7,236,979 $ 7,081,122 =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------
August 31, ----------------------------------- 1996 1995 -------------- --------------- CURRENT LIABILITIES Current portion of long-term debt $ 125,000 $ 125,000 Accounts payable 894,434 988,408 Accrued compensation and employee benefits 363,386 273,717 Accrued income taxes 103,075 193,346 Customer deposit 70,309 97,500 Other current liabilities 205,233 172,909 -------------- --------------- Total current liabilities 1,761,437 1,850,880 -------------- --------------- LONG-TERM DEBT - 691,667 -------------- --------------- DEFERRED INCOME TAXES 114,000 107,000 --------------- --------------- SHAREHOLDERS' EQUITY 5,361,542 4,431,575 --------------- --------------- $ 7,236,979 $ 7,081,122 =============== ===============
The accompanying notes are an integral part of the financial statements. -2- 5 EDER INDUSTRIES, INC. STATEMENTS OF INCOME
Year ended August 31, ---------------------------------------- 1996 1995 ----------------- ---------------- SALES $ 18,574,306 $ 17,002,429 COST OF GOODS SOLD 14,265,493 12,976,415 ----------------- ---------------- GROSS PROFIT 4,308,813 4,026,014 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,151,925 1,951,030 ----------------- ---------------- INCOME FROM OPERATIONS 2,156,888 2,074,984 ----------------- ---------------- OTHER EXPENSE (INCOME) Amortization expense 6,000 14,400 Interest expense 107,582 144,643 Other - net (27,661) (1,242) ----------------- ---------------- 85,921 157,801 ----------------- ---------------- INCOME BEFORE INCOME TAXES 2,070,967 1,917,183 PROVISION FOR INCOME TAXES 829,000 786,000 ----------------- ---------------- NET INCOME $ 1,241,967 $ 1,131,183 ================= ================
The accompanying notes are an integral part of the financial statements. - 3 - 6 EDER INDUSTRIES, INC. STATEMENTS OF SHAREHOLDERS' EQUITY
Redeemable Additional Preferred Common Paid-In Retained Stock Stock Capital Earnings Total ------------- --------- ----------- --------- ------------ Balance at August 31, 1994 $ 300,000 $ 3,000 $ 3,021,392 $ - $ 3,324,392 Net income - - - 1,131,183 1,131,183 Payment of preferred dividends - - - (24,000) (24,000) Accretion of Warrant and Common Stock Redemption Prices - - 1,107,183 (1,107,183) - ------------- --------- ----------- ----------- ------------ Balance at August 31, 1995 300,000 3,000 4,128,575 - 4,431,575 Net income - - - 1,241,967 1,241,967 Payment of preferred dividends - - - (12,000) (12,000) Redemption of preferred stock (300,000) - - - (300,000) Accretion of Warrant and Common Stock Redemption Prices - - 1,229,967 (1,229,967) - ------------- --------- ----------- ----------- ------------ Balance at August 31, 1996 $ - $ 3,000 $ 5,358,542 $ - $ 5,361,542 ============= ========= =========== =========== ============
The accompanying notes are an integral part of the financial statements. - 4 - 7 EDER INDUSTRIES, INC. STATEMENTS OF CASH FLOWS
Year ended August 31, --------------------------------- 1996 1995 -------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,241,967 $ 1,131,183 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of fixed assets - (1,163) Depreciation and amortization 259,400 241,900 Deferred income taxes (64,000) (15,000) Increase (decrease) in cash due to changes in: Accounts receivable 347,984 (461,812) Inventories 26,596 (297,432) Other current assets 17,745 12,774 Accounts payable (93,974) (361,411) Accrued compensation and employee benefits 89,669 (28,979) Accrued income taxes (90,271) 151,054 Customer deposit (27,191) 97,500 Other current liabilities 32,324 7,260 ------------- ------------- Total adjustments 498,282 (655,309) ------------- ------------- Net cash provided by operating activities 1,740,249 475,874 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash received on sale of assets - 9,954 Capital expenditures (232,091) (131,325) ------------- ------------- Net cash used for investing activities (232,091) (121,371) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Preferred stock dividends paid (12,000) (24,000) Net reductions in line-of-credit agreements (400,000) (150,000) Principal payments on subordinated note - (330,000) Redemption of preferred stock (300,000) - Net (payments)/proceeds from term loan (291,667) 151,667 ------------- ------------- Net cash used for financing activities (1,003,667) (352,333) ------------- ------------- NET INCREASE IN CASH 504,491 2,170 CASH, BEGINNING OF PERIOD 34,911 32,741 ------------- ------------- CASH, END OF PERIOD $ 539,402 $ 34,911 ============= ============= SUPPLEMENTAL DISCLOSURE: Cash paid during the year for: Interest $ 113,000 $ 143,000 ============= ============= Income Taxes $ 983,000 $ 650,000 ============= =============
The accompanying notes are an integral part of the financial statements. - 5 - 8 EDER INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996 AND 1995 NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Eder Industries, Inc. (the "Company") is principally engaged in the design and manufacture of custom electronics and electro-mechanical devices. INVENTORIES - Inventories are valued at the lower of cost (determined under the first-in, first-out method) or market. PROPERTIES - Property, plant and equipment is recorded at cost and depreciated over estimated useful lives utilizing the straight-line method for financial reporting purposes and the accelerated cost recovery method for income tax purposes. Expenditures which substantially increase value or extend useful lives are capitalized. Expenditures for maintenance and repairs are charged against income as incurred. INTANGIBLE ASSETS - Intangible assets, described below, are stated at cost less accumulated amortization. Amortization is provided on a straight-line basis over the following periods: Technology - five years Contracts - three years Workforce - five years Software - three years Trademarks and tradenames - forty years Customer lists - seven years Goodwill - forty years INCOME TAXES - Deferred income taxes are recorded for certain expenses which are recognized in different periods for financial reporting and income tax purposes. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. - 6 - 9 NOTE 2 - INVENTORIES Inventories consist of the following:
August 31, August 31, 1996 1995 -------------- -------------- Raw materials/Purchased parts $ 781,686 $ 864,112 Work-in-process 1,326,601 1,270,771 -------------- -------------- $ 2,108,287 $ 2,134,883 ============== ==============
NOTE 3 - INTANGIBLE ASSETS Intangible assets consist of the following:
August 31, August 31, 1996 1995 -------------- -------------- Technology $ 191,948 $ 191,948 Contracts 115,168 115,168 Workforce 105,905 105,905 Software 88,252 88,252 Trademarks and tradenames 88,252 88,252 Customer lists 76,778 76,778 Deferred financing costs 161,863 161,863 Goodwill 115,168 115,168 -------------- -------------- 943,334 943,334 Less accumulated amortization (785,023) (779,023) -------------- -------------- $ 158,311 $ 164,311 ============== ==============
- 7 - 10 NOTE 4 - LONG-TERM DEBT Long-term debt consists of the following:
August 31, August 31, 1996 1995 -------------- -------------- Revolving Credit Agreement $ - $ 400,000 Bank term loan 125,000 416,667 -------------- -------------- Total long-term debt 125,000 816,667 Less current portion (125,000) (125,000) -------------- -------------- $ - $ 691,667 ============== ==============
Revolving Credit Agreement On December 7, 1990, the Company entered into a three year revolving credit agreement with a bank providing for borrowings of up to $2,000,000, reduced to $1,750,000 at June 1, 1992. On April 12, 1994, the agreement was amended to extend the maturity date to December 31, 1996. The agreement requires monthly interest payments at a rate of .50% over the bank's prime rate (8.75% at August 31, 1996) on the outstanding principal balance, plus .50% on the difference between the outstanding principal balance and the maximum loan amount. Borrowings under the agreement are secured by receivables, inventories, property, plant and equipment and intangible assets. 13.5% Subordinated Note Payable The $1,100,000 subordinated note was payable in ten semi-annual installments of $110,000 commencing July 1, 1991 continuing through January 1, 1996. During fiscal year 1995, the Company made scheduled payments of $220,000 and prepaid the final $110,000 installment. As described more fully in Note 7, the subordinated note was issued with a detachable warrant which allows the holder to purchase additional common stock or to redeem the warrant at a formula-based price. The note was discounted to reflect an effective rate of approximately 17% with the amount of the discount of $125,000 being the assigned value of the warrant classified as additional paid-in capital. Bank Term Loan On June 1, 1994, the Company entered into a multiple advance term loan agreement with a bank which allowed the Company to obtain advances up to $500,000 through December 1, 1994. Advances totalling $265,000 were obtained in fiscal year 1994 and the remaining $235,000 was obtained in fiscal year 1995. Proceeds under the loan agreement were used to purchase specified manufacturing equipment. At December 1, 1994, the outstanding advances were converted to a - 8 - 11 term loan which requires equal monthly payments of $10,417 through December 1, 1998. Interest is payable monthly at the bank's prime rate plus .50% (8.75% at August 31, 1996). The agreement requires the Company to maintain certain financial ratios and limits capital expenditures and cash dividends. Borrowings are secured by receivables, inventories, property, plant and equipment and intangible assets. Aggregate annual maturities of long-term debt outstanding at August 31, 1996 is as follows: Fiscal year 1997 $ 125,000 ============== NOTE 5 - REDEEMABLE PREFERRED STOCK The Company authorized and issued 3,000 shares of 8% cumulative preferred stock at a stated value of $100 per share. The redeemable preferred stock carries an 8% cumulative preferential dividend rate, payable quarterly based upon the stated value of such stock. The Company may, at any time, redeem all of the preferred shares for $100 per share. The Company may redeem less than all of the preferred shares only with the consent of the preferred shareholders. The Company is required to redeem all of the preferred shares then outstanding for $100 per share at the earlier of: (a) January 1, 1997, or (b) any purchase of the warrant, or the common shares issuable under the warrant, by the Company, as further discussed in Note 7. On January 2, 1996, the Company redeemed all of the preferred shares outstanding for $100 per share. Upon redemption of the preferred shares, the Company paid all cumulative and unpaid dividends on the preferred shares which were redeemed. NOTE 6 - COMMON STOCK The Company has authorized 555,000 shares of $.01 par value common stock of which 300,000 shares are issued and outstanding; 100,000 of these outstanding shares are subject to certain redemption requirements as described more fully in Note 7. At August 31, 1996 there were 92,500 shares reserved for issuance upon exercise of outstanding warrants. NOTE 7 - WARRANTS In connection with the issuance of the 13.5% subordinated note, the Company issued a warrant which provides for the purchase of shares of the Company's common stock at $.01 per share any time after December 29, 1987. As of August 31, 1996, the warrant holder (the "Holder") is eligible to purchase 92,500 shares. Anytime after December 29, 1992, the Holder may exercise its rights under the warrant and require the Company to repurchase the common shares purchased through the exercise of the warrant and/or require the Company to purchase common shares which the Holder is entitled to purchase - 9 - 12 under the warrant. Additionally, after January 1, 1994, the Holder can require the Company to purchase all of the 100,000 shares presently held by the Holder. The repurchase prices to be paid are based upon "Buyback Price" formulas contained in the Warrant Agreement and approximate fair market value. In total, the Holder has the right to 192,500 common shares of the Company which represents a 49% ownership interest. Accordingly, the Holder's put rights under the warrant equate to a buyback obligation to the Company of 49% of its fair market value. The difference between the Buyback Prices and the assigned value of the warrant of $125,000 and the issuance price of the 100,000 shares of common stock of $100,000 will be amortized to additional paid-in capital over the period during which the warrant and common stock repurchase features become exercisable. NOTE 8 - INCOME TAXES During fiscal year 1994 the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the use of the liability method of accounting for income taxes. The liability method measures the expected tax impact of future taxable income or deductions implicit in the balance sheet. The adoption of this statement did not have a significant effect on the Company's financial position or results of operations. The provisions for income taxes for the years ended August 31, 1996 and 1995 consist of the following:
1996 1995 -------------- -------------- Current: Federal $ 715,000 $ 641,000 State 178,000 160,000 (Prepaid) Deferred (64,000) (15,000) -------------- -------------- $ 829,000 $ 786,000 ============== ==============
The provisions for income taxes reflect effective rates of 40% and 41% for the years ended August 31, 1996 and 1995, respectively. The differences between the effective rates and the statutory federal rate of 34% is principally due to state income taxes. - 10 - 13 Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The Company's temporary differences which give rise to deferred tax assets and liabilities at August 31, 1996 and 1995 include:
1996 1995 -------------- -------------- Deferred Tax Assets: Accrued expenses and reserves $ 207,000 $ 123,000 Other 7,000 20,000 -------------- -------------- 214,000 143,000 -------------- -------------- Deferred Tax Liabilities: Property, plant and equipment 92,000 83,000 Intangible assets 22,000 24,000 -------------- -------------- 114,000 107,000 -------------- -------------- Net deferred tax assets $ 100,000 $ 36,000 ============== ==============
NOTE 9 - LEASE OBLIGATIONS The Company leases a manufacturing facility from an officer of the Company for an annual base rent amount of approximately $96,000 through October, 1997. The base amount is increased annually by the change in the Consumer Price Index using 1987 as the base year. The Company is required to pay all real estate taxes, including special assessments, and the cost of all maintenance, repairs and insurance. The Company also leases certain manufacturing equipment under a non-cancelable agreement through December, 1998. These leases have been accounted for as operating leases. Total lease expense amounted to approximately $203,000 and $176,000 in 1996 and 1995, respectively. Future minimum base lease payments required under long-term leases in effect at August 31, 1996 are as follows: Fiscal year 1997 $ 204,742 1998 121,712 1999 52,553 -------------- $ 379,007 ============== NOTE 10 - MAJOR CUSTOMERS The Company's major customers represent original equipment manufacturers operating in differing industries and these customers generally engage the Company to design and manufacture multiple custom products. The Company's major customers will vary from year to year as technological, social or economic conditions change the demand for a customer's products. - 11 - 14 During the years ended August 31, 1996 and 1995, the Company had sales to two customers which comprised approximately 39% and 36% of total sales, respectively. Amounts due from these customers represented approximately 34% and 26% of trade receivables, respectively. - 12 - -----END PRIVACY-ENHANCED MESSAGE-----