<PAGE>
<TABLE>
<S><C>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: FEBRUARY 15, 1999
---------------------------------
(Date of Earliest Event Reported)
WSI INDUSTRIES, INC.
--------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 0-619 41-0691607
---------------- ------------ ------------------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
or incorporation)
2605 WEST WAYZATA BOULEVARD
LONG LAKE, MINNESOTA 55356
--------------------------------------
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 473-1271
</TABLE>
<PAGE>
The undersigned registrant hereby amends the following items of its Current
Report on Form 8-K filed February 28, 1999.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
In accordance with Item 7 of the registrant's Current Report on Form 8-K filed
February 28, 1999, the registrant appends to the Form 8-K the following
financial statements and pro forma financial information:
(a) Financial Statements of Business Acquired
The following financial statements of Taurus Numeric Tool,
Inc. are attached hereto as Appendix A:
1. Report of Independent Auditors
2. Balance Sheets at December 31, 1998 and 1997
3. Statements of Income for the two years ended December
31, 1998
4. Statement of changes in Shareholders' Equity for the
two years ended December 31, 1998
5. Statements of Cash Flows for the two years ended
December 31, 1998
6. Notes to Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information is attached
hereto as Appendix B:
1. Unaudited Pro Forma Combined Statements of Operations
for the year ended August 30, 1998.
2. Notes to Unaudited Pro Forma Financial Statements
3. Unaudited Pro Forma Combined Statement of Operations
for the thirteen weeks ended November 29, 1998
4. Unaudited Pro Forma Combined Balance Sheet as of
November 29, 1998
5. Notes to Unaudited Pro Forma Financial Statements
(c) Exhibits
23. Consent of Ernst & Young
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf by the undersigned
hereunto duly authorized.
WSI INDUSTRIES, INC.
By: /s/ Michael J. Pudil
------------------------------
Michael J. Pudil
President & CEO
By: /s/ Paul D. Sheely
------------------------------
Paul D. Sheely
Vice President Finance & CFO
April 29, 1999
<PAGE>
FINANCIAL STATEMENTS
TAURUS NUMERIC TOOL, INC.
YEARS ENDED DECEMBER 31, 1998 AND 1997
<PAGE>
Taurus Numeric Tool, Inc.
Financial Statements
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Auditors...................................1
Audited Financial Statements
Balance Sheets...................................................2
Statements of Income.............................................3
Statement of Changes in Shareholder's Equity.....................4
Statements of Cash Flows.........................................5
Notes to Financial Statements....................................6
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholder
Taurus Numeric Tool, Inc.
We have audited the accompanying balance sheets of Taurus Numeric Tool, Inc. as
of December 31, 1998 and 1997, and the related statements of income, changes in
shareholder's equity, and cash flows for the years 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 audits 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, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Taurus Numeric Tool, Inc. at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 14, 1999
1
<PAGE>
Taurus Numeric Tool, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $1,032,109 $ 284,606
Accounts receivable, less allowance for doubtful accounts of
$2,500 in 1998 and 1997 893,282 644,730
Inventory 1,795,288 1,701,675
Prepaid expenses 5,139 5,346
Notes receivable 31,974 -
------------------------------------
Total current assets 3,757,792 2,636,357
Property and equipment, net of accumulated depreciation 1,931,582 1,994,944
Other assets 70,118 61,879
------------------------------------
Total assets $5,759,492 $4,693,180
------------------------------------
------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Note payable $ - $ 25,000
Current maturities of long-term debt 288,639 298,297
Accounts payable 134,165 379,708
Accrued compensation 265,044 222,060
Other accrued expenses 10,391 14,069
Deferred compensation - current portion 54,443 9,574
------------------------------------
Total current liabilities 752,682 948,708
Long-term debt 643,151 930,180
Deferred compensation 18,896 73,399
Shareholder's equity:
Common Stock, $.01 par value:
Authorized shares - 10,000
Issued and outstanding shares - 10,000 100 100
Additional paid-in capital 428,822 428,822
Retained earnings 3,915,841 2,311,971
------------------------------------
Total shareholders' equity 4,344,763 2,740,893
------------------------------------
Total liabilities and shareholder's equity $5,759,492 $4,693,180
------------------------------------
------------------------------------
</TABLE>
3
SEE ACCOMPANYING NOTES.
<PAGE>
Taurus Numeric Tool, Inc.
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
Sales $7,596,518 $6,536,373
Cost of sales 4,681,092 4,914,838
------------------------------------
2,915,426 1,621,535
Selling, general and administrative expenses 655,286 683,884
------------------------------------
Income from operations 2,260,140 937,651
Other income (expense):
Interest income 25,757 11,314
Interest expense (107,282) (121,886)
Other income 70,255 39,187
------------------------------------
Net income $2,248,870 $ 866,266
------------------------------------
------------------------------------
Pro forma income statement data (unaudited):
Net income, as reported $2,248,870 $ 866,266
Pro forma income tax provision 899,548 346,506
------------------------------------
Pro forma net income $1,349,322 $ 519,760
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Taurus Numeric Tool, Inc.
Statement of Changes in Shareholder's Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 10,000 $100 $428,822 $1,844,742 $2,273,664
Net income - - - 866,266 866,266
Shareholder distributions - - - (399,037) (399,037)
--------------------------------------------------------------------------------
Balance at December 31, 1997 10,000 100 428,822 2,311,971 2,740,893
Net income - - - 2,248,870 2,248,870
Shareholder distributions - - - (645,000) (645,000)
--------------------------------------------------------------------------------
Balance at December 31, 1998 10,000 $100 $428,822 $3,915,841 $4,344,763
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Taurus Numeric Tool, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $2,248,870 $866,266
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 292,882 286,862
Loss on disposal of assets 18,997 -
Changes in operating assets and liabilities:
Accounts receivable (248,552) (117,568)
Inventory (93,613) (425,343)
Prepaid expenses 207 (5,346)
Accounts payable (245,543) 5,567
Accrued expenses 39,306 84,943
Deferred compensation (9,634) (9,574)
Other assets (8,239) 41,338
------------------------------------
Net cash provided by operating activities 1,994,681 727,145
INVESTING ACTIVITIES
Additions to property and equipment (248,517) (970,382)
Issuance of notes receivable (31,974) -
------------------------------------
Net cash used in investing activities (280,491) (970,382)
FINANCING ACTIVITIES
Change in debt (321,687) 704,635
Shareholder distributions (645,000) (399,037)
------------------------------------
Net cash (used in) provided by financing activities (966,687) 305,598
------------------------------------
Net increase in cash and cash equivalents 747,503 62,361
Cash and cash equivalents at beginning of year 284,606 222,245
------------------------------------
Cash and cash equivalents at end of year $1,032,109 $284,606
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Taurus Numeric Tool, Inc.
Notes to Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Taurus Numeric Tool, Inc. (the Company) is a manufacturer of parts which are
primarily used by aircraft and other related industries in the upper midwest
United States. The Company extends unsecured credit to all customers.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with a maturity of three months or less to be cash
equivalents.
INVENTORY
Inventory of materials is valued at the lower of cost (first-in, first-out
method) or market. Work-in-process inventory includes production costs.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated principally on the
straight-line and declining-balance methods over the estimated useful lives of
five to 32 years.
7
<PAGE>
Taurus Numeric Tool, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has elected under the Internal Revenue Code to be an S corporation.
In lieu of corporate income taxes, the stockholders of an S corporation are
taxed on their proportionate share of the Company's taxable income. Therefore,
no provision or liability for income taxes has been included in these financial
statements.
PRO FORMA INFORMATION (UNAUDITED)
Net income has been adjusted to include an income tax provision which reflects
the taxes that would have been paid at a combined federal and state rate of 40%
had the Company been a C corporation.
2. INVENTORY
Inventory is comprised of:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
Raw materials $ 101,704 $ 238,446
Work-in-process 965,612 990,689
Finished goods 727,972 472,540
------------------------------------
$1,795,288 $1,701,675
------------------------------------
------------------------------------
</TABLE>
8
<PAGE>
Taurus Numeric Tool, Inc.
Notes to Financial Statements (continued)
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
Assets:
Machinery and equipment $4,899,578 $4,755,406
Vehicles 121,474 123,103
Furniture and fixtures 127,139 89,363
Leasehold improvements 100,153 100,153
------------------------------------
5,248,344 5,068,025
Less accumulated depreciation 3,316,762 3,073,081
------------------------------------
$1,931,582 $1,994,944
------------------------------------
------------------------------------
</TABLE>
4. LONG-TERM DEBT
Long-term debt is comprised of:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
<S> <C> <C>
Note payable to Norwest Bank (secured by equipment, and is
personally guaranteed by the sole stockholder) in monthly
installments of $4,155 including interest at 9% per annum. The
final payment is due March 25, 1999. $ 12,619 $ 59,053
Note payable to Norwest Bank (secured by inventory, equipment,
all general intangibles and is personally guaranteed by the
sole stockholder) in monthly installments of $18,801 including
interest at 9.27% per annum. The final payment is due May 1, 2002. 642,513 799,597
Note payable to Norwest Bank (secured by equipment) in monthly
installments of $10,501 including interest at base rate plus
1.5%. The rate at December 31, 1998 and 1997 was 9.88%. The note
is due March 26, 2001. 276,658 369,827
------------------------------------
931,790 1,228,477
Less current maturities 288,639 298,297
------------------------------------
$643,151 $ 930,180
------------------------------------
------------------------------------
</TABLE>
9
<PAGE>
Taurus Numeric Tool, Inc.
Notes to Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
Scheduled maturities of long-term debt are as follows for the years ending
December 31:
<TABLE>
<S> <C>
1999 $288,639
2000 304,250
2001 267,169
2002 70,122
</TABLE>
5. OPERATING LEASES AND RELATED PARTY TRANSACTIONS
The plant and corporate general offices are leased from the sole stockholder for
$8,900 per month plus utilities and other general costs under a five-year
agreement expiring December 31, 2001. Related party rental expenses for the
years ended December 31, 1998 and 1997 were $137,014 and $146,053, respectively.
The Company is leasing machinery from a corporation whose stock is owned by the
son of the sole stockholder under a five year agreement calling for monthly
payments of $2,742 through March 30, 2003. Related party rental expense for the
years ended December 31, 1998 and 1997 was $157,034 and $140,095, respectively.
Future minimum lease payments for the above leases are as follows for the years
ending December 31:
<TABLE>
<S> <C>
1999 $173,003
2000 173,003
2001 150,806
2002 32,908
2003 10,969
----------
$540,689
----------
----------
</TABLE>
6. DEFERRED COMPENSATION
The Company has a phantom stock deferred compensation agreement with two
employees. The plan was discontinued in 1996. The retirement of one employee
triggered the distribution of his share over 60 months. The total accrued
liability at December 31, 1998 and 1997 was $73,339 and $82,973, respectively.
10
<PAGE>
Taurus Numeric Tool, Inc.
Notes to Financial Statements (continued)
7. PROFIT SHARING AND 401K PLAN
The Company has a profit sharing and 401K plan covering all full-time employees
meeting certain age and length of service requirements. The contribution is
determined by management and is allocated based on a percentage of each
employee's compensation. The profit sharing plan is funded out of current
operations. The Company made no contributions during 1998 and 1997.
8. MAJOR CUSTOMER
During the year ended December 31, 1998, the Company derived approximately 65%
and 19% of its revenue from two customers.
During the year ended December 31, 1997, the Company derived approximately 67%
and 15% of its revenue from two customers.
9. SUBSEQUENT EVENT
On February 15, 1999, the sole shareholder sold all of the issued and
outstanding stock to WSI Industries, Inc. ("WSI"). Pursuant to a Stock Purchase
Agreement dated February 15, 1999 between the Company and WSI, $1,175,807 was
paid by WSI to the Company's shareholder in the form of a Subordinated
Promissory Note and $5,000,000 was paid in cash. An additional as yet
undetermined amount, not to exceed $1,000,000, will be payable by WSI to the
shareholder in the form of a Contingent Subordinated Promissory Note, such
amount to be based upon the operating income of the Company during the
twelve-month period following the closing date of the transaction. Upon the
closing of the Stock Purchase Agreement, the Company entered into a three-year
lease with the former shareholder for the facility used in its business. The
Company also entered into a Non-Compete Agreement under which the former
shareholder will be paid $25,000 per quarter for five years. WSI has guaranteed
the Company's obligations under the Lease and Non-Compete Agreement.
11
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On February 15, 1999, WSI Industries, Inc. ( the "Company"), acquired all the
outstanding shares of stock of Taurus Numeric Tool., Inc. ("Taurus"). The
Company's unaudited pro forma financial statements assume the Taurus acquisition
occurred (1) as of the beginning of the period for the purposes of the unaudited
pro forma statements of operations and (2) on November 29, 1998 for the purposes
of the unaudited pro forma balance sheet.
The Company's unaudited pro forma financial statements combine the results of
operations of the Company for the year ended August 30, 1998 and the quarter
ended November 29, 1998 with the twelve months ended September 30, 1998 and the
quarter ended December 31, 1998, respectively, of Taurus. The pro forma balance
sheet combines the Company's November 29, 1998 balance sheet with the Taurus
December 31, 1998 balance sheet. These dates reflect the financial results of
Taurus recast to be within a 93 day period of the actual fiscal results of the
Company.
The acquisition has been accounted for under the purchase method of accounting.
The total cost of the acquisition has been preliminarily allocated to the assets
acquired and liabilities assumed based upon their respective fair values as
determined through internal estimates that WSI believes are reasonable. The
actual allocation of purchase cost, however, and the resulting effect on income
may differ from the proforma amounts included herein.
The following unaudited pro forma combined financial information does not
purport to reflect the financial position or results of operations that actually
would have resulted had the above transactions occurred as of the dates
indicated or to project the results of operations for any future period. The
unaudited pro forma combined financial information should be read in conjunction
with the historical financial statements of WSI and Taurus.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 30, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
WSI Taurus Adjustments Combined
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales $ 23,948,116 $ 7,601,715 $ - $ 31,549,831
Cost of goods sold 19,547,136 5,183,967 22,278 (1) 24,753,381
-------------- ------------- ----------- -------------
Gross Margin 4,400,980 2,417,748 (22,278) 6,796,450
Selling and administrative expense 2,452,496 652,320 177,847 (1) 3,282,663
Interest and other income (161,753) (72,409) - (234,162)
Interest expense 190,353 141,995 247,258 (2) 579,606
-------------- ------------- ----------- -------------
Earnings before income taxes 1,919,884 1,695,842 (447,383) 3,168,343
Provision for income taxes 45,800 - 31,211 (3) 77,011
-------------- ------------- ----------- -------------
Net Earnings $ 1,874,084 $ 1,695,842 $ (478,594) $ 3,091,332
-------------- ------------- ----------- -------------
-------------- ------------- ----------- -------------
Basic earnings per common share $ .77 $ 1.27
------------- -------------
------------- -------------
Diluted earnings per common share $ .73 $ 1.21
------------- -------------
------------- -------------
Basic shares outstanding 2,434,125 2,434,125
------------- -------------
------------- -------------
Diluted shares outstanding 2,555,518 2,555,518
------------- -------------
------------- -------------
</TABLE>
12
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1.
The pro forma adjustment to reflect the effect of the preliminary purchase price
allocation on cost of goods sold and general and administrative expenses
assumes:
Cost of goods sold -
Depreciation of amounts allocated to machinery
and equipment over 7 years. $ 22,278
General and administrative expenses -
Amortization of amounts allocated to Other
Intangible assets over 5 years 70,000
Amortization of goodwill over 20 years 113,847
Depreciation (6,000)
--------------
$ 200,125
--------------
--------------
NOTE 2.
The pro forma adjustment to interest expense assumes:
Additional interest expense
related to $4,816,174 of net additional borrowings $ 389,253
Elimination of Taurus' interest expense (141,995)
--------------
$ 247,258
--------------
--------------
NOTE 3.
The pro forma adjustment to the provision for income taxes assumes mandatory
state income taxes only as income would be offset by the Company's existing net
operating loss position.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29,1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
WSI Taurus Adjustments Combined
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 5,640,708 $ 1,810,730 $ - $ 7,451,438
Cost of goods sold 4,815,677 1,022,100 5,570 (2) 5,843,347
-------------- ------------- ------------- ------------
Gross margin 825,031 788,630 (5,570) 1,608,091
Selling and administrative expense 543,638 235,396 44,462 (2) 823,496
Interest and other income (67,071) (18,390) - (85,461)
Interest expense 59,692 6,257 91,056 (3) 157,005
-------------- ------------- ------------- ------------
Earnings before income taxes 288,772 565,367 (141,088) 713,051
Provision for income taxes 11,800 - 10,607 (4) 22,407
-------------- ------------- ------------- ------------
Net earnings $ 276,972 $ 565,367 $ (151,695) $ 690,644
-------------- ------------- ------------- ------------
-------------- ------------- ------------- ------------
Basic earnings per common share $ .11 $ .28
------------- -------------
------------- -------------
Diluted earnings per common share $ .11 $ .27
------------- -------------
------------- -------------
Basic shares outstanding 2,448,800 2,448,800
------------- -------------
------------- -------------
Diluted shares outstanding 2,552,053 2,552,053
------------- -------------
------------- -------------
</TABLE>
13
<PAGE>
UNAUDTIED PRO FORMA COMBINED BALANCE SHEET
NOVEMBER 29, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
WSI Taurus Adjustments Combined
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,616,481 $ 1,032,109 $ (2,965,616)(6) $ 682,974
Accounts receivable, net 2,498,249 893,282 - 3,391,531
Inventories 970,993 1,632,288 - 2,603,281
Other current assets 139,128 37,113 - 176,241
-------------- ------------- ------------- -------------
Total current assets 6,224,851 3,594,792 (2,965,616) 6,854,027
Property, Plant and Equipment, net 7,568,605 1,931,582 111,418 (1) 9,611,605
Goodwill, net - - 2,276,937 (1) 2,276,937
Other Assets - 70,118 279,882 (1)(5) 350,000
-------------- ------------- ------------- -------------
Total Assets $ 13,793,456 $ 5,596,492 $ (297,379) $ 19,092,569
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable $ 1,125,194 $ 134,165 $ - $ 1,259,359
Current portion of long-term debt 816,455 288,639 168,361 (6) 1,273,455
Accrued expenses 830,780 329,878 - 1,160,658
-------------- ------------- ------------- ------------
Total current liabilities 2,772,429 752,682 168,361 3,693,472
Long-term debt, less current portion 2,374,739 643,151 3,716,023 (6) 6,733,913
Pension liability and deferred compensation 374,397 18,896 - 393,293
Stockholders' Equity:
Common stock 244,880 100 (100) 244,880
Capital in excess of par value 1,592,515 428,822 (428,822) 1,592,515
Retained earnings 6,434,496 3,752,841 (3,752,841) 6,434,496
-------------- ------------- -------------- ------------
Total stockholders' equity 8,271,891 4,181,763 (4,181,763) 8,271,891
-------------- ------------- ------------- ------------
Total Liabilities and Stockholders' Equity $ 13,793,456 $ 5,596,492 $ (297,379) $ 19,092,569
-------------- ------------- ------------- ------------
-------------- ------------- ------------- ------------
</TABLE>
14
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1.
Under the terms of the Asset Purchase Agreement, certain assets of Taurus were
excluded. Accordingly, the pro forma adjustments reflect decreases in property
plant and equipment ($121,874) and other assets ($70,116) along with a
corresponding decrease to Taurus stockholders' equity of $191,990.
The Taurus Acquisition was financed through borrowings of $3,200,000 under a new
term loan with the Company's bank and $1,616,174 of subordinated debt financed
by the seller of Taurus.
The excess of cost over fair value of net assets acquired resulting from the
preliminary purchase price allocation is assumed to be as follows:
<TABLE>
<S> <C>
Pro forma purchase price
Purchase price per the Asset Purchase Agreement $ 6,175,807
Additional payment to seller for tax considerations 141,000
Change in negotiated balance sheet versus audited
balance sheet 60,625
Portion of purchase price related to change in book
value from pro forma date to agreement date (29,930)
Acquisition costs 502,500
-------------
Total pro forma purchase price 6,850,002
Proforma historical net book value of assets acquired 4,181,763
Net assets excluded as described above (191,990)
-------------
Total pro forma historical net book value of
assets acquired 3,989,773
Excess of purchase price over net book value of
Assets acquired 2,860,229
Allocated to:
Machinery and equipment 233,292
Intangible assets 350,000
Remaining excess of cost over fair value of net assets
acquired (goodwill) $ 2,276,937
-------------
-------------
</TABLE>
The foregoing preliminary purchase price allocation is based on available
information and certain assumptions the Company considers reasonable. The final
purchase price allocation will be based upon a determination of the fair value
of the net assets acquired at the date of the Taurus Acquisition as determined
by valuations or other studies. The final purchase price allocation may differ
from the preliminary allocation.
NOTE 2.
The pro forma adjustment to reflect the effect of the preliminary purchase
price allocation on cost of goods sold and general and administrative expenses
assumes:
15
<PAGE>
Cost of goods sold -
Depreciation of amounts allocated to machinery
and equipment over 7 years. $ 5,570
General and administrative expenses -
Amortization of amounts allocated to Other
Intangible assets over 5 years 17,500
Amortization of goodwill over 20 years 28,462
Depreciation (1,500)
--------------
$ 50,032
--------------
NOTE 3.
The pro forma adjustment to interest expense assumes:
Additional interest expense
related to $4,816,174 of net additional borrowings $ 97,313
Elimination of Taurus' interest expense (6,257)
--------------
$ 91,056
--------------
NOTE 4.
The pro forma adjustment to the provision for income taxes assumes mandatory
state income taxes only as income would be offset by the Company's existing net
operating loss position.
NOTE 5.
The pro forma adjustment to other assets assumes:
Eliminate excluded assets in the Asset Purchase Agreement $ (70,118)
Record certain intangible assets 350,000
--------------
$ 279,882
--------------
NOTE 6.
The pro forma adjustments to cash and long-term debt assumes:
Cash purchase price to Seller $ 6,850,002
Paid by bank term loan (3,200,000)
Paid by Seller subordinated debt (1,616,174)
--------------
Paid by WSI cash 2,033,828
Payoff of Taurus debt 931,788
-------------
Net adjustments to cash $ 2,965,616
--------------
<TABLE>
<CAPTION>
Current Long-term Total
--------------- -------------- --------------
<S> <C> <C> <C>
Bank term loan $ 457,000 $ 2,743,000 $ 3,200,000
Seller Subordinate debt 1,616,174 1,616,174
Payoff of Taurus debt (288,638) (643,150) (931,788)
--------------- -------------- --------------
Net adjustments to debt $ 168,362 $ 3,716,024 $ 3,884,386
--------------- -------------- --------------
--------------- -------------- --------------
</TABLE>
16
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ----------------------------
<S> <C>
23 Consent of Ernst & Young LLP
</TABLE>
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-75087, No. 33-19650 and No. 33-58565 of WSI Industries, Inc. on Form S-8 of
our report, dated April 14, 1999 on the Financial Statements of Taurus Numeric
Tool, Inc. for the Years Ended December 31, 1998 and 1997, appearing in this
Current Report on Form 8-K/A of WSI Industries, Inc.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 29, 1999
17
