<PAGE>
UNITED STATES
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 (Date of earliest event reported): April 30, 1999
333-46235
(Commission File Number)
PRODUCTION RESOURCE GROUP, L.L.C.
(Exact name of Registrant as specified in its charter)
Delaware 14-1786937
(State or other jurisdiction of formation) (IRS Employer
Identification No.)
539 Temple Hill Road, New Windsor, New York 12553
(Address of principal executive offices) (Zip code)
(914) 567-5700
(Registrant's telephone number, including area code)
<PAGE>
Explanatory Note
The Current Report on Form 8-K of Production Resource Group, L.L.C. (the
"Company" or "PRG"), initially filed with the Securities and Exchange Commission
(the "Commission") on May 16, 1999 is hereby amended by this Form 8-K/A so as to
comply with Item 7 of Form 8-K and the provisions of Rule 3-05 of Regulation
S-X. The Form 8-K filed on May 16, 1999 reported, in Item 2 thereof, the
acquisition on April 30, 1999 of certain assets and liabilities of Ancha
Electronics, Inc. ("Ancha").
The historical financial statements for the most recent two fiscal years
preceding the acquisition of Ancha have been included in this Form 8-K/A. The
pro forma effects of the acquisition of Ancha on the Company's financial
position at December 31, 1998 and results of operations for the years ended
December 31, 1998 and 1997 are also presented in this Form 8-K/A.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired
Ancha was acquired by the Company on April 30, 1999. The audited financial
statements of Ancha, as of December 31, 1998, and for the years ended December
31, 1998 and December 31, 1997, and the related Independent Auditor's Report
are located at Addendum I.
(b) Pro Forma Financial Information
The pro forma combined balance sheet as of December 31, 1998 and pro forma
combined statements of operations for the years ended December 31, 1998 and
1997 are located at Addendum II.
(c) Exhibits
Exhibit No. Document Description
- ----------- --------------------
10.14 Acquisition Agreement, dated April 28, 1999, among Production
Resource Group, L.L.C., as Buyer, Ancha Electronics, Inc., as
Seller, and Robert F. Ancha and Bruce D. Gauger, as
Shareholders of Ancha Electronics, Inc. (incorporated by
reference from Form 8-K filed on May 16, 1999).
<PAGE>
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, thereunto duly authorized.
PRODUCTION RESOURCE GROUP, L.L.C.
Dated: July 14, 1999 By /s/ ROBERT A. MANNERS
------------------------------------
Robert A. Manners
Sr. Vice President, Business Affairs and
General Counsel
<PAGE>
Addendum I.
CONTENTS
Page No.
Auditors' report 1
Balance sheets - December 31, 1998 and 1997 2
Statements of operations and comprehensive income 4
Statements of changes in stockholders' equity 5
Statements of cash flows 6
Notes to financial statements 8
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
ANCHA ELECTRONICS, INC.
Rolling Meadows, Illinois
We have audited the accompanying balance sheets of ANCHA ELECTRONICS, INC. (an
Illinois corporation) as of December 31, 1998 and 1997, and the related
statements of operations and comprehensive income, changes in stockholders'
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 audit.
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, 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 ANCHA ELECTRONICS, INC. as of
December 31, 1998 and 1997, and results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Palatine, Illinois A Professional Corporation
June 7, 1999
-1-
<PAGE>
ANCHA ELECTRONICS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---------- ----------
CURRENT ASSETS:
Cash $ 123,422 $ 189,973
---------- ----------
Receivables:
Accounts, trade 2,600,798 5,261,190
Retainages 126,177 189,121
Notes - employees 14,308 5,752
Former stockholder - Rhema Systems 0 102,623
---------- ----------
2,741,283 5,558,686
Less - allowance for doubtful accounts (44,785) (113,558)
---------- ----------
2,696,498 5,445,128
---------- ----------
Refundable income taxes 35,000 0
Inventory 1,126,546 1,449,707
Costs in excess of billings
on uncompleted contracts 78,481 133,068
Prepaid expenses 0 48,179
Prepaid insurance 7,366 9,705
Deposits and bid bonds 17,812 16,354
---------- ----------
Total current assets 4,085,125 7,292,114
---------- ----------
INVESTMENTS:
Marketable equity securities 556,259 542,202
---------- ----------
FIXED ASSETS - AT COST:
Automobiles and trucks 206,171 211,030
Office furniture and equipment 562,064 564,369
Office computers and software 372,412 252,989
Shop equipment 211,182 208,973
Rental equipment 0 395,300
Leasehold improvements 45,128 98,648
---------- ----------
1,396,957 1,731,309
Less - allowance for depreciation
and amortization (1,160,195) (1,126,729)
---------- ----------
Total fixed assets 236,762 604,580
---------- ----------
OTHER ASSETS:
Goodwill - net of amortization 0 143,604
---------- ----------
Total other assets 0 143,604
---------- ----------
Total assets $4,878,146 $8,582,500
========== ==========
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
---------- ----------
CURRENT LIABILITIES:
Current portion of installment loans $ 0 $ 19,931
Line of credit - bank 1,200,000 1,350,000
Note payable - vehicle 4,012 10,482
Note payable - stockholder 0 744,202
Note payable - Hawaii Department of Business 0 151,894
Note payable - other 5,764 9,607
Accounts payable 487,116 944,354
Reserve for restructuring 310,000 0
Billing in excess of costs
on uncompleted contracts 56,755 413,951
Payroll taxes payable 0 12,260
Accrued wages and vacation payable 305,419 292,295
Accrued income taxes 0 16,200
Accrued sales tax payable 52,655 149,654
Accrued real estate taxes 124,000 123,500
Accrued interest payable 23,191 73,986
Accrued distributions to stockholders 0 5,300
Commitments and contingencies
---------- ----------
Total current liabilities 2,568,912 4,317,616
---------- ----------
LONG-TERM DEBT:
Salary continuation payable 566,543 556,866
Installment loans 0 27,876
---------- ----------
Total long-term debt 566,543 584,742
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock - no par value - authorized
20,000 shares, issued and outstanding
7,150 shares in 1998 and 7,100 shares
in 1997 8,938 8,875
Additional paid in capital 72,978 49,211
Retained earnings 1,675,405 3,603,596
Accumulated other comprehensive income (loss) (14,630) 18,460
---------- ----------
Total stockholders' equity 1,742,691 3,680,142
---------- ----------
Total liabilities and
stockholders' equity $4,878,146 $8,582,500
========== ==========
-3-
<PAGE>
ANCHA ELECTRONICS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net sales $14,241,405 100.00% $17,711,623 100.00%
Cost of goods sold 11,563,935 81.20 14,093,030 79.57
----------- ------ ----------- ------
Gross profit 2,677,470 18.80 3,618,593 20.43
Selling, general and
administrative expense: 3,877,672 27.23 3,182,497 17.97
----------- ------ ----------- ------
Operating income (loss) (1,200,202) (8.43) 436,096 2.46
Other income (expense):
Interest and
dividend income 26,647 .19 41,134 .23
Gain on sale of assets 79,850 .56 0 .00
Gain on sale
of investments 88,852 .62 19,280 .11
Loss from impairments (522,000) (3.67) 0 .00
Loss from restructuring (310,000) (2.17) 0 .00
Interest expense (134,743) (.94) (191,105) (1.07)
----------- ------ ----------- ------
Income (loss) before
provision for income
taxes (1,971,596) (13.84) 305,405 1.73
Benefit from (provision
for) state income taxes 45,326 .32 (17,744) (.10)
----------- ------ ----------- ------
Net income (loss) (1,926,270) (13.52) 287,661 1.63
Other comprehensive income:
Unrealized holding
gains (losses) on
securities (33,090) (.23) 18,460 .10
----------- ------ ----------- ------
Comprehensive
income (loss) $(1,959,360) (13.75)% $ 306,121 1.73%
=========== ====== =========== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
ANCHA ELECTRONICS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholders'
Stock Capital Income (Loss) Earnings Equity
----- ------- ------------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1996 $8,888 $ 55,977 $ $3,323,695 $3,388,560
Comprehensive Income:
Net income for 1997 287,661 287,661
Other Comprehensive
Income:
Unrealized holding gain
on securities net of
reclassification
adjustment (see
disclosure) 18,460 18,460
Distribution to Stockholders (7,760) (7,760)
Common stock issued-50 shares 62 23,767 23,829
Common stock redeemed-60 shares (75) (30,533) (30,608)
----- -------- ----------- ---------- ----------
Balance - December 31, 1997 8,875 49,211 18,460 3,603,596 3,680,142
Comprehensive Income:
Net loss for 1998 (1,926,270) (1,926,270)
Other Comprehensive Loss:
Unrealized holding (loss)
on securities, net of
reclassification
adjustment (see
disclosure) (33,090) (33,090)
Common stock issued-50 shares 63 23,767 23,830
Distribution to
stockholders (1,921) (1,921)
------ --------- ------------ ---------- ----------
Balance -
December 31, 1998 $8,938 $ 72,978 $ (14,630) $1,675,405 $1,742,691
====== ========= =========== ========== ==========
</TABLE>
Year Ended December 31,
-----------------------
1997 1998
---- ----
Disclosure of Reclassification Amounts:
Unrealized holding gains
arising during period $ 37,740 $ 55,762
Less: reclassification adjustment
for (gains) included in
net income (19,280) (88,852)
---------- ----------
Net unrealized gains (losses)
on securities $ 18,460 $ (33,090)
========== ==========
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
ANCHA ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,926,270) $ 287,661
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 183,662 142,592
(Gain) on sale of assets (79,850) 0
(Gain) on sale of investments (88,852) (19,280)
Loss from impairments 522,000 0
(Increase) decrease in:
Accounts receivable 2,723,336 (1,027,230)
Note receivable - employees 41,444 (46,496)
Inventory 323,161 (22,032)
Costs in excess of billings
on uncompleted contracts 54,587 (133,068)
Prepaid insurance 2,339 48,050
Prepaid expenses 48,179 (36,522)
Prepaid rent 0 24,931
Deposits and bid bonds (1,458) (5,418)
Increase (decrease) in:
Accounts payable (457,238) 182,428
Reserve for restructuring 310,000 0
Accrued payroll taxes (12,260) 12,260
Accrued wages and vacation payable 13,124 92,302
Accrued state income taxes (51,200) 9,993
Accrued sales tax payable (96,999) 28,791
Accrued real estate taxes 500 4,900
Billings in excess of cost on
uncompleted contracts (357,196) 305,141
Accrued interest payable (50,795) 51,195
Salary continuation payable 9,677 8,393
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 1,109,891 (91,409)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 528,404 0
Purchase of fixed assets and
leasehold improvements (480,079) (630,899)
Purchase of investments (513,626) (724,923)
Proceeds from sale of investments 555,336 710,351
Acquisition of Rhema Systems (188,547) (150,286)
----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (98,512) (795,757)
----------- -----------
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
ANCHA ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings - short term $ 0 $ 1,050,069
Debt reduction - short term (1,076,340) 0
Debt reduction - long term (18,199) 0
Distributions paid (7,221) (2,460)
Issuance of common stock 23,830 23,829
Redemption of common stock 0 (30,608)
----------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (1,077,930) 1,040,830
----------- -----------
NET INCREASE (DECREASE) IN CASH (66,551) 153,664
CASH AT BEGINNING OF YEAR 189,973 36,309
----------- -----------
CASH AT END OF YEAR $ 123,422 $ 189,973
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 185,538 $ 139,910
Income taxes paid $ 5,879 $ 7,751
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
ANCHA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Ancha Electronics, Inc. (the Company) sells and installs professional
sound, video and multi-media systems. The Company headquarters is in
Rolling Meadows, Illinois with branch offices in Tampa, Florida,
Norcross (Atlanta), Georgia, Dallas, Texas, and Waipahu (Honolulu),
Hawaii.
The Company uses the percentage of completion method under which
income is recognized as material, labor and overhead are expended on
a job. Under most contracts the Company issues interim bills for
time, material and overhead that have been provided to the date of
the bill.
Inventory which consists of finished goods is valued at the lower of
cost or market on a first-in, first-out basis. Write-downs due to
obsolete inventory amounted to $123,322 and $37,137 for the years
ended December 31, 1998 and 1997, respectively.
Material, labor, overhead, and profit expended on contracts in
process that were not billed amounted to $78,481 and $133,068 at
December 31, 1998 and 1997, respectively. Amounts that were billed to
customers for which material, labor, overhead and profit had not been
expended amounted to $56,755 and $413,951 at December 31, 1998 and
1997, respectively.
Maintenance and repair items are charged to expense when incurred;
renewals and improvements are capitalized.
Fixed assets are depreciated by using the straight-line and
accelerated methods over the expected useful life of the assets.
Depreciation expense amounted to $183,662 and $142,592 for the years
ended December 31, 1998 and 1997, respectively.
The Company's policy is to maintain an allowance for bad debts which
is based on historical experiences and account review. Bad debt
expense (recoveries) amounted to $144,103 and ($18,965) for the years
ended December 31, 1998 and 1997, respectively.
The Company has adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS No. 130").
Comprehensive income (loss) represents the change in net assets of a
business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Comprehensive income
(loss) of the Company includes net income (loss) adjusted
-8-
<PAGE>
ANCHA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
for the change in net unrealized gain or loss on marketable
securities. The net effect of income taxes on comprehensive income
(loss) is immaterial. The disclosures required by SFAS No. 130 for
the years ended December 31, 1998 and 1997 have been included in the
Statements of Stockholders' Equity.
Cash flows - The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash
equivalents.
On April 30, 1997 the Company acquired the assets and assumed the
liabilities of Rhema Systems, Inc. which had an audio-video
contractor division and a sound system rental division. At the date
of acquisition Rhema Systems, Inc. had assets totaling $1,065,644 and
liabilities amounting to $1,215,930. The difference between the
liabilities assumed and the assets acquired which amounts to $150,286
has been classified as goodwill in the balance sheet under other
assets and is being amortized using the straight-line method over 15
years.
In conjunction with the acquisition of Rhema Systems, Inc., the
Company acquired a receivable from the sole stockholder in the amount
of $102,623, of which $52,623 was reserved for being doubtful. In
1998, this receivable was deemed worthless and was reclassified to
goodwill. During 1998 Ancha Electronics, Inc. incurred litigation and
other costs regarding the acquisition of Rhema Systems, Inc. which
amounted to approximately $135,000 and has been classified as
goodwill. The above litigation was settled during 1998.
2. SALARY REDUCTION PLAN:
During the year ended December 31, 1987 the Company established, for
the benefit of all employees, a Salary Reduction Plan in accordance
with Section 401(K) of the Internal Revenue Service. For the years
ended December 31, 1998 and 1997 the Company contributed $54,230 and
$50,042, respectively to the Plan. Effective as of January 1, 1999
the Company discontinued making matching contributions to the Plan.
-9-
<PAGE>
ANCHA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
3. NOTES PAYABLE:
The Company has a $2,000,000 unsecured line of credit with interest
payable at the prime rate. The agreement expires April 30, 1999.
Amounts borrowed against the line of credit amounted to $1,200,000
and $1,350,000 at December 31, 1998 and 1997 respectively.
The Company has a $744,202 note payable to its majority stockholder
at December 31, 1997 with interest payable at 8% which matured on May
28, 1998.
The Company assumed in its acquisition of Rhema Systems, Inc., a
$151,894 note payable to the Hawaii Department of Business, Economic
Development & Tourism which is classified as a current liability.
This note matured on July 31, 1997 and payment of the note was being
withheld at December 31, 1997 pending negotiations with the former
owner of Rhema Systems, Inc. The note bears an interest rate of 5%.
The Company paid this note in 1998.
The Company assumed, in its acquisition of Rhema Systems, Inc., an
installment loan for the purchase of sound equipment which matures on
March 30, 2000 and has monthly payments of $1,985, including interest
at 10%. On October 5, 1998, the rental division in Hawaii was sold.
The installment loan was assumed by the purchaser.
The Company assumed, in its acquisition of Rhema Systems, Inc., an
installment loan for the purchase of office equipment which amounted
to $5,764 and $9,607 at December 31, 1998 and 1997, respectively, and
is classified as note payable - other under current liabilities.
4. LEASES:
The Company is currently leasing the buildings in which its offices
are located. The current leases expire in various years through 2002.
Future minimum lease payments (including estimated real estate taxes)
are as follows:
1999 $ 481,082
2000 471,953
2001 277,845
2002 54,078
----------
$1,284,958
==========
Rental expense for operating leases amounted to $529,121 in 1998 and
$503,524 in 1997.
-10-
<PAGE>
ANCHA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
5. RELATED PARTY TRANSACTIONS:
The Company leases one of its facilities from a partnership in which
the Company majority stockholder is a partner. This lease is for five
years commencing July 1, 1996. The total rental payments were $197,566
in 1998 and $197,556 in 1997.
6. SALARY CONTINUATION PLAN:
The Company has established a salary continuation plan for the benefit
of certain key personnel. The plan is designed to pay out a stipulated
amount for ten years after the retirement or death of key persons
covered. The present value of the payments to be made under the plan
are shown in the balance sheet under long term debt salary
continuation payable. The Plan distributed $45,000 and $31,250 to
participants and expensed $54,677 and $39,643 during the years ended
December 31, 1998 and 1997, respectively.
7. MARKETABLE EQUITY SECURITIES:
The Company considers its marketable securities to be "available for
sale", as defined by Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities,
and, accordingly, unrealized holding gains and losses are excluded
from operations and reported as a net amount in a separate component
of stockholders' equity.
Marketable equity securities activity for the years ended December
31, 1998 and 1997 which are reflected in these financial statements
are as follows:
1998 1997
---- ----
Interest and dividend income $ 20,965 $ 32,148
Gain on sale of investments 88,852 19,280
Unrealized holding gain (loss) (33,090) 18,460
Investment fees paid 4,575 2,287
Fair market value 556,259 542,202
Original cost 570,889 523,742
8. INCOME TAXES:
Effective November 1, 1986 Ancha Electronics, Inc. elected, under the
provisions of the Internal Revenue Code, to be an S Corporation. As a
result of this election, the taxable income of the corporation is
taxed to its stockholders. The Company is obligated to pay state
income taxes.
-11-
<PAGE>
ANCHA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
8. INCOME TAXES (CONTINUED):
Generally accepted accounting principles require that the Company
establish certain liabilities and reserves which result in deductions
on the financial statement which are not deductible for income tax
purposes until they are actually paid. These amounts are listed below
and will result in future tax benefits to the stockholders:
1998 1997
---- ----
Inventory adjustment under
Code Section 263A $155,528 $122,644
Allowance for doubtful accounts 44,785 60,884
Accrued vacation pay 137,571 143,787
Salary continuation payable 566,543 556,866
-------- --------
$904,427 $884,181
======== ========
9. CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to credit
risk consist principally of cash deposits in excess of federally
insured limits. This amounted to $20,361 at December 31, 1998.
Concentrations of credit risk with respect to trade receivables are
limited due to the number of customers comprising the Company's
customer base and their dispersion across many different industries
and geographies.
10. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
11. RECLASSIFICATIONS:
The financial statement presentation for 1997 has been changed to
conform with the presentation in 1998. Such reclassification had no
effect on net income as previously reported.
-12-
<PAGE>
ANCHA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
12. GAIN ON SALE OF ASSETS:
On October 5, 1998 the Company sold the Hawaii rental division that
was acquired on April 30, 1997 which resulted in a gain of $66,953.
One-half of the goodwill incurred in the acquisition of Rhema Systems,
Inc. was included in the cost of the assets sold.
13. IMPAIRMENT OF LONG-LIVED ASSETS:
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes of circumstances indicate that the related
carrying amounts may not be recoverable, such as a change in expected
future undiscounted cash flows. When required, impairment losses on
assets to be held and used are recognized based on the excess of the
asset's carrying amount over its fair value as determined by selling
prices for similar assets or the best available information.
The Company has commenced to close down its Hawaii operation and
anticipates that it will incur a loss of approximately $226,000 due to
the excess of the carrying value of assets over their fair value.
The Company has also invested approximately $296,000 in computer
software which has been abandoned and will result in a loss of
approximately $296,000.
The above impairments are shown in the statements of Operations and
Comprehensive Income and are titled "Loss From Impairments".
14. LOSS FROM RESTRUCTURING:
In addition to the loss from impairment as noted in Footnote 13, the
Company anticipates that the close down of its Hawaii operation will
result in a loss of approximately $310,000. The above loss is shown in
the statements of operations and comprehensive income and is titled
"Loss From Restructuring".
-13-
<PAGE>
ANCHA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
15. SUBSEQUENT EVENTS:
On April 30, 1999 Ancha Electronics, Inc. (the Company) sold
substantially all of its assets except for marketable equity
securities, refundable income taxes (which at December 31, 1998 were
valued at $556,259 and $35,000, respectively) and certain other
excluded assets. The purchaser also assumed substantially all of the
Company's liabilities except for the salary continuation payable which
amounted to $566,543 at December 31, 1998, and certain other excluded
liabilities. The purchaser has paid $2,000,000 and in addition has
placed $500,000 into an escrow account which is to be paid upon the
timely receipt by the purchaser of audited financial statements for
the years ended December 31, 1998 and 1997.
The Purchaser has also issued 2,666 of his Preferred Units in
consideration for the above. The Preferred Units will have a
liquidation preference of $100,000 and will convert into an equal
number of Regular Units upon an initial public offering or a sale of
substantially all of the business of the Purchaser. Ancha is required
to pledge its units (without other recourse) to the Purchaser's Bank
as additional security for the Purchaser's borrowings.
In addition to the above, the Purchaser may be required to make
additional payments based on the future earnings of Purchaser's Ancha
Division through April 30, 2004.
Ancha Electronics, Inc. has changed its name to B & B Liquidating
Corporation in conjunction with the above sale.
The gain that resulted from this transaction is not reflected in these
financial statements.
-14-
<PAGE>
Addendum II.
Pro Forma Combined Financial Information
In 1997 and 1998, PRG completed the following acquisitions (collectively
referred to as "Other Acquisitions"):
In June 1997, PRG acquired substantially all the assets and assumed
certain liabilities of Design Dynamics, Inc. ("DDE").
In August 1997, PRG acquired substantially all the assets of five
companies operating under the name of Bash ("Bash").
In January 1998, PRG acquired substantially all the assets and assumed
certain liabilities of Pro-Mix, Inc. ("Pro-Mix")
In June 1998, PRG acquired Light and Sound Designs Holdings Limited
("Holdings"). In addition, PRG acquired substantially all the assets
and assumed certain liabilities of Production Arts Lighting Inc.
and affiliated companies (collectively "Production Arts").
In July 1998, PRG acquired substantially all the assets and assumed
certain liabilities of CBE Events and Exhibits, Inc. ("CBE").
In August 1998, PRG acquired Signal Perfection, Ltd. ("SPL").
In October 1998, PRG acquired Production Lighting Systems, Inc.
("PLS").
In November 1998, PRG acquired Haas Multiples Environmental Marketing &
Design, Inc. ("Haas").
In December 1997, PRG issued $100,000,000 of Senior Subordinated Notes (the
"Offering"). The proceeds from the Offering were used to repay existing bank
indebtedness and to purchase the net assets of Pro-Mix and for working capital
requirements.
<PAGE>
The following unaudited pro forma combined statements of operations for the
years ended December 31, 1998 and December 31, 1997 give effect to the Ancha
acquisition, Other Acquisitions, the Offering and financing under the Company's
Credit Facility. In addition, they are based on the historical financial
statements of the Company, Ancha and the historical results of operations of the
Other Acquisitions. The financial statements for Holdings are for the year ended
March 31, 1998 and for the period January 1, 1998 to June 19, 1998. The
historical results of operations of Holdings have been adjusted to conform to
generally accepted accounting principles of the United States and have been
translated into United States dollars based upon appropriate exchange rates. The
historical results of operations of SPL are for the year ended February 28, 1998
and for the period January 1, 1998 to August 13, 1998. The unaudited pro forma
combined statements of operations gives effect to the combinations under the
purchase method of accounting.
The unaudited pro forma combined balance sheet as of December 31, 1998 reflects
the effect of the acquisition of Ancha on the Company's balance sheet. The
effect of the Other Acquisitions, which closed prior to December 31, 1998, was
reflected in the Company's December 31, 1998 balance sheet, which was included
in the Form 10-K filed for such period.
The unaudited pro forma combined statements of operations have been prepared by
the management of the Company, Ancha, and the Other Acquisitions based upon
historical information included herein and other financial information. These
pro forma statements do not purport to be indicative of the combined results of
operations or financial position which would have been achieved had the
transactions described above taken place at the dates indicated and should not
be construed as representative of the Company's combined financial position or
combined results of operations for any future date or period. The pro forma
combined statements of operations should be read in conjunction with (i) the
Company's historical financial statements and notes contained in the Company's
annual reports on Form S-4 and Form 10-K and the Company's quarterly reports on
Form 10-Q and (ii) the historical financial statements of Ancha and the Other
Acquisitions contained in Forms 8-K filed by the Company in connection with its
various acquisitions.
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
Unaudited Pro Forma Combined Statement of Operations
For the Year ended December 31, 1997
($ In thousands)
<TABLE>
<CAPTION>
Other
Acquisitions Ancha
Other Pro Forma Pro Forma Pro Forma
PRG Acquisitions Ancha Adjustments Adjustments Combined
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 75,180 $ 132,459 $ 17,712 $225,351
Direct production expenses:
Direct production costs 46,131 78,909 14,003 139,043
Depreciation expense 6,181 7,119 90 13,390
--------------------------------------- -------------------------------------------
52,312 86,028 14,093 152,433
--------------------------------------- -------------------------------------------
Gross profit 22,868 46,431 3,619 72,918
Selling, general and administrative
expenses 16,185 29,485 3,130 $(1,211) 1 47,589
Other depreciation and amortization 2,182 1,198 52 1,537 2 $ 57 6 5,026
Non-recurring compensation expense 2,125 - - (2,125) 3 -
--------------------------------------- -------------------------------------------
Operating profit 2,376 15,748 437 1,799 (57) 20,303
Interest expense 3,956 903 191 10,996 4 200 6 16,246
Interest (income) (117) (82) (60) (259)
--------------------------------------- -------------------------------------------
Income (loss) from continuing operations
before income taxes, extraordinary item
and minority interest (1,463) 14,927 306 (9,197) (257) 4,316
Provision for income taxes 392 2,808 17 3,217
--------------------------------------- -------------------------------------------
Income (loss) from continuing operations (1,855) 12,119 289 (9,197) (257) 1,099
Discontinued operations:
Loss from discontinued Themed Attraction
Permanent Installation Business (5,302) - (5,302)
--------------------------------------- -------------------------------------------
Income (loss) before minority interest and
extraordinary item (7,157) 12,119 289 (9,197) (257) (4,203)
Minority interest (126) 5 (126)
Extraordinary item (614) (614)
======================================= ===========================================
Net income (loss) $ (7,771) $ 12,119 $ 289 $(9,323) $ (257) $ (4,943)
======================================= ===========================================
</TABLE>
<PAGE>
($ In thousands)
Other Acquisitions:
1. To record the difference between certain executive compensation of $12,
$495, $380 and $324 from historical levels to amounts payable under
employment contracts entered into in connection with the acquisitions of
the net assets of Design Dynamics, Bash, Pro-Mix and Haas.
2. To record the estimated increase in amortization expense as follows:
Acquisition Amortization Period Amount
- ----------- ------------------- ------
DDE 15 years $ 84
Bash 15 years 484
Pro-Mix 25 years 44
Holdings 25 years 300
Production Arts 25 years 195
CBE 15 years 47
SPL 25 years 190
Haas 25 years 193
------
$1,537
======
3. To eliminate non-recurring compensation expense paid to the two
shareholders of Bash and a shareholder of Design Dynamics upon their
execution of employment agreements with the Company.
4. Reflects adjustments to interest expense as follows:
Interest on Senior Subordinated Notes $ 11,500
Elimination of interest expense on credit facility indebtedness (3,551)
Elimination of interest expense related to acquisitions (360)
Amortization of deferred financing costs related to Offering of Notes 370
Interest expense on borrowings to fund acquisitions 3,037
--------
$ 10,996
========
5. To record minority interest related to the Holdings acquisition for the
period.
Ancha Acquisition:
6. To record the estimated goodwill amortization attributed to Ancha,
amortized over 15 years, and to record the estimated additional interest
expense on borrowings related to the Ancha acquisition.
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
Unaudited Pro Forma Combined Statements of Operations
For the Year ended December 31, 1998
($ In thousands)
<TABLE>
<CAPTION>
Other
Acquisitions Ancha
Other Pro Forma Pro Forma Pro Forma
PRG Acquisitions Ancha Adjustments Adjustments Combined
----------- ------------ ----------- ------------ -- ----------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 174,603 $ 70,728 $ 14,241 $ 259,572
Direct production expenses:
Direct production costs 107,857 45,091 11,466 164,414
Depreciation expense 11,257 3,185 98 14,540
----------- ---------- --------- --------- -- ------- ---- -----------
119,114 48,276 11,564 178,954
----------- ---------- --------- --------- -- ------- ---- -----------
Gross profit 55,489 22,452 2,677 80,618
Selling, general and administrative
expenses 37,393 14,965 3,712 $(1,171) 7 54,899
Other depreciation and amortization 4,005 142 86 426 8 $ 57 10 4,716
----------- ---------- --------- --------- -- ------- ---- -----------
Operating profit (loss) 14,091 7,345 (1,121) 745 (57) 21,003
Loss on impairments and restructuring
charges 1,822 832 2,654
Interest expense 14,769 460 135 1,284 9 188 10 16,836
Interest (income) (674) (20) (90) (784)
----------- ---------- --------- --------- -- ------- ---- -----------
Income (loss) before income taxes and
minority interest (1,826) 6,905 (1,998) (539) (245) 2,297
Provision for (benefit from) income taxes 1,712 1,067 (45) 2,734
----------- ---------- --------- --------- -- ------- ---- -----------
Income (loss) from continuing operations (3,538) 5,838 (1,953) (539) (245) (437)
Discontinued operations:
Loss from discontinued Themed Attraction
Permanent Installation Business (2,357) (2,357)
Minority interest (72) (72)
----------- ---------- --------- --------- -- ------- ---- ------------
Net income (loss) $ (5,967) $ 5,838 $ (1,953) $ (539) $ (245) $ (2,866)
=========== ========== ========= ========= == ======= ==== ===========
</TABLE>
($ In thousands)
7. To record the difference between certain executive compensation from
historical levels to amounts payable under employment contracts entered
into in connection with the acquisitions of the net assets of Design
Dynamics, Bash, Pro-Mix and Haas.
8. To record the estimated increase in goodwill amortization attributable to
the acquisitions of Holdings, Production Arts, CBE, SPL, PLS and Haas, as
follows:
Acquisition Amortization Period Amount
----------- ------------------- ------
Holdings 25 years $170
Production Arts 25 years 88
CBE 15 years 87
SPL 25 years 65
Haas 25 years 16
------
$426
======
9. To record the estimated effect of interest expense on borrowings incurred
by the Company to fund the acquisitions of Holdings, Production Arts, CBE,
PLS and SPL, as follows:
Acquisition Amount
----------- ------
Holdings $ 498
Production Arts 439
CBE 94
SPL 169
PLS 84
------
$1,284
======
10. To record the estimated goodwill amortization attributed to Ancha,
amortized over 15 years, and to record the estimated additional interest
expense on borrowings related to the Ancha acquisition.
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
Unaudited Pro Forma Combined Balance Sheet
December 31, 1998
($ In thousands)
<TABLE>
<CAPTION>
Company
Pro Forma Pro Forma
PRG Ancha Adjustments Combined
------------- ------------ ------------ --- ----------
Assets
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 6,014 $ 123 $ (3,710) 11 $ 2,427
Accounts receivable - net 35,415 2,682 38,097
Deferred production expenses 958 78 1,036
Inventories 10,755 1,127 11,882
Other current assets 6,760 40 6,800
-------------- ------------- -------------- ---- ------------
59,902 4,050 (3,710) 60,242
Property and equipment - net 82,096 237 82,333
Goodwill - net 46,116 - 858 12 46,974
Other assets 7,992 556 (556) 13 7,992
============== ============= ============== ==== ============
Total assets $ 196,106 $ 4,843 $ (3,408) $ 197,541
============== ============= ============== ==== ============
Liabilities and Members' Equity (Deficit)
Current liabilities:
Current portion of long-term debt $ 8,046 $ 8,046
Notes payable $ 1,210 $ (1,210) 11 -
Accounts payable 16,725 487 17,212
Payroll and related costs 3,164 305 3,469
Income taxes payable (receivable) 1,659 (35) 35 13 1,659
Deferred revenue 4,797 57 4,854
Other current liabilities 12,368 509 12,877
-------------- ------------- -------------- ---- ------------
Total current liabilities 46,759 2,533 (1,175) 48,117
Long-term debt:
Senior Subordinated Notes 100,000 - 100,000
Credit Facilities 45,638 - 45,638
Other long-term debt 3,557 567 (567) 13 3,557
Minority interest 233 - 233
Members' equity (deficit) (81) - 77 14 (4)
Common stock - 9 (9) 13 -
Additional paid-in-capital - 73 (73) 13 -
Retained earnings - 1,661 (1,661) 13 -
============== ============= ============== ==== ============
$ 196,106 $ 4,843 $ (3,408) $ 197,541
============== ============= ============== ==== ============
</TABLE>
<PAGE>
($ In thousands)
11. To record the cash used to purchase Ancha of $2.5 million and to record
cash used to satisfy notes payable.
12. To record the estimated goodwill attributable to the acquisition of Ancha
of $858 based on their December 31, 1998 balance sheet.
13. To adjust for certain assets not acquired and certain liabilities not
assumed, and to adjust members' equity (deficit) for the elimination of
Ancha's stockholders' equity.
14. To record the issuance of 2,666 Preferred units of PRG to the seller with
an approximate fair value of $77.
