<PAGE>
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): May 24, 1995
Electronic Associates, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey
-----------------------------------------------------
(State or other jurisdiction of incorporation)
1-4680 21-0606484
- ------------------------ --------------------------------
(Commission File Number) (IRS Employer Identification No.)
185 Monmouth Parkway, West Long Branch, New Jersey 07764-9989
-------------------------------------------------------------
(Address of principal executive offices, including zip code)
(908) 229-1100
------------------------------
(Registrant's telephone number)
N/A
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events
On May 24, 1995, Electronic Associates, Inc. (the "Company") filed
Amendment No. 3 on Form S-3 ("Amendment on Form S-3") to the Form S-1
Registration Statement, as amended (Registration No. 33-81892), on file with the
Securities and Exchange Commission ("SEC") to (i) convert the Form S-1
Registration Statement into a Form S-3 Registration Statement and (ii) register
thereunder an aggregate of 10,600,523 shares of Common Stock of the Company for
public resale by certain selling stockholders. The Form S-1 Registration
Statement, as amended by Amendment on Form S-3, is hereinafter referred to as
the "Registration Statement".
The Company is filing this report to include in the Registration
Statement through incorporation by reference to this report (i) the audited
financial statements indicated under Item 7(a) below of Tanon Manufacturing,
Inc., a contract electronic manufacturing company acquired by the Company on
January 4, 1995 (as reported in the Company's Current Report on Form 8-K, dated
January 4, 1995, as amended), (ii) the audited financial statements indicated
under Item 7(a) below of BarOn Technologies Ltd., a development stage Israeli
company engaged in research and development of a computer device that can
directly digitize handwriting in a variety of languages from any surface, in
which the Company acquired a 25.01% equity interest (as reported in the
Company's Current Report on Form 8-K, dated January 16, 1995, as amended), and
(iii) the pro forma financial data regarding the Tanon acquisition and BarOn
investment indicated under Item 7(b) below, in satisfaction of the requirements
under Item 11(b) of the Form S-3 Registration Statement requirements under the
Securities Act of 1933, as amended.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
The audited balance sheet of Tanon Manufacturing, Inc. as of December
31, 1994 and related statements of operations, shareholders' equity and cash
flows for the year ended December 31, 1994 are attached as an exhibit to this
report.
The audited balance sheet of BarOn Technologies Ltd. as of December 31,
1994 and related statements of operations, shareholders' equity and cash flow
for the year ended December 31, 1994 are attached as an exhibit to this report.
(b) Pro Forma Financial Information.
The following Unaudited Pro Forma Combined Condensed Statements
of Operations for the year ended December 31, 1994, and three months
ended March 31, 1994, give effect to the consummation of the business
combination with Tanon contemplated by the Agreement and Plan of
Reorganization dated December 12, 1994 (the "Tanon Acquisition Agreement")
accounted for under the purchase method of accounting and the acquisition of
25.01% of the ordinary shares of BarOn contemplated by the BarOn Stock Purchase
Agreements ("BarOn Stock Purchase Agreements") between the Company and various
shareholders of BarOn and the BarOn Investment Agreement ("BarOn Investment
Agreement") between the Company and BarOn accounted for as a purchase of a
minority interest using the equity method of accounting. The Unaudited Pro Forma
Combined Condensed Statements of Operations are based on the historical
financial statements of the Company, Tanon and BarOn under the assumptions and
adjustments set forth in the accompanying Notes to the Unaudited Pro Forma
Combined Condensed Statements of Operations.
The Unaudited Pro Forma Combined Condensed Statements of Operations
assume that the acquisition of Tanon and investment in BarOn were
consummated on January 1, 1994, and that
-2-
<PAGE>
1,239,130 of the 1,482,744 shares of Common Stock of the Company purchased by
certain Class C Warrant holders upon exercise of their Class C Warrants at $4.60
per share in December 1994, were exercised on January 1, 1994.
The Pro Forma adjustments are based on the Tanon Acquisition
Agreement and the BarOn Stock Purchase Agreements and BarOn Investment
Agreement. For purposes of developing the Unaudited Pro Forma Combined Condensed
Statements of Operations in accordance with the purchase method of accounting,
the book values of Tanon's assets have been adjusted to estimated fair value,
identified intangible assets have been established at estimated fair value and
the excess purchase price has been assigned to goodwill. The excess of the
purchase price over the estimated fair value of the Company's 25.01% equity
interest in the net assets of BarOn has been determined to represent in-process
research and development with no alternative future use, and, accordingly has
been charged to expense on the effective date, January 16, 1995, of the BarOn
Stock Purchase Agreements and BarOn Investment Agreement. This charge, which was
estimated at $6,012,000, has not been reflected in the accompanying Unaudited
Pro Forma Combined Condensed Statements of Operations. While the Company's
management does not expect any material adjustments to these assignments, the
determination of the final assignment to goodwill with respect to the
acquisition of Tanon and in-process research and development with respect to the
investment in BarOn are subject to final evaluations and other studies of the
fair value of Tanon's and BarOn's assets and liabilities, including intangible
assets, which are currently in process.
In December 1994, in contemplation of the acquistion of Tanon,
the Company committed to a plan to close or sell its Southwest operations in
Tucson, Arizona and Nogales, Mexico. The Company also decided to substantially
consolidate its administrative facilities, which are located in West Long
Branch, New Jersey, into Fremont, California. In connection with these decisions
the Company recorded a provision for restructuring expense of $2,400,000 in the
fourth quarter of 1994. This charge is not reflected in the accompanying
Unaudited Pro Forma Combined Condensed Statements of Operations. Also, excluded
from the Unaudited Pro Forma Combined Condensed Statements of Operations are any
benefits which may result from the business combination with Tanon due to
synergies that may be derived and the elimination of duplicate efforts.
The Unaudited Pro Forma Combined Condensed Statements of
Operations may not be indicative of the results that actually would have
occurred if the acquisition of Tanon and the investment in BarOn had been in
effect on the dates indicated or which may be obtained in the future. The
Unaudited Pro Forma Combined Condensed Statements of Operations should be read
in conjunction with the historical financial statements and accompanying notes
for the Company, Tanon and BarOn.
-3-
<PAGE>
Unaudited Pro Forma Combined Condensed Statement Of Operations
For The Three Months Ended March 31, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro Forma Pro Forma
EAI Tanon Adjustments Combined
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Sales........................................................ $5,377 $11,353 $ -- $16,730
Cost and Expenses
Cost of Sales............................................. 5,062 10,383 3(a) 15,448
Selling, General and Administrative....................... 851 720 205(b) 1,776
Other Expenses, Net....................................... 125 192 71(c) 388
------- --------- -------- --------
Total Costs and Expenses........................... 6,038 11,295 279 17,612
------- -------- -------- --------
Net Loss.................................................. $ (661) $ 58 $ (279) $ (882)
========= ======= ======== ========
Loss Per Share of Common Stock............................... $ (.19) -- -- $ (.14)(d)
Weighted Average Number of Common
Stock Outstanding......................................... 3,408 -- 2,905 6,313
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined
Condensed Statements of Operations.
Unaudited Pro Forma Combined Condensed Statement Of Operations
For The Year Ended December 31, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro Forma Pro Forma
EAI Tanon Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales ................................................ $ 30,539 $ 50,735 $ -- $ 81,274
Cost and Expenses
Cost of Sales ..................................... 27,759 47,484 13(a) 75,256
Selling, General and Administrative ............... 4,591 2,768 820(b) 8,179
Nonrecurring (Expenses) Income .................... 2,400 -- (2,400)(e) --
Other Expenses, Net ............................... 573 638 245(c) 1,456
---------- ---------- ---------- ----------
Total Costs and Expenses ................... 35,323 50,890 (1,322) 84,891
---------- ---------- ---------- ----------
Net Loss .......................................... $ (4,784) $ (155) $ 1,322 $ (3,617)
========== ========== ========== ==========
Loss Per Share of Common Stock ....................... $ (.95) -- -- $ (.45)(d)
Weighted Average Number of Common
Stock Outstanding.................................. 5,052 -- 1,905 7,957
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Combined Condensed Statements of Operations.
-4-
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Statements of Operations
The Unaudited Pro Forma Combined Condensed Statements of Operations have
been prepared to reflect the business combination between the Company and
Tanon pursuant to the Tanon Acquisition Agreement, which was accounted for under
the purchase method of accounting, and the acquisition of 25.01% of the ordinary
shares of BarOn contemplated by the BarOn Stock Purchase Agreements between the
Company and various shareholders of BarOn and the BarOn Investment Agreement
between the Company and BarOn, which was accounted for as a purchase of a
minority interest using the equity method of accounting, as if the acquisitions
occurred January 1, 1994.
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) in the business combination with Tanon is being
amortized on a straight-line basis over a 20-year period. Further, management is
assessing the estimated fair value and estimated economic lives of other
acquired intangibles. To the extent such intangibles are identified,
amortization expense based on their estimated useful lives will be reflected in
the Company's future consolidated statements of operations.
The excess of the purchase price over the estimated fair value of the
Company's 25.01% equity interest in the net assets of BarOn has been
determined to be in-process research and development with no alternative future
use, and, accordingly has been charged to expense on the effective date of the
BarOn Stock Purchase Agreements and the BarOn Investment Agreement (January 16,
1995). This charge, which was estimated at $6,012,000, has not been reflected
in the accompanying Unaudited Pro Forma Combined Condensed Statements of
Operations.
The following is a summary of pro forma adjustments reflected in the
Unaudited Pro Forma Combined Condensed Statements of Operations:
a) Represents the increase in depreciation resulting from the
adjustment to Tanon's fixed assets to reflect estimated fair value.
b) Represents amortization of estimated goodwill which arose from the
business combination with Tanon of $10,597,000 over a period of
20 years and amortization of the estimated value of acquired
Tanon customer relationships of $1,740,000 over a period of
6 years.
c) Represents the Company's 25.01% share of the net loss of BarOn for
the period presented under the equity method of accounting.
d) Pro forma combined loss per share amounts as presented in the
accompanying unaudited Pro Forma Combined Condensed Statements of
Operations are based on the combined weighted average number of
shares of Common Stock of the
-5-
<PAGE>
Company outstanding for each period presented, adjusted to reflect
the additional 1,538,462 shares of Common Stock of the Company
which were issued to Tanon shareholders at the conversion rate of a
.91033 share of Common Stock of the Company for each share of
Tanon Common Stock pursuant to the Tanon Acquisition Agreement, the
127,592 shares of Common Stock of the Company to be contributed to
the capital of BarOn pursuant to the BarOn Investment Agreement,
and the 1,239,130 shares of Common Stock of the Company issued to
certain Class C Warrant holders of the Company upon exercise of
their Class C Warrants in December, 1994 at $4.60 per warrant, the
proceeds from which amounted to approximately $5,700,000 and were
used to finance the $2,700,000 cash paid to various shareholders of
BarOn pursuant to the BarOn Stock Purchase Agreements and the
$3,000,000 cash contributed to the capital of BarOn pursuant to
the BarOn Investment Agreement.
e) Represents the elimination of $2,400,000 of restructuring reserve
established in the fourth quarter of 1994.
(c) Exhibits
Exhibit
No. Description
- ------- ------------
99.1 The audited balance sheet of Tanon Manufacturing, Inc. as of December
31, 1994 and related statements of operations, shareholders' equity and
cash flows for the year ended December 31, 1994.
99.2 The audited balance sheet of BarOn Technologies Ltd. as of December
31, 1994 and related statements of operations, shareholders' equity and
cash flow for the year ended December 31, 1994.
-6-
<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 hereto duly authorized.
ELECTRONIC ASSOCIATES, INC.
---------------------------
Registrant
By: /s/ Jonathan R. Wolter
-----------------------
JONATHAN R. WOLTER
Treasurer and Vice President, Finance
(Principal Financial and Accounting
Officer)
Date: June 8, 1995
-7-
EXHIBIT 99.1
------------
Audited Financial Statements of Tanon Manufacturing, Inc.
as of December 31, 1994
<PAGE>
TANON MANUFACTURING, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Tanon Manufacturing, Inc.
We have audited the accompanying balance sheet of Tanon Manufacturing, Inc. (a
California corporation) as of December 31, 1994, and the related statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
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 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 Tanon Manufacturing, Inc. as of
December 31, 1994, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
San Jose, California
March 3, 1995
<PAGE>
TANON MANUFACTURING, INC.
-------------------------
BALANCE SHEET
-------------
AS OF DECEMBER 31, 1994
-----------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 890
Accounts receivable, net of allowance for doubtful accounts of $100 8,580
Inventories 4,782
Prepaid expenses and other current assets 1,087
Deferred income taxes 175
---------
Total current assets 15,514
---------
EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS, net of accumulated depreciation 2,058
---------
DEFERRED INCOME TAXES, net of current portion 246
---------
OTHER ASSETS 74
---------
$ 17,892
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Bank line of credit $ 5,500
Current portion of long-term debt 680
Accounts payable 6,217
Accrued expenses and other current liabilities 574
Income taxes payable 319
---------
Total current liabilities 13,290
---------
DEFERRED RENT, net of current portion 509
---------
LONG-TERM DEBT, net of current portion 805
---------
COMMITMENTS (NOTE 5) --
SHAREHOLDERS' EQUITY:
Common stock, no par value; 10,000,000 shares authorized;
1,955,957 shares issued and outstanding 2,102
Notes receivable from shareholders (60)
Retained earnings 1,246
---------
Total shareholders' equity 3,288
---------
$ 17,892
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
TANON MANUFACTURING, INC.
-------------------------
STATEMENT OF OPERATIONS
-----------------------
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
SALES $ 50,735
COST OF SALES 47,484
----------
Gross profit 3,251
SALES, GENERAL AND ADMINISTRATIVE EXPENSES 2,768
Income from operations 483
INTEREST EXPENSE, net 638
----------
Loss before provision for income taxes (155)
PROVISION FOR INCOME TAXES --
----------
Net loss $ (155)
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
TANON MANUFACTURING, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
---------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK RECEIVABLE TOTAL
---------------------- FROM RETAINED SHAREHOLDERS'
SHARES AMOUNT SHAREHOLDERS EARNINGS EQUITY
----------- --------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 1,790,000 $ 112 $ (80) $ 1,466 $ 1,498
Issuance of common stock to EAI 265,957 2,000 -- -- 2,000
Repurchase of common stock (100,000) (10) 20 (65) (55)
Net loss -- -- -- (155) (155)
----------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1994 1,955,957 $ 2,102 $ (60) $ 1,246 $ 3,288
=========== ========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
TANON MANUFACTURING, INC.
STATEMENT OF CASH FLOWS
-----------------------
YEAR ENDED DECEMBER 31, 1994
----------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (155)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,030
Deferred income taxes (189)
Deferred rent 291
Changes in operating assets and liabilities-
Accounts receivable (2,685)
Inventories (652)
Prepaid expenses and other current assets (936)
Income taxes receivable 157
Accounts payable 864
Accrued expenses and other current liabilities (484)
Income taxes payable 319
---------
Net cash used in operating activities (2,440)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (162)
Proceeds from sale of equipment 35
Deposits 16
---------
Net cash used in investing activities (111)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank line of credit 1,728
Principal payments on long-term debt and capital lease obligations (747)
Repurchase of common stock (55)
Proceeds from issuance of common stock to EAI 2,000
---------
Net cash provided by financing activities 2,926
---------
NET INCREASE IN CASH 375
CASH AT BEGINNING OF YEAR 515
---------
CASH AT END OF YEAR $ 890
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
TANON MANUFACTURING, INC.
-------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1994
-----------------
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
1. BUSINESS COMBINATION
--------------------
Tanon Manufacturing, Inc. (the "Company") was incorporated in California in
1982 and is engaged in providing contract electronic manufacturing services to
original equipment manufacturers.
On January 4, 1995, the Company was acquired by Electronic Associates, Inc.
("EAI"), a New Jersey corporation, according to the terms of an Agreement which
provide that the Company will be merged into EA Acquisition Corporation ("EA
Acquisition"), a Pennsylvania corporation, which is a wholly-owned subsidiary of
EAI and has been formed solely for the purpose of effectuating the acquisition
of the Company. EAI operates as a contract manufacturer in the electronics
industry.
On January 4, 1995, EAI issued 1,538,462 shares of its common stock in
exchange for all of the outstanding shares of common stock of the Company.
Subsequently, EA Acquisition and the Company filed articles of merger providing
that EA Acquisition will merge into the Company, which will remain as the
surviving entity and wholly-owned subsidiary of EAI. The merger is structured as
a tax-free exchange according to Section 368(a)(II)(E) of the Internal Revenue
Code.
On December 30, 1994, EA Acquisition purchased 265,957 shares of the common
stock of the Company for $2 million, of which $1 million was received in cash
and $1 million was provided by the conversion of a $1 million note payable to
EAI by the Company.
In addition to the exchange of shares between EAI and the Company, EAI
granted to option holders of the Company, in exchange for their existing options
to purchase common shares of the Company, options to purchase approximately
201,000 shares of EAI's common stock at a weighted average exercise price of
$1.05 per share. The terms of the Agreement also provide that EAI will use its
best efforts to loan to, or invest in, up to an additional $5 million in the
Company, subject to the receipt by EAI of an acceptable operating plan by the
Company. EAI intends to continue the operations of the Company following the
merger.
Included in other current assets at December 31, 1994, is approximately
$342 of acquisition related expense incurred by the Company that are expected
to be reimbursed by EAI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Revenue Recognition
- -------------------
Sales are recognized upon shipment of products to customers or, in the case
of one customer, for whom manufacturing services require up to two months for
completion, upon progress billings based upon actual costs incurred.
<PAGE>
Inventories
- -----------
Inventories are stated at the lower of weighted average cost (first-in,
first-out) or market, and include material, labor and manufacturing overhead. As
of December 31, 1994, the components of inventories consist of the following.
<TABLE>
<S> <C>
Raw materials $ 1,964
Work-in-process 2,818
---------
$ 4,782
=========
</TABLE>
Equipment, Furnishings and Leasehold Improvements
- -------------------------------------------------
Equipment, furnishings and leasehold improvements are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from two to five years. Leasehold
improvements and equipment under capital leasing arrangements are amortized over
the shorter of the lease term or their estimated useful lives.
As of December 31, 1994, equipment, furnishings and leasehold improvements
consist of the following.
<TABLE>
<S> <C>
Machinery and equipment $ 4,651
Furniture 379
Leasehold improvements 291
Trucks 130
---------
5,451
Less accumulated depreciation and amortization (3,393)
---------
$ 2,058
=========
</TABLE>
Machinery and equipment include property under capital leasing arrangements
with an original cost of $1,629 and accumulated amortization of $1,177 as of
December 31, 1994.
Income Taxes
- ------------
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". The
cumulative effect of this change did not have a material impact on the Company's
financial statements. SFAS No. 109 requires that deferred tax liabilities or
assets at the end of each period be determined by using the tax rate expected to
be in effect when the liabilities or benefits are actually paid or recovered.
Deferred tax assets and liabilities are recognized for the future tax
effects of differences between the financial statement balances of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are classified in relation to the current or long-term nature of the
balance to which they apply.
Business and Credit Concentrations
- ----------------------------------
The Company has concentrations of credit risk due to sales to its major
customers (see Note 8). The Company evaluates the creditworthiness of its
customers and has not experienced significant credit losses in the past.
<PAGE>
Supplemental Disclosure of Cash Flows Information
- -------------------------------------------------
Cash paid during fiscal 1994 for interest and income taxes was $664 and $5,
respectively.
Cash Investments
- ----------------
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The adoption of SFAS No. 115 did not
have a material impact on the Company's financial statements. As of December 31,
1994, the Company's cash accounts consist of checking and money market accounts.
3. BANK LINE OF CREDIT
-------------------
The Company has a $5.5 million revolving line of credit agreement with a
commercial bank that provides for short-term borrowings based on eligible
accounts receivable and inventories. At December 31, 1994, $5.5 million was
outstanding under this line and no borrowings were available. This line bears
interest at prime plus 1.75 percent and is due on demand.
The credit agreement restricts the Company from entering into certain
transactions and contains certain financial covenants (defined on a quarterly
basis), including, at December 31, 1994, maintaining a minimum tangible net
worth of $1,268, maximum debt to tangible net worth of 12.5 to 1,
maximum negative working capital of $250 and quarterly profitability. As of
December 31, 1994, the Company was in compliance with all financial covenants.
4. LONG-TERM DEBT
--------------
Long-term debt as of December 31, 1994 consist of the following.
<TABLE>
<S> <C>
Secured equipment notes payable due in monthly
installments ranging from $2 to $13, including
interest rates ranging from 7.82% to 9.89%; due
March 1997 to November 1997 $ 990
Capital lease obligations (Note 5) 495
---------
1,485
Less current portion 680
---------
$ 805
=========
</TABLE>
Principal maturities on long-term debt (excluding capital lease
obligations) are as follows.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1995 $ 327
1996 357
1997 306
---------
Total long-term principal maturities
(excluding capital leases) $ 990
=========
</TABLE>
<PAGE>
5. COMMITMENTS
-----------
The Company leases certain equipment under capital leasing arrangements
that expire on various dates through 1997. The Company also leases its
facilities and certain equipment under non-cancelable operating leases expiring
through 2003. The terms of the facility lease for the Company's headquarters and
manufacturing facility provide for the deferral of several month's cash rental
payments. Rental expense under this arrangement is recognized on a straight-line
basis. As of December 31, 1994, the Company has accrued approximately $570
future in rent payments of which $61, the current portion, is included in
accrued expenses and other current liabilities. Rent expense for all operating
leases was approximately $817 for the year ended December 31, 1994. Future
minimum lease payments under these leases as of December 31, 1994, are as
follows.
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
- ------------- ----------- -----------
<S> <C> <C>
1995 $ 386 $ 1,086
1996 133 1,086
1997 16 1,038
1998 -- 1,038
1999 -- 886
Thereafter -- 2,954
----------- -----------
Total minimum lease payments 535 $ 8,088
===========
Less amount representing interest ranging from 7.48% to 14.50% 40
-----------
Obligations under capital leases (Note 4) $ 495
===========
</TABLE>
6. SHAREHOLDERS' EQUITY
--------------------
The Company has authorized 5,000,000 shares of preferred stock with no par
value. This stock, if issued, will carry liquidation preferences and other
rights, as determined by the Board of Directors. As of December 31, 1994, no
preferred stock had been issued.
Under the Company's 1993 Incentive and Non-Incentive Stock Option Plan (the
'Plan'), options were granted to employees to purchase shares of common stock.
The option exercise price was determined by the Stock Option Committee of the
Board of Directors. For incentive stock options, the exercise price may not be
less than the fair market value, as determined by the Stock Option Committee, of
the common stock on the date of grant. For non-incentive stock options, the
exercise price may not be less than 85% of the fair market value, as determined
by the Stock Option Committee, at the date of grant. Options issued under the
Plan become exercisable over a four year period and expire 10 years after the
date of grant.
Activity under the Plan follow.
<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE
----------- -----------
<S> <C> <C>
Outstanding as of December 31, 1993 272,500 $ .95-1.13
Granted 103,524 .90-1.13
Cancelled (154,635) .90-1.13
----------- -----------
Outstanding as of December 31, 1994 221,389 $ .90-1.13
=========== ===========
</TABLE>
<PAGE>
As of December 31, 1994, options to purchase 23,926 shares of common stock
were available for future grant under the Plan, and options to purchase 174,014
shares of common stock were exercisable at prices ranging from $.90 to $1.13 per
share.
In connection with the acquisition by EAI, EAI granted to the option
holders of the Company, in exchange for the substitution of their options to
purchase the Company's common stock, options to purchase the same number of
shares of EAI's common stock at a weighted average exercise price of $1.05 per
share.
7. INCOME TAXES
------------
The components of the provision for income taxes for the year ended
December 31, 1994 are as follows.
<TABLE>
<S> <C>
Current:
Federal $ 167
State 22
---------
189
---------
Deferred:
Federal (167)
State (22)
---------
(189)
---------
$ --
=========
</TABLE>
Deferred income tax assets result from temporary differences in the timing
of the recognition of certain income and expense items for tax return and
financial reporting purposes. The components of the net deferred income tax
asset at December 31, 1994 are as follows.
<TABLE>
<S> <C>
Reserves and accruals not currently deductible for tax purposes $ 124
Differences in the book and tax bases of inventory 69
Rent expenses not currently deductible for tax purposes 228
---------
421
Valuation allowance --
---------
Net deferred income tax asset $ 421
=========
</TABLE>
During 1994, the Company utilized all of its remaining net operating loss
carryforwards. The Company has agreed to enter into a tax sharing arrangement
with EAI, whereby the Company will compute its future income tax provision
(benefit) as a separate company. Accordingly, any future provision (benefit)
will be payable to or receivable from EAI, irrespective of EAI's tax position,
in future periods.
<PAGE>
8. BUSINESS AND CREDIT CONCENTRATIONS
----------------------------------
Customers comprising more than 10% of sales during the year ended December
31, 1994, and the amounts due from these customers as of December 31, 1994, were
as follows.
<TABLE>
<CAPTION>
ACCOUNTS
RECEIVABLE AS
PERCENT OF OF
SALES IN DECEMBER 31,
1994 1994
------------- ---------------
<S> <C> <C>
Customer A 39.1% $ 3,232
Customer B 16.0% $ 832
</TABLE>
9. RELATED PARTY TRANSACTIONS
--------------------------
In connection with the acquisition, EAI entered into an employment
agreement with an officer and significant shareholder of the Company for a term
of 2 years, expiring January 3, 1997. Upon signing of the employment agreement,
the officer and significant shareholder received a signing cash bonus of $300,
and is eligible to earn up to an additional $750, which will be paid to the
extent that the Company achieves certain operating performance goals, in equal
installments through 1998. EAI also entered into a $1 million term-loan
agreement with the same officer and significant shareholder of the Company. The
term-loan, which is non-recourse and secured by 192,300 shares of common stock
of the Company, bears interest at the applicable federal rate, with principal
and accrued interest due July 1996.
EAI also granted each officer and director of the Company options to
purchase a total of 900,000 shares of EAI common stock at $8.625 per share. The
options will vest over a three to four year period, and expire in 10 years.
<PAGE>
EXHIBIT 99.2
------------
Audited Financial Statements of BarOn Technologies Ltd. as of December 31, 1994
<PAGE>
BARON TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994
-----------------------
<PAGE>
BARON TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE COMPANY)
C O N T E N T S
---------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITORS' REPORT 2
FINANCIAL STATEMENTS
Balance Sheets 3
Statements of Operations 4
Statements of Changes in Shareholders' Equity 5
Statements of Cash Flows 6
Notes to the Financial Statements 7-15
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Extended form to comply with U.S. standards
To the Shareholders of
BARON TECHNOLOGIES LTD.
(a development stage company)
We have audited the balance sheets of Baron Technologies Ltd. (a development
stage company) (the "Company") as of December 31, 1994 and 1993, and the
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1994 and 1993. 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
in Israel and the United States, including those prescribed by the Auditors'
(Mode of Performance) Regulations (Israel), 1973. Those standards require that
we plan and perform the audit to obtain reasonable assurance as to 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 the significant estimates made by management, as well as an
evaluation of 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 the Company as of December 31,
1994 and 1993, and the results of their operations and cash flows for the years
ended December 31, 1994 and 1993, in conformity with accounting principles
generally accepted in Israel (as applicable to the financial statements of the
Company, generally accepted accounting principles in Israel are practically
identical to those of the U.S. except for the restatement to inflation, see Note
3(E)).
<TABLE>
<S> <C>
/S/ Luboshitz, Kasierer & Co. /S/ Yosef Shimony
Certified Public Accountants (Israel) Certified Public Accountants (Israel)
</TABLE>
Tel Aviv, March 21, 1995.
- --------------------------------------------------------------------------------
2
<PAGE>
BALANCE SHEETS
- --------------------------------------------------------------------------------
In shekels of December 1994
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1993
NOTE NIS NIS
--- ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 920,454 322
Receivables and prepaid expenses 36,655 22,022
------------ ------------
957,109 22,344
------------ ------------
FIXED ASSETS (4) 370,599 192,685
------------ ------------
OTHER ASSETS -- 7,330
------------ ------------
1,327,708 222,359
============ ============
CURRENT LIABILITIES
Bank overdraft -- 55,007
Creditors and accounts payable (5) 866,026 470,484
------------ ------------
866,026 525,491
------------ ------------
ACCRUED SEVERANCE PAY (6) 139,802 57,143
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital (7) 86,099 45,863
Premium on shares 3,375,691 --
Receipts on account of shares (7) 1,536,849 1,198,580
Accumulated deficit (4,676,759) (1,604,718)
------------ ------------
321,880 (360,275)
------------ ------------
1,327,708 222,359
============ ============
</TABLE>
/s/ ED WOLFE
--------------------------------------
Ed Wolfe
Director
March 21, 1995.
The accompanying notes form an integral part of the financial statements.
- --------------------------------------------------------------------------------
3 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
In shekels of December 1994
<TABLE>
<CAPTION>
CUMULATIVE
FROM THE
ENTERPRISE'S
INCEPTION
YEAR ENDED UNTIL
NOTE DECEMBER 31 DECEMBER 31
--------- -------------------------- ------------
1994 1993 1994
NIS NIS NIS
------------ ------------ ------------
<S> <C> <C> <C> <C>
Research and development costs (10) 2,335,737 798,537 3,597,050
General and administrative expenses (11) 759,772 285,645 1,119,263
------------ ------------ ------------
(3,095,509) (1,084,182) (4,716,313)
Financing income, net (12) 23,468 9,051 39,554
------------ ------------ ------------
Net loss (3,072,041) (1,075,131) (4,676,759)
============ =========== ===========
</TABLE>
The accompanying notes form an integral part of the financial statements.
- --------------------------------------------------------------------------------
4 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
In shekels of December 1994
<TABLE>
<CAPTION>
RECEIPTS
NUMBER SHARE PREMIUM ON ACCOUNT ACCUMULATED
OF SHARES CAPITAL ON SHARES OF SHARES DEFICIT TOTAL
NIS NIS NIS NIS NIS
----------- --------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1993 2 2 -- 478,558 (529,587) (51,027)
Receipts on account of shares -- -- -- 720,022 -- 720,022
Shares issued 39,998 45,861 -- -- -- 45,861
Net loss -- -- -- -- (1,075,131) (1,075,131)
----------- --------- --------- ---------- ------------
Balance as of December 31, 1993 40,000 45,863 -- 1,198,580 (1,604,718) (360,275)
===========
Stock split 4,000,000 -- -- -- -- --
Receipts on account of shares -- -- -- 1,536,849 -- 1,536,849
Shares issued 3,425,800 40,236 3,375,691(*) (1,198,580) -- 2,217,347
Net loss -- -- -- -- (3,072,041) (3,072,041)
----------- --------- --------- ---------- ------------ ----------
Balance as of December 31, 1994 7,425,800 86,099 3,375,691 1,536,849 (4,676,759) 321,880
=========== ========= ========= ========== ============ ==========
</TABLE>
(*) Net of issue expenses of approximately NIS 200,000.
The accompanying notes form an integral part of the financial statements.
- --------------------------------------------------------------------------------
5 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
In shekels of December 1994
<TABLE>
<CAPTION>
CUMULATIVE
FROM THE
ENTERPRISE'S
INCEPTION
YEAR ENDED UNTIL
DECEMBER 31 DECEMBER 31
-------------------------- ------------
1994 1993 1994
NIS NIS NIS
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (3,072,041) (1,075,131) (4,676,759)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 70,977 37,484 112,441
Exchange rate differences (2,569) 1,289 --
Increase in provision for severance pay 82,659 57,144 139,803
Changes in assets and liabilities:
Decrease (increase) in receivables and prepaid expenses (14,633) 57,530 (36,655)
Increase in creditors and accounts payable 481,016 90,756 866,024
------------ ------------ ------------
617,450 244,203 1,081,613
------------ ------------ ------------
Net cash used in operating activities (2,454,591) (830,928) (3,595,146)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets (242,636) (112,401) (475,912)
Acquisition of other assets -- (1,727) (8,203)
------------ ------------ ------------
Net cash used in investing activities (242,636) (114,128) (484,115)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 2,218,422 45,861 2,264,286
Receipts on account of shares 1,536,849 720,022 2,735,429
Increase (decrease) in short-term bank credit (55,007) 55,007 --
Loan received from related parties (repaid) (82,905) 84,185 --
------------ ------------ ------------
Net cash provided by financing activities 3,617,359 905,075 4,999,715
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 920,132 (39,981) 920,454
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 322 40,303 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 920,454 322 920,454
============ ============ ============
</TABLE>
The accompanying notes form an integral part of the financial statements.
- --------------------------------------------------------------------------------
6 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
The Company is a development stage Israeli corporation established in July
1992. Since its inception the Company has been primarily engaged in the
development of an electronic pen as an input device for computers.
In the course of its development activities, the Company has sustained
continuous operating losses and expects such losses to continue for the duration
of the development stage. The Company's ability to continue as a going concern
depends upon its success in raising the required additional financing.
Subsequent to balance sheet date an overseas shareholder purchased newly issued
shares of the Company, for U.S.$ 4.0 million out of which U.S.$ 3.0 million are
payable in cash (See Note 13). Management estimates that these funds will enable
the Company to meet its cash flow needs for at least the end of 1995.
In the year of account the Company changed its name from Baron Research and
Development Ltd. to its current name.
NOTE 2 -- FINANCIAL STATEMENTS RESTATED FOR INFLATION
A. GENERAL
The financial statements are presented on the basis of historical cost,
restated for changes in the general purchasing power of the Israeli currency.
Accordingly, the nominal figures in the accounting records (the Company
maintains its books of accounts in nominal shekels) are restated to New Israeli
Shekels (NIS) of the last month of the reported period (December 1994) based on
the changes in the Consumer Price Index (CPI). Condensed statements in nominal
shekels are presented in Note 14.
The restatement is made in accordance with principles laid down in the
relevant Opinions issued by the Institute of Certified Public Accountants in
Israel.
The increase in the CPI for the year ended December 31, 1994 was 14.5%
(1993 -- 11.2%).
- --------------------------------------------------------------------------------
7 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS -- (CONT.)
- --------------------------------------------------------------------------------
NOTE 2 -- FINANCIAL STATEMENTS RESTATED FOR INFLATION (CONT.)
B. BALANCE SHEET
Nonmonetary items -- fixed assets, other assets and shareholders' equity
items, are restated for changes in the CPI from the date of the transaction to
balance sheet date.
Monetary items are presented in the balance sheet at nominal amounts
(Comparative figures are restated to shekels of balance sheet date).
The restated values of nonmonetary items do not necessarily represent
economic or realization values, but merely the historical values restated for
changes in the general purchasing power of the Israeli currency.
C. STATEMENT OF OPERATIONS
Amounts relating to nonmonetary items (mainly, depreciation and
amortization) are restated on the same basis as the restated balance sheet item.
Other expenses (excluding finance) are restated on the basis of changes in the
CPI between transaction date and balance sheet date.
- --------------------------------------------------------------------------------
8 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS -- (CONT.)
- --------------------------------------------------------------------------------
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies, applied in the preparation of the
financial statements on a consistent basis, are as follows:
A. FIXED ASSETS -- Fixed assets (including leasehold improvements) are
stated at cost. Depreciation is calculated by the straight-line method at
rates considered adequate to amortize the cost of assets over their
estimated useful lives.
B. CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include
deposits in banks which are held for immediate or short-term withdrawal
(original deposit period not exceeding three months).
C. RESEARCH AND DEVELOPMENT COSTS -- These costs are charged to
operations as incurred.
D. Balances in foreign currency -- These balances are stated based on
the representative rate at balance sheet date (1 U.S.$ = NIS 3.018; 1993 --
NIS 2.986).
E. U.S. GAAP -- As applicable to the Company's financial statements,
generally accepted accounting principles in Israel are practically
identical to those of the U.S. except for the restatement for changes in
the general purchasing power of the Israeli currency as detailed in Note 2.
- --------------------------------------------------------------------------------
9 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS -- (CONT.)
- --------------------------------------------------------------------------------
NOTE 4 -- FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1994 1993
---------------------------------- ------------
RATE OF ACCUMULATED
DEPRECIATION COST DEPRECIATION NET NET
------------ --------- ------------ --------- ----------
% NIS NIS NIS NIS
-- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Computers and peripheral equipment (*) 10-20 401,587 94,959 306,628 158,225
Furniture and office equipment 7-10 56,766 4,878 51,888 22,478
Leasehold improvements 20 17,543 5,460 12,083 11,982
--------- ------------ --------- ------------
475,896 105,297 370,599 192,685
========= ============ ========= ============
</TABLE>
(*) Cost of computers bought from a related party NIS 52,179.
NOTE 5 -- CREDITORS AND ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1993
NIS NIS
--------- ---------
<S> <C> <C>
Suppliers and accounts payable 384,340 79,039
Employees and employees institutions 215,332 57,629
Directors, shareholders and other related parties (*) 213,975 226,214
Short-term loan from a shareholder -- 85,474
Government institutions 52,379 22,128
--------- ---------
866,026 470,484
========= =========
</TABLE>
(*) Mainly accrued expenses payable to a shareholder.
- --------------------------------------------------------------------------------
10 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS -- (CONT.)
- --------------------------------------------------------------------------------
NOTE 6 -- ACCRUED SEVERANCE PAY
The Company's obligation for severance pay to employees is covered by the
unfunded accrual in the balance sheet and by payments to an insurance company.
Provision include amounts in respect of prior years for salaries increased in
1994. Payments to the insurance company are not under the custody or the
disposal of the Company, and therefor were not included in the balance sheet.
NOTE 7 -- SHARE CAPITAL
Share capital consists of ordinary shares of NIS 0.01 par value each (1993
- -- NIS 1 par value each). Authorized share capital -- 11 million shares (1993 --
110,000 shares). Issued and paid-up capital -- 7,425,800 shares (1993 -- 40,000
shares).
Receipts on account of shares at balance sheet date represent U.S.$ 500,000
received on October 1994 from EAI, see Note 13.
NOTE 8 -- COMMITMENTS AND CONTINGENT LIABILITIES
A. The Company has an obligation to pay a shareholder royalties of 2%
of sales up to a maximum of U.S.$ 500,000. The shareholder also has the
right to market the Company's products in Japan.
B. Maximum exposure of a claim and threatened litigation against the
Company amounts to approximately U.S.$ 43,000. Managements estimates that
ultimate outcome of these claims will not have a material adverse effect on
the Company.
NOTE 9 -- INCOME TAXES
A. The Company has not as yet received any final tax assessment since
its establishment (1992).
B. The Company's loss and deductions available to be carried forward
for tax purposes amount to approximately NIS 4.2 million. The difference
between the reported loss and the loss for tax purposes is due mainly to
unallowable expenses. Future tax benefits will be included on realization.
- --------------------------------------------------------------------------------
11 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS -- (CONT.)
- --------------------------------------------------------------------------------
NOTE 10 -- RESEARCH AND DEVELOPMENT COSTS
<TABLE>
<CAPTION>
CUMULATIVE
FROM THE
ENTERPRISE'S
INCEPTION
YEAR ENDED UNTIL
DECEMBER 31 DECEMBER 31
---------------------- ------------
1994 1993 1994
NIS NIS NIS
----------- --------- ------------
<S> <C> <C> <C>
Salaries and related expenses (*) 1,610,830 686,121 2,540,022
Materials and components (*) 239,099 21,821 270,377
Consultants and subcontractors (*) 229,474 26,234 446,928
Patents 103,370 -- 103,370
Travel 86,737 30,580 132,506
Depreciation and amortization 64,485 33,781 102,105
Professional literature 1,742 -- 1,742
----------- --------- ------------
2,335,737 798,537 3,597,050
=========== ========= ===========
(*) Including to related parties 310,672 -- 429,365
=========== ========= ===========
</TABLE>
NOTE 11 -- GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<S> <C> <C> <C>
Salaries and related expenses (*) 341,278 40,357 384,929
Professional fees (*) 103,846 28,813 184,042
Rent and building maintenance (*) 88,442 76,617 167,982
Advertising 56,032 6,712 62,744
Communications 52,443 37,709 98,862
Car maintenance 26,321 -- 26,321
Travel (*) 15,577 66,930 84,461
Depreciation 6,492 3,703 10,336
Other 69,341 24,804 99,586
----------- --------- -----------
759,772 285,645 1,119,263
=========== ========= ===========
(*) Including to related parties 289,300 106,286 395,586
=========== ========= ===========
</TABLE>
- --------------------------------------------------------------------------------
12 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS -- (CONT.)
- --------------------------------------------------------------------------------
NOTE 12 -- FINANCING INCOME, NET
<TABLE>
<CAPTION>
CUMULATIVE
FROM THE
ENTERPRISE'S
INCEPTION
YEAR ENDED YEAR ENDED UNTIL
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1994
------------- ------------- ------------
<S> <C> <C> <C>
Financing income is net of expenses to a related party 5,127 6,823 11,950
============ =========== ===========
</TABLE>
NOTE 13 -- EVENTS SUBSEQUENT TO BALANCE SHEET DATE
In January 1995 the Company, its shareholders and Electronic Associates,
Inc. (a company registered in the U.S., "EAI") signed an agreement according to
which:
-- EAI will purchase newly issued shares of the Company for U.S.$ 4
million, of which U.S.$ 3 million is to be paid in cash and U.S.$ 1
million is to be paid in shares of EAI. Out of these amounts U.S.$ 0.5
million were received by balance sheet date and U.S.$ 1.5 million were
received up to date of preparation of these financial statements.
-- EAI will purchase Company shares held by existing shareholders.
After completing these two purchases, EAI will hold 25.01% of the Company's
outstanding shares.
-- EAI has an option to increase its holding in the Company to up to 33.33%
for an additional U.S.$ 4 million (U.S.$ 2 million to be paid in cash
and U.S.$ 2 million to be paid in shares of EAI).
-- EAI will have a right of first refusal to enter into manufacturing
contracts to produce for the Company electronic hardware elements for
its products and will provide the Company with certain consulting
services.
- --------------------------------------------------------------------------------
13 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS -- (CONT.)
- --------------------------------------------------------------------------------
NOTE 14 -- CONDENSED STATEMENTS IN NOMINAL SHEKELS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1994 1993
NIS NIS
------------- -------------
<S> <C> <C>
A. BALANCE SHEET
Current assets 957,109 19,485
Fixed assets, net 327,159 153,849
Other assets -- 5,860
------------- -------------
1,284,268 179,194
============= =============
Current liabilities 866,026 458,943
------------- -------------
Accrued severance pay 139,802 49,907
------------- -------------
Shareholders' deficiency
Share capital 74,258 40,000
Premium on shares 2,959,187 --
Receipts on account of shares 1,504,500 955,010
Accumulated deficit (4,259,505) (1,324,666)
------------- -------------
278,440 (329,656)
------------- -------------
1,284,268 179,194
------------- -------------
B. STATEMENT OF OPERATIONS
Research and development costs 2,223,592 665,859
General and administrative expenses 711,835 238,786
------------- -------------
(2,935,427) (904,645)
Financing income (expenses), net 588 (12,687)
------------- -------------
Net loss (2,934,839) (917,332)
============= =============
</TABLE>
- --------------------------------------------------------------------------------
14 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS -- (CONT.)
- --------------------------------------------------------------------------------
NOTE 14 -- CONDENSED STATEMENTS IN NOMINAL SHEKELS (CONT.)
C. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RECEIPTS
ON
NUMBER SHARE PREMIUM ACCOUNT ACCUMULATED
OF SHARES CAPITAL ON SHARES OF SHARES DEFICIT TOTAL
NIS NIS NIS NIS NIS
----------- --------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1993 2 2 -- 365,989 (407,334) (41,343)
Receipts on account of shares -- -- -- 589,021 -- 589,021
Shares issued 39,998 39,998 -- -- -- 39,998
Net loss -- -- -- -- (917,332) (917,332)
----------- --------- ----------- ----------- ------------ ------------
Balance at December 31, 1993 40,000 40,000 -- 955,010 (1,324,666) (329,656)
===========
Stock split 4,000,000 -- -- -- -- --
Receipts on account of shares -- -- -- 1,504,500 -- 1,504,500
Shares issued 3,425,800 34,258 2,959,187 (955,010) -- 2,038,435
Net loss -- -- -- -- (2,934,839) (2,934,839)
----------- --------- ----------- ----------- ------------ ------------
Balance at December 31 1994 7,425,800 74,258 2,959,187 1,504,500 (4,259,505) 278,440
=========== ========= =========== =========== ============ ============
</TABLE>
- --------------------------------------------------------------------------------
15 BARON TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
