<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
TEAM, INC.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K filed
September 9, 1998, as set forth in the pages attached hereto:
Item 7: (a) and (b)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, hereby duly authorized.
TEAM, INC.
--------------------------------------
Registrant
Date November 9, 1998 /s/ TED W. OWEN
- ---------------------- --------------------------------------
Ted W. Owen
Vice President, Chief Financial Officer
and Secretary
<PAGE> 2
TEAM, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
(a) Consolidated Financial Statements of Climax Portable Machine Tools, Inc.
Independent Auditors' Report 1
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and 1996 2
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997 and 1996 3
Consolidated Statements of Operations for the Years Ended December 31, 1997
and 1996 4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997
and 1996 5
Notes to Financial Statements 7-19
Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet as of June 30, 1998 20
Consolidated Statement of Shareholders' Equity for the Six-Month Period Ended
June 30, 1998 21
Consolidated Statements of Operations for the Six-Month Periods Ended
June 30, 1998 and 1997 22
Consolidated Statements of Cash Flows for the Six-Month Periods Ended
June 30, 1998 and 1997 23
Notes to Financial Statements 25-26
(b) Pro Forma Consolidated Financial Information of Team, Inc. (Unaudited)
Pro Forma Consolidated Financial Statements 27
Pro Forma Consolidated Statement of Operations - Year Ended May 31, 1998 28
Pro Forma Consolidated Statement of Operations - Three Months Ended
August 31, 1998 29
Notes to Pro Forma Consolidated Financial Statements 30
</TABLE>
-2-
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Climax Portable Machine Tools, Inc.
and Subsidiaries
Newberg, Oregon
We have audited the accompanying consolidated balance sheets of
Climax Portable Machine Tools, Inc. (an Oregon corporation) and Subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
shareholders' equity, operations and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform our 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Climax
Portable Machines Tools, Inc. and Subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ MAGINNIS & CAREY LLP
Portland, Oregon
June 24, 1998, except for Notes 8 and 9 as to
which the date is September 1, 1998
Page 1
<PAGE> 4
CLIMAX PORTABLE MACHINE TOOLS, INC.
Newberg, Oregon
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 247,177 1,010,782
Accounts receivable, less provision
for doubtful accounts of $115,071
and $50,000 (Note 5) 1,378,107 998,419
Inventory (Notes 2, 5) 978,589 1,072,646
Other receivables 15,746 83,598
Prepaid expenses 125,214 98,325
Deferred tax asset (Note 4) 135,880 104,135
Net current assets - discontinued operations (Note 9) 238,611
---------- ----------
Total current assets 3,119,324 3,367,905
PROPERTY, PLANT AND EQUIPMENT (Notes 3, 5, 6, 7)
Cost, less accumulated depreciation
of $2,977,865 and $2,775,438 2,939,901 2,545,620
OTHER ASSETS
Cash surrender value of officers' life insurance 44,642 38,710
Other 11,963 10,771
---------- ----------
Total assets $6,115,830 $5,963,006
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 200,109 199,411
Bank line of credit (Note 5) 65,000
Customer deposits 99,730 108,947
Accrued payroll and payroll taxes 43,446 150,327
Accrued profit sharing contributions 558,182 425,000
Accrued expenses 272,680 153,930
Accrued income taxes (Note 4) 207,602 215,016
Estimated losses from discontinued operations (Note 9) 306,566
Current portion of long-term debt (Note 7) 223,693 143,469
---------- ----------
Total current liabilities 1,912,008 1,461,100
LONG-TERM DEBT (Note 7)
Notes payable, less current portion 1,592,636 1,151,147
DEFERRED TAX LIABILITY (Note 4) 35,743 47,655
NET LONG-TERM LIABILITIES - discontinued operations (Note 9) 275,873
---------- ----------
Total liabilities 3,816,260 2,659,902
COMMITMENTS AND CONTINGENCIES (Notes 5, 6)
SHAREHOLDERS' EQUITY 2,299,570 3,303,104
---------- ----------
Total liabilities and shareholders' equity $6,115,830 $5,963,006
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
<PAGE> 5
CLIMAX PORTABLE MACHINE TOOLS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS YEARS ENDED
OF SHAREHOLDERS' EQUITY DECEMBER 31, 1997 AND 1996
- ---------------------------------------------------------------------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
CAPITAL STOCK
Common stock, no par value
Authorized - 50,000 shares
Beginning of year -
Issued and outstanding 24,415 shares 100,000 100,000
Redemption of common stock - 180 shares (5,550)
----------- -----------
End of year -
Issued and outstanding - 24,235 and 24,415 shares 94,450 100,000
----------- -----------
PAID-IN CAPITAL 10,959 10,959
----------- -----------
RETAINED EARNINGS
Balance - Beginning of year 3,192,145 2,775,760
Redemption of common stock (14,448)
Net income (loss) (983,536) 416,385
----------- -----------
Balance - End of year 2,194,161 3,192,145
----------- -----------
TOTAL SHAREHOLDERS' EQUITY $ 2,299,570 $ 3,303,104
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE> 6
CLIMAX PORTABLE MACHINE TOOLS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED YEARS ENDED
STATEMENTS OF OPERATIONS DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------
1997 1996
---------------------------- ----------------------------
Amount % Amount %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES, less discounts and allowances
of $400,099 and $399,375 10,873,805 100.0 9,676,276 100.0
COST OF GOODS SOLD 5,500,680 50.6 5,057,280 52.3
------------ ------------ ------------ ------------
GROSS PROFIT 5,373,125 49.4 4,618,996 47.7
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,458,350 31.8 3,179,197 32.8
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,914,775 17.6 1,439,799 14.9
------------ ------------ ------------ ------------
OTHER EXPENSE
Interest expense, net of interest
income of $39,447 and $9,308 (80,082) (0.7) (126,175) (1.3)
Profit sharing contributions -
ESOP (305,870) (2.8) (268,006) (2.8)
Current compensation (252,312) (2.3) (156,994) (1.6)
Research, development and
miscellaneous expenses (213,885) (2.0) (231,530) 2.4)
------------ ------------ ------------ ------------
Total other expense (852,149) (7.8) (782,705) (8.1)
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,062,626 9.8 657,094 6.8
PROVISION FOR INCOME TAXES (Note 4) 398,845 3.7 240,709 2.5
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 663,781 6.1 416,385 4.3
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS (Note 9)
Losses from operations from discontinued
Alsana subsidiary, net of income tax
benefit of $179,267 (1,194,214) (11.0)
Estimated loss on disposal (453,103) (3.7)
------------ ------------ ------------ ------------
(1,647,317) (14.7)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (983,536) (8.6) $ 416,385 4.3
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE> 7
CLIMAX PORTABLE MACHINE TOOLS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED YEARS ENDED
STATEMENTS OF CASH FLOWS DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------------
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) (983,536) 416,385
Loss from discontinued operations 1,647,317
---------- ----------
Income from continuing operations 663,781 416,385
Adjustments to reconcile income from continuing
operations to net cash provided by continuing operating activities -
Depreciation and amortization 454,651 424,286
Land development costs written off 78,404
Gain on disposition of equipment (6,143) (10,500)
Provision for losses on accounts receivable 65,071 25,000
Deferred income taxes (43,657) 5,154
Changes in operating assets and liabilities:
Accounts receivable (444,759) 67,220
Inventory 94,057 87,020
Income taxes (7,414) 321,027
Accounts payable and accrued expenses 12,567 56,091
Accrued profit sharing contributions 133,182 425,000
Other assets and liabilities 30,520 (81,864)
---------- ----------
Net cash provided by continuing operating activities 951,856 1,813,223
---------- ----------
Cash flows from discontinued operations
Loss from discontinued operations (1,647,317)
Adjustments to reconcile net loss from discontinued
operations to net cash used by discontinued
operating activities -
Minority interest (86,704)
Depreciation 83,389
Accrued losses from discontinued operations 1,077,007
Provision for losses on accounts receivable 10,212
Deferred income taxes (183,149)
Changes in operating assets and liabilities -
Income taxes (12,221)
Other current assets 639,508
Other current liabilities (241,101)
---------- ----------
Net cash used by discontinued operating activities (360,376)
---------- ----------
Net cash provided by operating activities 591,480 1,813,223
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE> 8
CLIMAX PORTABLE MACHINE TOOLS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED YEARS ENDED
STATEMENTS OF CASH FLOWS - CONTINUED DECEMBER 31, 1997 AND 1996
- ----------------------------------------------------------------------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net cash provided by operating activities 591,480 1,813,223
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS
Purchases of machinery and equipment (499,421) (117,517)
Additions to building and fixtures (49,649) (32,786)
Additions to equipment for self-constructed assets,
net of $348,312 and $304,937 transferred to inventory (159,310) (101,424)
Proceeds from disposition of equipment 7,216 10,500
Investment in subsidiaries (516,993)
Advances to discontinued subsidiary (272,933)
Increase in cash value of officers' life insurance (5,932) (11,656)
----------- -----------
Subtotal (1,497,022) (252,883)
----------- -----------
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS
Purchases of machinery and equipment (34,744)
Proceeds from disposition of equipment 255,000
Advances from parent company 272,933
----------- -----------
Subtotal 493,189
----------- -----------
Net cash used by investing activities (1,003,833) (252,883)
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS
Proceeds from (payments on) bank line of credit, net (65,000) (433,537)
Payments on long-term debt (179,720) (144,776)
Redemption of common stock (19,998)
----------- -----------
Subtotal (264,718) (578,313)
----------- -----------
FINANCING ACTIVITIES - DISCONTINUED OPERATIONS
Proceeds from borrowings on long-term debt 375,318
Payments on long-term debt (431,168)
----------- -----------
Subtotal (55,850)
----------- -----------
Net cash used by financing activities (320,568) (578,313)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (732,921) 982,027
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 1,010,782 28,755
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS - END OF YEAR 277,861 1,010,782
CASH ATTRIBUTABLE TO DISCONTINUED OPERATIONS (30,684)
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 247,177 $ 1,010,782
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6
<PAGE> 9
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
THE COMPANY
Climax Portable Machine Tools, Inc. was incorporated in Oregon
in 1966. The Company's principal business is the design and manufacture
of transportable metal-cutting machine tools for on-site maintenance
and repair purposes in the United States and internationally. Its
subsidiaries are Climax International II, Inc. which is a Foreign Sales
Corporation incorporated in the U.S. Virgin Islands, Climax Leasing,
Inc., and Alsana, Inc., dba Otto Tool. The Company's main offices and
manufacturing facilities are located in Newberg, Oregon, with
subsidiary facilities in El Dorado Hills, California. The Company also
maintains a sales and support office in North Carolina.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Climax Portable Machine Tools, Inc. employs accounting policies that
are in accordance with generally accepted accounting principles in the United
States of America. The presentation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
BASIS OF PRESENTATION AND CONSOLIDATION. The consolidated financial
statements include the accounts of the Company and its 100% owned subsidiaries,
Climax International II, Inc. and Climax Leasing, Inc., and its 75% owned
subsidiary, Alsana, Inc., dba Otto Tool. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Effective August 31, 1997, the Company purchased 75% of the outstanding
shares of Alsana, Inc., a California company, for a total cost of $1,030,556.
Alsana primarily manufactures stainless steel tubing preparation equipment for
use by process piping contractors in the construction of semiconductor,
pharmaceutical and food processing plants. The results of operations of Alsana,
Inc. after August 31, 1997 that were attributable to the minority shareholders
were allocated to the 25% minority shareholders until the minority interest in
Alsana, Inc.'s shareholders' equity was reduced to zero (Note 9).
Goodwill arising from the acquisition of Alsana, Inc. totaled $770,442,
which represents the excess of cost over the net book value of the assets of
Alsana, Inc. as of August 31, 1997. The carrying value of goodwill was not
evaluated for financial impairment due to the subsequent disposal of Alsana and
its classification as a discontinued operation (Note 9).
Page 7
<PAGE> 10
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
INVENTORIES. The parent Company's inventories are stated at the lower
of last-in, first-out (LIFO) cost or market. If inventories had been valued
using a combination of current average costs and first-in, first-out (FIFO)
costs, inventories would have been $357,590 and $358,009 higher than reported at
December 31, 1997 and 1996, respectively. Inventories for Alsana, Inc. included
in the consolidated financial statements are stated at the lower of first-in,
first-out (FIFO) cost or market.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated
at cost. Depreciation is computed by the declining balance, straight-line and
units-of-production methods over the estimated useful or productive lives of the
related assets.
The Company leases certain equipment under capital leases. The assets
and related liabilities are recorded at the lower of the present value of the
minimum lease payments or the fair value of the assets at lease inception.
Amortization of the assets is included in depreciation expense.
UNDEVELOPED LAND. Undeveloped land is stated at its cost of $302,118,
and preliminary development costs totaling $15,000 have been capitalized.
Interest and other carrying costs are being expensed until final development and
construction commences. During 1996, management determined that preliminary
development costs, consisting of architects' plans and other costs incurred for
future plant expansion, would not provide a future benefit; therefore, $78,404
of these costs were written off.
WARRANTY COSTS. The Company provides a warranty against defects in
materials and workmanship for one year following the date of sale. Costs of
product warranties are charged to cost of goods sold as incurred. Management
believes future warranty costs will be incurred at a rate comparable with recent
experience.
EMPLOYEE SAVINGS PLAN. The Company maintains an Employee Savings Plan
(ESP) for the benefit of substantially all eligible employees. Contributions are
in the form of salary reductions which participants have elected to defer and
the Company has contributed on their behalf.
EMPLOYEE STOCK OWNERSHIP PLAN. The Company also maintains an Employee
Stock Ownership Plan (ESOP) which covers substantially all eligible employees.
The cost of the ESOP is borne by the Company through annual contributions in
discretionary amounts determined by the board of directors. These contributions
are allocated to the participants' ESOP accounts based on current compensation
for the year. For 1997 and 1996, retirement plan contributions were $305,870 and
$268,006, respectively. During 1997 and 1996, respectively, the ESOP purchased
475 and 520 shares of the Company's common stock, bringing its total ownership
at December 31, 1997 to 7,762 shares with an approximate appraised value of
$1,115,399. The Company has the ultimate responsibility to repurchase these
shares from terminated ESOP participants, if they are not repurchased by the
ESOP itself. The ESOP had receivables and other investments totaling
approximately $962,000 that could be available to fund the repurchase of shares
from terminated ESOP participants.
Page 8
<PAGE> 11
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
INCOME TAXES. Income taxes are provided for all items included in the
statements of operations regardless of the period when such items are reported
for tax purposes. Any tax effect of the temporary differences between financial
and income tax reporting is reflected in deferred income taxes in the financial
statements. The significant temporary differences reflected in the deferred tax
asset are the allowance for doubtful accounts, capitalized inventory adjustments
and payroll related accruals. The deferred tax liability results from the use of
accelerated depreciation for income tax purposes. The deferred income tax asset
related to goodwill, certain inventory adjustments and losses on disposition of
operations related to Alsana, Inc. has been offset by a valuation allowance due
to the uncertainty of any future tax benefits associated with those items.
CASH AND CASH EQUIVALENTS. Cash balances are on deposit with a
financial institution; periodically throughout the years ended December 31, 1997
and 1996, the balances exceeded the amounts insured by the Federal Deposit
Insurance Corporation. Cash equivalents consists of highly liquid commercial
paper with maturities of less than three months when originally purchased. At
December 31, 1997 and 1996 the Company had $300,000 and $985,667, respectively,
invested in commercial paper.
2. INVENTORY
Inventory consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials 136,163 135,147
Finished parts 652,281 796,497
Work in process 244,224 242,641
Finished machines 303,511 256,370
---------- ----------
1,336,179 1,430,655
Less: LIFO reserve 357,590 358,009
---------- ----------
$ 978,589 $1,072,646
========== ==========
</TABLE>
During the years ended December 31, 1997 and 1996, certain items of
rental and demonstration equipment which had originally been capitalized, were
transferred back from property, plant and equipment to inventory for eventual
resale to customers. These transfers were at original cost less accumulated
depreciation, and totaled $348,312 and $304,937 for the years ended December 31,
1997 and 1996, respectively.
Page 9
<PAGE> 12
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
3. PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment at year end were
as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land and land improvements 97,607 97,607
Building I 750,241 728,391
Building II and fixtures 847,350 819,551
Machinery and equipment (including approximately
$255,000 under capital leases - 1997) 3,675,125 3,303,488
Undeveloped land and preliminary development costs 317,118 317,118
Assets leased to customers 230,325 54,903
----------- -----------
5,917,766 5,321,058
Less accumulated depreciation (2,977,865) (2,775,438)
----------- -----------
$ 2,939,901 $ 2,545,620
=========== ===========
</TABLE>
Depreciation expense was $453,957 and $423,598 for the years ended
December 31, 1997 and 1996, respectively.
4. INCOME TAXES
The provision for income taxes and accrued income taxes consist of the
following:
<TABLE>
<CAPTION>
1997
-------------------------------------
Continuing Discontinued
operations operations Total 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Provision for current taxes
Federal 382,268 3,882 386,150 189,217
State 60,234 60,234 46,338
---------- ---------- ---------- ----------
Total current provision 442,502 3,882 446,384 235,555
Deferred income tax expense (benefit) (43,657) (183,149) (226,806)
---------- ---------- ---------- ----------
Total provision (benefit) $ 398,845 $ (179,267) $ 219,578 $ 235,555
========== ========== ========== ==========
</TABLE>
Page 10
<PAGE> 13
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
4. INCOME TAXES - Continued
<TABLE>
<CAPTION>
1997
--------------------------------------
Continuing Discontinued
operations operations Total 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Advance payments for current taxes
Federal 189,600 9,272 198,872 14,800
State 45,300 45,300 5,739
---------- ---------- ---------- ----------
$ 234,900 $ 9,272 $ 244,172 $ 20,539
========== ========== ========== ==========
Accrued income taxes
Federal 192,668 (5,390) 187,278 174,417
State 14,934 14,934 40,599
---------- ---------- ---------- ----------
$ 207,602 $ (5,390) $ 202,212 $ 215,016
========== ========== ========== ==========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------- ---------------------
Continuing operations Discontinued operations
Current Long-term Current Long-term Current Long-term
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets
Accrued losses of Alsana, Inc.
(Note 9(b)) 239,000
Loss on disposition of Alsana, Inc.
(Note 9(c)) 174,000
Inventory adjustments 198,000
--------- --------- --------- --------- --------- ---------
Subtotal 611,000
Valuation allowance (Note 1) (611,000)
--------- --------- --------- --------- --------- ---------
Net $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
========= ========= ========= ========= ========= =========
Receivables 44,137 3,635 19,179
Inventory 43,517 77,587 46,524
Payroll related accruals 48,226 38,432
Property, plant and equipment 10,487 8,324 10,360
Other, net 13,423
--------- --------- --------- --------- --------- ---------
Total deferred tax assets 135,880 10,487 3,635 99,334 104,135 10,360
Deferred tax liability
Depreciation (46,230) (58,015)
--------- --------- --------- --------- --------- ---------
Net deferred tax asset (liability) $ 135,880 $ (35,743) $ 3,635 $ 99,334 $ 104,135 $ (47,655)
========= ========= ========= ========= ========= =========
</TABLE>
The net total asset for deferred taxes from continuing operations at
December 31, 1997 was $100,137, representing an increase of $43,657 from the net
total asset for deferred taxes of $56,480 at December 31, 1996.
The net total asset for deferred taxes from discontinued operations at
December 31, 1997 was $102,969, representing an increase of $183,149 from the
net deferred tax liability for Alsana, Inc. of $80,180 as of September 1, 1997.
Page 11
<PAGE> 14
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
5. BANK LINE OF CREDIT
The bank line of credit consists of an operating line with a maximum
commitment of $750,000 ($500,000 - 1996), not to exceed 80% of eligible accounts
receivable, which is secured by substantially all of the Company's assets.
Interest is variable at the prime rate plus 1.25% (9.75% at December 31, 1997).
The balance is repayable on demand, but if no demand is made, any unpaid
principal and interest is due at May 31, 1998, when the line of credit is
subject to annual review.
An additional revolving line of credit was established in 1997 with a
maximum commitment of $500,000, for the purchase of fixed assets (mentioned in
Note 6), which will convert to a term loan on May 31, 1998. Interest is variable
at the prime rate plus 1% (9.5% at December 31, 1997).
6. COMMITMENTS AND CONTINGENCIES
(a) The Company has committed to purchase equipment during 1998 in the
amount of $344,265, of which $35,358 had been prepaid as of December 31, 1997.
(b) Alsana, Inc., dba Otto Tool leases its office and warehouse
property from a partnership that is partly owned by one of its minority
shareholders under a non-cancelable lease agreement. The lease was signed in
September, 1997 for a period of three years. The base monthly lease payment is
$7,000, and is subject to annual revision based on fluctuations in the consumer
price index. Lease payments for the year ended December 31, 1997 totaled
$38,000. Future minimum lease payments approximate the following:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1998 84,000
1999 84,000
2000 56,000
--------
$224,000
========
</TABLE>
(c) Alsana, Inc., dba Otto Tool is a guarantor under an equipment lease
agreement of a company that is partly owned by one of its minority shareholders.
The total amount of the guarantee approximates $835,000.
(d) The Company is a co-defendant in a lawsuit filed by one of its
competitors for alleged patent infringement by Alsana, Inc., seeking an
undetermined amount of damages. Although the final outcome cannot be determined,
management has entered into settlement negotiations and believes that the
ultimate cost to the Company, if any, will not be material.
Page 12
<PAGE> 15
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
7. LONG-TERM DEBT
(a) Long-term debt for continuing operations consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable to bank, due October 1, 1997, payable
in monthly installments of $3,187, including
interest at 7.88%, secured by equipment 30,747
Note payable to bank, due April 1, 1999, payable in monthly
installments of $790, including interest
at 9.23%, secured by equipment 11,185 19,858
Note payable to bank, due October 1, 1999, payable
in monthly installments of $4,265, including
interest at 9.25%, secured by equipment 83,385 127,984
Note payable to bank, due March 1, 2001, payable in monthly
installments of $3,369, including interest at 7.662%, with
initial payment due March 1, 1996,
secured by equipment 90,076 133,873
Note payable to bank, due April 1, 2001, payable in monthly
installments of $5,085, including interest at 8.83%, with a
balloon payment of approximately
$474,000 due at maturity, secured by Building I 524,369 539,458
Note payable to bank, due April 1, 2005, payable
in monthly installments of $4,254, including
interest of 9.5%, secured by Building II 432,542 442,696
Amounts due under Alsana Stock Purchase Agreement, $70,322 paid in
February, 1998, and balance of $404,557 payable under a
promissory note in September, 1999, interest payable monthly
at 9.5% per annum 474,879
---------- ----------
Subtotal 1,616,436 1,294,616
Obligations under capital lease, secured by equipment,
payable in monthly installments of $5,450, including
imputed interest at 10.05%, due 2001 199,893
---------- ----------
1,816,329 1,294,616
Less: Current portion 223,693 143,469
---------- ----------
$1,592,636 $1,151,147
========== ==========
</TABLE>
Page 13
<PAGE> 16
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
7. LONG-TERM DEBT - Continued
Annual maturities of long-term debt for continuing operations after
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 223,693
1999 164,381
2000 506,436
2001 536,395
2002 15,100
Thereafter 370,324
----------
$1,816,329
==========
</TABLE>
(b) The following is a schedule of future minimum lease payments
required under the capital lease for continuing operations, together with the
present value of the minimum lease payments at December 31, 1997.
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1998 59,950
1999 65,400
2000 65,400
2001 49,050
--------
239,800
Less amount representing interest (39,907)
--------
$199,893
========
</TABLE>
(c) Long term debt for discontinued operations consists of the
following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Note payable to minority shareholder of subsidiary, payable in
monthly installments of $2,079, including interest at 9.5%,
unpaid balance due in full on
September 2, 2002 95,057
Note payable to bank, due September 3, 2002, payable in monthly
installments of $6,631, including interest at 8.5%, secured by
substantially all of Alsana, Inc.'s
assets 304,228
Note payable to minority shareholder of subsidiary, payable in
monthly installments of interest only at 9.5% until September
1, 1999; thereafter monthly installments of
principal and interest are due in the amount of $1,947 249,279
------- -------
Subtotal 648,564
</TABLE>
Page 14
<PAGE> 17
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7. LONG-TERM DEBT - Continued
1997 1996
---- ----
<S> <C> <C>
Balance forward 648,564
Note payable to employee, due July 3, 1998, payable in a balloon
Payment on or before that date, along with
interest at 9.5% 5,000
-------- --------
Subtotal 653,564
-------- --------
Obligations under capital leases, secured by equipment, payable in
the following monthly installments of:
$2,977, including imputed interest at 13.68%, due 1998 17,167
$2,869, including imputed interest at 12.87%, due 1998 29,616
$289, including imputed interest at 9.50%, due 1998 2,767
$179, including imputed interest at 9.00%, due 1998 2,847
$1,553, including imputed interest at 17.00%, due 1999 25,712
$1,268, including imputed interest at 10.65%, due 1999 24,201
$2,904, including imputed interest at 14.10%, due 2000 68,955
$544, including imputed interest at 18.98%, due 2000 13,573
$1,783, including imputed interest at 10.94%, due 2001 63,203
-------- --------
248,041
-------- --------
Subtotal 901,605
Less: Current portion 199,269
-------- --------
$702,336 $ -0-
======== ========
</TABLE>
Annual maturities of long-term debt of discontinued operations after
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 199,269
1999 161,616
2000 142,633
2001 128,872
2002 97,800
Thereafter 171,415
--------
$901,605
========
</TABLE>
Page 15
<PAGE> 18
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT - Continued
(d) The following is a schedule of future minimum lease payments
required under capital leases for discontinued operations, along with the
present value of the minimum lease payments at December 31, 1997:
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C>
1998 151,083
1999 87,401
2000 36,820
2001 59,539
--------
334,843
Less amount representing interest (86,802)
--------
Present value included in long-term debt $248,041
========
</TABLE>
8. SUBSEQUENT EVENTS
(a) On May 21, 1998, the Board of Directors of the Company authorized
the purchase of the remaining 25% of the outstanding shares of Alsana, Inc. The
total cost for the remaining 25% of the shares was $60,000, of which $25,000 was
paid in cash, with the balance represented by a note payable.
(b) On May 15, 1998, a subsidiary of the Company entered into a joint
venture agreement with Integra Services Technologies, Inc. to form Climax Rental
Venture, LLC. The Company accounts for its investment in Climax Rental Venture,
LLC under the equity method.
(c) Effective as of August 31, 1998, the Company sold 100% of the issued
and outstanding capital stock of Alsana, Inc. to a Limited Liability Company
consisting of the Company's president/majority shareholder and four other
members of the Company's management.
(d) Subsequent to December 31, 1997, the shareholders of the Company
entered into negotiations for the sale of 100% of the Company's outstanding
common stock. Effective as of August 31, 1998, all of the Company's common stock
was sold to Team, Inc., of Alvin, Texas.
Page 16
<PAGE> 19
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
9. DISCONTINUED OPERATIONS
(a) As discussed in Note 8 above, on August 31, 1998 the Company
disposed of its wholly owned subsidiary, Alsana, Inc. The results of Alsana,
Inc., and the loss on disposal, have been classified as discontinued operations
in the accompanying financial statements. Alsana's results for the four month
period ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Sales, less discounts and allowances of $199,095 411,569
Cost of goods sold (990,760)
Selling, general and administrative expenses (255,960)
Interest expense, net (31,368)
Other income, net 30,238
---------
Loss before income taxes $(836,281)
=========
</TABLE>
(b) The losses arising from the operations of the discontinued Alsana
subsidiary are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 loss before income taxes (Note 9(a)) (836,281)
Credit for income taxes (Note 4) 179,267
-----------
Net loss - 1997 (657,014)
Loss allocated to the minority interest
of Alsana's 25% shareholders 86,704
-----------
Balance of 1997 losses (570,310)
Estimated 1998 loss before income taxes (623,904)
Credit for income taxes (Note 4) -0-
-----------
Losses from operations of Alsana $(1,194,214)
===========
</TABLE>
Page 17
<PAGE> 20
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
9. DISCONTINUED OPERATIONS - Continued
<TABLE>
<CAPTION>
(c) The estimated loss on the disposal of Alsana is as follows:
<S> <C>
Acquisition of Alsana stock 1,090,556
Intercompany loans and advances 941,637
-----------
2,032,193
Consideration for sale, representing assumption
of amounts due to former shareholders of Alsana 439,557
-----------
1,592,636
Less operating losses already recorded
by the Company (Note 9(b)) (1,194,214)
-----------
398,422
Elimination of intercompany profit on equipment
sold by Alsana to Climax 53,349
Unamortized organizational costs 1,332
-----------
Estimated loss on disposal $ 453,103
===========
</TABLE>
Potential deferred tax assets arising from the loss on disposal were
fully provided against with a valuation allowance, due to their uncertainty
(Notes 1, 4).
(d) The estimated loss on the disposal of Alsana, Inc. as reflected
on the accompanying balance sheet at December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Accrual of 1998 losses 623,904
Estimated loss on disposal 453,103
----------
1,077,007
Goodwill arising from acquisition of Alsana, Inc.
and eliminated upon disposal (770,441)
----------
Accrual for estimated losses $ 306,566
==========
</TABLE>
Page 18
<PAGE> 21
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
9. DISCONTINUED OPERATIONS - Continued
(e) The components of the net current assets and net long-term
liabilities for discontinued operations included in the accompanying
consolidated balance sheet as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Net current assets
Cash 30,684
Accounts receivable 219,283
Inventory 335,843
Other current assets 8,635
Accounts payable (110,865)
Accrued payroll and expenses (45,700)
Current portion of long-term debt (199,269)
----------
Net current assets - discontinued operations $ 238,611
==========
Net long-term liabilities
Property, plant and equipment, less
accumulated depreciation of $708,159 324,145
Deferred income taxes 99,334
Other non-current assets 2,984
Long-term debt, less current portion (702,336)
----------
Net long-term liabilities - discontinued operations $ (275,873)
==========
</TABLE>
10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
a) Cash paid during the year for interest was $149,603 ($135,483 -
1996).
b) Cash paid during the year for taxes was $455,717 ($9,573 - 1996).
c) During 1997, in connection with the acquisition of Alsana, Inc.
the Company issued a note payable to the selling shareholders in the amount of
$404,557, and incurred a contractual obligation of $70,322 as of December 31,
1997.
d) As of December 31, 1997, the Company recorded a provision for
losses from discontinued operations through August 31, 1998, and a related loss
on disposal of Alsana, Inc. (Note 9).
Page 19
<PAGE> 22
CLIMAX PORTABLE MACHINE TOOLS, INC.
Newberg, Oregon
CONSOLIDATED BALANCE SHEET JUNE 30, 1998
- ------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 68,102
Accounts receivable, less provision
for doubtful accounts of $114,643 1,885,468
Inventory (Note 2) 1,809,907
Other receivables 118,680
Prepaid expenses 148,956
Deferred tax asset 99,520
----------
Total current assets 4,130,633
PROPERTY, PLANT AND EQUIPMENT (Note 3)
Cost, less accumulated depreciation
of $3,129,252 3,018,760
OTHER ASSETS
Cash surrender value of officers' life insurance 50,642
Other 124,357
----------
Total assets $7,324,392
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 394,592
Bank line of credit 830,000
Customer deposits 44,535
Accrued payroll and payroll taxes 427,251
Accrued profit sharing contributions 295,000
Accrued expenses 277,493
Accrued income taxes 21,530
Current portion of long-term debt 229,167
----------
Total current liabilities 2,519,568
LONG-TERM DEBT
Notes payable, less current portion 1,865,690
Other liabilities 55,302
NET LONG-TERM LIABILITIES - discontinued operations (Note 4) 10,539
SHAREHOLDERS' EQUITY 2,873,293
----------
Total liabilities and shareholders' equity $7,324,392
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 20
<PAGE> 23
CLIMAX PORTABLE MACHINE TOOLS, INC.
CONSOLIDATED STATEMENT SIX MONTH PERIOD ENDED
OF SHAREHOLDERS' EQUITY JUNE 30, 1998
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1998
----------
<S> <C>
CAPITAL STOCK
Common stock, no par value
Authorized - 50,000 shares
Issued and outstanding - 24,235 94,450
----------
PAID-IN CAPITAL 10,959
----------
RETAINED EARNINGS
Balance - Beginning of period 2,194,161
Net income (loss) 573,723
----------
Balance - End of period 2,767,884
----------
TOTAL SHAREHOLDERS' EQUITY $2,873,293
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 21
<PAGE> 24
CLIMAX PORTABLE MACHINE TOOLS, INC.
CONSOLIDATED SIX MONTH PERIODS ENDED
STATEMENTS OF OPERATIONS JUNE 30,1998 AND 1997
- ------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
SALES, less discounts and allowances
of $275,944 and $178,555 $ 6,099,425 $ 4,779,151
COST OF GOODS SOLD 2,937,063 2,663,140
----------- -----------
GROSS PROFIT 3,162,362 2,116,011
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,850,104 1,443,671
----------- -----------
INCOME FROM OPERATIONS 1,312,258 672,340
----------- -----------
OTHER EXPENSE
Interest expense, net of interest
income of $25,767 and $14,983 (116,718) (61,721)
Profit sharing contributions
ESOP (295,000) (225,000)
Research, development and
miscellaneous expenses (182,774) (6,922)
----------- -----------
Total other expense (594,492) (293,643)
----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 717,766 378,697
PROVISION FOR INCOME TAXES 144,043 142,800
----------- -----------
INCOME FROM CONTINUING OPERATIONS $ 573,723 $ 235,897
----------- -----------
DISCONTINUED OPERATIONS
Losses from operations from discontinued
Alsana subsidiary
Estimated loss on disposal -- --
----------- -----------
-- --
----------- -----------
NET INCOME $ 573,723 $ 235,897
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 22
<PAGE> 25
CLIMAX PORTABLE MACHINE TOOLS, INC.
CONSOLIDATED SIX MONTH PERIODS ENDED
STATEMENTS OF CASH FLOWS JUNE 30,1998 AND 1997
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) 573,723 235,897
Loss from discontinued operations -- --
--------- ---------
Income from continuing operations 573,723 235,897
Adjustments to reconcile income from continuing
operations to net cash used by continuing operating activities -
Depreciation and amortization 284,317 234,445
Gain on disposition of equipment (13,812) --
Provision for losses on accounts receivable -- 1,715
Deferred income taxes 617 21,526
Changes in operating assets and liabilities:
Accounts receivable (507,361) (329,115)
Inventory (831,318) (122,109)
Income taxes (245,700) (189,667)
Accounts payable and accrued expenses 527,906 (80,464)
Accrued profit sharing contributions (263,182) (200,027)
Other assets and liabilities (124,140) 393,210
--------- ---------
Net cash used by continuing operating activities (598,950) (34,589)
--------- ---------
Cash flows from discontinued operations
Loss from discontinued operations -- --
Adjustments to reconcile net loss from discontinued
operations to net cash used by discontinued
operating activities -
Depreciation 85,189 --
Accrued losses from discontinued operations (566,375) --
Provision for losses on accounts receivable 45,200 --
Gain on disposition of equipment (65,000) --
Deferred income taxes 102,969 --
Changes in operating assets and liabilities -
Current assets 225,475 --
Current liabilities (78,235) --
--------- ---------
Net cash used by discontinued operating activities (250,777) --
--------- ---------
Net cash used by operating activities (849,727) (34,589)
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 23
<PAGE> 26
CLIMAX PORTABLE MACHINE TOOLS, INC.
CONSOLIDATED SIX MONTH PERIODS ENDED
STATEMENTS OF CASH FLOWS - CONTINUED JUNE 30,1998 AND 1997
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net cash provided by operating activities (849,727) (34,589)
INVESTING ACTIVITIES
Purchases of machinery and equipment -
Continuing operations (273,378) (107,379)
Additions to equipment for self-constructed assets (190,793) (104,021)
Proceeds from disposition of equipment -
Continuing operations 114,867 1,856
Increase in cash value of officers' life insurance (6,000) 4,664
Purchases of machinery and equipment -
Discontinued operations (29,167) --
Proceeds from disposition of equipment -
Discontinued operations 65,000 --
----------- -----------
Net cash used by investing activities (319,471) (204,880)
FINANCING ACTIVITIES
Proceeds from (payments on) bank line of credit, net 830,000 (65,000)
Payments on long-term debt - Continuing operations (142,950) (74,560)
Redemption of common stock -- (19,998)
Proceeds from borrowings on long-term debt -
Continuing operations 421,478 --
Payments on long-term debt - Discontinued operations (118,345) --
----------- -----------
Net cash used by financing activities 990,183 (159,558)
----------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (179,015) (399,027)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 247,117 1,010,782
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 68,102 $ 611,755
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
a) Cash paid during the period for interest was $103,100 ($61,722 - 1997).
b) Cash paid during the period for taxes was $389,074 ($337,569 - 1997).
The accompanying notes are an integral part of these financial statements.
Page 24
<PAGE> 27
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998
- -------------------------------------------------------------------------------
1. GENERAL
The interim financial statements are unaudited, but in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results for such periods. The
results of operations for any interim period are not necessarily indicative of
results for the full year. These financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Company's annual report for the fiscal year ended December 31, 1997.
2. INVENTORY
Inventory consists of the following at June 30:
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Raw materials 163,974
Finished parts 1,463,072
Work in process 143,117
Finished machines 439,334
----------
2,209,497
Less: LIFO reserve 399,590
----------
$1,809,907
==========
</TABLE>
During the six month period ended June 30, 1998, certain items of
rental and demonstration equipment which had originally been capitalized, were
transferred back from property, plant and equipment to inventory for eventual
resale to customers. These transfers were at original cost less accumulated
depreciation, and totaled $190,793 for the six month period ended June 30, 1998.
3. PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment at six month
period end were as follows:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Land and land improvements 97,607
Building I 750,241
Building II and fixtures 709,186
Machinery and equipment (including approximately
$200,248 under capital leases) 4,000,515
Undeveloped land and preliminary development costs 317,118
Assets leased to customers 274,345
----------
6,149,012
Less accumulated depreciation (3,130,252)
----------
$3,018,760
==========
</TABLE>
Depreciation expense was $284,315 for the six month period ended June 30, 1998.
Page 25
<PAGE> 28
CLIMAX PORTABLE MACHINE TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998
- -------------------------------------------------------------------------------
4. DISCONTINUED OPERATIONS
On August 31, 1998 the Company disposed of its wholly owned subsidiary,
Alsana, Inc. All estimated future losses were accrued for at December 31, 1997.
Operating losses during the six month period ended June 30, 1998 were charged
against this accrual. A summary of the assets and liabilities of the
discontinued operations as of June 30, 1998 follows:
<TABLE>
<CAPTION>
Assets:
<S> <C>
Current assets $579,944
Property, plant, and equipment 268,123
Other long-term assets 2,984
--------
851,051
Liabilities:
Current liabilities 246,909
Long-term debt 614,681
--------
861,590
Net liabilities of discontinued operations $ 10,539
========
</TABLE>
Page 26
<PAGE> 29
Team, Inc.
Pro Forma Consolidated Financial Statements
(Unaudited)
On August 28, 1998, Team, Inc. ("Team" or the "Company") acquired all of the
outstanding capital stock of Climax Portable Machines Tools, Inc., an Oregon
corporation ("Climax"), in exchange for cash in the amount of $6,400,000 and
200,000 newly-issued shares of Team's common stock, $0.30 par value per share.
In order to finance the acquisition of the Climax Shares, Team closed a credit
facility with NationsBank, N.A. of Houston on August 26, 1998 in the amount of
$24,000,000. The new facility is comprised of (i) a $12,500,000 revolving loan,
(ii) $9,500,000 in term loans for business acquisitions and (iii) a $2,000,000
mortgage loan to refinance existing real estate indebtedness. Team terminated
the previously existing $10,000,000 revolving credit facility.
The following unaudited pro forma consolidated statements of operations for the
twelve months ended May 31, 1998 and the three months ended August 31, 1998 give
effect to the purchase by the Company of the capital stock of Climax as if the
acquisition and related financing occurred on June 1, 1997 (the beginning of
fiscal 1998). A pro forma consolidated balance sheet as of August 31, 1998 is
not presented as the transaction is already reflected in such balance sheet
previously filed by the Company on Form 10-Q.
The pro forma financial information is based on the historical consolidated
financial statements of the Company and the historical consolidated financial
statements of Climax and should be read in conjunction with such financial
statements and accompanying notes. Climax's historical statements of income are
for the twelve months ended June 30, 1998 and the three months ended August 31,
1998. Net sales and income from continuing operations for the one-month ended
June 30, 1998 of $924,000 and $98,000 respectively, have been included in the
pro forma results of operations for both the year ended May 31, 1998 and the
three months ended August 31, 1998. The purchase method of accounting was used
to prepare the pro forma financial statements using estimated fair values of the
assets and liabilities of Climax. The purchase accounting adjustments to reflect
the fair values of the assets and liabilities of Climax were based on
management's evaluation as of this filing date and are subject to change pending
final evaluation of the fair values of the assets and liabilities.
The pro forma financial information does not purport to be indicative of either
a) the results of operations which would have actually been obtained if the
acquisition had occurred on the dates indicated, or b) the results of operations
which will be reported in the future.
-27-
<PAGE> 30
TEAM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
CLIMAX
PORTABLE
MACHINE TOOLS, PRO FORMA PRO FORMA
TEAM, INC. INC. ADJUSTMENTS CONSOLIDATED
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 45,457,000 $ 12,194,000 $ 57,651,000
Operating expenses 25,933,000 5,775,000 (20,000) (1) 31,688,000
Selling, general and administrative
expenses 16,610,000 4,882,000 (121,000) (2) 21,371,000
Interest expense 450,000 135,000 460,000 (3) 1,045,000
----------- ----------- ---------- -----------
Income from continuing
operations before income taxes 2,464,000 1,402,000 (319,000) 3,547,000
Provision for income taxes 1,071,000 400,000 (82,000) (4) 1,389,000
----------- ----------- ---------- -----------
Net income from continuing operations $ 1,393,000 $ 1,002,000 $ (237,000) $ 2,158,000
=========== =========== ========== ===========
Net income per common share:
Basic $ 0.23 $ 0.35
Diluted $ 0.22 $ 0.34
Weighted average number of
shares outstanding:
Basic 6,147,000 6,147,000
Diluted 6,312,000 6,312,000
</TABLE>
-28-
<PAGE> 31
TEAM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
CLIMAX
PORTABLE
MACHINE TOOLS, PRO FORMA PRO FORMA
TEAM, INC. INC. ADJUSTMENTS CONSOLIDATED
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 11,368,000 $ 2,303,000 $ 13,671,000
Operating expenses 6,492,000 1,255,000 (32,000) (1) 7,715,000
Selling, general and administrative
expenses 4,241,000 1,123,000 (180,000) (2) 5,184,000
Interest expense 95,000 99,000 50,000 (3) 244,000
------------ ----------- --------- ------------
Income (loss) from continuing
operations before income taxes 540,000 (174,000) 162,000 528,000
Provision (Benefit) for income taxes 248,000 (59,000) 62,000 (4) 251,000
------------ ----------- --------- ------------
Net income (loss) from continuing operations $ 292,000 $ (115,000) $ 100,000 $ 277,000
============ =========== ========= ============
Net income per common share:
Basic $ 0.04 $ 0.04
Diluted $ 0.04 $ 0.04
Weighted average number of shares outstanding:
Basic 7,392,000 7,392,000
Diluted 7,685,000 7,685,000
</TABLE>
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<PAGE> 32
TEAM, INC
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 1998 AND THE THREE MONTHS
ENDED AUGUST 31, 1998
(UNAUDITED)
(1) To adjust depreciation expense of Climax from $506,000 to $486,000 for the
twelve months ended May 31, 1998 and from $153,000 to $121,000 for the
three months ended August 31, 1998, based upon the estimated fair values
of the assets over the estimated useful line ranging from 3 to 25 years.
(2) To eliminate $200,000 in special bonuses given to key employees and former
shareholders in connection with the acquisition, and to record goodwill
amortization based on the goodwill resulting from the acquisition on a
straight-line basis over a 40-year period.
(3) To eliminate Climax's interest expense on debt repaid and record interest
expense at 7%, which approximates the interest rate in effect during the
periods presented, on the $8.5 million borrowed to finance the purchase of
Climax.
(4) To record the tax effect of the taxable pro forma adjustments at the
statutory rate of 34%.
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