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