<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 13, 1997
-------------
RICHEY ELECTRONICS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-9788 33-0594451
- -------------- ---------------- ----------------------
(State of (Commission file (IRS Employer
incorporation) Number) Identification Number)
7441 Lincoln Way, Garden Grove, California 92641
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 898-8288
--------------
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
See Appendix 1 attached hereto which contains audited financial
information of Simmonds Technologies Inc., as follows:
1994 Combined Financial Statements
Auditors' Report
Combined Balance Sheet as at December 31, 1994
Combined Statement of Operations and Retained Earnings, Period
Ended December 31, 1994
Combined Statement of Changes in Financial Position, Period Ended
December 31, 1994
Notes to Combined Financial Statements, Period Ended December 31,
1994
1995 Financial Statements
Auditors' Report
Balance Sheet as at December 31, 1995
Statement of Operations and Retained Earnings, Year Ended
December 31, 1995
Statement of Changes in Financial Position, Year Ended December
31, 1995
Notes to Financial Statements, Year Ended December 31, 1995
1996 Financial Statements
Auditors' Report
Balance Sheet as at December 31, 1996
2
<PAGE>
Statement of Operations and Retained Earnings (Deficit), Year
Ended December 31, 1996
Statement of Changes in Financial Position, Year Ended December
31, 1996
Notes to Financial Statements, Year Ended December 31, 1996
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHEY ELECTRONICS, INC.
(Registrant)
By:/s/Richard N. Berger
--------------------
Richard N. Berger
Vice President,
Chief Financial Officer
and Secretary
August 25, 1997
191775
4
<PAGE>
APPENDIX 1
SIMMONDS TECHNOLOGIES, INC.
- ----------------------------------------
1994 COMBINED FINANCIAL STATEMENTS
<PAGE>
SIMMONDS TECHNOLOGIES INC.
1994 COMBINED FINANCIAL STATEMENTS
CONTENTS
Page
Auditors' Report 1
Combined Balance Sheet 2
Combined Statement of Operations and Retained Earnings 3
Combined Statement of Changes in Financial Position 4
Notes to Combined Financial Statements 5-7
<PAGE>
AUDITORS' REPORT
To the Directors of
SIMMONDS TECHNOLOGIES INC.
We have audited the combined balance sheet of SIMMONDS TECHNOLOGIES INC. (note
1) as at December 31, 1994 and the combined statements of operations and
retained earnings and changes in financial position for the period then ended
(note 1). These combined financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
combined 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 an audit to obtain reasonable
assurance 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.
In our opinion, these combined financial statements (note 1) present fairly, in
all material respects, the financial position of the company as at December 31,
1994 and the results of its operations and the changes in its financial position
for the period then ended in accordance with generally accepted accounting
principles.
/s/ Pannell Kerr Forster
Toronto, Canada
March 17, 1995, except as to note 7,
which is as of July 2, 1997 Chartered Accountants
1
<PAGE>
SIMMONDS TECHNOLOGIES INC.
COMBINED BALANCE SHEET AS AT
December 31,
1994 1994
------------- -------------
(note 1)
ASSETS
Current assets
Accounts receivable $ 4,113,935 $ 4,086,115
Inventory 4,625,876 4,716,314
Prepaid expenses 64,401 75,731
------------ -------------
8,804,212 8,878,160
Capital assets (note 3) 282,809 296,802
Deferred charges 252,464 --
------------ -------------
$ 9,339,485 $ 9,174,962
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Bank indebtedness (note 4) $ 2,341,168 $ 993,494
Accounts payable and accrued liabilities 2,810,427 4,161,228
Income taxes payable -- 231,940
------------ -------------
5,151,595 5,386,662
Due to parent company (note 5) 539,122 --
------------ -------------
5,690,717 5,386,662
------------ -------------
Shareholder's equity
Share capital (note 6) 589,108 589,108
Retained earnings 3,059,660 3,199,192
------------ -------------
3,648,768 3,788,300
------------ -------------
$ 9,339,485 $ 9,174,962
------------ -------------
------------ -------------
See accompanying notes
On behalf of the Board:
Director
Director
2
<PAGE>
SIMMONDS TECHNOLOGIES INC.
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
PERIOD ENDED DECEMBER 31, 1994 (note 1)
Sales $ 6,633,131
Cost of sales 4,992,147
------------
Gross margin 1,640,984
------------
Expenses
Selling, general and administrative 1,710,162
Interest 54,741
Amortization 15,613
------------
1,780,516
------------
Net loss (139,532)
Retained earnings, beginning of period (note 1) 3,199,192
------------
Retained earnings, end of period $ 3,059,660
------------
------------
See accompanying notes
3
<PAGE>
SIMMONDS TECHNOLOGIES INC.
COMBINED STATEMENT OF CHANGES IN FINANCIAL POSITION
PERIOD ENDED DECEMBER 31, 1994 (note 1)
During the period, cash was provided by (used in)
the following activities:
Operating activities
Net loss $ (139,532)
Add item not involving cash
Amortization of capital assets 15,613
------------
(123,919)
Net change in non-cash working capital items (1,508,793)
Increase in due to parent company 539,122
------------
Cash used in operating activities (1,093,590)
------------
Investing activities
Purchase of capital assets (1,620)
Increase in deferred charges (252,464)
------------
Cash used in investing activities (254,084)
------------
Net increase in bank indebtedness during the period (1,347,674)
Bank indebtedness, beginning of period (note 1) (993,494)
------------
Bank indebtedness, end of period $ (2,341,168)
------------
------------
See accompanying notes
4
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTE TO COMBINED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1994 (note 1)
1. BASIS OF FINANCIAL STATEMENTS
Simmonds Technologies Inc., a wholly-owned subsidiary of Simmonds Capital
Limited (SCL), was created on March 2, 1995 through the amalgamation and
continuation of Cardinal Industrial Electronics (1992) Ltd., Carsten
Electronics Limited and W.E.S. Electronics Ltd. These companies were
acquired by SCL effective October 31, August 31 and September 30, 1994,
respectively.
The comparative combined balance sheet represents the aggregate balance
sheets of Cardinal Industrial Electronics (1992) Ltd., Carsten Electronics
Limited and W.E.S. Electronics Ltd. as at their acquisition dates.
The combined statement of operations and retained earnings includes the
results of operations of the foregoing companies for the period from
acquisition to December 31, 1994. Any intercompany transactions and
balances have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This combined financial statement has been prepared by management in
accordance with generally accepted accounting principles, the more
significant of which are outlined below.
INVENTORY
Inventory is recorded at the lower of cost and net realizable value, with
cost being determined on a first-in, first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided over the
estimated useful lives of capital assets at the following annual rates and
methods:
Furniture and equipment - 20% declining balance
Data processing equipment - 30% declining balance
Leasehold improvements - 10 years, straight-line
DEFERRED CHARGES
Salaries, overhead and direct costs incurred in 1994 related to the
acquisition and integration of companies have been accounted for as
deferred charges. The balance will be amortized on a straight-line basis
over four years commencing in January 1996.
DEFERRED INCOME TAXES
The company uses the deferral method of income tax allocation.
5
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTE TO COMBINED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1994 (note 1)
3. CAPITAL ASSETS
Capital assets consist of the following:
December 31, 1994 1994
-------------------------------- ---------
Accumulated (note 1)
Cost Amortization Net Net
--------- ------------ --------- ---------
Furniture and equipment $ 190,180 10,008 $ 180,172 $ 187,568
Data processing equipment 66,583 3,329 63,254 67,802
Leasehold improvements 41,432 2,049 39,383 41,432
--------- ------------ --------- ---------
$ 298,195 15,386 $ 282,809 $ 296,802
--------- ------------ --------- ---------
--------- ------------ --------- ---------
4. BANK INDEBTEDNESS
Bank indebtedness consists of the following:
December 31,
1994 1994
----------- -----------
(note 1)
Operating loan bearing interest at prime
plus 1 1/2% $ 1,180,000 $ 1,240,000
Revolving demand loan bearing interest at prime 810,000 --
Cash -- (246,506)
Bank overdraft 351,168 --
----------- -----------
$ 2,341,168 $ 993,494
----------- -----------
----------- -----------
Security for bank indebtedness includes a general security agreement, a
general assignment of book debts, a security agreement over inventory, a
demand debenture for $400,000 and postponements of claim from predecessor
shareholders of Cardinal Industrial Electronics (1992) Ltd.
5. DUE TO PARENT COMPANY AND RELATED PARTY TRANSACTIONS
At December 31, 1994, the component companies of Simmonds Technologies Inc.
had advances due to SCL in the amount of $539,122 bearing interest at the
rate of 1% per month. There are no specific terms for repayment.
During the period, the companies paid management fees of $319,006 to SCL.
6
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTE TO COMBINED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1994 (note 1)
6. SHARE CAPITAL
Share capital consists of the following:
December 31,
1994 1994
------------ -----------
(note 1)
Authorized
Unlimited number of common shares
Issued
Common shares $ 589,108 $ 589,108
------------ -----------
------------ -----------
Share capital at December 31, 1994 represents the aggregate share capital
of Cardinal Industrial (1992) Ltd., Carsten Electronics Limited and W.E.S.
Electronics Ltd.
7. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
December 31,
1994
-----------------
Net loss per Canadian GAAP $ 139,532
Deferred charges written off per US GAAP(a) 252,464
-----------------
Net loss per US GAAP $ 391,996
-----------------
(a) Salaries, overhead and direct costs incurred in 1994 related to the
acquisition and integration of companies have been accounted for as
deferred charges. The balance will be amortized on a straight line
basis over four years commencing in January 1996. In the United
States, Financial Accounting Standards require that these charges,
that are deferred and amortized for Canadian purposes, be expensed
when incurred for U.S. purposes.
7
<PAGE>
SIMMONDS TECHNOLOGIES, INC.
- --------------------------------
1995 FINANCIAL STATEMENTS
<PAGE>
SIMMONDS TECHNOLOGIES INC.
1995 FINANCIAL STATEMENTS
CONTENTS
Page
Auditors' Report 1
Balance Sheet 2
Statement of Operations and Retained Earnings 3
Statement of Changes in Financial Position 4
Notes to Financial Statements 5-10
<PAGE>
AUDITORS' REPORT
To the Directors of
SIMMONDS TECHNOLOGIES INC.
We have audited the balance sheet of SIMMONDS TECHNOLOGIES INC. as at December
31, 1995 and the statements of operations and retained earnings and changes in
financial position 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 an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1995 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
/s/ Pannell Kerr Forster
Toronto, Canada
March 15, 1996, except as to note 12,
which is as of July 2, 1997 Chartered Accountants
1
<PAGE>
SIMMONDS TECHNOLOGIES INC.
BALANCE SHEET AS AT DECEMBER 31
1995 1994
------------ -----------
(note 1)
ASSETS
Current assets
Accounts receivable $ 5,768,032 $ 4,113,935
Inventory 9,981,584 4,625,876
Prepaid expenses 334,975 64,401
------------ -----------
16,084,591 8,804,212
Capital assets(note 4) 2,669,685 282,809
Deferred charges 2,078,511 252,464
Goodwill 418,945 --
------------ -----------
$ 21,251,732 $ 9,339,485
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Bank indebtedness (note 5) $ 7,052,029 $ 2,341,168
Accounts payable and accrued liabilities 5,388,715 2,810,427
Current portion of obligations under capital
lease 344,819 --
------------ -----------
12,785,563 5,151,595
Due to parent company (note 8(a)) 2,527,599 539,122
Obligations under capital lease (note 6) 1,916,684 --
------------ -----------
17,229,846 5,690,717
------------ -----------
Shareholder's equity
Share capital (note 7) 1,189,108 589,108
Retained earnings 2,832,778 3,059,660
------------ -----------
4,021,886 3,648,768
------------ -----------
$ 21,251,732 $ 9,339,485
------------ -----------
------------ -----------
See accompanying notes
2
<PAGE>
SIMMONDS TECHNOLOGIES INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31
1995 1994
------------ -----------
(note 1)
Sales $ 43,527,740 $ 6,633,131
Cost of sales 31,857,322 4,992,147
------------ -----------
Gross margin 11,670,418 1,640,984
------------ -----------
Expenses
Selling, general and administrative 11,139,263 1,710,162
Interest 484,123 54,741
Amortization 273,914 15,613
------------ -----------
11,897,300 1,780,516
------------ -----------
Net Loss (226,882) (139,532)
Retained earnings, beginning of year (note 1) 3,059,660 3,199,192
------------ -----------
Retained earnings, end of year $ 2,832,778 $ 3,059,660
------------ -----------
------------ -----------
See accompanying notes
3
<PAGE>
SIMMONDS TECHNOLOGIES INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31
1995 1994
------------ -----------
(note 1)
During the year, cash was provided by (used in)
the following activities:
Operating activities
Net loss $ (226,882) $ (139,532)
Add items not involving cash:
Amortization of capital assets 144,858 15,613
Amortization of deferred charges 82,507 --
Amortization of goodwill 46,549 --
------------ -----------
47,032 (123,919)
Net change in non-cash working capital items (4,562,569) (1,508,793)
Increase in due to parent company 1,848,955 539,122
------------ -----------
Cash used in operating activities (2,666,582) (1,093,590)
------------ -----------
Financing activities
Increase in obligations under capital lease 2,261,503 --
Increase in share capital 600,000 --
------------ -----------
Cash provided by financing activities 2,861,503 --
------------ -----------
Investing activities
Increase in capital assets acquired under
capital lease (2,305,443) --
Purchase of capital assets (226,291) (1,620)
Increase in deferred charges (1,908,554) (252,464)
Increase in goodwill (465,494) --
------------ -----------
Cash used in investing activities (4,905,782) (254,084)
------------ -----------
Net increase in bank indebtedness during the year (4,710,861) (1,347,674)
Bank indebtedness, beginning of year (2,341,168) (993,494)
------------ -----------
Bank indebtedness, end of year $(7,052,029) $(2,341,168)
------------ -----------
------------ -----------
See accompanying notes
4
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
1. BASIS OF FINANCIAL STATEMENTS
Simmonds Technologies Inc., a wholly-owned subsidiary of Simmonds Capital
Limited (SCL), was created on March 2, 1995 through the amalgamation and
continuation of Cardinal Industrial Electronics (1992) Ltd., Carsten
Electronics Limited and W.E.S. Electronics Ltd. These companies were
acquired by SCL effective October 31, August 31 and September 30, 1994,
respectively. During 1995, the issued and outstanding shares of Electronic
Wholesalers Co. Ltd., E W Electronics Wholesalers Ltd. and Cite
Electronique Inc. were acquired by SCL on behalf of Simmonds Technologies
Inc. and were subsequently wound up into that company.
In these financial statements, the statements of income and retained
earnings and changes in financial position reflect the results of
operations of the foregoing companies for the year ended December 31, 1995,
except for Cite Electronique, which is for the ten months then ended.
The comparative financial statements for the period ended December 31, 1994
represent the combined financial statements of Cardinal Industrial
Electronics (1992) Ltd., Carsten Electronics Limited and W.E.S. Electronics
Ltd. for the period from acquisition to December 31, 1994.
The carrying values of the assets, liabilities and shareholders' equity of
Cardinal Industrial Electronics (1992) Ltd., Carsten Electronics Limited
and W.E.S. Electronics Ltd. have not been comprehensively revalued pursuant
to the acquisition of control by SCL. The business combinations resulting
from the acquisition of Electronic Wholesalers Co. Ltd., E W Electronic
Wholesalers Ltd. and Cite Electronique Inc. have been accounted for by the
purchase method (note 2).
2. ACQUISITIONS
In April 1995, with an effective date of January 1, 1995, the company
acquired all of the issued and outstanding shares of Electronic Wholesalers
Co. Ltd. of Montreal and E W Electronic Wholesalers Ltd. of Ottawa for
total consideration of $741,362 consisting of cash of $141,362, 228,558 SCL
common shares valued at $300,000 and 187,500 SCL preferred shares, Series 3
valued at $300,000.
In May 1995, with an effective date of March 1, 1995, the company acquired
all of the issued and outstanding common shares of Cite Electronique Inc.
for cash consideration of $296,824.
Both of the foregoing companies are in the business of distributing
electronic components. The net assets acquired and the amounts assigned
thereto are as follows:
ELECTRONIC
WHOLESALERS
AND CITE
E W ELECTRONIC ELECTRONIQUE
-------------- ------------
Total assets $ 3,200,728 $ 996,264
Total liabilities 2,863,671 760,629
-------------- ------------
Net assets acquired 337,057 235,635
Goodwill on acquisition 404,305 61,189
-------------- ------------
Acquisition cost $ 741,362 $ 296,824
-------------- ------------
-------------- ------------
5
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management in accordance
with generally accepted accounting principles, the more significant of
which are outlined below.
INVENTORY
Inventory is recorded at the lower of cost and net realizable value, with
cost being determined on a first-in, first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided over the
estimated useful lives of capital assets at the following annual rates and
methods:
Furniture and equipment - 20% declining balance
Data processing equipment - 30% declining balance
Leasehold improvements - 10 years, straight-line
Amortization of capital assets under capital lease commences in January,
1996 with the opening of the new facility in Pickering, Ontario.
DEFERRED CHARGES
Salaries, overhead and direct costs incurred in 1994 and 1995 related to
the acquisition and integration of companies, the implementation of a new
management information system and the construction of new premises in
Pickering, Ontario have been accounted for as deferred charges. The
balance will be amortized on a straight-line basis over four years
commencing in January 1996 with the opening of the new facility in
Pickering, Ontario.
Costs associated with the development of the product catalogue are being
amortized on a straight line basis over three years commencing in 1995.
GOODWILL
Goodwill represents the excess of the acquisition cost over the fair value
assigned to the identifiable net assets acquired of Electronic Wholesalers
Co. Ltd., E W Electronics Wholesalers Ltd. and Cite Electronique Inc. (note
2). It is amortized on a straight line basis over ten years.
DEFERRED INCOME TAXES
The company uses the deferral method of income tax allocation.
6
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
4. CAPITAL ASSETS
Capital assets consists of the following:
1995
--------------------------------------
Accumulated
Cost Amortization Net
----------- ------------ ----------
Furniture and equipment
Purchased $ 256,457 75,201 $ 181,274
Acquired under capital lease 562,187 -- 562,187
Data processing equipment
Purchased 205,819 100,148 105,671
Acquired under capital lease 1,565,566 -- 1,565,566
Leasehold improvements
Purchased 86,309 9,012 77,297
Acquired under capital lease 177,690 -- 177,690
----------- ------------ ----------
$2,854,046 184,361 $2,669,685
----------- ------------ ----------
----------- ------------ ----------
1994 (note 1)
--------------------------------------
Accumulated
Cost Amortization Net
----------- ------------ ----------
Furniture and equipment
Purchased $ 190,180 10,008 $ 180,172
Data processing equipment
Purchased 66,583 3,329 63,254
Leasehold improvements
Purchased 41,432 2,049 39,383
----------- ------------ ----------
$ 298,195 15,386 $ 282,809
----------- ------------ ----------
----------- ------------ ----------
5. BANK INDEBTEDNESS
Bank indebtedness consists of the following:
1995 1994
------------ ----------
(note 1)
Operating demand loan $5,644,700 $1,990,000
Non-revolving demand loan 530,000 --
Other indebtedness 877,329 351,168
------------ ----------
$7,052,029 $2,341,168
------------ ----------
------------ ----------
The demand loans bear interest at prime plus .25% and .75% respectively and
are secured by a general assignment of book debts, security under Section
427 of the Bank Act, a hypothecation on moveable property, an agreement of
commercial letter of credit, a reimbursement agreement for Letter of
Guarantee and a Scotia Lease Agreement.
During the year, the company incurred interest of $484,123 related to
short-term indebtedness.
7
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
6. OBLIGATIONS UNDER CAPITAL LEASE
The company has obligations under capital leases in respect of capital
assets, as follows:
1995 1994
---------- ----------
(note 1)
1996 $ 592,008 $ --
1997 613,374 --
1998 613,374 --
1999 611,512 --
2000 484,708 --
2001 and thereafter 93,058 --
---------- ----------
Total minimum lease payments 3,008,034 --
Less: amount representing
interest at an average rate of 12% 746,531 --
---------- ----------
Capital lease obligations 2,261,503 --
Less: current portion 344,819 --
---------- ----------
Long-term portion $1,916,684 $ --
---------- ----------
---------- ----------
7. SHARE CAPITAL
Share capital consists of the following:
1995 1994
---------- ----------
(note 1)
Authorized
Unlimited number of Class A
preference shares, issuable
in series
Unlimited number of common
shares
Issued
600,100 common shares $1,189,108 $1,189,108
---------- ----------
---------- ----------
Share capital at December 31, 1994 represents the aggregate share capital of
Cardinal Industrial (1992) Ltd., Carsten Electronics Limited and W.E.S.
Electronics Ltd. These companies were amalgamated on March 2, 1995 and
continued as Simmonds Technologies Inc. The share capital at December 31, 1995
represents the aggregate share capital of the amalgamated companies (100 shares)
together with 600,000 common shares subscribed for and issued to SCL for the
amount of $600,000. The SCL share subscription was in respect of acquisitions
(note 2).
8
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
8. RELATED PARTY TRANSACTIONS
(a) Due to parent company consists of an advance from Simmonds Capital
Limited (parent) of $2,388,077 (1994-$539,112), which bears interest
at the rate of 1% per month. There are no specific terms for
repayment.
(b) Accounts payable includes $139,522 (1994-nil) due to an affiliate.
(c) During the year, the company entered into the following transactions
with its affiliates:
1995 1994
---------- ----------
(note 1)
Purchases of product $ 146,107 $ --
Management fees 279,769 319,006
Interest 361,200 --
9. INCOME TAX BENEFIT
The company has tax benefits available to offset future income for tax
purposes, the benefit of which has not been recorded in the financial
statements, of approximately $225,000 (1994-nil).
10. COMMITMENTS
The company is committed under operating leases for rental of equipment and
premises extending for various periods to and beyond 2000. Future minimum
annual payments required over the next five years and thereafter are as
follows:
1996 $ 1,024,581
1997 943,172
1998 878,485
1999 777,886
2000 700,021
2001 and thereafter 7,019,939
-----------
$ 11,344,084
-----------
-----------
9
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
11. SUBSEQUENT EVENTS
(a) Effective January 1996, the company purchased all of the issued and
outstanding shares of a company operating as Radio Supply and Services
Ltd. for consideration of approximately $150,000, being an amount
equal to the net book value of the company at December 31, 1995 and an
amount of up to $100,000.
(b) Subsequent to the year end, the company signed agreements for
acquisitions of capital assets under capital leases. The lease
payments required over the next five years and thereafter are as
follows:
1996 $ 429,312
1997 572,783
1998 572,783
1999 547,725
2000 272,071
2001 and thereafter 78,541
-----------
Total minimum lease payments 2,473,215
Less: amount representing
interest at an average rate of
8.8% 435,435
-----------
Capital lease obligations $ 2,037,780
-----------
-----------
12. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Net loss per Canadian GAAP $ 226,882
Adjustments
Deferred charges written
off per US GAAP(net)(a) 1,826,047
-----------
Net loss per US GAAP $ 2,052,929
-----------
-----------
(a) Salaries, overhead and direct costs incurred related to the
acquisition and integration of companies, the implementation of a new
management information system and the construction of new premises
have been accounted for as deferred charges. The balance will be
amortized on a straight-line basis over four years commencing in
January 1996. Costs associated with the development of the product
catalogue are being amortized on a straight-line basis over three
years which commenced in 1995. In the United States, Financial
Accounting Standards require that these charges that are deferred and
amortized for Canadian purposes, be expensed when incurred for US
purposes.
10
<PAGE>
SIMMONDS TECHNOLOGIES, INC.
- ----------------------------------
1996 FINANCIAL STATEMENTS
<PAGE>
SIMMONDS TECHNOLOGIES INC.
1996 FINANCIAL STATEMENTS
CONTENTS
Page
Auditors' Report 1
Balance Sheet 2
Statement of Operations and Retained Earnings (Deficit) 3
Statement of Changes in Financial Position 4
Notes to Financial Statements 5-9
<PAGE>
AUDITORS' REPORT
To the Directors of
SIMMONDS TECHNOLOGIES INC.
We have audited the balance sheet of SIMMONDS TECHNOLOGIES INC. as at December
31, 1996 and the statements of operations and retained earnings (deficit) and
changes in financial position 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 an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1996 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
/s/ Pannell Kerr Forster
Toronto, Canada
March 14, 1997 Chartered Accountants
except as to note 12,
which is as of July 2, 1997
1
<PAGE>
SIMMONDS TECHNOLOGIES INC.
BALANCE SHEET AS AT DECEMBER 31
1996 1995
----------- -----------
ASSETS
Current assets
Accounts receivable $ 5,806,388 $ 5,768,032
Inventory 11,275,340 9,981,584
Prepaid expenses 96,031 334,975
----------- -----------
17,177,759 16,084,591
Capital assets (note 3) 6,703,171 2,669,685
Deferred charges 1,579,902 2,078,511
Goodwill 400,861 418,945
----------- -----------
$ 25,861,693 $ 21,251,732
----------- -----------
----------- -----------
LIABILITIES, SHARE CAPITAL AND DEFICIT
Current liabilities
Indebtedness (note 5) $ 10,343,970 $ 7,052,029
Accounts payable and accrued liabilities 6,838,151 5,388,715
Income taxes payable 53,078 --
Current portion of obligations under capital
lease 1,219,657 344,819
----------- -----------
18,454,856 12,785,563
Due to related parties (note 8) 8,241,111 2,527,599
Obligations under capital lease (note 6) 4,437,425 1,916,684
----------- -----------
31,133,392 17,229,846
----------- -----------
Share capital and deficit
Share capital (note 7) 1,189,108 1,189,108
Retained earnings (deficit) (6,460,807) 2,832,778
----------- -----------
(5,271,699) 4,021,886
----------- -----------
$ 25,861,693 $ 21,251,732
----------- -----------
----------- -----------
See accompanying notes
2
<PAGE>
SIMMONDS TECHNOLOGIES.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
YEAR ENDED DECEMBER 31
1996 1995
----------- -----------
Sales $41,799,146 $43,527,740
Cost of sales 31,470,453 31,857,322
----------- -----------
Gross margins 10,328,693 11,670,418
----------- -----------
Expenses
Salaries and benefits 10,207,321 6,683,402
General and administrative 3,389,082 2,569,215
Selling 800,348 661,356
Occupancy 1,770,957 1,225,290
----------- -----------
16,167,708 11,139,263
----------- -----------
Earnings (loss) from operations (5,839,015) 531,155
----------- -----------
Other expense
Interest 1,787,131 484,123
Amortization 1,617,439 273,914
----------- -----------
3,404,570 758,037
----------- -----------
Loss before income taxes (9,243,585) (226,882)
Income taxes, current 50,000 --
----------- -----------
Net loss (9,293,585) (226,882)
Retained earnings, beginning of year 2,832,778 3,059,660
----------- -----------
Retained earnings (deficit), end of year $(6,460,807) $ 2,832,778
----------- -----------
----------- -----------
See accompanying notes
3
<PAGE>
SIMMONDS TECHNOLOGIES INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31
1996 1995
----------- -----------
During the year, cash was provided (used in) the
following activities:
Operating activities
Net loss $ (9,293,585) $ (226,882)
Add items not involving cash:
Amortization of capital assets 1,015,883 144,858
Amortization of deferred charges 559,662 82,507
Amortization of goodwill 41,894 46,549
----------- -----------
(7,676,146) 47,032
(Increase) decrease in non-cash working capital
items 409,346 (4,702,091)
----------- -----------
Cash used in operating activities (7,266,800) (4,655,059)
----------- -----------
Financing activities
Increase in obligations under capital lease 3,395,579 2,261,503
Increase in share capital -- 600,000
Increase in due to related parties 5,713,512 1,988,477
----------- -----------
Cash provided by financing activities 9,109,091 4,849,980
----------- -----------
Investing activities
Purchase of capital assets (5,049,369) (2,531,734)
Increase in deferred charges (61,053) (1,908,554)
Increase in goodwill (net) (23,810) (465,494)
----------- -----------
Cash used in investing activities (5,134,232) (4,905,782)
----------- -----------
Net increase in indebtedness during the year (3,291,941) (4,710,861)
Indebtedness, beginning of year (7,052,029) (2,341,168)
----------- -----------
Indebtedness, end of year $(10,343,970) $(7,052,029)
----------- -----------
----------- -----------
See accompanying notes
4
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
1. SIMMONDS CAPITAL LIMITED AND SCL ELECTRONICS LTD.
The company, SCL Technologies, Inc. (SCLT), SCL Plastics Inc. (SCLP), A.C.
Simmonds & Sons Limited (ACS) and ACS Components Inc. (ACSC) are
wholly-owned subsidiaries of SCL Electronics Ltd. (SCLE). SCLE is a
wholly-owned subsidiary of Simmonds Capital Limited (SCL).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On November 30, 1996, SCL announced that it had retained an investment
banker to assist in the assessment of strategic alternatives with respect
to the company. Since that time, management has held discussions with
prospective investors and is proceeding with negotiations for investment
capital.
During this period, management has also developed and has started to
implement a restructuring plan that would lead to profitable operations.
On the basis that management is confident of success, the financial
statements have been prepared using accounting principles applicable to a
going concern.
These financial statements have been prepared by management in accordance
with generally accepted accounting principles, the more significant of
which are outlined below.
INVENTORY
Inventory is recorded at the lower of cost and net realizable value, with
cost being determined on a first-in, first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided over the
estimated useful lives of capital assets at the following annual rates and
methods:
Furniture and equipment - 20% declining balance
Data processing equipment - 5 years, straight-line
Leasehold improvements - 10 years, straight-line
DEFERRED CHARGES
Salaries, overhead and direct costs incurred in 1994 and 1995 related to
the acquisition and integration of companies, the implementation of a new
management information system and the construction of new premises in
Pickering, Ontario have been accounted for as deferred charges. The
balance is being amortized on a straight-line basis over four years,
commencing in January 1996.
Costs associated with the development of the product catalogue are being
amortized on a straight-line basis over three years commencing in 1995.
5
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Goodwill
Goodwill represents the excess of the acquisition cost over the fair value
assigned to the identifiable net assets acquired of Electronic Wholesalers
Co. Ltd., E.W. Electronic Wholesalers Ltd., Cite Electronique Inc. and
Radio Supply and Services Ltd. It is being amortized on a straight line
basis over ten years.
3. CAPITAL ASSETS
1996
--------------------------------------
Accumulated
Cost Amortization Net
---------- ------------- -----------
Furniture and equipment
Purchased $ 623,284 148,139 $ 475,145
Acquired under capital lease 1,457,173 245,878 1,211,295
Data processing equipment
Purchased 191,365 129,681 61,684
Acquired under capital lease 5,205,216 613,295 4,591,921
Leasehold improvements
Purchased 179,105 19,907 159,198
Acquired under capital lease 250,368 46,440 203,928
---------- ------------- -----------
$ 7,906,511 1,203,340 $ 6,703,171
---------- ------------- -----------
---------- ------------- -----------
1995
--------------------------------------
Accumulated
Cost Amortization Net
---------- ------------- -----------
Furniture and equipment
Purchased $ 256,475 75,201 $ 181,274
Acquired under capital lease 562,187 -- 562,187
Data processing equipment
Purchased 205,819 100,148 105,671
Acquired under capital lease 1,565,566 -- 1,565,566
Leasehold improvements
Purchased 86,309 9,012 77,297
Acquired under capital lease 177,690 -- 177,690
---------- ------------- -----------
$2,854,046 184,361 $ 2,669,685
---------- ------------- -----------
---------- ------------- -----------
6
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
4. ACQUISITIONS
In January 1996 the company purchased all of the issued and outstanding
shares of Radio Supply and Services Ltd. for total consideration of
$128,338, consisting of cash of $43,338 and 9,849 SCL common shares valued
at $85,000.
Radio Supply and Services Ltd. is in the business of distributing
electronic components. The net assets acquired and the amounts assigned
thereto are as follows:
Total assets $ 288,158
Total liabilities 244,820
---------
Net assets acquired 43,338
Goodwill on acquisition 85,000
---------
Acquisition cost $ 128,338
---------
---------
5. INDEBTEDNESS
Indebtedness consists primarily of the company's share of the SCLE line of
credit. The credit facility is secured by a General Security Agreement
covering all assets of that company and its subsidiaries, general
assignment of book debts, assignments under Section 427 of the Bank Act
(Canada), assignment of insurance and a guarantee signed by SCL.
During the year, the company incurred interest of $918,522 (1995 -
$484,123) related to short-term indebtedness.
6. OBLIGATIONS UNDER CAPITAL LEASE
1996 1995
---------- -----------
1996 $ -- $ 592,008
1997 1,717,871 613,374
1998 1,717,871 613,374
1999 1,716,009 611,512
2000 1,280,518 484,708
2001 and thereafter 428,748 93,058
---------- -----------
Total minimum lease payments 6,861,017 3,008,034
Less: amount representing interest at an
average rate of 12% 1,203,935 746,531
---------- -----------
Obligations under capital lease 5,657,082 2,261,503
Less: current portion 1,219,657 344,819
---------- -----------
$ 4,437,425 $ 1,916,684
---------- -----------
---------- -----------
Interest in respect of obligations under capital lease amounted to $442,609
(1995 - Nil).
7
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
7. SHARE CAPITAL
1996 1995
---------- -----------
Authorized
Unlimited number of Class A
preference shares, issuable
in series
Unlimited number of common shares
Issued
600,100 common shares $ 1,189,108 $ 1,189,108
---------- -----------
---------- -----------
8. RELATED PARTY TRANSACTIONS
The company was charged $492,000 (1995 - $279,769) by SCL and SMMI for
accounting, financial, computer and other business services and $661,886
(1995 - Nil) interest by SCLE as part of the shared line of credit
(note 5).
The company incurred $426,000 (1995 - $361,200) interest on the outstanding
SCL and SMMI balance at a rate of 1% per month. This amount has no
specific terms for repayment. All other amounts outstanding are
non-interest bearing with no specific terms for repayment.
The company purchased $227,445 (1995 - $146,107) on normal trade terms from
ACS. The company also had sales to SCLT on normal trade terms of $79,907
(1995 - Nil).
Net amounts due to related parties consist of the following:
1996 1995
---------- -----------
ACS $ 197,026 $ 139,522
SCLE and subsidiaries 644,374 --
SCL and subsidiaries 7,399,711 2,388,077
---------- -----------
$ 8,241,111 $ 2,527,599
---------- -----------
---------- -----------
9. INCOME TAX BENEFIT
The company has tax benefits available to offset future income for tax
purposes, the benefit of which has not been recorded in the financial
statements, of approximately $8,000,000 (1995 - $225,000).
8
<PAGE>
SIMMONDS TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
10. COMMITMENTS
The company is committed under operating leases for rental of premises and
equipment extending for various periods up to and beyond 2001. Future
minimum annual payments required over the next five years and thereafter
are as follows:
1996 1995
----------- ------------
1996 $ -- $ 1,024,581
1997 1,070,222 943,172
1998 1,064,652 878,485
1999 950,644 777,886
2000 869,493 700,021
2001 914,430 736,199
Thereafter 9,224,568 6,283,740
----------- ------------
$ 14,094,009 $ 11,344,084
----------- ------------
----------- ------------
11. COMPARATIVE AMOUNTS
Certain comparative amounts have been reclassified to conform to the
presentation of the 1996 financial statements.
12. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Net loss per Canadian Adjustments $ 9,293,585
Adjustments
Deferred charges written off
per US GAAP(a)(net) (498,609)
Capital assets written down
per US GAAP (b) 400,000
-----------
Net loss per US GAAP $ 9,194,976
-----------
-----------
(a) Salaries, overhead and direct costs incurred related to the
acquisition and integration of companies, the implementation of a new
management information system and the construction of new premises
have been accounted for as deferred charges. The balance will be
amortized on a straight line basis over four years which commenced in
January 1996. Costs associated with the development of the product
catalogue are being amortized on a straight line basis over three
years which commenced in 1995. In 1996, amortization of deferred
charges amounted to $559,662 compared to $61,053 of deferred charges
capitalized resulting in a net reduction to the Loss per US GAAP. In
the United States, Financial Accounting Standards require that these
charges, that are deferred and amortized for Canada purposes be
expensed when incurred for US purposes.
(b) Salaries and overhead incurred in 1996 directly related to the
implementation of the new management information system have been
accounted for as capital asset additions to be amortized over the
useful life of the asset. In the United States, Financial Accounting
Standards require that these charges that are capitalized and
amortized for Canadian purposes, be expensed when incurred for US
purposes.
9
