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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 6, 2000
HEI, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
(State or Other Jurisdiction of Incorporation)
| 0-10078 (Commission File Number) |
41-0944876 (I.R.S. Employer Identification No.) |
|
| 1495 Steiger Lake Lane, Victoria, Minnesota (Address of Principal Executive Offices) |
|
55386 (Zip Code) |
952-443-2500
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Item 2. Acquisition or Disposition of Assets.
The undersigned registrant, HEI, Inc. ("HEI"), hereby amends Item 7 of its Current Report on Form 8-K, dated March 6, 2000 (initially filed with the Commission on March 21, 2000), to include the financial statements and exhibits identified in Item 7 below. The initially-filed Form 8-K described HEI's acquisition of Cross Technology, Inc. ("Cross"), in accordance with an Agreement and Plan of Reorganization, dated as of February 25, 2000, between HEI, Cross and the shareholders of Cross.
Item 7. Financial Statements and Exhibits.
The following financial statements of Cross and the report of KPMG LLP, HEI's certified independent public accountants, are included in this report:
The following pro forma financial information is included in this report:
The additional financial information required pursuant to Item 7 of Form 8-K is incorporated herein by reference to Item 1 of HEI's Form 10-QSB for the quarter ended March 4, 2000 (SEC File No. 000-10078).
99.3 HEI's Form 10-QSB for the quarter ended March 4, 2000.
| Exhibit No. |
Description |
|
|---|---|---|
| 99.3 | HEI'a Form 10-QSB for the quarter ended March 4, 2000. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned thereunto duly authorized.
Dated: May 19, 2000
| HEI, INC. | ||||
| |
|
By: |
|
/s/ ANTHONY J. FANT Anthony J. Fant Chairman and Chief Executive Officer |
CROSS TECHNOLOGY, INC.
Financial Statements
August 31, 1999 and 1998
CROSS TECHNOLOGY, INC.
| |
Page |
|
|---|---|---|
| Independent Auditors' Report |
|
1 |
| Balance Sheets |
|
2 |
| Statements of Operations |
|
3 |
| Statements of Shareholders' Equity |
|
4 |
| Statements of Cash Flows |
|
5 |
| Notes to Financial Statements |
|
6 |
The
Board of Directors
Cross Technology, Inc.:
We have audited the accompanying balance sheets of Cross Technology, Inc. (the Company) as of August 31, 1999 and 1998, and the related statements of operations, shareholders' equity, and cash flows for the periods 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 the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cross Technology, Inc. as of August 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
April 30,
2000
Minneapolis, Minnesota
CROSS TECHNOLOGY, INC.
Balance Sheets
August 31, 1999 and 1998
| |
1999 |
1998 |
||||
|---|---|---|---|---|---|---|
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 826,207 | 186,299 | |||
| Accounts receivable | 519,874 | 593,721 | ||||
| Inventories | 384,640 | 176,417 | ||||
| Deferred tax asset | 95,826 | 100,605 | ||||
| Other assets | 59,175 | 44,641 | ||||
| Total current assets | 1,885,722 | 1,101,683 | ||||
| Property and equipment | 1,566,220 | 1,189,828 | ||||
| Less accumulated depreciation | (666,190 | ) | (586,463 | ) | ||
| 900,030 | 603,365 | |||||
| Total assets | $ | 2,785,752 | 1,705,048 | |||
| Liabilities and Shareholders' Equity | ||||||
| Current liabilities: | ||||||
| Current maturities of long-term debt | $ | 42,236 | — | |||
| Accounts payable | 281,200 | 182,350 | ||||
| Salaries and related costs | 376,595 | 414,844 | ||||
| Accrued expenses | 151,761 | 160,560 | ||||
| Income tax payable | 208,762 | 32,892 | ||||
| Total current liabilities | 1,060,554 | 790,646 | ||||
| Long-term debt, less current portion | 197,329 | — | ||||
| Deferred tax liability | 117,549 | 120,335 | ||||
| Total liabilities | 1,375,432 | 910,981 | ||||
| Shareholders' equity: | ||||||
| Common stock of $.01 par value per share authorized 120,000; 120,000 issued and outstanding, respectively | 1,200 | 1,200 | ||||
| Additional paid-in capital | 405,066 | 405,066 | ||||
| Retained earnings | 1,004,054 | 387,801 | ||||
| Total shareholders' equity | 1,410,320 | 794,067 | ||||
| Commitments and contingencies (note 7) | ||||||
| Total liabilities and shareholders' equity | $ | 2,785,752 | 1,705,048 | |||
See accompanying notes to financial statements.
2
CROSS TECHNOLOGY, INC.
Statements of Operations
Years ended August 31, 1999 and 1998
| |
1999 |
1998 |
|||
|---|---|---|---|---|---|
| Net sales | $ | 4,765,795 | 3,960,877 | ||
| Cost of sales | 2,644,489 | 2,512,513 | |||
| Gross profit | 2,121,306 | 1,448,364 | |||
| Selling, general, and administrative expense | 1,139,026 | 1,117,688 | |||
| Operating income | 982,280 | 330,676 | |||
| Interest expense | 9,318 | 4,200 | |||
| Income before income taxes | 972,962 | 326,476 | |||
| Income tax expense | 356,709 | 117,394 | |||
| Net income | $ | 616,253 | 209,082 | ||
| Earnings per share—basic and diluted | $ | 5.14 | 1.74 | ||
| Weighted average common shares outstanding—basic and diluted | 120,000 | 120,000 | |||
See accompanying notes to financial statements.
3
CROSS TECHNOLOGY, INC.
Statements of Shareholders' Equity
Years ended August 31, 1999 and 1998
| |
Common Stock |
|
|
|
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Additional paid-in capital |
Retained earnings |
Total shareholders' equity |
||||||||
| |
Shares |
Amounts |
|||||||||
| Balance, August 31, 1997 |
|
120,000 |
|
$ |
1,200 |
|
405,066 |
|
178,719 |
|
584,985 |
| Net income |
|
— |
|
|
— |
|
— |
|
209,082 |
|
209,082 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Balance, August 31, 1998 |
|
120,000 |
|
|
1,200 |
|
405,066 |
|
387,801 |
|
794,067 |
| Net income |
|
— |
|
|
— |
|
— |
|
616,253 |
|
616,253 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Balance, August 31, 1999 |
|
120,000 |
|
$ |
1,200 |
|
405,066 |
|
1,004,054 |
|
1,410,320 |
| |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
4
CROSS TECHNOLOGY, INC.
Statements of Cash Flows
Years ended August 31, 1999 and 1998
| |
1999 |
1998 |
||||
|---|---|---|---|---|---|---|
| Cash flows from operating activities: | ||||||
| Net income | $ | 616,253 | 209,082 | |||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||
| Depreciation | 79,727 | 112,113 | ||||
| Deferred taxes | 1,993 | 19,730 | ||||
| Change in operating assets and liabilities: | ||||||
| Accounts receivable | 73,847 | (43,771 | ) | |||
| Inventory | (208,223 | ) | 27,279 | |||
| Other assets | (14,534 | ) | (44,641 | ) | ||
| Accounts payable | 98,850 | 26,026 | ||||
| Accrued expenses | (47,048 | ) | (129,174 | ) | ||
| Income tax payable | 175,870 | 32,892 | ||||
| Net cash provided by operating activities | 776,735 | 209,536 | ||||
| Cash flows from investing activities: | ||||||
| Purchases of property and equipment | (376,392 | ) | (47,470 | ) | ||
| Net cash used in investing activities | (376,392 | ) | (47,470 | ) | ||
| Cash flows from financing activities: | ||||||
| Proceeds from issuance of note payable | 250,000 | — | ||||
| Payments on note payable | (10,435 | ) | (250,000 | ) | ||
| Net cash provided (used) by financing activities | 239,565 | (250,000 | ) | |||
| Net increase (decrease) in cash | 639,908 | (87,934 | ) | |||
| Cash, beginning of year | 186,299 | 274,233 | ||||
| Cash, end of year | $ | 826,207 | 186,299 | |||
| Supplemental disclosure of noncash financing and investing activities: | ||||||
| Cash paid for interest | $ | 5,118 | — | |||
| Cash paid for income taxes | 178,846 | 64,772 | ||||
See accompanying notes to financial statements.
5
CROSS TECHNOLOGY, INC.
Notes to Financial Statements
August 31, 1999 and 1998
Cross Technology, Inc. (the Company) manufactures and markets wireless Smart Cards and other ultra-miniature radio frequency (RF) applications.
The Company considers highly liquid debt instruments with an initial maturity of three months or less to be cash equivalents.
Inventories are stated at the lower of cost or market and primarily consist of purchased parts. The first-in, first-out cost method is used to value inventories.
Property and equipment are stated at cost. Depreciation and amortization are provided on the straight-line method over the estimated useful lives of the property and equipment. The approximate useful lives of years and fixtures and equipment are 3-10 years.
Maintenance and repairs are charged to expense as incurred. Major improvements and tooling costs are capitalized and depreciated over their estimated useful lives. The cost and accumulated depreciation of property and equipment retired or otherwise disposed of are removed from the related accounts, and any resulting gain or loss charged or credited to operations.
Long-lived assets and certain identifiable intangibles are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
The Company has a cash balance pension plan which covers all qualified employees. Pension plan costs are accrued based on actuarial estimates with the pension cost funded annually.
Revenue is recognized at the time of shipment.
Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense (benefit) is the tax payable (receivable) for the periods and the change during the period in deferred income tax assets and liabilities.
6
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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Three customers comprised approximately 25%, 21%, and 15%, respectively, of fiscal 1999 net sales and approximately 32%, 23%, and 18%, respectively, of fiscal 1998 net sales. The amounts due from these customers at August 31, 1999 and 1998 totaled $198,239 and $443,717, respectively.
The Company has a defined benefit cash balance pension plan which is available to qualified employees of the Company. Plan benefits are based upon the employees' years of service and compensation.
| |
1999 |
1998 |
||||
|---|---|---|---|---|---|---|
| Change in benefit obligation: | ||||||
| Benefit obligation at beginning of year | $ | 446,033 | 246,796 | |||
| Service cost | 203,107 | 184,051 | ||||
| Interest cost | 33,452 | 18,469 | ||||
| Benefits paid | — | (3,283 | ) | |||
| Benefit obligation at end of year | $ | 682,592 | 446,033 | |||
7
| |
1999 |
1998 |
||||
|---|---|---|---|---|---|---|
| Change in plan assets: | ||||||
| Fair value of plan assets at beginning of year | $ | 326,335 | 142,898 | |||
| Actual return on plan assets | 78,598 | 21,396 | ||||
| Employer contribution | 184,466 | 165,324 | ||||
| Benefits paid | — | (3,283 | ) | |||
| Fair value of plan assets at end of year | $ | 589,399 | 326,335 | |||
| Funded status: | $ | |||||
| Unrecognized actuarial gain | (58,443 | ) | (11,238 | ) | ||
| Unrecognized prior service cost | 66,405 | 73,046 | ||||
| Additional liability | (7,962 | ) | (61,808 | ) | ||
| Net amount recognized | $ | — | — | |||
| Amounts recognized in the statement of financial position consist of: |
|
|
|
|
|
|
| Accrued benefit liability | $ | 93,193 | 119,698 | |||
| Weighted-average assumptions as of August 31: | ||||||
| Discount rate | 7.5 | % | 7.5 | % | ||
| Expected return on plan assets | 7.5 | % | 7.5 | % | ||
| Rate of compensation increase | — | — | ||||
| Components of net periodic benefit cost: |
|
|
|
|
|
|
| Service cost | $ | 203,107 | 184,051 | |||
| Interest cost | 33,452 | 18,469 | ||||
| Expected return on plan assets | (31,393 | ) | (15,843 | ) | ||
| Amortization of prior service cost | 6,641 | 6,641 | ||||
| Total benefit cost | $ | 211,807 | 193,318 | |||
8
On May 24, 1999, the Company entered into a loan agreement with a financial institution in the amount of $250,000. Outstanding principal and interest is payable in monthly installments of $5,103, at a fixed interest rate of 8.190 percent. The note matures on May 20, 2004 and is secured by certain equipment of the Company.
Income tax expense for the years ended August 31, 1999 and August 31, 1998 is summarized as follows:
| |
Current |
Deferred |
Total |
||||
|---|---|---|---|---|---|---|---|
| 1999: | |||||||
| Federal | $ | 323,876 | 1,819 | 325,695 | |||
| State | 30,840 | 174 | 31,014 | ||||
| $ | 354,716 | 1,993 | 356,709 | ||||
| 1998: |
|
|
|
|
|
|
|
| Federal | $ | 88,894 | 18,015 | 106,909 | |||
| State | 8,770 | 1,715 | 10,485 | ||||
| $ | 97,664 | 19,730 | 117,394 | ||||
Tax expense on income before income taxes differs from the amounts derived by applying the federal statutory rate for the following reasons:
| |
1999 |
1998 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Amount |
Percentage of pretax income |
Amount |
Percentage of pretax income |
|||||||
| Computed 'expected' federal tax expense | $ | 330,807 | 34.0 | % | $ | 111,102 | 34.0 | % | |||
| State income tax, net of federal income tax benefit | 20,469 | 2.1 | % | 6,920 | 2.1 | % | |||||
| Other | 5,433 | 0.6 | % | (628 | ) | (0.1 | )% | ||||
| Total income tax expense | $ | 356,709 | 36.7 | % | $ | 117,394 | 36.0 | % | |||
9
Deferred income tax assets and liabilities result from temporary differences in the carrying values of assets and liabilities for financial statement and income tax purposes. The deferred tax assets and liabilities at August 31, 1999 and 1998 relate to the following asset and liability accounts:
| |
1999 |
1998 |
|||
|---|---|---|---|---|---|
| Deferred tax assets related to: | |||||
| Inventory | $ | 30,847 | 28,870 | ||
| Accrued vacation | 10,874 | 11,619 | |||
| Officer bonus payable | 54,105 | 60,116 | |||
| Total deferred tax assets | 95,826 | 100,605 | |||
| Valuation allowance | — | — | |||
| Net deferred tax assets | 95,826 | 100,605 | |||
| Deferred tax liabilities related to depreciation | 117,549 | 120,335 | |||
| Total deferred tax liabilities | 117,549 | 120,335 | |||
| Net deferred tax liabilities | $ | 21,723 | 19,730 | ||
Management has determined, based on prior earnings history and anticipated earnings, that no valuation allowance is necessary.
The Company purchased life insurance policies for the principal shareholders of the Company. The Company pays the premiums for the life insurance policies and is the named beneficiary for each of the respective life insurance policies. The Company capitalizes premiums paid not to exceed the cash surrender value which is included with other assets.
The Company leases certain office space and an automobile under cancelable or transferable operating leases. Rental expense under these leases was $71,334 and $74,024, during the years ended August 31, 1999 and 1998, respectively.
The Company has sales agreements in place with certain independent representatives in the United States and overseas. These agreements require that the Company pay the representatives commissions, on a monthly basis, which are based upon a specified percentage of sales.
The Company is required to remit a royalty payment of $.07 for each Smart Card that is manufactured and sold, to an independent party. The expense recognized for the royalty agreement was approximately $103,000 and $83,000 in fiscal 1999 and 1998, respectively.
On March 6, 2000, the Company merged with HEI, Inc., a publicly-held company. Each share of the Company's common stock outstanding was canceled and exchanged for 5 shares of HEI common stock.
10
HEI, Inc.
Pro Forma Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
| |
12 Mos Ended Aug 31, 1999 |
12 Mos Ended Aug 31, 1998 |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
HEI |
Cross |
Cons |
HEI |
Cross |
Cons |
|||||||||||||
| Net sales |
|
$ |
24,323 |
|
$ |
4,766 |
|
$ |
29,089 |
|
$ |
20,805 |
|
$ |
3,961 |
|
$ |
24,766 |
|
| Cost of sales |
|
|
19,733 |
|
|
2,645 |
|
|
22,378 |
|
|
16,592 |
|
|
2,513 |
|
|
19,105 |
|
| Gross profit |
|
|
4,590 |
|
|
2,121 |
|
|
6,711 |
|
|
4,213 |
|
|
1,448 |
|
|
5,661 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling general and administrative | 3,475 | 1,139 | 4,614 | 2,375 | 1,117 | 3,492 | |||||||||||||
| Research and development | 1,343 | — | 1,343 | 852 | — | 852 | |||||||||||||
| Severance costs | 490 | — | 490 | — | — | — | |||||||||||||
| Proxy/change of control costs | — | — | — | 5,664 | — | 5,664 | |||||||||||||
| Operating income (loss) |
|
|
(718 |
) |
|
982 |
|
|
264 |
|
|
(4,678 |
) |
|
331 |
|
|
(4,347 |
) |
| Other income (expense), net |
|
|
380 |
|
|
(9 |
) |
|
371 |
|
|
580 |
|
|
(5 |
) |
|
575 |
|
| Income (loss) before taxes |
|
|
(338 |
) |
|
973 |
|
|
635 |
|
|
(4,098 |
) |
|
326 |
|
|
(3,772 |
) |
| Income tax expense (benefit) |
|
|
(115 |
) |
|
357 |
|
|
242 |
|
|
(1,471 |
) |
|
117 |
|
|
(1,354 |
) |
| Net income (loss) |
|
$ |
(223 |
) |
$ |
616 |
|
$ |
393 |
|
$ |
(2,627 |
) |
$ |
209 |
|
$ |
(2,418 |
) |
| Net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic | $ | 0.08 | $ | (0.52 | ) | ||||||||||||||
| Diluted | $ | 0.08 | $ | (0.52 | ) | ||||||||||||||
| Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic | 4,698 | 4,685 | |||||||||||||||||
| Diluted | 4,701 | 4,685 | |||||||||||||||||
Notes to Pro Forma Consolidated Statements of Operations
The unaudited pro forma financial information gives effect to the acquisition of Cross Technology, Inc. and the issuance of 600,000 shares of HEI common stock as if the transaction occurred as of September 1, 1997.
The weighted average common shares outstanding calculation reflects the 600,000 shares of common stock issued in conjunction with the pooling as if they had been issued as of September 1, 1997.
|
|