<PAGE> 1
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 11, 1998
---------------
MICRODYNE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
MARYLAND 0-4384 52-0856493
<S> <C> <C>
(State or other jurisdiction of (Commission file number) (IRS Employer Identification No.)
incorporation or organization)
3601 EISENHOWER AVENUE, ALEXANDRIA, VA 22304
(Address of principal executive office) (Zip Code)
</TABLE>
(703) 329-3700
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------
(Former name or former address, if changed since last report)
The undersigned Registrant hereby amends its Current Report on Form 8-K dated
August 11, 1998 by the addition of financial statements as follows:
<PAGE> 2
Item 7. Financial Statements and Exhibits
(a) Financial statements of the business acquired:
Apcom, Inc. Financial statements and Notes to the Financial
Statements for the Years Ended October 31, 1997 and October 31,
1996 and Independent Auditors Report
Apcom, Inc. Unaudited Balance sheet as of April 30, 1998
Apcom, Inc. Unaudited Statement of Operations for the Six Months
Ended April 30, 1998 and April 30, 1997
Apcom, Inc. Unaudited Statement of Cashflow for the Six Months
Ended April 30, 1998 and April 30, 1997
Celerity Systems Incorporated Financial statements and Notes to the
Financial Statements for the Years Ended December 31, 1997 and
December 31, 1996 and Independent Auditors Report
Celerity Systems Incorporated Unaudited Balance sheet as of June
30, 1998
Celerity Systems Incorporated Unaudited Statement of Operations for
the Six Months Ended June 30, 1998 and June 30, 1997
Celerity Systems Incorporated Unaudited Statement of Cashflow for
the Six Months Ended June 30, 1998 and June 30, 1997
<PAGE> 3
APCOM, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
April 30,
1998
-----------
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ -
Accounts receivable, net 847,195
Inventories 2,396,809
Prepaid expenses and deposits 34,985
Deferred income tax asset 64,272
-----------
Total current assets 3,343,261
PROPERTY AND EQUIPMENT, net
Furniture and Equipment 237,484
Leasehold improvements 26,274
-----------
TOTAL PROPERTY AND EQUIPMENT, NET 263,758
OTHER ASSETS 78,405
-----------
Total assets $ 3,685,424
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 336,239
Accounts payable - trade 757,027
Advance Payments 147,600
Deferred Rent - Current portion 11,455
Corporate Income taxes 5,790
Accrued liabilities 286,296
Total current liabilities 1,544,407
LONG-TERM OBLIGATIONS, net of current maturities 121,674
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Common stock 30,910
Additional paid-in capital 93,446
Retained earnings (deficit) 1,894,987
-----------
Total stockholders' equity 2,019,343
-----------
Total liabilities and stockholders' equity $ 3,685,424
===========
</TABLE>
<PAGE> 4
APCOM, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, April 30,
1998 1997
---------- ----------
<S> <C> <C>
Revenue $5,168,581 $4,067,061
Cost of goods sold 4,190,068 3,322,621
---------- ----------
Gross profit 978,513 744,440
Operating expenses:
Selling, general and administrative expense 822,480 877,653
Earnings from continuing operations 156,033 (133,213)
Other expense, net (34,516) 18,182
---------- ----------
Earnings from continuing operations
before income taxes 121,517 (151,395)
Provision for income taxes - -
---------- ----------
Net earnings from operations 121,517 (151,395)
========== ==========
</TABLE>
<PAGE> 5
APCOM, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
4/30/97 4/30/98
---------------------------
<S> <C> <C>
Increase (decrease) in Cash:
Cash flows from operating activities:
Net (loss) income ($151,395) 121,517
Adjustments to reconcile net (loss) income to net cash
from operating activities:
Depreciation and amortization 9,575 9,998
Changes in assets and liabilities:
Decrease in accounts receivable 354,967 1,145,200
(Increase) in inventories (308,312) (398,791)
(Increase) in prepaid expenses (10,526) (11,697)
Increase in other assets (10,500) -
(Decrease) in accounts payable and other (152,625) (670,920)
accruals
---------------------------
Net cash (used in ) provided by operations (268,816) 195,307
Cash flows from investing activities:
Proceeds from sale of property and equipment 37,164 18,937
---------------------------
Net cash provided by investing activities 37,164 18,937
---------------------------
Cash flows from financing activities:
Proceeds (payments) on bank debt 227,208 (218,809)
Issuance of common stock 2
(1)
---------------------------
Net cash provided by (used in) financing activities 227,210 (218,810)
---------------------------
Net decrease in Cash (4,442) (4,566)
Cash at beginning of period 4,442 4,566
---------------------------
Cash at end of period $ - $ -
===========================
</TABLE>
<PAGE> 6
APCOM, INC.
FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND 1996
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 7
TABLE OF CONTENTS
DESCRIPTION
Independent Auditors' Report
Balance Sheets
Statements of Stockholders' Equity
Statements of Income
Statements of Cash Flows
Notes to Financial Statements
<PAGE> 8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Apcom, Inc.
We have audited the accompanying balance sheets of Apcom, Inc. as of October
31, 1997 and 1996, and the related statements of income, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 Apcom, Inc. as of October
31, 1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
December 17, 1997 Rubino & McGeehin, Chartered
Bethesda, Maryland Certified Public Accountants
<PAGE> 9
APCOM, INC.
BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
----------
<TABLE>
<CAPTION>
ASSETS
1997 1996
---- ----
<S> <C> <C>
Current assets
Cash $ 4,566 $ 4,442
Accounts receivable 1,989,759 1,391,604
Inventory 1,998,018 1,378,039
Notes receivable - 33,751
Employee advances 2,635 -
Prepaid expenses 23,288 12,165
Deferred taxes, current portion 50,622 37,630
------------- -----------
Total current assets 4,068,888 2,857,631
Fixed assets, net 292,694 334,048
Other assets 78,405 66,359
Deferred taxes 13,650 9,750
------------- -----------
Total assets $ 4,453,637 $ 3,267,788
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 787,385 $ 706,132
Bank overdraft 385,458 50,810
Accrued expenses 340,715 240,034
Customer deposit 342,600 -
Income taxes payable 5,790 18,500
Deferred rent, current portion 16,697 6,559
Notes payable, current portion 544,853 228,659
------------- ------------
Total current liabilities 2,423,498 1,250,694
Long-term liabilities, less current portion
Notes payable 22,450 46,197
Deferred rent 104,178 83,945
------------- ------------
Total liabilities 2,550,126 1,380,836
------------- ------------
Stockholders' equity
Common stock 30,910 30,910
Additional paid-in capital 93,447 93,447
Retained earnings 1,779,154 1,762,595
------------- ------------
Total stockholders' equity 1,903,511 1,886,952
------------- ------------
Total liabilities and stockholders' equity $ 4,453,637 $ 3,267,788
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
APCOM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Total
Shares Common Paid-In Retained Stockholders'
Outstanding Stock Capital Earnings Equity
----------- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1995 3,079,030 $ 30,790 $ 89,397 $ 1,552,838 $ 1,673,025
Sale of common stock 12,000 120 4,050 - 4,170
Net income - - - 209,757 209,757
----------- ---------- ---------- ------------ ----------
Balance at October 31, 1996 3,091,030 30,910 93,447 1,762,595 1,886,952
Net income - - - 16,559 16,559
----------- ---------- ---------- ------------ ----------
Balance at October 31, 1997 3,091,030 $ 30,910 $ 93,447 $ 1,779,154 $ 1,903,511
=========== ========== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 11
APCOM, INC.
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Sales $ 9,313,577 $ 8,799,288
Cost of sales 7,441,208 6,925,055
------------ ----------
Gross profit 1,872,369 1,874,233
General and administrative expenses 1,822,208 1,553,485
------------ ----------
Income from operations 50,161 320,748
Other income (expense)
Interest expense (50,035) (32,570)
Interest income 403 5,791
Other, net 1,267 -
------------ ----------
Income before income taxes 1,796 293,969
Provision (benefit) for income taxes (14,763) 84,212
------------ ----------
Net income $ 16,559 $ 209,757
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 12
APCOM, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,559 $ 209,757
Adjustment to reconcile net income to net cash
From operating activities:
Depreciation and amortization 149,642 160,719
Deferred income taxes (16,892) (47,380)
Gain on disposal of fixed assets (1,267) -
(Increase) decrease in:
Accounts receivable (598,155) 65,088
Employee advances (2,635) -
Inventory (619,979) (561,137)
Prepaid expenses and other assets (23,169) (5,083)
Increase (decrease) in:
Accounts payable 81,253 242,795
Accrued expenses 100,681 (148,255)
Customer deposit 342,600 -
Income taxes payable (12,710) (82,696)
Deferred rent 30,371 (2,748)
---------- ----------
Net cash used by operating activities (553,701) (168,940)
---------- ----------
Cash flows from investing activities:
Collections on notes receivable 33,751 136,494
Purchase of fixed assets (110,121) (246,573)
Proceeds from sale of fixed assets 3,100 -
---------- ----------
Net cash used by investing activities (73,270) (110,079)
---------- ----------
Cash flows from financing activities:
Payments made on long-term debt (57,553) (88,177)
Net proceeds from line of credit 350,000 150,000
Bank overdraft 334,648 50,810
Issuance of common stock - 4,170
---------- ----------
Net cash provided by financing activities 627,095 116,803
---------- ----------
Net increase (decrease) in cash 124 (162,216)
Cash, beginning of year 4,442 166,658
---------- ----------
Cash, end of year $ 4,566 $ 4,442
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 13
APCOM, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND 1996
-------
1. ORGANIZATION
The Company was incorporated in May 1983 under the laws of the State
of Maryland. The Company designs and manufactures electronic equipment
for sale primarily to agencies of the federal government and
government contractors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. Accounting policies
which affect significant aspects of the Company's financial statements
are summarized below.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company's revenue is primarily from the federal government under
purchase orders, prime contracts and subcontracts. Revenue is billed
and recognized as products are shipped. This approximates the
percentage-of-completion method of accounting for contracts.
Depreciation and Amortization
Fixed assets are stated at cost. The Company provides for depreciation
and amortization by charges, on the straight-line method, to operating
expenses based on estimated useful lives.
Maintenance and repair costs are charged to expense as incurred.
Replacements and betterments are capitalized. At the time properties
are retired or otherwise disposed of, the property and related
accumulated depreciation or amortization accounts are relieved of the
applicable amounts and any gain or loss is credited or charged to
income.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out (FIFO) basis.
<PAGE> 14
APCOM, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND 1996
-------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred taxes are determined based on the estimated future tax
effects of the differences between the financial statement and tax
bases of assets and liabilities given the provisions of enacted tax
laws. The provision for income taxes consists of the income tax
payable for the current year and the change in the deferred income tax
asset or liability.
3. ACCOUNTS RECEIVABLE
Accounts receivable at October 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
U.S. Government prime contracts $ 728,100 $ 584,800
U.S. Government subcontractors
and commercial customers 1,261,659 806,804
------------ ------------
Total $ 1,989,759 $ 1,391,604
============ ============
</TABLE>
Accounts receivable from four commercial customers in 1997 and two
commercial customers in 1996 totalled $1,092,614 and $604,801,
respectively.
4. INVENTORIES
The following are the major components of inventory at October 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Parts inventory $ 1,296,432 $ 873,883
Work-in-progress 701,586 504,156
------------ ------------
Total $ 1,998,018 $ 1,378,039
============ ============
</TABLE>
<PAGE> 15
APCOM, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND 1996
-------
5. FIXED ASSETS
Fixed assets consist of the following at October 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Furniture and equipment $ 975,010 $ 1,207,637
Capitalized leases - 399,355
Capitalized software costs 15,000 31,114
Leasehold improvements 36,366 23,513
------------ -----------
Total 1,026,376 1,661,619
Less: accumulated depreciation
and amortization 733,682 1,327,571
------------ -----------
Net $ 292,694 $ 334,048
============ ===========
</TABLE>
6. NOTES RECEIVABLE
Notes receivable at October 31, 1996, consisted of two notes from
employees. The amounts were due and collected during the year ended
October 31, 1997.
7. NOTES PAYABLE
Notes payable consist of the following at October 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Line of credit $ 500,000 $ 150,000
Note to bank, payable in monthly installments
of $5,429, interest at 7.2% per annum, secured
by substantially all of the Company's assets. Final
payment made April 1, 1997. - 32,571
Note to bank, payable in monthly installments of $1,250,
interest at 9.0% per annum, secured by substantially
all of the Company's assets. 57,945 67,191
Notes payable to former stockholders
for the purchase of their stock. The notes are
payable in combined monthly installments of
$1,465 including interest at 7% per annum. 9,358 25,094
--------- --------
Total 567,303 274,856
Less: current portion 544,853 228,659
--------- --------
Long-term portion $ 22,450 $ 46,197
========= ========
</TABLE>
<PAGE> 16
APCOM, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND 1996
-------------
7. NOTES PAYABLE (CONTINUED)
The Company has a line of credit agreement for a maximum of $1,000,000
which expires on March 31, 1998. The agreement includes interest
payable monthly at prime and is secured by substantially all of the
Company's assets including a life insurance policy on the Company's
CEO. The agreement provides for certain financial covenants, including
ratios for debt and net worth requirements. At October 31, 1997, the
Company is not in compliance with all of the aforementioned covenants.
However, management believes that it is likely that the violation of
the covenants will be waived.
The following is a schedule, by year, of future minimum note payments
at October 31, 1997:
<TABLE>
<S> <C> <C>
Year ending October 31, 1998 $ 544,853
1999 15,000
2000 7,450
---------
$ 567,303
=========
</TABLE>
8. CUSTOMER DEPOSIT
The Company received a customer deposit of $394,600, representing 25%
of a contract. As items are shipped, the deposit is reduced and
revenue is recognized. The balance at October 31, 1997, was $342,600.
The Company issued a letter of credit from a bank that expires June
30, 1998, to secure the remaining deposit due to the customer.
9. COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company has an office space which expires June 30, 2002. The lease
includes a rental abatement period and annual increases of 3%. The
total rent payments are being expensed on a straight-line basis over
the lease term resulting in a deferred rent liability. The future
minimum lease payments are as follows:
<TABLE>
<S> <C> <C>
Year ending October 31, 1998 $ 165,311
1999 170,266
2000 175,374
2001 180,639
2002 122,818
---------
$ 814,408
=========
</TABLE>
Rent expense for office space amounted to $217,248 and $163,724 for
the years ended October 31, 1997 and 1996, respectively.
<PAGE> 17
APCOM, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND 1996
------------
10. INCOME TAXES
The Company utilizes the accrual accounting method for tax reporting
purposes. Deferred income taxes arise primarily from the differences
in the treatment of accrued vacation and depreciation expense for book
and tax purposes.
The provision for income taxes consists of the following for the years
ended October 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current provision, net of $25,855 research
and development credits in 1996 $ 2,129 $ 131,592
Deferred provision (benefit) (16,892) (47,380)
-------- --------
Total provision (benefit) $ (14,763) $ 84,212
======== ========
</TABLE>
The provision for income taxes includes the effect of state income
taxes and certain expenses which are not deductible for tax purposes,
offset by the benefit of the above-mentioned research and development
tax credit and changes in tax expense estimates.
11. RETIREMENT PLAN
The Company has established a 401(k) type tax deferred savings plan.
The plan provides for contributions by employees and matching
contributions by the employer. The Company contributed $49,240 and
$44,037 to the plan during the years ended October 31, 1997 and 1996,
respectively.
12. STOCK OPTION PLAN
The Company has a stock option plan to create additional incentives
for the Company's key employees. The Board of Directors has sole
authority to select full-time employees to receive awards of options
for the purchase of stock. The price of the options is set at the
estimated fair market value of the common stock, as determined by the
Board on the date the option is granted. Options can be exercised when
issued, vest over four years, and expire five years from issue date.
Stock option transactions under the plan for the years ended October
31, 1997 and 1996, are summarized as follows:
<PAGE> 18
APCOM, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND 1996
-------
12. STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Options outstanding, October 31, 1995 600,000 36(cent)
Granted in 1996 350,000 46
Exercised in 1996 (12,000) 34
Canceled in 1996 (265,000) 32.5
----------
Options outstanding, October 31, 1996 673,000 44
Granted in 1997 50,000 64
Exercised in 1997 - -
Cancelled in 1997 (100,000) 46
----------
Options outstanding and exercisable,
October 31, 1997 (exercise price
range of 33(cent)to 64(cent)) 623,000 .45(cent)
==========
</TABLE>
The stock option plan is accounted for under Accounting Principles
Board (APB) Opinion No. 25. Accordingly, no compensation has been
recognized for the plan. Had compensation cost for the plan been
determined based on the estimated fair value of the options at the
grant dates consistent with the method of Statement on Financial
Accounting Standards (SFAS) No. 123, proforma net income (loss) would
have been approximately ($10,000) and $180,000 for the years ended
October 31, 1997 and 1996, respectively. The value of the
compensation related to the vested stock options is based on the
estimated current value of the stock and the present value of the
exercise price discounted at 6% over an average exercise period of
four years.
13. COMMON STOCK
The Company has 1(cent)par value common stock. At October 31, 1997 and
1996, there were 20,000,000 shares authorized and 3,091,030 issued and
outstanding.
14. RELATED PARTY TRANSACTIONS
During the year ended October 31, 1997, the Company utilized a
subcontractor that is owned in part by Company stockholders, to
perform engineering services. The total paid to the related party was
$354,800.
<PAGE> 19
APCOM, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997 AND OCTOBER 31, 1996
-------
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash was paid during the years ended October 31, 1997 and 1996, for the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest $ 50,035 $ 32,570
========== ==========
Income taxes $ - $ 170,000
========== ==========
</TABLE>
<PAGE> 20
CELERITY SYSTEMS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30,
1998
------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 209,916
Accounts receivable, net 2,245,268
Inventories 1,343,432
Income tax receivable 1,246,759
Prepaid expenses and deposits 22,524
---------
Total current assets 5,067,899
PROPERTY AND EQUIPMENT, net 311,122
OTHER ASSETS 38,819
-----------
Total assets $ 5,417,840
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations 25,115
Accounts payable - trade 413,240
Accrued liabilities 902,121
Total current liabilities 1,340,476
NOTE PAYABLE 50,000
STOCKHOLDERS' EQUITY
Common stock 225,300
Additional paid-in capital 1,153,200
Retained earnings (deficit) 2,648,864
---------
Total stockholders' equity 4,027,364
-----------
Total liabilities and stockholders' equity $ 5,417,840
===========
</TABLE>
<PAGE> 21
CELERITY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------------------------------------
<S> <C> <C>
Revenue $ 4,197,697 $ 2,535,625
Cost of goods sold 1,382,499 711,453
------------ -------
Gross profit 2,815,198 1,824,172
Operating expenses:
Research and Development 586,443 359,331
Selling, general and administrative expense 2,393,111 584,912
Earnings from continuing operations (164,356) 879,929
Other expense, net (15,901) (8,730)
-------------- -------
Earnings from continuing operations
before income taxes (148,455) 888,659
Provision for income taxes (914,759) 375,168
------------------------------------
Net earnings from operations 766,304 513,491
====================================
</TABLE>
<PAGE> 22
CELERITY SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
6/30/97 6/30/98
------------------------------
<S> <C> <C>
Increase (decrease) in Cash:
Cash flows from operating activities:
Net income $513,491 604,680
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 14,565 32,496
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 731,887 (1,761,756)
(Increase) in inventories (232,812) (712,304)
Decrease in prepaid expenses 2,865 136,074
Increase in other assets (17,167) (14,544)
Decrease (Increase) in deferred tax asset 96,564 (1,092,759)
(Decrease) increase in accounts payable and other accruals (533,787) 355,353
------------------------------
Net cash provided by (used in) operations 575,606 (2,452,760)
Cash flows from investing activities:
Additions to property and equipment (50,631) (128,986)
------------------------------
Net cash (used in) investing activities (50,631) (128,986)
------------------------------
Cash flows from financing activities:
Proceeds from bank debt 23,855 55,115
Issuance of common stock - 1,068,000
------------------------------
Net cash provided by financing activities 23,855 1,123,115
------------------------------
Net increase (decrease) in Cash 548,830 (1,458,631)
Cash at beginning of period 146,091 1,668,547
------------------------------
Cash at end of period $694,921 $209,916
==============================
</TABLE>
<PAGE> 23
CELERITY SYSTEMS INCORPORATED
Financial Statements
December 31, 1997 and 1996
Together with
Auditors' Report
<PAGE> 24
June 23, 1998
Board of Directors
Celerity Systems Incorporated
Cupertino, California
We have audited the accompanying balance sheet of CELERITY SYSTEMS INCORPORATED
(a California corporation), as of December 31, 1997 and 1996, and the related
statements of income and expense, retained earnings, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Celerity Systems Incorporated
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Ireland SanFilippo, LLP
<PAGE> 25
CELERITY SYSTEMS INCORPORATED
Balance Sheet
ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Current assets:
Cash $ 1,668,547 $ 146,091
Accounts receivable 483,512 1,173,465
Inventories 631,128 401,009
Prepaid expenses 158,598 15,948
Deferred income taxes 154,000 93,000
-------------- --------------
Total current assets 3,095,785 1,829,513
-------------- --------------
Fixed assets, at cost:
Machinery and equipment 42,995 27,672
Computer equipment 215,141 72,358
Software and other 10,727 2,103
-------------- --------------
268,863 102,133
Less accumulated depreciation 54,231 25,717
-------------- --------------
214,632 76,416
-------------- --------------
Deposits and other 24,275 8,028
-------------- --------------
$ 3,334,692 $ 1,913,957
============== ==============
</TABLE>
<PAGE> 26
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, December 31,
--------------------------------------
1997 1996
--------------- --------------
Current liabilities:
<S> <C> <C>
Accounts payable - trade $ 174,212 $ 39,728
Accrued expenses:
Salaries and wages 103,022 105,797
Bonuses 415,560 400,000
Accrued commissions 188,145 232,924
Accrued 401(k) contributions 40,143 -
Income taxes payable - 29,467
Customer deposits - 31,245
Other 38,926 5,351
--------------- --------------
Total current liabilities 960,008 844,512
Long-term liabilities:
Deferred income taxes 20,000 10,000
--------------- --------------
Total liabilities 980,008 854,512
--------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 5,000,000
shares authorized, 2,483,800 shares
issued and outstanding 310,500 310,500
Retained earnings 2,044,184 748,945
--------------- --------------
2,354,684 1,059,445
--------------- --------------
$ 3,334,692 $ 1,913,957
=============== =============
</TABLE>
<PAGE> 27
CELERITY SYSTEMS INCORPORATED
Statement of Income and Expense
<TABLE>
<CAPTION>
Year Ended
December 31, December 31,
--------------------------------------------
1997 1996
-------------------- --------------------
<S> <C> <C>
Sales $ 6,589,750 $ 5,543,320
Cost of goods sold 1,932,515 1,806,804
-------------------- --------------------
Gross profit 4,657,235 3,736,516
-------------------- --------------------
Operating expenses:
General and administrative 811,439 446,465
Research and development 861,511 783,991
Marketing and sales 927,041 1,256,317
-------------------- --------------------
2,599,991 2,486,773
-------------------- --------------------
Income from operations 2,057,244 1,249,743
Interest income, net 27,063 5,122
-------------------- --------------------
Income before provision for (benefit from)
income taxes 2,084,307 1,254,865
-------------------- --------------------
Provision for (benefit from) income taxes
Current 840,068 538,408
Deferred (51,000) (83,000)
-------------------- --------------------
789,068 455,408
-------------------- --------------------
Net income $ 1,295,239 $ 799,457
==================== ====================
Basic net income per common share $ 0.52 $ 0.32
Diluted net income per common share $ 0.45 $ 0.32
</TABLE>
<PAGE> 28
CELERITY SYSTEMS INCORPORATED
Statement of Retained Earnings
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------------------
1997 1996
-------------------- --------------------
<S> <C> <C>
Balance, beginning of year $ 748,945 $ (50,512)
Net income 1,295,239 799,457
-------------------- --------------------
Balance, end of year $ 2,044,184 $ 748,945
==================== ====================
</TABLE>
<PAGE> 29
CELERITY SYSTEMS INCORPORATED
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year Ended
December 31, December 31,
--------------------------------------------
1997 1996
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,295,239 $ 799,457
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 29,432 15,877
Deferred income tax provision (51,000) (83,000)
Decrease (increase) in operating assets:
Accounts receivable 689,954 (483,145)
Inventories (230,119) (202,918)
Prepaid expenses (142,650) (15,948)
Increase (decrease) in operating liabilities:
Accounts payable 134,484 (46,961)
Accrued expenses 10,480 243,979
Income taxes payable (29,467) (61,832)
-------------------- --------------------
Net cash provided by operating activities 1,706,353 165,509
-------------------- --------------------
Cash flows from investing activities:
Deposits on facilities (17,167) 1,040
Acquisition of fixed assets (166,730) (48,327)
-------------------- --------------------
Net cash used by investing activities (183,897) (47,287)
-------------------- --------------------
Cash flows used by financing activities:
Principal payments on long-term debt - (114,038)
-------------------- --------------------
Increase in cash and cash equivalents 1,522,456 4,184
Cash and equivalents, beginning of year 146,091 141,907
-------------------- --------------------
Cash and equivalents, end of year $ 1,668,547 $ 146,091
==================== ====================
<CAPTION>
Supplemental disclosure of cash flow information
------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest $ - $ 2,831
Income taxes $ 840,068 $ 577,258
</TABLE>
<PAGE> 30
Note 1 - Organization and operations:
Celerity Systems, Inc. (the "Company"), a California corporation formed in 1994,
designs and manufactures high speed data acquisition and playback circuit
boards. The Company also integrates their own products with third party products
to form complete signal processing systems for customers primarily in the United
States. For the years ended December 31, 1997 and 1996, sales to customers which
comprised 10% or more of the Company's annual revenues are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
<S> <C> <C>
Customer A 12% 28%
Customer B Less than 10% 13%
Customer C Less than 10% 10%
Customer D 24% Less than 10%
Customer E 21% Less than 10%
Customer F 14% Less than 10%
</TABLE>
Note 2 - Summary of significant accounting policies:
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Concentration of credit risk - The Company has cash on deposit with a federally
insured bank in excess of the $100,000 maximum amount insured by the Federal
Deposit Insurance Corporation.
Accounts receivable - The Company extends credit to its customers in the normal
course of business and performs ongoing credit evaluations of its customers,
maintaining allowances for potential credit losses which, when realized, have
been within management's expectations.
Inventories - Inventories are stated at the lower of first-in, first-out cost or
market.
Fixed assets - Fixed assets are stated at cost and depreciated over their
estimated useful lives using the straight-line method for financial purposes and
accelerated methods for income tax reporting purposes.
Intangible assets - Organization costs are being amortized over five years using
the straight-line method.
<PAGE> 31
Note 2 - Summary of significant accounting policies (continued):
Income taxes - Income tax expense is based on reported earnings before income
taxes. Deferred income taxes reflect the impact of temporary differences between
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for income tax reporting purposes. These deferred taxes are
measured by applying currently enacted tax laws.
Stock compensation - The Company accounts for its stock option activity under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which establishes accounting and disclosure requirements using a
fair value method of accounting for stock-based employee compensation plans.
Under SFAS No. 123, the Company may either adopt the new fair value based
accounting method or continue the intrinsic value-based method and provide pro
forma disclosures of net income as if the accounting provisions of SFAS No. 123
had been adopted. The Company has adopted the proforma disclosure method;
therefore, such adoption will have no effect on the Company's net income or cash
flows.
Earnings per share - Basic earnings per share is computed using the weighted
average number of common shares outstanding during the reporting period.
Earnings per share assuming dilution is computed using the weighted average
number of common shares and the dilutive effect of potential common shares
outstanding. The following is a reconciliation of the number of shares
(denominator) used in the Company's basic and
diluted net income per share computations:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
<S> <C> <C>
Basic weighted average common shares 2,483,000 2,483,000
Dilutive stock options 382,500 -
-------------------- --------------------
Diluted weighted average common shares 2,865,500 2,483,000
==================== ====================
</TABLE>
Reclassifications - Certain 1996 balances have been reclassified to conform to
the 1997 financial statement presentation. These reclassifications have no
effect on previously reported net income.
Note 3 - Inventories:
Inventories at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
<S> <C> <C>
Raw materials $ 413,174 $ 261,991
Work in process 217,954 139,018
-------------------- --------------------
$ 631,128 $ 401,009
==================== ====================
</TABLE>
<PAGE> 32
Note 4 - Line of credit:
The Company has a line of credit agreement, expiring in June 1998, with
Citibank. Borrowings under the agreement are secured by substantially all assets
of the Company, bear interest at the bank's base rate plus 1.25% (9.75% at
December 31, 1997), are guaranteed by certain shareholders, and are limited to
$500,000.
Note 5 - Employee benefit plans:
The Company has a 401(k) Profit Sharing Plan (the "Plan") in which employees who
have met certain service and eligibility requirements may participate. Each
eligible employee may elect to contribute to the Plan, and the Company may make
discretionary matching contributions. Contributions were $73,178 during the year
ended December 31, 1997. No contributions were made during the year ended
December 31, 1996.
Note 6 - Income taxes:
Deferred tax assets and liabilities in the accompanying balance sheet include
the following:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- ----------------------------------------
Non- Non-
Current Current Current Current
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Federal
Deferred tax assets $ 141,000 $ 1,000 $ 85,000 $ -
Deferred tax liabilities (8,000) (19,000) (5,000) (10,000)
------------------ ----------------- ----------------- ------------------
133,000 (18,000) 80,000 (10,000)
------------------ ----------------- ----------------- ------------------
State
Deferred tax assets 21,000 - 13,000 -
Deferred tax liabilities - (2,000) - -
------------------ ----------------- ----------------- ------------------
21,000 (2,000) 13,000 -
------------------ ----------------- ----------------- ------------------
$ 154,000 $ (20,000) $ 93,000 $ (10,000)
================== ================= ================= ==================
</TABLE>
The book basis of property and equipment exceeds its tax basis by the cumulative
amount that accelerated depreciation exceeds straight-line depreciation. The
excess will be taxable in future periods through decreased depreciation
deductions. Certain expenses recognized currently for financial reporting
purposes are not deductible for income tax purposes until paid in future
periods.
<PAGE> 33
Note 6 - Income taxes (continued):
A reconciliation between the expected income tax provision at the federal
statutory tax rate and the reported income tax provision is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Expected provision at federal statutory rate $ 708,700 $ 427,000
Provision for state income tax, net of federal benefit 127,900 77,000
Effect of research and development credit (52,000) (49,000)
Other 4,468 408
------------------ ------------------
$ 789,068 $ 455,408
================== ==================
</TABLE>
Note 7 - Common stock:
At December 31, 1997, 800,000 shares of common stock have been reserved for
issuance to employees under the 1996 Stock Option Plan (the "Plan"). Incentive
or non-statutory stock options can be granted at not less than 100% and 85%,
respectively, of the fair market value of the stock on the date the option is
granted, as determined by the Board of Directors. Option grants are exercisable
immediately and vest at a rate of 25% one year after date of the grant and then
at a rate of 6% per quarter thereafter. If unexercised, options will generally
expire upon the earlier of ten years from the date of grant or upon termination
as an employee of the Company. During 1996 and 1997, activity in the Plan was as
follows:
<TABLE>
<CAPTION>
Options
--------------------------------------------------------------------------------------
Exercise Price Per Share
--------------------------------------
Available for Weighted
Grant Number Outstanding Actual Average
------------------ -------------------- --------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 - - - -
Shares reserved 800,000 - - -
Granted (682,500) 682,500 $0.25 $0.25
------------------ --------------------
Balance, December 31, 1996 117,500 682,500 $0.25 $0.25
Granted (45,000) 45,000 $0.25-$1.00 $0.75
Terminated 47,500 (47,500) $0.25 $0.25
------------------ --------------------
Balance, December 31, 1997 120,000 680,000 $0.25-$1.00 $0.30
================== ====================
</TABLE>
<PAGE> 34
Note 7 - Common stock (continued):
Additional information regarding options outstanding as of December 31, 1997 is
as follows:
<TABLE>
<CAPTION>
Weighted Average
Remaining
Exercise Number Contractual Life
Price Number Outstanding Exercisable (years)
------------------- --------------------- -------------------- -------------------------
<S> <C> <C> <C>
$0.25 650,000 369,875 8.86
$1.00 30,000 - 9.82
</TABLE>
Fair values of options granted during 1996 and 1997 are estimated under the
minimum value method, using an option life of ten years and risk-free interest
rate of 6%, and are not material amounts.
Note 8 -Related party transactions:
The Company had the following transactions with an entity related through common
ownership:
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
<S> <C> <C>
Sales to entity $ 816,690 $ 1,548,820
Commissions to entity $ 290,544 $ 586,463
Purchases from entity $ 82,362 $ 48,550
</TABLE>
At December 31, 1997 and 1996, accrued commissions of approximately $160,000 and
$200,000, respectively, payable to the related entity are included with accrued
commissions in the accompanying balance sheet.
<PAGE> 35
Note 9 - Commitments:
The Company leases its facility under an operating lease agreement, expiring in
April 2000, which currently requires a monthly payment of approximately $16,000.
Rent expense paid under this lease for the years ended December 31, 1997 and
1996 was approximately $147,000 and $27,000, respectively. At December 31, 1997,
future minimum annual lease payments required are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
---------------------- -------------------
<S> <C>
1998 $ 202,347
1999 208,719
2000 52,578
-------------------
$ 463,644
===================
</TABLE>
Note 10 - Subsequent events:
Subsequent to year end, the Company repurchased a total of 190,000 shares of its
stock for $180,625.
In May 1998, the Company signed a letter of intent
providing for the acquisition of substantially all of its
assets and the assumption of substantially all of its
liabilities by Microdyne Corporation
<PAGE> 36
(b) Pro Forma financial information
On August 11, 1998, the Company, through its wholly owned subsidiary MCTI
Acquisition Corporation ("MCTI Acquisition"), acquired four affiliated,
privately held companies for cash. MCTI Acquisition purchased all the
outstanding stock of Apcom Inc. (Apcom) and Celerity Systems Inc. (Celerity),
and the assets and certain liabilities of Acceleration Systems, Inc. (ASI) and
Digital Telcom, Inc. (DTI) for approximately $17 million (the "Acquisition).
Operations of the companies will be run in conjunction with those of the
Company's wholly owned subsidiary, Microdyne Communications Technologies
Incorporated, (MCTI) located in Ocala, Florida.
The following unaudited pro forma condensed consolidated statements of
operations for the nine months ended June 30, 1998 and for the twelve months
ended September 28, 1997 give effect as if the acquisition of Apcom, Inc.
(Apcom) and Celerity Systems Incorporated (Celerity) occurred October 1, 1996
and 1997, respectively. The condensed consolidated balance sheet as of June 30,
1998 gives effect to the acquisition as if such transaction occurred on June
30, 1998.
The accompanying pro forma condensed consolidated financial statements have
been prepared by the Company based on the historical financial statements of
the Company, Apcom, and Celerity. Pro forma adjustments were made to the
financial statements to account for the acquisition using the purchase method
of accounting, and to give affect to the acquisition of minimal assets of ASI
and DTI that arise solely from intercompany transactions with Apcom and
Celerity. Assumptions and adjustments are discussed in the accompanying notes
to the pro forma condensed consolidated financial statements. In the opinion of
the Company's Management, all pro forma adjustments necessary to state fairly
such pro forma financial information have been made. The unaudited pro forma
condensed consolidated financial statements are not indicative of what actual
results of operations would have been for the periods presented had the
acquisition occurred on the dates indicated above. The financial statements are
not intended to indicate the results of future operations or the financial
position of the Company from the acquisition date onward.
<PAGE> 37
MICRODYNE CORPORATION
PRO-FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1998
(in thousands of dollars)
UNAUDITED
<TABLE>
<CAPTION>
PRO-FORMA
----------------------------------
Microdyne Apcom, Celerity Acquisition Combined
Corporation Inc. Systems, Inc. Notes Adjustments 6/30/1998
---------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Current assets
Cash $ 676 - 210 - 886
Accounts receivable-net 13,418 1,652 2,246 17,316
Inventories 4,485 2,334 1,343 (4) 500 8,662
Income tax receivable 1,046 84 1,247 (4) (200) 2,177
Prepaid expenses and deposits 1,099 23 22 1,144
Current assets-discontinued operations 270 - - 270
Deferred income taxes 4,056 274 - (5) (150) 4,180
------------------------------------------- ------------ ------------
Total current assets 25,050 4,367 5,068 150 34,635
Property and equipment, net 5,322 287 311 18 5,938
Deferred income taxes 123 - - - 123
Non-current assets-discontinued operations 21 - - - 21
Goodwill - - (6) 4,968 4,968
Research and development - - (6) 966 966
Other assets 156 93 39 (3) (92) 196
------------------------------------------- ------------ ------------
Total assets $ 30,672 4,747 5,418 6,010 46,847
=========================================== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations $ 4,924 468 25 (2) (500) 4,917
Accounts payable-trade 2,111 997 414 (3) 71 3,593
Accrued liabilities 5,021 518 902 (1) 1,048 7,489
Current liabilities-discontinued operations 409 - - 409
Other 10 - 10
------------------------------------------- ------------ ------------
Total current liabilities 12,465 1,993 1,341 619 16,418
Long-term obligations, net of current maturities 3,479 - - (2) 16,500 19,979
Deferred income taxes - - - -
Other liabilities 104 50 (3) (40) 114
STOCKHOLDERS' EQUITY
Common stock 1,307 1,307
Additional paid-in capital 10,886 10,886
Retained earnings 2,535 (6) (4,392) (1,857)
Net equity of companies acquired - 2,650 4,027 (6,677) -
------------------------------------------- ------------ ------------
Total stockholders' equity 14,728 2,650 4,027 (11,069) 10,336
------------------------------------------- ------------ ------------
Total liabilities and stockholders' equity $ 30,672 4,747 5,418 6,010 46,847
=========================================== ============ ============
</TABLE>
<PAGE> 38
MICRODYNE CORPORATION
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended September 28, 1997
(In thousands of dollars)
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA
----------------------------------- --------------------------------
Microdyne Apcom, Celerity Acquisition
Corporation Inc. Systems, Inc. Notes Adjustments Combined
----------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 43,621 9,313 6,590 59,524
Cost of sales 25,473 5,576 1,933 (7) (18) 32,964
----------------------------------- ---------------------------
Gross profit 18,148 3,737 4,657 18 26,560
Operating expenses:
Selling, general and administrative expense 8,511 1,822 1,739 (8) 319 12,391
Research and development 1,609 1,865 861 - 4,335
----------------------------------- ---------------------------
Total operating expenses 10,120 3,687 2,600 319 16,726
----------------------------------- ---------------------------
Earnings from continuing operations 8,028 50 2,057 (301) 9,834
Other expense, net (994) (48) 27 (2) (1,155) (2,170)
----------------------------------- ---------------------------
Earnings from continuing operations
before income taxes 7,034 2 2,084 (1,456) 7,664
Provision for income taxes: 1,876 (15) 789 (5) (277) 2,373
----------------------------------- ---------------------------
Net earnings from continuing operations 5,158 17 1,295 (1,179) 5,291
Loss from discontinued operations, net of tax effect (33,603) - - - (33,603)
----------------------------------- ---------------------------
Net (loss) earnings $(28,445) 17 1,295 $(1,179) $(28,312)
=================================== ===========================
Net earnings per share, continuing operations $ 0.40 $ 0.41
========== ==========
Earnings (loss) per share, discontinued operations $ (2.61) $ (2.61)
========== ==========
Earnings (loss) per share $ (2.21) $ (2.20)
========== ==========
Weighted average shares (000's) outstanding, diluted 12,873 12,873
========== ==========
</TABLE>
<PAGE> 39
MICRODYNE CORPORATION
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended June 30, 1998
(In thousands of dollars)
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA
---------------------------------------- ------------------------------
Microdyne Apcom, Celerity Acquisition
Corporation Inc. Systems, Inc. Notes Adjustments Combined
---------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $39,458 8,733 6,495 54,686
Cost of sales 23,431 5,199 2,060 (4)(7) (520) 30,170
---------------------------------------- ----------------------
Gross profit 16,027 3,534 4,435 520 24,516
Operating expenses:
Selling, general and administrative expense 8,128 2,188 3,376 (8) (1,548) 12,144
Research and development 1,576 1,310 801 3,687
---------------------------------------- ----------------------
Total operating expenses 9,704 3,498 4,177 (1,548) 15,831
---------------------------------------- ----------------------
Earnings from continuing operations 6,323 36 258 2,068 8,685
Other expense, net (568) (44) 27 (2) (867) (1,452)
---------------------------------------- ----------------------
Earnings from continuing operations
before income taxes 5,755 (8) 285 1,201 7,233
-
Provision for income taxes - - 119 (5) 709 828
---------------------------------------- ----------------------
Net earnings (loss) $ 5,755 (8) 166 492 6,405
======================================== ======================
Net earnings per share $ 0.44 $ 0.49
============ ===========
Weighted average shares outstanding, diluted 13,177 13,177
============ ===========
</TABLE>
<PAGE> 40
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATMENTS
1. On August 11, 1998, the Company, through its wholly owned subsidiary
MCTI Acquisition Corporation, acquired all of the outstanding stock
of Apcom, Inc. (Apcom) and Celerity Systems, Inc. (Celerity),
together with certain assets (totaling $18,000) and liabilities
(totaling $82 thousand) of their affiliated companies Acceleration
Systems, Inc. (ASI) and Digital Telcom, Inc. (DTI) for consideration
consisting of $16 million plus a contingent earnout payment of $1
million payable upon the acquired companies achieving a minimum
operating income. In addition to the purchase price, the Company
incurred approximately $1 million for certain acquisition related
expenses that are being considered part of the purchase price in
determining goodwill. The acquisition is being treated as a purchase
for accounting purposes.
2. Microdyne's bank loans and advances were renegotiated to finance this
acquisition. The new financing arrangements are described in the
Company's Form 8-K dated August 26, 1998. Such financing arrangements
provided for an acquisition loan of $16.5 million. After refinancing,
outstanding bank debt is as follows (in millions):
<TABLE>
<CAPTION>
Pro-forma
June 30, 1998 adjustments Combined
------------- ----------- --------
<S> <C> <C> <C>
Current maturities of long-term obligations $ 5.4 (0.5 ) 4.9
Long-term obligations 3.5 16.5 20.0
--- ---- ----
Total $ 8.9 16.0 24.9
--- ---- ----
</TABLE>
The acquisition loan of $ 16.5 million bears interest at
approximately 7% per annum and is repayable $3.3 million annually,
commencing 1999. Bank loans are secured by the assets of Microdyne
Corporation and its subsidiaries, including the acquired companies.
$500,000 of this loan was applied to repay outstanding bank debt of
the acquired companies. Interest expense on this loan in the
Pro-Forma Consolidated Statements of Operations is $1,155,000 for the
year ended September 30, 1997, and $867,000 for the nine months ended
June 30, 1998.
3. To give affect to the acquisition of minimal assets of ASI and DTI
that arise solely from intercompany transactions with Apcom and
Celerity. In addition, a $92 thousand life insurance policy on behalf
of one of the shareholders has been transferred to that shareholder.
4. Inventories of work-in-process have been increased by $500,000 as a
result of the purchase price allocation to properly reflect its net
realizable value. Income taxes are adjusted for this change in asset
valuation.
5. Deferred income tax assets have been reduced by an evaluation provision of
$150,000 to recognize limitations on the application of existing tax
losses to future periods.
The provision for income taxes in the Pro-forma Consolidated
Statements of Earnings for the year-ended September 30, 1997 and for
the nine months ended June 30, 1998 has been adjusted to recognize
the tax effect of pro-forma adjustments to expenses.
<PAGE> 41
6. The excess of the purchase price over the book value of net tangible
assets acquired in this acquisition totals $10.3 million. Management has
determined that $ 4.9 million of this excess is goodwill, to be amortized
over 25 years. A further $5.4 million represents purchased research and
product development. $ 1.0 million of this research and development has
been identified with existing products and will be amortized over the
expected life of those products. The balance of purchased research and
development of $ 4.4 million, not identified with existing products, was
written off as of the acquisition date.
7. Represents the elimination of the effects of certain intercompany
transactions among Apcom, Celerity, DTI and ASI.
8. Adjustments to selling, general and administrative expenses (in thousands)
are as follows:
<TABLE>
<CAPTION>
Year ended Nine months ended
September 30 June 30
1997 1998
<S> <C> <C>
Compensation paid to
principal stockholders $ (350) (117)
Intercompany transactions
eliminated in consolidation (334) (312)
Effect of deemed compensation recorded
as a result of stock transactions prior to
acquisition - ( 1,871)
Amortization of goodwill 199 149
Amortization of purchased
research and development 564 423
Corporate charges 240 180
--- ---
Total adjustment $ 319 (1,548)
--------- ------
</TABLE>
The acquired companies Apcom, Inc. and Celerity System, Inc. will continue
to operate from their existing facilities, with existing staff of
employees.
In 1998, transactions in the capital stock of Apcom, Inc. and Celerity
Systems, Inc. gave rise to a non-recurring charge for deemed compensation.
These transactions are not representative of the continuing operations of
these companies and have been deducted from selling, general and
administrative expense in a pro-forma adjustment.
Goodwill arising on the acquisition is amortized on the straight-line
basis over 25 years.
<PAGE> 42
Purchased research and development is amortized on the straight-line
basis over the future remaining product life cycle of the related
products, estimated at 1 to 5 years.
The adjustment for corporate charges represents estimated incremental
administrative expense that would have been incurred had the
acquisition occurred on October 1, 1997.
(c) Exhibits
23.1 Consent of Rubino & McGeehin
23.2 Consent of Ireland SanFilippo, LLP
<PAGE> 43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned hereunto
duly authorized.
MICRODYNE CORPORATION
(Registrant)
Date: October 26, 1998 By: ------------------------
Massoud Safavi
Chief Financial Officer,
Vice-President, Finance
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated December 17, 1997, accompanying the financial
statements of Apcom, Inc. appearing in the Form 8-K/A filed October 26, 1998,
which are incorporated by reference to said reports in the Registration
Statement of Microdyne Corporation on Forms S-8 (File No. 333-44820, effective
December 27, 1991; File No. 333-47709, effective May 6, 1992; File No.
333-89982, effective March 3, 1995; File No. 333-89980, effective April 26,
1995, and File No. 333-14121, effective October 15, 1996.) We consent to the
incorporation by reference in the Registration Statement of the aforementioned
reports and to the use of our name as it appears under the caption "Experts."
October 22, 1998 Rubino & McGeehin, Chartered
Bethesda, MD Certified Public Accountants
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statements of Microdyne Corporation on Forms S-8
(File No. 333-44820, File No. 333-47709, File No. 333-89982, File No. 333-89980,
and File No. 333-14121) of our report dated June 23, 1998, with respect to the
financial statements of Celerity Systems Incorporated as of December 31, 1997,
and for the two years then ended, included in the Form 8-K/A of Microdyne
Corporation filed October 26, 1998, and to the use of our name as it appears
under the caption "Experts" in said Registration Statements.
IRELAND SAN FILIPPO, LLP
October 23, 1998
