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Previous: SCIENTIFIC TECHNOLOGIES INC, 8-K/A, EX-23.1, 2000-05-30 |
Next: PERCEPTRONICS INC, DEF 14C, 2000-05-30 |
Exhibit 99.2
PSI-TRONIX, INC.
FINANCIAL STATEMENTS
AUDITED
JANUARY 31, 2000
CONTENTS
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheet 2
Statement of income and statement of retained earnings 3
Statement of cash flows 4
Notes to financial statements 5 - 8
INDEPENDENT AUDITOR'S REPORT ON THE SUPPLEMENTARY INFORMATION 9
SUPPLEMENTARY INFORMATION
Schedule of selling, general and administrative expenses 10
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PSI-Tronix, Inc.
Tulare, California
We have audited the accompanying balance sheet of PSI-Tronix, Inc. as of January 31, 2000, and the related statements of income, retained earnings, and cash flows 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 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 PSI-Tronix, Inc. as of January 31, 2000, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
NOELL DEETZ AGNEW & MORSE, LLP
Visalia, California
May 17, 2000
PSI-TRONIX, INC.
Balance Sheet
January 31, 2000
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ 1,131,964 |
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Accounts receivable, less allowance for doubtful accounts of $10,200 (Note 2) |
891,323 |
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Other receivables |
2,696 |
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Inventories (Note 3) |
627,267 |
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Prepaid expenses |
9,370 |
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Loan to stockholder (Note 4) |
281,727 |
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Deferred taxes (Note 7) |
2,000 |
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Total current assets |
2,946,347 |
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Property and Equipment, Net (Note 5) |
495,012 |
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Deferred Taxes (Note 7) |
6,100 |
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$ 3,447,459 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities |
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Accounts payable |
$ 164,534 |
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Accrued expenses |
78,088 |
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Income taxes payable |
31,000 |
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Deferred compensation and salary continuation agreements - current portion (Note 6) |
15,375 |
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Total current liabilities |
288,997 |
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Deferred Compensation and Salary Continuation Agreements (Note 6) |
437,791 |
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Stockholders' Equity |
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Capital stock, $100 stated value, 50,000 shares authorized, 15 shares issued and outstanding |
1,500 |
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Retained earnings |
2,719,171 |
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2,720,671 |
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$ 3,447,459 |
See Notes to Financial Statements.
PSI-TRONIX, INC.
Statement of Income and Statement of Retained Earnings
Year Ended January 31, 2000
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Sales |
$ 7,269,985 |
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Cost of Sales |
3,575,915 |
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Gross profit |
3,694,070 |
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Operating Expenses |
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Selling, general and administrative expenses |
1,154,467 |
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Income from operations |
2,539,603 |
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Financial Income (Expense) |
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Interest income |
21,478 |
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Other income |
1,080 |
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Interest expense |
( 91,003) |
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Loss on disposal of asset |
( 2,157) |
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( 70,602) |
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Income before provision for income taxes |
2,469,001 |
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Provision for Income Taxes (Note 7) |
22,289 |
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Net income |
$ 2,446,712 |
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STATEMENT OF RETAINED EARNINGS Year Ended January 31, 2000 |
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Balance, Beginning |
$ 648,640 |
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Net income |
2,446,712 |
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Withdrawals |
( 376,181) |
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Balance, Ending |
$ 2,719,171 |
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See Notes to Financial Statements.
PSI-TRONIX, INC.
Statement Cash Flows
Year Ended January 31, 2000
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Cash Flows from Operating Activities |
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Net income |
$ 2,446,712 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation |
133,571 |
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Benefit for deferred income taxes |
( 2,258) |
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Changes in assets and liabilities: |
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Increase in: |
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Receivables, inventories and other assets |
( 325,476) |
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Increase in: |
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Accounts payable, accrued expenses and other liabilities |
338 |
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Net cash provided by operating expenses |
2,252,887 |
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Cash Flows from Investing Activities |
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Acquisitions of equipment |
( 123,820) |
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Loans to stockholder (net) |
( 230,373) |
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Net cash used in investing activities |
( 354,193) |
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Cash Flows from Financing Activities |
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Principal payments on long-term debt |
( 248,540) |
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Principal payments on deferred compensation and salary continuation agreements |
( 13,918) |
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Loans from stockholder (net) |
( 386,874) |
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Dividends paid |
( 376,181) |
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Net cash used in financing activities |
( 1,025,513) |
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Net increase in cash |
873,181 |
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Cash |
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Beginning |
258,783 |
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Ending |
$ 1,131,964 |
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Supplemental Cash Flows Disclosures |
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Cash payments for: |
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Interest |
$ 87,768 |
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Income taxes |
$ 4,046 |
See Notes to Financial Statements.
PSI-TRONIX. INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended January 31, 2000
Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business: PSI-Tronix, Inc., a California corporation, commenced operations on August 3, 1978. The Company manufactures and sells pressure and position measuring devices to customers throughout the United States and overseas.
A summary of the Company's significant accounting policies follows:
Cash and Cash Equivalents: Cash held in certain financial institutions exceeded federally insured amounts during the period ended January 31, 2000. For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Inventory: Inventories are stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment: Property and equipment are stated at cost and are depreciated using the straight-line method over the following estimated useful lives:
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Years |
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Machinery and equipment |
7 |
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Automobiles |
5 |
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Office furniture and equipment |
7 |
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Leasehold improvements |
15 |
Estimated Warranty Claims: The Company sells its products with a warranty that provides for repairs or replacements of any defective parts for a one-year period after the sale. At the time of the sale, the Company accrues an estimate of the cost of providing the warranty based on prior experience. The estimated warranty liability totaled $8,714 at January 31, 2000 and is included in accrued expenses.
Deferred Taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Concentration of Credit Risk: Two major customers accounted for approximately 32% of sales for the year ended January 31, 2000 and 43% of accounts receivable at January 31, 2000.
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 statement. Actual results could differ from those estimates.
Note 2. Accounts Receivable
The accounts receivable aging consists of the following:
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Current |
$ 536,372 |
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31 - 60 days |
289,489 |
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61 - 90 days |
33,018 |
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Over 90 days |
39,644 |
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898,523 |
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Less allowance for doubtful accounts |
( 7,200) |
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$ 891,323 |
Note 3. Inventories
Inventory consists of the following:
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Raw materials |
$ 447,103 |
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Work-in-process |
245,164 |
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Less inventory reserve |
( 65,000) |
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$ 627,267 |
Note 4. Related Party Transactions
Loan to stockholder represents advances to Mr. Melvin Heier totaling $280,000, plus accrued interest of $1,727 at January 31, 2000. The loan is unsecured, bears interest at 7.4%, and is due and payable upon demand.
The Company's facility is leased from current and former stockholders. The terms of the lease are described at Note 8.
Note 5. Property and Equipment
Property and equipment consists of the following:
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Machinery and equipment |
$ 978,297 |
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Automobiles |
21,416 |
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Office equipment |
190,251 |
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Leasehold improvements |
155,534 |
Subtotal |
1,345,498 |
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Less accumulated depreciation |
( 850,486) |
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$ 495,012 |
Note 6. Deferred Compensation and Salary Continuation Agreements
On December 18, 1996, the Company entered into a deferred compensation agreement with a former stockholder of the Company which provides for compensation benefits of $42,000 a year for six years beginning January 1, 1998, $56,000 a year for three years beginning January 1, 2004, and $66,000 a year for five years beginning January 1, 2007. The Company has recorded an accrual of $363,558, which represents an estimated present value (using a discount rate of 10%) of the benefits earned under this agreement as of January 31, 2000.
On January 1, 1997, the Company entered into a salary continuation agreement with a former stockholder of the Company which provides for compensation benefits of $222,000, or for his spouse if he dies during the term of the agreement, which shall be paid as follows: $60,000 for the first year, and $18,000 per year for the second year through the tenth year. The Company has recorded an accrual of $89,608, which represents an estimated present value (using a discount rate of 10%) of the benefits earned under this agreement as of January 31, 2000.
Note 7. Income Taxes
The Company, with the consent of its stockholders, has elected to be taxed under sections of federal and California income tax law, which provide that, in lieu of corporation income taxes, the stockholders separately account for their pro rata shares of the Company's items of income, deductions, losses and credits. As a result of this election, no liability for income taxes has been recognized in the accompanying financial statement with the exception of a 1.5% franchise tax California imposes on S Corporation earnings.
Net deferred tax assets consist of the following components:
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Deferred tax assets |
$ 9,700 |
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Deferred tax liabilities |
( 1,600) |
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$ 8,100 |
Deductible temporary differences giving rise to net deferred tax assets for California purposes are related primarily to property and equipment cost basis differences, various reserves established for book purposes, and differences in accounting for the deferred compensation and salary continuation agreements. Taxable temporary differences giving rise to net deferred tax liabilities consist of depreciation differences.
The provision for income taxes consists of the following:
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Current tax expense |
$ 24,547 |
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Deferred tax (benefit) expense |
( 2,258) |
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$ 22,289 |
The provision for income taxes varies from the amount computed using the California statutory income tax rate of 1.5% primarily due to available tax credits.
Note 8. Commitments
The Company leases its facilities under a lease agreement expiring December 31, 2000, from current and former stockholders of the Company. The lease requires annual rentals of $150,000. (See Note 10.)
Note 9. Employee Stock Ownership Plan
The Company established an Employee Stock Ownership Plan (ESOP) effective January 1, 1995 to enable participating employees to share in the growth of the Company and to provide participants with an opportunity to accumulate capital for their future economic security. The ESOP has not yet purchased
shares of Company stock and has no plans to do so. As such, the funds contributed to date by the Company are invested in other liquid assets. Future contributions are not mandatory but subject to approval at the discretion of the Company's Board of Directors.
Note 10. Subsequent Events
The deferred compensation and salary continuation agreements described in Note 6 were paid in full on March 15, 2000.
On March 16, 2000, the Company entered into an Asset Purchase Agreement with Scientific Technologies Incorporated (Buyer) to sell substantially all of the assets and liabilities of the Company. The aggregate purchase price to be paid by the Buyer is $9,256,000, less any and all payment obligations of the Company exclusive of certain obligations due to the former stockholders of the Company.
The current and former stockholders of the Company agreed to a reduced annual rent of $135,000 effective March 2000.
INDEPENDENT AUDITOR'S REPORT
ON THE SUPPLEMENTARY INFORMATION
To the Board of Directors
PSI-Tronix, Inc.
Tulare, California
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
NOELL DEETZ AGNEW & MORSE, LLP
Visalia, California
May 17, 2000
PSI-TRONIX, INC.
SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Year ended January 31, 2000
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Salaries and Wages |
$ 393,617 |
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Management Salaries |
191,102 |
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Legal and Accounting |
68,642 |
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Outside Services |
67,808 |
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Freight Out |
65,006 |
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Sales Commissions |
43,621 |
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Advertising |
41,836 |
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Insurance |
40,813 |
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Payroll Taxes |
39,827 |
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Repairs and Maintenance |
31,090 |
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Rent |
28,118 |
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Depreciation |
23,382 |
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Utilities and Telephone |
23,357 |
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Office Expense |
23,219 |
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Bad Debt Expense |
18,659 |
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Meals and Entertainment |
13,827 |
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Employee Benefits |
11,790 |
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Taxes, Licenses and Permits |
10,070 |
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Computer Expenses |
4,494 |
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Bank Charges |
4,348 |
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Contributions |
3,972 |
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Auto Expense |
3,398 |
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Dues and Subscriptions |
1,437 |
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Promotion |
748 |
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Miscellaneous |
286 |
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Total |
$1,154,467 |
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