UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: September 8, 1998
SAVOIR TECHNOLOGY GROUP, INC.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-11560 94-2414428
- ---------------------------- ------------- ----------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
254 EAST HACIENDA AVENUE, CAMPBELL, CA 95008
-------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(408) 379-0177
(Registrant's telephone number,
including area code)
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<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
---------------------------------
(a) Financial statements of business acquired.
Financial statements of REAL Distributor, a division of REAL
Applications, Ltd., a wholly owned subsidiary of El Camino
Resources, Ltd. (REAL), pertaining to the registrant's
acquisition of substantially all of the mid-range distribution
business and the associated goodwill of REAL, are submitted
herewith as shown in Item 7(c) following.
(b) Pro Forma Financial Information.
Pro forma financial statements for Savoir Technology Group,
Inc., showing the pro forma effects of the acquisition of
REAL are submitted herewith as shown in Item 7(c) following.
(c) Exhibits.
2.1*+ Asset Purchase Agreement by and between Business
Partner Solutions, Inc., a subsidiary of Savoir
Technology Group, Inc. and REAL Applications, Ltd.
dated as of September 8, 1998.
10.1*+ Solution Provider Agreement by and between Business
Partner Solutions, Inc., a subsidiary of Savoir
Technology Group, Inc. and REAL Applications Ltd.
dated as of September 8, 1998.
23.1 Consent of Independent Public Accountants
99.1+ Press Release dated September 9, 1998.
99.2 Financial statements of REAL Distributor, a
Division of REAL Applications, Ltd., a
wholly owned subsidiary of El Camino
Resources, Ltd.
(a) Report of Independent Public Accountants dated
November 9, 1998.
(b) Balance Sheets as of April 30, 1998 and 1997.
(c) Statements of Income for the Years Ended April 30,
1998, 1997 and 1996.
- --------
* Confidential Treatment requested pursuant to a request for
confidential treatment filed with the Commission on September
23, 1998. The portions of the exhibit for which confidential
treatment has been requested have been omitted from the
exhibit. The omitted information has been filed separately
with the Commission as part of the confidential treatment
request.
+ Previously filed.
-2-
<PAGE>
(d) Statements of Changes in Home Office Account for
the Years Ended April 30, 1998, 1997 and 1996.
(e) Statements of Cash Flows for the Years Ended
April 30, 1998, 1997 and 1996
(f) Notes to Financial Statements for the Years Ended
April 30, 1998 and 1997
99.3 Pro Forma Financial Statements of Savoir Technology
Group, Inc.
(a) Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1997
(Unaudited)
(b) Notes to Pro Forma Condensed Consolidated
Statement of Operations for the Year Ended
December 31, 1997 (Unaudited)
(c) Pro Forma Consolidated Statement of Operations for
the Nine Months Ended September 30, 1998
(Unaudited)
(d) Notes to Pro Forma Condensed Consolidated
Statement of Operations for the Nine Months Ended
September 30, 1998 (Unaudited)
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 20, 1998
SAVOIR TECHNOLOGY GROUP, INC.
By /s/ Dennis J. Polk
---------------------------------
Dennis J. Polk
Chief Accounting Officer
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<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ---------- -----------
2.1*+ Asset Purchase Agreement by and between Business Partner
Solutions, Inc., a subsidiary of Savoir Technology Group, Inc.
and REAL Applications Ltd. dated as of September 8, 1998.
10.1*+ Solution Provider Agreement by and between Business Partner
Solutions, Inc., a subsidiary of Savoir Technology Group, Inc.
and REAL Applications Ltd. dated as of September 8, 1998.
23.1 Consent of Independent Public Accountants
99.1+ Press Release dated September 9, 1998.
99.2 Financial statements of REAL Distributor, a Division
of REAL Applications, Ltd., a wholly owned subsidiary
of El Camino Resources, Ltd.
(a) Report of Independent Public Accountants dated November 9,
1998
(b) Balance Sheets as of April 30, 1998 and 1997
(c) Statements of Income for the Years Ended April 30, 1998, 1997
and 1996
(d) Statements of Changes in Home Office Account for the Years
Ended April 30, 1998, 1997 and 1996
(e) Statements of Cash Flows for the Years Ended April 30, 1998,
1997 and 1996
(f) Notes to Financial Statements for the Years Ended April 30,
1998 and 1997
99.3 Pro Forma Financial Statements of Savoir Technology Group, Inc.
(a) Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1997 (Unaudited)
- --------
* Confidential Treatment requested pursuant to a request for confidential
treatment filed with the Commission on September 23, 1998. The portions
of the exhibit for which confidential treatment has been requested have
been omitted from the exhibit. The omitted information has been filed
separately with the Commission as part of the confidential treatment
request.
+ Previously filed.
-5-
<PAGE>
(b) Notes to Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1997 (Unaudited)
(c) Pro Forma Consolidated Statement of Operations for the Nine
Months Ended September 30, 1998 (Unaudited)
(d) Notes to Pro Forma Condensed Consolidated Statement of
Operations for the Nine Months Ended September 30, 1998
(Unaudited)
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<PAGE>
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated November 9, 1998 with respect to the
financial statements of REAL Distributor (A Division of REAL Applications, Ltd.,
a wholly owned subsidiary of El Camino Resources, Ltd.) for each of the three
years in the period ended April 30, 1998, included in the Form 8-K/A of Savior
Technology Group, Inc. dated November 23, 1998, and to the incorporation by
reference of such report in the Savior Technology Group, Inc. Registration
Statement (Amendment No. 1 to Form S-3 No. 333-61865) for the registration of
6,139,953 shares of common stock.
/s/ ERNST & YOUNG LLP
Century City, California
November 19, 1998
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<PAGE>
EXHIBIT 99.2
------------
Report of Independent Auditors
Board of Directors
REAL Applications, Ltd.
We have audited the accompanying balance sheets of REAL Distributor (A Division
of REAL Applications, Ltd., a wholly owned subsidiary of El Camino Resources,
Ltd.), as of April 30, 1998 and 1997, and the related statements of income,
changes in home office account, and cash flows for each of the three years in
the period ended April 30, 1998. 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 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 REAL Distributor (A Division of
REAL Applications, Ltd.) at April 30, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
April 30, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Century City, California
November 9, 1998
-8-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30
-----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $250,000 and $150,000 in 1998 and
1997, respectively..................................... $ 13,371,866 $ 9,002,668
Inventories................................................. 3,922,776 123,956
Prepaid and other current assets............................ 95,673 --
------------ ------------
Total current assets.............................................. 17,390,315 9,126,624
Furniture and office equipment, net............................... 468,987 --
Note receivable................................................... 200,000 --
Other assets...................................................... 61,742 --
------------ ------------
Total assets...................................................... $ 18,121,044 $ 9,126,624
============ ============
LIABILITIES AND HOME OFFICE ACCOUNT Current liabilities:
Accounts payable............................................ $ 3,537,278 $ 4,701,467
======
Accrued liabilities......................................... 435,179 73,962
Deferred income taxes....................................... 32,162 30,750
------------ ------------
Total current liabilities......................................... 4,004,619 4,806,179
Home office account:
Contributions and advances from Parent and Affiliate........ 10,170,976 2,328,186
Retained divisional earnings................................ 3,945,449 1,992,259
------------ ------------
Total home office account......................................... 14,116,425 4,320,445
------------ ------------
Total liabilities and home office account......................... $ 18,121,044 $ 9,126,624
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
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<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
---------------------------------------------
1998 1997 1996
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues:
Sales of equipment....................... $ 72,791,904 $ 50,216,367 $ 23,973,861
- ------
Other income............................. 725,975 352,828 33,645
------------- ------------ -------------
Total revenues................................. 73,517,879 50,569,195 24,007,506
Cost of sales of equipment..................... 67,382,023 45,981,190 21,981,670
-------------- ------------- -------------
Gross margin................................... 6,135,856 4,588,005 2,025,836
Selling, general and administrative
expenses..................................... 490,143 843,631 393,367
Selling, general and administrative charges
from Parent and Affiliate.................... 1,296,000 799,200 413,320
------------- ------------ -------------
Operating income............................... 4,349,713 2,945,174 1,219,149
Interest expense charges from Affiliate........ 888,158 452,122 244,841
------------- ------------ -------------
Income before income taxes..................... 3,461,555 2,493,052 974,308
Provision for income taxes..................... 1,508,365 1,043,931 431,170
------------- ------------ -------------
Net income..................................... $ 1,953,190 $ 1,449,121 $ 543,138
============= ============ =============
</TABLE>
SEE ACCOMPANYING NOTES.
-10-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
STATEMENTS OF CHANGES IN HOME OFFICE ACCOUNT
<TABLE>
<CAPTION>
Contributions
And Advances Retained
From Parent Divisional
And Affiliate Earnings Total
--------------- -------------- ------------
<S> <C> <C> <C>
Balance at May 1, 1995...................... $ -- $ -- $ --
Net contribution of assets and liabilities
at May 1, 1995............................ 228,525 -- 228,525
Net remittances to Affiliate................ (338,740) -- (338,740)
Net income.................................. -- 543,138 543,138
------------- ----------- ------------
Balance at April 30, 1996................... (110,215) 543,138 432,923
Net advances from Affiliate................. 2,438,401 -- 2,438,401
Net income.................................. -- 1,449,121 1,449,121
------------- ------------ ------------
Balance at April 30, 1997................... 2,328,186 1,992,259 4,320,445
Net advances from Affiliate................. 7,842,790 -- 7,842,790
Net income.................................. -- 1,953,190 1,953,190
------------- ------------ ------------
Balance at April 30, 1998................... $ 10,170,976 $ 3,945,449 $ 14,116,425
============= ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
-11-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
---------------------------------------------
1998 1997 1996
------------- ----------------- ------------
<S> <C> <C> <C>
Operating activities
Net income............................................ $ 1,953,190 $ 1,449,121 $ 543,138
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 38,187 -- --
Change in deferred income taxes................. 1,412 30,786 (36)
Changes in assets and liabilities:
Accounts receivable, net................... (4,369,198) (5,292,690) (2,619,284)
Inventories................................ (3,798,820) 10,374 (79,879)
Prepaid and other assets................... (157,415) -- --
Accounts payable........................... (1,164,189) 1,573,797 2,307,478
Accrued liabilities........................ 361,217 (209,789) 187,323
------------- ------------ ------------
Net cash provided by (used in) operating
activities.......................................... (7,135,616) (2,438,401) 338,740
INVESTING ACTIVITIES
Issuance of note receivable........................... (200,000) -- --
Purchase of office furniture and equipment............ (507,174) -- --
------------- ------------ ------------
Net cash used in investing activities................. (707,174) -- --
FINANCING ACTIVITIES
Contribution and advances from
(payments to) Parent and Affiliate.................. 7,842,790 2,438,401 (338,740)
------------- ------------ ------------
Net cash provided by (used in) financing
activities.......................................... 7,842,790 2,438,401 (338,740)
------------- ------------ ------------
Net change in cash.................................... -- -- --
Cash at beginning of year............................. -- -- --
------------- ------------ ------------
Cash at end of year................................... $ -- $ -- $ --
============= ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
-12-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
REAL Distributor (the Division) is a division of REAL Applications, Ltd.
(Parent) and has no separate legal status or existence. The Parent is a wholly
owned subsidiary of El Camino Resources, Ltd. (ECR or Affiliate). The Division
and the Parent are preferred providers of IBM equipment and economically
dependent on ECR for financing its operations. The principal business of the
Division is the distribution of mid-range servers, consisting primarily of IBM
hardware and software, to resellers. As one of six IBM authorized distributors,
it supports over 200 resellers across the United States. As a value-added
distributor, the Division provides complete support to its resellers for
hardware, software technical issues, IBM equipment maintenance and product
education.
BASIS OF PRESENTATION
On September 8, 1998, the Parent executed an agreement (Sales Agreement) for the
sale of the Division to an unrelated third party. The Sales Agreement represents
an asset sale by the Parent and results in the disposal of certain distribution
assets and inventories. The Sales Agreement also provides for a covenant not to
compete by the Parent, ECR and certain officers of ECR, an agreement whereby the
Parent will obtain certain equipment exclusively from the buyer for a three year
period and an agreement whereby the Parent will provide facilities and
administrative support to the buyer through December 31, 1998. Total
consideration received by the Parent under the Sales Agreement totaled
$12,875,000. The accompanying financial statements do not include any
adjustments to reflect the effects of the Sales Agreement.
In preparing the financial statements of the Division, management of the Parent
determined that on May 1, 1995, the Parent transferred assets and liabilities
related to its IBM partner segment to the Division for net contribution from the
Parent of $228,525, which represents the net historical book value of the assets
and liabilities transferred to the Division. Assets transferred to the Division
consisted primarily of accounts receivable of $1,090,694 and inventories of
$54,451 net of liabilities assumed by the Division consisting primarily of
accounts payable and accrued expenses of $916,620.
-13-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
1. Summary of Significant Accounting Policies (CONTINUED)
ALLOCATIONS FROM PARENT AND INTEREST CHARGES FROM AFFILIATE
The Division shares office facilities, certain employees and other resources
with the Parent and Affiliate. The financial statements of the Division include
allocations from the Parent and Affiliate for indirect expenses for the shared
resources. The expenses have been allocated based upon such factors as items
specifically identified as related to the Division, management's estimates of
the Division's portion of shared general and administrative expenses, number of
transactions processed on behalf of the Division and square footage utilized by
the Division. The indirect allocated expenses are included in the statements of
income as selling, general and administrative charges from Parent and Affiliate.
The indirect expenses allocated may not necessarily be representative of what
actual expenses would have been if the Division were independent; however, the
allocations are considered by management to be a reasonable approximation of the
costs incurred for the benefit of the Division.
Interest expense charges from Affiliate represent the Division's portion of the
Parent's interest charges from ECR and are allocated based upon relative
accounts receivable plus inventories less accounts payable of the Division times
an interest rate representing the prime rate obtained by the Affiliate plus 1.5%
(10.00% and 9.75% at April 30, 1998 and 1997, respectively).
CONCENTRATIONS OF CREDIT RISK
The Division performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Accounts receivable are
generally due within 30 days. Credit losses have been generally within
management's expectations and have not been significant.
ESTIMATES AND ASSUMPTIONS
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates, although
management does not believe that any differences would materially affect the
Division's financial position or results of operations.
INVENTORIES
Inventories consist of new and used equipment held for sale and is valued at the
lower of cost or market using the specific-identification method.
-14-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
1. Summary of Significant Accounting Policies (CONTINUED)
FURNITURE AND OFFICE EQUIPMENT
Furniture and equipment are recorded at cost and are depreciated using the
straight-line method over the following estimated useful lives:
Computer equipment 3 - 5 years
Furniture and office equipment 5 years
LONG-LIVED ASSETS
The Division reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying amount.
No such impairment losses have been identified by the Division.
REVENUE RECOGNITION
Revenues are recognized when products are shipped.
SIGNIFICANT SUPPLIER
Cost of sales of equipment related to products purchased from IBM represents a
substantial portion of total cost of goods sold for the years ended April 30,
1998, 1997 and 1996. Included in accounts payable at April 30, 1998 and 1997,
are amounts owed to this supplier totaling 98% and 97%, respectively, of the
accounts payable balance.
INCOME TAXES
The Division is included in ECR's consolidated federal income tax return and
combined state tax returns through April 30, 1998. All tax assets or liabilities
are received or paid and recorded by ECR. Under a tax sharing agreement, income
taxes are allocated to the Division on an annual basis using the separate return
method. The Division accounts for the allocation of current income taxes as an
adjustment to the home office account.
Deferred taxes are recognized by the Division using the liability method, and
tax rates are applied to cumulative temporary differences based on when and how
they are expected to affect the tax return. Deferred tax assets and liabilities
are adjusted for tax rate changes.
-15-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
1. Summary of Significant Accounting Policies (CONTINUED)
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), effective for fiscal years beginning after December 15, 1997.
The Division will adopt SFAS No. 130 in fiscal 1999 and does not expect that
the adoption will have a material effect on its financial statements.
2. FURNITURE AND OFFICE EQUIPMENT, NET
Furniture and office equipment, net, consisted of the following at April 30,
1998:
Computer equipment $486,722
Furniture and office equipment 20,452
--------
507,174
Less accumulated depreciation 38,187
--------
$468,987
========
3. NOTE RECEIVABLE
In November, 1997, the Division loaned $200,000 to an unrelated party. The note
receivable is due in five annual installments of $40,000 commencing November 1,
1998, and bears interest at 10% per annum. The note is collateralized by the net
assets of the unrelated party and guaranteed by an officer of the unrelated
party.
4. ADVANCES FROM AFFILIATE
Advances from Affiliate are accounted for as a contribution to the Division by
its Affiliate. The home office account acts as a clearing account for
transactions between the Affiliate, the Parent and the Division. There are no
terms of settlement or interest charges associated with the account balance. The
balance is primarily the result of the Division's participation in the
Affiliate's cash management program, wherein all of the Division's cash receipts
are remitted to the Affiliate and all cash disbursements are funded by the
Affiliate. Other transactions include allocations of selling, general and
administrative expenses incurred by the Parent and Affiliate on behalf of the
Division, interest charges from the Parent and the Division's pro rata share of
the current portion of the Affiliate's consolidated federal income tax liability
and combined state tax liability. The home office account will be repaid to the
Affiliate through positive cash flows of the Division.
-16-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
An analysis of transactions in the contributions and advances from Parent and
Affiliate account for each of the three years in the period ended April 30, 1998
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Balance at beginning of year...................... $ 2,328,186 $ (110,215) $ --
Net contribution of assets and liabilities at
May 1, 1995.................................. -- -- 228,525
Net cash advanced from (remitted to)
Affiliate.................................... 4,151,679 173,934 (1,428,107)
Selling, general and administrative charges
from Parent.................................. 1,296,000 799,200 413,320
Interest expense charges from Affiliate........... 888,158 452,122 244,841
Division's share of Affiliate's current income
tax liabilities.............................. 1,506,953 1,013,145 431,206
------------ ------------- ------------
Balance at end of year............................ $ 10,170,976 $ 2,328,186 $ (110,215)
============ ============= ============
Average balance during the year................... $ 6,249,581 $ 1,108,986 $ (55,107)
============ ============= ============
</TABLE>
5. INCOME TAXES
The provision for income taxes allocated to the Division consists of the
following:
YEAR ENDED APRIL 30
-----------------------------------------------
1998 1997 1996
------------ -------------- ------------
Current:
Federal............. $ 1,175,728 $ 786,269 $ 331,295
State............... 331,225 226,876 99,911
------------ ------------- --------
1,506,953 1,013,145 431,206
Deferred:
Federal............. 1,102 23,892 (28)
State............... 310 6,894 (8)
------------ ------------- ---------
1,412 30,786 (36)
------------ ------------- ---------
$ 1,508,365 $ 1,043,931 $ 431,170
============ ============= ===========
The difference between actual income tax expense and the expected U.S. Federal
statutory income tax rate is as follows:
-17-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. INCOME TAXES (CONTINUED)
YEAR ENDED APRIL 30
----------------------------------
1998 1997 1996
-------- --------- ----------
Statutory rate........... 34.0% 34.0% 34.0%
State tax provision...... 8.9 7.9 9.3
Other.................... .7 .0 1.0
----- ----- ----
43.6% 41.9% 44.3%
===== ===== =====
The temporary differences which create the net deferred tax liability were as
follows at April 30:
1998 1997
---------- ---------
Deferred tax assets:
Allowance for doubtful accounts........ $ 100,000 $ 60,000
- ---------- ---------- ----------
Total deferred tax assets................. 100,000 60,000
Deferred tax liabilities:
State taxes............................ 132,162 90,750
---------- ----------
Total deferred tax liabilities............ 132,162 90,750
---------- ----------
Net deferred tax liability................ $ 32,162 $ 30,750
========== ==========
6. COMMITMENTS
ECR has a $100 million secured revolving line of credit agreement with a
consortium of banks guaranteed by substantially all of the assets of ECR and the
Parent, including those of the Division.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for all financial instrument
assets and liabilities approximate their fair value.
-18-
<PAGE>
REAL Distributor (A Division of
REAL Applications, Ltd.)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
8. YEAR 2000 ISSUE - UNAUDITED
Many existing computer programs and databases use only two digits to identify a
year in the date field (i.e., 98 would represent 1998). These programs and
databases were designed and developed without considering the impact of the
upcoming millennium. If not corrected, many computer systems could fail or
create erroneous results relating to the year 2000. The Division is supported by
the Parent and ECR for all of its computer and information technology needs. The
Parent and ECR have completed their year 2000 compliance plans related to
internal systems and do not anticipate problems with their systems at the
millennium.
-19-
<PAGE>
EXHIBIT 99.3
------------
Savoir Technology Group, Inc.
PRO FORMA FINANCIAL STATEMENTS
The accompanying pro forma condensed consolidated statements of
operations have been derived from the historical financial statements of Savoir
Technology Group, Inc (the Company) and the systems distribution business of
REAL Distributor, a Division of REAL Applications, Ltd., a wholly owned
subsidiary of El Camino Resources, Ltd. (REAL) and adjusts such information to
give effect to the acquisition of the systems distribution business of REAL.
The pro forma condensed consolidated statements of operations for the
year ended December 31, 1997 and the nine months ended September 30, 1998 assume
that the acquisition of REAL occurred on January 1, 1997.
The pro forma financial information is not necessarily indicative of
the results which would actually have occurred had the transaction been in
effect on the date and for the periods indicated or which may result in the
future. This pro forma information should be read in conjunction with the notes
thereto and the historical financial information.
-20-
<PAGE>
Savoir Technology Group Inc.
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
------------------- Pro Forma
SAVOIR REAL ADJUSTMENTS TOTAL
--------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales..................................... 237,884 62,043 -- 299,927
Cost of goods sold............................ 205,089 56,786 (2,070) (1) 259,805
--------- --------- -------- ---------
Gross profit.................................. 32,795 5,257 2,070 40,122
Selling, general and administrative
expenses...................................... 25,969 2,399 2,070 (1) 30,094
(1,048) (2)
704 (3)
--------- ---------- -------- ---------
Operating income.............................. 6,826 2,858 344 10,028
Interest expense.............................. 3,181 582 1,556 (4) 4,737
(582) (5)
--------- ---------- -------- ---------
Income before taxes........................... 3,645 2,276 (630) 5,291
Income tax expense............................ 335 1,200 396 (6) 1,931
--------- ---------- -------- ---------
Net income.................................... $ 3,310 $ 1,076 $ (1,026) $ 3,360
========= ========== ======== =========
Net income per share - Basic.................. $ 0.57 $ 0.58
======== =========
Number of shares used in per share
calculation - Basic........................... 4,902 4,902
========= =========
Net income per share - Diluted................ $ 0.55 $ 0.56
========= ==========
Number of shares used in per share
calculation - Diluted......................... 5,976 5,976
========= ==========
</TABLE>
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<PAGE>
Savoir Technology Group, Inc.
Notes to Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1997
NOTE A--ACQUISITION:
On September 8, 1998, Savoir Technology Group, Inc. (the Company) through its
subsidiary, Business Partner Solutions, Inc. (BPS) acquired the IBM mid-range
systems distribution business of Real Applications, Ltd. (REAL). Pursuant to
the terms of agreement between the Company and REAL, BPS acquired the IBM
mid-range systems distribution business of REAL for $12,875,000, consisting of
a cash payment at closing of the transaction.
The Company funded the transaction through a $15,000,000 loan obtained from its
principal lender, IBM Credit Corporation.
NOTE B--PRESENTATION:
For purposes of the pro forma combined data, REAL's financial data for the
twelve months ended October 31, 1997 and nine months ended July 31, 1998, have
been combined with the Company's financial data for the fiscal year ended
December 31, 1997 and the nine months ended September 30, 1998, respectively.
NOTE C--EXCESS OF COSTS OVER ACQUIRED NET ASSETS AND OTHER INTANGIBLES:
The total purchase price of the REAL acquisition was allocated in accordance
with the provisions of APB No. 16 for purchase transactions and accordingly was
based on fair value of net tangible assets acquired with the excess allocated to
goodwill. As no tangible assets were acquired from REAL, the full amount of the
purchase price $12,875,000, was allocated to goodwill.
NOTE D--PRO FORMA ADJUSTMENTS:
(1) Represents reclassification of sales commission expense from cost of
goods sold to selling, general and administrative expense to conform to
the Company's historical presentation of such expenses.
(2) Represents elimination of selling, general and administrative expense
allocation from REAL's parent company. These costs will be absorbed by
the Company without any significant additional incremental costs to the
Company.
(3) Represents amortization expense of goodwill and acquisition cost, using
the straight-line method over a twenty-year period for goodwill and
five years for acquisition costs.
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(4) Represents interest expense on the $15,000,000 borrowed by the Company
to fund the purchase price and working capital requirements of the
acquisition. Interest expense was calculated at the Company's average
rate of interest for the period.
(5) Represents the elimination of the interest expense allocation from
REAL's parent company. All appropriate interest expense related to the
REAL acquisition has been captured in pro forma adjustment noted above.
(6) Represents income taxes on the effect of the inclusion of REAL's
operating income and the pro forma adjustments as set forth above.
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Savoir Technology Group Inc.
Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
Pro Forma
SAVOIR REAL ADJUSTMENTS TOTAL
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales..................................... 373,233 53,234 -- 426,467
Cost of goods sold............................ 328,035 48,818 (2,249) (1) 374,604
-------------- --------------- --------------- --------------
Gross profit.................................. 45,198 4,416 2,249 51,863
Selling, general and administrative
expenses...................................... 32,030 946 2,249 (1) 34,781
(972) (2)
528 (3)
--------------- --------------- --------------- --------------
Operating income.............................. 13,168 3,470 444 17,082
Interest expense.............................. 3,277 770 1,167 (4) 4,444
(770) (5)
-------------- --------------- --------------- --------------
Income before taxes and extraordinary
item.......................................... 9,891 2,700 47 12,638
Income tax expense............................ 4,830 1,134 215 (6) 6,179
-------------- --------------- --------------- --------------
Income before extraordinary item.............. 5,061 1,566 (168) 6,459
Extraordinary item, net of tax effect......... (2,338) -- -- (2,338)
-------------- --------------- --------------- --------------
Net income.................................... $ 2,723 $ 1,566 $ (168) $ 4,121
============== =============== =============== ==============
Net income (loss) per share - Basic........... $ (0.30) $ (0.12)
============== ==============
Number of shares used in per share
calculation - Basic........................... 7,876 7,876
============== ==============
Net income (loss) per share - Diluted......... $ (0.28) $ (0.11)
============== ==============
Number of shares used in per share
calculation - Diluted......................... 8,442 8.442
============== ==============
</TABLE>
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Savoir Technology Group, Inc.
Notes to Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 1998
NOTE A--PRO FORMA ADJUSTMENTS:
(1) Represents reclassification of sales commission expense from cost of
goods sold to selling, general and administrative expense to conform to
the Company's historical presentation of such expenses.
(2) Represents elimination of selling, general and administrative expense
allocation from REAL's parent company. These costs will be absorbed by
the Company without any significant additional incremental costs to the
Company.
(3) Represents amortization expense of goodwill and acquisition cost, using
the straight-line method over a twenty year period for goodwill and
five years for acquisition costs.
(4) Represents interest expense on the $15,000,000 borrowed by the Company
to fund the purchase price and working capital requirements of the
acquisition. Interest expense was calculated at the Company's average
rate of interest for the period.
(5) Represents the elimination of the interest expense allocation from
REAL's parent company. All appropriate interest expense related to the
REAL acquisition has been captured in pro forma adjustment noted above.
(6) Represents income taxes on the effect of the inclusion of REAL's
operating income and the pro forma adjustments as set forth above.
NOTE B - LOSS PER SHARE:
Net loss per share for the nine months ended September 30, 1998 is due to an
extraordinary item ($2,338,000) and dividends paid on preferred stock
($5,059,000).
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