<PAGE> 1
================================================================================
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 (date of earliest event reported): July 14, 1998
SI TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-12370 95-3381440
(State or Other Jurisdiction of (Commission File Number) (IRS Employer ID No.)
Incorporation or Organization
</TABLE>
4611 South 134th Place
Seattle, Washington 98168
(Address of Principal Executive Offices) (Zip Code)
(206) 244-6100
(Registrant's Telephone number, including area code)
================================================================================
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
(a) Financial Statements of Businesses Acquired.
(i) Audited Financial Statements of Allegany, Inc. and Subsidiary as of
and for the year ended March 31, 1998.
(ii) Audited Financial Statements of Revere Transducers, Inc. as of June
30, 1998 and for the nine months ended June 30, 1998 and the year
ended September 27, 1997.
(iii) Audited Financial Statements of Revere Transducers Europe BV as of
and for the ten months ended July 31, 1998 and the year ended
September 30, 1997.
(b) Pro Forma Financial Information.
(i) Unaudited Pro Forma Combined Condensed Financial Statements of the
Company and Allegany, Inc. for the year ended July 31, 1997 and the
nine months ended April 30, 1998.
(ii) Unaudited Pro Forma Combined Condensed Financial Statements of the
Company and Revere Transducers, Inc. and Revere Transducers Europe
BV for the year ended July 31, 1997 and the nine months ended April
30, 1998.
<PAGE> 3
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: September 25, 1998
SI TECHNOLOGIES, INC.
By /s/ Rick A. Beets
------------------------------------
Rick A. Beets
President and Chief Executive Officer
<PAGE> 4
ALLEGANY, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
MARCH 31, 1998
<PAGE> 5
ALLEGANY, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
MARCH 31, 1998
<PAGE> 6
C O N T E N T S
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET 5
STATEMENT OF EARNINGS 6
STATEMENT OF STOCKHOLDERS' EQUITY 7
STATEMENT OF CASH FLOWS 8
NOTES TO FINANCIAL STATEMENTS 9
</TABLE>
<PAGE> 7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Allegany, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Allegany, Inc. (a
Delaware corporation) and subsidiary as of March 31, 1998, and the related
consolidated statements of earnings, stockholders' equity 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Allegany, Inc. and subsidiary as of March 31, 1998, and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ Grant Thornton LLP
- ------------------------
Baltimore, Maryland
September 10, 1998
<PAGE> 8
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 9
ALLEGANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 73,658
Accounts receivable
Trade, less allowance for doubtful receivables
of $217,354 596,499
Other 1,113
Inventories 1,116,069
Prepaid expenses and other 31,886
Deferred income taxes 254,613
----------
Total current assets 2,073,838
PROPERTY AND EQUIPMENT
Property and equipment, less accumulated
depreciation 1,465,975
Land 140,000
1,605,975
OTHER ASSETS
Goodwill, less accumulated amortization
of $173,962 820,310
Loan fees, less accumulated amortization
of $15,525 11,629
Advances under split dollar life insurance policies 42,336
Investment in land 46,084
----------
920,359
----------
$4,600,172
==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Demand note payable $ 588,000
Current maturities of long-term debt 362,716
Accounts payable 477,439
Accrued liabilities 207,695
Income taxes payable 55,645
-----------
Total current liabilities 1,691,495
LONG-TERM DEBT, less current maturities 1,146,732
DEFERRED INCOME TAXES 251,369
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' EQUITY
Common stock; $.01 par value; 100,000 shares
authorized; 58,906 shares issued and outstanding 589
Additional paid-in capital 1,768,428
Accumulated deficit (258,441)
-----------
1,510,576
-----------
$ 4,600,172
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE> 10
ALLEGANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET SALES $ 4,851,550
COST OF GOODS SOLD 3,029,622
Gross profit 1,821,928
OPERATING EXPENSES
Selling expenses 634,839
General and administrative 466,465
Research and development 520,011
-----------
1,621,315
-----------
Earnings from operations 200,613
OTHER INCOME (EXPENSE)
Interest expense (185,319)
Loss on sale of fixed assets (15,001)
Miscellaneous - net 22,927
-----------
(177,393)
-----------
Earnings before income taxes 23,220
INCOME TAXES
Current 169,245
Deferred (146,245)
-----------
23,000
-----------
NET EARNINGS $ 220
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE> 11
ALLEGANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Additional Accumulated
stock paid-in capital deficit Total
------ --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1997 $ 583 $ 1,744,861 $(258,661) $ 1,486,783
Net earnings -- -- 220 220
Redemption of 109 shares
of common stock (1) (3,892) -- (3,893)
Sale of 762 shares of
common stock 7 27,459 -- 27,466
----- ----------- --------- -----------
BALANCE AT MARCH 31, 1998 $ 589 $ 1,768,428 $(258,441) $ 1,510,576
===== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
7
<PAGE> 12
ALLEGANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Net increase (decrease) in cash
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 220
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 235,783
Loss on sale of equipment 15,001
Provision for doubtful accounts 180,335
Deferred income taxes (146,245)
Changes in assets and liabilities
Accounts receivable 118,112
Inventories (359,304)
Prepaid expenses and other (6,750)
Accounts payable 203,316
Accrued liabilities 77,316
Income taxes payable (30,163)
---------
Net cash provided by operating activities 287,621
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (407,491)
Proceeds from sale of equipment 10,200
---------
Net cash used in investing activities (397,291)
</TABLE>
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from demand note payable 137,000
Proceeds from long-term debt 344,234
Payments on long-term debt (335,959)
Proceeds from issuance of common stock 27,466
Redemption of common stock (3,893)
---------
Net cash provided by financing activities 168,848
---------
NET INCREASE IN CASH 59,178
---------
CASH AT BEGINNING OF YEAR 14,480
---------
CASH AT END OF YEAR $ 73,658
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 185,319
Income taxes 199,408
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchases of property and equipment include $344,234 financed under term
notes payable
</TABLE>
The accompanying notes are an integral part of this financial statement.
8
<PAGE> 13
ALLEGANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS \
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The Company is engaged in the design and manufacture of precision industrial
scales for a broad range of domestic and international customers. A summary
of significant accounting policies consistently applied in the preparation
of the accompanying consolidated financial statements follows.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Allegany, Inc.
(Parent) and its wholly-owed subsidiary Allegany Technology, Inc.
(collectively, the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. REVENUE RECOGNITION
Revenue from equipment and part sales to customers is recognized when the
equipment or part is shipped, or the Company has completed all of its
significant obligation and the equipment is being held for the customer's
account. Revenue from service work is recognized when the service is
rendered. Customer deposits collected in advance for future product
shipments are deferred until the products are shipped.
3. INVENTORIES
Raw materials are stated at the lower of most recent invoice price (which
approximates first-in, first-out cost) or market. Work-in-process and
finished goods are stated at average cost, which does not exceed market.
4. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives for financial
reporting purposes and accelerated methods for tax purposes. Expenditures
for renewals and betterments are capitalized; maintenance and repairs are
charged to expense.
5. LOAN FEES
The Company incurred loan processing fees of $27,154, which are being
amortized over the five-year life of the loan.
9
<PAGE> 14
ALLEGANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
6. INCOME TAXES
Income taxes are provided for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly,
liabilities and assets are recognized for the deferred tax consequences of
temporary differences or carryforwards that will result in net taxable or
deductible amounts in future periods. Deferred tax expense or benefit is the
result of changes in the net asset or liability for deferred taxes. The
principal items giving rise to temporary differences are depreciation,
reserves, inventories and accrued liabilities.
The Parent and its subsidiary file separate state income tax returns and a
consolidated federal income tax return.
7. STATEMENT OF CASH FLOWS
For purposes of the Consolidated 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.
8. LONG-LIVED ASSETS
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of," requires that impairment losses be recognized when the carrying value
of an asset exceeds its fair value. The Company regularly assesses all of
its long-lived assets for impairment.
9. ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and reported revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
10
<PAGE> 15
ALLEGANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE B - PURCHASE ACCOUNTING
On the final business day of the fiscal year ending March 31, 1991, the
stock of Allegany Technology, Inc. was purchased by Allegany, Inc.,
effecting a 50% change in ownership. This resulted in a write-up to market
value of the underlying assets and the recognition of goodwill.
The purchase price of the Company was $2,990,354. The following schedule
shows how various assets were written-up to market value:
<TABLE>
<CAPTION>
Fair
Basis market value Increase
----- ------------ --------
<S> <C> <C> <C>
Land $ 57,600 $ 140,000 $ 82,400
Buildings and improvements 977,072 1,215,205 238,133
Machinery 1,844,791 2,354,014 509,223
--------
$829,756
========
</TABLE>
The buildings, machinery, and equipment are depreciated over their remaining
useful lives.
Equity of the Company at the time of purchase and prior to the write-up of
assets was $1,166,325. The remainder of the purchase price, $994,273, was
allocated to goodwill and amortized over 40 years. Amortization expense
charged to operations was $24,852 for 1998.
NOTE C - INVENTORIES
Inventories at March 31, 1998, consisted of the following:
<TABLE>
<S> <C>
Raw materials $ 394,968
Work-in-process and finished goods 1,051,101
----------
1,446,069
Less obsolescence reserve 330,000
----------
$1,116,069
==========
</TABLE>
11
<PAGE> 16
ALLEGANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE D - PROPERTY AND EQUIPMENT
The components of property and equipment as of March 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Estimated
useful lives
------------
<S> <C> <C>
Buildings and improvements $ 1,318,180 20-35 years
Machinery and equipment 2,561,419 5-15 years
Furniture and fixtures 55,221 10 years
Vehicles 74,555 5 years
------------
4,009,375
Less accumulated depreciation (2,543,400)
------------
Net $ 1,465,975
============
</TABLE>
Depreciation expense for the year ended March 31, 1998 totaled $205,472.
NOTE E - DEMAND NOTE PAYABLE
The demand note payable to bank is the outstanding portion of a $1,200,000
line-of-credit that bears interest at the bank's prime lending rate plus one
half of one percent. The note expires in December 1998 and is collateralized
by receivables and inventory and is personally guaranteed by the President
and Vice-President of the Company.
NOTE F - INCOME TAXES
Deferred tax assets and liabilities consist of the following at March 31,
1998:
<TABLE>
<S> <C>
Deferred tax assets (current)
Inventories $123,971
Accrued liabilities 52,395
Doubtful receivables 78,247
--------
$254,613
========
Deferred tax liabilities (non-current)
Net book value of fixed assets $251,369
========
</TABLE>
12
<PAGE> 17
ALLEGANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE F - INCOME TAXES - CONTINUED
The amounts recorded as deferred tax assets as of March 31, 1998 represent
the amount of tax benefits of existing deductible temporary differences that
are more likely than not to be realized through the generation of sufficient
future taxable income.
The Company's provision for income taxes differs from anticipated statutory
rates due to permanent differences between financial reporting and taxable
income.
NOTE G - LONG-TERM DEBT
Long term debt as of March 31, 1998 is comprised of the following:
<TABLE>
<S> <C>
Loan payable with interest at 9.25%, payable in monthly
installments of $3,626, including interest, through
January 2011. The indebtedness is collateralized by a
building and is personally guaranteed by certain
officer/stockholders. $ 554,814
Loan payable with interest at 1% above the bank's prime
rate payable in monthly installments of $833, including
interest, through August 2001. The indebtedness is
collateralized by various equipment and is personally
guaranteed by certain officer/stockholders. 32,500
Working capital loan payable to bank with interest at
9.25%, payable in monthly installments of $10,000,
including interest, through December 2000. The loan is
collateralized by inventory, accounts receivable and
equipment. 330,000
Note issued to redeem stock from former shareholder
bearing 8% interest, payable in monthly installments of
$5,654, including interest, through April 2001. The note
is collateralized by stock held in escrow to be released
yearly and is personally guaranteed by
certain/officer/stockholders. 184,855
</TABLE>
13
<PAGE> 18
ALLEGANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE G - LONG-TERM DEBT - CONTINUED
<TABLE>
<S> <C>
Note issued to redeem stock from shareholder
bearing 8% interest, payable in monthly
installments of $4,006, including interest
through April 1999. The note is collateralized
by stock held in escrow to be released yearly. 49,727
Equipment financing with varying maturities and
collateralized by various equipment. Interest
rates range from 9.25% to 17.52%. Monthly
installments totaling $2,842 plus interest are
payable through March 2001. 42,818
Note issued to purchase equipment bearing 9.75%
interest, payable in monthly installments of
$1,369, including interest, through July 2004.
The note is collateralized by equipment and is
personally guaranteed by certain
officer/stockholders. 101,310
Note issued to purchase equipment bearing
interest at bank's prime rate plus 1%, payable
in monthly installments of $2,833, including
interest through January 2003. The note is
collateralized by equipment and is personally
guaranteed by certain officer/stockholders. 164,333
Capital lease of telephone system, interest at
9.0%, payable in monthly installments of $794,
including interest, through April 2003. 32,187
Note issued to purchase vehicle bearing 7.9%
interest, payable in monthly installments of
$428, including interest, through August 2003. 16,904
----------
1,509,448
Less current maturities (362,716)
----------
Total long-term debt $1,146,732
==========
</TABLE>
14
<PAGE> 19
ALLEGANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE G - LONG-TERM DEBT - CONTINUED
Some of the Company's loan agreements require the maintenance of various
financial ratios. The Company was not in compliance with certain of these
ratios at the balance sheet date. However, the related loans were paid in
full in July 1998 upon the Company's acquisition by SI Technologies, Inc.
(see Note L).
Aggregate maturities of long-term obligations for the five years following
March 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Years ending March 31,
--------------------------------------------
<S> <C>
1999 $362,716
2000 305,789
2001 279,636
2002 114,733
2003 90,781
Thereafter 355,793
</TABLE>
NOTE H - RETIREMENT PLAN
The Company has a retirement savings plan pursuant to Section 401(k) of the
Internal Revenue Code. The plan is available to all full-time employees
meeting minimum age and term of employment requirements. Employees are
permitted to contribute up to 15% of their annual compensation to the
maximum amounts prescribed by law. The Company provides contributions to the
plan consisting of a matching amount equal to 50% of the employees'
contributions, not to exceed 2.5%, and may make an annual contribution at
the discretion of the Board of Directors. The Company's contribution for the
year ended March 31, 1998 was $17,636.
NOTE I - LIFE INSURANCE
The Company is the owner and beneficiary of term life insurance policies in
the aggregate face value of $1,750,000 on the lives of certain officers and
stockholders.
The Company is also the beneficiary, to the extent of premiums paid, on
universal life insurance policies on certain stockholders, which policies
have a face value of $1,500,000.
15
<PAGE> 20
ALLEGANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE J - STOCKHOLDER AGREEMENTS
The Company has an agreement with its stockholders restricting the
transferability of shares and allowing the Company options to repurchase
shares in specified situations. The purchase is established by formula and
is partially insured.
NOTE K - COMMITMENTS AND CONTINGENCIES
The Company has filed a claim against one of its customers for amounts due
from the sale of a billetweigh system and for additional costs and expenses
incurred by the Company for providing services to the customer beyond the
contract. A counterclaim has been filed by the customer claiming that the
billetweigh system was defective, and is seeking a refund of all amounts
previously paid under the contract, as well as damages for maintenance,
repairs and lost yield. The ultimate outcome of the litigation cannot be
determined at this time. The Company has fully reserved its remaining
accounts receivable of $175,285. The range of loss for potential additional
damages is estimated to be between $0 - $362,000.
The Company is involved in an audit inquiry by the Internal Revenue Service
relating to bad debt deductions on its tax return for the year ended March
31, 1997. The deductions related receivables arising from sales in prior
years to a company incorporated in The United Kingdom (U.K.) owned by
certain Allegany, Inc. stockholders and a U.K. stockholder. The Company
believes the deductions are allowable, as the prior sales were included in
the Company's taxable income. The ultimate outcome of this audit inquiry
cannot be determined at this time. In the event of an unfavorable outcome,
the Company's taxable income for the year under audit could increase by as
much as $386,000, resulting in additional income taxes of approximately
$139,000, plus interest and penalties.
NOTE L - SUBSEQUENT EVENT
On July 14, 1998, the stock of the Company was sold to Si Technologies, Inc.
16
<PAGE> 21
Financial Statements and Report of
Independent Certified Public Accountants
Revere Transducers, Inc.
June 30, 1998
- --------------------------------------------------------------------------------
1
<PAGE> 22
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENTS OF OPERATIONS 5
STATEMENT OF STOCKHOLDER'S EQUITY 6
STATEMENTS OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE> 23
Report of Independent Certified Public Accountants
Board of Directors
Revere Transducers, Inc.
We have audited the accompanying balance sheet of Revere Transducers, Inc., as
of June 30, 1998 and the related statements of operations, stockholder's equity,
and cash flows for the nine months ended June 30, 1998 and for the year ended
September 27, 1997. 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 Revere Transducers, Inc., as of
June 30, 1998, and the results of its operations and its cash flows for the nine
months ended June 30, 1998 and for the year ended September 27, 1997, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
- ----------------------------
Seattle, Washington
September 3, 1998
- --------------------------------------------------------------------------------
3
<PAGE> 24
Revere Transducers, Inc.
BALANCE SHEET
June 30, 1998
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 245,905
Accounts receivable, net (note B) 1,574,459
Inventories (notes A2 and C) 4,105,028
Other current assets 224,830
-----------
Total current assets 6,150,222
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization (notes A3 and D) 2,473,565
-----------
$ 8,623,787
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Notes payable to related parties (note E) $ 3,212,298
Related party payable 1,550,664
Accounts payable 690,561
Accrued and other liabilities (note F) 1,028,938
-----------
Total current liabilities 6,482,461
DEFERRED RENT (note G) 352,525
COMMITMENTS AND CONTINGENCY (notes G and J) --
STOCKHOLDER'S EQUITY
Common stock, par value $0.01 per share; authorized,
100 shares; issued and outstanding, 50 shares 1
Additional paid-in capital 6,171,421
Accumulated deficit (4,382,621)
-----------
1,788,801
-----------
$ 8,623,787
===========
</TABLE>
The accompanying notes are an integral part of this statement.
- --------------------------------------------------------------------------------
4
<PAGE> 25
Revere Transducers, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months Year ended
ended June 30, September 27,
1998 1997
-------------- -------------
<S> <C> <C> <C>
Net sales (notes A1 and I) $ 9,516,750 $ 13,905,210
Cost of sales 6,980,463 9,792,904
----------- ------------
Gross profit 2,536,287 4,112,306
Operating expenses:
Selling, general and administrative 2,374,669 2,719,656
Research, development and engineering 852,563 1,205,897
----------- ------------
3,227,232 3,925,553
----------- ------------
Earnings (loss) from operations (690,945) 186,753
Interest expense (426,110) (519,034)
Other income (expense), net (14,716) 32,947
----------- ------------
Net loss before income taxes (1,131,771) (299,334)
Income tax expense (note H) (800) (800)
----------- ------------
NET LOSS $(1,132,571) $ (300,134)
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
- --------------------------------------------------------------------------------
5
<PAGE> 26
Revere Transducers, Inc.
STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common stock Additional Total
----------------- paid-in Accumulated stockholder's
Shares Amount capital deficit equity
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 29, 1996 50 $1 $6,171,421 $(2,949,916) $ 3,221,506
Net loss for the year ended
September 27, 1997 -- -- -- (300,134) (300,134)
-- -- ---------- ----------- -----------
Balance at September 27, 1997 50 1 6,171,421 (3,250,050) 2,921,372
Net loss for the nine months
ended June 30, 1998 -- -- -- (1,132,571) (1,132,571)
-- -- ---------- ----------- -----------
Balance at June 30, 1998 50 $1 $6,171,421 $(4,382,621) $ 1,788,801
== == ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
- --------------------------------------------------------------------------------
6
<PAGE> 27
Revere Transducers, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months Year ended
ended June 30, September 27,
1998 1997
-------------- -------------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities:
Net loss $(1,132,571) $ (300,134)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 434,787 626,426
Losses on disposal of property and equipment 88,999 --
Provision for losses in receivable 17,361 (9,543)
Provision for losses in inventory 304,516 83,701
Deferred rent 82,895 110,530
Changes in operating assets and liabilities:
Accounts receivable 330,893 (198,850)
Inventories (631,448) 1,664,352
Other current assets 6,377 (55,610)
Accounts payable 336,354 (80,836)
Related party payable, net 351,914 279,751
Accrued and other liabilities 52,282 22,317
----------- -----------
Net cash provided by operating activities 242,359 2,142,104
Cash flows from investing activities:
Purchase of property and equipment (260,142) (184,355)
----------- -----------
Net cash used in investing activities (260,142) (184,355)
Cash flows from financing activities:
Payments on notes payable to related party -- (657,895)
Net advances to related party 124,164 (1,683,244)
----------- -----------
Net cash provided by (used in) financing activities 124,164 (2,341,139)
----------- -----------
Net increase (decrease) in cash 106,381 (383,390)
Cash at beginning of year 139,524 522,914
----------- -----------
Cash at end of year $ 245,905 $ 139,524
=========== ===========
Cash paid during the year for:
Income taxes $ 800 $ 800
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- --------------------------------------------------------------------------------
7
<PAGE> 28
Revere Transducers, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company, along with an affiliate, Revere Transducers Europe (RTE), are
wholly owned subsidiaries of Dobson Park Industries (DPI), a Delaware
corporation. DPI is a wholly owned subsidiary of Harnischfeger Industries, Inc
(HII), a Delaware corporation. On July 14, 1998, SI Technologies (SI) acquired
all of the outstanding shares of the Company and RTE.
The Company is in the business of designing, manufacturing, selling, and
servicing high performance load cells used in industrial electronic scales and
process weighing equipment. In addition, RTI provides value-added sensors that
are integrated into instrumentation products to meet unique pressure or force
measurement requirements worldwide.
1. Revenue Recognition
Revenue from equipment and part sales to customers is recognized when the
equipment or part is shipped.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
3. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives, principally on a straight-line basis. Leasehold
improvements are amortized over the life of the respective lease. Estimated
service lives of property and equipment are as follows:
Machinery, fixtures and fittings 8 years
Motor vehicles 4 years
Leasehold improvements Term of lease
Office and engineering equipment 5 years
Production tooling 3 years
The straight-line method of depreciation is followed for substantially all
assets for financial reporting purposes, but accelerated methods are used for
tax purposes.
4. Product Warranty
Product warranty costs are estimated and accrued at the time sales are recorded.
5. Use of Estimates
In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
6. Fair Value of Financial Instruments
The carrying amount of the notes payable to related parties approximate fair
value under the requirements of "Statement of Financial Accounting Standards No.
107 - Disclosure About Fair Value of Financial Instruments."
- --------------------------------------------------------------------------------
8
<PAGE> 29
Revere Transducers, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE B - ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following at June 30, 1998:
<TABLE>
<S> <C>
Customers $1,289,686
Revere Transducers Europe 345,618
----------
1,635,304
Less allowance for doubtful accounts 60,845
----------
$1,574,459
==========
</TABLE>
The Company had sales to Revere Transducers Europe, an affiliate, in the amount
of $1,426,450 and $1,901,910 during the nine months ended June 30, 1998 and the
year ended September 27, 1997, respectively.
NOTE C - INVENTORIES
Inventories consist of the following at June 30, 1998:
<TABLE>
<S> <C>
Raw materials $3,406,500
Work in process 621,942
Finished goods 1,712,569
----------
5,741,011
Less allowance for slow moving and obsolescence 1,635,983
----------
$4,105,028
==========
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 1998:
<TABLE>
<S> <C>
Plant, machinery, fixtures and fittings $ 6,675,990
Leasehold improvements 2,250,117
Office and engineering equipment 1,473,521
Motor vehicles 13,498
Production tooling 46,316
-----------
10,459,442
Less accumulated depreciation and amortization 7,985,877
-----------
$ 2,473,565
===========
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE> 30
Revere Transducers, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE E - RELATED PARTY LIABILITIES, NET
The following is a summary of related party receivable and liabilities as of
June 30, 1998:
<TABLE>
<S> <C>
Interest receivable from Harnischfeger Industries, Inc. $ 110,018
Interest payable to Dobson Parks Industries (1,660,682)
-----------
$(1,550,664)
-----------
Advances to Harnischfeger Industries, Inc. $ 1,791,975
Notes payable to Dobson Parks Industries (5,004,273)
-----------
$(3,212,298)
===========
</TABLE>
Interest rate charged to the Company by DPI was 9% at June 30, 1998. Interest
expense charged to operations was $426,100 and $510,034 for the nine months
ended June 30, 1998 and the year ended September 27, 1997, respectively.
Interest on advances to HII by the Company was determined by the LIBOR rate at
the time of the advance which ranged from 4.81% to 5.46%. Interest income earned
by the Company was $78,906 and $19,924 for the nine months ended June 30, 1998
and the year ended September 27, 1997, respectively.
NOTE F - ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following at June 30, 1998:
<TABLE>
<S> <C>
Accrued salaries, wages and other compensation $ 658,174
Warranty reserve 158,676
Deferred rent 61,964
Other 150,124
----------
$1,028,938
==========
</TABLE>
NOTE G - COMMITMENTS AND CONTINGENCY
1. Leases
The Company leases its manufacturing and office space and certain equipment
under terms of noncancelable operating leases, which expire at various dates
through September 2004. Future minimum lease payments under noncancelable
operating leases as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1999 $ 500,200
2000 531,700
2001 519,100
2002 555,400
2003 569,400
Thereafter 711,800
----------
$3,387,600
==========
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE> 31
Revere Transducers, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE G - COMMITMENTS AND CONTINGENCY - Continued
The lease agreement for the Company's manufacturing and office space calls for
scheduled rent increases over the lease term. Accordingly, the effects of the
scheduled rent increases, which are included in the future minimum lease
payments, have been recognized by the Company on a straight-line basis over the
lease term. At June 30, 1998, deferred rent was $414,489. Rent expense, under
noncancelable operating leases, was approximately $367,600 and $483,900 for the
nine months ended June 30, 1998 and the year ended September 27, 1997,
respectively.
2. Contingency
In 1998, the Company was named in an action filed by a former employee alleging
improper termination of employment. The action filed is currently undergoing the
discovery process and, accordingly, the Company's outside counsel is unable to
determine the outcome of the action. The Company intends to vigorously defend
itself against the action, and, in the opinion of the management, any defense,
settlement, or judgment costs are, at this time, not expected to have a material
financial impact on the Company.
NOTE H - INCOME TAXES
The Company accounts for income taxes on the liability method as prescribed by
Statement of Financial Standards 109, Accounting for Income Taxes. Income taxes
consist of the following:
<TABLE>
<CAPTION>
Nine months ended Year ended
June 30, 1998 September 27, 1997
----------------- ------------------
<S> <C> <C>
Current expense $800 $800
Deferred expense -- --
---- ----
$800 $800
==== ====
</TABLE>
HII files a consolidated federal tax return with its subsidiaries, including the
Company. At June 30, 1998, net operating loss (NOL) carryforward of
approximately $534,000 expiring in 2013 is available to offset HII's
consolidated taxable income or SI's future consolidated taxable income. The
Company and HII were unable to reasonably estimate the operating loss
carryforward available to offset HII's consolidated taxable income and/or SI's
future consolidated taxable income as the year-end for HII, which is October 31,
1998, has not come to a close. Additionally, annual utilization of the
pre-change NOL and built in losses to offset future taxable income will be
limited as the result of the ownership change, as defined under Section 382 of
the Internal Revenue Code, on July 14, 1998. The annual limitation is
approximately $366,000 for losses prior to July 14, 1998.
The income tax provision reconciled to the tax computed at the statutory federal
rate was as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
June 30, 1998 September 27, 1997
------------------ ------------------
<S> <C> <C>
Benefit at statutory rate $(384,800) $(101,800)
Permanent differences 22,100 3,900
Valuation allowance 362,700 97,900
State income taxes 800 800
--------- ---------
$ 800 $ 800
========= =========
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE> 32
Revere Transducers, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE H - INCOME TAXES - Continued
The components of deferred taxes included in the balance sheet are as follows at
June 30, 1998:
<TABLE>
<S> <C>
Provision for bad debts $ 23,700
Inventory reserves & capitalized overhead 376,100
Accrued warranty 61,900
Accrued vacation 71,000
Accrued liabilities not timely paid 56,700
Deferred rent 161,700
Excess of book over tax depreciation 264,400
California NOL 194,500
Valuation allowance (1,210,000)
-----------
$ --
===========
</TABLE>
The Company has established a valuation allowance of $1,015,500 as of June 30,
1998. The valuation allowance increased by $234,300 during the nine months ended
June 30, 1998 due to uncertainty of the likelihood of realization.
NOTE I - EXPORT SALES AND SIGNIFICANT CUSTOMER
The Company sells its products worldwide. Net export sales by geographic areas
less sales to an affiliate are as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
June 30, 1998 September 27, 1997
----------------- ------------------
<S> <C> <C>
Asia/Pacific $ 347,100 $ 614,600
Western Hemisphere 899,700 1,083,000
Europe/Africa 58,400 78,500
United States 6,785,100 10,227,200
---------- -----------
$8,090,300 $12,003,300
========== ===========
</TABLE>
For the year ended September 27, 1997, the Company had sales to one customer
totaling approximately $1,809,000. The customer accounted for 13.0% of net
revenues. There were no major customers with sales over 10% for the nine months
ended June 30, 1998.
NOTE J - BENEFIT PLANS
The Company has a defined contribution 401(k) plan. All employees are eligible
for participation upon completion of a waiting period. The contribution expense
associated with the plan totaled approximately $48,700 and $58,400 for the nine
months ended June 30, 1998 and the year ended September 27, 1997, respectively.
- --------------------------------------------------------------------------------
12
<PAGE> 33
[PRICEWATERHOUSECOOPERS LETTERHEAD]
Revere Transducers Europe BV
Mr. JCH Meulemans
Postbus 6909
4201 HX BREDA
September 18, 1998
Subject: Report on reconciliation to US GAAP
Dear Mr. Meulemans,
As agreed upon in the engagement letter dated August 21, 1998 we have examined
the reconciliation of the Dutch statutory accounts of Revere Transducers Europe
BV (RTE) for the years ended September 30, 1996, 1997 and July 31, 1998, which
are prepared under accounting principles generally accepted in the Netherlands
(Dutch GAAP) to the accounting principles generally accepted in the United
States of America (US GAAP).
This reconciliation implies only a quantitative reconciliation of the net
income and material balance sheet items, but does not include the additional
information specified by US GAAP for disclosure in notes to financial
statements.
We report to you the following reconciliation items:
1. All employees of RTE participate in a multi-employer plan (white pension
fund). The industry pension plan in which RTE participates, provides
defined benefit services to its participants. For the years ended
September 30, 1996 and September 30, 1997, RTE has, together with the
other employers which participate in the industry pension plan, a back
service obligation towards the industry pension plan. It is not possible
to allocate the back service obligation to the respective participating
employers. Therefore we cannot report the back service obligation of RTE
as per September 30, 1996, 1997 and July 31, 1998.
<PAGE> 34
[PRICEWATERHOUSECOOPERS LETTERHEAD]
2. The three management team members have insured a part of their pension
rights in a surplus contract; they entered into an individual contract
with an insurance company. We have been informed by the insurance company
that there is no back service liability for two members for the years
ended September 30, 1996, 1997 and July 31, 1998. One contract of a
management team member does contain a small back service liability. This
back service liability is not material for consolidation purposes.
We did not note any other reconciliation items between Dutch GAAP and US GAAP.
If you have any questions relating to the US GAAP reconciliation, please do not
hesitate to contact us.
/s/ PRICEWATERHOUSECOOPERS NEDERLAND BV
Yours sincerely,
(2)
<PAGE> 35
REVERE TRANSDUCERS EUROPE BV
FINANCIAL STATEMENTS AS PER JULY 31, 1998
<PAGE> 36
REVERE TRANSDUCERS EUROPE BV
FINANCIAL STATEMENTS AS PER JULY 31, 1998
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
MANAGEMENT REPORT 1
AUDITOR'S REPORT 2
ANNUAL ACCOUNTS
Balance sheet as at July 31, 1998 3*
Profit and loss account for the 10 months period ended July 31, 1998 4
Cash flow statement for the 10 months period ended July 31, 1998 5
Notes to the balance sheet as at July 31, 1998 6
Notes to the profit and loss account for the year ended July 31, 1998 12
OTHER INFORMATION
Other information 14
Balance sheet as at June 30, 1998 15
Profit and loss account for the month ended July 31, 1998 16*
Cash flow statement for the month ended July 31, 1998 17
</TABLE>
<PAGE> 37
REVERE TRANSDUCERS EUROPE BV
MANAGEMENT REPORT
In July 1998 all shares of Revere Transducers Europe BV have been acquired by SI
Technologies Inc., Seattle, USA. To comply with the fiscal year of the new
ultimate parent company, we report for the 10 months period ended July 31, 1998.
Business conditions in Europe have been very good in the 10 months period ended
July 31, 1998. Under these favorable conditions our net order intake increased
by 4.2% compared with the previous fiscal year. The order backlog increased by
65% compared with the beginning of the period.
Investments for plant and office equipment have been slightly below the level
as compared with the previous fiscal period. The investments were mainly
related to the upgrade of the fitting up of the loadcell manufacturing and the
replacement of machinery.
The number of products manufactured in the Breda facility have grown by 17.4%
in the 10 months period ended July 31, 1998 compared with the previous fiscal
period of 12 months. The average hours to built a loadcell have decreased by
7.8% and therefore we were able to limit the increase in workforce by 14%.
During the year we were re-audited for the ISO 9001 certificate and we will
continue to make great efforts of improvement of our quality system.
As a result of the growth the sales in the 10 months ended July 31, 1998 were
only 2% below the previous fiscal 12 months period. Also as a result of the
growth the operating results increased by 24% compared with the previous
fiscal year. The result for the year has been added to the reserves.
A marked growth is expected for the next 12 months period, this is based on the
general economic outlook and market conditions in our sector. Like last year we
expect to continue our growth with our new product-lines. A range of new and
improved products will be launched to meet demands from new markets and new
applications. We will also continue to enter new territories to our area of
operation.
September 18, 1998
/s/ JCII MEULEMANS
JCII Meulemans
Managing Director
<PAGE> 38
[PRICEWATERHOUSECOOPERS LETTERHEAD]
To the Directors of
Revere Transducers Europe BV
Ramshoom 7
4824 AG BREDA
AUDITORS' REPORT
Introduction
We have audited the financial statements, as presented on pages 3 up and till
10 of Revere Transducers Europe BV, Breda for the 10 months period ended July
31, 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 audit.
Scope
We conducted our audit in accordance with auditing standards generally accepted
in the Netherlands. 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.
Opinion
In our opinion, the financial statements give a true and fair view of the
financial position of the company as of July 31, 1998 and of the result for the
10 months period then ended in accordance with accounting principles generally
accepted in the Netherlands and comply with the financial reporting
requirements included in Part 9, Book 2 of the Netherlands Civil Code.
September 18, 1998
-2-
<PAGE> 39
REVERE TRANSDUCERS EUROPE BV
BALANCE SHEET AS AT JULY 31, 1998
(After proposed appropriation of results for the 10 months period)
<TABLE>
<CAPTION>
July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
FIXED ASSETS
Tangible fixes assets 1,545,032 1,598,224
---------- ----------
CURRENT ASSETS
Inventories 4,347,270 4,842,224
Receivables 4,422,967 4,189,448
Cash and banks 847,060 13,890
---------- ----------
9,617,297 9,045,562
---------- ----------
TOTAL 11,162,329 10,643,786
---------- ----------
SHAREHOLDERS' EQUITY
Paid up and called share capital 35,000 35,000
Share premium 226,148 226,148
Legal reserve 5,000 5,000
Accumulated profit 1,960,471 1,169,717
---------- ----------
2,226,619 1,435,865
---------- ----------
WARRANTY PROVISION 61,923 50,501
DEFERRED TAX 192,500 192,500
---------- ----------
SHORT TERM LIABILITIES 8,681,287 8,964,920
---------- ----------
TOTAL 11,162,329 10,643,786
---------- ----------
</TABLE>
-3-
<PAGE> 40
REVERE TRANSDUCERS EUROPE BV
PROFIT AND LOSS ACCOUNT FOR THE 10 MONTHS PERIOD ENDED JULY 31, 1998
<TABLE>
<CAPTION>
October 1- October 1-
July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
Gross profit 5,051,600 5,439,259
---------- ----------
General and administrative expenses (3,655,061) (4,042,360)
Other expenses -- (270,033)
---------- ----------
(3,655,061) (4,312,393)
---------- ----------
Operating result 1,396,539 1,126,866
---------- ----------
Financial expenses (180,000) (280,000)
---------- ----------
Net result before taxation 1,216,539 846,866
---------- ----------
Taxation (425,785) (306,443)
---------- ----------
Net result after taxation 790,754 540,423
---------- ----------
</TABLE>
-4-
<PAGE> 41
REVERE TRANSDUCERS EUROPE BV
CASH FLOW STATEMENT FOR THE 10 MONTHS PERIOD ENDED JULY 31, 1998
<TABLE>
<CAPTION>
October 1 - October 1 -
July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Result after taxation 790,754 540,423
Depreciation on fixed assets 465,518 526,926
---------- ----------
1,256,272 1,067,349
GROSS CASH FLOW
Adjustments for movements in working capital:
Movement in inventories 494,954 913,705
Movement in current receivables (233,519) (690,793)
Movement in current payables 1,706,242 (88,967)
Movement in provisions 11,422 (103,978)
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES 1,979,099 29,967
CASH FLOW FROM INVESTING ACTIVITIES
Additions minus disposals in tangible fixed assets (412,326) (459,329)
---------- ----------
Cash flow from investing activities (412,326) (459,329)
NET CASH FLOW 2,823,045 637,987
---------- ----------
Cash/bank balance at beginning of period (5,975,985) (6,613,972)
CASH BALANCE AT THE END OF PERIOD (3,152,940) (5,975,985)
---------- ----------
</TABLE>
-5-
<PAGE> 42
REVERE TRANSDUCERS EUROPE BV
NOTES TO THE BALANCE SHEET AS AT JULY 31, 1998
1. GENERAL
The company, which is incorporated in The Netherlands, is a subsidiary of
Selectaid Ltd., UK. Until July, 1998 the ultimate parent company was
Harnischfeger Industries, Inc. USA. In July, 1998 all shares of Selectaid
Ltd and Revere Transducers Europe BV have been acquired by SI Technologies
Inc., Seattle, USA.
The principal activities of the company are the production and marketing
of transducers, more specifically loadcells and accessories.
2. SUMMARY OF ACCOUNTING PRINCIPLES
Unless otherwise described, assets and liabilities are stated at their
face value.
TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at cost less accumulated depreciation.
Depreciation is provided by the straight-line method over the estimated
useful lives of the related assets.
The following annual depreciation rates are being applied:
-building improvement 12 1/2% -16 2/3%;
-machinery 10% -20%
-office equipment 12 1/2% -25%
INVENTORIES
Inventories are valued at the lower of historical cost (determined by the
first-in, first-out method) and net-realizable value. Cost includes all
attributable manufacturing overhead expenses.
RECEIVABLES
Receivables are stated at face value less a provision for doubtful debts.
PROVISION FOR WARRANTIES
The provision for warranties relates to the guarantee granted on sales for
the period of three years.
-6-
<PAGE> 43
REVERE TRANSDUCERS EUROPE BV
NOTES TO THE BALANCE SHEET AS AT JULY 31, 1998
INCOME TAX
Provisions for deferred taxes have been set up where profits for taxation
purposes are recognized in another period than the current accounting
period. The principal differences arise in connection with the valuation
method of inventories, the fiscal backservice for pensions and fiscally
accelerated depreciation on fixed assets.
The income tax is calculated against the tax rates prevailing at year end.
FOREIGN CURRENCIES
Transactions during the year and amounts receivable and payable at
year-end denominated in foreign currencies are translated at rates
applicable at the time of the transaction and at year-end rate
respectively. Resulting exchange differences are taken to income.
<TABLE>
<CAPTION>
Machines
3. TANGIBLE FIXED ASSETS Land and and Other fixed
buildings installation assets Total
NLG NLG NLG NLG
<S> <C> <C> <C> <C>
Net book value at October 1, 1997 153,943 874,215 570,066 1,598,224
Investments -- 78,745 338,331 417,076
Disposals -- -- (4,750) (1,750)
Depreciation (33,290) (250,707) (181,521) (465,518)
------- ------- ------- ---------
Net book value at July 31, 1998 120,653 702,253 722,126 1,545,032
------- ------- ------- ---------
</TABLE>
Total value at cost of the tangible fixed assets is NLG 6,291,276 (1997;
NLG 5,966,208) and accumulated depreciation is NLG 4,746,244 (1997; NLG
4,367,984).
4. INVENTORIES
Inventories are valued at historical cost, less a provision for obsolete
and slow-moving stock of NLG 34,135 (1997; NLG 111,595)
-7-
<PAGE> 44
REVERE TRANSDUCERS EUROPE BV
NOTES TO THE BALANCE SHEET AS AT JULY 31, 1998
5. RECEIVABLES
<TABLE>
<CAPTION>
July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
Trade receivables 3 958 900 3 696 839
Receivable from group companies 203 529 204 758
Other receivables 125 037 181 363
Prepaid expenses 135 501 106 488
--------- ---------
4 422 967 4 189 448
--------- ---------
</TABLE>
Above amounts are receivable within one year.
Trade receivables are valued at nominal value less a provision for doubtful
accounts of NLG 608 616 (1997; NLG 563 616).
6. PAID UP CALLED SHARE CAPITAL
The authorized share capital amounts to NLG 175 000 divided into 175
shares of NLG 1 000 each, of which NLG 35 000 has been paid up and called.
7. SHARE PREMIUM
<TABLE>
<CAPTION>
July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
Balance at October 1 226 148 226 148
Movements during the year -- --
------- -------
Balance at period end 226 148 226 148
------- -------
</TABLE>
-8-
<PAGE> 45
REVERE TRANSDUCERS EUROPE BY
NOTES TO THE BALANCE SHEET AS AT JULY 31, 1998
8. LEGAL RESERVE
<TABLE>
<CAPTION>
July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
Balance at October 1 5000 5000
Movements during the year - -
---- ----
Balance at period end 5000 5000
==== ====
</TABLE>
The legal reserve is required in relation to the legally required minimum
share capital.
8. ACCUMULATED PROFIT
<TABLE>
<CAPTION>
July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
Balance at October 1 1,169,717 629,294
Results for the year 790,754 540,423
--------- ---------
Balance at period end 1,960,471 1,169,717
========= =========
</TABLE>
10. DEFERRED TAX
This amount applies to a fiscal backservice provision for pensions to the
fact that the inventories are valued fiscally excluding manufacturing
overhead expenses because of fiscally accelerated depreciation on fixed
assets. The applicable corporation tax of 35% is used.
-9-
<PAGE> 46
REVERE TRANSDUCERS EUROPE BV
NOTES TO THE BALANCE SHEET AS AT JULY 31, 1998
11. SHORT TERM LIABILITIES
<TABLE>
<CAPTION> July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
Trade creditors 2 031 167 1 250 894
Bank overdraft 4 000 000 5 989 875
Payable to group companies 829 585 489 258
Other payables 1 820 535 1 234 893
--------- ----------
8 681 287 8 964 920
========= =========
</TABLE>
12. BANKOVERDRAFT FACILITY
The company has bankoverdraft facilities amounting to NLG 6 500 000 with its
principal banker (1997: NLG 7 500 000). At July 31, 1998 these facilities
are secured by Hamischfeger Industries Inc. As a result of the acquisition
of Selectaid Ltd and Revere Transducers Europe BV by SI Technologies Inc.,
Hamischfeger Industries Inc. secures these facilities until August 26, 1998.
The bank granted a cash loan of NLG 4 000 000. The term of this cash loan is
from January 8, 1998 till October 10, 1998. The agreed upon interest rate is
4.6%.
After Selectaid Ltd and Revere Transducers Europe BV have been taken over by
SI Technologies Inc, the bankoverdraft facility has been renewed. The bank
granted a bank overdraft facility of NLG 3 000 000. The company is required
to repay an amount of NLG 250 000 per quarter, starting October 1, 1998.
The company has pledged inventories and receivable balances. As per July 8,
1998 the facilities are secured by SI Technologies Inc. The security will be
lowered by NLG 250 000 per quarter, starting October 1, 1998.
Dividend payments or other profit distributions by Revere Transducers Europe
BV require written approval of the bank if the payment causes the solvency
to decrease below 25%.
13. COMMITMENTS
Capital expenditure commitments as at July 31, 1998 amount to NLG 150 000
(1997 NLG 0). The collective fiscal backservice liability in respect of the
Pension Fund for the metal industry, which is not provided for in the
balance sheet, amounts to NLG 161 000 (1997: NLG 359 000).
-10-
<PAGE> 47
REVERE TRANSDUCERS EUROPE BV
NOTES TO THE BALANCE SHEET AS AT JULY 31, 1998
The company issued guarantees to ABN AMRO Dusseldorf DEM 500 000 (1997: DEM 500
000).
14. LIABILITIES NOT SHOWN IN THE BALANCE SHEET
AT July 31, 1998 annual commitments for rental expenses and operational
lease costs amount to NLG 505 000. As per financial year 1999 till 2003 the
capital commitments amount NLG 361 000 per annum. From 2004 till 2007 the
commitments amount NLG 290 000 annually.
-11-
<PAGE> 48
REVERE TRANSDUCERS EUROPE BV
NOTES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED JULY 31, 1998
1. NET TURNOVER
Net turnover for the 10 months period ended July 31, 1998 amounts to 98%
of net turnover for the year ended September 30, 1997 (1997: 103%).
2. DEPRECIATION
Total depreciation costs of tangible fixed assets for the 10 months
period 1997/1998 amounts to NLG 465 518 (1996/1997: NLG 526 926).
3. WAGES, SALARIES AND SOCIAL CHARGES
<TABLE>
<CAPTION>
October 1- October 1-
July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
Wages and salaries 4,845,996 4,642,159
Social charges 280,343 256,561
Pension costs 312,554 321,661
--------- ---------
5,438,893 5,220,381
--------- ---------
</TABLE>
Wages, salaries and social charges are included in general and
administrative expenses and in the cost of goods sold.
4. AVERAGE NUMBER OF EMPLOYEES
The average number of employees employed during the year was 90 (1997:
76).
-12-
<PAGE> 49
REVERE TRANSDUCERS EUROPE BV
NOTES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED JULY 31, 1998
5. FINANCIAL INCOME (EXPENSES)
<TABLE>
<CAPTION>
October 1- October 1-
July 31, September 30,
1998 1997
NLG NLG
<S> <C> <C>
Interest (180 000) (280 000)
------- -------
</TABLE>
-13-
<PAGE> 50
REVERE TRANSDUCERS EUROPE BV
JULY 31, 1998
OTHER INFORMATION
1. AUDITORS REPORT
The report of the auditors, PricewaterhouseCoopers Nederland BV, is set
forth on page 2 of the financial statements.
2. PROVISIONS IN THE COMPANY'S STATUTES FOR THE APPROPRIATION OF RESULTS
Article 13.1 of the company's articles of association states that the net
profit for the year is at the disposition of the general meeting of
shareholders.
3. APPROPRIATION OF THE RESULT
The profit after taxation for the 10 months period ended July 31, 1998 has
been added to the reserves awaiting disposition of the general meeting of
shareholders. The general meeting of shareholders will decide on the
appropriation of the result after the adoption of the statutory accounts.
-14-
<PAGE> 51
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma combined condensed financial statements
have been derived from the historical results of operations of SI Technologies,
Inc. (SI) and Allegany Inc. (Allegany) for the year ended July 31, 1997 and the
nine months ended April 30, 1998 and financial position as of April 30, 1998.
The unaudited pro forma combined condensed financial statements are presented
for informational purposes only and do not purport to be indicative of the
operating results that actually would have occurred if the acquisition had been
consummated on August 1, 1996, nor which may result from future operations. The
pro forma adjustments are based on available information and certain assumptions
that the Company believes are reasonable. The acquisition has been accounted for
using the purchase method of accounting. These pro forma financial statements
should be read in conjunction with the historical financial statements and
related notes of the company and the acquisition document.
<PAGE> 52
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL
April 30, 1998
---------------------------- PRO FORMA
ASSETS SI ALLEGANY ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 105,598 $ 100,427 $ -- $ 206,025
Trade accounts receivable, less allowance
for doubtful accounts of $148,398
and $217,354, respectively 4,025,974 591,754 -- 4,617,728
Inventories 3,979,713 1,172,564 49,055(5) 5,201,327
Deferred tax asset 250,945 254,613 -- 505,558
Other current assets 192,710 54,393 -- 247,103
----------- ----------- ----------- -----------
Total current assets 8,554,940 2,173,751 49,055 10,777,741
Property and equipment, less accumulated
depreciation and amortization 1,233,588 1,595,475 503,958(1) 3,333,020
Other assets:
Intangible assets, net 7,429,741 817,986 2,402,372(2) 10,650,097
Other 591,069 99,841 11,846(8) 702,748
----------- ----------- ----------- -----------
TOTAL ASSETS $17,809,338 $ 4,687,053 $ 2,967,231 $25,463,606
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 877,000 $ (22,000)(3) $ 855,000
Current maturities of long term debt 392,800 358,352 (258,059)(3) 493,093
Trade accounts payable 1,406,632 326,113 -- 1,732,745
Income taxes payable 57,541 -- -- 57,541
Accrued liabilities 826,976 194,109 450,937(6) 1,472,022
----------- ----------- ----------- -----------
Total current liabilities 2,683,949 1,755,574 170,878 4,610,401
Long-term debt, less current maturities 4,265,701 1,120,651 3,002,574(3) 8,388,926
Deferred taxes 178,300 251,269 -- 429,569
Stockholders' equity 10,681,388 1,559,559 (206,221)(4)(7) 12,034,726
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,809,338 $ 4,687,053 $ 2,967,231 $25,463,622
=========== =========== =========== ===========
</TABLE>
See notes to pro forma combined condensed balance sheet.
<PAGE> 53
SI TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(1) Revaluation to fair value of acquired property and equipment.
(2) Increase to intangible assets (goodwill), net of Allegany's goodwill
written off. The goodwill associated with the Allegany acquisition will be
amortized over a period of 25 years. Allegany was acquired for
approximately $2,500,000 in cash and $800,000 of SI common stock, plus
acquisition costs of $172,512. The excess purchase price on the
acquisition of Allegany totaled $3,199,560 and was allocated to goodwill.
(3) Increase in debt associated with the acquisition financing of Allegany,
and notes payable paid off with acquisition financing.
(4) Elimination of Allegany's stockholders' equity.
(5) Revaluation of inventory to reflect fair value at purchase.
(6) Adjustments to record accrued expenses associated with the acquisition.
(7) Record SI common stock issued in the acquisition.
(8) Record loan fees associated with the acquisition financing, net of loan
fees written off associated with the pay off of notes payable.
<PAGE> 54
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
Nine months ended April 30, 1998
-------------------------------- PRO FORMA
SI ALLEGANY ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 15,834,167 $ 3,406,831 $ -- $ 19,240,998
Cost of sales 8,914,688 2,186,422 32,022 (1) 11,133,132
------------ ------------ ------------ ------------
Gross profit 6,919,479 1,220,409 (32,022) 8,107,866
Operating expenses:
Selling, service, general and administrative 4,095,549 859,904 13,724 (1) 4,969,177
Research, development and engineering 795,424 404,512 -- 1,199,936
Amortization of intangibles 230,695 22,713 73,274 (2) 326,682
------------ ------------ ------------ ------------
Total operating expenses 5,121,668 1,287,129 86,998 6,495,795
------------ ------------ ------------ ------------
Earnings (loss) from operations 1,797,811 (66,720) (119,020) 1,612,071
Interest expense (737,236) (143,744) (101,356)(3) (982,336)
Other income (expense), net (17,381) 12,475 -- (4,906)
------------ ------------ ------------ ------------
Net earnings (loss) before income taxes 1,043,194 (197,989) (220,376) 624,829
Income tax (expense) benefit (371,860) 60,000 34,500 (4) (277,360)
------------ ------------ ------------ ------------
Net earnings (loss) $ 671,334 $ (137,989) $ (185,876) $ 347,469
============ ============ ============ ============
Net earnings per common and
common equivalent share $ 0.26 $ 0.13
============ ============
Weighted average shares outstanding 2,578,005 2,720,224
============ ============
Net earnings per common and common equivalent
share, assuming dilution $ 0.24 $ 0.12
============ ============
Weighted average common and common equivalent
shares outstanding 2,773,995 2,916,214
============ ============
</TABLE>
See notes to pro forma combined condensed statements of earnings.
-20-
<PAGE> 55
SI TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(1) Adjustment to increase depreciation expense resulting from the revaluation
of acquired property and equipment. The acquired assets will be
depreciated over service lives from three to seven years.
(2) Amortization of amounts assigned to intangible assets acquired in the
acquisition of Allegany. The full adjustment amount to intangible assets
is assigned to goodwill and will be amortized over a period of 25 years.
(3) Adjustment to reflect the increased interest expense associated with the
debt financing of the Allegany acquisition.
(4) Tax effects of pro forma adjustments.
<PAGE> 56
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
Year ended July 31, 1997
-------------------------------
PRO FORMA
SI ALLEGANY ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 12,894,711 $ 4,926,934 $ -- $ 17,821,645
Cost of sales 7,149,675 2,948,826 108,542 (1),(4) 10,207,043
------------ ------------ ------------ ------------
Gross profit 5,745,036 1,978,108 (108,542) 7,614,602
Operating expenses:
Selling, service, general and administrative 3,586,262 1,222,667 18,300 (1) 4,827,229
Research, development and engineering 802,427 534,465 1,336,892
Amortization of intangibles 125,598 30,283 97,699 (2) 253,580
------------ ------------ ------------ ------------
Total operating expenses 4,514,287 1,787,415 115,999 6,417,701
------------ ------------ ------------ ------------
Earnings from operations 1,230,749 190,693 (224,541) 1,196,901
Interest expense (291,108) (192,812) (204,800)(3) (688,720)
Other income (expense), net (5,956) 17,943 -- 11,987
------------ ------------ ------------ ------------
Net earnings before income taxes 933,685 15,824 (429,341) 520,168
Income tax (expense) benefit (351,000) (5,000) 92,000 (5) (264,000)
------------ ------------ ------------ ------------
Net earnings $ 582,685 $ 10,824 $ (337,341) $ 256,168
------------ ------------ ------------ ------------
Net earnings per common and
common equivalent share $ 0.25 $ 0.10
------------ ------------
Weighted average shares outstanding 2,347,240 2,489,459
------------ ------------
Net earnings per common and common equivalent
share, assuming dilution $ 0.24 $ 0.10
------------ ------------
Weighted average common and common equivalent
shares outstanding 2,456,047 2,598,266
------------ ------------
</TABLE>
See notes to pro forma combined condensed statements of earnings.
<PAGE> 57
SI TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(1) Adjustment to increase depreciation expense resulting from the revaluation
of acquired property and equipment. The acquired assets will be
depreciated over service lives from three to seven years.
(2) Amortization of amounts assigned to intangible assets acquired in the
acquisition of Allegany. The full adjustment amount to intangible assets
is assigned to goodwill and will be amortized over a period of 25 years.
(3) Adjustment to reflect the increased interest expense associated with the
debt financing of the Allegany acquisition.
(4) Adjustment to reflect increased cost of sales resulting from the
revaluation of finished goods and work-in-process inventory.
(5) Tax effects of pro forma adjustments.
<PAGE> 58
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma combined condensed financial statements
have been derived from the historical results of operations of SI Technologies,
Inc. (SI) and Revere Transducers, Inc. and Revere Transducers Europe BV (Revere)
for the year ended July 31, 1997 and the nine months ended April 30, 1998 and
financial position as of April 30, 1998.
The unaudited pro forma combined condensed financial statements are presented
for informational purposes only and do not purport to be indicative of the
operating results that actually would have occurred if the acquisition had been
consummated on August 1, 1996, nor which may result from future operations. The
pro forma adjustments are based on available information and certain assumptions
that the Company believes are reasonable. The acquisition has been accounted for
using the purchase method of accounting. These pro forma financial statements
should be read in conjunction with the historical financial statements and
related notes of the company and the acquisition document.
<PAGE> 59
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL
April 30, 1998
------------------------------
PRO FORMA
ASSETS SI REVERE ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 105,598 $ 479,356 $ -- $ 584,954
Trade accounts receivable, less allowance
for doubtful accounts of $148,398
and $356,343, respectively 4,025,974 3,771,742 7,797,716
Inventories 3,979,713 5,889,374 (437,646)(1)
61,765 (2) 9,493,206
Deferred tax asset 250,945 -- -- 250,945
Other current assets 192,710 461,713 -- 654,423
------------ ------------ ------------ ------------
Total current assets 8,554,940 10,602,185 (375,881) 18,781,244
Property and equipment, less accumulated
depreciation and amortization 1,233,588 3,314,174 2,172,924 (3) 6,720,683
Other assets:
Intangible assets, net 7,429,741 -- (522,421)(4) 6,907,316
Other 591,069 14,805 605,874
------------ ------------ ------------ ------------
TOTAL ASSETS $ 17,809,338 $ 13,931,164 $ 1,274,622 $ 33,015,117
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 2,234,342 $ 458,715 (5) $ 2,693,057
Current maturities of long term debt 392,800 -- -- 392,800
Put option obligation - current -- -- -- --
Trade accounts payable 1,406,632 1,102,103 -- 2,508,735
Related party payable -- 5,252,893 (5,252,893)(6) --
Income taxes payable 57,541 -- 57,541
Accrued liabilities 826,976 1,501,923 335,000 (7) 2,663,899
------------ ------------ ------------ ------------
Total current liabilities 2,683,949 10,091,261 (4,459,178) 8,316,032
Long-term debt, less current maturities 4,265,701 -- 8,000,000 (8) 12,265,701
Deferred rent -- 306,750 -- 306,750
Deferred lease cost -- -- 994,593 (9) 994,593
Deferred taxes 178,300 272,360 -- 450,660
Stockholders' equity 10,681,388 3,260,793 (3,260,793)(10) 10,681,388
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,809,338 $ 13,931,164 $ 1,274,622 $ 33,015,124
============ ============ ============ ============
</TABLE>
See notes to pro forma combined condensed statements of earnings.
<PAGE> 60
SI TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(1) Write off obsolete inventories due to duplications.
(2) Revaluation to fair value of inventories.
(3) Revaluation to fair value of acquired property and equipment.
(4) Record goodwill. The goodwill associated with the Revere acquisition will
be amortized over a period of 25 years. Revere was acquired for
approximately $282,000 in cash and $8,000,000 in debt financing, plus
acquisition costs of $176,717. The excess purchase price on the
acquisition of Revere totaled $396,368 and was allocated to goodwill.
(5) Proceed from line of credit for acquisition costs and cash payment to
Harnischfeger Industries, Inc. (HII).
(6) Elimination of related party payable to HII.
(7) Record accrued expenses associated with the acquisition.
(8) Record debt associated with the acquisition of Revere.
(9) Record unfavorable lease arrangement.
(10) Elimination of Revere stockholders' equity.
<PAGE> 61
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
Nine months ended April 30, 1998
--------------------------------
PRO FORMA
SI REVERE ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 15,834,167 $ 15,974,524 $ -- $ 31,808,691
Cost of sales 8,914,688 10,936,372 38,354 (1)
(88,318)(2) 19,801,096
------------ ------------ ------------ ------------
Gross profit 6,919,479 5,038,152 49,964 12,007,595
Operating expenses:
Selling, service, general and administrative 4,095,549 3,368,242 16,438 (1)
(31,031)(2) 7,449,198
Research, development and engineering 795,424 1,107,864 -- 1,903,288
Amortization of intangibles 230,695 -- 11,890 (3) 242,585
------------ ------------ ------------ ------------
Total operating expenses 5,121,668 4,476,106 (2,703) 9,595,071
------------ ------------ ------------ ------------
Earnings from operations 1,797,811 562,046 52,667 2,412,524
Interest expense (737,236) (494,150) (271,321)(4) (1,502,707)
Other income (expense), net (17,381) 88,099 -- 70,718
------------ ------------ ------------ ------------
Net earnings before income taxes 1,043,194 155,995 (218,654) 980,535
Income tax (expense) benefit (371,860) (210,690) 92,249 (5) (490,301)
------------ ------------ ------------ ------------
Net earnings (loss) $ 671,334 $ (54,695) $ (126,405) $ 490,234
============ ============ ============ ============
Net earnings per common and
common equivalent share $ 0.26 $ 0.19
============ ============
Weighted average shares outstanding 2,578,005 2,578,005
------------ ------------
Net earnings per common and common equivalent
share, assuming dilution $ 0.24 $ 0.18
============ ============
Weighted average common and common equivalent 2,773,995
shares outstanding 2,773,995 ------------
------------
</TABLE>
See notes to pro forma combined condensed statements of earnings.
<PAGE> 62
SI TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
(1) Adjustment to increase depreciation expense resulting from the revaluation
of acquired property and equipment. The step up in assets will be
depreciated over service lives from three to ten years.
(2) Adjustment to decrease rent expense resulting from the unfavorable lease
arrangement.
(3) Amortization of amounts assigned to intangible assets acquired in the
acquisition of Revere. The full adjustment amount to intangible assets is
assigned to goodwill and will be amortized over a period of 25 years.
(4) Adjustment to reflect the increased interest expense associated with the
debt financing of the Revere acquisition.
(5) Tax effects of pro forma adjustments.
<PAGE> 63
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
Year ended July 31, 1997
------------------------------
PRO FORMA
SI REVERE ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 12,894,711 $ 20,942,408 $ -- $ 33,837,119
Cost of sales 7,149,675 15,676,059 49,678 (1) --
-- -- (117,755)(2) --
-- -- 61,765 (3) 22,819,422
------------ ------------ ------------ ------------
Gross profit 5,745,036 5,266,349 6,312 11,017,697
Operating expenses:
Selling, service, general and administrative 3,586,262 4,697,610 23,378 (1) --
(41,373)(2) 8,265,877
Research, development and engineering 802,427 1,495,933 -- 2,298,360
Amortization of intangibles 125,598 -- 15,855 (4) 141,453
------------ ------------ ------------ ------------
Total operating expenses 4,514,287 6,193,543 (2,140) 10,705,690
------------ ------------ ------------ ------------
Earnings (loss) from operations 1,230,749 (927,194) 8,452 312,007
Interest expense (291,108) (677,109) (312,862)(5) (1,281,079)
Other income (expense), net (5,956) 50,345 -- 44,389
------------ ------------ ------------ ------------
Net earnings before income taxes 933,685 (1,553,958) (304,410) (924,683)
Income tax (expense) benefit (351,000) (115,344) 85,373 (6) (380,971)
------------ ------------ ------------ ------------
Net earnings (loss) $ 582,685 $ (1,669,302) $ (219,037) $ (1,305,654)
============ ============ ============ ============
Net earnings per common and
common equivalent share $ 0.25 $ (0.26)
============ ============
Weighted average shares outstanding 2,347,240 2,347,240
------------ ------------
Net earnings per common and common equivalent
share, assuming dilution $ 0.24
============
Weighted average common and common equivalent
shares outstanding 2,456,047
------------
</TABLE>
See notes to pro forma combined condensed statements of earnings.
<PAGE> 64
SI TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED JULY 31, 1997
(UNAUDITED)
(1) Adjustment to increase depreciation expense resulting from the revaluation
of acquired property and equipment. The step up in assets will be
depreciated over service lives from three to seven years.
(2) Adjustment to decrease rent expense resulting from the unfavorable lease
agreement.
(3) Adjustment to cost of sales resulting from the revaluation of inventories.
(4) Amortization of amounts assigned to intangible assets acquired in the
acquisition of Revere. The full adjustment amount to intangible assets is
assigned to goodwill and will be amortized over a period of 25 years.
(5) Adjustment to reflect the increased interest expense associated with the
debt financing of the Revere acquisition.
(6) Tax effects of pro forma adjustments.
