<PAGE>
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): May 1, 2000
PACIFIC AEROSPACE & ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Washington 0-26088 91-1744587
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation or
organization)
430 Olds Station Road, Third Floor, Wenatchee, WA 98801
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including area code: (509) 667-9600
<PAGE>
Item 2. Acquisition of Assets
------------------------------
On May 1, 2000, Skagit Engineering & Manufacturing, Inc. ("Skagit"), a wholly-
owned subsidiary of Pacific Aerospace & Electronics, Inc. ("PA&E"), purchased
substantially all of the assets of NOVA-TECH Engineering, Inc. ("Nova-Tech"),
pursuant to an Asset Purchase Agreement, dated as of March 22, 2000 between
PA&E, Skagit, Nova-Tech and the shareholders of Nova-Tech (the "Agreement").
Pursuant to the Agreement, Skagit paid Nova-Tech $50,000 in cash at closing, and
Skagit assumed or paid off certain liabilities of Nova-Tech at closing. The
purchase price was determined in arms-length negotiations between PA&E and Nova-
Tech. The funds used to pay the purchase price were obtained from working
capital.
Prior to the closing, PA&E was providing services to Nova-Tech under an
Operating Agreement dated April 23, 1999. As of February 29, 2000, PA&E had
loaned $2.5 million to Nova-Tech for working capital. These loans were made
under the terms of two demand notes dated April 26, 1999 and August 5, 1999. The
loans were each secured by substantially all of the assets of Nova-Tech. No
other material relationship existed between Nova-Tech and PA&E or any
affiliates, officers, directors or associates of PA&E.
Nova-Tech is a full service engineering firm of licensed professional engineers,
who specialize in turn-key design and build, machine designs, engineering
research and development, and total system engineering. Nova-Tech designs and
builds high productivity tools, fixtures, and machines for the aerospace
industry. PA&E currently plans to continue Nova-Tech's operations as part of
PA&E's U.S. Aerospace Group - Engineering & Fabrication Division.
Item 7. Financial Statements and Exhibits
------------------------------------------
(a) Financial Statements of the Business Acquired
---------------------------------------------
The consolidated financial statements of Nova-Tech Engineering, Inc. required to
be filed with this Form 8-K/A are attached to this report as pages F-1 to F-15.
(b) Pro Forma Financial Data
------------------------
The pro forma financial data required to be filed with this Form 8-K/A is
attached to this report as pages P-1 to P-6.
(c) Exhibits
--------
The following is filed as an exhibit to this current report:
10.1 Asset Purchase Agreement, dated as of March 22, 2000, between Pacific
Aerospace & Electronics, Inc., Skagit Engineering & Manufacturing, Inc.,
NOVA-TECH Engineering, Inc., and the Shareholders of NOVA-TECH Engineering,
Inc./(1)/
____________________________________
/(1)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending February 29, 2000.
2
<PAGE>
SIGNATURES
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.
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: /s/ Donald A. Wright
---------------------------------------------
Donald A. Wright
President, Chief Executive Officer, and
Chairman of the Board
(Principal Executive Officer)
Dated: July 13, 2000
3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.1 Asset Purchase Agreement, dated as of March 22, 2000, between Pacific
Aerospace & Electronics, Inc., Skagit Engineering & Manufacturing,
Inc., NOVA-TECH Engineering, Inc., and the Shareholders of NOVA-TECH
Engineering, Inc./(1)/
___________________
/(1)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending February 29, 2000.
4
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Nova-Tech Engineering Inc.
Report of Independent Accountants........................................................ F-2
Balance Sheet as of October 31, 1999..................................................... F-3
Statement of Loss and Accumulated Deficit for the year ended October 31, 1999............ F-4
Statement of Cash Flows for the year ended October 31, 1999.............................. F-5
Notes to Financial Statements............................................................ F-6
Nova-Tech Engineering, Inc. (unaudited)
Balance Sheets as of April 30, 2000 and October 31, 1999................................. F-12
Statements of Operations for the nine-month periods ended April 30, 2000 and 1999........ F-13
Statements of Cash Flows for the nine-month periods ended April 30, 2000 and 1999........ F-14
Notes to Unaudited Financial Statements.................................................. F-15
</TABLE>
F-1
<PAGE>
Stockholders
Nova-Tech Engineering, Inc.
We have audited the accompanying balance sheet of Nova-Tech Engineering, Inc. as
of October 31, 1999, and the related statements of loss and accumulated deficit
and cash flows for the year then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nova-Tech Engineering, Inc. as
of October 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
As discussed in Note 16, certain conditions indicate that the Company may be
unable to continue as a going concern. The accompanying financial statements do
not include any adjustments to the financial statements that might be necessary
should the Company be unable to continue as a going concern.
/s/ Werner & Co PLLC
January 29, 2000
F-2
<PAGE>
Nova-Tech Engineering, Inc.
Balance Sheet
October 31, 1999
<TABLE>
<S> <C>
Assets
Current Assets:
Cash and equivalents $ 5,106
Accounts and other receivables 2,533,047
Work in process 29,627
Inventory 3,303
Costs and estimated earnings in excess of billings on
long-term contracts 475,744
Deferred tax asset, net 697,663
Prepaid expenses 62,466
-----------
Total Current Assets 3,806,956
Furniture, Equipment and Improvements, net 596,561
Intangible Assets, net 995
Other Assets 5,345
-----------
$ 4,409,857
===========
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable and accrued liabilities $ 1,681,688
Demand note payable 2,360,000
Line of credit 1,012,347
Current portion ESOP debt 203,572
Current portion of loan payable 97,583
Accrual for loss on contracts in progress 430,357
-----------
Total Current Liabilities 5,785,547
ESOP Debt, net of current portion 969,337
Loan Payable, net of current portion 132,168
Stockholders' Deficit:
Class A Common Stock, 10,000,000 shares authorized,
2,850,000 shares issued and outstanding 400
Additional paid-in capital 1,188
Retained earnings (deficit) (1,305,874)
Less: unallocated shares of Class B Super Common Stock
held by employee stock ownership trust, 4,000,000 shares
authorized, 1,520,000 shares issued and outstanding (1,172,909)
-----------
Total Stockholders' Deficit (2,477,195)
-----------
$ 4,409,857
===========
</TABLE>
See accompanying notes and accountants' report.
F-3
<PAGE>
Nova-Tech Engineering, Inc.
Statement of Loss and Accumulated Deficit
For the Year Ended October 31, 1999
<TABLE>
<S> <C> <C>
Revenues Earned $ 6,761,971 100.0 %
Cost of Revenues Earned 8,329,317 123.2
(Provision for Loss) on Contracts in Progress,
Reversal of Prior Year Provision 874,067 12.9
----------- ------
Gross Profit (Loss) (693,279) (10.3)
General and Administrative Expenses 3,072,235 45.4
----------- ------
Loss from Operations (3,765,514) (55.7)
Other Income (Expense):
Interest expense, net of interest income
of $246 in 1999 (239,320) (3.5)
Loss on disposal of assets (3,363) (0.0)
Miscellaneous 706 0.0
----------- ------
Loss Before Income Tax (4,007,491) (59.3)
Recovery of Income Tax 1,353,950 20.0
----------- ------
Net Loss (2,653,541) (39.2) %
======
Beginning Retained Earnings 1,347,667
-----------
Ending Accumulated Deficit $(1,305,874)
===========
</TABLE>
See accompanying notes and accountants' report.
F-4
<PAGE>
Nova-Tech Engineering, Inc.
Statement of Cash Flows
For the Year Ended October 31, 1999
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net Loss $(2,653,541)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 254,591
Loss on disposal of assets 10,747
(Reversal of ) loss on contracts in progress (874,067)
Decrease (increase) in assets:
Accounts and miscellaneous receivables 381,099
Federal income tax receivable (624,802)
Work in process 167,120
Inventory (1,101)
Costs and estimated earnings in excess of billings
on long-term contracts 797,924
Deferred tax asset (343,663)
Prepaid expenses (2,616)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (46,190)
Deferred tax liability (134,000)
Due from ESOP 283,684
-----------
Total Cash (Used) by Operating Activities (2,784,815)
-----------
Cash Flows From Investing Activities:
Cash purchase of equipment (111,243)
-----------
Total Cash (Used) by Investing Activities (111,243)
-----------
Cash Flows From Financing Activities:
Line of credit, net 165,963
Demand notes payable, net 2,360,000
Repayment of capital lease obligations and loan payable (72,269)
Due from stockholders 133,229
Proceeds from loan payable 300,000
-----------
Total Cash Provided by Financing Activities 2,886,923
-----------
Net Decrease in Cash and Equivalents (9,135)
Beginning Cash and Equivalents 14,241
-----------
Ending Cash and Equivalents $ 5,106
===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 161,364
Income taxes 1,500
Non-cash activities:
Repayment by Nova-Tech Engineering, Inc. Employee
Stock Ownership Plan 248,769
</TABLE>
See accompanying notes and accountants' report.
F-5
<PAGE>
Nova-Tech Engineering, Inc.
Notes to Financial Statements
October 31, 1999
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business
------------------
The Company specializes in the designing, building, and engineering of
innovative high-productivity equipment for the aerospace industry.
Summary of significant accounting policies
------------------------------------------
This summary of significant accounting policies of Nova-Tech Engineering, Inc.
(the Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representation of the
Company's management who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
Allowance for doubtful accounts
-------------------------------
The Company provides an allowance for doubtful receivables at the time
reasonable estimates of uncollectible amounts can be made.
Furniture, equipment and improvements
-------------------------------------
Depreciation of furniture and equipment has been provided using accelerated and
straight-line methods with estimated useful lives of two to ten years.
Amortization of leasehold improvements is on the straight-line method over the
useful life, or life of the lease, whichever is shorter.
Intangible assets
-----------------
Amortization of patent costs has been computed over the life of the patent,
which is estimated to be seventeen years.
Revenue and cost recognition
----------------------------
Revenues from long-term, fixed-price contracts are recognized on the
percentage-of-completion method measured by job progress. Revenues from
short-term, fixed-price contracts are recognized on the billable amount which is
calculated by multiplying hours expended times employee cost per hour. In no
event are revenues recognized in excess of contract amount.
Contract costs for long-term contracts include all direct material and labor
costs related to contract performance. For short-term contracts, the selling,
general, and administrative costs are charged to expense as incurred. Provisions
for estimated losses on uncompleted contracts are made in the period in which
losses are determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Profit
incentives are included in revenues when their realization is reasonably
assured.
Provision is made for estimated future losses on an entire contract at the date
it is first estimated that a loss will result from a contract in progress. The
liability "Accrual for loss on contracts in progress" represents this amount.
The asset "Cost and estimated earnings in excess of billings on long-term
contracts" represents revenues recognized in excess of amounts billed. The
liability "Billings in excess of costs and estimated earnings on long-term
contracts" represents amounts billed in excess of revenues recognized.
Cash and equivalents
--------------------
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Inventory
---------
Inventory is stated at the lower of cost, using the first-in, first-out (FIFO)
method, or market.
Advertising
-----------
Advertising costs are charged to operations when incurred.
See accountants' report.
F-6
<PAGE>
Nova-Tech Engineering, Inc.
Notes to Financial Statements
October 31, 1999
1. Nature of Business and Summary of Significant Accounting Policies
(Continued)
Income taxes
------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the bases of certain assets and
liabilities for financial and tax reporting. The deferred taxes represent the
future tax return consequences of those differences which will either be taxable
or deductible when the assets and liabilities are recovered or settled.
Use of estimates in the preparation of financial statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Accounts and Other Receivables
Accounts and other receivables consist of the following:
Accounts receivable $ 1,617,795
Due from stockholders and employees 33,950
Federal income tax receivable 879,287
Miscellaneous 2,015
------------
$ 2,533,047
============
3. Furniture, Equipment and Improvements
Furniture, equipment and improvements are summarized by major classifications as
follows:
Accumulated
Depreciation
Cost & Amortization
--------------- --------------
Furniture and fixtures $ 98,781 $ 55,157
Leasehold improvements 92,684 29,889
Engineering equipment 1,596,703 1,176,058
Office equipment 98,800 56,273
Transportation equipment 60,985 34,015
--------------- --------------
$ 1,947,953 $ 1,351,392
=============== ==============
4. Intangible Assets
Intangible assets consist of patents with a cost of $8,323. Accumulated
amortization at October 31, 1999 was $7,328.
See accountants' report.
F-7
<PAGE>
5. Uncompleted Contracts
Costs, estimated earnings, and billings on uncompleted contracts are summarized
as follows:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts $ 7,689,655
Estimated earnings (losses) (2,903,369)
------------
4,786,286
Billings to date 4,310,542
------------
$ 475,744
============
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts $ 475,744
Billings in excess of costs and estimated earnings on
uncompleted contracts -
------------
$ 475,744
============
</TABLE>
6. Leased Equipment Under Capital Lease
Leased equipment under capital lease had a cost of $23,202 in 1998. Accumulated
amortization was $8,507 at October 31, 1998. During the year ended October 31,
1999 the Company exercised a bargain purchase option and purchased the equipment
previously leased.
7. Depreciation and Amortization
Depreciation and amortization expense related to furniture, equipment,
improvements and intangible assets was $254,591 for the year ended October 31,
1999.
8. Line of Credit Commitment
The Company had a line of credit with its bank for $1,500,000, bearing interest
at prime + 2%, expiring January 19, 2000. The line was renewed at that date for
$500,000, expiring June 30, 2000. The reduction in their line of credit was in
accordance with the debt limitations set forth in the asset purchase agreement.
The line is secured by accounts receivable, inventory and equipment and is
personally guaranteed by the stockholders. As of October 31, 1999, the line of
credit balance was $1,012,347.
9. Demand Note Payable
The Company owes $2,360,000 on two demand notes payable which accrued interest
at the rate of 7.5% per annum from the note date until the date on which lender
demands payment. The notes are secured by equipment, accounts receivable,
inventory and intangibles.
The lender has an operating agreement and asset purchase agreement in effect
with the Company, as discussed in Note 16 below.
See accountants' report.
F-8
<PAGE>
Nova-Tech Engineering, Inc.
Notes to Financial Statements
October 31, 1999
10. Lease Obligations
Obligations under operating leases
----------------------------------
The Company conducts its operations from facilities owned by company officers
that are leased under a six-year operating lease expiring on November 30, 2004.
The Company leases space at another location under a five-year lease expiring on
July 31, 2003. There is an option to renew the lease for an additional five
years.
The company also leases space in Wichita, Kansas, under an operating lease
expiring March 31, 2001.
The following is a schedule of future minimum rental payments required under the
above operating leases as of October 31, 1999:
Years ending October 31,
----------------------------
2000 $ 239,851
2001 235,878
2002 238,800
2003 216,600
2004 162,500
------------
$ 1,093,629
============
The net rental expense amounted to $268,283 for the year ended October 31, 1999.
11. Pension Plans
In November 1995, the Company established an Employee Stock Ownership Plan
(ESOP) and Trust for employees who are not covered by a collective bargaining
agreement. This is a noncontributory plan established to acquire shares of the
Company's Class B Super Common Stock for the benefit of all eligible employees.
To qualify as a participant, an employee must be at least 21 years of age and
have completed at least 1,000 hours of service.
Fixed contributions are based on 1% of each participant's compensation for the
year. Variable contributions are made at the discretion of the Board of
Directors up to the maximum amount permitted under the Internal Revenue Code.
In 1997, the Company entered into an agreement with a financial institution
authorizing the Company to borrow up to $1,900,000 in connection with the ESOP.
Under this agreement, the ESOP borrowed $1,900,000 for the purchase of 1,520,000
shares of Class B Super Common Stock. This obligation consists of seven annual
loans which are payable in monthly installments through the year 2004, including
interest thereon at the 30-day commercial paper rate plus 2.7%. Future
maturities are as follows:
Year ending October 31,
---------------------------
2000 $ 203,572
2001 271,429
2002 271,429
2003 271,429
2004 155,050
------------
$ 1,172,909
============
See accountants' report.
F-9
<PAGE>
Nova-Tech Engineering, Inc.
Notes to Financial Statements
October 31, 1999
11. Pension Plans (Continued)
The Company is currently in non-compliance with the ESOP loan covenant requiring
a net equity position of $1,000.000.
The Company makes annual contributions to the ESOP equal to the ESOP's debt
service less dividends received by the ESOP. All dividends received by the ESOP
are used to pay debt service. The ESOP shares initially were pledged as
collateral for its debt. As the debt is repaid, shares are released from
collateral and allocated to participants' accounts. The shares pledged as
collateral are reported as unearned ESOP shares in the balance sheet. Dividends
on allocated ESOP shares are recorded as a reduction of retained earnings:
dividends on unallocated ESOP shares are recorded as a reduction of debt and
accrued interest.
The ESOP shares as of October 31, 1999 are as follows:
<TABLE>
<S> <C>
Allocated shares 400,726.0120
Shares committed to be released for allocation 214,005.1865
Unreleased shares 905,268.8015
------------------
Total ESOP shares 1,520,000.0000
==================
Fair value of unreleased shares at October 31, 1999 $ 16,747.47
==================
</TABLE>
ESOP contributions were $111,587 for the year ended October 31, 1999. ESOP
expenses and loan repayments are as follows:
Interest expense $ 99,876
Plan management expenses 49,820
Principal paid 248,769
--------------
Total expense $ 398,465
==============
The Company has a 401(k) Plan in effect covering all of its employees that have
completed six months of service. Contributions are discretionary and are limited
to 15% of each participant's compensation. There were no employer contributions
during the year ended October 31, 1999.
12. Income Taxes
Components of the deferred tax asset as of October 31, 1999 are as follows:
<TABLE>
<S> <C>
Net operating loss carryforward $ 615,380
Tax depreciation in excess of book depreciation (50,355)
Accrued loss on contracts 146,321
Accrued expenses 75,027
Section 481(a) adjustment (88,710)
-------------
Net deferred tax asset $ 697,663
=============
</TABLE>
Components of the recovery of income taxes for the year ended October 31, 1999
are as follows:
Current $ 656,287
Deferred-timing differences between the financial
statement method and tax method of accounting 697,663
--------------
Total recovery of income taxes $ 1,353,950
==============
See accountants' report.
F-10
<PAGE>
Nova-Tech Engineering, Inc.
Notes to Financial Statements
October 31, 1999
12. Income Taxes (Continued)
The Company incurred a net tax loss of $4,613,804 for the year ended October 31,
1999. They utilized $2,584,374 of the loss in carrybacks, the remaining
$2,029,430 will be carried forward and is expected to be used in the year ending
October 31, 2000.
13. Related Party Transactions
In July 1994, the officers and one key employee purchased the building in which
the Company is located. The Company signed a six-year operating lease which is
described in Note 10. The amount of rent paid or accrued to the officers and key
employee was $149,500 during the year ended October 31, 1999.
The company advanced the stockholders $168,563 during the year ended October 31,
1998. The stockholders repaid $134,613 during the year ended October 31, 1999
and the balance outstanding at year-end was $33,950. This amount was repaid
during the year ending October 31, 2000.
14. Major Customers
The Company had two major customers in 1999 in the aerospace and governmental
industries, which accounted for the following percentages of revenue:
Percentage of
-------------
Revenues
--------
76%
15%
--------
91%
========
15. Operating Agreement
On April 23, 1999 the Company entered into an operating agreement with the
corporation which is the party to the asset purchase agreement. Under the terms
of the agreement, the purchasing corporation will provide management and
consulting services to the Company pending the closing of the proposed
acquisition. If the operating agreement is terminated for any reason other than
the acquisition of the Company by the purchasing corporation, the Company will
pay a consulting fee of $10,000 per month for each month that the agreement is
in effect. On January 20, 2000, the operating agreement was extended.
16. Subsequent Event
These financial statements are presented on the basis that the Company is a
going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The accompanying financial statement shows that current
liabilities exceed current assets by $1,978,591 at October 31, 1999. However
$2,360,000 of the current liabilities represent demand notes payable held by the
corporation which is a party to the asset purchase agreement. On May 1, 2000,
the corporation purchased substantially all the net assets of the Company for a
net gain.
See accountants' report.
F-11
<PAGE>
Nova-Tech Engineering, Inc
Balance Sheets
April 30, 2000 and October 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
April 30, October 31,
Assets 2000 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 11,919 $ 5,106
Accounts and other receivables 655,129 2,533,047
Work in process 3,620 29,627
Inventory - 3,303
Costs and estimated earnings in excess of billings on
long-term contracts 356,045 475,744
Deferred tax asset, net 697,663 697,663
Prepaid expenses 20,328 62,466
----------- -----------
Total Current Assets 1,744,704 3,806,956
Furniture, Equipment and Improvements, net
Intangible Assets, net 470,359 596,561
Other Assets 931 995
5,505 5,345
----------- -----------
$ 2,221,499 $ 4,409,857
=========== ===========
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable and accrued liabilities $ 2,278,996 $ 1,681,688
Demand note payable 2,500,000 2,360,000
Line of credit 161,263 1,012,347
Billings in excess of costs and estimated earnings on
long-term contracts 51,790 -
Current portion ESOP debt 210,000 203,572
Current portion of loan payable 100,000 97,583
Accrual for loss on contracts in progress 252,185 430,357
----------- -----------
Total Current Liabilities 5,554,234 5,785,547
ESOP Debt, net of current portion 826,793 969,337
Loan Payable, net of current portion 83,301 132,168
Stockholders' Deficit:
Class A Common Stock, 10,000,000 shares authorized,
2,850,000 shares issued and outstanding 400 400
Additional paid-in capital 1,188 1,188
Retained earnings (deficit) (3,207,624) (1,305,874)
Less: unallocated shares of Class B Super Common Stock
held by employee stock ownership trust, 4,000,000 shares
authorized, 1,520,000 shares issued and outstanding (1,036,793) (1,172,909)
----------- -----------
Total Stockholders' Deficit (4,243,492) (2,477,195)
----------- -----------
$ 2,221,499 $ 4,409,857
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-12
<PAGE>
Nova-Tech Engineering, Inc
Statements of Operations
For the Nine-Month Periods Ended April 30, 1999 and 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Revenues Earned $ 7,364,463 $ 3,161,102
Cost of Revenues Earned 7,615,304 4,726,111
(Provision for Loss) on Contracts in Progress,
Reversal of Prior Year Provision 355,314 (117,459)
------------ ------------
Gross Profit (Loss) (606,155) (1,447,550)
General and Administrative Expenses 2,015,646 2,006,611
------------ ------------
Loss from Operations (2,621,801) (3,454,161)
Other Income (Expense):
Interest expense, net of interest income (132,904) (246,444)
Loss on disposal of assets (2,833) (611)
Miscellaneous 41,785 (873)
------------ ------------
Loss Before Income Tax (2,715,753) (3,702,089)
Income Tax Benefit (Expense) 963,991 772,031
------------ ------------
Net Loss $ (1,751,762) $ (2,930,058)
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-13
<PAGE>
Nova-Tech Engineering, Inc
Statements of Cash Flows
For the Nine-Month Periods Ended April 30, 1999 and 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (loss) $(1,751,762) $(2,930,058)
Adjustments to reconcile net income to net cash:
Depreciation and amortization 172,850 207,587
Change in provision for doubtful accounts 73,265
Loss on disposal of assets 2,833 611
Provision for (reversal of ) loss on contracts in progress 355,314 (89,559)
Decrease (increase) in assets:
Accounts and miscellaneous receivables 958,890 79,627
Federal income tax receivable
Inventory (31,488) 107,629
Costs and estimated earnings in excess of billings
on long-term contracts 217,869 965,332
Deferred tax asset (771,010) 200,245
Prepaid expenses and other assets 120,024 69,453
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (54,648) 783,464
Billings in excess of costs and estimated earnings
on long-term contracts 105,423 18,579
Deferred tax liability (81,832) (98,989)
Due from ESOP (30,889) 181,354
----------- -----------
Total Cash Provided (Used) by Operating Activities (788,426) (431,460)
----------- -----------
Cash Flows from Investing Activities:
Cash purchase of equipment (259,707) (25,400)
Cash sales of equipment - -
----------- -----------
Total Cash Provided (Used) by Investing Activities (259,707) (25,400)
----------- -----------
Cash Flows from Financing Activities:
Line of credit, net 343,347 (285,976)
Demand notes payable, net 400,000 1,000,000
Repayment of capital lease obligations and loan payable (26,491) (251,111)
Proceeds from loan payable 325,844 -
----------- -----------
Total Cash Provided (Used) by Financing Activities 1,042,700 462,913
----------- -----------
Net Decrease in Cash (5,433) 6,053
Beginning Cash 19,358 5,866
----------- -----------
Ending Cash $ 13,925 $ 11,919
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-14
<PAGE>
NOVA-TECH ENGINEERING, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the Nine-Month Periods Ended April 30, 2000 and 1999
Note 1: Basis of Presentation
---------------------
The accompanying unaudited financial statements of Nova-Tech Engineering, Inc.
("Nova-Tech") have been prepared in accordance with Form 8-K instructions and,
recurring adjustments) necessary to present fairly Nova-Tech's financial
position as of April 30, 2000, the results of operations for the nine-month
periods ended April 30, 2000 and 1999, and the statements of cash flow for the
nine-month periods ended April 30, 2000 and 1999. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of Nova-Tech's
annual financial statements for the year ended October 31, 1999.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The financial statements should be read in
conjunction with the audited financial statement and notes thereto for the year
ended October 31, 1999.
The results of operations for the nine-month periods ended April 30, 2000 and
1999 are not necessarily indicative of the results to be expected or anticipated
for the full fiscal year.
Note 2: Subsequent Event
----------------
On May 1, 2000, substantially all of the Company's assets were purchased and
certain liabilities were assumed by Skagit Engineering & Manufacturing, Inc., a
wholly owned subsidiary of Pacific Aerospace & Electronics, Inc. The purchase
price consisted of $50,000 in cash.
F-15
<PAGE>
INDEX TO UNAUDITED PRO FORMA DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Pro Forma Financial Data............................................. P-2
Unaudited Pro Forma Balance Sheet Data......................................... P-3
Notes to Unaudited Pro Forma Balance Sheet Data................................ P-4
Unaudited Pro Forma Statements of Operations Data.............................. P-5
Notes to Unaudited Pro Forma Statements of Operations Data..................... P-6
</TABLE>
P-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Financial Data for the most recent audited
periods and unaudited periods of the respective companies, gives effect to the
acquisition of Nova-Tech Engineering, Inc. by a wholly-owned subsidiary of
Pacific Aerospace & Electronics, Inc. (the Company), as if the acquisition had
occurred at the beginning of the respective periods.
This Unaudited Pro Forma Financial Data is based on the assumptions and
adjustments described in the accompanying notes, which the Company believes are
reasonable. The Unaudited Pro Forma Statement of Operations Data does not
purport to represent what the Company's results of operations actually would
have been if the event described above had occurred as of the periods indicated
or what such results will be for any future periods. This Unaudited Pro Forma
Financial Data and the accompanying notes should be read in conjunction with the
historical financial statements of the Company and Nova-Tech Engineering, Inc.,
including the notes thereto.
The acquisition referred to in this Unaudited Pro Forma Financial Data has been
accounted for using the purchase method of accounting. Accordingly, the assets
acquired and liabilities assumed have been recorded at their fair values as of
the date of acquisition. The Company does not believe that any changes to these
estimates that may occur will have a material impact on the Unaudited Pro Forma
Financial Data.
P-2
<PAGE>
Pacific Aerospace & Electronics, Inc.
Unaudited Pro Forma Balance Sheet Data
As of February 29, 2000
<TABLE>
<CAPTION>
Historical
----------
Unaudited Unaudited Pro Forma Pro Forma as
PA&E (1) Nova-Tech (2) Adjustments Adjusted (3)
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,102,000 $ 5,000 - $ 1,107,000
Accounts receivable, net 21,348,000 800,000 (1,028,000) (6) 21,120,000
Inventories 28,333,000 900,000 - 29,233,000
Deferred income taxes 878,000 - - 878,000
Prepaid expense and other 2,275,000 45,000 - 2,320,000
-------------- -------------- --------------- --------------
Total Current Assets 53,936,000 1,750,000 (1,028,000) 54,658,000
-------------- -------------- --------------- --------------
PROPERTY AND EQUIPMENT, NET 45,082,000 512,000 (84,000) (4) 45,510,000
-------------- -------------- --------------- --------------
OTHER ASSETS
Note receivable, net 2,500,000 - (2,500,000) (5) -
Investment 19,000 - - 19,000
Costs in excess of net book value of
acquired subsidiaries, net 41,203,000 - 3,147,000 (7) 44,350,000
Patents, net 1,183,000 - - 1,183,000
Deferred income taxes 2,555,000 - - 2,555,000
Deferred financing costs, net 4,429,000 - - 4,429,000
Other assets 318,000 6,000 (6,000) (4) 318,000
-------------- -------------- --------------- --------------
Total Other Assets 52,207,000 6,000 641,000 52,854,000
-------------- -------------- --------------- --------------
TOTAL ASSETS $ 151,225,000 $ 2,268,000 $ (471,000) $ 153,022,000
============== ============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,290,000 $ 1,400,000 $ (1,028,000) (6) $ 10,662,000
Accrued liabilities 4,333,000 900,000 5,233,000
Accrued interest 670,000 230,000 (230,000) (6) 670,000
Current portion of long-term debt 1,185,000 310,000 (110,000) (8) 1,385,000
Current portion of capital lease
obligations 521,000 - - 521,000
Line of credit 5,871,000 250,000 - 6,121,000
Other current liabilities - 2,500,000 (2,500,000) (5) -
-------------- -------------- --------------- --------------
Total Current Liabilities 22,870,000 5,590,000 (3,868,000) 24,592,000
-------------- -------------- --------------- --------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 4,402,000 991,000 (916,000) (8) 4,477,000
Capital lease obligations, net of
current portion 1,190,000 - - 1,190,000
Senior subordinated notes payable 75,000,000 - - 75,000,000
Deferred rent and other 316,000 - - 316,000
-------------- -------------- --------------- --------------
Total Long Term Liabilities 80,908,000 991,000 (916,000) 80,983,000
-------------- -------------- --------------- --------------
Total Liabilities 103,778,000 6,581,000 (4,784,000) 105,575,000
-------------- -------------- --------------- --------------
STOCKHOLDERS' EQUITY
Convertible preferred stock - - - -
Common stock 21,000 1,000 (1,000) (9) 21,000
Additional paid in capital 69,456,000 1,000 (1,000) (9) 69,456,000
Accumulated other comprehensive loss (2,696,000) - - (2,696,000)
Accumulated deficit (19,334,000) (4,315,000) 4,315,000 (9) (19,334,000)
-------------- -------------- --------------- --------------
Total Stockholders' Equity 47,447,000 (4,313,000) 4,313,000 47,447,000
-------------- -------------- --------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 151,225,000 $ 2,268,000 $ (471,000) $ 153,022,000
============== ============== =============== ==============
</TABLE>
P-3
<PAGE>
Notes to Unaudited Pro Forma Balance Sheet Data
(1) Represents the unaudited consolidated balance sheet of Pacific
Aerospace & Electronics, Inc. ("Pacific Aerospace") as of February 29,
2000.
(2) Represents the unaudited balance sheet of Nova-Tech Engineering, Inc.
("Nova-Tech") as of February 29, 2000.
(3) Represents Pacific Aerospace & Electronics, Inc.'s pro forma as
adjusted balance sheet as if the Nova-Tech acquisition had occurred on
February 29, 2000.
(4) Represents the incremental decrease in the fair value of the related
asset as determined by management as of the acquisition date. Total
purchase price of Nova-Tech was allocated to assets and liabilities
based on fair value at the acquisition date as follows:
<TABLE>
<S> <C>
Nova-Tech purchase price $ 50,000
Debt forgiveness, net 680,000
Acquisition costs 137,000
---------------
Total purchase price to be allocated $ 867,000
===============
Historical book value of assets acquired $ 1,350,000
Adjustment of equipment and other assets to fair value as determined
by management (90,000)
Elimination of inter-company loan (2,500,000)
Liabilities assumed (1,793,000)
Costs in excess of net tangible assets 3,900,000
---------------
Total purchase price allocated $ 867,000
===============
</TABLE>
(5) Represents elimination of loan due Pacific Aerospace from Nova-Tech.
(6) Represents elimination of inter-company receivables and payables.
(7) Represents excess of purchase price over fair value of tangible net
assets acquired with Nova-Tech as if the purchase had occurred on
February 29, 2000. Actual excess of purchase price over fair value of
tangible net assets acquired with Nova-Tech is $3,900,000, which will
be amortized over 10 years.
(8) Represents elimination of liabilities not assumed by Pacific Aerospace.
(9) Represents elimination of Nova-Tech common stock, additional paid in
capital, and retained earnings.
P-4
<PAGE>
Pacific Aerospace & Electronics, Inc.
Unaudited Pro Forma Statements Of Operations Data
<TABLE>
<CAPTION>
Fiscal Year Historical
----------------------
Audited Unaudited
PA&E Nova-Tech Pro forma Pro forma
May 31, 1999 July 31, 1999 Adjustments As adjusted (1)
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net sales $107,366,000 $ 9,367,000 $(250,000) (7) $116,483,000
Cost of sales 86,094,000 10,106,000 (250,000) (7) 95,950,000
------------ ----------- --------- ------------
Gross profit 21,272,000 (739,000) - 20,533,000
Operating expenses 17,308,000 2,748,000 155,000 (2) 20,211,000
------------ ----------- --------- ------------
Income from operations 3,964,000 (3,487,000) (155,000) 322,000
Other income (expense)
Interest income 532,000 - - 532,000
Interest expense (8,672,000) (193,000) 134,000 (3) (8,731,000)
Other (11,332,000) 36,000 - (11,296,000)
------------ ----------- --------- ------------
Income (loss) before income tax benefit (expense) (15,508,000) (3,644,000) (21,000) (19,173,000)
Income tax benefit (expense) 2,639,000 1,112,000 - 3,751,000
------------ ----------- --------- ------------
Net income (loss) (12,869,000) (2,532,000) (21,000) (15,422,000)
Other comprehensive income (loss)
Foreign currency translation (1,727,000) - - (1,727,000)
Income tax benefit 587,000 - - 587,000
Valuation of available-for-sale securities 436,000 - - 436,000
------------ ----------- --------- ------------
Total other comprehensive loss (704,000) - - (704,000)
------------ ----------- --------- ------------
Comprehensive income (loss) $(13,573,000) $(2,532,000) $ (21,000) $(16,126,000)
============ =========== ========= ============
<CAPTION>
Nine Month Period
-----------------
Unaudited Unaudited
PA&E Nova-Tech Pro forma Pro forma
February 29, 2000 April 30, 2000 Adjustments As adjusted (4)
----------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net sales $ 84,072,000 $ 3,161,000 $(1,000,000) (7) $86,233,000
Cost of sales 67,115,000 4,609,000 (1,000,000) (7) 70,724,000
-------------- ------------- ----------- -----------
Gross profit 16,957,000 (1,448,000) - 15,509,000
Operating expenses 14,332,000 2,007,000 86,000 (5) 16,425,000
-------------- ------------- ----------- -----------
Income from operations 2,625,000 (3,455,000) (86,000) (916,000)
Other income (expense)
Interest income 54,000 - 54,000
Interest expense (7,668,000) (246,000) 209,000 (6) (7,705,000)
Other (1,000) (1,000) (2,000)
-------------- ------------- ----------- -----------
Income (loss) before income tax benefit (expense) (4,990,000) (3,702,000) 123,000 (8,569,000)
Income tax benefit (expense) (205,000) 772,000 - 567,000
-------------- ------------- ----------- -----------
Net income (loss) (5,195,000) (2,930,000) 123,000 (8,002,000)
Other comprehensive income (loss)
Foreign currency translation (969,000) - - (969,000)
Income tax benefit (681,000) - - (681,000)
-------------- ------------- ----------- -----------
Total other comprehensive loss (1,650,000) - - (1,650,000)
-------------- ------------- ----------- -----------
Comprehensive income (loss) $ (6,845,000) $ (2,930,000) $ 123,000 $(9,652,000)
============== ============= =========== ===========
</TABLE>
P-5
<PAGE>
Notes to Unaudited Pro Forma Statements of Operations Data
(1) Represents the results of operations of Pacific Aerospace & Electronics,
Inc. ("Pacific Aerospace") for the year ended May 31, 1999 and the results
of Nova-Tech Engineering, Inc. ("Nova-Tech") for the twelve-month period
ended July 31, 1999 as if Nova-Tech had been acquired by Pacific Aerospace
at the beginning of the respective periods.
(2) Represents amortization of the excess of purchase price over fair market
value of net tangible assets acquired with Nova-Tech ($390,000) less Nova-
Tech Employee Stock Ownership Plan ("ESOP") contributions ($235,000).
Excess of purchase price over fair market value of net tangible assets
acquired with Nova-Tech is being amortized over 10 years.
(3) Represents elimination of interest paid by Nova-Tech in connection with
ESOP indebtedness ($117,000) and indebtedness owed to Pacific Aerospace
($17,000).
(4) Represents the results of operations of Pacific Aerospace for the nine-
month period ended February 29, 2000 and the results of Nova-Tech for the
nine-month period ended April 30, 2000 as if Nova-Tech had been acquired by
Pacific Aerospace at the beginning of the respective periods.
(5) Represents amortization of the excess of purchase price over fair market
value of net tangible assets acquired with Nova-Tech ($292,000) less ESOP
contributions ($206,000). Excess of purchase price over fair market value
of net tangible assets acquired with Nova-Tech is being amortized over 10
years.
(6) Represents elimination of interest paid by Nova-Tech in connection with
ESOP indebtedness ($75,000) and indebtedness owed to Pacific Aerospace
($134,000).
(7) Represents elimination of intercompany sales and related cost of sales.
P-6
