<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
DATE OF REPORT: AUGUST 15, 1997
(Date of earliest event reported)
ELTRAX SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA COMMISSION FILE NO. 0-22190 41-1484525
(State of incorporation) (IRS Employer I.D. No.)
2000 TOWN CENTER, SUITE 690
SOUTHFIELD, MI 48075
(Address of principal executive offices)
(248) 358-1699
(Registrant's telephone number, including area code)
<PAGE>
The Current Report on Form 8-K dated August 15, 1997 is amended to read in its
entirety as follows:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
MERGER WITH HI-TECH CONNECTIONS, INC.
On August 15, 1997, pursuant to an Agreement and Plan of Merger dated as of
August 15, 1997, but effective as of August 1, 1997 (the "Merger Agreement") by
and among Eltrax Systems, Inc., a Minnesota corporation (the "Company"), Hi-Tech
Acquiring Corp., a Pennsylvania corporation ("Acquiring Sub"), Hi-Tech
Connections, Inc., a Pennsylvania corporation ("Hi-Tech"), Edward C. Barrett
("Barrett"), Daniel M. Christy ("Christy"), and David R. Hurlbrink
("Hurlbrink"), Acquiring Sub merged with and into Hi-Tech, whereupon the
separate existence of Acquiring Sub ceased and Hi-Tech continues as the
surviving corporation and as a wholly owned subsidiary of the Company. The
description of the merger included herein does not purport to be complete and is
qualified in its entirety by reference to the Agreement and Plan of Merger which
is filed as Exhibit 2.1 hereto.
Pursuant to the terms of the Merger Agreement, upon the closing of the
Merger on August 15, 1997, 150,000 shares of common stock, $.01 par value per
share, of the Company (the "Common Stock") were issued to the shareholders of
Hi-Tech (the "Shareholders") in connection with the Merger. The 150,000 shares
of Common Stock issued in connection with the Merger represents approximately
1.8% of the issued and outstanding shares of Common Stock after the closing.
In addition to the 150,000 shares of Common Stock issued upon the closing
of the Merger, the Shareholders are also collectively entitled to receive
150,000 additional shares of Common Stock (the "Deferred Consideration") on
March 25, 1998. However, to the extent that the net income of Hi-Tech is
greater or less than $180,000 for the six-month period ending December 31, 1997,
the Deferred Consideration will be reduced or increased by two shares of Common
Stock for each dollar that the net income is less than or greater than $180,000
for such six-month period. Furthermore, if the average closing trading price of
the Common Stock on the five business days preceding March 25, 1998 (the
"Distribution Date Price") is less than $4.50 or greater than $8.50 per share,
the Deferred Consideration shall be adjusted by multiplying the number of shares
that would otherwise be payable to the Shareholders by a fraction in which the
numerator is $4.50, if the Distribution Date Price is less than $4.50 share, or
$8.50, if the Distribution Date Price is greater than $8.50 per share, and the
denominator is the Distribution Date Price. All of the shares of the Common
Stock that have been and may be issued to the Shareholders in connection with
the Merger are "restricted stock", as defined in Rule 144 promulgated under the
Securities Act of 1933, and have certain "piggyback" registration rights.
In addition to the foregoing, the Company entered into an Employment and
Non-Competition Agreement with each of Hurlbrink, Barrett, and Christy. The
Hurlbrink and Christy agreements provide for the employment by the Company of
each for a period of one (1) year from August 1, 1997, and the Barrett
agreement provides for a two (2) year term. The Hurlbrink and Christy
agreements provide for a one-year non-compete period, and the Barrett
agreement provides for a two-year non-compete period. The description of the
Employment and Non-Competition Agreements included herein does not purport to
be complete and is qualified in its entirety by reference to the Employment
and Non-Competition Agreements which are filed as Exhibits 10.1, 10.2, and
10.3 hereto.
For accounting purposes, it is intended that the Merger will be treated as
a purchase transaction under APB Opinion No. 16.
-2-
<PAGE>
ITEM 5. OTHER EVENTS
RESIGNATION OF PRESIDENT AND HEADQUARTERS CONSOLIDATION
On August 21, 1997, the Company announced that it expected to complete the
consolidation of its headquarters in Southfield, Michigan and close its
Minnetonka, Minnesota offices within two weeks (this consolidation was completed
in early September). The Company also announced that its President, Mack V.
Traynor, III, had elected not to relocate to Michigan and was resigning his
executive office, effective immediately. Mr. Traynor will continue to serve on
the Company's board of directors and William P. O'Reilly, the Company's Chairman
and Chief Executive, will assume the duties of President on an interim basis.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The index to the financial information for Hi-Tech Connections, Inc. is
included on page F-1 of this report.
(B) PRO FORMA FINANCIAL INFORMATION
The index to the pro forma financial information is included on page F-1 of
this report.
(C) EXHIBITS
Exhibit Filed
Number Description Herewith
- ------ ----------- --------
2.1* Agreement and Plan of Merger dated as of August 15, 1997,
but effective as of August 1, 1997, by and among Eltrax
Systems, Inc., a Minnesota corporation, Hi-Tech Acquiring
Corp., a Pennsylvania corporation, Hi-Tech Connections, Inc.,
a Pennsylvania corporation, Edward C. Barrett, Daniel M.
Christy, and David R. Hurlbrink
10.1* Employment and Non-Competition Agreement between the Company
and Edward C. Barrett
10.2* Employment and Non-Competition Agreement between the Company
and Daniel M. Christy
10.3* Employment and Non-Competition Agreement between the Company
and David R. Hurlbrink
23.1 Consent of Baratz & Associates, P.A. X
*Previously filed with Current Report on Form 8-K dated August 15, 1997.
-3-
<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.
ELTRAX SYSTEMS, INC.,
a Minnesota corporation
Date: October 29, 1997 By: /s/ William P. O'Reilly
------------------------------------
William P. O'Reilly,
Chairman of the Board and Chief
Executive Officer
-4-
<PAGE>
EXHIBIT INDEX
Exhibit Filed
Number Description Herewith
- ------ ----------- --------
2.1* Agreement and Plan of Merger dated as of August 15, 1997,
but effective as of August 1, 1997, by and among Eltrax
Systems, Inc., a Minnesota corporation, Hi-Tech Acquiring
Corp., a Pennsylvania corporation, Hi-Tech Connections,
Inc., a Pennsylvania corporation, Edward C. Barrett,
Daniel M. Christy, and David R. Hurlbrink
10.1* Employment and Non-Competition Agreement between the Company
and Edward C. Barrett
10.2* Employment and Non-Competition Agreement between the Company
and Daniel M. Christy
10.3* Employment and Non-Competition Agreement between the Company
and David R. Hurlbrink
23.1 Consent of Baratz & Associates, P.A. X
*Previously filed with Current Report on Form 8-K dated August 15, 1997.
-5-
<PAGE>
HI-TECH CONNECTIONS, INC.
FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
AND NINE MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
CONTENTS
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT. . . . . . . . . . . . . . . . . . . . . . . . . F-2
FINANCIAL STATEMENTS
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 & F-4
Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-8 - F-13
ELTRAX SYSTEMS, INC. AND HI-TECH CONNECTIONS, INC.
PRO FORMA FINANCIAL INFORMATION
Narrative Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Pro Forma Consolidated Balance Sheet as of December 31, 1996 (Unaudited). . . F-15
Notes to Pro Forma Consolidated Balance Sheet as of December 31, 1996 . . . . F-16
Pro Forma Consolidated Balance Sheet as of June 30, 1997 (Unaudited). . . . . F-17
Notes to Pro Forma Consolidated Balance Sheet as of June 30, 1997 . . . . . . F-18
Pro Forma Consolidated Statement of Operations for the Nine
Month Transition Period ended December 31, 1996 (Unaudited) . . . . . . . . . F-19
Notes to Pro Forma Consolidated Statement of Operations for the Nine
Month Transition Period ended December 31, 1996 . . . . . . . . . . . . . . . F-20
Pro Forma Consolidated Statement of Operations for the Six
Months ended June 30, 1997 (Unaudited). . . . . . . . . . . . . . . . . . . . F-21
Notes to Pro Forma Consolidated Statement of Operations
for the Six Months ended June 30, 1997 . . . . . . . . . . . . . . . . . . . F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Hi-Tech Connections, Inc.
1037C MacArthur Road
Reading, PA 19605
We have audited the accompanying balance sheets of Hi-Tech Connections, Inc.
as of September 30, 1996 and 1995, and the related statements of operations,
deficit and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hi-Tech Connections, Inc. at
September 30, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
BARATZ & ASSOCIATES, P. A.
October 25, 1996
F-2
<PAGE>
HI-TECH CONNECTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30 June 30, 1997
----------------- -------------
1996 1995 (Unaudited)
---- ----
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 18,543 $ 60,351 $ 635
Receivables:
Trade, less allowance for doubtful accounts of
$30,000 in 1996 and $23,724 in 1995 and $54,322
at June 30, 1997 (unaudited) (Notes 1 & 4) 1,023,586 1,604,515 749,706
Employees 10,000 36,649 1,187
Officers (Note 13) 23,564 - 15,957
Inventories (Notes 1, 2 & 15) 17,749 328,251 25,153
Costs and estimated earnings in
excess of billings
on uncompleted contracts (Notes 1 & 3) 43,172 437,925 107,549
Prepaid expenses 75,848 191,870 89,603
---------- ---------- ----------
TOTAL CURRENT ASSETS 1,212,462 2,659,561 989,790
---------- ---------- ----------
PROPERTY AND EQUIPMENT (Notes 1 & 4)
Office equipment and furniture 831,844 809,205 857,776
Transportation equipment 7,387 7,387 7,387
Leasehold improvements 51,057 51,057 51,057
---------- ---------- ----------
890,288 867,649 916,220
Accumulated depreciation 630,936 480,879 724,183
---------- ---------- ----------
NET PROPERTY AND EQUIPMENT 259,352 386,770 192,037
---------- ---------- ----------
OTHER ASSET
Deposits 10,686 11,650 14,981
---------- ---------- ----------
TOTAL ASSETS $1,482,500 $3,057,981 $1,196,808
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HI-TECH CONNECTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30 June 30, 1997
----------------- -------------
1996 1995 (Unaudited)
---- ----
<S> <C> <C> <C>
CURRENT LIABILITIES
Short-term borrowings:
Credit line payable (Note 4) $ 88,000 $ 813,000 $ 93,000
Installment loan (Note 5) 91,328 112,500 19,478
Accounts payable 430,893 1,534,758 517,317
Advance customer deposits 143,891 25,608 147,069
Accrued liabilities 234,103 281,815 163,405
Dividends payable (Note 8) 72,500 - -
Deferred income from
maintenance contracts (Note 1) 97,672 304,137 196,313
Billings in excess of costs and
estimated earnings on
uncompleted contracts (Notes 1 & 3) 11,165 58,611 3,139
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 1,169,552 3,130,429 1,139,721
DEBENTURES PAYABLE (Notes 6 & 13) 235,000 235,000 235,000
---------- ---------- ----------
TOTAL LIABILITIES 1,404,552 3,365,429 1,374,721
---------- ---------- ----------
Commitments (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
authorized 10,000 shares;
issued and outstanding
1,793 shares (Note 12)
Additional paid in capital (Notes 7 & 13) 465,906 465,906 465,906
Deficit (Note 8) (387,958) (773,354) (643,819)
---------- ---------- ----------
TOTAL STOCKHOLDER' EQUITY (DEFICIT) 77,948 (307,448) (177,913)
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
Equity (Deficit) $1,482,500 $3,057,981 $1,196,808
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HI-TECH CONNECTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------- --------------------------
1996 1995 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Unaudited)
Net Sales (Note 1) $9,231,070 $11,481,448 $4,638,634 $7,433,680
Cost of Sales 6,904,203 8,863,194 3,369,903 5,648,873
---------- ----------- ---------- ----------
Gross Profit 2,326,867 2,618,254 1,268,731 1,784,807
---------- ----------- ---------- ----------
Expenses
Operating expenses (Note 11) 1,770,142 2,277,884 1,501,094 1,385,642
Unusual item (Note 15) - 615,628 - -
---------- ----------- ---------- ----------
Total Expenses 1,770,142 2,893,512 1,501,094 1,385,642
---------- ----------- ---------- ----------
Income (Loss) From Operations 556,725 (275,258) (232,363) 399,165
---------- ----------- ---------- ----------
OTHER INCOME (EXPENSES)
Interest income (Note 13) 1,484 - 1,557 872
Interest expense (Note 13) (83,047) (173,132) (25,325) (72,470)
Loss on disposal of equipment (344) (96,978) 270 (369)
Litigation settlement (Note 16) (16,922) - - (16,922)
---------- ----------- ---------- ----------
Total Other Income (Expenses) (98,829) (270,110) (23,498) (88,889)
---------- ----------- ---------- ----------
Income (Loss) Before
Extraordinary Item 457,896 (545,368) (255,861) 310,276
Extraordinary Item - Forgiveness
of Debt (Note 17) - 350,000 - -
---------- ----------- ---------- ----------
Net Income (Loss) $ 457,896 $ (195,368) $ (255,861) $ 310,276
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HI-TECH CONNECTIONS, INC.
STATEMENTS OF DEFICIT
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
AND NINE MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
Balance, October 1, 1994 $ (577,986)
Less net loss for the year (195,368)
-----------
Balance, September 30, 1995 (773,354)
Add net income for the year 457,896
Less dividend distribution (Note 8) (72,500)
-----------
Balance, September 30, 1996 (387,958)
Less net loss for the nine months
ended June 30, 1997 (unaudited) (255,861)
------------
Balance, June 30, 1996 (unaudited) $ (643,819)
===========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HI-TECH CONNECTIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
AND NINE MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------- ---------------------------
1996 1995 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the year $ 457,896 $ (195,368) $ (255,861) $ 310,276
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Depreciation 152,921 191,122 93,247 117,798
Loss (gain) on disposal of equipment 344 96,978 (270) 369
Unusual item - 615,628 - -
Extraordinary item - (350,000) - -
CHANGES IN OPERATING ASSETS AND LIABILITIES
Decrease in receivables 584,014 279,978 290,300 694,027
Decrease (increase) in inventories 310,502 909,952 (7,403) 264,161
Decrease (increase) in costs and
estimated earnings in excess of
billings on uncompleted contracts 394,753 (275,987) (64,377) 327,285
Decrease (increase) in prepaid expenses 116,022 54,736 (13,756) 144,548
Decrease (increase) in deposits 964 (11,650) (4,295) 964
Decrease (increase) in accounts payable (1,103,865) (351,951) 86,423 (991,328)
Increase in advance customer deposits 118,283 - 3,178 72,887
Decrease in accrued liabilities (47,712) (6,306) (70,696) (136,200)
Increase (increase) in dividends payable 72,500 - (72,500) -
Decrease (increase) in deferred income from
maintenance contracts (206,465) (174,570) 98,641 (155,292)
(Decrease) increase in billings in
excess of costs and estimated earnings
on uncompleted contracts (47,446) 69,380 (8,027) (49,582)
------------ ------------ ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 802,711 851,942 74,604 599,913
------------ ------------ ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of equipment 375 37,635 - -
Purchase of equipment (26,222) (96,813) (25,662) (7,901)
------------ ------------ ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (25,847) (59,178) (25,662) (7,901)
------------ ------------ ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction of short-term borrowings (929,343) (775,000) 5,000 (661,000)
Installment loan additions 183,171 150,000 (71,850) 4,004
Dividend distribution (72,500) - - -
Additional paid in capital from
stockholders - 19,250 - -
Debentures proceeds - 235,000 - -
Officer loan repayments - 14,482 - -
Debt reduction - (130,898) - -
Repayment of vendor note payable - (250,000) - -
------------ ------------ ---------- -----------
NET CASH USED IN FINANCING ACTIVITIES (818,672) (737,166) (66,850) (656,996)
------------ ------------ ---------- -----------
NET (DECREASE) INCREASE IN CASH (41,808) 55,598 (17,908) (64,984)
CASH, BEGINNING OF YEAR 60,351 4,753 18,543 60,351
------------ ------------ ---------- -----------
CASH, END OF YEAR $ 18,543 $ 60,351 $ 635 $ (4,633)
============ ============ ========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION (Note 18)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
HI-TECH CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Hi-Tech Connections, Inc. (the Company) is a network systems
integrator and reseller to diversified industries of local area
network (LAN) and wide area network (WAN) hardware, and other
electronic components used in data and telecommunications systems and
networks. The Company is headquartered in Reading, PA, with branch
offices in Herndon, VA and Iselin, NJ.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of estimates
and assumptions regarding certain types of assets, liabilities,
income, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, actual results may differ from the estimates.
Trade Receivables
The Company provides an allowance for losses on trade receivables
based on a review of the current status of existing receivables and
management's evaluation of periodic aging of the accounts.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
recorded using the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to expense
when incurred. When assets are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the
respective accounts and any gain or loss is include in income.
Revenue Recognition
The Company records income on installation contracts under the
percentage-of-completion method for financial reporting purposes.
Under this method, a portion of the total contract revenues is accrued
based on the percentage of costs incurred to total estimated costs to
be incurred for installation contracts. Contract costs include all
direct material and labor costs and those indirect costs related to
contract performance. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Revenues from maintenance contracts are reflected in operations
ratably over the contract terms.
F-8
<PAGE>
Income Taxes
No provisions are made for federal or state income taxes. The
Company stockholders have elected treatment as a "S" corporation for
federal and state tax purposes. Under the election, the stockholders
have assumed the obligations and benefits relative to the federal and
state income taxes attributable to the Company's operations.
2. INVENTORIES
Inventory consisted of the following at September 30, 1996 and 1995:
1996 1995
---- ----
Finished goods $ 15,119 $ 291,807
Refurbished goods
and spare parts 2,630 267,877
--------- ----------
17,749 559,684
Less inventory reserve - (231,433)
--------- ----------
$ 17,749 $ 328,251
========= ==========
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The components of costs and estimated earnings on uncompleted contracts
at September 30, 1996 and 1995 were as follows:
1996 1995
---- ----
Costs incurred on uncompleted
contracts $ 715,344 $ 852,622
Estimated earnings 230,314 385,968
--------- ----------
945,658 1,238,590
Billings to date (913,651) (859,276)
--------- ----------
$ 32,007 $ 379,314
========= ==========
The following amounts were included in the balance sheet under the
following captions at September 30, 1996 and 1995:
1996 1995
---- ----
Costs and estimated earnings
of billings on uncompleted
contracts $ 43,172 $ 437,925
Billings in excess of costs
and estimated earnings on
uncompleted contracts (11,165) (58,611)
--------- ---------
$ 32,007 $ 379,314
========= =========
F-9
<PAGE>
4. CREDIT LINE PAYABLE
At September 30, 1996 and 1995 the Company had available a bank credit line
in the respective amounts of $800,000 (fiscal 1996) and $1,200,000 (fiscal
1995). Borrowings against the credit line were $88,000 in fiscal 1996 and
$813,000 in fiscal 1995. Terms of the credit line agreement, which expires
on November 30, 1996, provide for monthly interest at 1.75% over the
lending bank's prime rate. Borrowings are limited to stipulated
percentages of the Company's qualifying trade receivables. The credit line
is secured by liens on substantially all corporate assets and the personal
guarantee and a collateral mortgage on the residence of the Company's major
stockholder. In addition, the Company's agreement with the bank imposes
certain financial requirements and specific restrictions on additional
borrowings, capital expenditures, officers' compensation and "S"
distributions. In fiscal years 1996 and 1995, the Company was in
compliance with all the convenants. At September 30, 1996 and 1995, the
unused portion of the credit line was $712,000 and $387,000 respectively.
5. INSTALLMENT LOAN
At September 30, 1996 an installment loan in the amount of $91,328 was due
to a Company vendor. The loan with a maturity date of September 1, 1997 is
payable in weekly principal payments of $2,000 and corresponding interest
charged at 10% per annum. The loan is unsecured and subordinate to the
Company's credit line agreement.
At September 30, 1995 an installment loan in the amount of $112,500 was due
to the Company's lending bank. The loan was payable in monthly principal
payments of $7,500 with a final payment of $97,500 due November 30, 1995.
Interest was charged on the borrowings at 2.75% over the lending bank's
prime rate. The loan was personally guaranteed by the Company's major
stockholder.
6. DEBENTURES PAYABLE
Debentures at September 30, 1996 comprised of:
Obligations to Company officers in the aggregate amount of $135,000.
Interest is paid quarterly at 77.5% of the Company's lending bank's
national commercial rate. Principal payments are subordinated to
repayment provisions of the Company's senior debt. The debentures
mature in November 1999; debenture holders have the option at any time
prior to maturity date to convert the debentures into Company common
stock at $675 per share.
Obligation to a related party in the amount of $100,000. Interest is
paid quarterly at the Company's lending bank's national commercial
rate. Principal payments are subordinated to repayment provisions of
the Company's senior debt. The debentures mature in December 1997;
the debenture holder has the option at any time prior to maturity date
to convert the debentures into Company common stock at $800 per share.
Interest paid to the debenture holders amounted to $17,393 (fiscal
1996) and $13,067 (fiscal 1995).
Combined aggregate maturities of the debentures are $100,000 (fiscal
1998) and $135,000 (fiscal 2000).
F-10
<PAGE>
7. ADDITIONAL PAID IN CAPITAL
Certain stockholders contributed $19,250 to the Company in fiscal 1995;
the amount was reported in the financial statements as additional paid in
capital.
The 1994 financial statements reflected $161,378 as a contra to
stockholders equity. This amount represented anticipated receipts from the
Company stockholders with reference to those stockholders receiving income
tax refunds through reporting net operating loss carrybacks on their
respective individual income tax returns. In 1995 it was determined that
these refunds were not realizable and stockholder receipts would not be
forth coming. As a result the contra to stockholders equity was charged to
additional paid in capital.
8. DIVIDEND PAYABLE
In September 1996 the Company declared a dividend distribution payable at
$40.40 per outstanding common share. The aggregate amount of $72,500 was
charged to the Company's stockholders' equity.
9. PROFIT SHARING PLAN
A qualified 401(k) profit sharing plan is available for all eligible
employees. The Company matches 50% of the first 8% of salary contributed
by the employees to the plan. At the discretion of the Board of Directors,
the Company may make additional plan contributions based on Company
earnings. Total contributions may not exceed 15% of all eligible
compensation. Employer plan contributions amounted to $26,739 and $26,438
respectively in fiscal 1996 and fiscal 1995.
10. INCENTIVE STOCK OPTION AGREEMENTS
The Company's Stock Option Plan provides for the grant of incentive stock
options to the Company's key employees. The options have an exercise price
of 100% of the fair market value of the common stock at the date of grant
or 110% of fair market value for employees or officers holding 10% or more
of the voting stock of the Company. The options expire ten years from the
date of grant and are 100% exercisable on the date of grant.
Options have been granted to key employees to purchase common stock at
prices ranging from $675 to $905 per share. The following is a summary of
transactions:
SHARES UNDER OPTION
-------------------
1996 1995
OPTIONS
Outstanding, beginning of period 421 409
Granted 125
Expired (113)
---- ----
Outstanding, end of period 421 421
==== ====
F-11
<PAGE>
11. LEASE AGREEMENTS
The Company leases office and warehouse facilities and certain equipment
under various non cancellable operating leases expiring on various dates
through to 1999. Aggregate rental expenses were $194,871 (fiscal 1996) and
$249,617 (fiscal 1995).
Aggregate future minimum lease rentals at September 30, 1996 were:
Fiscal: 1997 $ 53,565
1998 6,589
1999 3,844
Thereafter -
--------
$ 63,998
12. STOCKHOLDERS' AGREEMENT
Under an agreement with certain minority stockholders, the Company has the
first right to repurchase Company common stock (owned by the minority
shareholders) at a value determined in the said agreement.
13. RELATED PARTY TRANSACTIONS
At September 30, 1996 officer (shareholders) loan receivables amounted to
$23,564 in the aggregate. During fiscal 1996 officer loan additions were
$26,844; officer loan repayments were $3,280. Interest received on
outstanding loan balances amounted to $1,484. The officer loans are due in
their entirety on November 1, 1996. Interest is charged at 9.25% per annum;
the loans are collateralized by a security interest in the Company's common
stock owned by the respective officers.
Related party transactions also include those items described in Note 6 and
7.
14. CLOSURE OF THE PITTSBURGH AND WILMINGTON SALES OFFICES
In August 1995, the Pittsburgh and Wilmington sales and technical advisory
offices were closed. Included in the 1995 financial statements are sales
and costs in the respective amounts of $452,760 and $611,742, which are
directly related to the operations of the closed offices.
15. UNUSUAL ITEM
The Company gives appropriate consideration to deterioration, obsolescence
and other factors in evaluating the net realizable value of its inventory.
In fiscal 1995 the Company, through an independent valuation, determined
that certain inventory approximating $616,000 was obsolete and wrote down
the inventory accordingly.
16. LITIGATION SETTLEMENT
With reference to an out-of-court settlement, the Company paid $16,922 in
fiscal 1996 to a subcontractor.
F-12
<PAGE>
17. EXTRAORDINARY ITEM - FORGIVENESS OF DEBT
On February 17, 1994 the Company and a vendor agreed to convert a
$1,000,000 account payable due the vendor to a term note. In fiscal 1995
the vendor forgave the Company the remaining $350,000 balance due. The
debt forgiveness was recorded in the 1995 financial statements as an
extraordinary item.
18. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $90,668 (fiscal 1996) and $177,442 (fiscal
1995).
F-13
<PAGE>
ELTRAX SYSTEMS, INC. AND HI-TECH CONNECTIONS, INC.
PRO FORMA FINANCIAL INFORMATION - NARRATIVE OVERVIEW
(UNAUDITED)
The following unaudited pro forma consolidated balance sheets as of December
31, 1996 and June 30, 1997 and statements of operations for the nine month
transition period ended December 31, 1996 and the six months ended June 30,
1997, combine the historical balance sheets and statement of operations of
"Hi-Tech" and the historical balance sheets and statements of operation of
Eltrax Systems, Inc. ("Eltrax") (collectively "the Entities"). The unaudited
pro forma balance sheets as of December 31, 1996 and June 30, 1997 assume the
Entities were consolidated as of the respective dates of such balance sheets.
The unaudited pro forma statements of operations for the year ended December
31, 1996 and the six months ended June 30, 1997, assume the Entities were
consolidated at the beginning of each fiscal period.
The unaudited pro forma consolidated financial statements give effect to
(i) the acquisition of Hi-Tech (ii) the issuance of 320,000 common shares of
Eltrax common stock in connection with the acquisition of Hi-Tech, and
(iii) other adjustments described in the accompanying notes.
The unaudited pro forma consolidated financial statements are not necessarily
indicative of the financial position or results of operations Eltrax as they
may be in the future or as they might have been for the periods presented had
the entities actually been consolidated effective at the beginning of each
fiscal period or as of the dates of the unaudited pro forma balance sheets.
The unaudited pro forma consolidated financial statements and accompanying
notes should be read in conjunction with the historical financial statements
of Eltrax, as filed on Form 10-KSB for the nine month transition period
ended December 31, 1996 and the historical financial statements of Hi-Tech,
including the notes to such financial statements as set forth elsewhere in
this Form 8-K/A. The pro forma adjustments are based upon available
information and upon certain assumptions that Eltrax management believes are
reasonable in the circumstances.
The following unaudited pro forma statements include the accounts of EJG
Techline, Inc. ("Techline"), which merged with Eltrax on May 14, 1997 in a
pooling-of-interests transaction.
F-14
<PAGE>
ELTRAX SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA ELTRAX
ELTRAX TECHLINE ADJUSTMENTS/ PRO FORMA HI-TECH PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(2) ELIMINATIONS SUBTOTAL HISTORICAL(4) ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------ ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 501,199 $ 193,702 $ 694,901 $ 18,543 $ 713,444
Accounts receivable, net 6,049,966 292,250 6,342,216 1,057,150 7,399,366
Inventories 3,081,643 71,480 3,153,123 17,749 3,170,872
Other current assets 131,849 1,237 133,086 129,706 262,792
----------- ---------- ---------- ----------- ---------- ---------- -----------
Total current assets 9,764,657 558,669 - 10,323,326 1,223,148 - 11,546,474
Furniture and equipment, net 196,069 15,147 211,216 259,352 470,568
Deferred income taxes 1,315,970 - 1,315,970 - 1,315,970
Intangible assets 4,641,044 - 4,641,044 - 1,428,052 (5) 6,069,096
Other assets 151,312 3,400 154,712 - 154,712
----------- ---------- ---------- ----------- ---------- ---------- -----------
$16,069,052 $ 577,216 $ - $16,646,268 $1,482,500 $1,428,052 $19,556,820
=========== ========== ========== =========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 6,453,992 $ 387,658 $ 6,841,650 $ 430,893 $ 7,272,543
Accrued expenses 936,555 - 936,555 306,603 50,000 (6) 1,293,158
Credit line bank debt 588,539 - 588,539 179,328 767,867
Other current liabilities 506,485 91,270 597,755 487,728 1,085,483
----------- ---------- ---------- ----------- ---------- ---------- -----------
Total current
liabilities 8,485,571 478,928 - 8,964,499 1,404,552 50,000 10,419,051
Shareholders' equity
Common stock 75,581 5,320 (3,020)(3) 77,881 3,200 (7) 81,081
Additional paid-in capital 13,359,053 - 3,020 (3) 13,362,073 465,906 1,452,800 (7) 14,814,873
(465,906)(8)
Accumulated deficit (5,851,153) 92,968 (5,758,185) (387,958) 387,958 (8) (5,758,185)
----------- ---------- ---------- ----------- ---------- ---------- -----------
Total shareholders'
equity 7,583,481 98,288 - 7,681,769 77,948 1,378,052 9,137,769
----------- ---------- ---------- ----------- ---------- ---------- -----------
$16,069,052 $ 577,216 $ - $16,646,268 $1,482,500 $1,428,052 $19,556,820
=========== ========== ========== =========== ========== ========== ===========
</TABLE>
See accompanying notes to pro forma consolidated balance sheet.
F-15
<PAGE>
ELTRAX SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(UNAUDITED)
1. Represents the historical balance sheet of Eltrax as derived from the
Company's audited financial statements filed on Form 10-KSB for the
nine month transition period ended December 31, 1996.
2. Represents the historical unaudited balance sheet of Techline as of
December 31, 1996.
3. To eliminate the components of shareholders' equity of Techline and reflect
the issuance of 230,000 shares of Eltrax common stock issued in connection
with the combination with Techline.
4. Represents the historical balance sheet of Hi-Tech as of September 30, 1996.
5. Represents the excess of Eltrax's purchase price over Hi-Tech's book value
on the acquisition date. Eltrax has determined the components of the
intangible assets, which consist principally of goodwill, on a preliminary
basis.
6. To reflect estimated cash transaction costs paid, or to be paid, by Eltrax
in connection with the Hi-Tech acquisition.
7. Represents the issuance of 320,000 shares of Eltrax common stock issued in
connection with the acquisition of Hi-Tech (which reflects the initial
issuance of shares as well as shares which may be issued in early 1998
resulting from the earnout provision in the acquisition agreement).
8. To eliminate the components of shareholders' equity of Hi-Tech acquired by
Eltrax.
F-16
<PAGE>
ELTRAX SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ELTRAX
ELTRAX HI-TECH PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 789,064 $ 635 $ 789,699
Accounts receivable, net 7,299,192 766,850 8,066,042
Inventories 4,436,211 25,153 4,461,364
Other current assets 183,024 197,153 380,177
----------- ---------- ---------- -----------
Total current assets 12,707,491 989,791 - 13,697,282
Furniture and equipment, net 315,420 192,037 507,457
Intangible assets 3,266,577 - 1,681,363 (3) 4,947,940
Other assets 133,807 14,981 148,788
----------- ---------- ---------- -----------
$16,423,295 $1,196,809 $1,681,363 $19,301,467
=========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 9,281,250 $ 517,317 $ 9,798,567
Accrued expenses 1,170,768 160,856 50,000 (4) 1,381,624
Credit line bank debt 4,254,131 112,478 4,366,609
Other current liabilities 299,513 581,521 881,034
----------- ---------- ---------- -----------
Total current liabilities 15,005,662 1,372,172 50,000 16,427,834
Shareholders' equity
Common stock 78,121 - 3,200 (5) 81,321
Additional paid-in capital 13,400,060 465,906 1,452,800 (5) 14,852,860
(465,906)(6)
Accumulated deficit (12,060,548) (641,269) 641,269 (6) (12,060,548)
----------- ---------- ---------- -----------
Total shareholders' equity 1,417,633 (175,363) 1,631,363 2,873,633
----------- ---------- ---------- -----------
$16,423,295 $1,196,809 $1,681,363 $19,301,467
=========== ========== ========== ===========
</TABLE>
See accompanying notes to pro forma consolidated balance sheet.
F-17
<PAGE>
ELTRAX SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
1. Represents the historical unaudited balance sheet of Eltrax filed on
Form 10-Q for the six months ended June 30, 1997.
2. Represents the historical unaudited balance sheet of Hi-Tech as of June 30,
1997.
3. Represents the excess of Eltrax's purchase price over Hi-Tech's book value
on the acquisition date. Eltrax has determined the components of the
intangible assets, which consist principally of goodwill, on a preliminary
basis.
4. To reflect estimated transaction costs paid, or to be paid, by Eltrax in
connection with the Hi-Tech acquisition.
5. Represents the issuance of 320,000 shares of Eltrax common stock issued in
connection with the acquisition of Hi-Tech (which reflects the initial
issuance of shares as well as shares which may be issued in early 1998
resulting from an earnout provision in the acquisition agreement).
6. To eliminate the components of shareholders' equity of Hi-Tech acquired by
Eltrax.
F-18
<PAGE>
ELTRAX SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA ELTRAX
ELTRAX TECHLINE ADJUSTMENTS/ PRO FORMA HI-TECH PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(2) ELIMINATIONS SUBTOTAL HISTORICAL(4) ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------ ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $28,121,355 $3,043,170 $ (749,364)(3) $30,415,161 $9,231,070 $39,646,231
Cost of Revenue 23,746,297 2,217,430 (749,364)(3) 25,214,363 6,904,203 32,118,566
----------- ---------- ---------- ----------- ---------- ---------- -----------
Gross Profit 4,375,058 825,740 - 5,200,798 2,326,867 - 7,527,665
Operating Expenses:
Selling, General and
Administrative 5,162,213 673,655 5,835,868 1,787,408 7,623,276
Amortization of intangible
assets 208,330 - 208,330 - 95,210 (5) 303,540
----------- ---------- ---------- ----------- ---------- ---------- -----------
Total Operating Expenses 5,370,543 673,655 - 6,044,198 1,787,408 95,210 7,926,816
----------- ---------- ---------- ----------- ---------- ---------- -----------
Operating Income (loss) (995,485) 152,085 - (843,400) 539,459 (95,210) (399,151)
Interest Income (expense), net (7,909) 5,218 (2,691) (81,563) (84,254)
----------- ---------- ---------- ----------- ---------- ---------- -----------
Income (loss) from
continuing operations (1,003,394) 157,303 - (846,091) 457,896 (95,210) (483,405)
Loss from discontinued
operations (197,585) - (197,585) (197,585)
Gain on disposal of
discontinued operations 57,030 - 57,030 57,030
----------- ---------- ---------- ----------- ---------- ---------- -----------
Pretax income (loss) (1,143,949) 157,303 - (986,646) 457,896 (95,210) (623,960)
Income tax expense - - - - -
----------- ---------- ---------- ----------- ---------- ---------- -----------
Net Income (loss) $(1,143,949) $ 157,303 $ - $ (986,646) $ 457,896 $ (95,210) $ (623,960)
=========== ========== ========== =========== ========== ========== ===========
Net Loss per common
share and common
share equivalents:
Continuing operations $ (0.06)
===========
Discontinued operations $ (0.02)
===========
Net Loss per share $ (0.08)
===========
Weighted average shares
outstanding (6) 7,755,311
===========
</TABLE>
See accompanying notes to pro forma consolidated statement of operations.
F-19
<PAGE>
ELTRAX SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1996
(UNAUDITED)
1. Represents the historical consolidated statement of operations of Eltrax as
derived from the Company's audited financial statements filed on Form
10-KSB for the nine month transition period ended December 31, 1996.
2. Represents the historical unaudited statement of operations of Techline for
the year ended December 31, 1996.
3. Represents the elimination of historical intercompany sales from Eltrax to
Techline.
4. Represents the historical statement of operations for Hi-Tech for the year
ended September 30, 1996.
5. To reflect an adjustment associated with the amortization of intangible
assets reflecting the excess of Eltrax's purchase price over Hi-Tech's net
book value on the acquisition date. The allocation of the purchase
price to intangible assets has been performed by Eltrax on a
preliminary basis. For purposes of the pro forma statement of
operations, the asset is being amortized on a straight-line basis over
15 years.
6. Includes 320,000 shares of Eltrax common stock issued in connection with the
acquisition.
F-20
<PAGE>
ELTRAX SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ELTRAX
ELTRAX HI-TECH PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue $21,605,258 $4,638,634 $26,243,892
Cost of Revenue 18,489,997 3,369,903 21,859,900
----------- ---------- ---------- -----------
Gross Profit 3,115,261 1,268,731 - 4,383,992
Operating Expenses:
Selling, General and Administrative 5,063,023 1,500,824 6,563,847
Amortization of intangible assets 208,400 - 84,068 292,468
Adjustment of Datatech Goodwill 2,458,000 - 2,458,000
----------- ---------- ---------- -----------
Total Operating Expenses 7,729,423 1,500,824 84,068 9,314,315
----------- ---------- ---------- -----------
Operating (loss) (4,614,162) (232,093) (84,068) (4,930,323)
Interest Income (expense), net (113,503) (23,768) (137,271)
----------- ---------- ---------- -----------
Loss before income taxes (4,727,665) (255,861) (84,068) (5,067,594)
Income tax expense 1,315,970 - 1,315,970
----------- ---------- ---------- -----------
Net loss $(6,043,635) $ (255,861) $ (84,068) $(6,383,564)
=========== ========== ========== ===========
Net loss per common share and
common share equivalents $ (0.79)
===========
Weighted average shares outstanding (4) 8,129,411
===========
</TABLE>
See accompanying notes to pro forma consolidated statement of operations.
F-21
<PAGE>
ELTRAX SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
1. Represents the historical unaudited consolidated statement of operations of
Eltrax filed on Form 10-QSB for the six months ended June 30, 1997.
2. Represents the historical statement of operations for Hi-Tech for the
nine months ended June 30, 1997.
3. To reflect an adjustment associated with the amortization of intangible
assets reflecting the excess of Eltrax's purchase price over Hi-Tech's
net book value on the acquisition date. The allocation of the purchase
price to intangible assets has been performed by Eltrax on a preliminary
basis. For purposes of the pro forma statement of operations the asset is
being amortized on a straight-line basis over 15 years.
4. Includes 320,000 shares of Eltrax common stock issued in connection with the
acquisition.
F-22
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Eltrax Systems, Inc. on Form S-8 (File No. 333-26015) and Form S-3 (File
No. 333-37013) of our report dated October 25, 1996 on our audit of the
Hi-Tech Connections, Inc. balance sheets as of September 30, 1996 and 1995
and the related statements of operations, deficit and cash flows for the
years ended September 30, 1996 and 1995, which report is included in this
Current Report on Form 8-K/A dated August 15, 1997.
BARATZ & ASSOCIATES, P. A.