<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) June 26, 1997
SETECH, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-10310 11-2809189
(Commission File Number) (I.R.S. Employer Identification No.)
905 Industrial Drive, Murfreesboro, Tennessee 37129
(Address of Principal Executive Offices) (Zip Code)
(615) 890-1700
(Issuer's Telephone Number)
This amendment amends a statement on Form 8-K filed with the
Securities and Exchange Commission on July 11, 1997, relating to the
acquisition by SETECH, Inc. (the "Company") of Lewis Supply Company, Inc.
(the "Acquiree"). The amendment provides financial statements of the
Acquiree, as well as pro forma financial information showing the effects of
the acquisition.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Aqcuiree:
EX-99.1 Audited Financial Statements of Lewis Supply Company, Inc., Years
ended January 31, 1996 and 1995
EX-99.2 Audited Financial Statements of Lewis Supply Company, Inc., Years
ended January 31, 1997 and 1996
EX-99.3 Lewis Supply Company, Inc., Unaudited Financial Statements, Five
months ended June 30, 1997 and 1996
(b) Pro Forma Financial Information:
EX-99.4 SETECH, Inc. and Subsidiaries
Pro forma Condensed Consolidated Financial Information
Showing Results of Lewis Supply Company, Inc. Acquisition
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.
SETECH, Inc.
(Registrant)
Date: August 9, 1997 By: /s/ Cindy L. Rollins
Cindy L. Rollins
Secretary and CFO
<PAGE>
EX-99.1
Lewis Supply Company, Inc.
Audited Financial Statements
Years ended January 31, 1996 and 1995
CONTENTS
Report of Independent Auditors
Audited Financial Statements
Balance Sheets
Statements of Income
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
ERNST & YOUNG LLP 1400 One Commerce Square Phone: 901 526 1000
Memphis, Tennessee 38103
Report of Independent Auditors
The Board of Directors and Shareholders
Lewis Supply Company, Inc.
We have audited the accompanying balance sheets of Lewis Supply Company,
Inc. as of January 31, 1996 and 1995, and the related statements of income,
shareholders' equity 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 Lewis Supply Company,
Inc. at January 31, 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.
April 26, 1996 /s/Ernst & Young LLP
<PAGE>
Lewis Supply Company, Inc.
Balance Sheets
JANUARY 31
1996 1995
ASSETS
Current assets:
Cash $ $ 47,062
Accounts receivable, net of allowance
of $44,091 and $77,526 at January 31,
1996 and 1995, respectively $ 4,671,239 $ 3,518,173
Inventories held for sale 6,272,630 5,606,357
Other assets 209,430 58,665
__________ __________
Total current assets 11,153,299 9,230,257
Property and Equipment:
Land 28,717 28,717
Buildings and improvements 561,097 552,097
Computer equipment 1,009,523 710,702
Office furniture and fixtures 230,577 186,592
Motor vehicles 41,600 23,728
Warehouse equipment 89,234 89,234
_________ _________
1,960,748 1,591,070
Less accumulated depreciation 930,855 713,565
_________ _________
1,029,893 877,505
Other assets 10,979 11,952
__________ __________
Total assets $12,194,171 10,119,714
<PAGE>
JANUARY 31
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,627,127 $ 2,909,110
Note payable to bank 4,922,489 4,235,978
Accrued payroll and related taxes 369,424 268,872
Accrued expenses 143,387 73,240
Other 52,336 53,266
_________ _________
Total current liabilities 9,114,763 7,540,466
Other 125,723 174,953
_________ _________
Total liabilities 9,240,486 7,715,419
Shareholders' equity:
Common stock, $10 par value:
Authorized shares-50,000
Issued and outstanding shares-49,901 499,010 499,010
Additional paid-in capital 743,484 743,484
Retained earnings 1,961,191 1,411,801
_________ _________
3,203,685 2,654,295
Less cost of 6,250 shares held in treasury 250,000 250,000
_________ _________
Total shareholders' equity 2,953,685 2,404,295
_________ _________
Total liabilities and shareholders' equity $12,194,171 $10,119,714
SEE ACCOMPANYING NOTES.
<PAGE>
Lewis Supply Company, Inc.
Statements of Income
YEAR ENDED JANUARY 31
1996 1995
Net sales $38,014,568 $33,769,754
Cost of goods sold 30,406,098 27,039,991
__________ __________
7,608,470 6,729,763
Operating expenses:
Shipping and warehouse 358,113 329,341
Delivery 113,546 113,698
Selling 3,054,839 2,922,848
General and administrative 2,649,870 2,294,860
Interest 401,572 343,093
Employee bonuses 348,739 233,483
_________ _________
6,926,679 6,237,323
_________ _________
681,791 492,440
Other income 37,396 76,287
_________ _________
Net income $719,187 $568,727
See accompanying notes.
<PAGE>
<TABLE>
Lewis Supply Company, Inc.
Statements of Shareholders' Equity
<CAPTION>
Additional Total
Common Paid-In Retained Treasury Shareholders'
STOCK CAPITAL EARNINGS STOCK EQUITY
<S> <C> <C> <C> <C> <C>
Balance at
February 1, 1994 $499,010 $743,484 $981,162 $(250,000) $1,973,656
Distributions to
shareholders (138,088) (138,088)
Net income 568,727 568,727
________________________________________________________
Balance at
January 31, 1995 499,010 743,484 1,411,801 (250,000) 2,404,295
Distributions to
shareholders (169,797) (169,797)
Net income 719,187 719,187
________________________________________________________
Balance at
January 31, 1996 499,010 743,484 1,961,191 (250,000) 2,953,685
SEE ACCOMPANYING NOTES.
</TABLE>
<PAGE>
Lewis Supply Company, Inc.
Statements of Cash Flows
YEAR ENDED JANUARY 31
1996 1995
OPERATING ACTIVITIES:
Net income $719,187 $568,727
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 217,290 144,909
Provision for doubtful accounts 16,500 2,200
Changes in operating assets and liabilities:
Accounts receivable (1,169,566) (517,834)
Inventories held for sale (666,273) (1,363,353)
Accounts payable and accrued expenses 888,716 141,233
Other (199,952) 18,881
______________________________
Net cash used in operating activities (194,098) (1,005,237)
INVESTING ACTIVITIES:
Purchase of property and equipment (369,678) (288,820)
FINANCING ACTIVITIES:
Proceeds from borrowings on note payable to
bank 1,957,882 2,539,830
Principal payments on note payable to bank (1,271,371) (1,060,623)
Distributions to shareholders (169,797) (138,088)
________________________________
Net cash provided by financing activities 516,714 1,341,119
________________________________
Net increase (decrease) in cash (47,062) 47,062
________________________________
Cash at beginning of year 47,062 -
________________________________
Cash at end of year $ - $47,062
SEE ACCOMPANYING NOTES.
<PAGE>
Lewis Supply Company, Inc.
Notes to Financial Statements
January 31, 1996
1. ACCOUNTING POLICIES
ORGANIZATION
The Company is a wholesale and retail distributor of hardware and mill
supplies. The Company's customers are located primarily in Arkansas,
Mississippi and Tennessee. The Company performs credit evaluations of its
customers' financial condition and generally does not require collateral. The
Company had two customers which accounted for 17% and 11%, respectively, of
sales during 1996.
INVENTORIES HELD FOR SALE
Inventories are stated at the lower of average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
INCOME TAXES
The Company operates under Subchapter S of the Internal Revenue Code and
consequently, it is not subject to federal income tax. The shareholders include
the Company's operations in their own income for federal income tax purposes.
Management is not aware of any course of events that has occurred that might
adversely affect the qualification of the Company as a Subchapter S
corporation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for 1995
to conform with the 1996 classifications.
<PAGE>
Lewis Supply Company, Inc.
Notes to Financial Statements (continued)
2. NOTE PAYABLE TO BANK
The note payable to bank represents borrowings under a $5,500,000 line of
credit that is secured by the Company's accounts receivable and inventory. The
note payable is payable on demand and bears interest at the bank's prime rate
plus one-half percent (9.0% at January 31, 1996).
The line of credit agreement contains certain restrictions relating to working
capital and requires minimum net worth of $1,900,000.
The amount of interest paid was $397,724 in 1996 and $327,963 in 1995.
3. SHAREHOLDERS' EQUITY
The Company has an option to repurchase all stock owned by any Company
shareholder.
4. OPERATING LEASES
The Company leases buildings, equipment, and vehicles under noncancelable
operating leases. Future minimum payments, by year and in the aggregate, under
noncancelable operating leases with terms of one year or more are as follows at
January 31, 1996:
YEAR AMOUNT
1997 $152,749
1998 152,749
1999 9,783
2000 9,783
________
$325,064
Total rent expense for all operating leases was approximately $110,000 in 1996
and $108,000 in 1995. The building lease agreements include provisions for two-
year renewal options followed by a three-year renewal option and purchase
options at fair value.
<PAGE>
Lewis Supply Company, Inc,
Notes to Financial Statements (continued)
5. EMPLOYEE BENEFITS
The Company has a Deferred Profit Sharing Plan for its employees. Employees can
participate if they have one year of service and have reached age 21.
Participants can contribute to the plan by electing to defer a percentage of
their annual earnings. The Company matches participants' basic contributions up
to a specified percentage. Contribution expense was approximately $47,000 in
1996 and $24,000 in 1995.
6. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable and note payable to bank, approximate
fair value due to their short maturities.
<PAGE>
EX-99.2
Lewis Supply Company, Inc.
Audited Financial Statements
Years ended January 31, 1997 and 1996
Contents
Report of Independent Auditors
Audited Financial Statements
Balance Sheets
Statements of Income
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Lewis Supply Company, Inc.
We have audited the accompanying balance sheets of Lewis Supply Company, Inc.
as of January 31, 1997 and 1996, and the related statements of income,
shareholders' equity 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 Lewis Supply Company, Inc. at
January 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
May 16, 1997 /s/Ernst & Young LLP
<PAGE>
Lewis Supply Company, Inc.
Balance Sheets
JANUARY 31
1997 1996
Assets
Current assets:
Accounts receivable, net of allowance
of $33,860 and $44,091 at January 31,
1997 and 1996, respectively $ 4,034,321 $4,671,239
Inventories held for sale 6,909,026 6,272,630
Other assets 241,025 209,430
_______________________________
Total current assets 11,184,372 11,153,299
Property and Equipment:
Land 28,717 28,717
Buildings and improvements 561,097 561,097
Computer equipment 1,066,336 1,009,523
Office furniture and fixtures 238,183 230,577
Motor vehicles 41,600 41,600
Warehouse equipment 112,733 89,234
_____________________________
2,048,666 1,960,748
Less accumulated depreciation 1,163,075 930,855
______________________________
885,591 1,029,893
Other assets 34,443 10,979
______________________________
Total assets $12,104,406 $12,194,171
<PAGE>
JANUARY 31
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,822,795 3,627,127
Line of credit 4,294,017 4,922,489
Accrued payroll and related taxes 550,196 369,424
Accrued expenses 98,614 143,387
Current maturities of long-term debt 158,061 52,336
_____________________________
Total current liabilities 7,923,683 9,114,763
Long-term debt, less current maturities 442,735 125,723
_____________________________
Total liabilities 8,366,418 9,240,486
Shareholders' equity:
Common stock, $10 par value:
Authorized shares-50,000
Issued and outstanding shares-49,901 499,010 499,010
Additional paid-in capital 743,484 743,484
Retained earnings 2,745,494 1,961,191
________________________________
3,987,988 3,203,685
Less cost of 6,250 shares held
in treasury 250,000 250,000
________________________________
Total shareholders' equity 3,737,988 2,953,685
________________________________
Total liabilities and shareholders'
equity $ 12,104,406 12,194,171
See accompanying notes.
<PAGE>
Lewis Supply Company, Inc.
Statements of Income
JANUARY 31
1997 1996
Net sales $ 39,399,612 $ 38,014,568
Cost of goods sold 31,438,932 30,406,098
_____________________________________
7,960,680 7,608,470
Operating expenses-
Shipping and warehouse 329,446 358,113
Delivery 114,540 113,546
Selling 3,126,026 3,054,839
General and administrative 2,323,446 2,560,733
Interest 421,012 401,572
Employee bonuses 497,895 348,739
____________________________________
6,812,365 6,837,542
____________________________________
1,148,315 770,928
Other income (expense):
Gain on contract settlement 233,101
Other income (expense) (129,809) 37,396
___________________________________
103,292 37,396
Income before income taxes 1,251,607 808,324
Income tax expense 88,658 89,137
___________________________________
Net income 1,162,949 719,187
See accompanying notes.
<PAGE>
<TABLE>
Lewis Supply Company, Inc.
Statements of Shareholders' Equity
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
<S> <C> <C> <C> <C> <C>
Balance at January
31, 1995 $499,010 $743,484 $1,411,801 $(250,000) $2,404,295
Distributions to
shareholders (169,797) (169,797)
Net income 719,187 719,187
___________________________________________________________
Balance at January
31, 1996 499,010 743,484 1,961,191 (250,000) 2,953,685
Distributions to
shareholders (378,646) (378,646)
Net income 1,162,949 1,162,949
Balance at January
31, 1997 499,010 743,484 2,745,494 (250,000) 3,737,988
</TABLE>
See accompanying notes.
<PAGE>
Lewis Supply Company, Inc.
Statements of Cash Flows
YEAR ENDED JANUARY 31
1997 1996
OPERATING ACTIVITIES:
Net income $ 1,162,949 $ 719,187
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Loss on asset disposal 4,853
Gain on contract settlement (233,101)
Depreciation 240,575 217,290
Provision for doubtful accounts 12,020 16,500
Changes in operating assets and liabilities:
Accounts receivable 624,898 (1,169,566)
Inventories held for sale (636,396) (666,273)
Accounts payable and accrued expenses (435,232) 888,716
Other (55,059) (199,952)
Net cash provided by (used in) operating --------------------------------
activities 685,507 (194,098)
INVESTING ACTIVITIES:
Purchase of property and equipment (101,126) (369,678)
FINANCING ACTIVITIES:
Proceeds from borrowings on note payable and
long-term debt 2,120,256 1,957,882
Principal payments on note payable and
long-term debt (2,325,991) (1,271,371)
Distributions to shareholders (378,646) (169,797)
______________________________
Net cash provided by (used in) financing
activities (584,381) 516,714
______________________________
Net change in cash - (47,062)
______________________________
Cash at beginning of year - 47,062
______________________________
Cash at end of year $ - $ -
See accompanying notes.
<PAGE>
Lewis Supply Company, Inc.
Notes to Financial Statements
January 31, 1997
1. ACCOUNTING POLICIES
ORGANIZATION
The Company is a wholesale and retail distributor of hardware and mill
supplies. The Company's customers are located primarily in Arkansas,
Mississippi and Tennessee. The Company performs credit evaluations of its
customers' financial condition and generally does not require collateral. The
Company had three customers which accounted for 14%, 11% and 9%, respectively,
of sales during the year ended January 31, 1997. The Company had two customers
which accounted for 17% and 11%, respectively, of sales during the year ended
January 31, 1996.
INVENTORIES HELD FOR SALE
Inventories are stated at the lower of average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
INCOME TAXES
The Company operates under Subchapter S of the Internal Revenue Code and
consequently, it is not subject to federal income tax. The shareholders include
the Company's operations in their own income for federal income tax purposes.
Management is not aware of any course of events that has occurred that might
adversely affect the qualification of the Company as a Subchapter S
corporation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
<PAGE>
Lewis Supply Company, Inc.
Notes to Financial Statements (continued)
2. LINE OF CREDIT AND LONG-TERM DEBT
The line of credit represents borrowings outstanding under a $6,000,000
($5,500,000 at January 31, 1996) line of credit that is secured by the
Company's accounts receivable and inventory. The line of credit is payable on
demand and bears interest at the bank's prime rate plus one-quarter percent
(8.5% at January 31, 1997).
The line of credit agreement contains, among other things, certain restrictions
relating to the ratio of total liabilities to tangible net worth, minimum net
worth and minimum working capital.
During December 1996, the Company entered into a $500,000 promissory note with
a bank. Principal payments of $8,333 plus interest are due monthly beginning
February 1, 1997, The remaining unpaid principal and interest is due on January
1, 2000. The note bears interest at a rate of 9.5%.
The amount of interest paid was approximately $421,000 in 1997 and $398,000 in
1996.
3. SHAREHOLDERS' EQUITY
The Company has an option to repurchase all stock owned by any Company
shareholder.
4. OPERATING LEASES
The Company leases buildings, equipment, and vehicles under noncancelable
operating leases. Future minimum payments, by year and in the aggregate, under
noncancelable operating leases with terms of one year or more are as follows at
January 31, 1997:
1998 $ 152,776
1999 8,192
_______
Total $160,968
Total rent expense for all operating leases was $153,000 in 1997 and $110,000
in 1996. The building lease agreements include provisions for two-year renewal
options followed by a three-year renewal option and purchase options at fair
value.
<PAGE>
Lewis Supply Company, Inc.
Notes to Financial Statements (continued)
5. EMPLOYEE BENEFITS
The Company has a Deferred Profit Sharing Plan for its employees. Employees can
participate if they have one year of service and have reached age 21.
Participants can contribute to the plan by electing to defer a percentage of
their annual earnings. The Company matches participants' basic contributions up
to a specified percentage. Contribution expense was approximately $64,000 in
1997 and $47,000 in 1996.
6. GAIN ON CONTRACT SETTLEMENT
During December 1996, the Company entered into an agreement with a customer to
resolve all monetary issues related to the existing contract between the
Company and the customer and results of prior internal audits performed by the
customer as of December 1, 1996. The Company recorded a gain of $233,101 on the
settlement.
7. PHANTOM STOCK OPTION PLAN
During the year ended January 31, 1997, the Board of Directors of the Company
approved the Phantom Stock Option Plan for the President of the Company. The
Plan provides the granting of a specified number of phantom stock options each
year during the three year period beginning February 1, 1996. At January 31,
1997, there were 1,395 phantom stock options outstanding. All phantom stock
options vest on January 31, 1999. The difference between the book value of the
shares on January 31, 1999, and the book value of the shares at the date the
options are issued will be paid to the President of the Company in cash.
Options that have been issued will convert to stock if the Company is sold
during the three year period.
8. LETTER OF INTENT
On April 7, 1997, the Company's shareholders entered into a letter of intent to
sell the stock of the Company to an outside party.
<PAGE>
EX-99.3
LEWIS SUPPLY COMPANY, INC.
UNAUDITED FINANCIAL STATEMENTS
FIVE MONTHS ENDED JUNE 30, 1997 AND 1996
LEWIS SUPPLY COMPANY, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 59,216 $ -
Accounts receivable, less allowance
for doubtful account of $59,024 and $39,979 5,212,517 4,416,347
Inventory 7,129,718 6,121,863
Other current assets 324,987 233,018
____________________________
TOTAL CURRENT ASSETS 12,726,438 10,771,228
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $1,263,137 and $1,031,455 844,045 982,828
OTHER ASSETS 2,493 5,653
_____________________________
$13,572,976 $11,759,709
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ - $ 6,236,714
Current maturities of long-term debt 66,964 58,673
Checks issued in excess of deposits 1,415,656 -
Accounts payable 2,187,193 2,055,788
Accrued expenses 410,495 223,833
___________________________
TOTAL CURRENT 4,080,308 8,575,008
LIABILITIES
LONG-TERM DEBT, less current maturities 6,410,250 100,152
SHAREHOLDERS' EQUITY
Common stock, $10 par value, 50,000 shares
authorized, 49,901 shares issued 499,010 499,010
Additional paid-in capital 743,483 743,483
Retained earnings 2,089,925 2,092,056
___________________________
3,332,418 3,334,549
Less 6,250 treasury shares 250,000 250,000
___________________________
3,082,418 3,084,549
___________________________
$ 13,572,976 $11,759,709
See accompanying notes.
</TABLE>
LEWIS SUPPLY COMPANY, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
UNAUDITED
Five months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
NET SALES $ 17,517,590 $15,897,728
COSTS AND EXPENSES
Cost of sales 13,914,245 12,553,482
Selling, general and administrative
expenses 3,481,526 2,609,839
Interest, net of interest income 390,545 363,721
_______________________________
17,786,316 15,527,042
INCOME (LOSS) BEFORE INCOME TAXES ( 268,726) 370,686
STATE INCOME TAXES (BENEFIT) ( 16,100) 22,200
_______________________________
NET INCOME (LOSS) $ ( 252,626) $ 348,486
BEGINNING RETAINED EARNINGS 2,745,494 1,961,191
Distributions to shareholders ( 402,943) ( 217,621)
______________________________
ENDING RETAINED EARNINGS $ 2,089,925 $2,092,056
EARNINGS (LOSS) PER SHARE $ ( 5.79) $ 7.98
</TABLE>
See accompanying notes.
LEWIS SUPPLY COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
Five months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ ( 252,626) $ 348,486
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation 100,062 100,600
Changes in operating assets and liabilities:
Accounts receivable (1,178,196) 254,892
Inventory ( 220,692) 150,767
Other current assets ( 83,962) ( 23,588)
Other assets 31,950 5,326
Checks issued in excess of deposits 1,415,656 -
Accounts payable ( 635,602) (1,571,339)
Accrued expenses ( 238,315) ( 288,979)
_____________________________
CASH FLOWS FROM
OPERATING ACTIVITIES (1,061,725) (1,023,835)
INVESTING ACTIVITIES
Property and equipment additions ( 58,516) ( 53,535)
FINANCING ACTIVITIES
Proceeds from long-term debt 6,325,952 -
Increase in (reduction of) credit lines (4,294,017) 1,314,225
Reduction of long-term debt ( 449,535) ( 19,234)
Distributions to stockholders ( 402,943) (217,621)
____________________________
CASH FLOWS FROM
FINANCING ACTIVITIES 1,179,457 1,077,370
____________________________
CASH AT END OF YEAR $ 59,216 $ -
</TABLE>
See accompanying notes.
<PAGE>
LEWIS SUPPLY COMPANY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
June 30, 1997
NOTE A - ACCOUNTING POLICIES
Basis of presentation
The financial information included herein is unaudited: however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of results for the interim period. This report
should be read in conjunction with the Company's annual financial
statements for the year ended January 31, 1997. The results of operations
for the five month period are not necessarily indicative of the results
to be expected for the full year.
Change in control
Effective June 26, 1997, the Company's outstanding stock was acquired by
SETECH, Inc., a Tennesse-based industrial services provider. The Company
is changing its financial reporting year to June 30 in order conform with
that of such parent corporation.
Income taxes
The Company's stockholders have included the Company's taxable income in
determination of their individual income tax liabilities under an S
Corporation election. Accordingly, these financial statements include no
provision for federal income taxes. The S Corporation election terminates
with the above-mentioned change in the Company's control and the
Company's future income will be subject to federal corporate income
taxes.
<PAGE>
EX-99.4
<TABLE>
SETECH, INC. and Subsidiaries
Proforma Condensed Consolidated Balance Sheet
Unaudited
June 30, 1997
<CAPTION>
SETECH, INC. LEWIS
AND SUPPLY PRO FORMA PRO FORMA
SUBSIDIARIES COMPANY ADJUSTMENTS RESULTS
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $1,566,069.39 $ 59,216.00 $1,625,285.39
Accounts Receivable, net
of allowance for
doubtful accounts 3,393,587.68 5,162,517.00 8,556,104.68
Inventory 10,894,543.71 6,410,718.00 17,305,261.71
Prepaid Expenses 84,370.04 324,987.00 409,357.04
Other Current Assets 714.75 0.00 714.75
Income Tax Benefit 389,330.80 324,149.00 713,479.80
____________________________________________________________
Total Current Assets 16,328,616.37 12,281,587.00 28,610,203.37
PROPERTY AND EQUIPMENT
net of Accumulated
Depreciation 899,326.78 844,045.00 1,743,371.78
COST IN EXCESS OF NET
ASSETS ACQUIRED, net
of accumulated
amortization 1,654,038.87 5,351,107.00 (133,778.00)(2) 6,871,367.87
Other Assets 67,373.42 2,493.00 ( 22,458.00) 47,408.42
Investment in Subsidiary 7,963,674.00 0.00 (7,963,674.00)(1) 0.00
_________________________________________________________
26,913,029.44 18,479,232.00 (8,119,910.00) 37,272,351.44
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
SETECH, INC. and Subsidiaries
Proforma Condensed Consolidated Balance Sheet (Continued)
Unaudited
June 30, 1997
<CAPTION>
SETECH, INC. LEWIS
AND SUPPLY PRO FORMA PRO FORMA
SUBSIDIARIES COMPANY ADJUSTMENTS RESULTS
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Current Portion of
Long-Term Debt $ 228,624.75 0.00 $ 228,624.75
Checks issued in
excess of deposits 0.00 1,415,656.00 1,415,656.00
Trade Accounts Payable 2,521,158.44 2,254,157.00 4,775,315.44
Accrued Expenses 1,443,441.55 435,495.00 370,396.00 (3) 2,049,212.55
(200,120.00)(4)
______________________________________________________________
4,193,224.74 4,105,308.00 8,468,808.74
NON-CURRENT LIABILITIES,
less current portion 14,408,902.72 6,410,250.00 20,819,152.72
STOCKHOLDERS EQUITY
Common Stock 55,053.08 499,010.00 (499,010.00)(1) 55,053.08
Additional Paid in
Capital 12,220,224.66 6,094,590.00 (6,094,590.00)(1) 12,220,224.66
Retained Earnings (3,964,375.76) 1,620,074.00 (1,620,074.00)(1) (4,290,887.76)
(133,778.00)(2)
(370,396.00)(3)
190,754.00 (5)
(190,754.00)(5)
200,120.00 (4)
(22,458.00)(2)
________________________________________________________________
8,310,901.98 8,213,674.00 7,984,389.98
Less treasury shares 0.00 (250,000.00) 250,000.00 (1) 0.00
________________________________________________________________
8,310,901.98 7,963,674.00 7,984,389.98
________________________________________________________________
$26,913,029.44 $18,479,232.00 $(8,119,910.00) $37,272,351.44
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
SETECH, INC. and Subsidiaries
Proforma Condensed Consolidated Statement of Continuing Operations
Unaudited
For the year ended June 30, 1997
<CAPTION>
SETECH, INC. LEWIS
AND SUPPLY PRO FORMA PRO FORMA
SUBSIDIARIES COMPANY ADJUSTMENTS RESULTS
<S> <C> <C> <C> <C>
Revenues $36,492,546.86 $41,434,193.03 $77,926,739.89
Costs and Expenses
Cost of Revenues 32,426,886.83 32,886,577.69 65,313,464.52
Selling, general,
and administrative 2,507,105.39 7,040,204.67 133,778.00(2) 9,703,546.06
22,458.00(2)
Interest, net of
interest income 670,607.60 908,647.03 370,396.00(3) 1,949,650.63
______________________________________________________________
35,604,599.82 40,835,429.39 526,632.00 76,966,661.21
______________________________________________________________
Income before
Income Taxes 887,947.04 598,763.64 (526,632.00) 960,078.68
Income taxes 377,219.94 37,723.00 (200,120.00)(4) 405,576.94
190,754.00 (5)
_____________________________________________________________
Income from
continuing operations $ 510,727.10 $ 561,040.64 $(517,266.00) $ 554,501.74
Earnings per share
Primary $ 0.100
Fully diluted $ 0.098
SEE ACCOMPANYING NOTES.
</TABLE>
<PAGE>
SETECH, INC. AND SUBSIDIARIES
SELECTED NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Year ended June 30, 1997
NOTE A - ACQUISITION OF CONSOLIDATED SUBSIDIARY
Effective June 26, 1997, SETECH, Inc. acquired the outstanding stock of
Lewis Supply Company, Inc. (Lewis) in exchange for cash of $5,952,500,
debt (payable to Lewis shareholders) of $750,000 and 285,714 SETECH, Inc.
common shares and equivalents. Lewis is a wholesale and retail distributor
of hardware and mill supplies serving customers located primarily in
Arkansas, Mississippi and Tennessee. This exchange is classified as a
purchase transaction for financial accounting purposes. This transaction
was financed partially through debt in the form of bank credit lines and
subordinated convertible debentures.
NOTE B - ACCOUNTING POLICIES
Basis of Presentation
The audit of the Company's financial statements for the year ended June
30, 1997, had not been completed as of the date of issuance of these pro
forma financial statements. The financial information included in these
pro forma financial statements is unaudited; however, such information
reflects all adjustments which are, in the opinion of management,
necessary for fair presentation.
The accompanying pro forma financial statements present the pro forma
consolidated financial condition of the Company as of June 30, 1997, and
the pro forma results of operations for the year then ended, assuming the
transaction had occurred on June 30, 1996. Lewis previously utilized a
January 31 fiscal year for financial reporting purposes; Lewis'
financial statements have been restated to conform with the Company's
June 30 year end.
This pro forma information should be read in conjunction with the
Company's historical financial statements. Such pro forma information
is not necessarily indicative of the results that would have been
attained had the transaction actually occurred on June 30, 1996.
SETECH, INC. AND SUBSIDIARIES
SELECTED NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
(CONTINUED)
Year ended June 30, 1997
NOTE B - ACCOUNTING POLICIES (CONTINUED)
Earnings per share
Primary earnings per share are computed based on the average number of
shares outstanding (5,505,308 common shares and 30,612 equivalent shares)
during the period. Conversion of the Company's outstanding convertible
debentures is not considered for purposes of determining fully diluted
earnings per share because such conversion feature is anti-dilutive.
NOTE C - PRO FORMA ADJUSTMENTS
Pro forma adjustments are summarized as follows:
1. Elimination of the Company's investment in Lewis and Lewis'
stockholder's equity.
2. Recognition of one year's amortization of the excess of cost over
book value of net assets acquired in the transaction (40 year estimated useful
life) and loan costs (3 year loan term).
3. Recognition of interest on acquisition indebtedness.
4. Recognition of income tax benefits attributable to the above-
mentioned amortization and interest.
5. Recognition of income taxes paid by shareholders on Lewis' income
under an S Corporation election.
