<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A NO. 2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
May 30, 1996
--------------------------------
Date of Report
(Date of Earliest Event Reported)
TOPRO, INC.
----------------------------------------
(Exact name of Registrant as specified in its charter)
Colorado 84-1042227
- ------------------------------- ----------------------------
(State or other jurisdiction of I.R.S. Employer I. D. Number
incorporation or organization)
2525 West Evans Avenue, Denver, Colorado 80219
- ---------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (303) 935-1221
--------------
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 30, 1996, Topro, Inc. ("Registrant"), through a merger
undertaken by a newly formed subsidiary, acquired all the outstanding capital
stock of Visioneering Holding Corporation ("Vision") an independent control
systems integrator located in Cypress, California. Vision's core business
parallels that of the Registrant's, with emphasis on some different/additional
markets and a generally more technically sophisticated product offering in the
food and pharmaceutical industries. Vision is focused on the following vertical
markets: food processing, pharmaceutical, and discrete manufacturing. Vision's
operations are carried out through two subsidiaries Vision Engineering, Inc.
and Vision Fabrication, Inc. and Vision has no assets or operations and only
holds the stock of the two entities. In accordance with an Agreement and Plan
of merger closed on May 30, 1996, the Registrant agreed to acquire all of the
outstanding capital stock of Vision in exchange for a maximum of 1,600,000
restricted shares of the Registrant's Common Stock, all of which have been
escrowed, to be released to the shareholders of Vision upon completion of an
audit of the December 31, 1995 financial statements and a subsequent review of
the April 30, 1996 financial statements and
<PAGE> 2
acceptance of proposed adjustments, if any. On October 8, 1996 the Topro Board
of Directors finalized and approved the maximum consideration based on the
completed audit and reviewed financial statements of Vision. Based on the
completed reviewed and audited financial information the Registrant and Vision
agreed to issue 200,000 shares of the Registrant's common stock, and option to
purchase 900,000 shares of common stock. The options had excercise prices
of $2.25 to $2.75 per share with exercise dates from April 1997 to January
1999. Additionally, 100,000 shares of the Registrants common stock will be
issued if Vision generates at least $500,000 EBITDA during the first two
quarters of the Registrant's 1997 fiscal year. In addition, to the acquisition
the Registrant guaranteed the bank debt of Vision Engineering Inc. to Garfield
Bank of Montebello, CA in the amount of $1,165,161.
Vision corporate headquarters operates from a modern 31,000 square
foot facility in Cypress, CA and has satellite engineering and sales offices
in: Sacramento, CA (6,700 sq ft), Phoenix, AZ(5,900 sq ft), Atlanta, GA (4,300
sq ft), and Chicago, IL(3,900 sq ft), from which it serves certain accounts.
Vision also has sales offices in Boston and San Juan, Puerto Rico. Vision staff
currently numbers 95, with over 85 engineers and sales personnel and 10
corporate personnel. The Registrant intends to continue the business of Vision,
having effected the transaction in order to establish a market presence for its
Control Systems Integration operations in the regions served by Vision. The
Atlanta office of Vision will be merged into the Registrant's Atlanta offices
of MDCS, Inc. The Phoenix office of Vision will transfer reporting functions to
the Registrant's Denver offices.
In connection with the Merger, the past President of Vision, Mr.
Michael Taylor entered into an employment agreement with the Registrant for an
initial term of 6 months. In addition to the employment agreement, a 24 month
consulting agreement was entered into commencing six months after the date of
the employment agreement. Mr. Taylor will also become a director of the
Registrant. Kathleen Taylor, the past secretary and Vice President of Technical
Support, entered into an employment agreement for an initial term of five
months. In addition to the employment agreement, a 24 month consulting
agreement was entered into commencing five months after the date of the
employment agreement. In October 1996 both consulting agreements were amended
to grant each individual options of 150,000 shares of the Registrant's common
stock at $2.25 (market) exercisable for a term of 10 years.
Prior to this transaction, there was no material relationship between
Vision and the Registrant or any of its affiliates, any director or officer of
the registrant, or any associate of such director or officer.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Audited financial statements of Vision for the 12 months
ending December 31, 1995 and 1994.
(b) This form is filed to fulfill the financial statement requirements
concerning the acquisition of Vision, a wholly owned subsidiary, accounted for
as a purchase method.
2
<PAGE> 3
Vision's previous fiscal year end was December 31. The pro forma balance sheet
sets forth the unaudited balance sheet as of April 30, 1996 accounting for
review adjustments and the income statements set forth the unaudited interim
results for the nine months ending March 31, 1996. The pro forma income
statements have been restated to reflect the 9 months of operation of Vision for
the periods ending March 31, 1996. The unaudited pro forma income statement is
for the period ending June 30, 1995 and has been restated to reflect the 12
months of operations of Vision. The combined pro forma income statement was
consolidated to show the cumulative effect of the acquisitions of MDCS, Inc.,
ACT, Inc. and Visioneering Holding Corporation. The March 31, 1995 statement of
operations of ACT, Inc. reflects 12 months of operations recast for the expenses
reported elsewhere in the 8K filings. The March 31, 1996 pro forma balance sheet
reflects the consolidated position of the Registrant, MDCS, Inc., ACT, Inc., and
Visioneering Holding Corporation.
(c) Exhibits. The following exhibit was previously filed:
2.1 Agreement and Plan of Merger dated May 17, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Topro, Inc.
Date: January 20, 1997 By: /s/ John Jenkins
---------------- ------------------------
John P. Jenkins
President and CEO
3
<PAGE> 4
TOPRO, INC.
NOTES TO THE PRO FORMA FINANCIAL INFORMATION
On May 30, 1996, Topro, Inc. ("Registrant"), through a merger
undertaken by a newly formed subsidiary, acquired all the outstanding capital
stock of Visioneering Holding Corporation ("Vision") an independent control
systems integrator located in Cypress, California. The Registrant agreed to
acquire all of the outstanding capital stock of Vision, in exchange for a
maximum of 1,600,000 restricted shares of the Registrant's Common Stock which
shares were escrowed at closing, to be released to the shareholders of Vision
upon review of the April 30, 1996 balance sheet of Vision and acceptance of
proposed adjustments if any. On October 8, 1996, the Board of Directors
Finalized and approved the final consideration of 200,000 shares of the
Registrant's common stock, 900,000 options, and 100,000 shares contingent on
future earnings of Vision. The pro forma projections utilized the actual
consideration of common stock and warrants issued of the Registrant.
The March 31, 1996 pro forma income statement of Vision, has been
restated. Interest expense of $67,500 was adjusted to reflect the issuance of
the subsequent $1,000,000 9% Convertible Debenture in June 1996. Goodwill
amortization of $137,000 for the period was recorded. Additionally deferred
note costs of $6,900 were amortized to reflect the costs associated with the
convertible debenture issued. Additional depreciation expense and amortization
of software costs were included in the March 31, 1996 statement of operations
for the period. The June 30, 1995 pro forma income statement was adjusted to
reflect the respective adjustments described above for the period then ended.
The accompanying condensed combined pro forma balance sheet presents
the financial position of the Registrant as if the merger between the
Registrant and Vision had occurred on March 31, 1996. The pro forma balance
sheet was prepared utilizing the April 30, 1996 balance sheet of Vision
reflecting auditor adjustments for the review financial statements. The pro
forma statement of operations combined the statements of operations of the
Registrant for the years ended June 30, 1995 and interim period ending March
31, 1996. The Vision financial statements were recast to reflect nine months of
operations for the period ending March 31, 1996. The combined consolidated
income statement for the period ending June 30, 1995 reflects the recast
operating results of Vision for the twelve months ending June, 30, 1995. The
March 31, 1996 Topro, Inc. consolidated income statements reflects the 3 months
of operation of Advanced Control Technology, Inc. Additionally, 6 months of
operations for Advanced Control Technology, Inc. ending 12/31/96 was included
to reflect 9 months of operations ended March 31, 1996 for the acquisition of
ACT included in previous 8-K filings. The combined consolidated income
statements for June 30, 1995 and March 31, 1996 reflect the combined
acquisitions of MDCS, Inc (pooling of interest), Advanced Control Technology,
Inc. (purchase method), and Visioneering Holding Corporation (purchase method)
for the respective periods.
These statements are not necessarily indicative of future operations
or the actual results that would have occurred had the transactions been
consummated at the beginning of the periods indicated. The pro forma condensed
combined financial statements should be read in conjunction with the audited
historical financial statements of Vision and notes thereto of the Registrant's
financial statements included in it annual report on Form 10-K and Vision
included elsewhere in this 8-K.
4
<PAGE> 5
TOPRO INC., AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
PURCHASE OF VISIONEERING HOLDING CORPORATION
(UNAUDITED)
<TABLE>
<CAPTION>
TOPRO, INC. VISIONEERING TOPRO, INC.
CONSOLIDATED HOLDING CORP PRO FORMA CONSOLIDATED
03/31/96 04/30/96 ADJUST PRO FORMA
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
CASH $ 359,408 $ 11,120 $ 435,000 $ 805,528
CASH - CERTIFICATE OF DEPOSIT 350,000 350,000
RECEIVABLES:
TRADE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS 3,245,875 1,364,564 4,610,439
OTHER 178,088 11,853 189,941
FIRE DAMAGE CLAIM 34,144 34,144
COST AND ESTIMATED EARNINGS IN EXCESS OF
BILLINGS ON UNCOMPLETED CONTRACTS 1,853,357 283,587 2,136,944
INVENTORIES 151,346 0 151,346
PREPAID EXPENSE 256,423 12,774 269,197
ASSETS OF DISCONTINUED OPERATIONS 740,380 740,380
PREPAID INCOME TAXES 0 152,529 152,529
------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,169,021 1,836,427 435,000 9,440,448
INVESTMENT 0 0 0
PROPERTY AND EQUIPMENT, AT COST:
BUILDING AND LAND 850,000 0 850,000
EQUIPMENT, FIXTURE & EQUIPMENT 1,631,855 1,822,530 (1,115,616) 2,338,769
VEHICLES 272,782 43,530 316,312
LEASEHOLD IMPROVEMENTS 408,344 435,389 843,733
SOFTWARE DEVELOPMENT COSTS 0 0 0
------------------------------------------------------------------
3,162,981 2,301,449 (1,115,616) 4,348,814
LESS ACCUMULATED DEPRECIATION (1,172,871) (1,115,616) 1,115,616 (1,172,871)
------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 1,990,110 1,185,833 0 3,175,943
OTHER ASSETS
GOODWILL - ACT & VISIONEERING 2,431,082 0 2,732,869 5,163,951
OTHER ASSETS 336,732 74,831 65,000 476,563
------------------------------------------------------------------
TOTAL ASSETS $ 11,926,945 $ 3,097,091 $ 3,232,869 $ 18,256,905
==================================================================
</TABLE>
5
<PAGE> 6
TOPRO INC., AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
PURCHASE OF VISIONEERING HOLDING CORPORATION
(UNAUDITED)
<TABLE>
<CAPTION>
TOPRO, INC. VISIONEERING TOPRO, INC.
CONSOLIDATED HOLDING CORP PRO FORMA CONSOLIDATED
03/31/96 04/30/96 ADJUST PRO FORMA
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line-of-credit $ 867,795 $ 650,000 $ 1,517,795
Current portion of long-term debt:
Related parties 80,000 100,000 180,000
Financial institutions and other 406,140 582,934 989,074
Bridge loans 62,500 0 62,500
Accounts payable 3,311,835 1,705,945 (500,000) 4,517,780
Billings in excess of costs and estimated earnings
on uncompleted contracts 555,563 1,121,915 1,677,478
Accrued expenses 831,302 863,152 1,694,454
Deferred gain & expense 24,342 115,102 139,444
------------------------------------------------------------------
Total current liabilities 6,139,477 5,139,048 (500,000) 10,778,525
LONG-TERM DEBT, NET OF CURRENT PORTION:
Renaissance 2,500,000 0 1,000,000 3,500,000
Financial institutions and other 642,025 300,912 942,937
------------------------------------------------------------------
Total long-term debt 3,142,025 300,912 1,000,000 4,442,937
DEFERRED GAIN
Sale of bldg 50,714 50,714
Sale of DMC investment 297,983 297,983
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share;
authorized 10,000,000 shares, no shares issued -- -- --
Common stock, par value $.0001 per share;
authorized 200,000,000 shares, 8,013,654 shares
issued and outstanding 6/30/96 604 13,683 (13,663) 624
Additional paid-in capital 6,886,786 164,398 225,582 7,276,766
Accumulated deficit (4,590,644) (2,520,950) 2,520,950 (4,590,644)
------------------------------------------------------------------
Total stockholders' equity 2,296,746 (2,342,869) 2,732,869 2,868,746
------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 11,926,945 $ 3,097,091 $ 3,232,869 $ 18,256,905
==================================================================
</TABLE>
6
<PAGE> 7
TOPRO INC., AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED INCOME STATEMENT
PURCHASE OF VISIONEERING CORPORATION
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
----------------------------------------------------------------------------
TOPRO, INC. VISIONEERING TOPRO, INC.
CONSOLIDATED ACT, INC. CORPORATION PRO FORMA CONSOLIDATED
06/30/95 03/31/95 06/30/95 ADJUST PRO FORMA
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Control systems integration $ 10,911,258 $ 10,473,483 $ 11,064,511 $ 32,449,252
Distributorship 2,103,455 2,103,455
----------------------------------------------------------------------------
13,014,713 10,473,483 11,064,511 34,552,707
COST OF SALES:
Control systems integration 7,778,519 7,806,241 6,952,019 22,536,779
Distributorship 1,858,155 1,858,155
----------------------------------------------------------------------------
9,636,674 7,806,241 6,952,019 24,394,934
----------------------------------------------------------------------------
GROSS PROFIT 3,378,039 2,667,242 4,112,492 10,157,773
COMMISSION INCOME 461,872 0 461,872
----------------------------------------------------------------------------
NET REVENUE 3,839,911 2,667,242 4,112,492 10,619,645
EXPENSES:
Sales expense 1,012,638 1,034,909 2,047,547
General and administrative expense 2,598,961 1,230,509 4,262,646 8,092,116
----------------------------------------------------------------------------
3,611,599 2,265,418 4,262,646 10,139,663
----------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Gain (loss) on sales of assets 157,839 0 (76,079) 81,760
Other (expenses) income 2,384 3,467 7,009 12,860
Interest expense (182,586) (353,707) (71,372) (99,286) (706,951)
Claims expense 0 0 0 0 0
Goodwill amortization 0 (148,330) 0 (182,191) (330,521)
----------------------------------------------------------------------------
(22,363) (498,570) (140,442) (281,477) (942,852)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 205,949 (96,746) (290,596) (281,477) (462,870)
INCOME TAX BENEFIT (PROVISION):
Current 0 (28,167) 97,435 69,268
----------------------------------------------------------------------------
Total income tax benefit (provision) 0 (28,167) 97,435 0 69,268
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY
ITEM $ 205,949 ($ 124,913) ($ 193,161) ($ 281,477) ($ 393,602)
============================================================================
NET INCOME (LOSS) PER SHARE:
Continuing operations $ 0.04 ($ 0.06)
------------ ------------
SHARES OUTSTANDING 6/30/96 4,691,354 1,722,000 200,000 6,613,354
============================================================================
</TABLE>
NOT REPORTED AS A WEIGHTED AVERAGE PER GAAP
7
<PAGE> 8
TOPRO INC., AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED INCOME STATEMENT
PURCHASE OF VISIONEERING CORPORATION
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------------------------------
TOPRO, INC. ACT, INC. VISIONEERING TOPRO, INC.
CONSOLIDATED 6 MONTHS HOLDING CORP PRO FORMA CONSOLIDATED
3/31/96 12/31/95 03/31/96 ADJUST PRO FORMA
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Control systems integration $ 11,235,777 $ 2,605,129 $ 7,167,891 $ 21,008,797
----------------------------------------------------------------------------
11,235,777 2,605,129 7.167,891 21,008,797
COST OF SALES:
Control systems integration 8,552,439 2,228,112 4,625,732 15,406,283
----------------------------------------------------------------------------
8,552,439 2,228,112 4,625,732 15,406,283
----------------------------------------------------------------------------
GROSS PROFIT 2,683,338 377,017 2,542,159 5,602,514
EXPENSES:
Sales expense 680,477 498,541 0 1,179,018
General and administrative expense 2,135,293 582,220 4,592,927 7,310,440
----------------------------------------------------------------------------
2,815,770 1,080,761 4,592,927 8,489,458
INCOME (LOSS) FROM SYSTEMS INTEGRATION (132,432) (703,744) (2,050,768) (2,886,944)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS - TECH SALES (483,449) 0 0 (483,449)
OTHER INCOME (EXPENSE)
Gain on sale of assets 85,345 10,436 0 95,781
Other (expense) income 52,547 73 (6,583) 46,037
Interest expense (147,646) (172,057) (104,573) (74,464) (498,740)
Claims expense 0 0 0 0
Goodwill amortization 0 (74,165) 0 (136,643) (210,808)
----------------------------------------------------------------------------
(9,754) (235,713) (111,156) (211,108) (567,731)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (625,635) (939,457) (2,161,924) (211,108) (3,938,124)
INCOME TAX BENEFIT (PROVISION):
Current 0 (7,831) 69,315 61,484
----------------------------------------------------------------------------
Total income tax benefit (provision) 0 (7,831) 69,315 61,484
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM (625,635) (947,288) (2,092,609) (211,108) (3,876,640)
============================================================================
NET INCOME (LOSS) PER SHARE:
Continuing operations ($ 0.10) ($ 0.59)
SHARES OUTSTANDING 6/30/96 6,413,354 200,000 6,613,354
============================================================================
</TABLE>
NOT REPORTED AS A WEIGHTED AVERAGE PER GAAP
8
<PAGE> 9
TOPRO INC., AND SUBSIDIARIES
ASSUMPTIONS
PURCHASE OF VISIONEERING CORPORATION
(UNAUDITED)
<TABLE>
<S> <C> <C> <C>
NOTES PAYABLE
9% Convertible Debentures - Renaissance Capital 1,000,000
----------
1,000,000
==========
DEFERRED NOTE COSTS
9% Convertible Debentures - closing costs 65,000
INCOME STATEMENT ADJUSTMENTS - 3/31/96
Goodwill amortization 136,643
Interest expense
9% Convertible Debentures - Renaissance Capital 67,500
Deferred note costs 6,964
INCOME STATEMENT ADJUSTMENTS - 06/30/95
Goodwill amortization - yearly 15 Years 182,191
Interest Expense
9% Convertible Debentures - Renaissance Capital 90,000
Deferred note costs 9,286
STOCK EXCHANGED & GOODWILL
Assets 3,230,079
Liability (5,572,948)
----------
Net assets purchased (2,342,869)
Total Shares 200,000 1.50 300,000
Options issued 90,000
----------
Total goodwill 03/31/96 2,732,869
==========
EQUITY
Common stock, par value $.0001 per share;
Visioneering Corporation common stock (13,683)
Visioneering Corporation shares issued 200,000 0.0001 20
----------
(13,663)
==========
Additional paid-in capital
Visioneering Corporation additional paid in capital (164,398)
Visioneering Corporation shares issued 200,000 299,980
Visioneering Corporation options issued 90,000
----------
225,582
==========
Accumulated deficit
Visioneering Corporation accum deficit 2,520,950
==========
USE OF PROCEEDS
Working capital (435,000)
Fees Bathgate/McColley - Renaissance 3.5% (35,000)
Fees Renaissance 3.0% (30,000)
----------
(500,000)
==========
</TABLE>
9
<PAGE> 10
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT - HEIN + ASSOCIATES LLP.............................................................. F-2
INDEPENDENT AUDITOR'S REPORT - MCGLADREY & PULLEN, LLP............................................................ F-3
CONSOLIDATED BALANCE SHEETs - December 31, 1995 and April 0,30, 1996 (Unaudited).................................. F-4
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1995 and 1994
and for the Four Months Ended April 30, 1995 and 1996 (Unaudited)........................................ F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - For the Years Ended
December 31, 1995 and 1994 and for the Four Months Ended April 30, 1996 (Unaudited)...................... F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1995 and 1994 and
for the Four Months Ended April 30, 1996 and 1995 (Unaudited)............................................ F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................................................................ F-9
</TABLE>
F-1
<PAGE> 11
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Boards of Directors
Visioneering Holding Corporation
Cypress, California
We have audited the accompanying consolidated balance sheet of Visioneering
Holding Corporation and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Visioneering Holding Corporation and subsidiaries as of December 31, 1995, and
the results of their operations and their cash flows for the year then ended,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company's loss from operations, and their working capital and
net capital deficiencies raise substantial doubt about the entity's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 3. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Orange, California
July 30, 1996
F-2
<PAGE> 12
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
Vision Engineering Corp.
Cypress, California
We have audited the accompanying statements of operations, stockholders' equity
(deficit), and cash flows of Vision Engineering Corp. for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material aspects, the results of operations and cash flows of Vision
Engineering Corp. for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/ MCGLADREY & PULLEN, LLP
Certified Public Accountants
Anaheim, California
September 22, 1995
F-3
<PAGE> 13
VISIONEERING HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 11,120 $ 937
Accounts receivable, net of allowance for doubtful accounts
of $80,000 1,364,564 1,277,377
Advance to employee/shareholder 11,853 40,092
Income tax receivable 152,529 152,529
Costs and estimated earnings in excess of billings
on uncompleted contracts 283,587 289,729
Prepaid expenses 12,774 36,647
----------- -----------
Total current assets 1,836,427 1,797,311
PROPERTY AND EQUIPMENT, net 1,185,833 1,259,254
OTHER ASSETS 74,831 60,995
----------- -----------
TOTAL ASSETS $ 3,097,091 $ 3,117,560
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line-of-credit $ 650,000 $ 550,000
Current portion of long-term debt:
Related parties 100,000 70,000
Financial institutions and other 534,267 464,985
Current portion of capital lease obligation 48,667 44,733
Accounts payable 1,705,945 1,108,789
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,121,915 743,011
Accrued liabilities 978,254 797,142
----------- -----------
Total current liabilities 5,139,048 3,778,660
----------- -----------
LONG-TERM DEBT, net of current portion:
Related parties -- --
Financial institutions and other 178,372 111,417
----------- -----------
Total long-term debt 178,372 111,417
----------- -----------
CAPITAL LEASE OBLIGATION, less current portion 122,540 141,385
----------- -----------
Total liabilities 5,439,960 4,031,462
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 13,683 13,683
Additional paid-in capital 164,398 164,398
Retained earnings (2,520,950) (1,091,983)
----------- -----------
Total stockholders' equity (deficit) (2,342,869) (913,902)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,097,091 $ 3,117,560
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
<PAGE> 14
VISIONEERING HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOUR
MONTHS ENDED FOR THE YEARS ENDED
APRIL 30, DECEMBER 31,
---------------------------- ----------------------------
1996 1995 1995 1994
------------ ------------ ------------ ------------
(Unaudited) (Note 1)
<S> <C> <C> <C> <C>
REVENUES $ 3,205,919 $ 3,788,574 $ 9,515,377 $ 10,768,845
COST OF SALES 2,597,302 2,424,986 5,776,424 6,243,328
------------ ------------ ------------ ------------
GROSS PROFIT 608,617 1,363,588 3,738,953 4,525,517
GENERAL AND ADMINISTRATIVE 1,975,287 1,518,995 5,243,976 3,895,447
------------ ------------ ------------ ------------
EXPENSE
OPERATING INCOME (LOSS) (1,366,670) (155,407) (1,505,023) 630,070
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of assets -- -- (12,159) (76,079)
Interest expense (62,295) (49,270) (135,782) (71,372)
Other -- -- (12,599) 2,052
------------ ------------ ------------ ------------
Total other expenses (62,295) (49,270) (160,540) (145,399)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME (1,428,965) (204,677) (1,665,563) 484,671
TAXES
INCOME TAX (BENEFIT) PROVISION:
Current -- -- (105,000) 124,116
Deferred -- -- (60,000) 63,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,428,965) $ (204,677) $ (1,500,563) $ 297,555
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE> 15
VISIONEERING HOLDING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE FOUR MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL
STOCK STOCK TO PAID-IN
AMOUNT BE ISSUED CAPITAL
----------- ------------- -----------
<S> <C> <C> <C>
BALANCES, January 1, 1994 $ 10,896 $ 134,000 $ --
Net Income -- -- --
----------- ------------- -----------
BALANCES, December 31, 1994 10,896 134,000 --
Shares issued for incorporation of Vision Fabrication 1,000 -- 1,000
Shares issued to employees for compensation 2,031 -- 82,530
Shares repurchased upon settlement of stockholder (244) (134,000) --
lawsuit
Contribution of capital -- -- 80,868
Net loss -- -- --
----------- ------------- -----------
BALANCES, December 31, 1995 13,683 -- 164,398
Net loss -- -- --
----------- ------------- -----------
BALANCES, April 30, 1996 (Unaudited) $ 13,683 $ -- $ 164,398
=========== ============= ===========
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS
(DEFICIT) EQUITY (DEFICIT)
----------- ----------------
<S> <C> <C>
BALANCES, January 1, 1994 $ 111,025 $ 255,921
Net Income 297,555 297,555
----------- -----------
BALANCES, December 31, 1994 408,580 553,476
Shares issued for incorporation of Vision Fabrication -- 2,000
Shares issued to employees for compensation -- 84,561
Shares repurchased upon settlement of stockholder -- (134,244)
lawsuit
Contribution of capital -- 80,868
Net loss (1,500,563) (1,500,563)
----------- -----------
BALANCES, December 31, 1995 (1,091,983) (913,902)
Net loss (1,428,965) (1,428,965)
----------- -----------
BALANCES, April 30, 1996 (Unaudited) $(2,520,948) $(2,342,867)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-6
<PAGE> 16
VISIONEERING HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOUR FOR THE YEARS
MONTHS ENDED
ENDED APRIL 30, DECEMBER 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(Unaudited) (Note 1)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $(1,428,965) $ (204,677) $(1,500,563) $ 297,555
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 127,540 102,491 305,701 225,448
Allowance for doubtful accounts -- -- (85,000) 122,452
Loss on disposal of leasehold improvements -- -- 12,159 73,573
Deferred income taxes -- -- (60,000) 63,000
Common stock issued to employees for services -- -- 84,561 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (220,175) (53,105) 716,535 (867,942)
Advance to employee/shareholder 28,239 (45,360) (16,852) --
Income tax receivable -- -- (152,529) --
Costs and estimated earnings in excess of 6,142 569,640 667,473 (453,860)
billings
Prepaid expenses 23,873 1,632 (33,463) 46,360
Other assets (13,836) (14,332) (22,732) --
Increase (decrease) in:
Accounts payable 730,144 129,639 (118,435) 659,605
Billings in excess of costs and estimated 26,658 (607,096) (233,019) (109,032)
earnings
Accrued liabilities 533,358 484,631 253,750 455,392
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities (187,022) 363,463 (182,414) 512,551
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (54,119) (179,788) (164,897) (972,529)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings:
Related parties 30,000 30,000 50,000 --
Financial institutions and other 582,377 -- 527,556 1,668,260
Principal payments on borrowings (361,051) (146,411) (134,304) (1,221,820)
Principal payments on capital leases -- -- (45,076) --
Proceeds from issuance of Vision Fabrication stock -- -- 2,000 --
Contribution of capital -- -- 80,868 --
Payment for redemption of common stock -- -- (134,244) --
----------- ----------- ----------- -----------
Net cash provided by financing activities 251,326 (116,411) 46,800 446,440
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH 10,185 67,264 (511) (13,538)
CASH, at beginning of period 937 1,448 1,448 14,986
----------- ----------- ----------- -----------
CASH, at end of period $ 11,122 $ 68,712 $ 937 $ 1,448
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-7
<PAGE> 17
VISIONEERING HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
-------------------
1995 1994
-------- --------
(Note 1)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments for:
Interest $133,463 $ 71,372
======== ========
Income taxes $136,114 $ 59,016
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Common stock issued to employees for services $ 84,561 $ -
Capital lease obligations assumed in connection with $231,194 $ -
the acquisition of equipment
Note payable assumed by former director 20,164 $ -
Common stock retired in settlement of shareholder $ 244 $ -
lawsuit
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-8
<PAGE> 18
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
1. ORGANIZATION AND BUSINESS:
Organizational Structure and Basis of Presentation - Vision Engineering
Corp. (VEC), was incorporated in September 1985 to provide process control
and factory automation services to the food and pharmaceutical industry.
The financial statements for 1994 include only the accounts and operations
of VEC. In April 1995, the Fabrication Division of VEC was incorporated as
a new company, Vision Fabrication, Inc. (VFI). Certain fabricating assets
from VEC were transferred to VFI in May of 1995. In March 1996,
Visioneering Holding Corporation (Visioneering) was formed. In April 1996,
Visioneering acquired 100% of the common stock of VEC and VFI. Because all
of the companies have common ownership and management, the acquisition was
accounted for as a reorganization of entities under common control.
Collectively, Visioneering, VEC and VFI are hereafter referred to as "the
Company." All significant related company transactions and accounts have
been eliminated.
The Company is organized with central headquarters in Cypress, California.
In addition to its fabrication facilities in Cypress, the Company operates
four branch offices in Sacramento, CA; Phoenix, AZ; Chicago, IL; and
Atlanta. GA. Visioneering also has two sales offices in Boston, MA and San
Juan, Puerto Rico.
Nature of business - The Company operates as a single source systems
integrator with focused specialties in process control and factory
automation. The Company primarily sells its products to its customers
throughout the United States with a minor amount of sales internationally.
Credit is extended to customers on an unsecured basis based on credit
analysis performed by the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents - The Company considers all highly liquid
monetary instruments purchased with an original maturity of three months
or less to be cash equivalents. The Company maintains cash in bank deposit
accounts which, at times, may exceed Federally insured limits. The Company
has not experienced any losses in such accounts. The Company believes it
is not exposed to any significant credit risk on cash and equivalents.
Property, Equipment and Leasehold Improvements - Depreciation of property,
equipment and leasehold improvements is provided utilizing the
straight-line method over the following estimated useful lives:
Years
-----
Furniture & Equipment 5-10
Vehicles 3-5
Leasehold Improvements 3-7
Major renewals and betterments are capitalized while expenditures for
maintenance and repairs are charged to expense as incurred.
F-9
<PAGE> 19
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
Income Recognition - The Company follows the percentage of completion
method of accounting for all significant long-term contracts. The
percentage of completion method of reporting income from contracts takes
into account the cost, estimated earnings, and revenue to date on
contracts not yet completed.
The amount of revenue recognized is the portion of the total contract
price that the cost expended to date bears to the anticipated final total
cost, based on current estimates of cost to complete. Contract costs
included all labor and benefits, material unique to or installed in the
project, subcontract costs, and allocations of indirect construction cost.
Selling, general and administrative costs are charged to expenses as
incurred.
As long-term contracts extend over one or more years, revisions in
estimates of costs and earnings during the course of the work are
reflected in the accounting period in which the facts which require the
revision become known. At the time a loss on a contract becomes known, the
entire amount of the estimated ultimate loss is recognized in the
financial statements. Contracts which are substantially complete are
considered closed for financial statement purposes. Revenue earned on
contracts in progress in excess of billings is classified as a current
assets. Amounts billed in excess of revenue earned are classified as a
current liability.
Income Taxes - The Company accounts for income taxes under the liability
method, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been
recognized in the financial statements or tax returns. Deferred tax assets
and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
Use of Estimates - 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 other reported amounts of revenues
and expenses during the reporting period.
Actual results could differ from those estimates.
Impairment of Long-Lived Assets - In the event that facts and
circumstances indicate that the cost of assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow is required.
Common Stock Issued For Services - The common stock issued for services is
valued at their fair value.
Impact of Recently Issued Standards - In October 1995, the Financial
Accounting Standards Board issued a new statement titled "Accounting for
Stock-Based Compensation" (FAS 123). The new statement is effective for
fiscal years beginning after December 15, 1995. FAS 123 encourages, but
does not require, companies to recognize compensation expense for grants
of stock, stock options, and other equity instruments to employees based
on fair value. Companies that do not adopt the fair value accounting rules
must disclose the impact of adopting the new method in the notes to the
financial statements. The
F-10
<PAGE> 20
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
Company currently does not intend to adopt the fair value accounting
prescribed by FAS 123, and will be subject only to the disclosure
requirements prescribed by FAS 123. However, the Company intends to
continue its analysis of FAS 123 and may elect to adopt its provisions in
the future.
Accrued Warranty Costs - Estimated warranty costs are provided for at the
time of sale of the warranted product. The Company generally extends
warranty coverage for one year from the time of sale.
Concentrations of Credit Risk - Credit Risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit risk
(whether on or off balance sheet) that arise from financial instruments
exist for groups of customers or groups of counterparties when they have
similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly effected by changes in economic or
other conditions described below.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The estimated fair values of the
Company's financial instruments, which includes all cash, accounts
receivables, accounts payable, long-term debt, and other debt,
approximates the carrying value in the consolidated financial statements
at December 31, 1995.
Unaudited Information - The consolidated balance sheet as of April 30,
1996 and the consolidated statements of operations for the four months
ended April 30, 1996 and 1995 were taken from the Company's books and
records without audit. However, in the opinion of management, such
information includes all adjustments (consisting only of normal recurring
accruals) which are necessary to properly reflect the consolidated
financial position of the Company as of April 30, 1996 and the results of
opera tions for the four months ended April 30, 1996 and 1995.
The results of operations for the interim periods presented are not
necessarily indicative of those to be expected for the year.
Reclassifications - Certain reclassifications have been made to the prior
years' financial statements to conform to the current year's presentation.
Such reclassifications had no effect on net income (loss).
3. BASIS OF PRESENTATION:
As shown in the accompanying financial statements, the Company incurred a
net loss for 1995 of $1,500,563, and at December 31, 1995 had a $1,981,349
deficit in working capital and a $913,902 deficit in stockholders equity.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern.
F-11
<PAGE> 21
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
Management believes that 1995 was a building year and that they have put
into place an infrastructure, including personnel, to achieve future
profitable operations. Additionally, subsequent to December 31, 1995 the
Company was acquired by Topro, Inc. another systems integrator. No
assurance, however, can be given, that these actions will return the
Company to profitability. The financial statements do not include any
adjustments relating to the recoverability and classification of reported
asset amounts or the amounts and classification of liabilities that might
result from the outcome of this uncertainty.
4. ACCOUNTS RECEIVABLE:
The following information summarizes accounts receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Contract receivables:
Completed contracts $ 178,938
Uncompleted contracts 1,178,439
----------
1,357,377
Less allowance for doubtful accounts 80,000
----------
$1,277,377
==========
</TABLE>
The Company's contracts generally require certain benchmarks to be
achieved before amounts under the contract can be billed. On fabrication
work within the contract, the Company generally can invoice the customer
at order reception, prior to commencing work and, finally upon shipment.
5. CONTRACTS IN PROGRESS:
The following information is applicable to uncompleted contracts:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 8,702,180 $ 3,504,347
Estimated earnings (loss) (234,471) 2,851,837
----------- -----------
8,467,709 6,356,184
Less billings to date 9,306,037 6,809,466
----------- -----------
$ (838,328) $ (453,282)
=========== ===========
</TABLE>
F-12
<PAGE> 22
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
These amounts are included in accompanying balance sheet under the
following captions:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 283,587 $ 289,729
Billings in excess of costs and estimated earnings on
uncompleted contracts (1,121,915) 743,011
----------- -----------
$ (838,328) $ (453,282)
=========== ===========
</TABLE>
6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
----------
<S> <C>
Furniture and fixtures $ 903,400
Equipment 865,012
Leasehold improvements 435,389
Vehicles 43,529
----------
2,247,330
Less accumulated depreciation and amortization 988,076
----------
$1,259,254
==========
</TABLE>
7. LINE-OF-CREDIT AND LONG-TERM DEBT:
Line-of-Credit - The Company has a $650,000 line-of-credit pursuant to a
loan agreement with a financial institution, secured by a UCC-1 filing on
substantially all assets of the Company. The terms include variable
interest at the bank's prime rate (9.5% at December 31, 1995) plus 2%. The
outstanding principal balance under the line-of-credit amounted to
$550,000 as of December 31, 1995. The line originally expired April 4,
1996 and require monthly payment of interest only. The line-of-credit
subsequently was extended to December 3, 1996 and requires principal
reductions of $50,000 upon extension, $50,000 on July 15, 1996, and
monthly principal reductions of $16,667 commencing June 30, 1996.
F-13
<PAGE> 23
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
Long-Term Debt - Long-term debt payable to related parties consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------
1995
-----------
<S> <C>
Note payable to the majority stockholders of the Company payable upon demand
with interest at 8% $50,000
Note payable to the parents of the majority stockholders of the Company, interest
only at 10% payable quarterly 20,000
-------
$70,000
=======
Long-term debt payable to financial institutions and other consist of the
following:
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-----------
<S> <C>
Term loan payable to a bank, with a variable interest rate at prime (9.5%
December 31, 1995) plus 2%, collateralized by equipment and leasehold
improvements, due on demand or if no demand, payable in monthly installments
of $7,000 plus interest through April 1998 $ 195,417
Term loan payable to a bank, with a variable interest adjusted quarterly based on
prime (9.5% at December 31, 1996) plus 2.75%, collateralized by a second
security interest on substantially all assets of the Company, 85% guaranteed by
SBA and personally guaranteed by the two majority shareholders of the
Company, which personal guarantee is collateralized by a third trust deed on the
shareholders' residence, payable in monthly principal and interest payments of
$6,696, adjusted quarterly through September 2002. The agreement prohibits the
payment of dividends, acquisition of the Company's stock, bonus compensation
to any officer of the Company, and purchase of fixed assets over $25,000
annually, without prior written approval of the bank. The Company was not in
compliance with the covenants at December 31, 1995 and through the date of the
independent auditor's report. Therefore, the entire outstanding loan balance has
been classified as a current liability at December 31, 1995 344,930
Other notes payable, with interest of 9.5% with aggregate monthly payments of
approximately $6,300, and with maturities from June 1, 1996 to December 1,
1996 36,055
---------
576,402
Less current maturities (464,985)
$ 111,417
=========
</TABLE>
F-14
<PAGE> 24
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
The principal payments on all notes payable and long-term debt as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
RELATED
YEAR PARTIES OTHER TOTAL
---- -------- -------- --------
<S> <C> <C> <C>
1996 $ 70,000 $464,985 $534,985
1997 -- 84,000 84,000
1998 -- 27,417 27,417
-------- -------- --------
$ 70,000 $576,402 $646,402
======== ======== ========
</TABLE>
8. INCOME TAXES:
The actual income tax expense (benefit) differs from the "expected" tax
expense (benefit) computed by applying the U.S. federal corporate income
tax rate of 34% for each period as follows:
<TABLE>
<CAPTION>
For Years Ended December 31,
------------------------------------------
1995 1994
--------------------- -------------------
Amount Percent Amount Percent
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Computed "expected" tax expense (benefit) $(566,291) (34.0)% $ 164,788 34.0%
Refundable Credits (136,000) (8.1) -- --
Nondeductible expense 21,875 1.3 22,328 4.6
Effect of valuation allowance 453,474 27.2 -- --
Other 34,942 2.1 -- --
Effect of Internal Revenue 27,000 1.6 -- --
--------- ---- --------- ----
Service examination
$(165,000) (9.9)% $ 187,116 38.6%
========= ==== ========= ====
</TABLE>
Deferred tax assets (liabilities) as of December 31, 1995 and 1994 are
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets (liabilities):
Trade receivables $ (384,000) $ (783,000)
Costs and earnings in excess of billings on uncompleted (76,000) (392,000)
contracts
Other -- (1,000)
----------- -----------
Total deferred liabilities (460,000) (1,176,000)
----------- -----------
</TABLE>
F-15
<PAGE> 25
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
Deferred tax assets:
Accounts payable 328,000 503,000
Billings in excess of costs and estimated earnings 163,000 400,000
Accrued expenses 326,000 213,000
Net operating loss carryforward 97,000 --
----------- -----------
Total deferred assets 914,000 --
Valuation allowance for deferred tax assets (454,000) --
----------- -----------
460,000 1,116,000
----------- -----------
Net deferred tax asset (liability) $ - $ (60,000)
=========== ===========
</TABLE>
As of December 31, 1995, the Company has available net operating loss
carryforwards for income tax purposes of approximately $534,000, which
expire in various years through 2010. These net operating losses may be
subject to annual limitations imposes by Internal Revenue Code due to a
change in control of the Company as discussed in Note 13.
9. STOCKHOLDERS' EQUITY (DEFICIT):
Visioneering Holding Corporation is a California Corporation formed in
March 1996, with only one class of stock authorized, that being common
stock. Visioneering has 10,000,000 shares of no par value common stock
authorized, of which 1,000 shares were issued in April 1996 in the
acquisition of VEC and VFI, and are outstanding at April 30, 1996.
Vision Engineering Corp. is a California Corporation which has only one
class of stock authorized, that being common stock. Vision Engineering has
75,000 shares of no par value common stock authorized, and at December 31,
1995 had 12,683 shares issued and outstanding.
Vision Fabrication, Inc. is a California Corporation which has only one
class of stock authorized, that being common stock. Vision Fabrication,
Inc. has 100,000 shares of no par value common stock authorized, and at
December 31, 1995 had 1,000 shares issued and outstanding.
During the year ended December 31, 1995, the Company issued 2,031 shares
of stock of Vision Engineering Corp. to five employees for services
rendered. The stock was valued at the net book value of Vision Engineering
Corp. on July 31, 1995.
As a settlement of a lawsuit with a former employee, the Company
repurchased 244 shares of Vision Engineering Corp. stock back in exchange
for $134,244.
F-16
<PAGE> 26
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
10. BENEFIT PLANS:
The Company has a profit-sharing plan that covers all full-time employees
with 3 months of service who elect to enter the plan. At the option of the
Board of Directors, an amount, not to exceed the allowable under the
Internal Revenue Code of 1984, as amended, may be contributed to the plan.
The Board did not approve a contribution for the year ended December 31,
1994. During 1995 the Company accrued a contribution of approximately
$113,000.
11. COMMITMENTS AND CONTINGENCIES:
The Company leases equipment under leases which are classified as capital
leases. The following is an analysis of leased equipment under capital
leases at:
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
Equipment $ 231,194
Accumulated amortization (17,677)
---------
$ 213,517
=========
</TABLE>
Amortization on equipment under capital leases charged to expense in 1995
and 1994 was $17,677 and $0, respectively.
The following is a schedule of future minimum lease payments for all
leases:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
-------- ----------
<S> <C> <C>
1996 $ 75,566 $ 312,239
1997 66,164 297,634
1998 56,638 258,199
1999 38,840 228,990
2000 26,499 237,516
Thereafter - 138,551
-------- ----------
Total minimum lease payments 263,707 $1,473,129
==========
Less amount representing interest (77,589)
--------
Present value of minimum lease payments 186,118
Less current portion (44,733)
--------
$141,385
========
</TABLE>
F-17
<PAGE> 27
VISIONEERING HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
Rent expense for the years ended December 31, 1995 and 1994 was
approximately $548,267 and $312,673 respectively.
The Company is contingently liability for a loan on which a majority
shareholder and former director is making payments. At December 31, 1995
the balance on the loan is approximately $21,000.
12. CONCENTRATION OF CREDIT RISK:
The Company operates in one industry segment and a geographic
concentration exists because the Company's customers are generally located
in the United States. During the year ended December 31, 1995, two
individual customers each accounted for more than 10% of total revenue.
One customer accounted for 18.5% of total revenue and the other for 13.1%
of total revenue. Financial instruments that subject the Company to credit
risk consist principally of accounts receivable, other receivables and
costs and estimated earnings in excess of billings on uncompleted
contracts.
At December 31, 1995, such accounts totaled $1,687,198 and the Company has
provided an allowance for doubtful accounts against accounts receivable
only of $80,000. The Company performs periodic credit evaluations on its
customers' financial condition and believes that the allowance for
doubtful accounts is adequate.
13. SUBSEQUENT EVENT:
On May 17, 1996 Visioneering was acquired by Topro Inc. by them agreeing
to issue up to a maximum of 1,600,000 restricted shares of its common
stock.
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