<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): October 5, 1997
---------------
Total Control Products, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 333-18539 36-3209178
--------------------------- --------- ----------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File number) Identification No.)
2001 North Janice Avenue
Melrose Park, Illinois 60160
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 345-5500
--------------
___________________________________________________________
Former name or former address, if changed since last report
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 5, 1997, a wholly owned subsidiary of Total Control Products,
Inc. (the "Registrant") acquired substantially all of the assets of Computer
Dynamics, Inc., a South Carolina corporation ("CDI"), and certain other
related entities pursuant to the terms of an Asset Purchase Agreement (the
"Agreement") among Kurt Priester ("Priester"), Priester Charitable Remainder
Unitrust ("Trust I"), Priester Foundation ("Trust II"), CDI, Computer
Dynamics Services, Inc., a South Carolina corporation ("CDS"), Computer
Dynamics Mfg., Inc., a South Carolina corporation ("CDM"), Sue Priester d/b/a
Lines Unlimited, a sole proprietorship ("Lines"), SC Acquisition #1, an
Illinois corporation ("Purchaser"), and SC Acquisition #2, an Illinois
corporation ("TCP II"). Pursuant to the terms of the agreement (i) Purchaser
purchased substantially all of the assets of CDI, CDM, CDS and Lines, and
(ii) Trust I, Trust II and Priester terminated their respective rights to
receive certain royalty payments from CDI and its related entities
(collectively, the "Transaction"). A Report on Form 8-K with Exhibits was
filed on October 21, 1997 describing the Transaction and is hereby
incorporated by reference as though fully set forth herein.
In addition, the combined financial statements of CDI are attached hereto
as Item 7(a) and the pro forma financial information of the Registrant and
CDI is attached hereto as Item 7(b).
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Combined Entities of Computer Dynamics
Greenville, South Carolina
We have audited the accompanying combined balance sheets of the Combined
Entities of Computer Dynamics as of December 31, 1996 and October 5, 1997
and the related combined statements of operations, changes in shareholder's
and owner's deficit, and cash flows for the twelve months and for the nine
months and five days then ended. These financial statements are the
responsibility of the management of the Combined Entities of Computer
Dynamics. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the Combined
Entities of Computer Dynamics as of December 31, 1996 and October 5, 1997
and the results of its operations and its cash flows for the twelve months
and for the nine months and five days then ended in conformity with generally
accepted accounting principles.
/s/ Cherry, Bekaert & Holland, L.L.P.
Greenville, South Carolina
November 20, 1997
<PAGE>
THE COMBINED ENTITIES OF COMPUTER DYNAMICS
Combined Balance Sheets
December 31, 1996 and October 5, 1997
<TABLE>
<CAPTION>
December 31, October 5,
1996 1997
----------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 323,387 $ 320,321
Trade receivables, net of allowance of $52,609 and $220,000 at
December 31, 1996 and October 5, 1997, respectively 2,403,327 1,918,357
Inventories 5,405,999 5,365,278
Prepaid expenses 800 2,295
----------- -----------
Total Current Assets 8,133,513 7,606,251
Property and equipment, net 141,182 96,690
----------- -----------
$ 8,274,695 $ 7,702,941
=========== ===========
LIABILITIES AND SHAREHOLDER'S AND OWNER'S DEFICIT
Current liabilities
Accounts payable $ 698,268 $ 692,691
Accrued expenses
Payroll and employee benefits 11,468 725,763
Other 244,869 471,404
Due to shareholder 7,311,090 5,782,284
Due to related parties - 27,799
----------- -----------
Total Current Liabilities 8,265,695 7,699,941
Accrued income taxes 1,500,000 1,500,000
Commitments and contingencies
Shareholder's and owner's deficit
Common stock, combined corporations, par value $1 per share. 9,000 3,000
Authorized, issued and outstanding 9,000 shares in 1996 and
3,000 shares in 1997
Accumulated deficit (1,500,000) (1,500,000)
----------- -----------
Total shareholder's and owner's deficit (1,491,000) (1,497,000)
----------- -----------
$ 8,274,695 $ 7,702,941
=========== ===========
See notes to combined financial statements.
</TABLE>
<PAGE>
THE COMBINED ENTITIES OF COMPUTER DYNAMICS
Combined Statements of Operations
for the twelve months ended December 31, 1996
and the nine months and five days ended October 5, 1997
<TABLE>
<CAPTION>
December 31, October 5,
1996 1997
----------- ----------
<S> <C> <C>
Sales, net $15,685,004 $14,118,629
Cost of goods sold 8,854,765 8,442,836
----------- -----------
Gross profit 6,830,239 5,675,793
Operating expenses
Sales and marketing 846,407 944,598
Research and development 615,160 568,973
General and administrative 1,510,926 1,971,221
Shareholder and owner compensation 4,432,211 2,375,645
----------- -----------
7,404,704 5,860,437
----------- -----------
Loss from operations (574,465) (184,644)
Other income
Cancellation fee 500,000 73,336
Miscellaneous 74,465 111,308
----------- -----------
Total other income 574,465 184,644
----------- -----------
Income (loss) before income taxes - -
Income taxes 1,500,000 -
----------- -----------
Net income (loss) $(1,500,000) $ -
=========== ===========
See notes to combined financial statements.
</TABLE>
<PAGE>
THE COMBINED ENTITIES OF COMPUTER DYNAMICS
Combined Statements of Changes in Shareholder's and Owner's Deficit
For the twelve months ended December 31, 1996
and the nine months and five days ended October 5, 1997
<TABLE>
<CAPTION>
Common Stock
(Three and nine
corporations,
respectively, Owner's Accumulated
at $1,000 each) Equity Deficit Total
---------------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 9,000 $ - $ - $ 9,000
Loss, twelve months ended December 31,
1996 - - (1,500,000) (1,500,000)
------- ------- ----------- -----------
Balance, December 31, 1996 9,000 - (1,500,000) (1,491,000)
Stock cancellation due to restructuring (6,000) - - (6,000)
Income, nine months and five days ended
October 5, 1997 - - - -
------- ------- ----------- -----------
Balance, October 5, 1997 $ 3,000 $ - $(1,500,000) $(1,497,000)
======= ======= =========== ===========
See notes to combined financial statements.
</TABLE>
<PAGE>
THE COMBINED ENTITIES OF COMPUTER DYNAMICS
Combined Statements of Cash Flows
For the twelve months ended December 31, 1996
and the nine months and five days ended October 5, 1997
<TABLE>
<CAPTION>
December 31, October 5,
1996 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net income (Loss) $(1,500,000) $ -
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 55,902 45,492
Change in operating assets and liabilities
(Increase) decrease in:
Trade receivables (494,606) 484,970
Inventories (1,581,585) 40,721
Prepaid expenses 32,840 (1,495)
Increase (decrease) in:
Accounts payable 245,564 (5,577)
Accrued expenses
Payroll and employee benefits (373) 714,295
Other 112,665 226,535
Due to related parties - 27,799
Income taxes payable 1,500,000 -
------------ -----------
Net cash provided (used) by operating activities (1,629,593) 1,532,740
Cash flows from investing activities
Purchase of furniture and equipment (62,116) (1,000)
------------ -----------
Net cash used for investing activities (62,116) (1,000)
------------ -----------
Cash flows from financing activities
Net change in due to shareholder 1,547,467 (1,528,806)
Net decrease in common stock - (6,000)
------------ -----------
Net cash provided (used) by financing activities 1,547,467 (1,534,806)
------------ -----------
Decrease in cash and cash equivalents (144,242) (3,066)
Cash and cash equivalents, beginning of period 467,629 323,387
------------ -----------
Cash and cash equivalents, end of period $ 323,387 $ 320,321
============ ===========
Supplemental disclosure
Cash paid during year for:
Income taxes $ - $ -
============ ===========
Interest $ - $ -
============ ===========
See notes to combined financial statements.
</TABLE>
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS STRUCTURE
The Combined Entities of Computer Dynamics (Companies) design and manufacture
industrial computers and flat panel monitors primarily for industrial
applications.
COMBINATION POLICY
The accompanying combined financial statements include the accounts of Computer
Dynamics, Inc. and related entities that are under common control and whose
assets, liabilities and operations are subject to the acquisition described in
Note 10. These entities include Computer Dynamics, Inc., Computer Dynamics
Services, Inc. and Computer Dynamics Mfg., Inc., and, for the twelve months
ended December 31, 1996, thirteen related entities acquired by Computer
Dynamics, Inc. effective January 1, 1997 in an organizational restructuring.
The combined financial statements reflect the financial position and the results
of operations as of and for the twelve month period ended December 31, 1996 and
as of and for the nine months and five days ended October 5, 1997 (date of
acquisition described in Note 10). All significant intercompany transactions
and balances have been eliminated in the combination.
REVENUE RECOGNITION
The Companies recognize revenue upon shipment of products to customers, provided
there are no significant obligations remaining and collectibility of the revenue
is probable.
A reserve for sales returns and warranty costs is provided based on experience
and management's estimate of expected returns and product warranty costs.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
The Companies provide an allowance for uncollectible accounts based on prior
experience and management's assessment of the collectibility of existing
specific accounts.
The following summarizes the trade receivable allowance activity for 1996 and
1997:
Balance at December 31, 1995 $ -
Increase to operating expense 52,609
Charge to allowance -
---------
Balance at December 31, 1996 52,609
Increase to operating expense 243,558
Charge to allowance 76,167
---------
Balance at October 5, 1997 $ 220,000
=========
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates. The estimates and
assumptions affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of preparing the statement of cash flows, the Companies consider
cash and other demand deposits with original maturities of less than three
months as cash and cash equivalents.
INCOME TAXES
Deferred income taxes are recognized for differences between the basis of assets
and liabilities for financial statement and income tax purposes. These
differences impacting the accompanying combined financial statements relate
primarily to inventory capitalization costs, reserves for uncollectible accounts
and inventory obsolescence, and reserves for product and warranty costs.
The deferred tax assets resulting from these differences of approximately
$432,000 and $765,000 at December 31, 1996 and October 5, 1997, respectively,
have been reduced by a valuation allowance in the same amount.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs for the twelve
months ended December 31, 1996 and the nine months and five days ended October
5, 1997 totaled $373,454 and $244,055, respectively.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property, equipment and vehicles are recorded at cost. Minor additions and
renewals are expensed in the year incurred. Major additions and renewals are
capitalized and depreciated over their estimated useful lives, ranging from
three to fifteen years. Depreciation is calculated using accelerated methods.
Total depreciation for the twelve months ended December 31, 1996 and the nine
months and five days ended October 5, 1997 was $55,902 and $45,492,
respectively.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market.
<PAGE>
NOTE 2 - FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value for current assets and current liabilities reasonably
approximates fair value due to the short maturities of these items.
Financial instruments that potentially subject the Companies to concentration
of credit risk consist principally of cash investments and trade receivables.
The Companies have cash investment policies that limit cash investments to
short-term low risk investments. With respect to trade receivables, the
Companies grant unsecured credit to their customers. In doing so, the
Companies perform ongoing credit evaluations of the financial condition of
their customers.
The Companies' cash deposits (bank statement balances) with one commercial
bank exceeded federally insured limits at October 5, 1997. These deposits
are located in a financially sound institution and any risk is considered
minimal by management.
During the nine months and five days ended October 5, 1997, three customers made
up 30.9 percent of the Companies' sales. However, the Companies sell to a large
number of customers in a variety of industries and markets, and management
believes there is no significant concentration of credit risk.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
Advertising services - The Companies purchase advertising services from Lines
Unlimited, which is owned by the spouse of the shareholder. Amounts due to
Lines Unlimited for advertising services at December 31, 1996 and October 5,
1997 total zero and $27,799, respectively. Payments made to Lines Unlimited
during the twelve months ended December 31, 1996 totaled $88,000. No payments
were made to Lines Unlimited during the nine months and five days ended October
5, 1997.
Property rental - The Companies lease their office and manufacturing facilities
from the shareholder on a month-to-month, verbal basis at a current rate of
$32,400 per month. A portion of the leased property has been sublet to an
unrelated party for $9,775 per month, such sublease expiring on December 31,
1997. Total net rent expense under this lease for the twelve months ended
December 31, 1996 and the nine months and five days ended October 5, 1997 was
$254,900 and $197,289, respectively.
There were no other amounts due to or due from related parties at December 31,
1996 and October 5, 1997, other than the shareholder advances described in Note
6.
<PAGE>
NOTE 4 - INVENTORIES
Inventories consisted of the following at December 31, 1996 and October 5, 1997:
1996 1997
----------- ----------
Raw materials $ 3,651,594 $3,409,512
Work in process and finished goods 1,754,405 1,955,766
----------- ----------
$ 5,405,999 $5,365,278
=========== ==========
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996 and
October 5, 1997:
1996 1997
--------- ---------
Transportation equipment $ 82,094 $ 82,094
Furniture and fixtures 38,221 38,221
Equipment 196,468 197,468
Leasehold improvements 40,517 40,517
--------- ---------
357,300 358,300
Accumulated depreciation (216,118) (261,610)
--------- ---------
Property and equipment, net $ 141,182 $ 96,690
========= =========
NOTE 6 - DUE TO SHAREHOLDER AND SHAREHOLDER COMPENSATION
Due to shareholder ($7,311,090 and $5,782,284 at December 31, 1996 and October
5, 1997, respectively) represents unsecured advances to the Companies without
interest, payable on demand. The Companies have historically paid out annually
all earnings to the shareholder in the form of royalties, fees and other
compensation.
NOTE 7 - INCOME TAXES
The components of the provision for income taxes for the twelve months ended
December 31, 1996 and the nine months and five days ended October 5, 1997 are as
follows:
1996 1997
----------- ---------
Current:
Federal $ 1,312,500 $ -
State 187,500 -
----------- ---------
Total current 1,500,000 -
----------- ---------
Deferred:
Federal 378,200 669,500
State 54,000 95,700
Valuation reserve (432,200) (765,200)
----------- ---------
Total deferred - -
----------- ---------
Total provision $ 1,500,000 $ -
=========== =========
<PAGE>
NOTE 7 - INCOME TAXES -- CONTINUED
The provision for income taxes of $1.5 million for 1996 differs from that
computed at statutory rates as a result of the income tax assessments described
in Note 9. Current income tax expense for 1997 is zero for taxes computed at
statutory rates.
Deferred income taxes at December 31, 1996 and October 5, 1997 are comprised of
the following:
1996 1997
--------- ---------
Inventory allowances $ 358,300 $ 540,000
Reserve for uncollectible accounts 21,000 88,000
Reserve for accrued expenses 52,900 137,200
--------- ---------
Gross deferred tax assets 432,200 765,200
Less valuation reserve (432,200) (765,200)
--------- ---------
Deferred taxes, net $ - $ -
========= =========
NOTE 8 - ACCRUED SEP CONTRIBUTION PAYABLE
During 1997, the Companies adopted a Simplified Employee Pension (SEP) plan.
Under this defined contribution plan, company contributions are discretionary
and employee contributions are not permitted.
At October 5, 1997, the Companies had designated $224,475 to be contributed for
employees under the plan. All active employees over the age of 21 who had been
employed by the Companies for two years or more during the past five years and
who received $300 or more in compensation during the year were eligible to
participate in the plan contribution. The contribution accrued at October 5,
1997 was allocated on a pro-rata basis based on compensation levels and is
expected to be the only contribution made under the plan. No contribution was
made for the twelve months ended December 31, 1996.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Income Tax Settlement Payable - During 1996 and 1997, the Companies' income tax
returns for the years 1994, 1995 and 1996 were audited by the Internal Revenue
Service. As a result of their audits, the IRS issued tax deficiency notices to
the Companies totaling approximately $3.5 million which have been appealed.
Management believes that the IRS position is not reasonable and that the
assessed amounts will not be upheld. The assessments will be vigorously
contested, and it is management's opinion that the ultimate amount payable will
not exceed $1.5 million. Accordingly, that amount has been recorded as a
liability in the accompanying combined financial statements. Timing for any
ultimate resolution of this matter cannot be accurately estimated.
Self-insurance - The Companies do not maintain any insurance coverage for
inventories, fixed assets or product liability. Expenses are recognized as
incurred.
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES -- CONTINUED
In the ordinary course of conducting their business, the Companies may be
subjected to loss contingencies arising from legal matters. Management believes
that the outcome of such matters, if any, will not have a material impact on the
Companies' financial position or results of future
operations.
Certain personnel of the Companies have vested in a formula-based compensation
arrangement which is contingent upon the Companies achieving required future
earnings levels.
A significant portion of the Companies' purchases are made from one vendor. For
the twelve months ended December 31, 1996 and nine months and five days ended
October 5, 1997, Sharp Electronics provided approximately 22% of the Companies'
raw materials purchases.
NOTE 10 - SUBSEQUENT EVENT
Effective October 5, 1997 the Companies sold substantially all operating assets
and liabilities to SC Acquisition #1, an Illinois corporation and subsidiary of
Total Control Products, Inc. (TCP). At the time of closing, the Companies
received $511,815 in cash and 699,029 shares of TCP common stock. This
purchase price is subject to adjustment should the net book value of the
purchased assets and assumed liabilities not equal a predetermined amount.
In addition, the Companies will be eligible for contingent payments from the
purchaser of up to $3 million per year for a period of five years ending
September 30, 2002. Such contingent payments are based upon achieving
certain goals for net earnings, as defined. Additionally, the shareholder
and his spouse received $12 million cash at closing as consideration for the
termination of all royalty agreements and rights to future royalties from the
Companies. Also, the shareholder received an immediately exercisable warrant
for the purchase of 100,000 shares of TCP stock, and the shareholder's spouse
received 233,010 shares of TCP common stock as part of the purchase price.
NOTE 11 - CANCELLATION FEE
During 1995 the Company received a significant noncancellable product order.
The order was subsequently canceled by the customer, and during 1996 a
negotiated cash settlement of $500,000 was reached.
NOTE 12 - RECLASSIFICATION OF PRIOR YEAR AMOUNTS
Certain of the December 31, 1996 amounts have been reclassified to conform with
the October 5, 1997 classifications.
<PAGE>
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet and
Statements of Operations are based on the historical Consolidated Financial
Statements of Total Control Products, Inc. ("Total Control" or "the Company")
filed previously with the Securities and Exchange Commission, adjusted to
give effect to the acquisition by Total Control of a controlling interest in
Taylor Industrial Software, Inc. ("Taylor") and the acquisition by Total
Control of Computer Dynamics, Inc. ("CDI"). The Unaudited Pro Forma Condensed
Consolidated Statements of Operations assume these events occurred on April
1, 1996. The Unaudited Pro Forma Condensed Consolidated Balance Sheet assumes
the acquisition of CDI occurred on September 30, 1997.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended March 31, 1997 reflects the audited statement of operations of Total
Control for the year ended March 31, 1997, the unaudited income statement of
Taylor for the six months ended September 26, 1996 (the date of acquisition),
and the audited statement of operations of CDI for the year ended December 31,
1996, on a historical basis. The Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the six months ended September 30, 1997 reflects the
unaudited income statement of Total Control for the six months ended September
30, 1997, and the unaudited income statement of CDI for the six months ended
September 30, 1997, on a historical basis.
The historical statement of operations of Taylor was prepared in accordance with
accounting principles generally accepted in Canada. These principles conform,
in all material respects, with accounting principles generally accepted in the
United States.
For the purpose of the preparation of the Unaudited Pro Forma Condensed
Consolidated Statement of Operations for March 31, 1997 only, the historical
statement of operations for Taylor described above was translated from
Canadian dollars (Taylor's functional currency) to U.S. dollars at the
approximate average exchange rate for the period.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1997 reflects the unaudited balance sheet of Total Control as of
September 30, 1997, and the unaudited balance sheet of CDI as of September
30, 1997, on a historical basis.
The pro forma financial information is a presentation of historical results with
accounting and other adjustments. The pro forma financial information does not
reflect the effects of any of the anticipated changes to be made by the Company
in the operations from the historical operations.
The pro forma statements presented are provided for informational purposes only
and should not be construed to be indicative of Total Control's results of
operations had the transactions been consummated on the date assumed and do not
project the Company's results of operations for any future period.
The Unaudited Pro Forma Condensed Consolidated Financial Statements and
accompanying notes should be read in conjunction with the financial
statements and the financial information pertaining to Total Control, Taylor
and CDI included elsewhere in this Amendment No. 1 to Form 8K and documents
filed previously with the Securities and Exchange Commission by Total Control.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical
---------------------------------------------
Taylor CDI
(through (Year ended Pro Forma Pro Forma
Total Control Sept. 26, 1996) Dec. 31, 1996) Adjustments Combined
------------- --------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 40,821 $ 3,545 $ 15,685 $ (508)(a) $ 59,543
Cost of goods sold 20,664 317 8,855 (6)(a) 29,830
------------- --------------- ----------- ----------- ---------
Gross profit 20,157 3,228 6,830 (502) 29,713
Operating expenses:
Sales and marketing 9,118 1,667 846 (418)(a,b,c) 11,213
Research and development 3,893 893 615 (192)(a,b,c) 5,209
General and administrative 4,069 1,362 5,943 (3,342)(a,b,c,d) 8,032
Charge for purchased research
and development 4,893 - - (4,893)(c) -
------------- --------------- ----------- ----------- ---------
Income (loss) from operations (1,816) (694) (574) 8,343 5,259
Interest (expense) and other, net (561) (30) 574 (1,024)(e) (1,041)
------------- --------------- ----------- ----------- ---------
Income (loss) before income taxes and
minority interest (2,377) (724) - 7,319 4,218
Provision for (benefit from)
income taxes 1,040 (96) 1,500 933 (f) 3,377
------------- --------------- ----------- ----------- ---------
Income (loss) before minority interest (3,417) (628) (1,500) 6,386 841
Minority interest in (income)
loss of subsidiary 1,853 - - (1,656)(g) 197
------------- --------------- ----------- ----------- ---------
Net income (loss) (1,564) (628) (1,500) 4,730 1,038
Accretion to redemption value of common
stock (9,061) - - - (9,061)
------------- --------------- ----------- ----------- ---------
Net income (loss) available to common
stockholders $ (10,625) $ (628) $ (1,500) $ 4,730 $ (8,023)
============= =============== =========== =========== =========
Net income (loss) per share available
to shareholders $ (1.83) $ (1.19)
============= =========
Weighted average number of
common shares outstanding 5,799 932(h) 6,731
============= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated statement of operations.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical
-------------------------- Pro Forma Pro Forma
Total Control CDI Adjustments Combined
------------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 24,911 $ 9,129 $ (72)(a) $ 33,968
Cost of goods sold 10,911 5,709 (47)(a) 16,573
------------- -------- ----------- ---------
Gross profit 14,000 3,420 (25) 17,395
Operating expenses:
Sales and marketing 6,010 635 8 (b) 6,653
Research and development 2,479 380 8 (b) 2,867
General and administrative 2,322 2,548 (1,234)(b,d) 3,636
------------- -------- ----------- ---------
Income (loss) from operations 3,189 (143) 1,193 4,239
Interest (expense) and other, net (15) 143 (512)(e) (384)
------------- -------- ----------- ---------
Income (loss) before income taxes and
minority interest 3,174 - 681 3,855
Provision for (benefit from)
income taxes 1,372 - 272 (f) 1,644
------------- -------- ----------- ---------
Income (loss) before minority interest 1,802 - 409 2,211
Minority interest in (income)
loss of subsidiary 134 - - 134
------------- -------- ----------- ---------
Net income (loss) $ 1,936 $ - $ 409 $ 2,345
============= ======== =========== =========
Net income (loss) per share available
to shareholders $ 0.25 $ 0.27
============= =========
Weighted average number of common
shares outstanding 7,848 932(h) 8,780
============= =========== =========
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated statement of operations.
<PAGE>
NOTES TO
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
The following notes identify the pro forma adjustments made to the historical
amounts in the pro forma unaudited condensed consolidated statements of
operations:
(a) Represents (i) the elimination of the revenues and related expenses of
Taylor's labor scheduling software product line, which was held for
sale by the Company, including operating expenses of $608,000 for the
year ended March 31, 1997 and (ii) the elimination of intercompany
sales from CDI to Total Control during the six months ended
September 30, 1997 of approximately $72,000 and the related cost of
sales of approximately $47,000.
(b) Represents an increase in depreciation and amortization expense
based on the useful lives assigned in connection with the
acquisitions of Taylor and CDI for (i) an increase in depreciation
expense of $66,000 and $25,000 for the increase in depreciable
basis of certain assets for the year ended March 31, 1997 and the
six months ended September 30, 1997, respectively, and (ii) an
increase in amortization expense for the year ended March 31, 1997
and the six months ended September 30, 1997 of approximately
$1,098,000 and $459,000, respectively, related to the amortization
of goodwill related to the acquisitions of Taylor and CDI. These
pro forma adjustments do not give effect to the impact on goodwill
amortization, if any, related to any future contingent earnout
payments for these acquisitions.
(c) Represents (i) the elimination of the non-recurring charge for
purchased research and development of $4,893,000 recorded by the
Company in the Total Control statement of operations for the year
ended March 31, 1997, which was directly attributable to the Taylor
acquisition and (ii) a decrease in operating expenses to eliminate
$202,000 of compensation expense related to the purchase by Taylor of
outstanding employee stock option arrangements, which is included in
the results of Taylor for the six months ended September 26, 1996 in
connection with the terms of the acquisition of Taylor. Except for
$193,000, these non-recurring items were recorded on the Taylor
subsidiary financial statements, and accordingly, 39% of this amount
has been included in the pro forma adjustment made to minority
interest described in Note (f) below.
<PAGE>
(d) Represents a reduction in expense related to compensation paid to
CDI's shareholder in excess of continuing compensation of $4,307,000
for the year ended December 31, 1996 and $1,702,000 for the six
months ended September 30, 1997.
(e) Represents an increase in interest expense associated with the debt
incurred to finance the acquisition of CDI of $1,024,000 for the
year ended December 31, 1996 and $512,000 for the six months ended
September 30, 1997. Additionally, interest expense associated with
debt incurred in connection with the acquisition of Taylor for the
year ended March 31, 1997 of approximately $350,000, which was
offset by a corresponding adjustment in the same amount to reflect
the anticipated repayment of the acquisition debt with the proceeds
received from the sale of Taylor's labor scheduling software
product line.
(f) Represents the income tax effects of the pro forma adjustments at
an assumed effective income tax rate of 40% for the pro forma
adjustments, except for pro forma adjustments related to Taylor,
for which an effective rate of 43% was assumed. The amortization
expense and compensation expense described in Note (b) (ii) and
Note (c) (ii) were not tax effected. Additionally, an adjustment
of $110,000 was recorded to increase the tax benefit recorded on
the Taylor statement of operations for the year ended March 31,
1997 as a result of the change in tax rate from 20% to 43% applied
to the taxable income of Taylor due to the change in ownership.
(g) Represents the minority interest of 39% in the pro forma loss of
Taylor.
(h) Represents the increase in weighted average shares outstanding for
the issuance of 932,039 shares of common stock in connection with
the acquisition of CDI.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AS OF SEPTEMBER 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Historical
-----------------------
Pro Forma Pro Forma
Total Control CDI Adjustments Combined
------------- ------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 1,196 320 (320)(a) 1,196
Trade receivables, net 7,710 1,918 (1)(a) 9,627
Inventory 8,860 5,365 - 14,225
Prepaid and deferred expenses
and other current assets 1,151 2 (2)(a) 1,151
------------- ------ ----------- ---------
Total current assets 18,917 7,605 (323) 26,199
PROPERTY AND EQUIPMENT, net 2,752 97 253 (e) 3,102
OTHER ASSETS:
Goodwill, net 8,595 - 15,615 (b) 24,210
Other long-term assets 3,786 - 731 (c) 4,517
------------- ------ ----------- ---------
Total other assets 12,381 - 16,346 28,727
------------- ------ ----------- ---------
Total assets 34,050 7,702 16,276 58,028
============= ====== =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt 55 - - 55
Notes payable - related parties 132 - - 132
Accounts payable 2,103 692 (14)(a) 2,781
Other current liabilities 6,704 2,183 (1,761)(a) 7,126
Due to shareholder - 5,782 (5,782)(a) -
------------- ------ ----------- ---------
Total current liabilities 8,994 8,657 (7,557) 10,094
LONG-TERM LIABILITIES:
Notes payable to bank 1,229 - 12,944 (d) 14,173
Long-term debt, net and other
long-term liabilities 615 - - 615
------------- ------ ----------- ---------
Total long-term liabilities 1,844 - 12,944 14,788
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN SUBSIDIARY 1,387 - - 1,387
SHAREHOLDERS' EQUITY:
Common stock 24,614 3 9,931 (a,d) 34,548
Class C Exchangeable common stock of
subsidiary 4,641 - - 4,641
Accumulated deficit (7,359) (958) 958 (a) (7,359)
Foreign currency translation adjustment (71) - - (71)
------------- ------ ----------- ---------
Total shareholders' equity 21,825 (955) 10,889 31,759
------------- ------ ----------- ---------
Total liabilities and
shareholders' equity 34,050 7,702 16,276 58,028
============= ====== =========== =========
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated balance sheet.
Page 1
<PAGE>
NOTES TO
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
The following notes identify the pro forma adjustments made to the historical
amounts in the pro forma unaudited condensed balance sheet:
(a) Represents an adjustment to eliminate certain net assets not
purchased and liabilities not assumed in connection with
the acquisition of CDI
(b) Represents the establishment of goodwill related to the acquisition of
CDI.
(c) Represents the establishment of net deferred tax assets related to
differences in the basis of various assets for financial reporting
and income tax purposes in connection with the acquisition of CDI.
(d) Represents an increase in debt outstanding and common stock
outstanding in connection with the acquisition of CDI.
(e) Represents the increase in depreciable basis of certain fixed assets
acquired to reflect the fair market value of the related assets at
acquisition.
<PAGE>
(c) Exhibits
23.1 Consent of Cherry, Bekaert & Holland, L.L.P.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 19, 1997 TOTAL CONTROL PRODUCTS, INC.
By: /s/Nic Gihl
------------------------------------------
Name: Nic Gihl
Title: President, Chief Executive Officer
and Chairman
<PAGE>
INDEX
Exhibit
Number Description of Document
- ------- -----------------------
23.1 Consent of Cherry, Bekaert & Holland, L.L.P.
<PAGE>
The Board of Directors
Computer Dynamics, Inc.
We consent to the incorporation by reference in the registration statement (No.
333-41063) on Form S-8 of Total Control Products, Inc. of our report dated
November 20, 1997, with respect to the combined balance sheets of the Combined
Entities of Computer Dynamics as of December 31, 1996 and October 5, 1997, and
the related combined statements of operations, changes in shareholder's and
owner's deficit, and cash flows for the twelve months and the nine months and
five days then ended, which report is included in this Amendment No. 1 to Form
8-K.
/s/ Cherry, Bekaert & Holland, L.L.P.
Greenville, South Carolina
December 18, 1997
