SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 23, 1996
----------------------------------
CENTENNIAL TECHNOLOGIES. INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
1 - 12912 04-2978400
- ------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
37 Manning Road, Billerica. Massachusetts 01821
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(508) 670-0646
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Form 8-K dated July 24,
1996, as set forth in the pages attached hereto:
1. Item 7 - Financial Statements and Exhibits - Amended to provide the
audited financial statements and pro forma financial information for Design
Circuits, Inc.
TABLE OF CONTENTS
FORM 8-K/A
September 23, 1996
Item Page
---- ----
Item 7. Financial Statements and Exhibits 1
Signature 2
Exhibits None
i
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Listed below are the financial statements, pro forma financial
information and exhibits, if any, filed as part of this amendment:
a. June 30, 1996 unaudited and October 31, 1995 Audited Financial
Statements for Design Circuits, Inc.
b. Pro forma Financial Information for the Registrant and Design Circuits,
Inc.
c. Exhibits. None.
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CENTENNIAL TECHNOLOGIES, INC.
Dated: September 23, 1996 By: /S/ Emanuel Pinez
--------------
Emanuel Pinez
Chief Executive Officer
-2-
DESIGN CIRCUITS, INC.
FINANCIAL STATEMENTS
JUNE 30, 1996 AND OCTOBER 31, 1995
DESIGN CIRCUITS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Report
Financial Statements:
Balance Sheets at June 30, 1996 (Unaudited) and October 31, 1995 4
Statements of Operations for the Eight Months Ended June 30, 1996 (Unaudited)
and the Year Ended October 31, 1995 5
Statement of Stockholders' Equity for the Year Ended October 31, 1995
and the Eight Months Ended June 30, 1996 (Unaudited) 6
Statements of Cash Flows for the Eight Months Ended June 30, 1996 (Unaudited)
and the Year Ended October 31, 1995 7
Notes to Financial Statements 8-20
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Design Circuits, Inc.:
We have audited the accompanying balance sheet of Design Circuits, Inc. as of
October 31, 1995 and the related statements of operations, stockholders' equity
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 financial statements referred to above present fairly, in
all material respects, the financial position of Design Circuits, Inc. as of
October 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
January 5, 1996, except as to Note 12,
which is as of July 10, 1996
DESIGN CIRCUITS, INC.
BALANCE SHEETS
JUNE 30, 1996 AND OCTOBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash $ 385,432 $ 2,522
Trade accounts receivable, net of allowance for doubtful accounts
of $172,600 in 1996 and $115,000 in 1995 (Note 11) 1,809,101 1,534,882
Notes receivable - related parties (Note 2) 8,500 8,607
Inventories (Note 3) 2,723,045 3,020,714
Prepaid expenses and other current assets 52,434 32,476
----------- ----------
Total current assets 4,978,512 4,599,201
Property and Equipment (Note 7)
Machinery and equipment 2,659,994 2,489,298
Computer equipment 283,875 259,414
Furniture and fixtures 67,784 48,271
Leasehold improvements 98,302 98,302
----------- ----------
3,109,955 2,895,285
Less accumulated depreciation and amortization 1,634,998 1,387,999
----------- ----------
Net property and equipment 1,474,957 1,507,286
----------- ----------
Notes receivable - related parties (Note 2) 4,250 10,651
Deposits 17,481 17,481
Other assets, net of accumulated amortization - 1,851
----------- ----------
Total assets $ 6,475,200 $ 6,136,470
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank (Note 4) 1,417,042 1,172,914
Subordinated notes payable (Note 5) 564,281 295,370
Current installments of long-term debt (Note 6) 8,500 76,648
Current installments of obligations under capital leases (Note 7) 190,980 167,916
Accounts payable 3,153,929 2,798,411
Accrued expenses 349,329 380,275
Income taxes payable (Note 8) 4,509 6,744
----------- ----------
Total current liabilities 5,688,570 4,898,278
----------- ----------
Subordinated notes payable, excluding current installments (Note 5) - 153,963
Long-term debt, excluding current installments (Note 6) 4,250 9,917
Obligations under capital leases, excluding current installments (Note 7) 478,012 475,266
----------- ----------
Total liabilities 6,170,832 5,537,424
----------- ----------
Stockholders' equity (Notes 9 and 10):
Series C convertible preferred stock, $.0001 par value. Authorized 50,000
shares; issued and outstanding 47,711 and 39,711 shares at June 30,
1996 and October 31, 1995, respectively 5 4
Series B convertible preferred stock, $.0001 par value. Authorized 20,270
shares; issued and outstanding 20,270 shares 2 2
Common stock , $.0001 par value. Authorized 150,000 shares; issued and
outstanding 26,428 and 26,744 shares at June 30, 1996 and October
31, 1995, respectively 3 3
Additional paid-in capital 4,557,663 4,323,124
Accumulated deficit (3,626,237) (3,097,335)
----------- ----------
931,436 1,225,798
Less treasury stock at cost, 13,459 and 13,143 common
shares at June 30, 1996 and October 31, 1995, respectively (627,068) (626,752)
----------- ----------
Total stockholders' equity 304,368 599,046
----------- ----------
Commitments (Note 7)
Total liabilities and stockholders' equity $ 6,475,200 $ 6,136,470
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
DESIGN CIRCUITS, INC.
STATEMENTS OF OPERATIONS
FOR THE EIGHT MONTHS ENDED JUNE 30, 1996 AND THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Net sales (Note 11) $ 11,450,016 $ 9,069,993
Cost of sales 10,830,868 8,814,282
------------ -----------
Gross profit 619,148 255,711
Selling, general and administrative expenses (Note 10): 973,665 1,342,165
------------ -----------
Operating loss (354,517) (1,086,454)
Other income (expense):
Interest expense (185,830) (358,838)
Interest income 18,817 11,796
Other (7,372) 219
------------ -----------
Loss before income taxes (528,902) (1,433,277)
Income tax expense (benefit) (Note 8) - (15,603)
------------ -----------
Net loss $ (528,902) $(1,417,674)
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
DESIGN CIRCUITS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED OCTOBER 31, 1995 AND THE EIGHT MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Series C Series B
Convertible Convertible Additional Total
Preferred Preferred Common Paid-in Accumulated Treasury Stockholders'
Stock Stock Stock Capital Deficit Stock Equity
----- ----- ----- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at October 31, 1994 $ 2 $ 3 $ 3,254,377 $(1,679,661) $ (322,500) $ 1,252,221
Series C preferred stock issued
in private offering, net of
issuance cost $ 4 969,822 969,826
Issuance of compensatory employee
stock options 98,000 98,000
Exercise of common stock options 925 925
Acquisition of treasury stock
(Note 2) (304,252) (304,252)
Net loss (1,417,674) (1,417,674)
---------- --------- --------- ----------- ----------- ---------- ----------
Balances at October 31, 1995 4 2 3 4,323,124 (3,097,335) (626,752) 599,046
Series C preferred stock issued
in private offering, net of
issuance cost 1 199,999 200,000
Issuance of compensatory employee
stock options 34,540 34,540
Acquisition of treasury stock (316) (316)
Net loss (528,902) (528,902)
---------- --------- --------- ----------- ----------- ---------- ----------
Balances at June 30, 1996
(Unaudited) $ 5 $ 2 $ 3 $ 4,557,663 $(3,626,237) $ (627,068) $ 304,368
========== ========= ========= =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
DESIGN CIRCUITS, INC.
STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED JUNE 30, 1996 AND THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (528,902) $(1,417,674)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 246,999 346,184
Provision for doubtful accounts 82,571 45,000
Provision for deferred income taxes - 100,000
Deferred compensation expense - incentive stock options 34,540 98,000
Gain on sale of asset - (218)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (356,790) 163,674
Decrease (increase) in inventory 297,669 (1,784,509)
Decrease (increase) in prepaid expenses and other current assets (19,958) 19,503
Decrease in deposits - 5,704
Decrease in other assets 1,851 27,581
Increase in accounts payable 355,518 1,720,188
Increase (decrease) in accrued expense (30,946) 119,531
Decrease in income taxes payable (2,235) (132,256)
----------- -----------
Net cash provided by (used in) operating activities 80,317 (689,292)
----------- -----------
Cash flows from investing activities:
Capital expenditures (26,781) (71,875)
Proceeds from sale of assets - 3,250
Collection of notes receivable - related party 6,508 90,015
----------- -----------
Net cash provided by (used in) investing activities (20,273) 21,390
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock - 925
Proceeds from issuance of preferred stock 200,000 969,826
Purchase of treasury stock (316) -
Net borrowings (repayments) under notes payable - bank 244,128 (109,179)
Proceeds from subordinated notes payable 350,000 235,052
Repayments of subordinated notes payable (235,052) (60,771)
Repayments of long-term debt (73,815) (217,732)
Payments under capital lease obligations (162,079) (175,936)
----------- -----------
Net cash provided by financing activities 322,866 642,185
----------- -----------
Net increase (decrease) in cash 382,910 (25,717)
Cash at beginning of period 2,522 28,239
----------- -----------
Cash at end of period $ 385,432 $ 2,522
=========== ===========
Supplemental Disclosures:
Cash paid for interest $ 161,699 $ 312,416
=========== ===========
Cash paid for income taxes $ 2,200 $ 32,256
=========== ===========
Noncash investing and financing activities:
Machinery and equipment acquired under capital
lease obligations $ 187,889 $ 423,516
=========== ===========
</TABLE>
During fiscal 1995, the Company purchased common stock from two shareholders by
canceling notes receivable in the amount of $245,945, canceling notes payable in
the amount of $30,000, issuing notes payable in the amount of $50,000, reducing
prepaid expenses by $47,932, and reducing accrued expenses by $9,625. An
increase to treasury stock of $304,252 was recorded.
The accompanying notes are an integral part of the financial statements.
7
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the eight months ended June 30, 1996 is unaudited)
1. Summary of Significant Accounting Policies:
Description of Operations
Design Circuits, Inc. (the "Company") is an independent provider of
customized, integrated manufacturing services to original equipment
manufacturers in the electronics industry, primarily production of
printed circuit boards. These services include turnkey services, where
the Company procures certain or all of the materials required for
product assembly, and consignment services where customers supply
certain or all of the materials and the Company provides assembly
services. Turnkey services include material procurement and warehousing
in addition to manufacturing, and typically involve greater resource
investment than consignment services.
On July 10, 1996, Centennial Technologies, Inc. acquired a majority
interest in the Company. The preferred and common stock of the Company
were retired and certain debt obligations were repaid.
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
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
Revenue Recognition
The Company recognizes revenue upon shipment of product to its
customers.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed based on the lesser of the estimated useful
lives or the lease term of the respective asset, using the
straight-line method. Estimated useful lives are as follows:
Machinery and equipment 7-10 years
Computer equipment 5 years
Furniture and fixtures 10 years
Leasehold improvements shorter of lease
term or useful life
As assets are retired or sold, the related cost and accumulated
depreciation are removed from the accounts and any resulting gain or
loss is included in the results of operations. Expenses for repairs and
maintenance are charged to operations as incurred.
Continued
8
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is
unaudited)
Other Assets
Other assets consists primarily of deferred financing fees incurred in
connection with the Company's long-term debt. Deferred financing fees
are amortized using the straight-line method over three years.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered and settled. The
effect on deferred tax and assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
Business and Credit Concentrations
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of trade receivables. The Company
has concentrations of credit risk due to sales to major customers (see
Note 11). The Company monitors extension of credit and has not
experienced significant credit losses in the past.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments including
cash, accounts receivable, accounts payable, and accrued expenses
approximate fair value due to the short-term nature of these
instruments. The carrying value of notes receivable, notes payable and
long-term debt approximate fair value based on the instruments'
interest rate, maturity date, and collateral, if any, in comparison to
the Company's incremental borrowing rate for similar financial
instruments.
2. Notes Receivable - Related Parties:
In October 1990, the Company sold manufacturing equipment used to
produce printed circuit boards to Circuit Tech Inc. ("CTI"), an entity
wholly-owned by a stockholder of the Company. The Company accepted a
$475,000 note bearing interest at 9.6% from CTI in connection with the
aforementioned sale. The original terms of the note required monthly
payments of principal and interest of $10,000 until September 1995.
During 1993, the Company modified the terms of the note receivable from
CTI. The modified terms included a decrease in the stated interest rate
to 7% and an extension of the maturity date to September 1997. The note
was canceled in August 1995 in exchange for the shares of the Company
held by the stockholder.
Continued
9
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
During 1994, the Company advanced $34,000 to an officer. The Company
accepted a secured note bearing interest at 4.0%. The note requires
bi-weekly principal and interest payments of $354 with a final
principal payment due in December 1996. The officer has pledged his
common stock in the Company as security for the note. The balance of
the note as of October 31, 1995 was $19,258 with $8,607 of principal
due in fiscal 1996. The balance of the note as of June 30, 1996 was
$12,750 with $8,500 of principal due in the next twelve months.
3. Inventories:
Inventories at June 30, 1996 and October 31, 1995 consisted of:
1996 1995
---- ----
Raw materials $ 1,931,990 $ 1,835,575
Work-in-process 742,180 1,185,139
Finished goods 48,875 -
----------- -----------
$ 2,723,045 $ 3,020,714
=========== ===========
4. Notes Payable-Bank:
The Company has a $2,000,000 secured revolving line of credit with U.S.
Trust, (the Bank) which bears interest at the Bank's base lending rate
plus 2% (10.25% and 10.75% at June 30, 1996 and October 31, 1995,
respectively). The line of credit is secured by substantially all
assets of the Company. Borrowings under this agreement are computed
based upon a formula which includes, among other items, 80% of eligible
trade accounts receivable. Drawings against the line of credit amounted
to $917,042 and $1,172,914 June 30, 1996 and October 31, 1995,
respectively. At June 30, 1996 and October 31, 1995, based upon the
bank's formula, the Company had approximately $420,910 and $52,541,
respectively, available to be drawn upon as needed.
The line of credit agreement and the term loan described in Note 6 also
contain certain financial covenants, restrictions on capital purchases,
acquisitions and other indebtedness and the payment of cash dividends.
As of June 30, 1996, the Company was in violation of certain covenants
which have not been waived by the Bank.
On March 26, 1996, the Company entered into an agreement with Fleet
Bank for a $500,000 unsecured line of credit. The line bears interest
at Fleet Bank's Prime Rate (8.25% at June 30, 1996) and all borrowings
have been guaranteed by a significant investor. Drawings against the
line of credit at June 30, 1996 amounted to $500,000.
Continued
10
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
On July 10, 1996, upon acquisition of the Company by Centennial
Technologies, Inc., these lines of credit and all accrued interest were
settled and both lines of credit were canceled.
5. Subordinated Notes Payable:
Subordinated notes payable at June 30, 1996 and October 31, 1995
consisted of the following:
<TABLE>
<CAPTION>
June 30, October 31,
1996 1995
---- ----
<S> <C> <C>
14% unsecured subordinated demand note payable to a stockholder $ 235,052
10% unsecured subordinated demand note payable to a stockholder,
due December 1996 or upon sale/merger of the Company,
whichever occurs first $ 50,000 50,000
10% unsecured subordinated demand note payable to a stockholder,
payable upon consent of the Bank 100,000 100,000
Prime plus one-half percent unsecured subordinated demand note
payable to a stockholder, payable upon consent of the Bank 32,500 32,500
9% unsecured subordinated note payable to a former sales
representative, payable in monthly principal and interest
installments of $2,000 through December 1996, upon consent
of the Bank 31,781 31,781
14% unsecured subordinated note payable to a related party,
convertible to preferred stock, due December 1996 or upon sale/
merger of the Company, which ever occurs first 350,000 -
---------- ----------
Total subordinated notes payable 564,281 449,333
Less current installments 564,281 295,370
---------- ----------
Subordinated notes payable, excluding current installments $ - $ 153,963
========== ==========
</TABLE>
On July 10, 1996, upon acquisition of the Company by Centennial
Technologies, Inc., the 10% unsecured subordinated demand note payable
to a stockholder for $50,000 and the 14% unsecured subordinated note
payable to a related party for $350,000 and all accrued interest were
settled and the notes were canceled.
Continued
11
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
6. Long-Term Debt:
Long-term debt at June 30, 1996 and October 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
$306,668 term note payable to Bank, payable in eighteen monthly principal and
interest installments of $17,037 through March 1996 with interest at
the Bank's Base Lending Rate plus 1.5%, secured by substantially all
of the Company's assets $ 68,148
$34,000 unsecured term note with the Bank, payable in forty-eight monthly
principal and interest installments of $708 through
December 1997 with interest at 8% $ 12,750 18,417
--------- ---------
Total long-term debt 12,750 86,565
Less current installments 8,500 76,648
--------- ---------
Long-term debt, excluding current installments $ 4,250 $ 9,917
========= =========
</TABLE>
The aggregate maturities of long-term debt for the succeeding two
twelve month periods ending June 30 are as follows: 1997 - $8,500; 1998
- $4,250.
7. Leases:
Capital Leases
The Company is the lessee of certain equipment under capital leases
expiring in various years through fiscal year 2000. Interest rates on
capital leases range from 9% to 15.25%. The assets are amortized over
their estimated useful lives. The following is a summary of equipment
held under capital leases at June 30, 1996 and October 31, 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Machinery and equipment $ 1,151,581 $ 963,692
Computer equipment 96,129 96,129
------------ ------------
1,247,710 1,059,821
Less accumulated amortization 340,620 231,706
------------ ------------
$ 907,090 $ 828,115
============ ============
</TABLE>
Continued
12
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
Minimum future lease payments under capital leases are as follows:
<TABLE>
<CAPTION>
Year Ending Year Ending
June 30, October 31,
-------- -----------
<S> <C> <C>
1996 $ 228,201
1997 $ 255,849 208,562
1998 265,814 200,509
1999 222,363 133,879
2000 and thereafter 50,529 9,069
------------- ------------
Total minimum lease payments 794,555 780,220
Less amounts representing interest 125,563 137,038
------------- ------------
Present value of net minimum lease payments 668,992 643,182
Less current installments of obligations
under capital leases 190,980 167,916
------------- ------------
Obligations under capital leases, excluding
current installments $ 478,012 $ 475,266
============= ============
</TABLE>
Operating
The Company has noncancelable operating lease arrangements for certain
office equipment and its office and manufacturing facility in
Southborough, Massachusetts.
Minimum future obligations on leases are as follows:
<TABLE>
<CAPTION>
Year Year
Ending Ending
June 30, October 31,
-------- -----------
<S> <C> <C>
1996 $ 235,760
1997 $ 244,903 231,760
1998 and thereafter 102,063 19,250
---------- ----------
$ 346,966 $ 486,770
========== ==========
</TABLE>
All leases expire prior to October 31, 1998. It is expected that in the
normal course of business, leases that expire will be renewed or
replaced by leases on other equipment and properties.
Rent expense under operating leases amounted to approximately $153,000
and $254,000 for the eight months ended June 30, 1996 and for the year
ended October 31, 1995, respectively.
Continued
13
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
8. Income Taxes:
The Company did not incur federal or state income tax expense (benefit)
for the eight months ended June 30, 1996.
Total federal and state income tax expense (benefit) for the year ended
October 31, 1995 consisted of the following:
Current Deferred Total
Federal $ (115,603) $ 103,000 $ (12,603)
State - (3,000) (3,000)
----------- ----------- -----------
$ (115,603) $ 100,000 $ (15,603)
=========== =========== ===========
Income tax expense (benefit) amounted to $0 and ($15,603) for the eight
months ended June 30, 1996 and the year ended October 31, 1995,
respectively. The actual expense (benefit) differs from the "expected"
tax expense (benefit) (computed by applying the statutory U.S. federal
corporate tax rate of 34% to income (loss) before income taxes) as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computed "expected" tax expense (benefit) $ (179,827) $ (487,314)
State income taxes, net of federal income tax benefit - (1,980)
Change in valuation allowance for deferred tax assets 241,717 467,192
Non-deductible expenses 1,752 3,851
Other (63,642) 2,648
---------- ----------
- $ (15,603)
========== ==========
</TABLE>
Continued
14
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
At June 30, 1996 and October 31, 1995, deferred income tax assets and
liabilities result from temporary differences in the recognition of
income and expense for tax and financial reporting purposes. The
sources and tax effects of these temporary differences are presented
below:
<TABLE>
<CAPTION>
June 30, October 31,
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Excess of financial statement amortization over tax
amortization $ 4,599 $ 4,509
Nondeductible reserves for inventory and accounts receivable 278,664 233,055
Deferred compensation and vacation pay 121,463 63,545
Federal tax credit carryforwards 25,355 23,000
Net operating loss carryforwards 1,288,505 1,148,167
---------- ----------
Total gross deferred tax assets 1,718,586 1,472,276
Less valuation allowance 1,500,909 1,259,192
---------- ----------
Net deferred tax assets $ 217,677 $ 213,084
========== ==========
Deferred tax liability:
Excess of tax depreciation over financial statement
depreciation $ 217,677 $ 213,084
========== ==========
Net deferred tax assets - -
========== ==========
</TABLE>
The net change in the total valuation allowance for the eight months
ending June 30, 1996 and the year ended October 31, 1995 was an
increase of $241,717 and $467,192, respectively. In assessing the
realizability of deferred tax assets, the Company considers whether it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. Management has concluded that it is more
likely than not that the Company will not have sufficient taxable
income of an appropriate character within the carryback and
carryforward period permitted by current tax law to allow for the
utilization of certain of the deductible amounts generating the
deferred tax assets and, therefore, a valuation allowance of $1,500,909
has been established to reduce total deferred tax assets to $217,677 at
June 30, 1996.
Management believes that the remaining deferred tax assets of $217,677
at June 30, 1996 will be offset by the reversal of deferred tax
liabilities in future periods; therefore, no valuation allowance is
considered necessary.
Continued
15
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
As of June 30, 1996, the Company has net operating loss carryforwards
of $3,219,456 for federal income tax purposes. The Company experienced
an ownership change, as defined by Section 382 of the Internal Revenue
Code to which the utilization of these losses will be limited.
9. Stockholders' Equity:
Series C Convertible Preferred Stock
In August 1995, the Board of Directors and stockholders of the Company
authorized 50,000 shares of Series C convertible preferred stock,
$.0001 par value per share. During 1995, the Company issued 39,711
shares of Series C convertible preferred stock in a private placement.
Net proceeds totaled $969,826, net of issuance costs of $22,937. During
November 1995, the Company issued an additional 8,000 shares of Series
C convertible preferred stock in a separate private placement. Net
proceeds of this issuance totaled $200,000. Proceeds of both placements
were used to make capital expenditures, repay certain trade accounts
payable, and to provide working capital.
Each share of Series C convertible preferred stock may be converted at
any time into the number of shares of common stock of the Company
obtained by dividing $25.00 by the conversion price in effect at the
time of conversion. At June 30, 1996 and October 31, 1995, the
conversion price was such that each share of Series C convertible
preferred stock was convertible into one share of common stock.
The holders of Series C convertible preferred stock have preference
over all other classes of capital stock as to the payment of dividends
and liquidation, and are entitled to one vote per share on all matters
on which stockholders are entitled to vote.
Series B Convertible Preferred Stock
Prior to the issuance of Series C convertible preferred stock in 1995,
the Company executed a recapitalization of its existing capital stock.
As part of the recapitalization, the 2,026,985 shares of Series B
convertible preferred stock issued and outstanding at that date were
converted to 20,270 shares. In addition, the par value per share was
decreased from $.01 to $.0001.
Each share of Series B convertible preferred stock may be converted at
any time into the number of shares of common stock of the Company
obtained by dividing $49.33 by the conversion price in effect at the
time of conversion. At June 30, 1996 and October 31, 1995, the
conversion price was such that each share of Series B convertible
preferred stock was convertible into one share of common stock.
The holders of Series B convertible preferred stock have preference
over the holders of common stock, but are subordinate to the holders of
Series C convertible preferred stock, as to the payment of dividends
and liquidation. The holders of Series B convertible preferred stock
are entitled to one vote per share on all matters on which stockholders
are entitled to vote.
Continued
16
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
Common Stock
As part of the recapitalization noted above, the 2,870,063 shares of
common stock issued and outstanding at that date were converted to
28,701 shares. In addition, the par value per share was decreased from
$.01 to $.0001.
The holders of common stock are subordinate to the holders of Series C
convertible preferred stock and the holders of Series B convertible
preferred stock as to the payment of dividends and liquidation. The
holders of common stock are entitled to one vote per share on all
matters on which stockholders are entitled to vote.
Common Stock Repurchase Agreements
In December 1992, the Company executed agreements with two stockholders
obtaining the exclusive right to repurchase 140,845 and 300,000
outstanding shares of common stock from such stockholders at $1.42 and
$.50 per share, respectively. These rights were to expire on December
31, 1993.
In January 1993, 170,000 shares of common stock were repurchased from
two stockholders for the treasury. The purchases were made pursuant to
common stock repurchase agreements described above. The Company
purchased 70,000 shares for $1.42 per share and 100,000 shares for $.50
per share.
Also in January 1993, the Company assigned its rights to repurchase the
remaining 70,845 shares at $1.42 per share and the rights to repurchase
50,000 shares at $.50 per share to Fidelity Ventures Ltd. On December
31, 1993, the Company purchased 145,000 shares of common stock under
the terms of the December 1992 stock redemption agreement between the
Company and the stockholder for $.50 per share. The right to repurchase
the remaining 5,000 shares under this stock redemption agreement
expired.
Continued
17
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
10. Stock Options and Warrants:
Non-Qualified Compensatory Stock Option Plan
The Company had a non-qualified, compensatory stock option plan for
certain employee groups under which options to purchase shares of the
Company's common stock were granted at less than the fair value of the
stock at the date of grant (hereafter referred to as "the 1994 Option
Plan"). The options issued under the 1994 Option Plan contained varying
expiration dates and vested no later than ten years from the date
granted. The following is a summary of the 1994 Option Plan activity
for fiscal 1995:
<TABLE>
<CAPTION>
1994 OPTION PLAN
----------------
Shares Under Exercise
Option Prices
------ ------
<S> <C> <C>
Outstanding, October 31, 1994 1,219,650 $ .01 - .05
Granted 333,200 .05
Exercised (18,500) .05
Canceled - -
---------- ------------
1,534,350 .01 - .05
Recapitalization of existing stock (1,519,006) .01 - .05
Canceled upon termination of the Plan (15,344) .01 - .05
---------- ------------
Outstanding and vested, October 31, 1995 - -
========== ============
</TABLE>
During fiscal 1995, the Company's Board of Directors approved the
cancellation of all stock options under the 1994 Option Plan and
reserved 40,000 shares of common stock for issuance under the 1995
Option Plan. All option holders with vested options in the 1994 Option
Plan received new options in the 1995 Option Plan.
The 1995 Option Plan is a non-qualified compensatory stock option plan
for certain employee groups. Options issued under the 1995 Option Plan
vest immediately upon issuance and have an exercise price of $.05 per
share. The options expire ten years from the date of grant.
Compensation expense related to the 1995 Option Plan charged to
operations for the year ended October 31, 1995 was $98,000, and has
been included in selling, general and administrative expenses in the
accompanying Statements of Operations.
In June 1996, the Company's Board of Directors resolved to revalue the
fair value of the Company's common stock from $5.00 per share to $2.50
per share, retroactive for all shares issued subsequent to October 31,
1995. As a result, for the eight months ended June 30, 1996,
compensation expense related to the 1995 Option Plan charged to
operations was $34,540. This expense has been included in selling,
general and administrative expenses in the accompanying Statements of
Operations.
Continued
18
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
The following is a summary of the 1995 Option Plan activity for the
fiscal year ended October 31, 1995 and for the eight months ended June
30, 1996:
<TABLE>
<CAPTION>
1995 OPTION PLAN
----------------
Shares
Under Exercise
Option Price
------ -----
<S> <C> <C>
Outstanding balance, October 31, 1994 - -
Granted 40,000 $ .05
------ --------
Outstanding balance, October 31, 1995 40,000 .05
------ --------
Granted 14,098 .05
------ --------
Outstanding balance, June 30, 1996 54,098 $ .05
====== ========
Vested, October 31, 1995 40,000 $ .05
====== ========
Vested, June 30, 1996 54,098 $ .05
====== ========
</TABLE>
Non-Compensatory Stock Warrants
The Company has also issued stock warrants to employees, former
employees, stockholders, creditors, and other individuals. These
warrants are vested upon issuance. The warrants are exercisable
commencing on the date granted and expire on various dates which range
from five to seventeen years from the date granted. The following is a
summary of activity for the fiscal year ended October 31, 1995 and the
eight months ended June 30, 1996:
Continued
19
DESIGN CIRCUITS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the eight months ended June 30, 1996 is unaudited)
<TABLE>
<CAPTION>
Exercise
Warrants Price
-------- -----
<S> <C> <C>
Outstanding balance, October 31, 1994 245,238 $.25 - 3.00
Granted during fiscal 1995, prior to recapitalization 40,000 .05
Canceled during fiscal 1995 (20,000) 2.50
------- --------------
265,238 .25 - 3.00
Recapitalization of existing stock (262,586) .25 - 3.00
Granted during fiscal 1995, subsequent to recapitalization 2,407 5.00
------- --------------
Outstanding balance, October 31, 1995 5,059 5.00 - 300.00
Granted during the eight months ended June 30, 1996 3,500 5.00
------- --------------
Outstanding balance, June 30, 1996 8,559 $5.00 - 300.00
======= ==============
</TABLE>
11. Major Customers:
A summary of the net sales to three major customers that exceeded 10%
for the eight months ended June 30, 1996 and the fiscal year ended
October 31, 1995, respectively, and the amount due from these customers
as of June 30, 1996 and October 31, 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales $ 8,342,471 $ 4,835,935
=========== ===========
Amounts receivable $ 1,272,923 $ 921,542
=========== ===========
</TABLE>
12. Subsequent Event:
On July 10, 1996, the Company was acquired by Centennial Technologies,
Inc.
20
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
OF CENTENNIAL TECHNOLOGIES, INC.
AND DESIGN CIRCUITS, INC.
The following unaudited pro forma combined condensed consolidated financial
statements give effect to the acquisition of Design Circuits, Inc. ("DCI") by
Centennial Technologies, Inc. ("Centennial"), by means of a merger (the
"Merger"), under the purchase method of accounting. The unaudited pro forma
combined condensed consolidated balance sheet combines the unaudited
consolidated balance sheet of Centennial and the unaudited balance sheet of DCI
at June 30, 1996 as if the Merger occurred on June 30, 1996. The unaudited pro
forma combined condensed consolidated statement of operations combines the
unaudited historical results of consolidated operations of Centennial and the
unaudited historical results of operations of DCI, for the year ended June 30,
1996 as if the Merger had occurred at the beginning of such year.
The unaudited pro forma combined condensed consolidated financial statements do
not reflect cost savings and synergies which might be achieved from the Merger.
The unaudited pro forma combined condensed consolidated financial statements do
not purport to be indicative of the consolidated operating results or the
consolidated financial position that would have been achieved had the Merger
been effected for the year indicated or the consolidated results or the
consolidated financial position which may by obtained in the future.
These combined condensed consolidated pro forma financial statements are based
on and should be read in conjunction with the unaudited consolidated financial
statements of Centennial, including the notes thereto not separately presented
herein, and the accompanying audited and unaudited financial statements of DCI,
including the notes thereto.
CENTENNIAL TECHNOLOGIES, INC.
AND
DESIGN CIRCUITS, INC.
Pro Forma Combined Condensed Consolidated Balance Sheet
as of June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Centennial Design Pro Forma Combined
Technologies, Inc. Circuits, Inc. Adjustments Pro Forma
----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets :
Cash and marketable securities $11,114,283 $385,432 ($5,461,348)(2a) $6,038,367
Accounts receivable, net 12,592,231 1,809,101 0 14,401,332
Current portion of notes receivable 3,680,750 0 0 3,680,750
Notes receivable - related parties 0 8,500 (8,500)(2a) 0
Inventories 18,229,317 2,723,045 0 20,952,362
Deferred income taxes 211,100 0 0 211,100
Prepaid expenses and other current assets 2,362,887 52,434 0 2,415,321
----------------- --------------- --------------- ---------------
Total current assets 48,190,568 4,978,512 (5,469,848) 47,699,232
Equipment and leasehold improvements, net 4,698,616 1,474,957 200,475 (2b) 6,374,048
Notes receivable - related parties 0 4,250 (4,250)(2a) 0
Investments 2,472,381 0 0 2,472,381
Other assets 170,392 17,481 0 187,873
Deferred income taxes 121,300 0 0 121,300
Goodwill and intangible assets, net 128,918 0 9,392,234 (2d) 9,521,152
----------------- --------------- --------------- ---------------
Total assets $55,782,175 $6,475,200 $4,118,611 $66,375,986
================= =============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities :
Notes payable 4,683,876 1,417,042 (1,417,042)(2a) 4,683,876
Subordinated notes payable 0 564,281 (532,500)(2a) 31,781
Current installment of long-term debt 0 8,500 (8,500)(2a) 0
Current portion of long term obligations
under capital leases 336,058 190,980 0 527,038
Accounts payable and accrued expenses 3,494,693 3,503,258 (227,229)(2a) 6,770,722
Income taxes payable 614,036 4,509 0 618,545
----------------- --------------- --------------- ---------------
Total current laibilities 9,128,663 5,688,570 (2,185,271) 12,631,962
Subordinated notes payable, excluding current
installments 0 0 0 0
Long-term debt, excluding current installments 0 4,250 (4,250)(2a) 0
Long-term obligations under capital leases 366,944 478,012 0 844,956
Deferred income taxes 241,600 0 0 241,600
----------------- --------------- --------------- ---------------
Total liabilities 9,737,207 6,170,832 (2,189,521) 13,718,518
Minority interest 2,487,500 (2e) 2,487,500
Stockholders' equity :
Preferred stock 0 7 (7) 0
Common stock 83,159 3 1,247 84,409
Additional paid-in capital 38,883,677 4,557,663 (433,913) 43,007,427
Retained earnings (accumulated deficit) 7,078,132 (3,626,237) 3,626,237 7,078,132
----------------- --------------- --------------- ---------------
46,044,968 931,436 3,193,564 50,169,968
Treasury stock 0 (627,068) 627,068 0
----------------- --------------- --------------- ---------------
Total stockholders' equity 46,044,968 304,368 3,820,632 (2c) 50,169,968
----------------- --------------- --------------- ---------------
Total liabilities and stockholders'
equity $55,782,175 $6,475,200 $4,118,611 $66,375,986
================= =============== =============== ===============
</TABLE>
1
CENTENNIAL TECHNOLOGIES, INC.
AND
DESIGN CIRCUITS, INC.
Pro Forma Combined Condensed Consolidated Statement of Operations
for the year ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Centennial Design Pro Forma Combined
Technologies, Inc. Circuits, Inc. Adjustments Pro Forma
-------------- ------------- -------------- ---------------
<S> <C> <C> <C>
Sales $37,847,681 $15,064,093 $52,911,774
Cost of goods sold 23,636,299 14,568,075 0 38,204,374
-------------- ------------- -------------- ---------------
Gross margin 14,211,382 496,018 14,707,400
General and administrative expenses 4,590,413 1,514,097 $959,223 (3a) 7,063,733
Research and development costs 1,433,765 0 0 1,433,765
-------------- ------------- -------------- ---------------
Income (loss) from operations 8,187,204 (1,018,079) (959,223) 6,209,902
Other income (expense) :
Interest income 352,606 19,675 (91,135)(3b) 281,146
Interest expense (369,584) (318,472) (290,684)(3c) (978,740)
Other 0 (7,153) 0 (7,153)
-------------- ------------- -------------- ---------------
Income (loss) before minority interest and taxes 8,170,226 (1,324,029) (1,341,042) 5,505,155
Minority interest 0 0 662,365 (3d) 662,365
Income (loss) before income taxes 8,170,226 (1,324,029) (678,677) 6,167,520
Income tax expense (benefit) 3,268,090 (15,603) (152,000)(3e) 3,100,487
-------------- ------------- -------------- ---------------
Net income (loss) $4,902,136 ($1,308,426) ($526,677) $3,067,033
============== ============= ============== ===================
Historical primary net income per common share $0.67
==============
Historical fully diluted net income per common share $0.66
==============
Historical primary weighted average common
shares outstanding 7,338,906
==============
Historical fully diluted weighted average common
shares outstanding 7,432,502
==============
Pro forma primary net income per share $0.41
===============
Pro forma fully diluted net income per share $0.41
===============
Pro forma primary weighted average common
common shares outstanding 7,463,906
===============
Pro forma fully diluted weighted average common
shares outstanding 7,557,502
===============
</TABLE>
2
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
OF CENTENNIAL TECHNOLOGIES, INC.
AND DESIGN CIRCUITS, INC.
1. Basis of Presentation:
The pro forma adjustments described in notes 2 and 3 to the pro forma
financial statements are required to allocate the purchase price and
the estimated acquisition costs to the net assets of Design Circuits,
Inc. based upon their estimated fair values at June 30, 1996 as
determined by the management of the Company. Such allocation will be
revised to reflect changes in assets and liabilities through July 10,
1996 (the date of the acquisition) and the determination of the actual
acquisition costs.
2. Pro Forma Adjustments to Unaudited Pro Forma Combined Condensed
Consolidated Balance Sheet:
a. Cash and marketable securities have been reduced by
$5,461,348 to reflect the cash portion of the purchase
price of DCI ($5,622,077), the payment of acquisition
costs of ($150,000) and the repayment of a portion of
DCI's debt obligations ($2,176,771) offset by the
collection of funds of $2,487,500 from the minority
shareholders of DCI.
b. Equipment and leasehold improvements has been increased by
$200,475 to increase the value of DCI's equipment to
appraised value.
c. Stockholders' equity has been adjusted by $3,820,632 to
reflect the issuance of Centennial's common stock as a
portion of the total purchase price of DCI, net of the
elimination of DCI's preferred stock, common stock,
additional paid-in capital, accumulated deficit and
treasury stock.
d. Goodwill and intangible assets have been increased by
$9,392,234 to reflect the estimated goodwill arising from
the acquisition of DCI by Centennial and the balance sheet
adjustments above.
e. Minority interest reflects the interests of the minority
shareholders of DCI.
3. Pro Forma Adjustments to Unaudited Pro Forma Combined Condensed
Consolidated Statement of Operations:
a. General and administrative expenses have been increased by
$959,223 for the year ended June 30, 1996 reflecting (a)
amortization over a 10-year period, of the net excess of
the purchase price of DCI over the fair value of the
assets acquired (goodwill) of $9,392,234, and (b) the
depreciation expense of $20,000 associated with the
increase in the appraised value of equipment and leasehold
improvements.
b. Interest income has been reduced by $91,135 for the year
ended June 30, 1996 to adjust interest on cash and
marketable securities.
c. Interest expense has been increased by $290,684 to reflect
borrowings of $7,811,598 under the Company's credit
facility at an interest rate of 8.75% and to reflect
repayment of a portion of DCI's debt obligations at a rate
of interest ranging from 9% to 14%.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
OF CENTENNIAL TECHNOLOGIES, INC.
AND DESIGN CIRCUITS, INC.
d. Minority interest reflects the interests of the minority
shareholders in the operating results of DCI for the year
ended June 30, 1996.
e. Income tax expense (benefit) has been reduced by $152,000
to reflect the tax effect of the adjustments in interest
income and interest expense discussed above.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Design Circuits, Inc. for the period ending June 30,
1996 and the year ending October 31, 1995 and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> 2,522
<SECURITIES> 0
<RECEIVABLES> 1,649,882
<ALLOWANCES> 115,000
<INVENTORY> 3,020,714
<CURRENT-ASSETS> 4,599,201
<PP&E> 2,895,285
<DEPRECIATION> 1,387,999
<TOTAL-ASSETS> 6,138,470
<CURRENT-LIABILITIES> 4,898,278
<BONDS> 639,146
0
6
<COMMON> 3
<OTHER-SE> 599,037
<TOTAL-LIABILITY-AND-EQUITY> 6,136,470
<SALES> 9,069,993
<TOTAL-REVENUES> 9,069,993
<CGS> 8,814,282
<TOTAL-COSTS> 8,814,282
<OTHER-EXPENSES> 1,342,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 358,838
<INCOME-PRETAX> (1,433,277)
<INCOME-TAX> (15,603)
<INCOME-CONTINUING> (1,417,674)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,417,674)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
