<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K
FOR REPORT DATED OCTOBER 29, 1996
AND FILED ON NOVEMBER 12, 1996
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Computational Systems, Incorporated
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Tennessee 0-26596 62-1198047
- ---------------------------- ---------------------- -----------------
(State or Other Jurisdiction Commission File Number (I.R.S. Employer
of Incorporation or Organization) Identification No.)
835 Innovation Drive
Knoxville, Tennessee 37932
--------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code: (423) 675-2110
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
The Registrant has previously filed its Current Report on Form 8-K, dated
November 12, 1996, without certain financial information required by Item 7 of
such Form 8-K. The Registrant hereby amends the Current Report on Form 8-K to
file such financial information. Item 7, subparagraphs (a) and (b) of the Form
8-K, dated November 12, 1996, are hereby amended to read as follows:
Item 7. Financial Statements, Pro Forma Information and Exhibits.
a. The financial statements of Maintenance & Diagnostics L.L.C. as of
December 31, 1995 and the nine month period ended September 30, 1996.
Maintenance & Diagnostics financial statement contents:
Report of Independent Public Accountants
Balance Sheets as of December 31, 1995 and September 30, 1996
Statements of Income and Member's Equity for the year ended December 31,
1995 and the nine months ended September 30, 1996
Statements of Cash Flow for the year ended December 31, 1995 and the
nine months ended September 30, 1996
Notes to Financial Statements
b. The Unaudited Pro Forma Financial Statements.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Maintenance & Diagnostics, L.L.C.
We have audited the accompanying balance sheet of Maintenance & Diagnostics,
L.L.C. (the "Company") as of December 31, 1995, and the related statements of
operations and members' capital 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 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 Maintenance & Diagnostics,
L.L.C. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended, in comformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
October 9, 1996
<PAGE>
MAINTENANCE & DIAGNOSTICS, LLC.
BALANCE SHEETS
December 31, September 30,
1995 1996
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash $302,672 $395,099
Accounts receivable 1,239,647 1,799,106
Prepaid expenses and other current assets 34,264 32,227
--------- ---------
Total current assets 1,576,583 2,226,432
Property, plant and equipment, net 206,225 482,226
Other assets, including intangibles 32,739 78,077
--------- ---------
Total assets 1,815,547 2,786,735
========= =========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable 208,622 524,800
Accrued liabilities 229,019 255,875
Deferred revenue 148,529 11,041
Due to related party 1,008,725 1,238,526
Income taxes payable 11,133 69,361
Members' capital distributions payable ----- 231,203
--------- ---------
Total liabilities 1,606,028 2,330,806
--------- ---------
Members' capital:
Contributed capital 135,000 135,000
Retained earnings 74,519 320,929
--------- ---------
Total members' capital 209,519 455,929
--------- ---------
Total liabilities and members' capital $1,815,547 $2,786,735
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MAINTENANCE & DIAGNOSTICS, LLC.
STATEMENTS OF OPERATIONS AND MEMBERS' CAPITAL
<TABLE>
Nine Months
Year Ended Ended
December 31, September 30,
1995 1996
---------- ----------
(unaudited)
<S> <C> <C>
Revenues $4,065,269 $5,903,594
Cost of revenues 3,007,738 4,280,478
---------- ----------
Gross margin 1,057,531 1,623,116
General and administrative expenses 995,995 1,078,714
---------- ----------
Income from operations 61,536 544,402
Other income:
Interest income 5,516 4,915
Other income 18,600 48,858
---------- ----------
Income before taxes 85,652 598,175
Provision for taxes 11,133 69,361
---------- ----------
Net Income 74,519 528,814
Members' capital beginning ----- 209,519
Members' founding capital contributions 135,000 -----
Members' capital distributions ----- (282,404)
---------- ----------
Members' capital ending $209,519 $455,929
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MAINTENANCE & DIAGNOSTICS, LLC.
STATEMENTS OF CASH FLOWS
<TABLE>
Nine Months
Year Ended Ended
December 31, September 30,
1995 1996
------------ -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $74,519 $528,814
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 6,550 56,077
Amortization 1,674 1,654
Changes in operating assets and liabilities:
Accounts receivable (1,239,647) (559,459)
Prepaid expenses and other current assets (34,264) 2,037
Other assets (11,952) (20,492)
Accounts payable 208,622 316,178
Accrued liabilities 229,019 26,856
Deferred revenue 148,529 (137,488)
Due to related party 1,008,725 229,801
Income taxes 11,133 58,228
------------ -------------
Net cash provided by operating activities 402,908 502,206
Cash flows from investing activities:
Purchase of property, plant and equipment (212,775) (332,078)
Purchase of other assets (22,461) (26,500)
------------ -------------
Net cash used in investing activities (235,236) (358,578)
Cash flows from financing activities:
Capital contributions 135,000 -----
Capital distributions paid ----- (51,201)
------------ -------------
Net cash provided (used) by financing
activities 135,000 (51,201)
Net increase in cash 302,672 92,427
Cash at beginning of period ----- 302,672
------------ -------------
Cash at end of period $302,672 $395,099
Noncash financing activities:
Capital distributions declared but not paid $----- $231,203
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MAINTENANCE & DIAGNOSTICS, LLC
NOTES TO FINANCIAL STATEMENTS
1. Organization and Nature of Business:
Maintenance & Diagnostics, L.L.C. (the "Company"), was organized as a
Delaware limited liability company on January 1, 1995. The purpose of the
Company is to provide diagnostic and monitoring services and technologies to the
electric utility industry.
2. Significant Accounting Policies:
Revenue Recognition - The Company's contracts are generally on a "cost plus
fixed fee" basis. Revenues earned are measured by the labor and other
allowable costs incurred plus the proportionate amount of fixed fee.
Payments received in excess of that amount are classified as deferred
revenue.
Management 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 disclosures 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.
Unless indicated otherwise, the fair valueof the Company's financial
instruments approximates carrying value.
Property and Equipment - Property and equipment are c arried at cost.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, which range from five to seven years. Leasehold
improvements are amortized over the minimum term of the underlying lease.
Routine maintenance and repairs are charged to expense as incurred.
Intangible Assets - Intangible assets consist of or ganization costs and the
costs of acquiring patents and are amortized using the striaght line method
over five and seventeen years, respectively. The carrying amount is
periodically reviewed by the Company, and impairments are recognized when
the expected future operating cash flows derived from such intangible assets
are less than their carrying value.
Income Taxes - The Company is treated as a partnership for federal income tax
purposes. Under provisions of the Internal Revenue Code, net earnings and
tax credits are included in the tax returns of the Company's members;
accordingly, no provision has been made for federal taxes. The state in
which the Company operates does not recognize partnership status for
limited liability companies; accordingly, the Company provides for state
income tax expense at the Pennsylvania statutory rate.
Income taxes are recorded under the asset and liability method prescribed by
Statement of Accounting Standards No. 109, Accounting for Income Taxes.
There were no significant deferred income tax assets or liabilities as of
December 31, 1995.
<PAGE>
Notes to Financial Statements, Continued
3. Concentration of Credit Risk/Major Customer Base:
Approximately 81% of the Company's accounts receivable as of December 31,
1995 were generated from contracts awarded by the Electric Power Research
Institute. Approximately 89% of the Company's 1995 revenues and 81% of the 1996
revenues were generated from contracts awarded by the Electric Power Research
Institute (EPRI).
4. Property and Equipment:
Property and equipment consist of the following:
Year Ended Year Ended
December 31, September 30,
1995 1996
----------- ------------
(unaudited)
Leasehold Improvements $ 4,255 $ 5,572
Equipment and furniture 208,520 539,281
----------- ------------
Less accumulated depreciation (6,550) (62,627)
----------- ------------
Property and equipment, net $ 206,225 $ 482,226
=========== ============
5. Lease Obligations:
The Company leases office space under a noncancellable operating lease which
expires November 30, 2000. Rent expense under this lease was $12,522 in
1995. Future minimum rent payments at December 31, 1995, are as follows:
1996 $150,264
1997 150,264
1998 150,264
1999 150,264
2000 137,755
--------
$738,811
========
6. Related Party Transactions:
In March 1995, the Company entered into an a greement with one of its
members to provide certain management services to the Company in exchange
for a fee. Management services provided under the agreement include the
processing and payment of the Company's payroll and accounts payable on a
reimbursement basis. As of December 31, 1995, the amount due to the member
under this arrangement was $1,034,165, which represents outstanding amounts
paid by the member on behalf of the Company, plus the member's fee. As of
September 1996 the amount due to the member was $1,238,526. Total fees for
this service amounted to $84,758 in the year ended December 31, 1995 and
$51,206 in the nine months ended September 30, 1996.
7. Subsequent Events:
In September 1996, the Company entered into an $800,000 line of credit with a
bank.
<PAGE>
Notes to Financial Statements, Continued
7. Subsequent Events (continued)
Also in September 1996, the Company signed a letter of intent with
Computational Systems, Inc. (CSI) to sell 100% of the Company to CSI for
cash and C SI shares totaling approximately $5,400,000. In addition to the
cash and stock, CSI will also assume the Company's liabilities and grant
options to purchase CSI shares to those Company members who will become CSI
employees upon completion of the transaction. Simultaneously, the Company
will enter into agreements with EPRI for the license of certain technology
and with regard to certain other matters.
<PAGE>
COMPUTATIONAL SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
The unaudited pro forma consolidated financial statements as of and for the
year ended December 31, 1995 and the period ended September 30, 1996 have been
prepared to give effect to the acquisition of Maintenance & Diagnostics, L.L.C
pursuant to a purchase agreement dated October 29, 1996.
The unaudited pro forma consolidated financial statements are based upon the
historical consolidated financial statements of Computational Systems, Inc. as
of and for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 after giving effect to the pro forma adjustments described
in the notes thereto as if the acquisition of Maintenance & Diagnostics, L.L.C.
had occurred as of the beginning of the year.
The unaudited pro forma consolidated financial statements do not purport to
represent what the financial position and results of operations of Computational
Systems, Inc. would have been had the acquisition of Maintenance & Diagnostics,
L.L.C. been consumated on January 1, 1995, or to represent the financial results
of Computational Systems,Inc. for future periods.
<PAGE>
COMPUTATIONAL SYSTEMS, INC
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
COMPUTATIONAL MAINTENANCE & PRO FORMA
SYSTEMS, INC. DIAGNOSTICS BALANCE
SEPTEMBER 30, SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1996 1996 ADJUSTMENTS 1996
------------ -------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $7,642,238 $395,099 ($5,118,592) $2,918,745
Trade accounts receivable, less
allowance for doubtful accounts 9,876,754 1,799,106 ----- 11,675,860
Inventories 3,695,237 ----- ----- 3,695,237
Prepaid expenses and other
current assets 1,160,690 32,227 ----- 1,192,917
----------- ----------- ----------- -----------
Total current assets 22,374,919 2,226,432 ----- 19,482,759
Property, plant and equipment:
Land 729,204 ----- ----- 729,204
Building and improvements 5,414,512 5,572 ----- 5,420,084
Equipment and furniture 11,138,964 539,281 ----- 11,678,245
----------- ----------- ----------- -----------
17,282,680 544,853 ----- 17,827,533
Less accumulated depreciation (5,243,632) (62,627) ----- (5,306,259)
----------- ----------- ----------- -----------
Property, plant and equipment, net 12,039,048 482,226 ----- 12,521,274
Other assets, including intangibles 881,757 78,077 ----- 959,834
Goodwill ----- ----- 5,750,454 5,750,454
----------- ----------- ----------- -----------
Total assets 35,295,724 2,786,735 631,862 38,714,321
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt 17,887 ----- ----- 17,887
Accounts payable and other liabilities 3,434,190 605,202 ----- 4,039,392
Accrued liabilities 3,473,100 255,875 ----- 3,728,975
Due to related party ----- 1,238,526 (1,238,526) -----
Members' capital distributions payable ----- 231,203 ----- 231,203
----------- ----------- ----------- -----------
Total current liabilities 6,925,177 2,330,806 (1,238,526) 8,017,457
Long-term debt ----- ----- ----- -----
Deferred revenue 628,492 ----- ----- 628,492
----------- ----------- ----------- -----------
Total liabilities 7,553,669 2,330,806 (1,238,526) 8,645,949
Shareholders' equity:
Common stock, 16,037,270 ----- 1,576,317 17,613,587
Additional paid-in capital 815,862 135,000 615,000 1,565,862
Retained earnings 10,888,923 320,929 (320,929) 10,888,923
----------- ----------- ----------- -----------
Total shareholders' equity 27,742,055 455,929 1,870,388 38,714,321
----------- ----------- ----------- -----------
Total liabilities and shareholders'
equity $35,295,724 $2,786,735 $ 631,862 $43,832,913
=========== =========== =========== ===========
</TABLE>
<PAGE>
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
COMPUTATIONAL MAINTENANCE & PRO FORMA ADJUSTED
SYSTEMS, INC. DIAGNOSTICS L.L.C. ADJUSTMENTS BALANCES
------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net:
Product $24,384,835 ----- ----- $24,384,835
Services 8,790,040 5,903,594 ----- 14,693,634
----------- ----------- ---------- -----------
33,174,875 5,903,594 ----- 39,078,469
Cost of revenues:
Product 6,343,710 ----- ----- $6,343,710
Services 7,067,769 4,280,478 ----- 11,348,247
----------- ----------- ---------- -----------
13,411,479 4,280,478 ----- 17,691,957
Gross margin 19,763,396 1,623,116 ----- 21,386,512
Costs and expenses:
Selling, general and
administrative expenses 12,410,321 1,078,714 215,642 13,704,677
Research & development expenses 3,593,907 ----- ----- 3,593,907
----------- ----------- ---------- -----------
Income from operations 3,759,168 544,402 (215,642) 4,087,928
Other income (expenses):
Interest expense (1,945) ----- ----- (1,945)
Interest income 385,254 4,915 (201,145) 189,024
Other income, net (22,898) 48,858 ----- 25,960
----------- ----------- ---------- -----------
Income before taxes 4,119,579 598,175 (416,787) 4,300,967
Provision for income taxes 1,483,050 69,361 (108,365) 1,444,046
----------- ----------- ---------- -----------
2,636,529 528,814 (308,422) 2,856,921
=========== =========== ========== ===========
Earnings per share $0.52 ($0.06) $0.55
----------- ----------- ---------- -----------
Weighted average shares and
equivalents outstanding (in thousands) 5,061 5,162 5,162
=========== =========== ========== ===========
</TABLE>
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
COMPUTATIONAL MAINTENANCE & PRO FORMA ADJUSTED
SYSTEMS, INC. DIAGNOSTICS L.L.C. ADJUSTMENTS BALANCES
------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net:
Product $31,990,239 ----- ----- $31,990,239
Services 9,782,244 4,065,269 ----- 13,847,513
----------- ----------- ---------- -----------
41,772,483 4,065,269 ----- 45,837,752
Cost of revenues:
Product 9,219,753 ----- ----- 9,219,753
Services 7,442,778 3,007,738 ----- 10,450,516
----------- ----------- ---------- -----------
16,662,531 3,007,738 ----- 19,670,269
Gross margin 25,109,952 1,057,531 ----- 26,167,483
Costs and expenses:
Selling, general and
administrative expenses 15,909,203 995,995 287,523 17,192,721
Research & development expenses 4,562,481 ----- ----- 4,562,481
----------- ----------- ---------- -----------
Income from operations 4,638,268 61,536 (287,523) 4,412,281
Other income (expenses):
Interest expense (373,451) ----- ----- (373,451)
Interest income 261,184 5,516 (266,700) 0
Other income, net 76,795 18,600 ----- 95,395
----------- ----------- ---------- -----------
Income before taxes 4,602,796 85,652 (554,223) 4,134,225
Provision for income taxes 1,655,495 11,133 (144,098) 1,522,530
----------- ----------- ---------- -----------
Income after taxes $2,947,301 $74,519 ($410,125) $2,611,695
=========== =========== ========== ===========
Earnings per share $0.72 ($0.10) $0.62
----------- ----------- ---------- -----------
Weighted average shares and
equivalents outstanding (in thousands) 4,117 4,218 4,218
=========== =========== ========== ===========
</TABLE>
<PAGE>
COMPUTATIONAL SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
PURCHASE PRICE ALLOCATION
CSI purchased the assets and liabilities of Maintenance & Diagnostics,
L.L.C. for $3,880,066 in cash to certain owners, $1,238,526 to a related party
for an outstanding line of credit, approximately $1,576,317 in stock and
approximately $750,000 in stock options. The purchase price was allocated to
the assets and liabilities based on their fair market value. The purchase price
was allocated at September 30, 1996 as follows:
Cash $ 395,099
Accounts Receivable 1,799,106
Prepaid Assets 32,227
Fixed Assets 482,226
Other Assets 78,077
Goodwill 5,750,454
Accounts Payable (605,202)
Accrued Liabilities (255,875)
Distributions Payable (231,203)
---------
7,444,909
INTEREST INCOME
The pro forma adjustment for interest income represents the interest income
foregone by the purchase. The cash used for the purchase would have been
invested in short term government securities yielding approximately 5% per anum.
INCOME TAXES
The pro forma adjustment for income tax provision takes into effect the
other pro forma adjustments at the company's effective tax rate.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPUTATIONAL SYSTEMS, INCORPORATED
Date: January 13, 1997 By: /s/ Ronald G. Canada
------------------------------------
Ronald G. Canada, Chairman and
Chief Executive Officer
By: /s/ Bryan J. Collier
------------------------------------
Bryan J. Collier, Vice President of
Finance and Chief Financial Officer
