-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RiF64lehps0O/kV77l47QP8/FEmWMKLK4vscYC0Cf0OIH4GoVtZlbdmLJtqDAkyr JzfhS7aBqj4Gq9EezV/G7w== 0000026987-99-000005.txt : 19990415 0000026987-99-000005.hdr.sgml : 19990415 ACCESSION NUMBER: 0000026987-99-000005 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990129 ITEM INFORMATION: FILED AS OF DATE: 19990414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMTEK INTERNATIONAL INC CENTRAL INDEX KEY: 0000026987 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 330213512 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-08101 FILM NUMBER: 99593466 BUSINESS ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 BUSINESS PHONE: 8053762595 MAIL ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 FORMER COMPANY: FORMER CONFORMED NAME: DDL ELECTRONICS INC DATE OF NAME CHANGE: 19940119 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES DATE OF NAME CHANGE: 19880817 8-K/A 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): January 29, 1999 ---------------- SMTEK INTERNATIONAL, INC. -------------------------------------------------- (Exact name of Registrant as Specified in Charter) Delaware 1-8101 33-0213512 - ----------------------------- ------------ ---------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 2151 Anchor Court, Thousand Oaks, California 91320 - --------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (805) 376-2595 DDL Electronics, Inc. - --------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) 2 This report is an amendment to the Registrant's report on Form 8-K dated January 29, 1999 that was filed with the Securities and Exchange Commission on February 16, 1999 (the "Initial Form 8-K Report"). This amending report contains the required audited financial statements and unaudited pro forma financial information referenced previously in the Initial Form 8-K Report. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements: The audited financial statements of Technetics, Inc. for the years ended December 31, 1998 and 1997, including the report thereon of Levitz, Zacks & Ciceric, independent public accountants, are attached hereto as pages F-1 through F-16. (b) Pro Forma Financial Information: The unaudited pro forma condensed consolidated balance sheet of SMTEK International, Inc. ("SMTEK") and Technetics, Inc. ("Technetics") as of December 31, 1998, and the unaudited pro forma condensed consolidated statements of operations of SMTEK and Technetics for the year ended June 30, 1998 and the six months ended December 31, 1998, are attached hereto as pages F-17 through F-23. 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. April 14, 1999 /s/ RICHARD K. VITELLE - ---------------------------------- --------------------------------- Date Richard K. Vitelle Vice President -Finance (Principal Financial Officer) 1 3 INDEPENDENT AUDITOR'S REPORT Board of Directors Technetics, Inc. El Cajon, California We have audited the accompanying balance sheets of Technetics, Inc. as of December 31, 1998 and 1997, and the related statements of operations and retained deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Technetics, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. As more fully discussed in Note 9, a change in ownership occurred on January 29, 1999. /s/ LEVITZ, ZACKS & CICERIC San Diego, California February 15, 1999 F-1 4 TECHNETICS, INC. Balance Sheets December 31, 1998 and 1997 ASSETS 1998 1997 ---- ---- Current Assets: Cash $ 350,941 $ 31,501 Accounts receivable 474,646 1,037,161 Inventories 478,624 878,853 Prepaid expenses 68,969 30,511 ----------- ----------- Total current assets 1,373,180 1,978,026 Property and equipment, net 1,191,119 745,024 Other assets 90,092 18,101 ----------- ----------- Total assets $ 2,654,391 $ 2,741,151 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 439,210 $ 1,011,234 Current portion of long-term debt 170,900 192,381 Current portion of obligation under capital leases 189,532 27,744 Deferred income 161,326 -0- ----------- ----------- Total current liabilities 960,968 1,231,359 Long-term debt, less current portion 951,635 1,596,902 Obligation under capital leases, less current portion 530,812 69,865 ----------- ----------- Total liabilities 2,443,415 2,898,126 ----------- ----------- Stockholders' Equity: Common stock - no par value; 1,000,000 shares authorized; 202,228 shares issued and outstanding 228,993 228,993 Additional paid-in capital 699,710 699,710 Retained deficit (717,727) (1,085,678) ----------- ----------- Total stockholders' equity 210,976 (156,975) ----------- ----------- Total liabilities and stockholders' equity $ 2,654,391 $ 2,741,151 =========== =========== See accompanying notes to financial statements. F-2 5 TECHNETICS, INC. Statements of Operations and Retained Deficit Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Sales $ 7,457,228 $ 5,580,074 Cost of sales 6,093,741 4,046,464 ----------- ----------- Gross profit 1,363,487 1,533,610 Selling, general and administrative expenses (including rent expense paid to a related party of $110,865 in 1998 and $46,983 in 1997) 795,047 922,128 ----------- ----------- Income from operations 568,440 611,482 Other income (expense): Other income 16,960 38,867 Interest expense (197,176) (180,060) Factoring cost - sale of receivables -0- (70,600) Other expenses (13,273) (9,656) ----------- ----------- Income before income taxes 374,951 390,033 Income tax expense (7,000) (1,600) ----------- ----------- Net income 367,951 388,433 Retained deficit, beginning of year (1,085,678) (1,474,111) ----------- ----------- Retained deficit, end of year $ (717,727) $(1,085,678) =========== =========== Net income per share, basic and diluted $ 1.82 $ 1.92 ====== ====== See accompanying notes to financial statements. F-3 6 TECHNETICS, INC. Statements of Cash Flows Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Cash flows from operating activities: Cash received from customers $ 8,168,069 $ 5,548,104 Cash paid to suppliers and employees (6,898,428) (5,244,379) Interest paid (197,176) (180,059) Other income (expense), net (2,682) (41,390) Income taxes paid (1,600) (1,600) ----------- ----------- Net cash provided by operating activities 1,068,183 80,676 ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (38,831) (10,951) Proceeds from disposition of equipment 6,369 -0- ----------- ----------- Net cash used in investing activities (32,462) (10,951) ----------- ----------- Cash flows from financing activities: Net advances on long-term debt -0- 17,453 Payments on long-term debt (666,748) (177,510) Proceeds from capital leases 44,450 -0- Payments on capital leases (93,983) (25,471) ----------- ----------- Net cash used in financing activities (716,281) (185,528) ----------- ----------- Net increase (decrease) in cash 319,440 (115,803) Cash, beginning of year 31,501 147,304 ----------- ----------- Cash, end of year $ 350,941 $ 31,501 =========== =========== See accompanying notes to financial statements. F-4 7 TECHNETICS, INC. Statements of Cash Flows Years Ended December 31, 1998 and 1997 (Continued) 1998 1997 ---- ---- Reconciliation of net income to net cash provided by operating activities: Net income $ 367,951 $ 388,433 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 265,004 269,199 Gain on disposition of equipment (6,369) -0- (Increase) decrease in: Accounts receivable 562,515 (31,970) Inventories 400,229 (348,751) Prepaid expenses and other assets (110,449) 508 Increase (decrease) in: Accounts payable and accrued expenses (572,024) (196,743) Deferred income 161,326 -0- --------- --------- Net cash provided by operating activities $ 1,068,183 $ 80,676 =========== =========== Supplemental disclosure of noncash investing and financing activities: The Company retired $490,000 of debt with new financing in 1997. The Company financed the purchase of equipment by incurring capital lease obligations of $672,268 in 1998. See accompanying notes to financial statements. F-5 8 TECHNETICS, INC. Notes to Financial Statements Years Ended December 31, 1998 and 1997 Note 1. THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES Technetics, Inc. (the Company) manufactures electronic controls and test instruments, fare collection devices and other products which it sells to aerospace companies, manufacturers and governmental agencies. Work is performed primarily under fixed price and cost reimbursement contracts. The Company grants unsecured credit to its customers which are located primarily in the United States. The Company operates in one reportable operating segment. Revenue Recognition The Company recognizes revenue when the product is shipped to the customer. Cost reimbursement contracts are subject to audit and adjustment by negotiations between the Company and the U.S. Government. The Company does not anticipate significant adjustments to cost reimbursement contracts based on previous experience. Contract revenues are recorded in amounts which are expected to be realized upon final settlement. Anticipated losses are charged to operations as soon as such losses can be estimated. Because of the inherent uncertainties in estimating contract costs and revenues, it is reasonably possible that the Company's estimates will change in the near term. Deferred Income Deferred income represents amounts received in excess of revenues earned on a fixed price contract. Cash Concentrations The Company maintains cash deposits with a bank that at times exceed the federally- insured limit of $100,000. Inventories Inventories are stated primarily at the lower of average cost or net realizable value. Cost includes material, labor and an allocation of overhead. Writedowns to net realizable value of approximately $540,000 are included in cost of sales in 1998. F-6 9 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 1. THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES (continued) Property and Equipment Property and equipment, including renewals and betterments, are stated at cost. Depreciation and amortization are based on the straight-line method over estimated useful lives of five to nine years. Amortization of equipment held under capital leases is recorded using the straight-line method over the shorter of the lease term or the assets' useful life and is included with depreciation and amortization expense. Repairs and maintenance are charged to expense as incurred. Income Taxes The Company accounts for its income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 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. Reclassifications Certain amounts in the prior year financial statements have been reclassified to conform with the current year presentation. F-7 10 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 1. THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES (continued) Recently Issued Accounting Standards SFAS No. 130, Reporting Comprehensive Income (SFAS No. 130), which is effective for fiscal years beginning after December 15, 1997, requires that all components of comprehensive income, including net income, be reported in the financial statements in the period in which they are recognized. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income and other comprehensive income, including unrealized gains and losses on investments, are reported net of their related tax effect to arrive at comprehensive income. The Company adopted SFAS No. 130 in 1998. To date, comprehensive income equals net income as reported. Note 2. COMPOSITION OF CERTAIN FINANCIAL STATEMENT BALANCES 1998 1997 ---- ---- Accounts Receivable ------------------- Trade receivables $ 487,646 $ 855,137 Receivable from U.S. government on cost reimbursement contract -0- 189,293 ---------- --------- 487,646 1,044,430 Less allowance for doubtful accounts (13,000) (7,269) ---------- ---------- $ 474,646 $1,037,161 ========== ========== F-8 11 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 2. COMPOSITION OF CERTAIN FINANCIAL STATEMENT BALANCES (continued) 1998 1997 ---- ---- Inventories ----------- Parts $ 186,554 $ 464,671 Work in process 218,419 392,630 Finished goods 73,651 21,552 ---------- ---------- $ 478,624 $ 878,853 ========== ========== Property and Equipment, net --------------------------- Machinery and equipment $1,427,591 $1,416,217 Equipment held under capital leases 763,998 91,730 Leasehold improvements 432,640 418,923 Furniture and fixtures 109,748 101,622 Computer software 36,444 33,589 Vehicles 6,500 32,493 ---------- ----------- 2,776,921 2,094,574 Less accumulated depreciation and amortization (including approximately $109,508 in 1998 and $29,478 in 1997 for equipment held under capital leases) (1,585,802) (1,349,550) ---------- ---------- $1,191,119 $ 745,024 ========== ========== Accounts Payable and Accrued Expenses ------------------------------------- Accounts payable $ 169,005 $ 719,168 Accrued payroll and employee benefits 112,871 108,209 Other accrued expenses 151,934 183,857 Accrued income taxes 5,400 -0- ---------- ---------- $ 439,210 $1,011,234 ========== ========== F-9 12 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 3. LONG-TERM DEBT 1998 1997 ---- ---- Note payable to a bank in monthly installments of $6,642, including interest at prime plus 1.5%, through February 2011; collateralized by property and equipment and a deed of trust on the Company's facilities which are leased from a stockholder; guaranteed by the majority stockholder. $ 569,022 $ 592,509 Note payable to a bank under a $607,730 revolving line of credit; interest at prime payable monthly; principal and interest due April 10, 2002; collateralized by securities owned by the majority stockholder. The Company canceled the line of credit in connection with the change in ownership on January 29, 1999 (Note 9). -0- 507,453 Note payable to former stockholder in monthly installments of $3,250 through July 1998 and $4,550 from August 1998 through November 2009, including interest at an index rate plus 0.5%; collateralized by 61,549 issued but not outstanding shares of the Company's stock. 382,971 393,891 Notes payable to a finance company in monthly installments of $7,980, including interest at 9.5%, through June 2000; collateralized by equipment. 134,481 213,507 Note payable to former stockholder; currently due and payable including interest at an index rate plus 0.5%; collateralized by 61,549 issued but not outstanding shares of the Company's stock. 36,061 43,757 Note payable to a finance company in monthly installments of $5,607, including interest at 8.5%, through July 1998; collateralized by equipment; guaranteed by the majority stockholder. -0- 38,166 ---------- ---------- 1,122,535 1,789,283 Less current portion (170,900) (192,381) --------- ---------- Long-term debt, less current portion $ 951,635 $1,596,902 ========= ========== F-10 13 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 3. LONG-TERM DEBT (continued) Principal payments of long-term debt are due as follows: 1999 $ 170,900 2000 99,670 2001 57,517 2002 63,184 2003 69,411 Thereafter 661,853 ---------- $1,122,535 ========== Note 4. INCOME TAXES Income tax expense consists of the following: 1998 1997 ---- ---- Current expense excluding benefit from net operating loss carryforward $(229,300) $(149,800) Benefit from net operating loss carryforward 222,300 148,200 --------- --------- Total current expense (7,000) (1,600) Deferred -0- -0- --------- --------- Income tax expense $ (7,000) $ (1,600) ========= ========= A reconciliation between income tax expense based on applying federal statutory tax rates to pre-tax income and reported income tax expense is as follows: 1998 1997 ---- ---- Expense based on applying federal statutory tax rates $(127,500) $(132,600) State income tax expense, net of federal benefit (21,800) (22,800) Benefit from net operating loss carryforward 222,300 148,200 Increase in deferred tax asset valuation allowance (123,500) -0- Prior year adjustment 39,500 -0- Other 4,000 5,600 --------- --------- Income tax expense $ (7,000) $ (1,600) ========= ========= F-11 14 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 4. INCOME TAXES (continued) Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1998 and 1997 are as follows: 1998 1997 ---- ---- Deferred tax assets: Current: Inventory valuation allowances $ 121,000 $ 20,000 Accrued vacation 38,000 36,000 Other 26,000 9,800 State NOL carryforward 5,000 62,000 Federal NOL carryforward -0- 165,000 --------- --------- 190,000 292,800 Valuation allowance (171,000) (269,800) --------- --------- 19,000 23,000 --------- --------- Deferred tax liabilities: Current: State tax expense on temporary differences (15,000) (23,000) Other (4,000) -0- --------- --------- (19,000) (23,000) --------- --------- Net deferred tax assets $ -0- $ -0- ========= ========= A valuation allowance has been established to fully reserve the net deferred tax asset due to uncertainties as to its realizability. At December 31, 1998, the Company has a state tax net operating loss carryforward of approximately $60,000 expiring through 2001. F-12 15 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 5. LEASE COMMITMENTS Capital Leases The Company leases equipment under capital leases expiring at various dates through 2003. Certain capital leases are guaranteed by the majority stockholder. Future minimum payments under capital leases are due as follows: 1999 $ 259,244 2000 245,965 2001 237,693 2002 118,544 2003 10,956 --------- Total minimum lease payments 872,402 Less amount representing interest (152,058) --------- Present value of minimum lease payments 720,344 Less current portion (189,532) --------- Obligation under capital leases, less current portion $530,812 ========= Related Party Operating Lease The Company leases facilities from its majority stockholder under an operating lease which expires January 31, 2005. Rent expense under this lease was $110,865 and $46,983 in 1998 and 1997, respectively. The monthly rent was temporarily reduced during 1997. The lease payments are subject to annual cost-of- living adjustments. In connection with the change in ownership on January 29, 1999 (Note 9), the lease was amended to provide the Company the option to terminate the lease at the end of each year upon 90 days written notice to the lessor and the payment of an early termination fee equal to one month's rent. Other Operating Leases The Company leases equipment under operating leases. Rent expense for these leases was $49,963 and $55,040 in 1998 and 1997, respectively. F-13 16 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 5. LEASE COMMITMENTS (continued) Future minimum payments under noncancellable operating leases are due as follows: Related Party Other Operating Operating Lease Leases Total --------- --------- --------- 1999 $111,020 $ 12,548 $123,568 2000 111,020 12,548 123,568 2001 111,020 5,907 116,927 2002 111,020 -0- 111,020 2003 111,020 -0- 111,020 Thereafter 120,271 -0- 120,271 -------- -------- -------- $675,371 $31,003 $706,374 ======== ======== ======== Note 6. RETIREMENT PLAN The Company has a 401(k) profit sharing plan covering substantially all employees. The plan provides for discretionary employer contributions. Profit sharing expense was $32,536 and $13,600 for the years ended December 31, 1998 and 1997, respectively. In connection with the change in ownership (Note 9), the 401(k) profit sharing plan was terminated effective January 25, 1999. Note 7. BUSINESS CONCENTRATIONS Sales to the United States military comprised approximately 44% of revenues in 1998 and approximately 52% of revenues in 1997. Sales to three other major customers comprised approximately 23% of revenues in 1998 and approximately 35% of revenues in 1997. Prior to December 1998, the Company was certified by the United States Small Business Administration (SBA) as a section 8(a) disadvantaged minority small business. Approximately 2% of revenues in 1998 and approximately 52% of revenues in 1997 were related to the SBA section 8(a) program. At December 31, 1998, two customers individually comprised 20% and 17% of total trade account receivables. F-14 17 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 8. CONTINGENCIES The Company has agreed to indemnify certain stockholders against any losses resulting from (1) their guarantees of loans, leases, and contracts made for the benefit of the Company and (2) pledging their assets to secure such guarantees. The Company has an unused irrevocable standby letter of credit with a bank in connection with the purchase of inventory for $143,340 expiring August 17, 1999. If the letter of credit is used, the resulting debt would be due on demand or, if no demand is made, by October 14, 1999. Interest would be at the bank's index rate plus 2%. The debt would be guaranteed by a stockholder and secured by real property owned by the stockholder. Note 9. CHANGE IN OWNERSHIP On January 29, 1999, SMTEK International, Inc. acquired substantially all of the issued and outstanding stock of the Company for approximately $425,000 in cash and notes, subject to certain post-closing adjustments. In connection with this transaction, employee bonuses of approximately $50,000 will be recognized as an expense in January 1999. Note 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of the Company's financial instruments is as follows: 1998 1997 ------------------- ------------------ Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Assets: Cash $350,941 $350,941 $ 31,501 $ 31,501 Liabilities: Long-term debt including current portion 1,122,535 1,122,535 1,789,283 1,789,283 Obligation under capital leases including current portion 720,344 720,344 97,609 97,609 F-15 18 TECHNETICS, INC. Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 10. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The fair value of long-term debt, including current portion, either approximates carrying value given the variable interest rates provided in the notes, or is estimated using interest rates currently available for similar issues. The fair value of obligation under capital leases, including current portion, is estimated using interest rates currently available for similar issues. The Company does not believe it is practicable to estimate the fair value of the guarantees of long-term debt and capital leases. F-16 19 DESCRIPTION OF UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS REFLECTING THE ACQUISITION OF TECHNETICS, INC. BY SMTEK INTERNATIONAL, INC. On January 29, 1999, SMTEK acquired all of the outstanding stock of Technetics pursuant to a stock purchase agreement (the "Stock Purchase Agreement") dated January 24, 1999. The following unaudited pro forma condensed consolidated financial statements have been prepared giving effect to the acquisition of Technetics, Inc. by SMTEK as if the transaction had taken place at December 31, 1998 for the pro forma condensed consolidated balance sheet and, in the case of the income statement data, as of July 1, 1997. At the closing on January 29, SMTEK paid the selling shareholders of Technetics cash of $275,000 and 8% notes in the aggregate principal amount of $150,000. The aggregate amount of the notes issued to the selling shareholders at closing represented Technetics' estimated shareholders' equity balance on the closing date, and is subject to upward or downward adjustment, as described in the Stock Purchase Agreement, based principally on Technetics' final adjusted shareholders' equity balance on January 29, 1999. In the accompanying unaudited Pro Forma Condensed Consolidated Balance Sheet, the aggregate amount of the notes issued to the selling stockholders is assumed to be $161,000 instead of $150,000, because the transaction is assumed to be consummated as of December 31, 1998 rather than the January 29, 1999 closing date. SMTEK's fiscal year ends on June 30 and Technetics' fiscal year ends on December 31. The Pro Forma Condensed Consolidated Statement of Operations for the year ended June 30, 1998 combines the results of SMTEK for such year with the results of Technetics for the 12 months ended June 30, 1998. The Pro Forma Condensed Consolidated Statement of Operations for the six months ended December 31, 1998 combines the results of SMTEK and Technetics for such six month period. The acquisition has been accounted for using the purchase method. In accordance with Accounting Principles Board Opinion No. 16, the purchase price will be allocated to the assets and liabilities acquired at their estimated fair values as of the January 29, 1999 acquisition date. The pro forma adjustments set forth in the following unaudited pro forma condensed financial information are estimated and may differ from the actual adjustments when they become known. Based on current information, SMTEK's management does not expect the final allocation of the purchase price to be materially different from that used in the following pro forma balance sheet and pro forma statements of operation. The unaudited pro forma financial information does not reflect certain cost savings that SMTEK management believes may be realized following the acquisition, and is not necessarily indicative of the results of operations or the financial position which would have been attained had the acquisition been consummated at any of the foregoing assumed dates, or which may be attained in the future. The pro forma financial information should be read in conjunction with the historical financial statements of SMTEK and Technetics. F-17 20 SMTEK INTERNATIONAL, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DECEMBER 31, 1998 (Unaudited) (In thousands) Historical Pro -------------------- Pro Forma Forma SMTEK Technetics Adjustments Total -------- ------- ----------- ------ ASSETS Current assets: Cash and cash equivalents $ 3,720 $ 351 $ (309)(A) $ 3,762 Accounts receivable, net 10,435 475 10,910 Costs and estimated earnings in excess of billings on uncompleted contracts, net of progress billings 7,763 0 7,763 Inventories 3,348 478 (85)(B) 3,741 Prepaid expenses 279 69 (22)(B) 326 ------- ------ ------- -------- Total current assets 25,545 1,373 (416) 26,502 Property and equipment, net 7,575 1,191 (290)(B) 8,476 Goodwill 2,537 731 (C) 3,268 Deposits and other assets 255 90 345 ------- ------ ------- -------- $35,912 $2,654 $ 25 $ 38,591 ======= ====== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank line of credit payable $ 3,882 $ 0 $ 3,882 Current portion of long-term debt 3,248 361 3,609 Accounts payable 12,341 439 12,780 Other current liabilities 3,370 161 $ 75 (D) 3,606 -------- ------ ------- -------- Total current liabilities 22,841 961 75 23,877 -------- ------ ------- -------- Long-term debt 5,009 1,482 161 (A) 6,652 -------- ------ ------- -------- Stockholders' equity: Common stock and additional paid-in capital 32,500 929 (929)(E) 32,500 Accumulated deficit (23,854) (718) 718 (E) (23,854) Accumulated other comprehensive loss (584) (584) -------- ------ ------- ------- Total stockholders' equity 8,062 211 (211) 8,062 -------- ------ ------- -------- $ 35,912 $2,654 $ 25 $ 38,591 ======== ====== ======= ======== F-18 21 SMTEK INTERNATIONAL, INC. NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (In thousands) (A) To record (i) cash paid to Technetics' selling shareholders at closing, (ii) cash assumed to be disbursed for transaction costs (comprised principally of legal and accounting fees) and (iii) issuance of notes payable to the selling shareholders for the remainder of the purchase price, as follows: Cash paid to Technetics shareholders at closing $275 Cash assumed to be disbursed for transaction costs of Technetics acquisition 34 ---- Total cash assumed to be disbursed 309 Issuance of 8% notes payable to shareholders 161 ---- Total acquisition cost $470 ==== The aggregate amount of the notes payable is subject to adjustment as described in the Stock Purchase Agreement. (B) To reduce the carrying value of Technetics' net assets to fair market value, as follows: Inventories $ (85) Prepaid expenses (22) Property and equipment (290) ---- $(397) ===== (C) To record as goodwill the excess of cost over the fair value of net assets acquired based on allocation of the acquisition cost, as follows: Fair market value of assets acquired $2,257 Fair market value of liabilities acquired (2,518) Excess of cost over fair value of net assets acquired (goodwill) 731 ------ Total acquisition cost $ 470 ====== (D) To accrue employee bonuses and other payroll related expenses that were contingent upon closing of the acquisition. (E) To eliminate historical equity balances of Technetics. F-19 22 SMTEK INTERNATIONAL, INC. PRO FORMA CONDENSED STATEMENT OF OPERATIONS YEAR ENDED JUNE 30, 1998 (Unaudited) (In thousands except per share amounts) Historical Pro -------------------- Pro Forma Forma SMTEK Technetics Adjustments Total -------- ------- ----------- ------ (A) Sales $53,265 $8,077 $61,342 ------- ------ ------- Costs and expenses: Cost of goods sold 43,933 6,118 50,051 Administrative and selling 5,910 725 6,635 Amortization of goodwill 1,268 - $ 49 (B) 1,317 Acquisition expenses 609 (C) - 609 ------- ------ ------ ------- 51,720 6,843 49 58,612 ------- ------ ------- ------- Operating income 1,545 1,234 (49) 2,730 ------- ------ ------- ------- Non-operating income (expense): Interest expense (1,101) (219) (13)(D) (1,333) Other income (expense) 49 (43) 6 ------- ------ ------- ------- (1,052) (262) (13) (1,327) ------- ------ ------- ------- Income before income taxes 493 972 (62) 1,403 Income tax provision - (3) (3) ------- ------ ------- ------- Net income $ 493 $ 969 $ (62) $ 1,400 ======= ====== ======= ======= Basic earnings per share $ 0.02 $ 0.05 ======= ======= Shares used in computing earnings per share 29,026 29,026 ======= ======= F-20 23 SMTEK INTERNATIONAL, INC. NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS YEAR ENDED JUNE 30, 1998 ($ in thousands) (A) The revenues and expenses shown for Technetics are the historical amounts for the 12 months ended June 30, 1998. Technetics' results for this 12 month period were positively impacted by a large nonrecurring contract with the U.S. government which ended soon after the end of this period. Primarily for this reason, Technetics' results for the 12 months ended June 30, 1998 are not necessarily indicative of the operating results which Technetics can be expected to achieve in the future. (B) To amortize goodwill on a straight-line basis over 15 years $ 49 ==== (C) These acquisition expenses are not related to the acquisition of Technetics. (D) To record interest expense on the 8% notes payable issued to the selling shareholders of Technetics $ 13 ==== F-21 24 SMTEK INTERNATIONAL, INC. PRO FORMA CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1998 (Unaudited) (In thousands except per share amounts) Historical Pro -------------------- Pro Forma Forma SMTEK Technetics Adjustments Total -------- ------- ----------- ------ Sales $29,633 $2,997 $32,630 ------- ------ ------- Costs and expenses: Cost of goods sold 24,930 2,647 27,577 Administrative and selling 3,255 427 3,682 Amortization of goodwill 634 - $ 25 (A) 659 ------- ------ ------ ------- 28,819 3,074 25 31,918 ------- ------ ------- ------- Operating income (loss) 814 (77) (25) 712 ------- ------ ------- ------- Non-operating income (expense): Interest expense (483) (105) (7) (B) (595) Other income (expense) 161 74 235 ------- ------ ------- ------- (322) (31) (7) (360) ------- ------ ------- ------- Income loss before income taxes 492 (108) (32) 352 Income tax provision (53) (5) (58) ------- ------ ------- ------- Net income $ 439 $ (113) $ (32) $ 294 ======= ====== ======= ======= Basic earnings per share $ 0.01 $ 0.01 ======= ======= Shares used in computing earnings per share 34,088 34,088 ======= ======= F-22 25 SMTEK INTERNATIONAL, INC. NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1998 ($ in thousands) (A) To amortize goodwill on a straight-line basis over 15 years $ 25 ==== (B) To record interest expense on the 8% notes payable issued to the selling shareholders of Technetics $ 7 ==== F-23 -----END PRIVACY-ENHANCED MESSAGE-----