8-K/A 1 y27484a1e8vkza.txt AMENDMENT #1 TO FORM 8-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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): SEPTEMBER 15, 2006 EDO CORPORATION (Exact name of Registrant as specified in its charter) NEW YORK 3812 11-0707740 (State or Other (Primary Standard (I.R.S. Employer Jurisdiction of Incorporation Industrial Classification Identification No.) or Organization) Code Number)
---------- 60 EAST 42ND STREET 42ND FLOOR NEW YORK, NY 10165 212.716.2000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) ---------- NOT APPLICABLE (Former name or former address, if changed since last report) ---------- Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS. EDO Corporation, a New York corporation (the "Company"), is filing this Current Report on Form 8-K/A ("Form 8-K/A") to file certain audited and unaudited financial statements and unaudited pro forma financial information relating to the acquisition (the "Acquisition") by the Company of all of the outstanding capital stock of Impact Science Technology, Inc., ("IST"), a New Hampshire Corporation. The closing of the Acquisition occurred on September 15, 2006. The Company filed a Current Report on Form 8-K on September 18, 2006 (Form 8-K") to report the Acquisition. The Company is filing the required audited and unaudited financial statements and unaudited pro forma financial information relating to the Acquisition in this Form 8-K/A. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired The required audited financial statements of IST, Inc. as of and for the year ended December 31, 2005 and the required unaudited interim financial statements of IST, Inc. as of and for the six months ended June 30, 2006 and 2005. 2 IMPACT SCIENCE & TECHNOLOGY, INC. FINANCIAL STATEMENTS Years Ended December 31, 2005 and 2004 3 TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT........................................... FINANCIAL STATEMENTS Balance Sheets...................................................... Statements of Income................................................ Statements of Retained Earnings..................................... Statements of Cash Flows............................................ Notes to Financial Statements....................................... SUPPLEMENTARY INFORMATION Schedules of Selling, General and Administrative Expenses...........
4 MANZI & ASSOCIATES L.L.C. Certified Public Accountants 855 Turnpike Street 978-975-1099 Suite 140 800-545-1120 North Andover, MA 01845 Fax: 978-975-0593 The Board of Directors Impact Science and Technology, Inc. Nashua, New Hampshire We have audited the accompanying balance sheets of Impact Science and Technology, Inc. as of December 31, 2005 and 2004, and the related statements of income, retained earnings, 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 audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 over all 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 Impact Science and Technology, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information contained in the schedules of selling, general and administrative expenses are presented for the purpose of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Manzi & Associates, LLC North Andover, Massachusetts April 3, 2006 5 IMPACT SCIENCE & TECHNOLOGY, INC. BALANCE SHEETS December 31, 2005 and 2004
2005 2004 ----------- ----------- ASSETS CURRENT ASSETS Cash $ 9,198,355 $ 1,936,713 Accounts receivable 11,047,217 7,695,353 Cash value - life insurance 271,737 214,924 Prepaid expense 118,638 1,138 Refund receivable 227,684 208,258 Employee receivable 21,538 15,485 Inventory 3,624,750 2,111,566 Goodwill 25,000 25,000 ----------- ----------- 24,534,919 12,208,437 ----------- ----------- PROPERTY AND EQUIPMENT Equipment 3,582,709 2,003,038 Leasehold improvements 1,107,307 809,565 Vehicles 44,635 41,120 ----------- ----------- 4,734,651 2,853,723 Less: Accumulated depreciation (1,850,052) (948,696) ----------- ----------- 2,884,599 1,905,027 ----------- ----------- $27,419,518 $14,113,464 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 123,611 $ 111,296 Accounts payable 1,457,208 655,454 Unearned revenues 7,578,301 3,059,302 Accrued expenses 18,134 11,947 Accrued vacation 708,101 522,384 Accrued pension 1,759,985 1,814,845 Taxes payable 596,031 194,564 Deferred income taxes 243,166 496,478 ----------- ----------- 12,484,537 6,866,270 ----------- ----------- NON-CURRENT LIABILITIES Long-term debt 220,139 357,454 Deferred income taxes 248,239 665,157 ----------- ----------- 468,378 1,022,611 ----------- ----------- STOCKHOLDERS' EQUITY Common stock 1,228,047 888,367 Preferred stock 20,210 5,500 Retained earnings 13,218,346 5,330,716 ----------- ----------- 14,466,603 6,224,583 ----------- ----------- $27,419,518 $14,113,464 =========== ===========
The accompanying notes are an integral part of these financial statements. 6 IMPACT SCIENCE & TECHNOLOGY, INC. STATEMENTS OF INCOME Years Ended December 31, 2005 and 2004
2005 2004 ----------- ----------- REVENUES $59,096,780 $38,477,655 ----------- ----------- COST OF REVENUES EARNED Inventory, beginning of year 2,111,566 -- Materials 18,415,785 11,680,633 Direct labor 15,701,592 11,715,355 Depreciation 740,350 322,531 ----------- ----------- 36,969,293 23,718,519 Less: Inventory, end of year 3,624,750 2,111,566 ----------- ----------- 33,344,543 21,606,953 ----------- ----------- GROSS PROFIT 25,752,237 16,870,702 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 13,501,624 10,546,817 ----------- ----------- NET INCOME FROM OPERATIONS 12,250,613 6,323,885 ----------- ----------- OTHER INCOME (EXPENSE) Interest income 232,906 34,989 Interest expense (27,780) (85,348) Loss on abandonment of property -- (200,796) ----------- ----------- 205,126 (251,155) ----------- ----------- NET INCOME BEFORE TAXES 12,455,739 6,072,730 ----------- ----------- PROVISIONS FOR TAXES Federal - current (4,240,362) (1,657,639) Federal - deferred 670,230 (448,961) State (997,977) (387,798) ----------- ----------- (4,568,109) (2,494,398) ----------- ----------- NET INCOME $ 7,887,630 $ 3,578,332 =========== ===========
The accompanying notes are an integral part of these financial statements. 7 IMPACT SCIENCE & TECHNOLOGY, INC. STATEMENTS OF RETAINED EARNINGS Years Ended December 31, 2005 and 2004
2005 2004 ----------- ---------- RETAINED EARNINGS - BEGINNING OF YEAR $ 5,330,716 $1,752,384 Net income 7,887,630 3,578,332 ----------- ---------- RETAINED EARNINGS - END OF YEAR $13,218,346 $5,330,716 =========== ==========
The accompanying notes are an integral part of these financial statements. 8 IMPACT SCIENCE & TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 2005 and 2004
2005 2004 ----------- ----------- Cash flows from operating activities: Net income $ 7,887,630 $ 3,578,332 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Loss on abandonment of property -- 200,796 Depreciation and amortization 901,358 402,627 (Increase) decrease in: Accounts receivable (3,351,864) (3,407,549) Cash value - life insurance (56,813) (63,457) Employee receivable (6,053) (15,485) Prepaid expense (117,494) 9,780 Refund receivable (19,426) (164,208) Inventory (1,513,184) (2,111,566) Increase (decrease) in: Accounts payable 801,754 634,368 Unearned revenue 4,519,008 3,059,302 Accrued expenses 191,889 180,166 Accrued pension (54,860) 795,728 Taxes payable 401,467 194,564 Deferred tax liability (670,230) 448,961 ----------- ----------- Total adjustments 1,025,552 164,027 ----------- ----------- Net cash provided by operating activities 8,913,182 3,742,359 ----------- ----------- Cash flows from investing activities: Purchase of goodwill -- (25,000) Cash payments for the purchase of property (1,880,930) (1,669,758) ----------- ----------- Net cash used by investing activities (1,880,930) (1,694,758) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt -- 500,000 Principle payments of long-term debt (125,000) (31,250) Proceeds from issuance of common stock 354,390 333,731 Activity on line of credit - net -- (1,000,000) ----------- ----------- Net cash provided (used) by financing - activities 229,390 (197,519) ----------- ----------- Net increase in cash and equivalents 7,261,642 1,850,082 Cash and equivalents - beginning of year 1,936,713 86,631 ----------- ----------- Cash and equivalents - end of year $ 9,198,355 $ 1,936,713 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest expense $ 27,780 $ 85,348 Taxes 4,327,965 2,003,869
The accompanying notes are an integral part of these financial statements. 9 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004 NOTE 1 - ORGANIZATION Impact Science & Technology, Inc. (the Company) was organized as a corporation on February 27, 1995, under the laws of the State of New Hampshire. The Company operates in New Hampshire, Maryland and Colorado and provides system development and integration services as well as products to both government and private industry. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. Cash and equivalents For the purpose of the statements of cash flows, the Company considers cash and equivalents to include cash on hand, amounts due from banks, and any other highly liquid debt instruments purchased with a maturity of three months or less. Property and equipment Property and equipment are stated at cost. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged to expenses as incurred. Upon retirement or disposal of assets, the cost and accumulated depreciation or amortization are eliminated from the accounts and the resulting gain or loss is included in income, with the exception of like-kind exchanges. Depreciation is computed on accelerated methods for both financial reporting and income tax purposes over the assets' estimated useful lives. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Income taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Inventory Inventory is stated at the lower of cost (determined on a first-in, first-out basis) or market. 10 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004 NOTE 3 - INVENTORY Inventory consists of the following:
2005 2004 ---------- ---------- Raw materials $1,643,071 $1,088,734 Work in process 1,981,679 1,022,832 ---------- ---------- $3,624,750 $2,111,566 ========== ==========
NOTE 4 - ACCOUNTS RECEIVABLE The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been established. If accounts become uncollectible, they will be charged to operations when the determination is made. Collections on accounts previously written off are included in other income as received. Bad debt expenses for the years ended December 31, 2005 and 2004 was $625 and $39,691, respectively. NOTE 5 - DEFERRED INCOME TAXES The Company recognizes deferred tax assets and liabilities for temporary differences between the financial statement and tax bases of assets and liabilities. These differences primarily relate to depreciable and amortizable assets, the tax effects from the Company's conversion from the cash basis of accounting to accrual, and inventory-related costs for manufacturers that are expensed for financial reporting purposes and capitalized for tax reporting. The Company's total deferred tax liabilities at December 31, are as follows:
2005 2004 -------- -------- Current deferred income taxes $243,166 $496,478 Long-term deferred income taxes $248,239 $665,157
NOTE 6 - LINE OF CREDIT The Company has a line of credit with a bank which allows for borrowings up to $6,000,000. The line bears interest at 0.5% over the bank's prime rate. The line is secured by all assets of the Company. The balance due for the years ended December 31, 2005 and 2004 is $-0- and $-0-, respectively. 11 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004 NOTE 7 - LONG TERM DEBT
2005 2004 -------- -------- Note payable to bank in monthly installments including interest equal to 1.75% above the prime rate. Secured by assets of the Company. $343,750 $468,750 -------- -------- 343,750 468,750 Less current portion 123,611 111,296 -------- -------- $220,139 $357,454 ======== ========
Maturities of long-term debt for the years ending December 31, are summarized as follows: 2006 $123,611 2007 132,141 2008 87,998
NOTE 8 - CAPITAL STOCK Total shares of common and preferred stock authorized, issued and outstanding at December 31, 2005 and 2004 are as follows:
Issued & Authorized Outstanding ---------- ----------- 2005 Preferred with voting rights, no par value 1,200,000 22,249 Common with voting rights, no par value 1,200,000 430,000 2004 Preferred with voting rights, no par value 1,200,000 17,502 Common with Voting rights, no par value 1,200,000 432,000
Preferred stock is comprised of Series 1 Preferred Stock and Series 2 Preferred Stock. Each series of Preferred Stock may be converted, at the election of the holder, into one share of Common Stock at any time and for no additional payment. Holders of shares of Series 1 Preferred Stock shall have the right to receive dividends of $2.19 per share per year for the period of 7 years, ending 2011. Series 2 Preferred Stock shall have the right to receive dividends of $18.85 per share per year for the period of 7 years, ending 2012. The annual, preferential, cumulative dividend shall be payable in the manner and at such time as may be determined by the directors of the Company. Series 1 Preferred Stock has 17,502 shares issued and outstanding for 2005 and 2004 and Series 2 Preferred Stock has 4,747 and 0 issued and outstanding for 2005 and 2004, respectively. NOTE 9 - OPTIONS AND WARRANTS During the year ended December 31, 2005 the Company incurred compensation expense of $235,560 in association with the issuance of 4,000 common shares, all of which was a non-cash charge in accordance with the Company's Restricted Stock Plan. 12 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004 NOTE 10 - PROFIT SHARING PLAN The Company maintains a 401(k) plan for all eligible employees. Per the plan, employee contributions are matched up to a specified level by the Company. In addition, the plan provides for the possibility of a discretionary contribution by the Company based on the participants' annual wages. (See Note 12 below). 401(k) plan matching contributions by the Company for the years ended December 31, 2005 and 2004 were $545,772 and $372,859, respectively. NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN In 2003, the Company adopted a noncontributory employee stock ownership plan (ESOP) covering those employees who meet the eligibility requirements of the plan. The amount of contributions to the ESOP is determined annually at the discretion of the Board of Directors and is allocated from a discretionary profit sharing pool established annually by the Company (See Note 12). Contributions to the ESOP were allocated among participants on the basis of their annual wages. Contributions to the ESOP plan for the year ended December 31, 2004 were $1,814,845. See Note 12 below for information on the amount of the discretionary profit sharing pool established for the year ended December 31, 2005. NOTE 12 - DISCRETIONARY PROFIT SHARING POOL At the discretion of the Board of Directors, a profit sharing pool is established annually. This pool is then fully allocated as a contribution to either the 401(k) (See Note 10) or the ESOP (See Note 11) plans based on the participants' annual wages. The amount allocated to each plan is determined by the Board of Directors. Contributions by the Company to this pool for the year ended December 31, 2005 were $1,759,985. Allocation of this pool is anticipated to be completely allocated to the ESOP. 13 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004 NOTE 13 - LEASE The Company leases its offices in New Hampshire, Maryland and Colorado under noncancelable operating leases. The minimum rental under all leases having an initial or remaining term in excess of one year for the five years subsequent to December 31, 2005, are approximated as follows: 2006 $782,187 2007 806,677 2008 832,355 2009 854,485 2010 854,485
NOTE 14 - CONCENTRATIONS The Company maintains its cash accounts in bank deposit accounts, which at times may exceed federal insured limits. The Company has not experienced any losses in such accounts. The Company believes they are not exposed to any significant credit risk. At December 31, 2005 and 2004, the Company's uninsured cash balance totaled $9,098,355 and $1,836,020, respectively. NOTE 15 - GOODWILL On March 30, 2004, the Company acquired substantially all of the assets of Dedicated Electronics, Inc., a supplier of microwave electronic components to the Company. The excess cost of the assets at acquisition is recorded as goodwill and assessed annually for impairment. If considered impaired, goodwill will be written down to fair value and a corresponding impairment loss recognized. NOTE 16 - RECLASSIFICATIONS Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the 2005 financial statements. 14 IMPACT SCIENCE & TECHNOLOGY, INC. SCHEDULES OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Years Ended December 31, 2005 and 2004
2005 2004 ----------- ----------- Bad debt expense $ 625 $ 39,691 Conferences and meetings 139,382 76,389 Contributions 2,144 12,512 Depreciation 161,008 80,096 Employee incentive 4,710,800 3,731,878 Health insurance 1,629,925 1,045,174 Insurance 295,244 206,895 Lease expense 1,216,518 796,298 Maintenance costs 313,983 140,187 Maintenance fees 14,268 17,490 Moving costs -- 91,722 Office expense 570,470 553,822 Payroll 491,834 381,844 Payroll taxes 1,203,829 889,156 Postage 28,685 25,419 Professional fees 162,615 104,745 Recruiting costs 53,292 53,535 Retirement plan expenses 2,303,236 2,165,840 Security expense 42,446 29,136 Telephone 97,433 98,499 Travel 63,887 6,489 ----------- ----------- $13,501,624 $10,546,817 =========== ===========
The accompanying notes are an integral part of these financial statements. 15 IMPACT SCIENCE & TECHNOLOGY, INC. FINANCIAL STATEMENTS Six Months Ended June 30, 2006 and 2005 16 TABLE OF CONTENTS
Page ---- FINANCIAL STATEMENTS Balance Sheets ..................................................... Statements of Income ............................................... Statements of Retained Earnings .................................... Statements of Cash Flows ........................................... Notes to Financial Statements ...................................... SUPPLEMENTARY INFORMATION Schedules of Selling, General and Administrative Expenses ..........
17 IMPACT SCIENCE & TECHNOLOGY, INC. BALANCE SHEETS June 30, 2006 and 2005 (unaudited)
2006 2005 ----------- ----------- ASSETS CURRENT ASSETS Cash $13,473,602 $ 7,894,093 Accounts receivable 16,636,018 8,550,088 Cash value - life insurance 271,736 214,924 Prepaid expense 214,818 425,504 Employee receivable 186 11,133 Inventory 3,950,508 3,457,410 Goodwill 25,000 25,000 ----------- ----------- 34,571,868 20,578,152 ----------- ----------- PROPERTY AND EQUIPMENT Equipment 4,382,138 2,575,441 Leasehold improvements 1,160,684 874,470 Vehicles 44,635 44,635 ----------- ----------- 5,587,457 3,494,546 Less: Accumulated depreciation (2,388,190) (1,269,762) ----------- ----------- 3,199,267 2,224,784 ----------- ----------- $37,771,135 $22,802,936 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 127,572 $ 118,902 Accounts payable 3,172,285 1,383,431 Unearned revenues 10,754,060 6,303,851 Accrued expenses 518,270 437,945 Accrued vacation 898,781 715,466 Accrued pension 1,022,735 2,781,760 Taxes payable 838,403 554,000 Deferred income taxes 347,535 347,535 ----------- ----------- 17,679,641 12,642,890 ----------- ----------- NON-CURRENT LIABILITIES Long-term debt 153,578 287,348 Deferred income taxes 155,636 548,527 ----------- ----------- 309,314 835,875 ----------- ----------- STOCKHOLDERS' EQUITY Common stock 1,228,047 888,367 Preferred stock 20,210 5,500 Retained earnings 18,739,101 8,430,304 ----------- ----------- 19,987,358 9,324,171 Less: Treasury stock, 750 shares of common stock, at cost (205,178) -- ----------- ----------- 19,782,180 9,324,171 ----------- ----------- $37,771,135 $22,802,936 =========== ===========
The accompanying notes are an integral part of these financial statements. 18 IMPACT SCIENCE & TECHNOLOGY, INC. STATEMENTS OF INCOME Six Months Ended June 30, 2006 and 2005 (unaudited)
2006 2005 ----------- ----------- REVENUES $38,185,364 $25,634,607 ----------- ----------- COST OF REVENUES EARNED Inventory, beginning of year 3,624,750 2,111,566 Materials 12,653,015 8,053,084 Direct labor 9,255,696 7,377,795 Depreciation 455,203 264,497 ----------- ----------- 25,988,664 17,806,942 Less: Inventory, end of period (3,950,508) (3,457,410) ----------- ----------- 22,038,156 14,349,532 ----------- ----------- GROSS PROFIT 16,147,208 11,285,075 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,991,522 6,248,473 ----------- ----------- NET INCOME FROM OPERATIONS 9,155,686 5,036,602 ----------- ----------- OTHER INCOME (EXPENSE) Interest income 231,067 45,833 Interest expense (8,545) (17,497) ----------- ----------- 222,522 28,336 ----------- ----------- NET INCOME BEFORE TAXES 9,378,208 5,064,938 ----------- ----------- PROVISIONS FOR TAXES Federal - current 3,076,406 1,786,814 Federal - deferred 11,766 (265,573) State 769,274 444,109 ----------- ----------- 3,857,446 1,965,350 ----------- ----------- NET INCOME $ 5,520,762 $ 3,099,588 =========== ===========
The accompanying notes are an integral part of these financial statements. 19 IMPACT SCIENCE & TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2006 and 2005 (unaudited)
2006 2005 ----------- ----------- Cash flows from operating activities: Net income $ 5,520,762 $ 3,099,588 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 538,134 321,064 (Increase) decrease in: Accounts receivable (5,588,801) (854,735) Employee receivable 21,360 4,358 Prepaid expense (96,180) (424,366) Refund receivable 227,684 208,258 Inventory (325,768) (1,345,850) Increase (decrease) in: Accounts payable 1,715,077 727,977 Unearned revenue 3,175,759 3,244,551 Accrued expenses 690,816 619,080 Accrued pension (737,250) 966,915 Taxes payable 242,372 359,436 Deferred tax liability 11,766 (265,573) ----------- ----------- Total adjustments (125,031) 3,561,115 ----------- ----------- Net cash provided by operating activities 5,395,731 6,660,703 ----------- ----------- Cash flows from investing activities: Cash payments for the purchase of property (852,806) (640,823) ----------- ----------- Net cash used by investing activities (852,806) (640,823) ----------- ----------- Cash flows from financing activities: Principle payments of long-term debt (62,500) (62,500) Purchase of treasury stock (205,178) -- ----------- ----------- Net cash used by financing activities (267,678) (62,500) ----------- ----------- Net increase in cash and equivalents 4,275,247 5,957,380 Cash and equivalents - beginning of year 9,198,355 1,936,713 ----------- ----------- Cash and equivalents - end of period $13,473,602 $ 7,894,093 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest expense $ 8,545 $ 17,497 Taxes 1,290,324 1,349,671
The accompanying notes are an integral part of these financial statements. 20 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2006 and 2005 NOTE 1 - ORGANIZATION Impact Science & Technology, Inc. (the Company) was organized as a corporation on February 27, 1995, under the laws of the State of New Hampshire. The Company operates in New Hampshire, Maryland and Colorado and provides system development and integration services as well as products to both government and private industry. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company's financial statements. Cash and equivalents For the purpose of the statements of cash flows, the Company considers cash and equivalents to include cash on hand, amounts due from banks, and any other highly liquid debt instruments purchased with a maturity of three months or less. Property and equipment Property and equipment are stated at cost. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged to expenses as incurred. Upon retirement or disposal of assets, the cost and accumulated depreciation or amortization are eliminated from the accounts and the resulting gain or loss is included in income, with the exception of like-kind exchanges. Depreciation is computed on accelerated methods for both financial reporting and income tax purposes over the assets' estimated useful lives. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Income taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Inventory Inventory is stated at the lower of cost (determined on a first-in, first-out basis) or market. Inventory consists primarily of raw materials with some minor additional manufacturing costs. 21 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2006 and 2005 NOTE 3 - ACCOUNTS RECEIVABLE The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been established. If accounts become uncollectible, they will be charged to operations when the determination is made. Collections on accounts previously written off are included in other income as received. Bad debt expenses for the six months ended June 30, 2006 and 2005 was $17,452 and $-0-, respectively. NOTE 4 - DEFERRED INCOME TAXES The Company recognizes deferred tax assets and liabilities for temporary differences between the financial statement and tax bases of assets and liabilities. These differences primarily relate to depreciable and amortizable assets, the tax effects from the Company's conversion from the cash basis of accounting to accrual, and inventory-related costs for manufacturers that are expensed for financial reporting purposes and capitalized for tax reporting. The Company's total deferred tax liabilities at June 30, are as follows:
2006 2005 -------- -------- Current deferred income taxes $347,535 $347,535 Long-term deferred income taxes $155,636 $548,527
NOTE 5 - LINE OF CREDIT The Company has a line of credit with a bank which allows for borrowings up to $6,000,000. The line bears interest at 0.5% over the bank's prime rate. The line is secured by all assets of the Company. The balance due for the years ended June 30, 2006 and 2005 is $-0- and $-0-, respectively. NOTE 6 - LONG TERM DEBT
2006 2005 -------- -------- Note payable to bank in monthly installments including interest equal to 1.75% above the prime rate. Secured by assets of the Company. $281,250 $406,250 Less current portion 127,572 118,902 -------- -------- $153,678 $287,348 ======== ========
Maturities of long-term debt for the twelve months ending June 30, are summarized as follows: 2007 $127,572 2008 136,874 2009 16,804
22 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2006 and 2005 NOTE 7 - CAPITAL STOCK Total shares of common and preferred stock authorized, issued and outstanding at June 30, 2006 and 2005 are as follows:
Issued & Authorized Outstanding ---------- ----------- 2006 Preferred with voting rights, no par value 1,200,000 22,249 Common with voting rights, no par value 1,200,000 430,000 2005 Preferred with voting rights, no par value 1,200,000 17,502 Common with voting rights, no par value 1,200,000 432,000
Preferred stock is comprised of Series 1 Preferred Stock and Series 2 Preferred Stock. Each series of Preferred Stock may be converted, at the election of the holder, into one share of Common Stock at any time and for no additional payment. Holders of shares of Series 1 Preferred Stock shall have the right to receive dividends of $2.19 per share per year for the period of 7 years, ending 2011. Series 2 Preferred Stock shall have the right to receive dividends of $18.85 per share per year for the period of 7 years, ending 2012. The annual, preferential, cumulative dividend shall be payable in the manner and at such time as may be determined by the directors of the Company. Series 1 Preferred Stock has 17,502 shares issued and outstanding for 2006 and 2005 and Series 2 Preferred Stock has 4,747 and 0 issued and outstanding for 2006 and 2005, respectively. During the six month period ended June 30, 2006, an employee, sold 750 shares of common stock to the Company at a price of $273.57 per share, the total value of the sale being $205,177.50. The Company designated the shares as treasury stock. NOTE 8 - OPTIONS AND WARRANTS During the six month period ended June 30, 2006 the Company incurred compensation expense of $235,560 in association with the issuance of 4,000 common shares, all of which was a non-cash charge in accordance with the Company's Restricted Stock Plan. NOTE 9 - PROFIT SHARING PLAN The Company maintains a 401(k) plan for all eligible employees. Per the plan, employee contributions are matched up to a specified level by the Company. In addition, the plan provides for the possibility of a discretionary contribution by the Company based on the participants' annual wages. (See Note 11 below). 401(k) plan matching contributions by the Company for the six months ended June 30, 2006 and 2005 were $452,703 and $290,051, respectively. 23 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2006 and 2005 NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN In 2003, the Company adopted a noncontributory employee stock ownership plan (ESOP) covering employees who meet the eligibility requirements of the plan. The amount of contributions to the ESOP is determined annually at the discretion of the Board of Directors and is allocated from a discretionary profit sharing pool established annually by the Company (See Note 11). NOTE 11 - DISCRETIONARY PROFIT SHARING POOL At the discretion of the Board of Directors, a profit sharing pool is established annually. It is accrued monthly on the Company books at a percentage established during the annual budget process. This accrued amount is only an estimate. The actual amount is determined at year end by the Board of Directors, and then fully allocated as a contribution to either the 401(k) (See Note 9) or the ESOP (See Note 10) plans based on the participant's annual wages. The amount allocated to each plan is determined by the Board of Directors. Accrued discretionary amounts for the six months ended June 30, 2006 and June 30, 2005 were $1,022,734 and, $1,002,525, respectively. NOTE 12 - LEASE The Company leases its offices in New Hampshire, Maryland and Colorado under noncancelable operating leases. The minimum rental under all leases having an initial or remaining term in excess of one year for the five years subsequent to June 30, 2006 are approximated as follows: 2007 $806,677 2008 832,355 2009 854,485 2010 854,485 2011 854,485
NOTE 13 - CONCENTRATIONS The Company maintains its cash accounts in bank deposit accounts, which at times may exceed federal insured limits. The Company has not experienced any losses in such accounts. The Company believes they are not exposed to any significant credit risk. At June 30, 2006 and 2005, the Company's uninsured cash balance totaled $13,344,969 and $7,774,283, respectively. 24 IMPACT SCIENCE & TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2006 and 2005 NOTE 14 - GOODWILL On March 30, 2004, the Company acquired substantially all of the assets of Dedicated Electronics, Inc., a supplier of microwave electronic components to the Company. The excess cost of the assets at acquisition is recorded as goodwill and assessed annually for impairment. If considered impaired, goodwill will be written down to fair value and a corresponding impairment loss recognized. NOTE 15 - RECLASSIFICATIONS Certain accounts in the June 30, 2005 financial statements have been reclassified for comparative purposes to conform with the presentation in the June 30, 2006 financial statements. NOTE 16 - SUBSEQUENT EVENT On July 26, 2006, the Company entered into a Stock Purchase Agreement to sell all of the issued and outstanding shares of the Company to EDO Corporation for $123.7 million. The transaction closed and the acquisition was completed on September 15, 2006. 25 IMPACT SCIENCE & TECHNOLOGY, INC. SCHEDULES OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Six Months Ended June 30, 2006 and 2005
2006 2005 ---------- ---------- Bad debt expense $ 17,452 $ -- Conferences and meetings 102,809 45,595 Contributions 2,095 592 Depreciation 82,931 56,567 Employee incentive 715,353 1,681,472 ESOP Maintenance 2,530 4,357 Health insurance 1,212,079 892,087 Insurance 201,073 192,175 Lease expense 807,820 592,776 Maintenance costs 221,420 115,734 Office expense 348,910 288,061 Payroll 215,331 258,498 Payroll taxes 772,325 635,702 Postage 23,057 14,883 Professional fees 71,270 69,221 Recruiting costs 40,279 20,670 Retirement plan expenses 1,475,438 1,292,576 Security expense 15,051 22,326 Telephone 47,574 48,325 Travel 616,725 16,856 ---------- ---------- $6,991,522 $6,248,473 ========== ==========
The accompanying notes are an integral part of these financial statements. 26 (b) Pro forma Financial Statements Unaudited pro forma condensed combined statements of earnings for the year ended December 31, 2005 and the six months ended June 24, 2006 for EDO Corporation and June 30, 2006 for IST, Inc. On September 15, 2006, EDO Corporation ("EDO" or the "Company") acquired, all of the shares of IST, Inc. for $123.7 million consisting of a cash payment of $106.4 million and a $17.3 million promissory note to be paid over three years bearing simple interest and subject to certain post-closing purchase price adjustments. We financed $100 million of the purchase price from our credit facility. The credit agreement provides for a revolving credit facility in an aggregate amount equal to $300 million with sub-limits of $20 million for short-term swing loans and $100 million for letters of credit. The potential cash borrowing under the facility is reduced by the amount of outstanding letters of credit. The Company has the option to select Base Rate or Eurodollar Rate loans under the terms of the Credit Agreement. Any borrowings under the facility would be priced initially at LIBOR plus a predetermined amount depending on our consolidated leverage ratio at the time of the borrowing. Under the terms of the credit facility, we will be subject to various operating and financial covenants. IST was a privately-held company providing signals intelligence (SIGINT) systems and analysis support to the intelligence community, and advanced countermeasures and electronic-attack systems to the U.S. Department of Defense (DoD) and other government agencies. The following unaudited pro forma condensed combined statement of earnings for the year ended December 31, 2005 was prepared by combining the audited historical statements of income of the Company and IST, Inc. for the year ended December 31, 2005 and the six months ended June 24, 2006, for EDO Corporation and June 30, 2006 for IST, Inc., respectively, giving effect to the acquisition as though it was completed at the beginning of the fiscal years presented. The unaudited pro forma condensed combined financial information is presented in accordance with Article 11 of Regulation S-X. The acquisition has been accounted for under the purchase method of accounting in accordance with Statements of Financial Accounting Standards ("SFAS") No. 141, Business Combinations. Under the purchase method of accounting, the total estimated purchase price, calculated as described in Note 1 to these unaudited pro forma condensed combined financial statements, is allocated to the net tangible and intangible assets acquired and liabilities assumed of IST, Inc. in connection with the acquisition, based on their estimated fair values at the acquisition date. The Company has not yet completed its analysis of the fair value of the acquired assets 27 and liabilities. Consequently, the excess purchase price over the net assets acquired has been temporarily assigned to goodwill, and amounts recorded are subject to change. The unaudited pro forma condensed combined financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had EDO Corporation and IST, Inc. been a combined company during the specified periods. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and cost savings EDO Corporation may achieve with respect to the combined companies. The pro forma adjustments are based upon available information and assumptions that the Company believes are reasonable at this point in time. The unaudited pro forma condensed combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, EDO's historical consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2005 and in its Form 10-Q for the six months ended June 24, 2006, and the IST, Inc. historical consolidated financial statements for the year ended December 31, 2005 and for the six months ended June 30, 2006. 28 EDO CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS (in thousands, except per share data) FOR THE YEAR ENDED DECEMBER 31, 2005
EDO DECEMBER 31, DECEMBER 31, PRO FORMA 2005 2005 PRO FORMA COMBINED EDO IST ADJUSTMENTS DECEMBER 31, 2005 ------------ ------------ ----------- ----------------- NET SALES ............................................ $648,482 $59,097 $707,579 COSTS AND EXPENSES Cost of sales ..................................... 490,617 32,503 523,120 Selling, general and administrative ............... 85,921 13,502 3,564(a), (b) 102,987 Research and development .......................... 17,122 841 17,963 Environmental cost provision, Deer Park facility .. 1,543 -- 1,543 -------- ------- ------- -------- 595,203 46,846 3,564 645,613 -------- ------- ------- -------- OPERATING EARNINGS ................................... 53,279 12,251 (3,564) 61,966 NON-OPERATING INCOME (EXPENSE) Interest income ................................... 2,300 233 (606)(c) 1,927 Interest expense .................................. (9,420) (28) (5,061)(d) (14,509) Loss on redemption of 5.25% Convertible Subordinated Notes ............................. (4,171) -- (4,171) Other, net ........................................ (147) -- (147) -------- ------- ------- -------- (11,438) 205 (5,667) (16,900) -------- ------- ------- -------- Earnings before income taxes ......................... 41,841 12,456 (9,231) 45,066 Income tax (expense) benefit ......................... (15,572) (4,568) 3,246 (e) (16,894) -------- ------- ------- -------- NET EARNINGS ......................................... $ 26,269 $ 7,888 $(5,985) $ 28,172 ======== ======= ======= ======== NET EARNINGS PER COMMON SHARE: Basic ............................................. $ 1.45 $ 1.54 ======== ======== Diluted ........................................... $ 1.33 $ 1.40 ======== ======== Weighted-average common shares outstanding: Basic ............................................. 18,081 18,296 ======== ======== Diluted ........................................... 23,001 23,216 ======== ========
The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of these financial statements 29 EDO CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS (in thousands, except per share data) FOR THE SIX MONTHS ENDED JUNE 24, 2006
EDO JUNE 24, JUNE 30, PRO FORMA 2006 2006 PRO FORMA COMBINED EDO IST ADJUSTMENTS JUNE 24, 2006 -------- -------- ----------- ------------- NET SALES ............................................ $272,107 $38,185 $310,292 COSTS AND EXPENSES Cost of sales ..................................... 210,901 21,321 232,222 Selling, general and administrative ............... 49,261 6,991 1,761(a),(b) 58,013 Research and development .......................... 6,212 717 6,929 -------- ------- ------- -------- 266,374 29,029 1,761 297,164 -------- ------- ------- -------- OPERATING EARNINGS ................................... 5,733 9,156 (1,761) 13,128 NON-OPERATING INCOME (EXPENSE) Interest income ................................... 2,122 231 (490)(c) 1,863 Interest expense .................................. (4,661) (9) (3,122)(d) (7,792) Other, net ........................................ (257) -- -- (257) -------- ------- ------- -------- (2,796) 222 (3,612) (6,186) -------- ------- ------- -------- Earnings before income taxes ......................... 2,937 9,378 (5,373) 6,942 Income tax benefit (expense) ......................... 2,395 (3,857) 2,215(e) 753 -------- ------- ------- -------- NET EARNINGS ......................................... $ 5,332 $ 5,521 $(3,158) $ 7,695 ======== ======= ======= ======== NET EARNINGS PER COMMON SHARE: Basic ............................................. $ 0.30 $ 0.42 ======== ======== Diluted ........................................... $ 0.29 $ 0.36 ======== ======== Weighted-average common shares outstanding: Basic ............................................. 18,055 18,270 ======== ======== Diluted ........................................... 18,538 24,639 ======== ========
The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of these financial statements 30 EDO CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS NOTE 1 -- DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION On September 15, 2006 EDO Corporation ("the Company") acquired all of the stock of IST, Inc., (IST) for $123.7 million, consisting of a cash payment of $106.4 million and a $17.3 million promissory note to be paid over three years bearing 6% simple interest. And subject to certain post-closing purchase price adjustments. The closing was effected under the terms of an Amended and Restated Merger Agreement dated as of September 15, 2006 (the "Agreement"). Within 60 days after the closing, the Company is required to pay to the Former Shareholders the amount, if any, by which the Net Book Value (as defined) at the closing is more than the targeted Net Book Value (as defined), and the former Shareholders are required to pay to the Company the amount if any by which the Net Book Value is less than the targeted amount. On November 13, 2006, the closing balance sheet closing date was amended by EDO and IST to extend two additional weeks. As of November 28, 2006, the final Net Book Value has not been determined. Certain reclassifications have been made to the historical financial statements of IST, Inc. to conform to the presentation used in EDO Corporations historical financial statements. Such reclassifications had no effect on the previously reported results of operations of IST, Inc. The unaudited proforma condensed combined statements of earnings for the year ended December 31, 2005 and the six months ended June 24, 2006 have been prepared assuming the acquisition occurred as of January 1, 2005. NOTE 2 -- PURCHASE PRICE The Company has accounted for the acquisition as a purchase under the accounting principles generally accepted in the United States. Under the purchase method of accounting, the assets and liabilities of IST, Inc. will be recorded as of the acquisition date at their respective fair values and consolidated with those of EDO Corporation. The Company has not yet completed its analysis of the fair value of the acquired assets and liabilities. Consequently, the excess purchase price over the net assets acquired has been temporarily assigned to goodwill, and amounts recorded are subject to change. The preliminary estimate of the purchase price allocation, which includes approximately $0.5 million in transaction related costs, is as follows (in thousands): Total current assets $ 37,841 Goodwill 99,428 Property, plant and equipment, net 3,066 Total liabilities (16,164) -------- Total purchase price $124,171 ========
Note 3 -- Pro Forma Adjustments EDO Corporation's and IST's fiscal years ended December 31, 2005. The interim period Pro Forma is EDO Corporation's six months ended June 24, 2006 and IST's, six months ended June 30, 2006. a) To eliminate $29,000 ($36,000 for the six months ended June 30, 2006), of costs incurred by IST, Inc. related to this transaction which will not continue. b) To reflect additional stay pay compensation of $3.6 million ($1.8 million for the six months ended June 30, 2006) to key employees due to the acquisition that will be expensed over three years. 31 c) To reflect the reduction of interest income of $0.6 million ($0.5 million for the six months ended June 24, 2006) due to the assumed use of $12.8 million of the Company's existing cash to fund the acquisition and eliminate IST, Inc's. interest income of $0.2 million ($0.2 million for the six months ended June 30, 2006). d) To reflect $5.1 million incremental annual interest expense ($3.1 million for the six months ended June 24, 2006) arising from assumed issuance of $100 million of debt to fund the transaction at an estimated interest rate of 5% and eliminate IST, Inc. interest expense of $0.03 million (less than $9,000 for the six months ended June 30, 2006). e) To reflect taxes on the pro forma adjustments to income at EDO's marginal rate of 41%. (d) Exhibits 2.2. Stock Purchase Agreement, dated July 26, 2006, by and among EDO Corporation, Impact Science & Technology Inc. and Shareholders of Impact ("Selling Shareholders") party thereto. SIGNATURE Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 28, 2006 EDO CORPORATION By: /s/ Frederic B. Bassett ---------------------------------------- Name: Frederic B. Bassett Title: Senior Vice President-Finance, Treasurer and Chief Financial Officer 32 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ---------------------- +Exhibit 2.2 Stock Purchase Agreement, dated July 26, 2006, by and among EDO Corporation, Impact Science & Technology Inc. and Shareholders of Impact ("Selling Shareholders") party thereto (incorporated by reference to Exhibit 2.2 to Current Report on Form 8-K filed with SEC on August 1, 2006). *Exhibit 23.1 Manzi & Associates LLC
---------- * Filed herewith. + Previously filed. 33