-----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, SRc8jmzYXqEljBlnlz8ZYX2BL3i0iZ3/ORXaGAtDOL3+7++42xUy6Wq/7Yipv+31 ixxHVXQaU8FbogP8vp/CQQ== 0000950134-97-001419.txt : 19970228 0000950134-97-001419.hdr.sgml : 19970228 ACCESSION NUMBER: 0000950134-97-001419 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970227 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOPRO INC CENTRAL INDEX KEY: 0000874263 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 841042227 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19167 FILM NUMBER: 97546167 BUSINESS ADDRESS: STREET 1: 2525 W EVANS AVE CITY: DENVER STATE: CO ZIP: 80219 BUSINESS PHONE: 3039351221 MAIL ADDRESS: STREET 1: 2525 W EVANS AVE CITY: DENVER STATE: CO ZIP: 80219 FORMER COMPANY: FORMER CONFORMED NAME: ENTERINVESTMENT CORP DATE OF NAME CHANGE: 19600201 8-K/A 1 TOPRO FORM 8-K AMEDMENT NO. 3 12/31/96 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A NO. 3 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. December 31, 1996 --------------------------------- Date of Report (Date of Earliest Event Reported) TOPRO, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Colorado 84-1042227 - ------------------------------- ---------------------------- (State or other jurisdiction of I.R.S. Employer I. D. Number incorporation or organization) 2525 West Evans Avenue, Denver, Colorado 80219 - ---------------------------------------- ----- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (303) 935-1221 -------------- ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On December 31, 1996, Topro, Inc. ("Registrant"), entered into an Agreement of Merger pursuant to which a newly formed subsidiary will merge into, and the Registrant will acquire all the outstanding capital stock of All Control Systems, Inc.("ACSI") and ProMeta Consulting, Inc. ("ProMeta") (combined collective company "ACS") independent control systems integrators located in West Chester, PA organized as Subchapter S corporations under the federal tax code. ACS's operations are carried out through two affiliated companies ACS and ProMeta under common ownership. On the effective date of the merger the Registrant's subsidiary will merge with ACSI and ProMeta leaving ACS as a wholly owned subsidiary of the Registrant. ACS's core business parallels that of the Registrant's, with emphasis on some different/additional markets and a generally more technically sophisticated product offering in the food and pharmaceutical industries. ACS is focused on the following vertical markets: food processing, pharmaceutical, and discrete manufacturing. In accordance with an Agreement of Merger, the Registrant will acquire all of the outstanding capital stock of ACS in exchange for 1,800,000 restricted shares of the Registrant's Common Stock. The 1 2 shares issued under the Agreement of Merger will be held in escrow pending the effective date of the Registrants Form S-3 currently being reviewed by the SEC at which time the shares will be released to the ACS shareholders. The Agreement of Merger will result in ACS's termination of its Subchapter S classification creating a deferred tax liability relating to capitalized software costs deductions previously received by the shareholders. It is estimated that the deferred tax liability relating to the capitalized software assumed by the Registrant will total no more than $340,000. The Agreement of Merger provides for future tax liability to be borne one-half by the Registrant and one-half by the ACS shareholders pro rata according to their respective pre-merger interest in ACS. Shares will be held in escrow to satisfy any incurred tax liability based on a value of $2.25 per share or 151,111 shares. Such shares will be released in annual installments to former ACS shareholders at the rate of one share for each $4.50 total reduction (through amortization of the software costs to earnings) in the capitalized software deferred tax reflected on the June 30, 1997 audited financial statements of the Registrant. Such amortization and escrow period shall not exceed five years. During the term of this escrow period the ACS shareholders shall have the option to replace the escrowed shares valued at $2.25 per share with cash or other collateral acceptable to the Registrant. Any replacement collateral shall be released at the same rate as escrowed shares would be released. ACS operates from a modern 35,000 square foot facility in West Chester, PA. ACS staff currently numbers 65, with over 49 engineers and 4 sales personnel and 12 corporate personnel. The Registrant intends to continue the business of ACS, having effected the transaction in order to establish a market presence for its Control Systems Integration operations in the regions served by ACS. In connection with the Merger, the past President of ACS, Kevin Fallon will enter into an employment agreement with the Registrant. The transaction described above closed on February 7, 1997. Prior to this transaction, there was no material relationship between ACS and the Registrant or any of its affiliates, any director or officer of the registrant, or any associate of such director or officer. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED - Audited financial statements of ACS for the 12 months ending December 31, 1995 and 1994 and unaudited financial statements of ACS as of and for the nine months ended September 30, 1996 are filed herein. (b) PRO FORMA FINANCIAL INFORMATION - The pro forma financial statements reflect the acquisition of ACSI and ProMeta, (combined company "ACS") accounted for as a purchase. ACS's previous fiscal year end is December 31. The pro forma balance sheet set forth the financial position as of September 30, 1996. The pro forma income statements as of September 30, 1996 reflect the 3 months of operation of ACS for the periods ending September 30, 1996. The unaudited pro forma income statement for the year ending June 30, 1996. This pro forma information has been restated 2 3 to reflect the 12 months of operations of ACS, the six months of operation for Advanced Control Technology, Inc. ("ACT"), and the 10 months of operation of Visioneering Holding Corp ("VHC"). ACT was acquired on January 1, 1996 resulting in 6 months of operation consolidated in the Registrant's financial results and VHC was acquired on May 1, 1996 resulting in 2 months of operations consolidated in the Registrant financial results. The combined pro forma income statement was consolidated to show the cumulative effect of 12 months of operation for the acquisitions of ACS, ACT and VHC. The June 30, 1996 and September 30, 1996 pro forma balance sheet reflects the consolidated position of the Registrant, MDCS, Inc., ACT and VHC and ACS. (c) Exhibits 2.1 Agreement of Merger dated December 31, 1996 previously filed. 2.2 Amendment to Agreement of Merger previously filed. 99.1 Press Release dated February 12, 1997 previously filed. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Topro, Inc. Date: February 27, 1997 By: /s/ John Jenkins ---------------------- John P. Jenkins President and CEO 3 4 TOPRO, INC. NOTES TO THE PRO FORMA FINANCIAL INFORMATION Pursuant to an Agreement of Merger dated December 31, 1996, Topro, Inc. ("Registrant"), through a merger undertaken by a newly formed subsidiary, will acquire all the outstanding capital stock of ACSI and ProMeta (collectively "ACS") independent control systems integrators located in West Chester, PA. The Registrant agrees to acquire all of the outstanding capital stock of ACS, in exchange for 1,800,000 restricted shares of the Registrant's Common Stock. The effective date for accounting purposes will be December 1, 1996 for purposes of recording the acquisition of ACS. The September 30, 1996 pro forma income statement of ACS, includes goodwill amortization of $77,000 was recorded for the period. The June 30, 1996 income statement was restated to reflect goodwill amortization of $310,000. The accompanying condensed combined pro forma balance sheet presents the financial position of the Registrant as if the merger between the Registrant's subsidiary and ACS had occurred on September 30, 1996. The pro forma balance sheet was prepared utilizing the September 30, 1996 balance sheet of ACS The pro forma statement of operations combined the statements of operations of the Registrant for the years ended June 30, 1996 and interim period ending September 30, 1996. The ACS financial statements were recast to reflect three months of operations for the period ending September 30, 1996. The combined consolidated income statement for the period ending June 30, 1996 reflects the recast operating results of ACS for the twelve months ending June, 30, 1996. The Registrant's September 30, 1996 consolidated income statements reflects the 3 months of operation of ACT, MDCS, Inc, VHC. Additionally, 6 months of operations for ACT ending 12/31/96 was included to reflect 12 months of operations ended June 30, 1996 for the acquisition of ACT included in previous 8-K filings. The combined consolidated income statements for June 30, 1996 and September 30, 1996 reflect the combined acquisitions of MDCS, Inc (pooling of interest), Advanced Control Technology, Inc. (purchase method), Visioneering Holding Corporation (purchase method), and ACS (purchase method) for the respective periods. These statements are not necessarily indicative of future operations or the actual results that would have occurred had the transactions been consummated at the beginning of the periods indicated. The pro forma condensed combined financial statements should be read in conjunction with the notes thereto of the Registrant's financial statements included in it annual report on Form 10-K and notes to financials of ACS included elsewhere in this 8-K. 4 5 TOPRO INC., AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET PURCHASE OF ACS (UNAUDITED)
TOPRO, INC. TOPRO, INC. CONSOLIDATED ACS PRO FORMA CONSOLIDATED 09/30/96 09/30/96 ADJUST PRO FORMA ------------- ------------ ------------ ------------- ASSETS CURRENT ASSETS: Cash $ 156,000 $ 129,786 $ 285,786 Receivables: Trade, net of allowance for doubtful 5,234,000 3,380,816 8,614,816 accounts Other 1,000 10,401 11,401 Cost and estimated earnings in excess of billings on uncompleted contracts 2,866,000 700,449 3,566,449 Inventories 151,000 0 151,000 Prepaid expense 244,000 24,161 268,161 Assets of discontinued operations 581,000 581,000 Refundable income taxes 222,000 222,000 ------------ ------------ ------------ ------------ Total current assets 9,455,000 4,245,613 0 13,700,613 PROPERTY AND EQUIPMENT, at cost: Building and land 850,000 0 850,000 Equipment, fixture & equipment 2,497,000 1,478,243 (1,322,876) 2,652,367 Leasehold improvements 784,000 24,262 808,262 4,131,000 1,502,505 (1,322,876) 4,310,629 Less accumulated depreciation (1,370,700) (1,322,876) 1,322,876 (1,370,700) ------------ ------------ ------------ ------------ Net property and equipment 2,760,300 179,629 0 2,939,929 CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net of amortization 680,700 671,192 1,351,892 OTHER ASSETS Goodwill, net of amortization - 5,024,000 0 4,565,917 9,589,917 Debt issuance costs, net of amortization 333,000 0 0 333,000 Other assets 145,000 44,818 0 189,818 ------------ ------------ ------------ ------------ TOTAL ASSETS $ 18,398,000 $ 5,141,252 $ 4,565,917 $ 28,105,169 ============ ============ ============ ============
5 6 TOPRO INC., AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET PURCHASE OF ACS (UNAUDITED)
TOPRO, INC. TOPRO, INC. CONSOLIDATED ACS PRO FORMA CONSOLIDATED 09/30/96 09/30/96 ADJUST PRO FORMA ------------- ------------ ----------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line-of-credit $ 927,000 $ 1,237,000 $ 2,164,000 Current portion of long-term debt: Related parties 230,000 230,000 Financial institutions and other 1,422,000 1,422,000 Capital Lease obligation 41,000 16,729 57,729 Accounts payable 5,770,000 1,853,012 7,623,012 Billings in excess of costs and estimated earnings on uncompleted contracts 988,000 2,135,545 3,123,545 Accrued expenses 1,362,000 479,093 1,841,093 Deferred gain & expense 24,000 10,737 34,737 ------------ ------------ ------------ ------------ Total current liabilities 10,764,000 5,732,116 0 16,496,116 LONG-TERM DEBT, NET OF CURRENT PORTION: Renaissance 3,500,000 0 3,500,000 Financial institutions and other 861,000 0 861,000 Capital Lease Obligations 146,000 2,441 148,441 ------------ ------------ ------------ ------------ Total long-term debt 4,507,000 2,441 0 4,509,441 DEFERRED GAIN Sale of bldg 39,000 39,000 STOCKHOLDERS' EQUITY: Preferred stock, par value $1.00 per share; authorized 10,000,000 shares, no shares issued -- -- -- Common stock, par value $.0001 per share; authorized 200,000,000 shares, 6,639,403 shares issued and outstanding 9/30/96 1,000 1,375 (1,195) 1,180 Additional paid-in capital 7,775,000 626,101 3,423,719 11,824,820 Accumulated deficit (4,688,000) (1,220,781) 1,143,393 (4,765,388) ------------ ------------ ------------ ------------ Total stockholders' equity 3,088,000 (593,305) 4,565,917 7,060,612 ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,398,000 $ 5,141,252 $ 4,565,917 $ 28,105,169 ============ ============ ============ ============
6 7 TOPRO INC., AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED INCOME STATEMENT PURCHASE OF ACS (UNAUDITED)
YEAR ENDED JUNE 30, 1996 --------------------------------------------------------------------------------- TOPRO, INC. VISIONEERING TOPRO, INC. CONSOLIDATED ACT, INC. CORPORATION ACS PRO FORMA CONSOLIDATED 06/30/96 12/31/95 04/30/96 6/30/96 ADJUST PRO FORMA ------------ ------------ ------------ ------------ ----------- ------------ REVENUES: Control systems integration $ 19,726,000 $ 2,605,129 $ 8,165,012 $ 7,939,321 $ 38,435,462 Distributorship 907,000 907,000 ------------ ------------ ------------ ------------ ----------- ------------ 20,633,000 2,605,129 8,165,012 7,939,321 39,342,462 COST OF SALES: Control systems integration 14,025,000 2,228,112 5,370,899 5,262,505 26,886,516 Distributorship 652,000 652,000 ------------ ------------ ------------ ------------ ----------- ------------ 14,677,000 2,228,112 5,370,899 5,262,505 27,538,516 ------------ ------------ ------------ ------------ ----------- ------------ GROSS PROFIT 5,956,000 377,017 2,794,113 2,676,816 11,803,946 EXPENSES: Sales expense 1,168,000 498,541 1,666,541 General and admin expense 3,921,000 582,220 5,224,510 3,762,273 13,490,003 Distributorship selling & other 871,000 0 0 871,000 ------------ ------------ ------------ ------------ ------------ 5,960,000 1,080,761 5,224,510 3,762,273 16,027,544 ------------ ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSES) Gain (loss) on sales of assets 435,000 10,436 0 445,436 Other (expenses) income 79,000 73 (6,583) 72,490 Interest expense (380,000) (172,057) (116,674) (131,306) 0 (800,037) Goodwill amortization (114,000) (74,165) (188,512) (309,554) (686,231) ------------ ------------ ------------ ------------ ----------- ------------ 20,000 (235,713) (311,769) (131,306) (309,554) (968,342) INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INC TAXES 16,000 (939,457) (2,742,166) (1,216,763) (309,554) (5,191,940) INCOME TAX BENEFIT (PROVISION): Current 0 (7,831) 69,315 0 0 61,484 ------------ ------------ ------------ ------------ ----------- ------------ Total income tax benefit (provision) 0 (7,831) 69,315 0 0 61,484 INCOME (LOSS) FROM CONTINUING OPERATIONS $ 16,000 (947,288) (2,672,850) (1,216,763) (309,554) (5,130,455) ============ ============ ============ ============ =========== ============ NET INCOME (LOSS) PER SHARE: Continuing operations $ 0.00 ($0.61) ------------ SHARES OUTSTANDING 6/30/96 6,639,403 1,800,000 8,439,403 ============ ============ ============ ============ =========== ============ NOT REPORTED AS A WEIGHTED AVERAGE PER GAAP
7 8 TOPRO INC., AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED INCOME STATEMENT PURCHASE OF ACS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1996 --------------------------------------------------------------------------------- TOPRO, INC. TOPRO, INC. CONSOLIDATED ACS PRO FORMA CONSOLIDATED 9/30/96 09/30/96 ADJUST PRO FORMA --------------------------------------------------------------------------------- REVENUES: Control systems integration $ 7,967,000 $ 3,307,203 $11,274,203 --------------------------------------------------------------------------------- 7,967,000 3,307,203 11,274,203 COST OF SALES: Control systems integration 5,082,000 2,484,543 7,566,543 --------------------------------------------------------------------------------- 5,082,000 2,484,543 7,566,543 --------------------------------------------------------------------------------- GROSS PROFIT 2,885,000 822,660 3,707,660 EXPENSES: Sales expense 598,000 0 598,000 General and administrative expense 1,948,000 475,302 2,423,302 --------------------------------------------------------------------------------- 2,546,000 475,302 3,021,302 INCOME FROM SYSTEMS INTEGRATION 339,000 347,358 686,358 OTHER INCOME (EXPENSE) Gain on sale of assets (3,000) 0 (3,000) Other (expense) income 4,000 0 4,000 Interest expense (172,000) (32,073) (204,073) Goodwill amortization (87,000) 0 (77,388) (164,388) --------------------------------------------------------------------------------- (258,000) (32,073) (77,388) (367,461) INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 81,000 315,285 (77,388) 318,897 INCOME TAX BENEFIT (PROVISION): Current 0 0 0 --------------------------------------------------------------------------------- Total income tax benefit (provision) 0 0 0 INCOME (LOSS) FROM CONTINUING 81,000 315,285 (77,388) 318,897 OPERATIONS ================================================================================= NET INCOME (LOSS) PER SHARE: Continuing operations $0.01 $0.04 SHARES OUTSTANDING 6/30/96 6,639,403 1,800,000 8,439,403 ================================================================================= NOT REPORTED AS A WEIGHTED AVERAGE PER GAAP
8 9 TOPRO INC., AND SUBSIDIARIES ASSUMPTIONS PURCHASE OF ACS (UNAUDITED) INCOME STATEMENT ADJUSTMENTS - 9/30/96 Goodwill amortization 77,388 INCOME STATEMENT ADJUSTMENTS - 06/30/96 Goodwill amortization - yearly 15 Years 309,554 STOCK EXCHANGED & GOODWILL Assets 5,141,252 Liability (5,734,557) ----------------- Net assets purchased (593,305) Total Shares 1,800,000 2.25 4,050,000 ----------------- Total goodwill 09/30/96 4,643,305 ================= EQUITY Common stock, par value $.0001 per share; ACS common stock 1,375 ACS shares issued 1,800,000 0.0001 (180) 1,195 ================= ADDITIONAL PAID-IN CAPITAL ACS additional paid in capital (626,101) ACS shares issued 1,800,000 2.25 4,050,000 ACS shares issued 1,800,000 .0001 (180) ----------------- 3,423,719 ================= RETAINED EARNINGS RECONCILIATION ACS Common Stock (1,375) ACS additional paid in capital (626,101) ACS retained earnings 1,220,781 Registrant's common stock 4,050,000 Goodwill Adjustment (77,388) ----------------- Adjustment to equity 4,565,917 =================
9 10 All-Control Systems, Inc. and Affiliate (S Corporations) ================================================================================ Combined Financial Statements Years Ended December 31, 1995 and 1994 11 All-Control Systems, Inc. and Affiliate (S Corporations) Contents ================================================================================ Independent Auditors' Report 3 Combined financial statements Balance sheets 4-5 Statements of operations 6 Statements of stockholders' equity 7 Statements of cash flows 8-9 Notes to combined financial statements 10-17
2 12 [BDO SEIDMAN, LLP LETTERHEAD] Independent Auditors' Report All-Control Systems, Inc. and Affiliate West Chester, Pennsylvania We have audited the accompanying combined balance sheets of All-Control Systems, Inc. and affiliate (Pennsylvania S corporations) as of December 31, 1995 and 1994, and the related combined statements of operations, stockholders' equity, and cash flows for the years then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined 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 combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined 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. As discussed in Note 11, the 1995 financial statements have been revised to correct the accounting for the forgiveness of certain officers/shareholders indebtedness. In our opinion, the combined financial statements referred to above present fairly, as revised as described above, in all material respects, the financial position of All-Control Systems, Inc. and affiliate as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ BDO SEIDMAN, LLP Philadelphia, Pennsylvania December 18, 1996 (except for Note 3, for which the date is December 31, 1996 and Note 6, for which the date is February 10, 1997) 3 13 All-Control Systems, Inc. and Affiliate (S Corporations) Combined Balance Sheets ================================================================================
- ------------------------------------------------------------------------------------------------------------- December 31, 1995 1994 - ------------------------------------------------------------------------------------------------------------- Assets Current assets Cash $ 60,602 $ 42,360 Contracts receivable, net 2,509,357 2,756,889 Costs and estimated earnings in excess of billings on uncompleted contracts 374,462 494,667 Loan receivable, stockholder 2,901 16,705 Prepaid expenses and other 60,944 67,941 - ------------------------------------------------------------------------------------------------------------- Total current assets 3,008,266 3,378,562 - ------------------------------------------------------------------------------------------------------------- Property and equipment Leasehold improvements 24,262 24,262 Shop equipment 302,885 302,885 Office furniture and equipment 831,588 754,468 Office furniture and equipment under capital leases 324,713 324,713 Automobiles 16,593 16,593 - ------------------------------------------------------------------------------------------------------------- 1,500,041 1,422,921 Less accumulated depreciation and amortization 1,186,227 1,012,157 - ------------------------------------------------------------------------------------------------------------- 313,814 410,764 - ------------------------------------------------------------------------------------------------------------- Capitalized software costs 732,419 318,860 Deposits 34,365 30,512 - ------------------------------------------------------------------------------------------------------------- $ 4,088,864 $ 4,138,698 =============================================================================================================
See accompanying notes to combined financial statements. 4 14 All-Control Systems, Inc. and Affiliate (S Corporations) Combined Balance Sheets ================================================================================
December 31, 1995 1994 - ------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities Note payable, bank $ 1,240,000 $ 1,090,000 Current maturities of obligations under capital leases 35,139 70,835 Accounts payable 1,140,291 731,029 Billings in excess of costs and estimated earnings on uncompleted contracts 920,016 1,049,694 Accrued payroll and payroll taxes 77,657 92,179 Accrued expenses 100,991 131,628 Deferred rent 13,356 13,362 Other 104,996 264,375 - ------------------------------------------------------------------------------------------------------------- Total current liabilities 3,632,446 3,443,102 - ------------------------------------------------------------------------------------------------------------- Long-term liabilities Obligation under capital leases, net of current maturities 7,395 38,168 Deferred rent 7,969 19,727 Deferred compensation - 500,000 - ------------------------------------------------------------------------------------------------------------- Total long-term liabilities 15,364 557,895 - ------------------------------------------------------------------------------------------------------------- Contingencies Stockholders' equity Common stock 1,375 1,375 Additional paid-in capital 626,101 126,101 Retained earnings (deficit) (186,422) 10,225 - ------------------------------------------------------------------------------------------------------------- Total stockholders' equity 441,054 137,701 - ------------------------------------------------------------------------------------------------------------- $ 4,088,864 $ 4,138,698 =============================================================================================================
See accompanying notes to combined financial statements. 5 15 All-Control Systems, Inc. and Affiliate (S Corporations) Combined Statement of Operations ================================================================================
Year ended December 31, 1995 1994 - ------------------------------------------------------------------------------------------------------------- (as restated) Contract revenue $ 9,574,289 $ 9,559,402 Direct contract costs 6,202,194 6,555,796 - ------------------------------------------------------------------------------------------------------------- Gross profit 3,372,095 3,003,606 Selling, general and administrative expenses 3,420,318 3,004,053 - ------------------------------------------------------------------------------------------------------------- Loss from operations (48,223) (447) - ------------------------------------------------------------------------------------------------------------- Other expenses Interest expense, net of interest income of $338 and $7,853 in 1995 and 1994, respectively 148,424 123,938 - ------------------------------------------------------------------------------------------------------------- Net loss $ (196,647) $ (124,385) =============================================================================================================
See accompanying notes to combined financial statements. 6 16 All-Control Systems, Inc. and Affiliate (S Corporations) Combined Statement of Stockholders' Equity ================================================================================
Years ended December 31, 1994 and 1995 - ------------------------------------------------------------------------------------------------------------- Additional Retained Common Paid-In Earnings Stock Capital (Deficit) - ------------------------------------------------------------------------------------------------------------- Balance, January 1, 1994 $ 125 $ 126,101 $ 205,610 Issuance of common stock - ProMeta 1,250 - - Distributions to stockholders - - (71,000) Net loss - - (124,385) - ------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 1,375 126,101 10,225 Forgiveness of officers/shareholders indebtedness - 500,000 - Net loss - - (196,647) - ------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 $ 1,375 $ 626,101 $ (186,422) =============================================================================================================
See accompanying notes to combined financial statements. 7 17 All-Control Systems, Inc. and Affiliate (S Corporations) Combined Statement of Cash Flows ================================================================================
Year ended December 31, 1995 1994 - ------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net loss $ (196,647) $ (124,385) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 175,860 177,176 Decrease in deferred rent (11,764) (2,187) Provision for losses on accounts receivable 217,710 (8,984) Change in operating assets and liabilities Contracts receivable and retainage 29,822 (1,131,714) Costs and estimated earnings in excess of billings on uncompleted contracts 120,205 103,142 Prepaid expenses, other and deposits 3,145 56,835 Accounts payable 409,262 372,676 Billings in excess of costs and estimated earnings on uncompleted contracts (129,678) 501,172 Accrued payroll and payroll taxes (14,522) (2,708) Accrued expenses and other (190,016) 278,355 - ------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 413,377 219,378 - ------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Capitalized software costs (413,559) (298,643) Purchases of equipment (78,911) (42,948) - ------------------------------------------------------------------------------------------------------------- Net cash (used) in investing activities (492,470) (341,591) - ------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Net borrowings under line of credit agreement 150,000 332,790 Payments under capital lease obligations (66,469) (70,277) Proceeds from repayment of loans by a stockholder 13,804 - Proceeds from issuance of common stock - 1,250 Dividends paid - (71,000) Repayments of notes payable, bank - (34,040) - ------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 97,335 158,723 =============================================================================================================
8 18 All-Control Systems, Inc. and Affiliate (S Corporations) Combined Statement of Cash Flows ================================================================================
Year ended December 31, 1995 1994 - ------------------------------------------------------------------------------------------------------------- Net increase in cash $ 18,242 $ 36,510 Cash, at beginning of year 42,360 5,850 - ------------------------------------------------------------------------------------------------------------- Cash, at end of year $ 60,602 $ 42,360 ============================================================================================================= Supplemental disclosure of cash flow information Cash paid during the year for interest $ 137,593 $ 100,632 ============================================================================================================= Supplemental schedule of noncash investing activities Forgiveness of officers/shareholders indebtedness $ 500,000 $ - =============================================================================================================
See accompanying notes to combined financial statements. 9 19 All-Control Systems, Inc. and Affiliate (S Corporations) Notes to Combined Financial Statements ================================================================================ 1. Description Principles of Combination of the Business and The combined financial statements include the Summary of accounts of All-Control Systems, Inc. ("ACS") and Significant its affiliate, ProMeta Consulting, Inc. Accounting ("ProMeta"), together (the "Company"). Both Policies entities are affiliated through common ownership. All significant intercompany accounts and transactions have been eliminated. Nature of Operations and Significant Customers The Company is a national organization specializing in electrical, control and instrumentation software and information systems engineering and consulting. During 1995, sales to one customer accounted for 16% of contract revenue. One customer accounted for 22% of contracts receivable as of December 31, 1995. Such amount is in dispute. The Company feels its reserves are adequate and will continue to monitor them as facts and circumstances change. During 1994, sales to three customers accounted for 42% of contract revenue and two customers accounted for 27% of contracts receivable as of December 31, 1994. Revenue Recognition Revenues earned from fixed price or modified fixed price automation systems contracts are recognized on the percentage-of-completion method, measured by the costs incurred to date as a percentage of estimated total costs for each contract. Revenues from cost plus fee contracts are recognized on the basis of costs incurred during the period plus the fee earned. Cost of revenues earned includes all direct material, labor and subcontract costs related to the contract performance. Indirect costs, such as supplies, insurance, depreciation, etc. are allocated to direct contract costs as incurred, depending on the prevailing circumstances. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. 10 20 All-Control Systems, Inc. and Affiliate (S Corporations) Notes to Combined Financial Statements ================================================================================ Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of contracts receivable. Billed contracts receivable result primarily from contracts with large manufacturing firms. The Company reviews a customer's credit history and obtains an approved contract before commencing work. The Company generally does not require collateral from its customers. The Company reviews engagement status on an ongoing basis and bills only amounts it believes are realizable under the terms of the applicable contract. Property and Equipment Property and equipment are stated at cost. Depreciation is provided on the straight-line method over the estimated economic lives of the assets which range from 3 to 7 years. Assets acquired under capital leases are recorded at the lesser of the fair market value or the net present value of the minimum lease commitments measured at the inception of the lease. Amortization is provided on the straight-line method over the lease terms which range from 2 to 5 years. Fair Value of Financial Instruments The carrying amounts reported in the balance sheets for cash, contracts receivable, accounts payable, and accrued liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. Income Taxes ACS and ProMeta each have elected to be taxed as a corporation according to the provisions of Subchapter S of the Internal Revenue Code and the Income Tax Code of the Commonwealth of Pennsylvania, and the stockholders have consented to include their pro rata share of income or loss in their individual Federal and state income tax returns. Accordingly, no provision has been made for Federal or Pennsylvania income taxes. 11 21 All-Control Systems, Inc. and Affiliate (S Corporations) Notes to Combined Financial Statements ================================================================================ Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalized Software Costs The Company incurs expenses related to the development of software products. These costs have been capitalized and will be amortized by using the greater of the ratio of actual current revenue recognized over the total estimated revenue or the straight-line method over the estimated useful life of the software, not to exceed five years. For the years ended December 31, 1995 and 1994, the Company capitalized software costs of $413,559 and $298,643. Amortization of software costs began in 1996 when the products became commercially viable. 2. Contingencies The Company is party to various legal proceedings and are subject to various claims arising in the ordinary course of business. Management believes that the disposition of these matters will not have a material effect on the financial position of the Company. 3. Proposed On December 31, 1996, the Company entered into an Merger agreement of sale and merger with a wholly-owned subsidiary of a publicly traded Company to be effective as of November 30, 1996. The Company's stockholders will exchange all of their common stock for 1,800,000 shares of that publicly traded Company's common stock. 12 22 All-Control Systems, Inc. and Affiliate (S Corporations) Notes to Combined Financial Statements ================================================================================ 4. Contracts Contracts receivable include the following: Receivable December 31, 1995 1994 -------------------------------------------------------------------------------- Currently due $ 2,734,357 $ 2,007,177 Retainage - 757,002 -------------------------------------------------------------------------------- 2,734,357 2,764,179 Less allowance for doubtful accounts 225,000 48,000 -------------------------------------------------------------------------------- $ 2,509,357 $ 2,716,179 ================================================================================ 5. Costs and Costs and estimated earnings on uncompleted contracts consist of the following: Estimated Earnings on December 31, 1995 1994 Uncompleted -------------------------------------------------------------------------------- Contracts Cumulative costs incurred on uncompleted contracts $ 7,588,432 $ 9,264,395 Estimated cumulative earnings 3,273,831 3,461,494 -------------------------------------------------------------------------------- 10,862,263 12,725,889 Less billings cumulative to date 11,407,817 13,280,916 -------------------------------------------------------------------------------- $ (545,554) $ (555,027) ================================================================================
13 23 All-Control Systems, Inc. and Affiliate (S Corporations) Notes to Combined Financial Statements ================================================================================ The following are included in the accompanying balance sheet:
December 31, 1995 1994 -------------------------------------------------------------------------------- Costs and estimated earnings in excess of billings on uncompleted contracts $ 374,462 $ 494,667 Billings in excess of costs and estimated earnings on uncompleted contracts 920,016 1,049,694 -------------------------------------------------------------------------------- $ (545,554) $ (555,027) ================================================================================
6. Debt Note Payable, Bank Note payable, bank, represents borrowings against a $1,600,000 line of credit and is due on demand. Eligible borrowings are limited to 75% of qualified receivables, as defined in the loan agreement. Interest is payable monthly at prime plus 1.25% (9.75% as of December 31, 1995). Substantially all of ACS's assets are pledged as collateral on the note payable, bank. In addition, the note is personally guaranteed by the majority stockholder of the Company. The terms of the Company's financing agreement contains, among other provisions, requirements for maintaining defined levels of working capital, net worth and other financial ratios. At December 31, 1995, the Company was in violation of certain loan covenants. On February 10, 1997, the financing agreement was amended. In connection with this amendment, the bank agreed to waive all loan covenant violations through the amendment date, subject to the proposed merger as described in Note 3. The amended financing agreement includes, among other provisions, an increase in the interest rate to prime plus 3% and a reduction in the line of credit to $1,000,000. 14 24 All-Control Systems, Inc. and Affiliate (S Corporations) Notes to Combined Financial Statements ================================================================================
7. Capital Stock Capital stock and additional paid-in capital are comprised of: and Additional Paid-In Capital Additional Capital Paid-In Stock Capital -------------------------------------------------------------------------------- ACS Common stock, $.10 par value Authorized 10,000 shares Issued and outstanding 1,250 shares $ 125 $ 626,101 ProMeta Common stock, no par value Authorized 1,250 shares Issued and outstanding 1,250 shares 1,250 - -------------------------------------------------------------------------------- $ 1,375 $ 626,101 ================================================================================
8. Leasing ACS leases its principal operating facility under Activities an operating lease which expires in 1997. The agreement also contains an option to extend the lease for an additional four years. In addition to base rent, ACS is required to pay its pro rata share of building operating expenses. Effective interest rates on capital lease obligations range from 10.8% to 24.5%. The accumulated amortization of assets capitalized under capital leases at December 31, 1995 and 1994 was $294,092 and $238,065, respectively. 15 25 All-Control Systems, Inc. and Affiliate (S Corporations) Notes to Combined Financial Statements ================================================================================ Future minimum lease payments subsequent to December 31, 1995 are as follows:
Operating Capital Year ended December 31, Leases Leases -------------------------------------------------------------------------------- 1996 $ 287,664 $ 37,876 1997 47,944 7,572 -------------------------------------------------------------------------------- $ 335,608 45,448 ============================================================== Less amount representing interest 2,914 -------------------------------------------------------------------------------- 42,534 Less current maturities 35,139 -------------------------------------------------------------------------------- $ 7,395 ================================================================================
Certain capital lease obligations are personally guaranteed by the majority stockholders of ACS. Rent expense for the years ended December 31, 1995 and 1994 was $273,544 and $270,393, respectively. Deferred rent represents lease concessions for the term of the rental agreement and is being amortized over the remaining term of the lease. 9. Employee ACS sponsors a 401(k) plan for the benefit of its Benefit Plan Employees. ACS matches employee contributions at a rate of 50% up to 6% of qualified compensation. Employer contributions to this plan were $59,402 and $66,008 for the years ended December 31, 1995 and 1994, respectively. 16 26 All-Control Systems, Inc. and Affiliate (S Corporations) Notes to Combined Financial Statements ================================================================================ 10. Related Party The Company performed subcontractor work for Transactions Precision Dispensing, Inc. ("PDI"), a related party. Billings to PDI amounted to $1,009,849 and $449,232 in 1995 and 1994, respectively. 11. Restatement During 1995, certain officers/shareholders agreed of Prior Year to forgive all of their deferred compensation due from the Company. This amount, totaling $500,000 was originally recorded as a reduction of operating expenses. The 1995 financial statements have been restated to record such forgiveness as an addition to paid-in capital. 17 27 ACS/PROMETA Financial Statements For the Nine Months Ended September 30, 1996
Total ACS ProMeta Eliminations ACS/ProMeta INCOME STATEMENT: Revenues $6,483,773 $396,204 $0 $6,879,977 ------------------------------------------------------- Cost of Revenues: Direct Labor $1,078,548 $57,943 $0 $1,136,491 Direct Fringe Benefits 97,571 4,238 0 101,809 Direct Overhead 494,670 11,418 0 506,088 Direct Travel 177,085 33,602 0 210,687 Direct Materials 2,205,037 0 0 2,205,037 Other Direct Costs 66,453 1,176 0 67,629 Subcontractors 751,085 253,210 0 1,004,295 Direct Jobshoppers 0 0 0 0 ------------------------------------------------------- Total Cost of Revenues $4,870,449 $361,586 $0 $5,232,036 Gross Profit $1,613,323 $34,618 $0 $1,647,941 ------------------------------------------------------- Indirect Expenses: NPT Salaries $139,167 $0 $0 $139,167 Leave Salaries 138,049 0 0 138,049 Selling Salaries 0 0 0 0 Payroll Taxes 145,551 0 0 145,551 Employee Benefit Plan 82,309 0 0 82,309 Indirect Outside Services 2,511 0 0 2,511 Equipment Rental 26 0 0 26 Travel & Living 10,207 0 0 10,207 Training & Education 3,580 0 0 3,580 Dues & Subscriptions 2,832 0 0 2,832 Relocation & Recruiting 29,677 0 0 29,677 Office Supplies & Expense 4,290 0 0 4,290 Miscellaneous Expenses 2,105 0 0 2,105 General Admin Allocation 446,181 0 0 446,181 Indirect FB & OH Allocation (689,057) 0 0 (689,057) ------------------------------------------------------- Total Indirect Expenses $317,427 $0 $0 $317,427 Operating Profit $1,295,896 $34,618 $0 $1,330,514 S.G.& A. Expenses: Admin Salaries $433,315 $16,450 $0 $449,765 Selling Salaries 377,273 10,603 0 387,876 Leave Salaries 59,890 11,196 0 71,086
Unaudited 28 ACS/PROMETA Financial Statements For the Nine Months Ended September 30, 1996
Total ACS ProMeta Eliminations ACS/ProMeta Payroll Taxes 62,767 10,283 0 73,050 Employee Benefit Plan 52,404 6,081 0 58,485 Accounting & Legal Fees 51,705 0 0 51,705 Indirect Outside Services 64,911 24,527 0 89,438 Equipment Rental 25,247 0 0 25,247 Maintenance & Repairs 2,345 0 0 2,345 Travel & Living 84,551 434 0 84,985 Training & Education 5,377 1,056 0 6,433 Dues & Subscriptions 5,007 803 0 5,810 Utilities 26,523 0 0 26,523 Rent 241,414 0 0 241,414 Advertising 2,026 0 0 2,026 Depreciation 81,418 0 0 81,418 Amortization 74,840 0 0 74,840 Insurance 43,454 0 0 43,454 Relocation & Recruiting 42,983 16,642 0 59,625 Office Supplies & Expense 33,512 110 0 33,622 Telecommunications 56,505 2,178 0 58,683 Miscellaneous Expenses 30,820 1,470 0 32,290 Miscellaneous Taxes 0 0 0 0 Bad Debt Expense 0 0 0 0 General Admin Allocation (513,681) 67,500 0 (446,181) Indirect FB & OH Allocation 73,133 (15,699) 0 57,434 ------------------------------------------------------- Total S.G.& A. Expenses $1,417,739 $153,634 $0 $1,571,373 ------------------------------------------------------- ------------------------------------------------------- Income (Loss) Before Interest & Taxes ($121,843) ($119,016) $0 ($240,859) ------------------------------------------------------- Interest Expense $97,026 $0 $0 $97,026 ------------------------------------------------------- Net Income Before Taxes ($218,869) ($119,016) $0 ($337,885) ======================================================= % Income/Revenues (3.4%) (30.0%) (4.9%)
Unaudited 29 ACS/PROMETA Financial Statements For the Nine Months Ended September 30, 1996
December Total 1995 ACS ProMeta Eliminations ACS/ProMeta BALANCE SHEET: Current Assets: Cash and cash equivalents $60,602 ($35,432) $69,548 $0 $34,116 Accounts receivable, trade 2,509,356 3,901,101 90,247 0 3,991,348 Accounts receivable, intercompany 950 428,599 0 0 428,599 Retainage 0 14,468 0 0 14,468 Costs and estimated earnings in excess of billings on uncompleted contracts 374,462 682,400 18,049 0 700,449 Loans receivable, shareholder 2,901 10,401 0 0 10,401 Prepaid expenses 62,199 44,161 0 0 44,161 Other (2,205) 10,453 0 0 10,453 ------------------------------------------------------------------- Total Current Assets $3,008,265 $5,056,151 $177,844 $0 $5,233,995 ------------------------------------------------------------------- Property and equipment: Leashold improvements $24,262 $24,262 $0 $0 $24,262 Shop equipment 302,884 302,884 0 0 302,884 Office furniture and equipment 831,589 834,053 0 0 834,053 Office furniture and equipment 0 under capital leases 324,713 324,713 0 0 324,713 Automobiles 16,593 16,593 0 0 16,593 ------------------------------------------------------------------- Subtotal $1,500,041 $1,502,505 $0 $0 $1,502,505 Less: accumulated depreciation and amortization 1,186,227 1,296,732 0 0 1,296,732 ------------------------------------------------------------------- Subtotal $313,815 $205,773 $0 $0 $205,773 ------------------------------------------------------------------- Other Assets: Software Development costs, net of $732,419 $756,192 $0 $0 $756,192 accumulated amortization Goodwill, net of accumulated amortization 0 0 0 0 Deposits 34,365 34,365 0 0 34,365 ------------------------------------------------------------------- Subtotal $766,784 $790,557 $0 $0 $790,557 ------------------------------------------------------------------- Total Assets $4,088,864 $6,052,482 $177,844 $0 $6,230,325 ===================================================================
Unaudited 30 ACS/PROMETA Financial Statements For the Nine Months Ended September 30, 1996
December Total 1995 ACS ProMeta Eliminations ACS/ProMeta BALANCE SHEET: Current Liabilities: Note payable, bank $1,240,000 $1,237,000 $0 $0 $1,237,000 Current portion of: Long-term debt 0 0 0 0 0 Obligations under capital leases 35,139 16,729 0 0 16,729 Accounts Payable 1,140,291 2,163,538 118,073 0 2,281,611 Billings in excess of costs and estimated earnings on uncompleted contracts 920,016 1,668,536 431,009 0 2,099,545 Accrued payroll and payroll taxes 77,657 219,996 0 0 219,996 Accrued expenses 100,991 138,916 6,349 0 145,265 Other 104,996 113,832 0 0 113,832 ------------------------------------------------------------------- Total Current Liabilities $3,619,090 $5,558,547 $555,431 $0 $6,113,978 ------------------------------------------------------------------- Long-term debt $0 $0 $0 $0 $0 ------------------------------------------------------------------- Obligation under capital leases, net of current portion $7,395 $2,441 $0 $0 $2,441 ------------------------------------------------------------------- Deferred rent $21,324 $10,737 $0 $0 $10,737 ------------------------------------------------------------------- Deferred compensation $0 $0 $0 $0 $0 ------------------------------------------------------------------- Shareholders' Equity: Capital Stock $1,375 $125 $1,250 $0 $1,375 Additional Paid-in Capital 626,101 626,101 0 0 626,101 Retained Earnings (186,422) (145,469) (378,837) 0 (524,307) ------------------------------------------------------------------- Total Shareholders' Equity $441,054 $480,757 ($377,587) $0 $103,169 ------------------------------------------------------------------- ------------------------------------------------------------------- Total Liabilities & Shareholders' Equity $4,088,864 $6,052,482 $177,844 $0 $6,230,325 ===================================================================
Unaudited 31 ACS/PROMETA Financial Statements For the Nine Months Ended September 30, 1996
Total ACS/ProMeta STATEMENT OF CASH FLOWS: Net Income/(Loss) ($337,885) Add Non-Cash Items: Depreciation 81,418 Amortization 74,840 ----------- Subtotal ($181,627) ----------- Change in Current Assets ($2,244,716) (Excluding Cash) Change in Current Liabilities 2,516,298 (Excluding Debt) Other - Change in L/T Assets 0 Other - Change in L/T Liabilities (10,587) ----------- Net cash used in operating activities $79,367 ----------- Purchase of furniture & equipment ($2,464) Proceeds from sale of equipment 0 Capitalized software costs (69,526) ----------- Net cash used in investing activities ($71,990) ----------- Borrowings/(repayments) of debt ($3,000) Proceeds from reorganization 0 Proceeds from loan receivable, stockholder (7,500) Payments under capital lease obligations (23,364) Dividends paid 0 ----------- Net cash used in financing activities ($33,864) ----------- ----------- Net Increase/(Decrease) in Cash ($26,486) ===========
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