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