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): July 30, 2004
BOSS HOLDINGS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-23204 58--1972066
- --------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
221 West First Street
Kewanee, Illinois 61443
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(Address of Principal Executive Offices)
(800) 447-4581
-------------------------------
(Registrant's Telephone Number)
1
Item 9.01. Financial Statements and Exhibits.
On July 30, 2004, Boss Manufacturing Company purchased all outstanding shares of
common stock of privately-held Galaxy Balloons, Incorporated, an Ohio
corporation ("Galaxy"). Galaxy is a Cleveland, Ohio based manufacturer and
distributor of imprinted and personalized balloons, balls, toys, inflatable
goods and other miscellaneous premium items. The registrant previously filed an
8-K reporting the completion of the transaction.
The following financial statements of the business acquired and pro forma
financial information are filed as a part of this report:
(a) Financial Statements of Business Acquired
The balance sheets of Galaxy Balloons, Incorporated as of March 31, 2004
and December 31, 2003 and the related statements of income and retained
earnings and cash flows for the period ended March 31, 2004 and 2003 and
for the year ended are December 31, 2003 are set forth herein beginning on
page 4.
(b) Pro Forma Financial Information
Unaudited proforma balance sheet of the Company as of March 27, 2004, and
unaudited pro forma statements of income of the Company as of the periods
ending March 27, 2004 and December 27, 2003 are set forth herein beginning
on page 11.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BOSS HOLDINGS, INC.
By: /s/ J. Bruce Lancaster
--------------------------------------------
J. Bruce Lancaster, Executive Vice President
Date: October 13, 2004
3
McGladrey & Pullen
Certified Public Accountants
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Galaxy Balloons, Incorporated
Lakeland, Ohio
We have audited the accompanying balance sheet of Galaxy Balloons, Incorporated
as of December 31, 2003, and the related statements of income and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 2003 financial statements referred to above present fairly,
in all material respects, the financial position of Galaxy Balloons,
Incorporated as of December 31, 2003, and the results of its operations and its
cash flows for the year then ended in conformity with U.S. generally accepted
accounting principles.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
May 21, 2004
McGladrey & Pullen, LLP is a member firm of RSM International - an affiliation
of separate and independent legal entities.
4
Galaxy Balloons, Incorporated
Balance Sheets
March 31,
2004 December 31,
Assets (Unaudited) 2003
- ----------------------------------------------------------------------------------
Current Assets:
Cash ............................................... $ 100 $ 100
Accounts receivable, net of allowance for doubtful
accounts 2004 $24,665; 2003 $24,917 .............. 696,024 493,214
Inventories ........................................ 571,886 484,614
Other current assets ............................... 106,326 66,187
-----------------------
Total current assets ......................... 1,374,336 1,044,115
-----------------------
Property and Equipment, net .......................... 605,395 628,412
-----------------------
Goodwill ............................................. 171,111 171,111
-----------------------
Deposits ............................................. 20,962 20,462
-----------------------
$2,171,804 $1,864,100
=======================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt .................. $ 151,500 $ 150,100
Bank line of credit ................................ 336,162 30,756
Accounts payable ................................... 208,911 207,392
Accrued payroll and related expenses ............... 186,466 241,057
Accrued profit sharing ............................. 15,000 60,000
Outstanding checks in excess of bank balance ....... 81,023 28,786
Other accrued liabilities .......................... 60,318 49,319
-----------------------
Total current liabilities .................... 1,039,380 767,410
-----------------------
Long-Term Debt, net of current portion ............... 119,030 157,199
-----------------------
Stockholders' Equity:
Common stock, no par value; authorized 750 shares;
issued 450 shares; outstanding 400 shares ........ 45,000 45,000
Retained earnings .................................. 988,394 914,491
-----------------------
1,033,394 959,491
Less 50 treasury shares, at cost ................... 20,000 20,000
-----------------------
Total stockholders' equity ................... 1,013,394 939,491
-----------------------
$2,171,804 $1,864,100
=======================
See Notes to Financial Statements.
5
Galaxy Balloons, Incorporated
Statements of Income and Retained Earnings
Quarter Ended March 31,
-------------------------- Year Ended
2004 2003 December 31,
(Unaudited) (Unaudited) 2003
- ------------------------------------------------------------------------------------
Net sales .............................. $ 1,504,495 $ 1,212,730 $ 7,181,453
Cost of sales .......................... 1,055,422 946,389 5,089,214
-----------------------------------------
Gross profit ................... 449,073 266,341 2,092,239
Selling expenses ....................... 64,989 85,967 375,387
Operating expenses ..................... 294,821 285,793 1,397,039
-----------------------------------------
Operating income (loss) ........ 89,263 (105,419) 319,813
-----------------------------------------
Other income (expenses):
Interest, net ........................ (5,327) (8,710) (39,491)
Bank charges and fees ................ (10,043) (6,427) (35,504)
Loss on disposal of equipment ........ -- -- (15,900)
Miscellaneous, net ................... 10 -- 10,314
-----------------------------------------
(15,360) (15,137) (80,581)
-----------------------------------------
Net income (loss) .............. 73,903 (120,556) 239,232
Retained earnings, beginning of period . 914,491 710,209 710,209
Less distributions to stockholder ...... -- -- (34,950)
-----------------------------------------
Retained earnings, end of period $ 988,394 $ 589,653 $ 914,491
=========================================
See Notes to Financial Statements.
6
Galaxy Balloons, Incorporated
Statements of Cash Flows
Quarter Ended March 31,
------------------------ Year Ended
2004 2003 December 31,
(Unaudited) (Unaudited) 2003
- ---------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income (loss) ....................................... $ 73,903 $(120,556) $ 239,232
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation .......................................... 23,017 22,605 97,042
Amortization .......................................... -- 12,500 43,800
Impairment of intangibles ............................. -- -- 21,335
Loss on disposal of equipment ......................... -- -- 15,900
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ............................... (202,810) (61,789) 22,806
Inventories ....................................... (87,272) (448,677) (101,028)
Other current assets .............................. (40,139) 123,312 76,300
Deposits .......................................... (500) -- --
Increase (decrease) in:
Accounts payable .................................. 1,519 137,742 21,815
Accrued liabilities ............................... (88,592) (109,893) 42,665
-----------------------------------
Net cash provided by (used in) operating activities (320,874) (444,756) 479,867
-----------------------------------
Cash Flows from Investing Activities:
Proceeds from disposition of equipment .................. -- -- 16,369
Purchases of property and equipment ..................... -- (56,040) (151,258)
-----------------------------------
Net cash (used in) investing activities ........... -- (56,040) (134,889)
-----------------------------------
Cash Flows from Financing Activities:
Increase in checks in excess of bank balance ............ 52,237 129,667 28,786
Net borrowings (repayments) on revolving line of credit . 305,406 114,345 (478,634)
Repayment of long-term obligations ...................... (36,769) (97,570) (216,115)
Distributions to stockholder ............................ -- -- (34,950)
-----------------------------------
Net cash provided by (used in) financing activities 320,874 146,442 (700,913)
-----------------------------------
(Decrease) in cash ................................ -- (354,354) (355,935)
Cash:
Beginning ............................................... 100 356,035 356,035
-----------------------------------
Ending .................................................. $ 100 $ 1,681 $ 100
===================================
Supplemental Disclosure of Cash Flows Information,
cash payments for interest .............................. $ 5,327 $ 8,710 $ 39,130
See Notes to Financial Statements.
7
Galaxy Balloons, Incorporated
Notes to Financial Statements
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Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of business:
Galaxy Balloons, Incorporated ("the Company") is engaged in the specialty
advertising and imprinting business, selling to a diverse group of customers
located throughout the United States.
Significant accounting policies:
Fiscal year: The Company maintains a calendar based fiscal year ending
December 31.
Interim financial information: The accompanying financial statements and
related footnote data as of March 31, 2004 and for the three months ended
March 31, 2004 and 2003 are unaudited, but include all normal and recurring
adjustments, which are in the opinion of management, necessary for a fair
presentation. The financial data for the interim periods presented may not
necessarily reflect the results to be anticipated for the complete year.
Use of estimates in the preparation of financial statements: The preparation
of financial statements, in conformity with accounting principles generally
accepted in the United States of America, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Accounts receivable: Accounts receivable are carried at original invoice
amount less an estimate made for doubtful receivables based on a review of all
outstanding amounts on a monthly basis. Management determines the allowance
for doubtful accounts by identifying troubled accounts and by using historical
experience applied to an aging of accounts. Accounts receivable are written
off when deemed uncollectible. Recoveries of trade receivables previously
written off are recorded when received. The provision for doubtful accounts
charged to expense was $3,600, $3,752, and $21,674 for the three months ended
March 31, 2004 and 2003 (unaudited) and the year ended December 31, 2003,
respectively.
Revenue recognition: The Company recognizes revenue and provides for the
estimated cost of returns and allowances in the period goods are shipped to
the customer. Sales in any single foreign geographic area or to any single
customer did not exceed 10% of net sales.
Shipping and handling fees and costs: Shipping and handling charges to
customers are included in revenue. Shipping and handling costs incurred by the
Company are included in cost of goods sold.
Warranty costs and returns: The Company provides for estimated warranty costs
and returns at the time of sale. Accrued costs of warranty obligations and
returns are classified as accrued liabilities and are immaterial to the
financial statements as a whole.
Advertising costs: The Company generally expenses the cost of advertising the
first time advertising takes place. Costs of trade shows and developing
advertising materials are expensed at the time of the trade shows or as the
advertising materials are produced and distributed to customers. Advertising
expense totaled $19,060, $24,129, and $119,283 for the three months ended
March 31, 2004 and 2003 (unaudited) and the year ended December 31, 2003,
respectively.
Inventories: Inventory, consisting of raw materials, is valued at the lower of
cost or market using the average cost method, which approximates the first-in,
first-out (FIFO) method.
Property and equipment and depreciation: Property and equipment is recorded at
historical cost. The Company provides for depreciation using the straight-line
method over the following estimated useful lives:
Years
------
Machinery and equipment 5 - 12
Office furniture and equipment 5 - 12
8
Goodwill: The excess of amounts paid for business acquisitions over the net
fair value of the assets acquired and liabilities assumed (goodwill) is
carried as an asset. Effective January 1, 2002, the Company adopted Financial
Accounting Standard No. 142, Goodwill and Other Intangible Assets, (SFAS No.
142). Under SFAS No. 142, goodwill and intangible assets with an indefinite
life are no longer subject to amortization. SFAS No. 142 requires that these
assets be reviewed for impairment at least annually. An impairment charge is
recognized only when the calculated fair value of a reporting unit, including
goodwill, is less than its carrying amount. Based on a review completed in
December 2003, the Company believes that no goodwill impairment existed as of
December 31, 2003. In accordance with SFAS No. 142, the Company will complete
an impairment analysis on an annual basis. Prior to the adoption of SFAS No.
142, the Company had been amortizing goodwill over 15 years and had recorded
total amortization of $28,888.
Long-lived assets: Long-lived assets, including intangibles, are evaluated
when indicators of impairment are present. Provisions for possible losses are
recorded when undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. During the year ended
December 31, 2003, operating expenses included a charge of $21,335 related to
the impairment of an acquired intangible.
Income taxes: The Company, with the consent of its stockholders, has elected
to be taxed under sections of federal and state income tax laws, which provide
that, in lieu of corporation income taxes, the stockholders separately account
for their pro rata shares of the Company's items of income, deductions,
losses, and credits. As a result of this election, no income taxes have been
recognized in the accompanying financial statements. Also no provision has
been made for any amounts, which may be advanced or paid as dividends to the
stockholders to assist them in paying their personal income taxes on the
income of the Company.
As of December 31, 2003, the Company's reported net assets exceed their tax
bases by approximately $201,000. Accordingly, if the election was terminated
on that date, a deferred tax liability of approximately $80,000 would be
recognized by a charge to income tax expense.
Fair value of financial instruments: The Company's financial instruments
consist of accounts receivable, accounts payable, outstanding checks in excess
of bank balance, and long-term debt. The carrying values of accounts
receivable, accounts payable, and outstanding checks in excess of bank balance
approximate fair value due to their relatively short-term nature. The carrying
value of the long-term debt approximates fair value based upon borrowing rates
currently available to the Company for borrowings with comparable maturities.
Concentrations of credit risk: The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of accounts
receivable.
Concentrations of credit risk with respect to accounts receivable are limited
due to the diversity of the Company's customer base. The Company's management
has established certain credit requirements that its customers must meet
before sales credit is extended. The Company generally does not require
collateral, but monitors the financial condition of its customers to help
ensure collections and to minimize losses. Historically, the Company has not
experienced significant losses related to accounts receivable from individual
customers or from groups of customers in any geographic area.
Note 2. Property and Equipment
Property and equipment as of December 31, 2003 is as follows:
Machinery and equipment ................................ $1,345,657
Office furniture and equipment ......................... 152,080
----------
1,497,737
Less accumulated depreciation .......................... 869,325
----------
$ 628,412
==========
Note 3. Long-Term Obligations
Long-term debt as of December 31, 2003 is as follows:
Term notes payable, bank, due in monthly payments of
$13,594, including interest at 5.45% through
December 2005, collateralized by substantially all
the assets of the Company .................................... $307,299
Less current maturities ........................................ 150,100
--------
$157,199
========
9
Scheduled principal payments of long-term debt are as follows:
Year ending:
December 31, 2004 .................................. $150,100
December 31, 2005 .................................. 157,199
--------
$307,299
========
On December 23, 2002, the Company entered into a Loan and Security Agreement
(the "Credit Agreement") with a commercial bank. The Credit Agreement provides
for a revolving credit facility of $1,000,000 and expires on June 30, 2004.
Interest is payable monthly according to the prime rate, as cited in the Wall
Street Journal, which was 4.0% at December 31, 2003. As of December 31, 2003,
the Company had borrowings of $30,756 on the revolving credit facility.
Availability under this credit agreement was $969,244 as of December 31, 2003.
The Credit Agreement includes certain restrictive covenants and requires
maintenance of certain financial ratios including minimum working capital, debt
service coverage, and debt to tangible net worth. The Company's accounts
receivable and inventories secure the credit facility.
Note 4. Commitments and Contingencies
Leases:
The Company leases certain office and operating facilities under an operating
lease agreement that expires in 2006. Rent expense under this lease was
$36,000, $30,000, and $120,000 for the three months ended March 31, 2004 and
2003 (unaudited) and the year ended December 31, 2003, respectively.
The following is a schedule by year of future minimum payments under the
operating lease agreements:
Year ending:
December 31, 2004 ................................... $144,000
December 31, 2005 ................................... 144,000
December 31, 2006 ................................... 144,000
--------
Total minimum lease payments ...................... $432,000
========
Litigation:
The Company is a party to various legal actions incident to the normal
operation of its business. These lawsuits primarily involve claims for damages
arising out of commercial disputes. Management believes the ultimate
disposition of these matters should not materially impact the Company's
financial position or liquidity.
Note 5. Employee Benefit Plans
A majority of the Company's employees are covered by a noncontributory profit
sharing plan. This plan provides for discretionary employer contributions.
Provisions under the plan were $15,000, none, and $60,000 for the three months
ended March 31, 2004 and 2003 (unaudited) and the year ended December 31, 2003,
respectively.
10
Boss Holdings, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Condensed Balance Sheet
March 27, 2004
(Dollars in Thousands, Except Per Share Data)
Boss Galaxy
Holdings, Balloons, Pro Forma
Assets Inc. Incorporated Adjustments Pro Forma
- ---------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents ................................ $ 3,999 $ -- $ (3,418) (A)
1,143 (B) $ 1,724
Accounts receivable, net ................................. 6,181 696 -- 6,877
Inventories .............................................. 10,738 572 -- 11,310
Prepaid expenses and other ............................... 349 106 -- 455
----------------------------------------------
Total current assets ............................... 21,267 1,374 (2,275) 20,366
----------------------------------------------
Property and Equipment, net ................................ 3,108 606 122 (A) 3,836
----------------------------------------------
Assets Held for Sale ....................................... 1,694 -- -- 1,694
----------------------------------------------
Goodwill ................................................... -- 171 2,312 (A) 2,483
Other Assets ............................................... 194 21 220 (A) 435
----------------------------------------------
Total Assets ....................................... $ 26,263 $ 2,172 $ 379 $ 28,814
==============================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt ........................ $ 340 $ 152 $ 125 (A)
98 (B) $ 715
Bank line of credit ...................................... -- 336 (336) (B) --
Accounts payable ......................................... 659 209 -- 868
Accrued payroll and related expenses ..................... 427 201 -- 628
Outstanding checks in excess of bank balance ............. -- 81 -- 81
Other accrued liabilities ................................ 1,083 60 -- 1,143
-----------------------------------------------
Total current liabilities .......................... 2,509 1,039 (113) 3,435
-----------------------------------------------
Long-Term Debt, net of current portion ..................... 2,767 119 125 (A)
1,381 (B) 4,392
-----------------------------------------------
Deferred Compensation ...................................... 165 -- -- 165
-----------------------------------------------
Stockholders' Equity:
Common stock, $.25 par value; authorized 10,000,000 shares 483 -- -- 483
Common stock, no par value; authorized 750 shares ........ -- 45 (45) (A) --
Additional paid-in capital ............................... 67,375 -- -- 67,375
Retained earnings (deficit) .............................. (45,161) 989 (989) (A) (45,161)
Accumulated other comprehensive (loss) ................... (125) -- -- (125)
------------------------------------------------
22,572 1,034 (1,034) 22,572
Less: 13,654 treasury shares, at cost .................... 1,750 -- -- 1,750
Less: 50 treasury shares, at cost ........................ -- 20 (20) (A) --
------------------------------------------------
Total stockholders' equity ......................... 20,822 1,014 (1,014) 20,822
------------------------------------------------
Total Liabilities and Stockholders' Equity ......... $ 26,263 $ 2,172 $ 379 $ 28,814
================================================
11
Boss Holdings, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Condensed Statement of Income
For the Three Month Period Ended March 27, 2004
(Dollars in Thousands, Except Per Share Data)
Boss Galaxy
Holdings, Balloons, Pro Forma
Inc. Incorporated Adjustments Pro Forma
- -----------------------------------------------------------------------------------------
Net sales ....................... $ 10,182 $ 1,504 $ -- $ 11,686
Cost of sales ................... 6,381 1,055 4 (C) 7,440
-----------------------------------------------------
Gross profit ............ 3,801 449 (4) 4,246
Operating expenses .............. 3,706 360 9 (D) 4,075
-----------------------------------------------------
Operating income ........ 95 89 (13) 171
-----------------------------------------------------
Other income and (expenses):
Interest, net ................. (35) (5) (12) (E) (52)
Other, net .................... 16 (10) -- 6
-----------------------------------------------------
(19) (15) (12) (46)
-----------------------------------------------------
Income before income tax
expense ................. 76 74 (25) 125
Income tax (expense) .............. -- -- (4) (F) (4)
-----------------------------------------------------
Net income .............. $ 76 $ 74 $ (29) $ 121
=====================================================
Basic Earnings Per Common Share . $ 0.04 $ 0.06
Diluted Earnings Per Common Share $ 0.03 $ 0.06
12
Boss Holdings, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Condensed Statement of Income
For the Year Ended December 27, 2003
(Dollars in Thousands, Except Per Share Data)
Boss Galaxy
Holdings, Balloons, Pro Forma
Inc. Incorporated Adjustments Pro Forma
- -----------------------------------------------------------------------------------------
Net sales ....................... $ 35,932 $ 7,181 $ -- $ 43,113
Cost of sales ................... 21,832 5,089 14 (C) 26,935
-----------------------------------------------------
Gross profit ............ 14,100 2,092 (14) 16,178
Operating expenses .............. 13,683 1,772 36 (D) 15,491
-----------------------------------------------------
Operating income ........ 417 320 (50) 687
-----------------------------------------------------
Other income and (expenses):
Interest, net ................. (87) (39) (44) (E) (170)
Gain on marketable securities . 96 -- -- 96
Other, net .................... 209 (42) -- 167
-----------------------------------------------------
218 (81) (44) 93
-----------------------------------------------------
Income before income tax
expense ................. 635 239 (94) 780
Income tax (expense) ............ (7) -- (12) (F) (19)
-----------------------------------------------------
Net income .............. $ 628 $ 239 $ (106) $ 761
=====================================================
Basic earnings per common share . $ 0.32 $ 0.39
Diluted earnings per common share $ 0.30 $ 0.36
13
Boss Holdings, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
(Dollars in Thousands, Except Per Share Data)
Note 1 - Description of Acquisition
On July 30, 2004, Boss Holdings, Inc. and Subsidiaries ("Boss") purchased all
outstanding shares of common stock of Galaxy Balloons, Incorporated ("Galaxy"),
an Ohio corporation, through a business combination under the purchase method of
accounting in accordance with SFAS No. 141. The base purchase price was $3,300,
of which $3,100 was paid in cash at closing with the remaining balance payable
in two equal installments of $100 on the first and second anniversary of the
acquisition. The cash payment was financed in part through a $1,750 term loan
from Bank One, N.A. The agreement also provides for an additional $400 of
earn-out payments if Galaxy's financial performance during fiscal years 2005
through 2007 exceeds specified benchmarks. This contingent consideration has not
been reflected in the pro forma information. The acquisition is further
described in a Form 8-K filed by Boss on July 30, 2004.
Note 2 - Basis of Presentation
The accompanying unaudited pro forma consolidated condensed financial statements
are presented to reflect the acquisition described in Note 1 above. The
unaudited pro forma consolidated condensed balance sheet is presented as if the
acquisition, accounted for under the purchase method, occurred on March 27,
2004. The unaudited pro forma consolidated condensed statements of operations
are presented as if the acquisition of Galaxy occurred on December 29, 2002 and
may not be indicative of the results that would have occurred if the acquisition
had been effective on the dates indicated or of the results that may be obtained
in the future. Since Galaxy has a year-end of December 31, its results of
operations for the three months ended March 27, 2004 and the twelve months ended
December 27, 2003 were derived from information for three months ended March 31,
2004 (unaudited) and the twelve months ended December 31, 2003, respectively.
The accompanying pro forma financial statements should be read in conjunction
with the historical financial statements and notes to financial statements of
Boss and Galaxy.
Note 3 - Pro Forma Adjustments
The accompanying unaudited pro forma consolidated condensed financial statements
include the following:
(A) Adjustments to eliminate the Galaxy equity and adjust the assets to fair
value.
The purchase price is estimated as follows:
Base purchase price ................................................ $3,300
Estimated tangible net worth adjustments and closing costs ......... 318
Covenant not to compete ............................................ 50
------
Total price ................................................ 3,668
Less term note ..................................................... (200)
Less covenant not-to-compete ....................................... (50)
------
Net cash price ............................................. $3,418
======
Purchase price allocated as follows:
Current assets ............................................... $1,374
Property and equipment ....................................... 728
Identified intangibles and other assets ...................... 241
Goodwill ..................................................... 2,483
Liabilities assumed .......................................... (1,158)
------
$3,668
======
14
(B) Adjustments to eliminate Galaxy debt retired and record the new term loan
obtained in connection with the Galaxy acquisition.
(C) Adjustment to increase depreciation per the increased asset value resulting
from the acquisition appraisal.
(D) Adjustment to record amortization in connection with the value assigned to
customer list valuation and covenant not to compete.
(E) Adjustments to increase interest expense to reflect the term loan obtained
in connection with the acquisition and reduce interest income resulting
from lower cash holdings due to cash used to purchase Galaxy.
(F) Adjustment to increase income tax expense to reflect higher state income
tax expense due to earnings from Galaxy.
Note 4 - Net Income Per Common Share
The following table sets forth the computation of proforma basic and diluted
earnings per share:
Quarter
Ended Year Ended
-------------------------
March 27, December 27,
2004 2003
-------------------------
Numerator for basic and diluted net earnings
per common share - earnings attributable
to common stockholders ......................... $ 121 $ 761
=========================
Denominator for basic net earnings per
common share - weighted average shares
outstanding .................................... 1,936,000 1,939,000
Effect of dilutive securities, stock
options ........................................ 235,000 164,000
-------------------------
Denominator for diluted earnings per
common share ................................... 2,171,000 2,103,000
=========================
Basic earnings per common share .................. $ 0.06 $ 0.39
=========================
Diluted earnings per common share ................ $ 0.06 $ 0.36
=========================
15