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): February 22, 1996
CHARTER POWER SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-9389 13-3314599
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1400 Union Meeting Road, Blue Bell, Pennsylvania 19422
(Address of principal executive office) Zip Code
(215) 619-2700
(Registrant's telephone number, including area code)
This report amends the current report on Form 8-K dated
February 22, 1996 (the "Form 8-K") of Charter Power Systems, Inc.
(the "Company"), relating to the purchase by the Company of
certain equipment, inventory and intellectual property of LH
Research, Inc.("LH").
This Report contains the financial statements and pro forma
financial information required to be provided under Item 7 of the
Form 8-K. Other than as set forth herein, there has been no
change in the information set forth in the Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
The following financial statements and pro forma financial
information are filed as part of this report:
a) Financial Statements of Business Acquired:
Consolidated balance sheets of LH Research, Inc. as of
April 30, 1995 and 1994 and related consolidated
statements of operations, stockholders' equity and cash
flows for the years ended April 30, 1995 and 1994.
Unaudited consolidated balance sheet of LH Research,
Inc. as of January 31, 1996 and related unaudited
consolidated statements of operations and cash flows
for the nine months ended January 31, 1996 and 1995.
b) Pro Forma Financial Information:
Pro forma consolidated balance sheet as of January 31,
1996 and explanatory notes.
Pro forma consolidated statement of operations for the
year ended January 31, 1996 and explanatory notes.
c) Exhibits:
23 Consent of Independent Accountants (filed
herewith).
LH Research, Inc.
and Subsidiary
Report and Consolidated Financial Statements
April 30, 1995 and 1994
REPORT OF INDEPENDENT ACCOUNTANTS
April 24, 1996
To the Board of Directors
and Stockholders of
LH Research, Inc.
In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of operations, of
stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of LH Research,
Inc. and its subsidiary at April 30, 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. 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 of
these statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion
expressed above.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements,
in February 1996 the Company's inventories, fixed assets and
certain other assets were sold. Management intends to
dissolve the Company upon the settlement of assets and
liabilities which remain after the sale. The financial
statements do not include any adjustments related to these
transactions.
PRICE WATERHOUSE LLP
LH Research, Inc. and Subsidiary
Consolidated Balance Sheets
- ---------------------------------------
April 30,
1995 1994
Assets
Current assets:
Cash $ 192,000 $ 86,000
Accounts receivable,less
allowance for doubtful
accounts of $258,000 in
1995 and $31,000 in 1994 1,194,000 2,537,000
Inventories (Note 3) 3,692,000 3,886,000
Real estate held for sale 550,000
Loans and advances to stock-
holders and employees 14,000 6,000
Prepaid expenses and other 275,000 209,000
--------- ---------
Total current assets 5,367,000 7,274,000
--------- ---------
Property, plant and equipment,
net (Note 5) 999,000 887,000
Notes receivable (Note 4) 541,000 545,000
--------- ---------
$ 6,907,000 $ 8,706,000
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,265,000 $ 1,825,000
Accrued expenses 1,168,000 2,632,000
Notes payable (Note 6) 162,000 1,041,000
Current portion of notes pay-
able to stockholders
(Note 7) 4,702,000 1,385,000
--------- ---------
Total current liabilities 8,297,000 6,883,000
Notes payable to stockholders
(Note 7) 113,000 114,000
--------- ---------
LH Research, Inc. and Subsidiary
Consolidated Balance Sheets (continued)
- ---------------------------------------
April 30,
1995 1994
Commitments and contingencies
(Notes 6, 9, 13 and 16)
Mandatorily redeemable con-
vertible preferred stock
(Note 9):
Series A - no par value;
300,000 shares authorized,
300,000 and 210,000 shares
issued and outstanding at
April 30, 1995 and 1994,
respectively 655,000 185,000
Series B - no par value;
500,000 shares authorized,
446,461 and 350,000 shares
issued and outstanding at
April 30, 1995 and 1994,
respectively 971,000 322,000
Stockholders' equity (Notes 10,
14 and 15):
Common stock - no par value;
4,000,000 shares authorized,
5,403,481 and 2,758,481 shares
issued and outstanding at
April 30, 1995 and 1994,
respectively 9,582,000 9,175,000
Common stock warrants
(Note 10)
Retained earnings (deficit) (12,711,000) (7,973,000)
---------- ---------
Total stockholders' equity (3,129,000) 1,202,000
---------- ---------
$ 6,907,000 $8,706,000
=========== =========
See accompanying notes to consolidated financial statements.
LH Research, Inc. and Subsidiary
Consolidated Statements of Operations
- -------------------------------------
For the years ended
April 30,
1995 1994
Revenues:
Net sales $ 14,417,000 $ 19,484,000
Interest and other income 49,000 72,000
---------- ----------
Total revenue 14,466,000 19,556,000
---------- ----------
Costs and expenses:
Cost of goods sold 13,709,000 19,693,000
Selling, general and
administrative 3,244,000 7,157,000
Research and development 841,000 1,518,000
Interest 401,000 120,000
---------- ----------
Total costs and expenses 18,195,000 28,488,000
---------- ----------
Loss before provision for
income taxes (3,729,000) (8,932,000)
Provision for income taxes
(Note 12) - -
---------- ----------
Net loss $ (3,729,000) $ (8,932,000)
========== ==========
See accompanying notes to consolidated financial statements.
LH Research, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
- -----------------------------------------------
Total
Common Stock Retained Stockholders'
Shares Amount Earnings Equity
Balance at
April 30, 1993 2,769,207 $9,076,000 $ 959,000 $10,035,000
Issuance of stock 157,000 157,000 157,000
Repurchase of
stock (167,726) (58,000) (58,000)
Net loss (8,932,000) (8,932,000)
---------- ---------- ---------- ----------
Balance at
April 30, 1994 2,758,481 9,175,000 (7,973,000) 1,202,000
Issuance of
stock 2,645,000 407,000 407,000
Accretion (1,009,000) (1,009,000)
Net loss (3,729,000) (3,729,000)
---------- ---------- ---------- ----------
Balance at
April 30, 1995 5,403,481 $9,582,000 $(12,711,000) $(3,129,000)
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
LH Research, Inc. and Subsidiary
Consolidated Statements of Cash Flows
- -------------------------------------
For the years ended
April 30,
1995 1994
Cash flows from operating activities:
Net loss $(3,729,000) $(8,932,000)
Adjustments to reconcile net
loss to net cash provided by
(used for) operating activities
Depreciation and amortization 255,000 350,000
Loss on sale of fixed assets (22,000)
Writedown of assets 15,000 1,506,000
Changes in assets and liabilities:
Accounts receivable 1,343,000 449,000
Inventories 194,000 1,950,000
Loans and advances to stock-
holders and employees (8,000) (5,000)
Prepaid expenses and other (66,000) 12,000
Other assets 50,000
Accounts payable 440,000 (1,369,000)
Accrued expenses (1,464,000) 1,480,000
--------- ---------
Total adjustments 687,000 4,423,000
--------- ---------
Net cash used for
operating activities (3,042,000) (4,509,000)
--------- ---------
Cash flows from investing activities:
Additions to property, plant
and equipment (360,000) (514,000)
Proceeds from sales of assets 550,000 60,000
Decrease in notes receivable 4,000 105,000
--------- ---------
Net cash provided by (used for)
investing activities 194,000 (349,000)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) on
notes payable (879,000) 1,041,000
Net borrowings on notes payable
to stockholders 3,316,000 1,499,000
Issuance of preferred stock 217,000 507,000
Redemption of preferred stock (107,000)
Issuance of common stock 407,000 157,000
Repurchase of common stock (58,000)
--------- ---------
Net cash provided by
financing activities 2,954,000 3,146,000
--------- ---------
Net increase (decrease) in cash 106,000 (1,712,000)
Cash at beginning of year 86,000 1,798,000
--------- ---------
Cash at end of year $ 192,000 $ 86,000
========= =========
LH Research, Inc. and Subsidiary
Consolidated Statements of Cash Flows
- -------------------------------------
For the years ended
April 30,
1995 1994
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Income taxes $ $
========= =========
Interest $ 340,000 $ 120,000
========= =========
See accompanying notes to consolidated financial statements.
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 1
- ------------------------------------------
1. Summary of Significant Accounting Policies
Basis of Presentation
---------------------
The Company's financial statements have been prepared on
the basis of accounting principles applicable to a going
concern.
On February 21, 1996, International Power Systems, Inc., a
wholly owned subsidiary of Charter Power Systems, Inc.,
acquired the inventories and fixed assets as of that date
and the name of the Company for approximately $4,700,000.
The proceeds were used to pay down the line of credit to
the principal shareholder. The Company has changed its
name to Capital Parade U.S.A., Inc. Management intends to
dissolve the Company upon the settlement of assets and
liabilities which remain after the sale. The consolidated
financial statements do not include any adjustments related
to these transactions.
Nature of business
------------------
LH Research, Inc. (the Company) is principally engaged in
the development, manufacturing and marketing of switching
regulated power supplies.
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts
of LH Research, Inc. and its wholly-owned subsidiary
Capital Parade Sdn. Bhd. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
Cash equivalents
----------------
The Company considers all highly liquid investments
purchased with a maturity of three months or less to be
cash equivalents.
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 2
- ------------------------------------------
Inventories
-----------
Inventories are stated at the lower of cost (first-in,
first-out) or market (net realizable value).
Property, plant and equipment
-----------------------------
Depreciation is computed on the straight-line method over
the estimated useful lives of the assets, which range from
three to twenty years. Leasehold improvements are
amortized over the terms of respective leases or the
estimated useful lives of the improvements, whichever is
shorter. Accelerated depreciation is used for income tax
purposes.
Warranties
----------
The Company's products are generally under warranty against
defects in material and workmanship for a period of two
years. The Company has established an accrual for
anticipated future warranty costs based upon the
relationship of prior sales to actual warranty costs.
Income taxes
------------
On May 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for
Income Taxes." The adoption of FAS 109 changed the
Company's method of accounting for income taxes from the
deferred method to an asset and liability approach.
Previously, the Company deferred the past tax effects of
timing differences between financial reporting and taxable
income. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences
between the financial statements and tax bases of assets
and liabilities at the applicable enacted tax rates. The
effect on the Company's consolidated financial statements
of adopting FAS 109 was not material.
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 3
- ------------------------------------------
Foreign currency remeasurement
------------------------------
The Company follows the principles of Statement of
Financial Accounting Standards No. 52 using the U.S. dollar
as the functional currency of its overseas operations.
Accordingly, certain assets and liabilities of the foreign
subsidiaries are remeasured into dollars at rates of
exchange in effect at the balance sheet date. All other
balance sheet items are remeasured at historical rates.
Income and expense items are remeasured at the weighted
average exchange rates prevailing during the period.
Remeasurement and transaction gains and losses are included
in the results of operations currently and are not
significant.
2. Related Party Transactions
Effective January 1, 1980, the Company leased a building in
Tustin, California from a partnership in which the former
principal stockholder of the Company was a partner. The
original lease term was 15 years at a rent of $42,842 per
month. In 1991, the lease term was extended to October 1,
1999. In 1994, the Company reached an agreement with the
lessor to reduce the rent to $23,436 per month with a new
termination date of January 31, 1995. The Company is
responsible for property taxes, insurance and maintenance (Note
13).
During fiscal 1994, the Company entered into a line of credit
agreement and a unit purchase agreement with the principal
stockholder of the Company. The line of credit agreement and
the unit purchase agreement are further discussed in Note 6 and
Note 8, respectively.
During fiscal 1994, the Company repurchased 157,000 shares of
common stock from the former principal stockholder of the
Company in exchange for $33,000 cash, a $317,000 note payable
and full release of the stockholder's existing liabilities of
$199,000 owed to the Company at the time of the settlement.
In addition, the Company re-purchased 10,726 shares of common
stock for $18,000 from various terminated employees.
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 4
- ------------------------------------------
At April 30, 1995 and 1994, the Company had interest-bearing
loans and advances to stockholders and employees of
approximately $14,000 and $6,000, respectively.
3. Inventories
Inventories comprise the following:
April 30,
1995 1994
Raw materials $1,989,000 $1,893,000
Work in process 1,163,000 1,542,000
Finished goods 540,000 451,000
--------- ---------
$3,692,000 $3,886,000
========= =========
4. Notes Receivable
April 30,
1995 1994
Note receivable of $480,000
originated from the sale of the
Corona plant building. The note
has an interest rate of 10% and
is secured by a second trust deed
on the said property. The note
matures on February 26, 1997 along
with all accumulated interest. $541,000 $545,000
======= =======
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 5
- ------------------------------------------
5. Property, Plant and Equipment
Property, plant and equipment comprise the following:
April 30,
1995 1994
Plant and equipment $3,172,000 $6,123,000
Construction in progress 494,000 219,000
--------- ---------
3,666,000 6,342,000
Less accumulated depreciation
and amortization (2,667,000) (5,455,000)
--------- ---------
$ 999,000 $ 887,000
========= =========
6. Note Payable to Bank
At April 30, 1994, the Company had a line of credit agreement
with a bank which allowed the Company to borrow up to the
lesser of $3,000,000 or 65% of qualifying receivables (as
defined) at an interest rate of prime (6.75% at April 30,
1994) plus three percent. At April 30, 1994, additional
borrowings of $127,000 were available under the line of credit
agreement. The line of credit, which was secured by primarily
all of the Company's assets, matured on August 5, 1994. At
April 30, 1994, the Company was in violation of certain
restrictive covenants, which were a requirement of the line of
credit agreement. In February, 1995 this line of credit was
paid and the Company obtained a line of credit from its
principal stockholder (Note 7).
Notes payable comprised the following at April 30, 1995:
Note payable to third party;
interest at 7%; maturing on May 15, 1995 $129,000
Note payable to third party;
monthly installments; interest at
11%; maturing on April 1, 1996 33,000
-------
$162,000
=======
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 6
- ------------------------------------------
7. Notes Payable to Stockholders
At April 30, 1995, the Company has a line of credit agreement
with its principal stockholder which allows the Company to
borrow up to $4,000,000 at an interest rate of the Federal
Reserve Bank of San Francisco (the "face rate") plus 4% (13%
at April 30, 1995) for the first $1,000,000 in borrowings.
For borrowings in excess of $1,000,000, the interest rate is
"face rate" plus 5%. At April 30, 1995, borrowings under the
line of credit agreement were $3,442,000. The line of credit,
which is secured by primarily all of the Company's assets, has
a maturity date of May 15, 1995.
Notes payable to stockholders comprised the following:
April 30,
1995 1994
Line of credit payable to principal
stockholder; secured by primarily
all of the Company's assets;
interest at default rate of 15%;
matured on September 30, 1994. $1,260,000 $1,000,000
Unit Purchase Agreement line of credit
payable to principal stockholder
(Note 8); secured by primarily all of
the Company's assets; subordinated to
note payable to bank (Note 6);
interest at greater of Federal Reserve
prime rate (6.75% at April 30, 1994)
plus 5%, or 10%; matured on
September 30, 1994. 182,000
Note payable to stockholder; secured by
primarily all of the Company's assets;
subordinated to notes payable to
principal stockholder; $167,000 was
payable out of proceeds from the sale
of certain fixed assets; $150,000 is
payable in 48 monthly installments
including interest at 3%, maturing
on April 1, 1998. 113,000 317,000
--------- ---------
1,373,000 1,499,000
Less current portion (1,260,000) (1,385,000)
--------- ---------
$ 113,000 $ 114,000
========= =========
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 7
- ------------------------------------------
The aggregate maturities of notes payable to stockholders are
as follows:
Year ending April 30,
1996 $ 4,702,000
1997 -
1998 113,000
---------
Total aggregate maturities $ 4,815,000
=========
8. Unit Purchase Agreement
In fiscal 1994, the Company entered into a Unit Purchase
Agreement (the Agreement) with the principal stockholder,
whereby the principal stockholder could purchase up to 100
units, each consisting of a $2,600 interest in a line of
credit note (Note 7), 3,000 shares of Series A and 5,000
shares of Series B mandatorily redeemable convertible
preferred stock (Note 9), and a common stock purchase warrant
to purchase 3,000 shares of common stock (Note 10), for a
purchase price of $10,000 per unit. At April 30, 1994, 70
units, or $700,000, had been purchased. During fiscal year
1995, the Company's principal stockholder purchased the
remaining 30 units for $300,000.
9. Mandatorily Redeemable Convertible Preferred Stock
The Series A and Series B mandatorily redeemable convertible
preferred stock (preferred stock) with respect to rights on
liquidation, dissolution or winding up, rank senior to all
other equity securities of the Company. Liquidation
preference is equal to $2.00 per share for Series A and Series
B plus accumulated and unpaid dividends.
Dividends are payable quarterly to the holders of Series A and
Series B preferred stock, when and if declared by the Board of
Directors. Cash dividends at the annual rate of $0.20 per
share of the Series A and Series B preferred stock accumulate
from April 1, 1994. Series A accumulated dividends in arrears
aggregate $63,165 and $3,500, respectively as of April 30,
1995 and 1994. Series B accumulated dividends in arrears
aggregate $105,276 and $5,833, respectively as of April 30,
1995.
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 8
- ------------------------------------------
At any time during the period commencing six months from the
original date of issuance and ending five years after such
original issuance date, the outstanding shares of Series A and
Series B preferred stock shall be convertible, at the option
of a majority of the stock-holders thereof, into fully paid
and nonassessable shares of common stock at $2.00 and $1.40
per share for Series A and Series B, respectively, subject to
adjustment in certain circumstances. Each Series A and Series
B share is convertible into 1 and 1.4 common shares,
respectively, subject to adjustment in certain circumstances.
If there are dividends in arrears at the conversion date, the
number of common shares received is increased based on a
formula.
In the event of a public offering of the Company's common
stock with gross proceeds greater than $10,000,000, or in the
event of certain consolidations or mergers or the sale of
substantially all of the assets of the Company, the Series A
and Series B preferred stock are automatically converted into
shares of common stock at the conversion price of $2.00 and
$1.40 per share per Series A and Series B, respectively,
subject to adjustment in certain circumstances.
At any time during the twelve month period commencing upon the
date the Company receives proceeds from the sale of certain
real property, the majority of the Series A stockholders have
the right to redeem their shares at $2.00 per share, plus
accumulated and unpaid dividends. Commencing one year from
the original date of issuance, the majority of the Series B
stockholders have the right to redeem their shares at $2.00
per share plus accumulated and unpaid dividends.
No effect has been given to the April 30, 1995 conversion
factors discussed above as a result of the asset sale
subsequent to year end which is discussed in Note 1.
10. Common Stock Warrants
At April 30, 1995 and 1994, 70 warrants to purchase shares of
common stock of the Company were outstanding. Each warrant
gives the holder the right to purchase 3,000 shares of common
stock at a price ranging between $0.75 and $1.25 per share
depending on the fair market value, as defined, of the
Company.
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 9
- ------------------------------------------
11. Employee Retirement Plans
The Company has a profit sharing plan that covers
substantially all employees and provides for a discretionary
contribution by the Company. There is no unfunded liability
under the plan and the plan may be terminated by the Company
at any time. There were no contributions under this plan in
fiscal 1995 or 1994. The Company also has an employee stock
ownership plan under which the Company may be required to
repurchase Company stock from time to time from beneficiaries
of the plan at the current market value of the stock. There
were no contributions in fiscal 1995 or 1994.
12. Income Taxes
The Company incurred losses from operations totaling
$3,729,000 and $8,932,000 for the fiscal years ended April 30,
1995 and 1994, respectively. As a result, no provision for
income taxes has been charged to operations during these
periods.
Deferred tax assets as of the beginning and end of the year
ended April 30, 1995 comprise the following:
April 30, May 1,
1995 1994
Inventory $ 372,000 $ 211,000
Property and equipment 174,000 179,000
Accrued liabilities 1,334,000 836,000
Tax credit carryforwards 105,000 105,000
Net operating loss carryforwards 9,751,000 8,290,000
Other 104,000 26,000
--------- ---------
Gross deferred tax assets 11,840,000 9,647,000
Deferred tax asset valuation
allowance (11,840,000) (9,647,000)
---------- ---------
- -
========== =========
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 10
- ------------------------------------------
At April 30, 1995 the Company had net operating loss
carryforwards for federal income tax purposes totaling
approximately $27,482,000 which begin to expire in 2003.
Operating loss carryforwards for state income tax purposes
total approximately $13,355,000 at April 30, 1995 and begin to
expire in fiscal 1998. The Tax Reform Act of 1986 includes
provisions which may limit the net operating loss carry-
forwards available for use in any given year if certain events
occur, including significant changes in stock ownership.
13. Lease Commitments
The Company leases its primary facility under a noncancelable
operating lease expiring in 2000. Rent expense under this
lease amounted to $45,000 in fiscal 1995. The Company leased
its prior facility under a non-cancelable lease that expired
in 1995. Rent expense under the previous operating lease
amounted to $211,000 in fiscal 1995 and $514,000 fiscal 1994.
The company's future minimum lease payments are as follows:
Year ending April 30,
1996 $ 131,000
1997 162,000
1998 176,000
1999 181,000
2000 181,000
-------
Total future lease payments $ 831,000
=======
14. Stockholders' Equity
In December 1982, the Company sold 714,705 shares of common
stock to a single investor organization (purchaser) for
$10,000,000. The significant features of the sale agreement
are as follows:
Representation on the Board of Directors - The purchaser has
the right to be represented by at least two directors and
the agreement limits the total number of directors to eight.
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 11
- ------------------------------------------
Future Stock Purchases - The purchaser has the right of
first refusal on all future stock offerings up to a 51%
interest in the Company.
Stock Repurchase Obligation - At any time after December 7,
1984, the purchaser has the right to require the Company to
repurchase all of the shares owned by the purchaser in the
Company at a price per share computed as follows: (1) if the
Company's stock is publicly traded, the price per share
equals the public market price per share; or (2) if there is
no public market for the Company's stock, the price per
share equals an amount based on various earnings formulas,
not to be less than the original purchase price per share
nor to exceed the original purchase price increased by a sum
equal to the total interest that would have accrued on the
original amount if computed at a rate of 25% per annum,
compounded annually. In lieu of the Company's repurchase of
the stock, the Company may elect to publicly offer and sell
the purchaser's stock with the majority of the proceeds of
the stock offering going to the purchaser.
In September 1990, the Company filed a lawsuit against two
major stockholders. The suit sought to block the sale and
transfer of 839,940 shares from one of the stockholders to the
other under an Agreement for Purchase of Company Stock and
Voting Trust Certificate dated June 19, 1990 ("Purchase
Agreement"). The sale and transfer of the shares would have
been sufficient to provide one such stockholder a majority
interest and control of the Company upon termination in 1993
of a Voting Trust Agreement dated as of January 21, 1983 and
amended February 17, 1984 among the Company and certain of the
Company's stockholders.
In September 1990, one of the stockholders referred to above
filed a cross-complaint against the Company, four members of
the Board of Directors and one former director. The cross-
complaint sought to enforce the transfer of shares under the
June 1990 agreement and to require the appointment of an
interim receiver.
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 12
- ------------------------------------------
The lawsuit was settled in June 1991 with all parties
executing a general release and the principal stockholders
entering into a new Voting Trust Agreement which terminates in
1995. The new Voting Trustees elected a five member Board of
Directors as specified in the Settlement Agreement. As part
of the settlement, both parties agreed to the sale and
transfer of the 839,940 shares under the Purchase Agreement.
15. Stock Options
In January 1992, a stock option plan was adopted covering
certain employees, directors and advisors of the Company and
its subsidiaries. The plan provides for both incentive and
nonqualified stock options as defined in the Internal Revenue
Code of 1986. The total number of shares reserved for
exercise under the new plan is 236,249. In 1993, options
outstanding under a previous plan were either converted to the
1992 plan or canceled. The exercise price of the options
granted during 1994 was based on the fair value at the date of
grant. Options granted are exercisable in such amounts and at
such intervals as the Board of Directors may determine in
granting the options.
The following table sets forth the options granted and
canceled for the stock option plan and the related exercise
price:
Incentive
Price
Shares under option April 30, 1994 173,500 $.60-2.00
Granted 50,000 .22
Cancelled (30,000) .60
------- --------
Shares under option April 30, 1995 193,500
=======
At April 30, 1995 and 1994 respectively, 36,750 and 875 shares
were exercisable and there were 42,749 and 62,749 shares
available for future grants.
LH Research, Inc. and Subsidiary
Notes to Consolidated Financial Statements Page 13
- ------------------------------------------
16. Contingencies
The Company is a defendant in various lawsuits and claims
which have arisen in the course of its business. Management
believes that the ultimate resolution of these matters will
not have a material adverse effect on the Company's financial
position.
17. Concentration of Credit Risk
The Company provides products principally to major electronics
manufacturers. As a result, the Company's sales and trade
receivables are concentrated principally in the electronics
industry. Concentration of credit risk with respect to trade
receivables is limited due to the large number of customers
comprising the Company's customer base and their dispersion
across different geographies. The Company performs ongoing
credit evaluations of its customers and generally does not
require collateral. The Company maintains reserves for
potential credit losses, and such losses have been within
management's expectations. In addition, one customer
accounted for 10% of net sales in fiscal 1995 and 1994.
LH Research, Inc. and Subsidiary
Consolidated Balance Sheet
(Unaudited)
- --------------------------------
As of
January 31, 1996
----------------
Assets
Current assets:
Cash $ 146,000
Accounts receivable, net 1,416,000
Inventories 3,618,000
Prepaid expenses and other 45,000
----------
Total current assets 5,225,000
----------
Property, plant and equipment, net 1,111,000
Notes receivable 550,000
----------
$ 6,886,000
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,311,000
Accrued expenses 1,627,000
Notes payable 6,000
Current portion of notes payable
to stockholders 7,161,000
----------
Total current liabilities 10,105,000
----------
Notes payable to stockholders 85,000
----------
Commitments and contingencies
Manditorily redeemable convertible
preferred stock
Preferred stock - Series A 679,000
Preferred stock - Series B 971,000
Stockholders' equity:
Common stock 9,582,000
Retained earnings (deficit) (14,536,000)
----------
Total stockholders' equity (4,954,000)
$ 6,886,000
==========
LH Research, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
- -------------------------------------
For the nine months
ended January 31,
1996 1995
---- ----
Revenues:
Net sales $ 7,782,000 $12,140,000
Interest and other income 36,000 37,000
--------- ----------
Total revenue 7,818,000 12,177,000
--------- ----------
Costs and expenses:
Cost of goods sold 6,678,000 11,313,000
Selling, general and
administrative 1,792,000 2,323,000
Research and development 484,000 668,000
Interest 670,000 261,000
--------- ----------
Total costs and expenses 9,624,000 14,565,000
--------- ----------
Loss before provision for
income taxes (1,806,000) (2,388,000)
Provision for income taxes - -
--------- ----------
Net loss $(1,806,000) $(2,388,000)
========== ==========
LH Research, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
- -------------------------------------
For the nine months
ended January 31,
1996 1995
---- ----
Cash flows from operating activities:
Net loss $(1,806,000) $(2,388,000)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities
Depreciation and amortization 197,000 224,000
Changes in assets and liabilities:
Accounts receivable (222,000) 790,000
Inventories 74,000 496,000
Prepaid expenses and other 250,000 735,000
Accounts payable (954,000) 1,718,000
Accrued expenses 459,000 (1,561,000)
---------- ----------
Total adjustments (196,000) 2,402,000
---------- ----------
Net cash (used for) provided
by operating activities (2,002,000) 14,000
---------- ----------
Cash flows from investing activities:
Additions to property, plant and
equipment (309,000) (162,000)
(Increase) decrease in notes receivable (9,000) 37,000
---------- ----------
Net cash used for investing
activities (318,000) (125,000)
---------- ----------
Cash flows from financing activities:
Net repayments on notes payable (156,000) (251,000)
Net borrowings on notes payable to
stockholders 2,430,000 419,000
Issuance of preferred stock - 222,000
Issuance of common stock - 396,000
---------- ----------
Net cash provided by financing
activities 2,274,000 786,000
---------- ----------
Net (decrease) increase in cash (46,000) 675,000
Cash at beginning of year 192,000 86,000
---------- ----------
Cash at end of year $ 146,000 $ 761,000
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ - $ 221,000
========== ==========
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
Pro Forma Financial Information:
The following pro forma financial data of the Company is
adjusted to give effect to its acquisition of certain equipment,
inventory and intellectual property of LH on February 22, 1996.
The pro forma statement of operations gives effect to the
acquisition as if it had occurred on February 1, 1995, while the
pro forma balance sheet gives effect to the acquisition as if it
had occurred on January 31, 1996. See the notes to the pro forma
financial information for a description of the pro forma adjustments.
Pro forma operating results presented herein are not
necessarily indicative of the results of operations in the period
following the acquisition.
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
AS OF JANUARY 31, 1996
(Dollars in thousands)
(Unaudited)
ADJUST-
CHARTER POWER MENTS REFER- PRO-
ASSETS SYSTEMS, INC. (A) ENCE FORMA
Current assets:
Cash and cash equivalents $ 5,472 $ (4,700) (B) $ 772
Restricted cash & cash
equivalents 5,402 - 5,402
Accounts receivable, net 31,855 - 31,855
Inventories 35,227 3,300 (B) 38,527
Deferred income taxes 6,235 - 6,235
Other current assets 1,367 - 1,367
------- ------ -------
Total current assets 85,558 (1,400) 84,158
Property, plant and
equipment, net 39,375 900 (B) 40,275
Intangible and other
assets, net 3,287 600 (B, C) 3,887
Goodwill, net 2,607 - 2,607
------- ------ -------
Total assets $130,827 $ 100 $130,927
======= ====== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of long-
term debt $ 200 - $ 200
Accounts payable 19,008 - 19,008
Accrued liabilities 13,513 $ 100 (C) 13,613
Other current liabilities 2,535 - 2,535
------- ------ ------
Total current liabilities 35,256 100 35,356
Deferred income taxes 2,750 - 2,750
Long-term debt 15,417 - 15,417
Other liabilities 8,478 - 8,478
------- ------ -------
Total liabilities 61,901 100 62,001
Commitments and contingencies
Stockholders' equity:
Common stock 63 - 63
Additional paid-in capital 36,283 - 36,283
Minimum pension liability
adjustment (760) - (760)
Treasury stock (1,304) - (1,304)
Retained earnings 34,644 - 34,644
------- ------ ------
Total stockholders' equity 68,926 - 68,926
------- ------ ------
Total liabilities &
stockholders' equity $130,827 $ 100 $130,927
======= ====== =======
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
Notes to Pro Forma Balance Sheet:
A) The Company is undertaking studies, including appraisals as
appropriate, to establish the fair market value of the assets
acquired of LH. Final results of these studies, not available at
the time of this filing on Form 8-K, will be used to establish
the opening balance sheet carrying values for LH's net assets.
B) Record the Company's purchase of certain equipment, inventory and
intellectual property from LH. Such amount was financed using
available cash.
C) Record liability for fees and expenses related to the
acquisition.
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended January 31, 1996
(Dollars in thousands, except share and per share data)
(Unaudited)
CHARTER POWER ADJUST- REFER- PRO
SYSTEMS, INC. LH MENTS ENCE FORMA
(E)
Net sales $242,422 $10,059 - $252,481
Cost of sales 185,808 9,074 - 194,882
------- ----- ----- -------
Gross profit 56,614 985 - 57,599
Selling, general and
administrative expenses 27,781 2,643 $(1,200) (A) 29,264
40 (B)
Research and development
expenses 6,196 657 - 6,853
------- ----- ----- -------
Operating income (loss) 22,637 (2,315) 1,160 21,482
Interest expense, net 1,063 762 (700) (C) 1,125
Other expense, net 423 70 - 493
------- ----- ----- -------
Income (loss) before
income taxes 21,151 (3,147) 1,860 19,864
Provision for income taxes 7,107 - (500) (D) 6,607
------- ----- ----- -------
Net income (loss) $ 14,044 $(3,147) $2,360 $ 13,257
======= ===== ===== =======
Net income per common and
common equivalent share:
Primary $ 2.18 $ 2.06
Assuming full dilution $ 2.18 $ 2.05
Average Shares Outstanding:
Primary 6,451 6,451
Assuming full dilution 6,455 6,455
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
Notes to Pro Forma Statement of Operations:
A) Record reduction of LH selling, general and administrative
expenses to reflect:
1. Elimination of $500 of expenses related to LH
operations not purchased by the Company.
2. Synergies of the general and administrative functions,
with an estimated annual savings of $500.
3. Elimination of $200 of expenses related to the defense
of various lawsuits and claims arising in the course of
business. The Company is indemnified by the terms of
the Purchase Agreement.
B) Record annual amortization of certain intangible assets
related to the LH acquisition based on an estimated life of
15 years. The estimated life is based on the period of
economic benefit.
C) Eliminate LH interest expense related to the existing debt
facilities not purchased by the Company.
D) Record income taxes at an average statutory tax rate of
39.4% on all deductible expenses.
E) Additional synergies are expected to be identified, but no
estimate is available.
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.
CHARTER POWER SYSTEMS, INC.
May 7, 1996 BY: /s/ Alfred Weber
---------------------------------
Alfred Weber
Chairman, President and Chief
Executive Officer
May 7, 1996 BY: /s/ Stephen E. Markert, Jr.
---------------------------------
Stephen E. Markert, Jr.
Vice President Finance and Treasurer
Principal Financial and Accounting
Officer