SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report: October 31, 1997
Cramer, Inc.
Kansas 2-69336 48-0638707
(State of Incorporation) (Commission File Number) (IRS Employer I.D. No.)
625 Adams Street, Kansas City, Kansas 66105
(Address of principal executive offices)
Registrant's telephone number, including area code: (913) 621-6700
ITEM 2. ACQUISITION OF ASSETS
On October 31, 1997, the Company entered into an Asset Purchase
Agreement with Floating Arms, Inc., a start-up company engaged in
the development and distribution of a proprietary keyboard system
designed to be placed on the arms of a chair. The keyboard is
split mounted and is suitable for moderate to high use computer
workstation applications. The split mounted design allows users
to perform high volume data entry tasks with a minimum strain on
wrists, arms and shoulders.
Under the agreement, the Company acquired substantially all of
the assets of Floating Arms, Inc. The Company believes that a
user obtains maximum benefit from the chair mounted keyboard when
it is attached to a strong, durable, ergonomically designed chair
such as that manufactured by Cramer. Accordingly, the Company
will use the assets purchased to continue manufacturing and
selling the keyboard device as an expansion of the Company's
product offering.
The assets purchased consist primarily of tooling used in
production of the split mounted keyboard, a patent related to
mechanical keyswitch devices mounted on the arm of a chair,
customer lists and goodwill.
The purchase price for these assets was negotiated based on
competing offers from other office products manufacturers and
consists of the issuance of 200,000 shares of Cramer, Inc.
unregistered common stock to Floating Arms, Inc., the issuance of
10,750 shares of unregistered common stock to the CEO of Floating
Arms, Inc., who will join Cramer's management team subsequent to
the transaction, and the assumption of approximately $215,000 of
liabilities owed by Floating Arms, Inc. These liabilities were
settled shortly after the date of the closing. The negotiations
placed a value of $1.50 per share on Cramer's common stock. The
Asset Purchase Agreement also obligates the Company to pay a 7%
royalty to Floating Arms, Inc. on Cramer sales of split mounted
keyboard products that exceed $2,500,000 in the three year period
subsequent to the acquisition. These royalty payments are capped
at a maximum of $3,000,000.
The Company financed the cash portion of the purchase used to
settle the assumed liabilities by increasing its borrowings under
the consolidated Rotherwood line of credit (see discussion in
Management Discussion and Analysis in the 1996 Form 10-KSB).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Index to Financial Statements
(A). FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
1. Audited Balance Sheet and Notes as of December 31, 1996
2. Unaudited Income Statement and Statements of Cash Flows
and of Changes in Stockholder's Equity for the Year
Ending December 31, 1996 (to be submitted by amendment)
3. Unaudited Balance Sheet, Income Statement and
Statements of Cash Flows and of Changes in
Stockholder's Equity as of December 31, 1995 and for
the Year Then Ended (to be submitted by amendment)
4. Unaudited Balance Sheet, Income Statement and Statement
of Cash Flows as of September 30, 1997 and for the Nine
Months then Ended (to be submitted by amendment).
5. Unaudited Income Statements for the Quarter Ended
September 30, 1997 and September 30, 1996 (to be
submitted by amendment).
Item 310 of Regulation SB indicates that Items 3 and 4 are
to be audited. The Company will be submitting, by
amendment, unaudited statements which exclude footnote
disclosure typically made in accordance with Generally
Accepted Accounting Principles because they are the only
information available from the seller. An audit of these
statements had not been previously performed. It is the
Company's opinion that the effort and expense necessary to
prepare audited financial statements meeting the
requirements of Generally Accepted Accounting Principles and
SEC Regulation SB would entail unreasonable effort and
expense compared to the size of the acquisition. The
Company believes that audited financial statements would not
be material to understanding the transaction and its
possible effects on Cramer. The future results of the
Company's activities concerning the split keyboard business
will be consolidated with its other business and included
within the regular financial statements provided in
accordance with the appropriate SEC regulations.
The Company believes that the interim statements for
Floating Arms, Inc., presented herein, include all
adjustments necessary in order to make such financial
statements not misleading.
(B). PROFORMA FINANCIAL INFORMATION
1. Proforma Income Statement for the Year Ended December
31, 1996 (to be submitted by amendment).
2. Proforma Balance Sheet as of September 30, 1997 and
Income Statements for the Quarter and Nine Months Ended
September 30, 1997 (to be submitted by amendment).
The proforma financial statements which are to be submitted
by amendment will be derived using the separate financial
statements of the Company and Floating Arms, Inc. The
proforma statements may not be in compliance with Generally
Accepted Accounting Principles or SEC Regulation SB as the
financial statements for floating Arms, Inc. are not in this
format nor do they include all disclosures required under
Item 310 of Regulation SB or Generally Accepted Accounting
Principles.
(C). INDEX TO EXHIBITS
2.1 Asset Purchase Agreement dated October 31, 1997
BALANCE SHEET
FLOATING ARMS, INC.
DECEMBER 31, 1996
Floating Arms, Inc.
Balance Sheet
December 31, 1996
CONTENTS
REPORT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . .1
BALANCE SHEET. . . . . . . . . . . . . . . . . . . . . . . . . .2
NOTES TO BALANCE SHEET . . . . . . . . . . . . . . . . . . . . .3
Report of Independent Auditors
Board of Directors and Shareholders
Floating Arms, Inc.
We have audited the accompanying balance sheet of Floating Arms,
Inc. as of December 31, 1996. This balance sheet is the
responsibility of the Company's management. Our responsibility
is to express an opinion on this balance sheet based on our
audit.
Except as discussed in the following paragraph, we conducted our
audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
Because of inadequacies in the Company's accounting records for
the previous year, we were unable to determine the consistency of
application of accounting principles with the preceding year.
In our opinion, the balance sheet referred to in the first
paragraph above presents fairly, in all material respects, the
financial position of Floating Arms, Inc. at December 31, 1996,
in conformity with generally accepted accounting principles.
The accompanying balance sheet has been prepared assuming the
Company will continue as a going concern. As discussed in Note 3
to the balance sheet, the Company's accumulated deficit and
negative working capital raise substantial doubt about its
ability to continue as a going concern. (Management's plans as
to these matters are also described in Note 3.) The balance
sheet does not include any adjustments that might result from the
outcome of this uncertainty.
March 24, 1997
Floating Arms, Inc.
Balance Sheet
December 31, 1996
ASSETS
Current assets:
Accounts receivable $ 9,019
Inventories:
Raw Materials 27,384
Finished goods 22,047
49,431
Total current assets 58,450
Property and equipment:
Office furniture and equipment 11,773
Production equipment 35,085
46,858
Accumulated depreciation (17,789)
29,069
Other assets:
Deposit on tooling 43,000
Patent and organizational costs,
less amortization of $588 452
Total assets $ 130,971
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 54,995
Bank overdraft 5,967
Accrued compensation 45,279
Accrued liabilities 2,177
Advances from officer 7,750
Current maturities of long-term debt 16,498
Total current liabilities 132,666
Long-term debt 23,305
Stockholders' deficit:
Common stock, $1 par value:
Authorized shares - 1.750,000
Issued and outstanding shares - 1,147,473 1,147,473
Discount on stock (290,025)
Accumulated deficit (882,448)
Total stockholders' deficit (25,000)
Total liabilities and stockholders' deficit $ 130,971
See accompanying notes.
1. NATURE OF BUSINESS
Floating Arms, Inc., formerly Workplace Designs, Inc.,
("Company") is in the business of developing and providing
medically based ergonomic solutions for users of computer
equipment to reduce or eliminate the effects of cumulative trauma
disorders. The Company's two products, the floating arms
keyboard and the floating arms mousetray, are designed by medical
professionals to alleviate the stress of long-term computer use.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out)
or market and consist primarily of purchased parts and
components.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets which range from 3 to 7 years.
OTHER ASSETS
Patent costs and organizational costs are amortized over 60
months using the straight-line method.
INCOME TAXES
Income taxes will be provided using the liability method.
Deferred income taxes will be provided for temporary differences
between financial reporting and tax bases of assets and
liabilities.
STOCK BASED COMPENSATION
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation ("Statement 123"), but applies
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25"), and related interpretations in
accounting for its stock plans. Under APB 25, when the exercise
price of stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is
recognized.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets
used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount.
3. GOING CONCERN
The accompanying balance sheet has been prepared on the basis
that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As of December 31,
1996, the Company has an accumulated deficit of $882,448 and
negative working capital of $74,216. As a result, the Company
will need additional financing to continue as a going concern.
Subsequent to December 31, 1996, the Company issued 60,000 shares
of Common Stock and received $75,000 in proceeds. In addition,
the Company issued shares of Common Stock in lieu of payment of
accrued compensation owed for $27,885 as of December 31, 1996.
The Company will be exploring additional financing alternatives
in 1997 and anticipates completing a financing transaction in
1997. However, there can be no assurance that the Company will
be successful in completing a financing transaction.
Because of uncertainties regarding the achievability of
management's plans, no assurance can be given as to the Company's
ability to continue in existence. The balance sheet does not
include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amount and
classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
4. LONG-TERM DEBT
Long-term debt consists of the following:
Note payable to bank at the bank's prime rate
plus 1% (9.25% at December 31, 1996), principal
due September 30, 1997, interest due quarterly.
The Company may receive additional advances
prior to September 30, 1997 with a total credit
limit of $12,000. $ 5,098
Note payable to bank at the bank's prime rate plus
.5% (8.75% at December 31, 1996), due in monthly
installments of $2,000, including interest, through
April 19, 2001. The Company may receive additional
advances prior to April 19, 2001 with a total credit
limit of $110,000. The unamortized balance of related
warrants (see Note 6) as of December 31, 1996 is $30,130. 34,705
39,803
Less current maturities 16,498
$23,305
The above financing agreements are secured by substantially all
of the Company's assets. The note payable due in April 2001 is
personally guaranteed by certain stockholders.
Maturities of long-term debt as of December 31, 1996 are as
follows:
1997 $24,387
1998 20,837
1999 22,735
2000 1,974
$69,933
5. CAPITAL STOCK
In 1996, the Company issued 83,573 shares of Common Stock at
prices ranging from $1.25 to $2.14 from which the Company
received proceeds of $143,226.
In January 1997, the Company issued 60,000 shares of Common Stock
at $1.25 per share from which the Company received proceeds of
$75,000.
6. STOCK OPTIONS AND WARRANTS
The Company has a stock option plan (the "Plan") under which
incentive stock options and non-statutory options may be granted
to certain eligible employees and non-employee directors of the
Company. The maximum number of shares of Common Stock currently
reserved for issuance under the Plan is 120,000 shares.
Weighted Average
Options Outstanding Exercise Price
Plan Non-Plan Warrants Per Share
Balance at
December 31,
1995 1,100 8,000 76,250 $ 1.50
Granted -- 32,000 82,936 1.39
Balance at
December 31,
1996 1,100 40,000 159,186 $ 1.44
The following table summarizes information about the stock
options outstanding at December 31, 1996:
Options
Options Outstanding Exercisable
Weighted
Average
Exercise Number Remaining Number
Prices Outstanding Contractual Life Exercisable
$1.25 37,100 4.18 37,100
2.00 4,000 3.67 4,000
41,100 4.13 41,100
Plan and non-plan options outstanding expire at various dates
through 2001. The number of options exercisable as of December
31, 1996 was 41,100 at a weighted average exercise price of
$1.33.
The weighted-average grant date fair value of options granted at
market prices during the year ended December 31, 1996 was $.37
per share.
In January 1997, the Company granted options to purchase 105,000
shares of common stock to Directors. The options are exercisable
at $1.25 per share and expire in April 2002.
In connection with the issuance of Common Stock at $2.00 per
share from April through November 1995, the Company granted
warrants to purchase a total of 56,250 shares of Common Stock.
The warrants are exercisable at $2.00 per share and expire three
years from the date of grant.
6. STOCK OPTION AND WARRANTS (CONTINUED)
In connection with the issuance of Common Stock at $1.25 per
share in December 1996, the Company granted warrants to purchase
a total of 16,000 shares of Common Stock. The warrants are
exercisable at $1.25 per share and expire in December 1999.
The Company granted warrants to purchase 31,936 shares of Common
Stock for services provided. The warrants are exercisable at
$.05 to $2.00 per share and expire at various dates through 2002.
The warrants were deemed to have a value of $6,995 which was
expensed in the period of the services.
In April 1996, the Company granted warrants to purchase 55,000
shares of Common Stock at $2.00 per share to certain stockholders
in return for their personal guarantees on the Company's note
payable to the bank. The warrants expire in April 2001. The
warrants were deemed to have a value of $32,450 which will be
amortized to interest expense over the term of the note.
In connection with the issuance of Common Stock at $1.25 per
share in January 1997, the Company granted warrants to purchase a
total of 30,000 shares of Common Stock. The warrants are
exercisable at $1.25 per share and expire in January 2000.
In January 1997, the Company granted warrants to purchase 18,000
shares of Common Stock for advisory and consulting services. The
warrants are exercisable at $1.25 per share for 3 years.
The Company has elected to follow APB 25 and related
Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value
accounting provided for under Statement 123 requires use of
option valuation models that were not developed for use in
valuing employee stock options.
The fair value for these options was estimated at the date of
grant using the minimum value pricing model with the following
assumptions for 1996: risk-free interest rate of 7%; dividend
yield of 0%; and expected life of the options of 5 years.
The minimum value model was developed for use in estimating the
fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions. Because the
Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
7. INCOME TAXES
At December 31, 1996, the Company has net operating loss
carryforwards of approximately $845,000 which are available to
offset future taxable income and expire in varying amounts
through 2011. These carryforwards are subject to the limitations
of Internal Revenue Code section 382. This section provides that
limitations on the availability of net operating losses to offset
current taxable income result when an ownership change has
occurred for federal tax purposes.
Deferred income taxes reflect the effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and amounts used for income tax
purposes. The components of the Company's deferred taxes as of
December 31, 1996 are as follows:
Deferred tax asset:
Net operating loss carryforwards $330,000
Deferred tax liability:
Depreciation (6,000)
Net deferred tax asset 324,000
Less valuation allowance (324,000)
Net deferred tax asset after valuation allowance $ --
The valuation allowance was provided as the recoverability of the
deferred tax assets is dependent on future taxable income.
8. COMMITMENTS
OPERATING LEASES
The Company has operating leases for vehicles, office equipment
and office space. These leases expire at various times through
2001. Future minimum lease obligations in excess of one year as
of December 31, 1996 are as follows:
1997 $ 5,184
1998 1,553
1999 1,295
2000 1,295
2001 971
$10,298
TOOLING
In 1996, the Company entered into a commitment to purchase
tooling for $110,000. As of December 31, 1996, the Company paid
$43,000 toward this commitment.
9. RELATED PARTY TRANSACTIONS
During the year, the Company received an advance from an officer
for $7,750. For every $25,000 raised during the private
placement, the Company will repay $1,000 to the officer. In the
event that funds raised are insufficient to repay the advance,
the remaining amount will be converted to stock.
In January 1997, an officer received 22,500 shares of Common
Stock at $1.25 per share for payment of accrued compensation owed
as of January 1997. The accrued compensation balance owed to the
officer as of December 31, 1996 was approximately $28,000.
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 hereto duly authorized.
Cramer, Inc.
Date: November 13, 1997 /s/ Gary A. Rubin
Gary A. Rubin
Vice President, Finance