SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
to
Form 8-K
Current Report
Filed pursuant to Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934
HATHAWAY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in Charter)
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its current report on Form 8-K dated
October 10, 1996 as set forth in the pages attached hereto:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
a. Financial Statements of Businesses Acquired
-------------------------------------------
Tate Integrated Systems
-- Report of Independent Public Accountants
-- Combined Balance Sheet as of May 31, 1996
-- Combined Statement of Operations for the year ended May 31,
1996
-- Combined Statement of Changes in Stockholders' Deficit for
the year ended May 31, 1996
-- Combined Statement of Cash Flows for the year ended May 31,
1996
-- Notes to Combined Financial Statements
b. Pro Forma Financial Information
-------------------------------
Hathaway Corporation
-- Pro Forma Condensed Combined Statement of Operations for
the year ended June 30, 1996
-- Pro Forma Condensed Combined Balance Sheet as of June 30,
1996
-- Notes to Pro Forma Condensed Combined Financial Statements
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
HATHAWAY CORPORATION
---------------------
(Registrant)
Date: December 20, 1996 By: /s/ Richard D. Smith
------------------------- ---------------------------
Executive Vice President, Treasurer and
Chief Financial and Accounting Officer
TATE INTEGRATED SYSTEMS
COMBINED FINANCIAL STATEMENTS
AS OF MAY 31, 1996
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hathaway Corporation:
We have audited the accompanying combined balance sheet of Tate Integrated
Systems, Inc. (a Maryland corporation) and Tate Integrated Systems, L.P. (a
Delaware partnership) (collectively referred to as "Tate Integrated Systems") as
of May 31, 1996, and the related combined statements of operations, changes in
stockholders' deficit and cash flows for the year then ended. These financial
statements are the responsibility of Tate Integrated Systems' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
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 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Tate Integrated
Systems as of May 31, 1996, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
December 19, 1996
TATE INTEGRATED SYSTEMS
-----------------------
COMBINED BALANCE SHEET
----------------------
AS OF MAY 31, 1996
------------------
ASSETS
-------
CURRENT ASSETS:
Cash $ 3,820
Accounts receivable, net of allowance
for doubtful accounts of $67,000 1,240,111
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,076,585
Prepaid expenses and other 66,841
-----------
Total current assets 2,387,357
PROPERTY AND EQUIPMENT, net 69,830
-----------
Total assets $ 2,457,187
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
--------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 481,803
Accrued liabilities 277,930
Current portion of deferred revenue 603,000
Related party advances 3,643,464
-----------
Total current liabilities 5,006,197
DEFERRED REVENUE 1,059,000
-----------
Total liabilities 6,065,197
-----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' DEFICIT:
Common stock, $1.00 par value, 100,000
shares authorized; 100 shares issued
and outstanding 100
Additional paid-in capital 900
Accumulated deficit (3,609,010)
-----------
Total stockholders' deficit (3,608,010)
-----------
Total liabilities and
stockholder's deficit $ 2,457,187
===========
The accompanying notes are an integral part of this combined balance sheet.
TATE INTEGRATED SYSTEMS
-----------------------
COMBINED STATEMENT OF OPERATIONS
--------------------------------
FOR THE YEAR ENDED MAY 31, 1996
-------------------------------
REVENUES $4,904,650
COST OF PRODUCTS SOLD 3,951,528
----------
Gross profit 953,122
----------
OPERATING EXPENSES:
Selling 492,041
General and administrative 217,491
Corporation allocations 197,436
----------
Total operating expenses 906,968
----------
Income from operations 46,154
----------
OTHER INCOME (EXPENSE):
Interest expense (291,938)
Other (2,900)
----------
Other income (expense), net (294,838)
----------
Net loss $ (248,684)
==========
The accompanying notes are an integral part of this combined statement.
TATE INTEGRATED SYSTEMS
-----------------------
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
------------------------------------------------------
FOR THE YEAR ENDED MAY 31, 1996
-------------------------------
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Deficit
------ ---------- ------------- --------------
BALANCE, MAY 31, 1995 $100 $900 $(3,360,326) $(3,359,326)
Net loss - - (248,684) (248,684)
---- ---- ----------- -----------
BALANCE, MAY 31, 1996 $100 $900 $(3,609,010) $(3,608,010)
==== ==== =========== ===========
The accompanying notes are an integral part of this combined statement.
TATE INTEGRATED SYSTEMS
-----------------------
COMBINED STATEMENT OF CASH FLOWS
--------------------------------
FOR THE YEAR ENDED MAY 31, 1996
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (248,684)
Adjustments to reconcile net loss to
net cash
from operating activities:
Depreciation and amortization 56,308
Provision for doubtful accounts (55,000)
Changes in assets and liabilities:
(Increase) decrease in-
Accounts receivable 1,885,100
Costs and estimated earnings in
excess of billings on
uncompleted contracts (515,951)
Prepaid expenses and other (18,298)
Increase (decrease) in-
Accounts payable 236,655
Accrued liabilities (994,347)
Deferred revenue (300,000)
----------
Net cash flows from operating 45,783
activities ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (11,918)
----------
Net cash flows from investing
activities (11,918)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment of related party
advances (65,426)
Net cash flows from financing ----------
activities (65,426)
----------
NET DECREASE IN CASH (31,561)
CASH, beginning of year 35,381
----------
CASH, end of year $ 3,820
==========
SUPPLEMENTAL DISCLOSURE OF CASH PAID
FOR:
Interest $ 291,938
==========
The accompanying notes are an integral part of this combined statement.
TATE INTEGRATED SYSTEMS
-----------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
MAY 31, 1996
------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Basis of Presentation
- ---------------------
The accompanying combined financial statements present the accounts of Tate
Integrated Systems, Inc. and Tate Integrated System, L.P.. The combined
entities are collectively referred to herein as Tate Integrated Systems (the
Company). Tate Integrated Systems, Inc. has no significant operations other
than its investment in Tate Integrated Systems, L.P. whose operations include
the integration of proprietary software with third-party hardware, plus custom
programming and engineering services.
There are no significant intercompany balances or transactions between the
combined entities which would require elimination.
Property and Equipment
- ----------------------
Property and equipment, is stated at cost less accumulated depreciation and, is
classified as follows:
Useful May 31,
Life 1996
------- ----------
Furniture and fixtures 5 years $ 20,175
Machinery and equipment 5 years 4,455
Leasehold improvements 5 years 15,498
Data processing equipment 3 years 246,776
---------
Less: Accumulated depreciation and 286,904
amortization (217,074)
---------
$ 69,830
=========
Depreciation and amortization are provided using the straight-line method over
the estimated useful life of the assets.
Research and Development
- ------------------------
Research and development costs are expensed as incurred. Software development
costs that would be capitalizable under SFAS No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed," are not
material.
-2-
Income Taxes
- ------------
As of May 31, 1996, the Company had a net operating loss carryforward of
approximately $3,600,000 to reduce Federal taxable income which expires through
May 31, 2011. A deferred tax asset of approximately $1,402,000 exists as of May
31, 1996, primarily due to the net operating loss carryforward for which the
Company has provided a full valuation allowance due to the uncertainty about the
future realization of this tax benefit. The use of this net operating loss may
be limited due to the change in ownership described in Note 7.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses in the
financial statements and in the disclosures of contingent assets and
liabilities. While actual results could differ from those estimates, management
believes that actual results will not be materially different from amounts
provided in the accompanying financial statements.
2. REVENUE AND COST RECOGNITION ON CONTRACTS:
------------------------------------------
The Company undertakes contracts for the installation of turnkey software
systems which include software modification used to monitor and control
industrial applications. Based upon the American Institute of Certified Public
Accountants' Statement of Position 91-1, "Software Revenue Recognition," the
Company recognizes contract revenues and costs by applying the percentage of
completion achieved, calculated as described below, to the total contract sales
price and estimated costs. Costs and estimated earnings in excess of billings
for uncompleted contracts represent the value of work performed under these
contracts which has not been billed.
The Company determines the percentage of completion for all contracts using the
"cost-to-cost" method of measuring contract progress. Under this method, actual
contract costs incurred to date are compared to total estimated contract costs
to determine the estimated percentage of revenues to be recognized. Provisions
for estimated losses on uncompleted contracts, to the full extent of the loss,
is made during the period in which the Company first becomes aware that a loss
on a contract is probable.
Revenues related to customer support agreements in which the Company has a basis
for determining the value of the services are deferred and recognized ratably
over the term of the respective agreements--usually one year. As of May 31,
1996, deferred revenue related to one-year support agreements totaled
approximately $218,000.
Revenues from direct sales of the Company's TIS 4000 software licenses with
customers that contain support agreements in which the value of the support
services is not determinable are recognized over the estimated five-year
economic benefit period of the support agreement. As of May 31, 1996, the
Company had one software license sale (see Note 6), in which deferred revenue of
approximately $1,444,000 is recognized over the expected service period of five
years. For the year ended May 31, 1996, the Company recognized $385,000 of
revenue associated with this sale.
-3-
3. CONTRACTS IN PROGRESS:
----------------------
Costs incurred to date, estimated earnings and the related progress billings to
date on contracts in progress are as follows:
Year Ended
May 31, 1996
-------------
Costs incurred to date $ 5,371,170
Estimated earnings 808,534
-----------
Revenue recognized 6,179,704
Progress billings to date (5,103,119)
-----------
$ 1,076,585
===========
The above is included in the accompanying combined balance sheet, as follows:
Year Ended
May 31, 1996
------------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,076,585
Billings in excess of costs and
estimated earnings on uncompleted
contracts -
-----------
$ 1,076,585
===========
4. RELATED PARTY TRANSACTIONS:
---------------------------
Advances
- --------
Tate Engineering Services Corporation (TES), a related entity, has advanced the
Company funds to be used as working capital. These advances bear interest at
the same rate charged to TES, which was 9.25% at May 31, 1996. Interest expense
paid to TES for the year ended May 31, 1996, totaled $291,938. The average
outstanding balance on this advance was $3,134,885 and the highest and lowest
balance during fiscal year 1996 was $3,927,304 and $2,453,269, respectively.
Substantially all of the Company's assets are pledged as collateral under the
debt agreement between TES and the bank. This advance was paid off subsequent
to year-end in connection with the sale of the Company described in Note 7.
Advances bear interest at rates that approximate market rates available to the
Company and the amount is payable on demand; therefore, carrying amount
approximates fair value as of May 31, 1996.
Corporate Allocations
- ---------------------
TES allocates certain administrative expenses to the Company. These charges,
which totaled $197,436 for the year ended May 31, 1996, primarily include the
Company's share of accounting, human resources and certain insurance expenses.
-4-
5. CONCENTRATION OF CREDIT RISK, MAJOR CUSTOMERS AND OTHER RISKS:
--------------------------------------------------------------
Credit concentrations are considered to exist when there are amounts outstanding
from a single customer or a number of customers with similar characteristics
which would cause their ability to meet contractual obligations to be similarly
impaired by economic or other conditions. As of May 31, 1996, approximately 60%
of total accounts receivable were due from two state and local government
customers. Furthermore, 90% of costs and estimated earnings in excess of
billings on uncompleted contracts were due from three state and local government
customers.
For the year ended May 31, 1996, 60% of the Company's revenues were from three
customers of which 51% related to two state and local government customers.
The Company is subject to certain risks and uncertainties including changes in
technology and competition.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company maintains an operating lease for its facility. The future minimum
lease commitments under this noncancelable operating lease is $8,364 through
fiscal year 1997. The Company's rental expense for this operating lease was
$100,013 for the year ended May 31, 1996.
In March 1995, the Company entered into a joint venture (JV) with KUB Holdings
BHD, a Malaysian firm. The JV was created for the purpose of manufacturing,
marketing and selling the TIS 4000 System in certain Asian countries. The
Company made a $400,000 initial contribution to the JV for 11.4% interest. In
connection with the formation of the JV, the Company sold the software licensing
and marketing rights of its TIS 4000 technology to the JV for $2,500,000. This
sale was recorded net of $575,000 in transaction costs. As of May 31, 1995, the
Company had deferred approximately $1,829,000 of the sale of the TIS 4000
technology, which is being recognized as revenue over a 60-month period; the
$400,000 JV contribution was charged to operations.
If the joint venture requires funding, then the Company may be required to
contribute in accordance with the agreed proportions as defined in the
agreement. Currently, no additional funding requirements are expected to be
made by the Company.
The JV requires the Company to operate as a going concern and provide support
services to the joint venture at market rates. If the Company does not meet the
requirement discussed above, then it could be required to refund a portion of
the selling price as defined in the agreement. The Company is not aware of any
violations of the requirements defined in the agreement nor does it anticipate
any violations.
7. SUBSEQUENT EVENT:
-----------------
Effective as of the close of business on September 30, 1996, the Hathaway
Corporation acquired the Company. The ownership interests were acquired for a
negotiated price of $1,301,000, of which $718,000 was paid in cash at closing on
October 10, 1996, $400,000 payable in a 10% note due June 30, 1997 and $183,000
payable when certain accounts receivable for the Company are collected.
HATHAWAY CORPORATION
--------------------
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS INTRODUCTION
--------------------------------------------------------------
The following unaudited pro forma condensed combined financial statements have
been prepared from the historical consolidated financial statements of Hathaway
Corporation (the Company). The "TIS Acquisition" column in the following
unaudited pro forma condensed combined financial statements reflects the
historical combined financial statements of Tate Integrated Systems, L.P. and
its sole general partner, Tate Integrated Systems, Inc. (collectively referred
to as "TIS").
The unaudited pro forma condensed combined financial statements have been
adjusted to reflect the TIS Acquisition under the terms described in Item 2 of
Form 8-K dated October 10, 1996, previously filed by the Company and
incorporated herein by reference.
The unaudited pro forma condensed combined financial statements assume that the
TIS Acquisition occurred as of July 1, 1995 for the unaudited pro forma
condensed combined statement of operations and as of June 30, 1996 for the
unaudited pro forma condensed combined balance sheet.
Due to the different fiscal year ends of the Company and TIS, the operating
results of TIS for the year ended May 31, 1996 are included in the unaudited pro
forma condensed combined financial statement of operations for the year ended
June 30, 1996.
The unaudited pro forma condensed combined financial statements should be read
in conjunction with the Company's historical consolidated financial statements
and related notes to such statements in the June 30, 1996 Annual Report on Form
10-K and the September 30, 1996 Quarterly Report on Form 10-Q, both previously
filed by the Company; and Tate Integrated Systems, Inc. historical combined
financial statements and notes thereto included herein. The unaudited pro forma
condensed combined financial statements are not necessarily indicative of the
financial position or results of operations had the TIS Acquisition occurred on
the indicated dates nor do they purport to indicate the results of future
operations of the Company.
The pro forma financial information has been prepared by the Company and all
calculations have been made based upon assumptions deemed appropriate by the
Company. In the opinion of management, all adjustments necessary to present
fairly the unaudited pro forma condensed combined financial statements have been
made.
HATHAWAY CORPORATION
--------------------
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
----------------------------------------------------
YEAR ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SCHARE DATA)
(UNAUDITED)
Hathaway Pro Forma Hathaway
Corporation TIS Acquisition Corporation
as Reported Acquisition Adjustments Pro Forma
----------------------------------------------------------------
REVENUES $35,411 $4,905 $(300) (a) $40,016
OPERATING COSTS AND
EXPENSES:
Cost of products sold 21,926 3,952 (56) (b) 25,822
Selling 6,269 492 6,761
General and administrative 4,680 415 (122) (c) 4,973
Engineering and development 3,722 3,722
Other 553 553
--------------------------------------------- ---------------
Total operating costs and expenses 37,150 4,859 (178) 41,831
--------------------------------------------- ---------------
Operating loss (1,739) 46 (122) (1,815)
OTHER INCOME (EXPENSES):
Interest and dividend income 325 (14) (d) 311
Interest expense (194) (292) 292 (d) (194)
Other income (expenses), net 210 (3) 3 (c) 210
--------------------------------------------- ---------------
Total other income (expenses) 341 (295) 281 327
--------------------------------------------- ---------------
Loss before income taxes (1,398) (249) 159 (1,488)
Benefit for income taxes 385 31 (e) 416
--------------------------------------------- --------------
Net loss $(1,013) $ (249) $ 190 $(1,072)
============================================= ==============
PER SHARE AMOUNTS:
Primary and fully diluted net loss per
share $(0.25)
==============
Shares used in computing primary per
share amounts 4,271
==============
Shares used in computing fully diluted
per share amounts 4,309
==============
HATHAWAY CORPORATION
--------------------
PRO FORMA CONDENSED COMBINED BALANCE SHEET
------------------------------------------
JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
Hathaway Pro Forma Hathaway
Corporation TIS Acquisition Corporation
as Reported Acquisition Adjustments Pro Forma
-----------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,237 $ 4 $ (718) (f) $ 4,523
Marketable securities 201 -- 201
Trade receivables, net 6,293 1,240 7,533
Costs and earnings in excess of 1,076 (1,076) (h) --
billings 4,972 -- 930 (h) 5,902
Inventories, net 1,750 67 1,817
Prepaid expenses and other
----------------------------------------------- ---------------
Total current assets 18,453 2,387 (864) 19,976
Property and equipment, net 1,727 70 (70) (i) 1,727
Other 959 -- 959
----------------------------------------------- ---------------
Total assets 21,139 2,457 (934) 22,662
=============================================== ===============
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Accounts payable 1,309 482 1,791
Accrued liabilities 3,771 278 763 (f),(g) 4,812
Current portion of deferred revenue -- 603 (603) (k) --
Related party advances -- 3,643 (3,643) (j) --
----------------------------------------------- ----------------
Total current liabilities 5,080 5,006 (3,483) 6,603
Long-term debt 1,777 -- 1,777
Deferred revenue -- 1,059 (1,059) (k) --
----------------------------------------------- ----------------
Total liabilities 6,857 6,065 (4,542) 8,380
STOCKHOLDERS' INVESTMENT (DEFICIT)
Common stock 100 100
Additional paid-in capital 9,712 1 (1) (j) 9,712
Retained earnings (accumulated 8,247 (3,609) 3,609 (j) 8,247
deficit) (3,705) (3,705)
Treasury stock (72) (72)
Other
----------------------------------------------- ---------------
Total stockholders' investment (deficit) 14,282 (3,608) 3,608 14,282
----------------------------------------------- ---------------
Total liabilities and stockholders'
investment (deficit) $21,139 $ 2,457 $ (934) $22,662
=============================================== ===============
HATHAWAY CORPORATION
--------------------
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
----------------------------------------------------------
(UNAUDITED)
PRO FORMA STATEMENTS OF OPERATIONS
- ----------------------------------
(a) This adjustment reflects the reversal of amortization of deferred
revenue recorded by TIS, as deferred revenue was valued at zero in the
purchase price allocation at the beginning of the period.
(b) This adjustment reflects the reversal of depreciation expense recorded
by TIS, as the value of property, plant and equipment at the beginning
of the period was reduced to zero as a result of the purchase price
allocation.
(c) This adjustment represents the reversal of certain corporate
allocations from the former parent company that would not have been
incurred by TIS under the Company's corporate allocation policy.
(d) The Company would have financed the working capital needs of TIS with
cash and equivalents, rather than debt. Accordingly, the TIS interest
expense incurred on intercompany debt is eliminated. The adjustment to
interest income represents lost interest income on funds that would
have been used to finance the fiscal 1996 working capital needs of TIS.
(e) The adjustment reflects the tax effect of including TIS in the
consolidated tax provision of the Company.
HATHAWAY CORPORATION
--------------------
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
----------------------------------------------------------
(CONTINUED)
(UNAUDITED)
PRO FORMA BALANCE SHEET
- -----------------------
(f) This entry adjusts assets and liabilities for the effect of the
purchase price, as follows (in thousands):
Cash 718
Notes payable - current 583
-----
1,301
=====
(g) This entry adjusts for the liabilities incurred in connection with the
acquisition (in thousands):
Notes payable - current 583
Accrued audit, legal and other costs 180
----
763
====
(h) The value of costs and earnings in excess of billings is reduced to
actual costs incurred as a result of the purchase price allocation.
(i) The value of long-term assets is reduced to zero as a result of the
purchase price allocation.
(j) The TIS equity balances and intercompany debt are reduced to zero in
connection with the acquisition.
(k) The obligations of TIS relating to customer service agreements have
been provided for under accrued liabilities in the purchase price
allocation; accordingly, deferred revenue balances are reduced to zero.