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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 3)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only [as permitted by Rule
14z-6(e)(2)]
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
APPLIED CELLULAR TECHNOLOGY, INC.
(name of Registrant as Specified In Its Charter)
--
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a6(i)(1), 14a6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
APPLIED CELLULAR TECHNOLOGY, INC. (the "Company")
Richard J. Sullivan is hereby authorized to represent and to vote the shares
of the undersigned in the Company at an Annual Meeting (hereinafter referred
to as "Annual Meeting") of Stockholders to be held on June , 1996 and at
any adjournment as if the undersigned were present and voting at the meeting.
NOTE: CUMULATIVE VOTING FOR DIRECTORS IS NOT ALLOWED.
1. Proposal to authorize increase in Common Shares to 20,000,000
Common Shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Proposal to amend Article Four of the Articles of Incorporation
to eliminate preemptive rights.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to authorize increase in Preferred Shares to 1,000,000
Preferred Shares and amend the terms of Preferred Shares such that
the Preferred Stock authorized may be issued from time to time in
series. The Board of Directors of the Company shall be authorized
to establish such series, to fix and determine the variations and
the relative rights and preferences as between series, and to
thereafter issue such stock from time to time. The Board of
Directors shall also be authorized to allow for conversion of the
Preferred Stock to Common Stock under terms and conditions as
determined by the Board of Directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ].
4. Proposal to Approve 1996 Non-Statutory Stock Option Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Election of Directors
FOR all nominees (except as written on the line below) [ ]
WITHHOLD AUTHORITY TO VOTE
for all nominees listed below [ ]
NOMINEES: Richard J. Sullivan, Garrett A. Sullivan, Daniel E. Penni.
Angela M. Sullivan
(INSTRUCTIONS: To withhold authority to vote for any individual
nominees write the nominee's name on the line below.)
6. In their discretion, on any other business that may properly come
before the meeting.
The shares represented hereby will be voted. WITH RESPECT TO ITEMS 1 - 5
ABOVE, THE SHARES WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE
AND WHERE NO SPECIFICATIONS ARE GIVEN, SAID PROXIES WILL VOTE FOR THE
PROPOSALS. This proxy may be exercised by a majority of those proxies or
their substitutes who attend the meeting.
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Please sign and date and return to Applied Cellular Technology, Inc., P.O.
Box 2067, Nixa, Missouri 65714.
Dated June , 1996
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Signature
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Signature
Joint Owners should each sign. Attorneys-in-fact, executors, administrators,
trustees, guardians or corporation officers, should give full title.
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APPLIED CELLULAR TECHNOLOGY, INC.
James River Professional Center
Suite 2
Nixa, Missouri 65714
June , 1996
To the Stockholders of
Applied Cellular Technology, Inc.
You are cordially invited to attend an Annual Meeting (hereinafter referred
to as "Annual Meeting") of Stockholders of Applied Cellular Technology, Inc.
(the "Company"), to be held at the Marriott Hotel located at 2200 Southwood
Drive, Nashua, New Hampshire 03063 on June , 1996, 3:00 P.M., Eastern
time, to consider and vote upon the matters set forth in the accompanying
Notice of Annual Meeting of Stockholders.
In addition to the election of directors and the approval of independent
certified public accountants for the fiscal year ended December 31, 1995,
Shareholders will be asked to approve the Company's 1996 Non-Statutory Stock
Option Plan. Approval of the Non-Statutory Stock Option Plan would be
economically beneficial to the Company. The Company would be able to
partially compensate eligible participants in a non-monetary manner with the
1996 Non-Statutory Stock Option Plan. The Company is proposing the
approval of the increase in the authorized Common Share, an increase in the
authorized Preferred Shares and a revision to the terms of the Preferred
Shares. These increases and the revision will be beneficial to the Company
in its efforts to acquire entities within similar industries that have a
history of profitable operations. The Company is also requesting approval
of the removal of Article Four of the Articles of Incorporation regarding
preemptive rights.
Since it is important that your shares be represented at the meeting whether
or not you plan to attend in person, please indicate on the enclosed proxy
your decisions about how you wish to vote and sign, date and return the proxy
promptly in the envelope provided. If you find it possible to attend the
meeting and wish to vote in person, you may withdraw your proxy at that time.
Your vote is important, regardless of the number of shares you own.
Sincerely,
-----------------------------------
Richard J. Sullivan
Chairman of the Board of Directors
Chief Executive Officer
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APPLIED CELLULAR TECHNOLOGY, INC.
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NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
To Be Held
June , 1996
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To the Stockholders of
Applied Cellular Technology, Inc.
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of Applied
Cellular Technology, Inc. (the "Company") will be held on June , 1996 at
3:00 o'clock in the afternoon, local time at the Marriott Hotel located at
2200 Southwood Drive, Nashua, New Hampshire 03063 for the following purposes;
all as more specifically set forth in the attached Proxy Statement.
1. To consider and vote upon the proposal to authorize increase in
Common Shares to 20,000,000 Common Shares.
2. To consider and vote upon the proposal to authorize increase in
Preferred Shares to 1,000,000 Preferred Shares and to amend the terms of the
Preferred Shares.
3. To consider and vote upon proposal to amend Article Four of the
Articles of Incorporation to eliminate preemptive rights.
4. To consider and vote upon the proposal to approve the 1996
Non-Statutory Stock Option Plan
5. To consider and vote upon the re-election and election of the
Officers and Directors of the Company.
6. To transact such other business as may properly be brought before
this meeting.
Only holders of record of Common Stock of the Corporation as of the close of
business on March 25, 1995, are entitled to notice of or to vote at the
meeting or any adjournment thereof. The stock transfer books of the
Corporation will not be closed.
Stockholders are encouraged to attend the meeting in person. To ensure that
your shares will be represented, we urge you to vote, date, sign and mail the
Proxy Card in the envelope which is provided, whether or not you expect to be
present at the meeting. The prompt return of your Proxy Card will be
appreciated. It will also save the Company the expense of a reminder
mailing. The giving of such Proxy will not affect your right to revoke such
Proxy by appropriate written notice or to vote in person should you later
decide to attend the meeting.
By order of the Board of Directors
-------------------------------------------------
Richard J. Sullivan
June , 1996 Chairman of the Board of Directors
Chief Executive Officers
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PROXY STATEMENT
APPLIED CELLULAR TECHNOLOGY, INC.
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ANNUAL MEETING OF STOCKHOLDERS
To Be Held June , 1996
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INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Applied Cellular Technology, Inc., a
Missouri corporation (the "Company"), to be voted at an Annual Meeting of
Stockholders of the Company to be held on June , 1996 at 3:00 P.M., Eastern
time, at the Marriott Hotel located at 2200 Southwood Drive, Nashua, New
Hampshire 03063 and at any adjournment thereof (the "Meeting"). The Proxy
may be revoked by appropriate written notice at any time before it is
exercised. See, "Voting and Solicitation of Proxies".
This Proxy Statement and the accompanying Notice and Form of Proxy are being
mailed on or about June , 1996 to record holders of the Company's Common
Stock as of March 25, 1996 (the "Record Date").
As of Record Date, 2,332,375 shares of Common Stock of the Corporation were
issued and outstanding. Each share of Common Stock entitles the holder to
one vote on all matters brought before the Annual Meeting.
The Company was originally incorporated in 1988 under the name of Axcom
Computer Consultants ("Axcom") and operated as a custom programming and
systems house. In May, 1993, the Company was acquired by Great Bay
Technology, Inc. for the purpose of focusing the Company on marketing and
sales of emerging cellular data technology hardware and proprietary software
focused on the vertical markets of wholesale distribution, manufacturing and
health care. The name was subsequently changed to Axcom Information
Technology, Inc. on May 27, 1993 and then changed again in April, 1994 to
Applied Cellular Technology, Inc.
In November, 1994, the Company formed a subsidiary, Kedwell International,
Inc. by issuing 180,000 shares of its $.001 par value common stock. The
subsidiary purchased software in exchange for its 180,000 shares of the
Company's common stock valued at $5.00 per share and for the issuance of
120,000 Class E Warrants of the Company. In August 1995, the Class E
Warrants were redeemed for 120,000 common shares of the Company.
During 1994, the Company acquired 570,712 shares of Cadkey, Inc., a software
technology company, in exchange for 456,570 shares of its common stock,
resulting in a 29% investment in this corporation.
Pursuant to the original Articles of Incorporation, the Company has the
authority to issue an aggregate of Ten Million (10,000,000) common shares,
par value $1.00 per common share. In April, 1994, an amendment to the
Articles of Incorporation changed the par value to $.001 per common share.
The Company also has the authority to issue 20,000 shares of redeemable
Preferred Stock, par value $10.00.
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The Company's executive offices are located at James River Professional
Center, P.O. Box 2067, Highway 160 & CC, Suite 2, Nixa, Missouri 65714 -
Telephone number (417) 725-9888.
The Company is a software development and services company which integrates
the technologies of Client-Server Computing; Object Oriented Programming;
Automated Data Collection Systems utilizing spread spectrum cellular
communications and auto-identification technologies; inter-processor and
inter-process communications using LU6.2, TCP/IP, RJE and proprietary
asynchronous and synchronous protocols and Micro-Cellular Radio Frequency
Data Networks. However, to date, revenues have been derived primarily from
the sales and distribution of third party hardware and software.
INCREASE IN AUTHORIZED NUMBER OF COMMON SHARES
The Company's articles of incorporation authorize it to issue up to
10,000,000 Common Shares, par value $.001 per Common Share. There are
currently outstanding 2,332,375 Common Shares. Currently 950,000 Common
Shares are reserved for issuance pursuant to outstanding Class B, Class F
and Class I Warrants.
Holders of Common Shares of the Company are entitled to cast one vote for
each share held at all shareholders meetings for all purposes, including the
election of directors, and to share equally on a per share basis in such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Upon liquidation or dissolution, each outstanding Common
Share will be entitled to share equally in the assets of the Company legally
available for distribution to shareholders after the payment of all debts and
other liabilities. Common Shares are not redeemable, have no conversion
rights and do carry preemptive rights to subscribe to or purchase additional
Common Shares in the event of a subsequent offering.
The Company proposes to increase the authorized number of Common Shares to
20,000,000. This increase will be beneficial to the Company in its efforts
to acquire entities within similar industries that have a history of
profitable operations through the issuance of Common Shares of the Company as
consideration.
The Company is registering 1,000,000 Common Shares pursuant to a pending
registration statement, File No. 33-93962. The sale of these Common Shares
could have a negative effect on the market value of outstanding securities
held by existing shareholders. The completion of the proposed public offering
is not dependent upon shareholder approval of the proposed amendments to
increase the number of authorized Common and Preferred Shares.
Additionally, the Company has acquired companies through the issuance of
common stock of the Company at the then current market value (discounted at
50%) which is higher than the offering price herein and the current market
value. These common shares have registration rights and subsequent sale
upon registration could have a negative impact on the market price of the
Company's common stock.
Pursuant to the agreement to acquire 80% of the outstanding shares of
Burling, the Company shall issue $57,600 in common shares of the Company in
addition to the issuance of Preferred Shares. For a further information of
the acquisition, see discussion on the increase in the authorized number of
Preferred Shares. Other than this issuance, there are not currently any
other plans, arrangements, negotiations, or understandings to issue Common
Shares with respect to any other acquisitions.
The affirmative vote of a majority of the shares of Common Stock of the
Cormpany represented and voting at the Annual Meeting is required for
approval of the increase in the number of authorized Common Shares. The
Board of Directors unanimously approved
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the proposal and recommends a vote FOR the proposal to effectuate the increase
in the number of authorized Common Shares to Twenty Million (20,000,000).
Proxies solicited by management will be so voted unless stockholders specify
otherwise.
ELIMINATION OF PREEMPTIVE RIGHTS
Article Four of the Articles of Incorporation provides that there are no
limitation or denials of the preemptive rights of a shareholder to acquire
additional shares. The preemptive right is the preferential right of
existing shareholders to subscribe to or purchase new stock in proportion to
the number of shares held by them. Missouri law allows for the limitation
of preemptive rights.
The Board of Directors believe that the preemptive rights of common
stockholders are not needed for stockholder protection. Preemptive rights
are useful principally to allow stockholders in small, closely held companies
to maintain their proportionate ownership interest. The Company's common
stock is traded on NASDAQ and any stockholder desiring to maintain a
continuing proportionate interest in the Company's stock may do so through
market purchases. An advantage of maintaining a continuing proportionate
interest through market purchases is that any stockholder may buy the
securities at any time depending on the stockholder's availability of funds
and the current market price. The stockholder must purchase any securities
to be available pursuant to preemptive rights during the offering period.
Additionally, the price of the securities which may be available pursuant
to preemptive rights shall be set or restricted due to the terms of the
offering and the timing of the effective date.
The Company currently has approximately 1,800 stockholders and prior to the
application of preemptive rights, the Company shall have to determine the
number of shares necessary to allow the current shareholders to maintain a
continuing proportionate interest in the Company's stock. The Company is
currently in an acquisition mode and intends to pursue future acquisitions.
Due to the number of stockholders and the potential frequency of the
Company's acquisitions, the application of preemptive rights would require
the approval of the issuance of securities pursuant to a registration
statement each time. The registration process can be a lengthy and
expensive one.
Moreover, the Board believes that the Company's ability to obtain funds
promptly and effectively upon the most favorable terms might be impaired if
the Company were first required to offer securities to the stockholders.
The absence of preemptive rights does not preclude shares being offered to
stockholders in the future on a pro rata basis whenever desirable.
The affirmative vote of a majority of the shares of Common Stock of the
Company represented and voting at the Annual Meeting is required for
approval of the elimination of preemptive rights. Due to the above
discussion and the complexity and expense of the application of the
preemptive rights for a public company, the Board of Directors unanimously
approved the proposal and recommend a vote FOR the proposal to amend the
Articles of Incorporation and eliminate any preemptive rights.
INCREASE IN AUTHORIZED NUMBER OF PREFERRED SHARES
The Company's Articles of Incorporation authorize the issuance of 20,000
Preferred Shares, par value $10.00. There are currently no Preferred Shares
outstanding and none have been reserved for issuance pursuant to outstanding
options, warrants, rights or convertible securities. The Preferred Stock
shall earn a cumulative annual dividend of 6%, payable in arrears annually
within 30 days of the end of the fiscal year of the Corporation. The
Preferred Stock shall be redeemable by the Corporation at any time but shall be
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required to be redeemed by the Corporation at such time as the Corporation has
received a cumulative total of $500,000 in funding or capitalization through
private placement, warrant exercise, public offering or any other such means
excluding lines of credit or revenue from sales and excluding funds received
from the sale of the Preferred Stock. The Preferred Stock shall be redeemed
at par value plus any interest accumulated to date and by the issuance to the
Preferred Stockholders, of a total of 45,000 Common Stock purchase warrants
(C Warrant). The C Warrants shall be issued pro-rata to the shareholders of
the Preferred Stock.
Due to the restrictive nature of the above terms, the Board of Directors
recommend that the terms of the Preferred Stock be amended as follows: The
Company proposes that the number of authorized Preferred Shares be increased
to 1,000,000. The Company believes that the availability of the Preferred
Stock will provide the Company with increased flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. Having such authorized shares available for
issuance will allow the Company to issue shares of the Preferred Stock
without the expense and delay of a special stockholders' meeting. The
authorized shares of the Company, as well as the shares of Common Stock, will
be available for issuance without further action by the Company's
shareholders, unless such action is required by applicable law or the rules
of any stock exchange on which the Company's stock may then be listed.
Although the Board has no intention at the present time of doing so, it could
issue a series of Preferred Stock that could, depending on the terms of such
series, either impede or facilitate the completion of a merger, tender offer
or other takeover attempt. For instance, such series of Preferred Stock
might impede a business combination by including class voting rights which
would enable the holder to block such a transaction or facilitate a business
combination by including voting rights which would provide a required
percentage vote of stockholders. The Board will make any determination to
issue such shares based on its judgment as to the best interest of the
Company and its then existing stockholders. The Board, in so acting, could
issue Preferred Stock having terms which could discourage an acquisition
attempt or other transaction that some, or a majority of the stockholders
might believe to be in their best interest or in which stockholders might
receive a premium for their stock over the then market price of such stock.
In this respect, certain companies have recently issued, to the holders of
their common stock, preferred stock, rights or warrants to acquire preferred
stock or common stock having terms designed to protect against the adverse
consequences to stockholders of partial takeovers, front-end loaded two-step
takeovers and freezeouts and other abusive takeover tactics. The authorized
and unissued Preferred Stock, as well as the authorized and unissued Common
Stock, would be available for such purpose.
The Company may need to raise additional capital in the future and pursue
acquisitions which may require the issuance of preferred shares as partial
consideration.
In March, 1996, the Company purchased 80% of the shares of Burling
Instruments, Inc. ("Burling") 16 River Road, Chatham, NJ 07928-0298
(telephone 201-635-9481) from the John L. Kemmerer, Jr. Trust. The
acquisition is an exchange of 9,000 shares of convertible preferred shares of
the Company at a value of $100 each plus $57,600 in common shares of the
Company for 80% of the outstanding shares of Burling. The Preferred Shares
may be converted at the price of $5.75 per common share over two years at the
choice of the buyer. The preferred shares will pay an annual dividend of
8%. The authorization of the Preferred Shares is being sought in this proxy
statement. The transaction is described in its entirety in the Agreement
and Plan of Reorganization between the Company and the John L. Kemmerer, Jr.
Trust dated March 7, 1996. The common shares of Burling Instruments, Inc.
are being held in escrow until the completion of this Annual Meeting of the
Shareholders of the Company. If shareholder approval regarding the increase
in the authorized preferred Shares is not received, the Company may have to
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return the common shares of Burling unless alternative terms can be
negotiated. These terms may include cash payments in lieu of the issuance
of Preferred Shares. There can be no assurance that the Company would be
able to negotiated favorable terms or obtain amounts necessary for any cash
payment.
Other than the acquisition of Burling Instruments, Inc., there are not
currently any other plans, arrangements, negotiations, or understandings to
issue Preferred Shares with respect to any future acquisitions.
The affirmative vote of a majority of the shares of Common Stock of the
Cormpany represented and voting at the Annual Meeting is required for
approval of the change of the terms and an increase in the number of
authorized Preferred Shares. The Board of Directors unanimously approved
the proposal and recommends a vote FOR the proposal to effectuate the
amendment to change the terms of the Preferred Shares and to increase in the
number of authorized preferred shares to One Million (1,000,000). Proxies
solicited by management will be so voted unless stockholders specify
otherwise.
1996 NON-STATUTORY STOCK OPTION PLAN
The Company needs to continue to attract and retain persons of experience and
ability and whose services are considered valuable. In addition the Company
needs to continue to encourage the sense of proprietorship in such perons and
to stimulate the active interest of such persons in the development and
success of the Company. As a result, the Board of Directors has approved the
1996 Stock Option Plan and reserved for issuance 2,000,000 Common Shares
pursuant to the 1996 Stock Option Plan. The source of Common Shares to be
reserved for issuance under the 1996 Non-Statutory Stock Option Plan shall be
a portion of the currently authorized Common Shares. The Plan will terminate
on March 15, 2006 and no option may be granted pursuant to the Plan
thereafter.
Options are granted only to persons who are employees of the Company or a
subsidiary corporation of the Company (including any subsidiary which may be
organized or acquired subsequent to adoption of the Plan) who agree to remain
in the employ of, and render services to, the Company or a subsidiary
corporation of the Company for a period of at least one (1) year from the
date of the granting of the option. The term "employees" shall include
officers, directors, executives and supervisory personnel, as well as other
employees of the Company or a subsidiary corporation of the Company.
The purchase price under each option issued is determined by a Committee (of
not less than three members, at least one of whom shall be a Director of the
Company), at the time the option is granted, but in no event shall such
purchase price be less than 85 percent of the fair market value of the
Company's Common Stock on the date of the grant. All options issued under
the Plan shall be for such period as the Committee shall determine, but for
not more than ten (10) years from the date of grant thereof.
New Plan Benefits. The benefits or amounts that will be received by or
allocated to the executive officers, directors or employees cannot be
determined. At the end of each fiscal year, the compensation committee
determines who shall receive the options. The compensation committee, which
is composed of the Board of Directors, reviews all employees after the end of
each fiscal year. Particular attention is paid to each employee's
contribution to the current and future success of the Company along with
their salary level as compared to the market value of personnel with similar
skills. The compensation committee also looks at accomplishments which are
above and beyond management's normal expectations for their position.
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The affirmative vote of a majority of the shares of Common Stock of the
Cormpany represented and voting at the Annual Meeting is required for
approval of the 1996 Non-Statutory Stock Option Plan. The Board of
Directors unanimously approved the proposed 1996 Non-Statutory Stock Option
Plan and recommends a vote FOR the proposed 1996 Non-Statutory Stock Option
Plan. Proxies solicited by management will be so voted unless stockholders
specify otherwise.
ELECTION OF BOARD OF DIRECTORS
Pursuant to the Bylaws, each Director shall serve until the annual meeting of
the stockholders, or until his successor is elected and qualified. The
Company's basic philosophy mandates the inclusion of directors who will be
representative of management, employees and the minority shareholders of the
Company. Directors may only be removed for "cause". The term of office of
each officer of the Company is at the pleasure of the Company's Board.
The principal executive officers and directors of the Company are as
follows:
Name Position Term(s) of Office
Richard J. Sullivan, age 56. Chairman of the Since May 20, 1993
Board of Directors to present
Garrett Sullivan, age 60 Director
President, Secretary March 31, 1995
Acting Chief Financial Officer to present
Daniel E. Penni, age 48 Director March 20, 1996
to present
The following individuals are seeking re-election or initial election to the
Board of Directors:
RICHARD J. SULLIVAN, CHAIRMAN. Mr. Sullivan is currently Chairman of Great
Bay Technology, Inc., the parent company of ACT. From August 1989 to
December 1992, Mr. Sullivan was chairman of the Board of Directors of
Consolidated Convenience Systems, Inc. in Springfield, Missouri. He has been
the managing General Partner of The Bay Group, a successful merger and
acquisition firm in New Hampshire since February, 1985. Mr. Sullivan was
formerly Chairman and Chief Executive Officer of Manufacturing Resources,
Inc., an MRP II software company in Boston, MA, and was Chairman and CEO of
Encode Technology, a Computer-Aided Manufacturing Company, in Nashua, New
Hampshire from February, 1984 to August, 1986. Mr. Sullivan is married to
Angela Sullivan.
GARRETT A. SULLIVAN. Mr. Sullivan is currently President, Secretary,
Acting Chief Financial Officer and a Director of the Company. He was an
Executive Vice President of Envirobusiness, Inc., an environmental consulting
firm from 1993-1994. He was previously a partner of The Bay Group, a merger
and acquisition firm in New Hampshire from 1988 to 1993. Mr. Sullivan was
President of Granada Hospital Group, Burlington, MA., the world's largest
hospital television systems supplier from 1981-1988. Mr. Sullivan received a
Bachelor of Arts degree from Boston University in 1960 and he obtained an MBA
from Harvard University in 1962.
DANIEL E. PENNI. Mr. Penni has been involved in the financing of several
start up companies in the past five years on a financial consultant basis.
Mr. Penni has been involved in the insurance business in many sales and
administrative roles since 1969. He
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was President of The Boston Insurance Center, Inc., an insurance company until
1988. Mr. Penni was founder and President of BIC Equities, Inc., a
broker/dealer registered with the NASD. This firm was involved in the sale of
mutual funds and tax advantaged investments from 1978 to 1988. Mr. Penni
graduated with a Bachelor of Science degree in 1969 from the School of
Management at Boston College.
ANGELA M. SULLIVAN. From 1988 to present, Ms. Sullivan has been a partner
in The Bay Group, a private merger and acquisition firm, President of Great
Bay Technology, Inc., an affiliate of the Company and President of Economy
Car Care Centers, Inc. Ms. Sullivan received a Bachelor of Science degree
in Business Administration in 1980 from Salem State College. Ms. Sullivan
is married to Mr. Richard J. Sullivan.
The affirmative vote of a majority of the shares of Common Stock of the
Cormpany represented and voting at the Annual Meeting is required for
approval of the above Directors. The Board of Directors unanimously recommends
a vote FOR the re-election of Richard J. Sullivan, Garrett Sullivan and the
election of Daniel E. Penni and Angela Sullivan to the Board of Directors of
the Company. Proxies solicited by management will be so voted unless
stockholders specify otherwise.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables list the Company's stockholders who, to the best of the
Company's knowledge, own of record or, to the Company's knowledge,
beneficially, more than 5% of the Company's outstanding Common Stock; the
total number of shares of the Company's Common Stock beneficially owned by
each Director; and the total number of shares of the Company's Common Stock
beneficially owned by the Directors and elected officers of the Company, as a
group.
There are currently 2,332,375 Common Shares outstanding and no Preferred
Shares outstanding. The following tabulates holdings of shares of the
Company by each person who, subject to the above, at the date of this
Memorandum, holds of record or is known by Management to own beneficially
more than 5.0% of the Common Shares and, in addition, by all directors and
officers of the Company individually and as a group.
Shareholdings at
Record Date
------------------------------------
Amount
Name and Address of of Common Shares
Beneficial Owner Currently Owned Percent
- ----------------------------------------------------------------------------------------
Great Bay Technology<F1>
Group, Inc.
19 Nathaniel Drive
Amherst, NH 03030 315,000 9.67%
Garrett Sullivan
29 Concord Avenue
Cambridge, Massachusetts 02138 0 0%
Daniel Penni
31 Arnold Road
Wellesley, MA 02181 65,000 2.79%
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Rudolf Kunzli
Chateau Beauregard
F-39350
Pagney, France 656,570 29.07%
All Directors & Officers
as a group (3) 380,000 16.29%
<FN>
<F1>Angela Sullivan, Stephanie Sullivan and Richard Sullivan are the control
persons of Great Bay Technology Group, Inc.
There are currently 200,000 Class B Warrants, 300,000 Class F and 450,000
Class I Warrants outstanding. The following tabulates holdings of Warrants
to be distributed and owned beneficially by all directors and officers of
the Company individually and as a group.
Class and Number Percent of
Name and Address of Warrants<F1> Class
- --------------------------------------------------------------------------------------
Richard J. Sullivan Class B<F1> - 140,000 70.00%
Class F<F2> - 250,000 83.33%
Class I - 300,000 66.67%
Garrett Sullivan Class B - 0 0%
Class F - 0 0%
Class I - 100,000 22.22%
Daniel E. Penni Class B - 0 0%
Class F - 0 0%
All Directors & Officers
as a group (3) Class B - 140,000 70.00%
Class F - 250,000 83.33%
Class I - 400,000 88.89%
<FN>
<F1>pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared voting
power (including the power to vote or direct the voting) and/or sole or
shared investment power (including the power to dispose or direct the
disposition) with respect to a security whether through a contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, each person indicated above has sole power to vote, or dispose or
direct the disposition of all shares beneficially owned, subject to
applicable community property laws.
<F2>Represents Class B and F Warrants owned by Great Bay Technology. Angela
Sullivan, Stephanie Sullivan and Richard Sullivan are the control persons of
Great Bay Technology Group, Inc.
EXECUTIVE COMPENSATION
Remuneration. The following table sets forth certain summary information
concerning the total remuneration paid or accrued by the Company, to or on
behalf of the Company's Chief Executive Officer and the Company's other
executive officer as of the end of each of the last three years.
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SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name Annual Restricted LTIP Other
and Compen- Stock Options/ Pay- Compen-
Principal Salary Bonus sation Awards SARs Outs sation
Position Year ($) ($) ($) ($) ($) ($) ($)
Gary Gray
President, Secretary 1993 $20,999.98
Chief Financial Officer 1994 $51,346.14
1995 N/A
Garrett Sullivan<F1> 1993 N/A
President, Secretary 1994 N/A
Acting Chief Financial 1995 $27,745.00
Officer
<FN>
<F1>Mr. Sullivan also received $29,000 in non-employee compensation for
consulting fees for a trial consultancy period from May through September,
1995 and $2,337 was paid by the Company for insurance. Mr. Sullivan was
subsequently hired as President of the Company.
Compensation Pursuant to Plans. The Company has no plan pursuant to which
cash or non-cash compensation was paid or distributed during the last fiscal
year, or is proposed to be paid or distributed in the future, to the
individuals and group described in paragraph (a) of this Item. None of the
directors of the Company received or became entitled to any amounts during
fiscal 1995 pursuant to any plan.
Stock Option and Stock Appreciation Right Plans - See discussion under "1996
Non-Statutory Stock Option Plan" above.
Compensation of Directors. Directors of the Company who are not employees
of the Company may receive a fee of $250 per meeting for their attendance at
meetings of the Company's Board of Directors, and are entitled to
reimbursement for reasonable travel expenses.
Termination of Employment and Change of Control Arrangement. The Company
has no compensatory plan or arrangements, including payments to be received
from the Company, with respect to any individual named in paragraph (a) and
(b) of this Item, for the latest or the next preceding fiscal year, if such
plan or arrangement results or will result from the resignation, retirement
or any other termination of such individual's employment with the Company, or
from a change in control of the Company or a change in the individual's
responsibilities following a change in control.
CERTAIN TRANSACTIONS
Changes in Control. There are no arrangements, known to the Company,
including any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change of control of
the Company.
Issuance of Warrants to Certain Shareholders and Officers. In January 1996,
the Board of Directors authorized the issuance of 450,000 Class I warrants
to certain shareholders and officers. The warrants will be exercisable for a
period of five years from the date of issuance at the exercise price of
one Warrant plus $2.87 for each Common Share.
Related Party Transactions. The Company originally loaned $14,230 to one
officer for personal reasons at the interest rate of 6% with current balance
of $12,982. The loan does not have a payback term. Due to the lack of a
specific payback term, it is management's opinion that the terms of the loan
are believed to be less favorable, though not materially so, to the Company
as those that would have been entered into with unrelated parties.
Additionally, amounts totaling approximately $108,437 were loaned to Great
Bay Technology, Inc. at the interest rate of 8% with a current balance of
$0.00. The loan to Great Bay Technology, Inc. was offset by an invoice
received from Great Bay Technology, Inc. on June 8, 1995 for $120,000 for
investment banking services rendered
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by Great Bay Technology, Inc. for the Company in 1995. Management has adopted
the policy that future loans to any related parties shall be made at terms at
least as favorable to the Company as those that would have been entered into
with unrelated parties and will not be made if such loans will negatively effect
the Company's cash flow and hamper continued operations.
For services rendered in connection with the three acquisitions which took
place in the third quarter of 1995, the Company paid its affiliate company -
Great Bay Technology Group, Inc. $50,000 for each acquisition for investment
banking services and $76,500 for acquisition services rendered in the fourth
quarter for acquisitions to occur in 1996. These acquisition services were
investment banking services including negotiations of the terms of the
purchase and sales, and employment agreements specifically relating to the
acquisition of Quality Solutions which closed February 13, 1996 for Atlantic
Systems, Inc.
Consulting Agreement. The Company has entered into a consulting
agreement with Pratt, Wylce & Lords, Ltd. ("Pratt") in March 1993 to assist
the Company in its capitalization and the obtainment of additional financing.
These services were rendered in connection with a public registration on Form
S-1. As partial payment for consulting services, the Company issued 86,500
of its common shares to Pratt valued at $1.50 for an aggregate value of
$129,750, 40,000 which were distributed to Pratt shareholders pursuant to its
registration statement on Form S-1 declared effective in August, 1994. In
addition, Pratt received cash compensation of $35,000.
Lockup Agreement. Pursuant to an oral agreement on May 15, 1994 and a
written agreement on September 14, 1994, the shareholders who received
warrants issued them pursuant to the "Joint Action by Unanimous Consent of
the Board of Directors and Shareholders" date March 25, 1994 have agreed as
follows:
In the event the shareholder exercises any warrants, the stock issued to the
shareholder pursuant to the exercise shall be locked in and restricted from
trading for a period of two years. A notice is to be placed on the face of
each stock certificate covered by the terms of the Agreement stating that the
transfer of the stock evidenced by the certificate is restricted until
twenty-four (24) months from the date of issuance. The shareholder also
agrees not to sell or otherwise transfer their interest in the warrants
except to an underwriter or other market makers in the stock once a market is
established. The shareholder further agrees that the total value in cash,
or other consideration, paid by the buyer to the seller shall not exceed
$.001 per warrant.
ACQUISITION OF BURLING INSTRUMENTS, INC. In March, 1996, the Company
purchased 80% of the shares of Burling Instruments, Inc. ("Burling") 16 River
Road, Chatham, NJ 07928-0298 (telephone 201-635-9481) from the John L.
Kemmerer, Jr. Trust. . The aggregate value of consideration paid by the
Company is $962,400. The remaining 20% of the shares are held by Vernon
Anderson, the current president, who remains in that position under a new
employment agreement with the Company.
The acquisition is an exchange of 9,000 shares of convertible preferred
shares of the Company at a value of $100 each plus $57,600 in common shares
of the Company for 80% of the outstanding shares of Burling. The Preferred
Shares may be converted at the price of $5.75 per common share over two years
at the choice of the buyer. The preferred shares will pay an annual
dividend of 8%. The authorization of the Preferred Shares is being sought
in this proxy statement. The transaction is described in its entirety in
the Agreement and Plan of Reorganization between the Company and the John L.
Kemmerer, Jr. Trust dated March 7, 1996.
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The Company entered into the transaction because (i) the operations of
Burling fit with the Company's RF wireless technology which when combined
with the Burling's current line, could greatly expand Burling's market
potential; (ii) Burling can be expanded profitably by assembling products
Burling is now importing as finished goods; and (iii) Burling has an
excellent reputation that can be promoted and expanded in current markets of
the Company.
The valuation of the transaction was based on projected earnings under the
combined management of Burling and the Company. The Company has a policy of
acquiring companies at 4 times projected earnings before interest and taxes
(EBIT). After that determination is made, the number of shares to be issued
by the Company is based on the current market price of the Common Shares at
the time of closing ($4.75) plus a $1.00 per share premium. The Company
did not obtain an opinion from an independent financial analyst for valuation
purposes due to the cost because the Company, as an operating entity depends
on the expertise of the Chairman who has extensive experience in investment
banking, with follow up review of the Board of Directors.
Based on current projections of Burling's income of $167,500 for the ten
months ended December 31, 1996, the incremental shares issued to purchase
Burling will earn approximately $1.00 per share in 1996. Therefore, the
overall interest of current shareholders will be enhanced by the issuance of
shares to Burling and the acquisition will result in no dilution to current
shareholders.
Burling will be covered on the Company's books as an 80% owned subsidiary and
the transaction will be treated as a tax-free exchange of stock.
The Agreement and Plan of Reorganization requires that 8% dividends to be
paid by the Company to the Kemmerer Trust by the 66th day of the two calendar
years following the year of issuance. Currently, the aggregate amount of
dividends in arrears that are payable by the Company to the Kemmerer Trust is
$0.00. There are no other dividends payable or in arrears by the Company.
There are no federal or state regulatory requirements which must be complied
with or whose approval must be obtained in connection with the transaction.
BUSINESS AND PROPERTIES OF BURLING. Burling was originally founded in 1935
as a proprietorship. Burling was incorporated in New Jersey in 1985.
Since its inception, as Burling Instruments, Inc., there has never been a
bankruptcy, receivership or similar proceeding, nor has there been a major
consolidation or purchase or sale of any significant assets until the
proposed purchase of 80% of Burling's common stock by the Company. Burling
is a manufacturer of Industrial Temperature Controls (Standard Industrial
Classification 3823).
Products. Burling's principal products are Electromechanical
temperature controls, Electronic temperature controls and imported
Thermostats. Burling's products are sold by independent sales
representatives throughout the United States and Europe. These independent
sales representatives are serviced by Burling's inside sales desk in Chatham,
New Jersey. Burling has a mature product line and has not publicly announced
any new products or services. Burling has a less than one per cent market
share in the process control market.
Raw Materials. Burling buys its raw materials from domestic suppliers
of switches, tubing, castings, fasteners and sheet metal stampings. Some of
its principal suppliers are Microswitch, Tube Sales, Fastbolt, Eastern
Castings and Bloomfield Manufacturing. Burling has alternate sources
available at similar costs for the raw materials.
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Customers; Seasonabilty; Backlog. Burling has no dependence on one or
a few major customers. Its largest customer represents less than 5% of its
total sales. Burling's business is not seasonal in nature. At December 31,
1994 and 1995, Burling had a backlog of unfilled orders for its products of
approximately $200,000.
Patents, Trademarks and Licenses. Burling has no patents, trademarks,
licenses, etc. that are effecting the business and there is no required
governmental approval of its principal products or services, nor is there any
material effect on the business by government regulations.
Research and Development. Burling's research and development expenses
have amounted to approximately $1,000 in each of the last two years.
Customers of Burling have not borne any of the research and development
expenses of Burling.
Competition. Burling will be competing with established companies and
other entities (many of which may possess substantially greater resources
than Burling). Almost all of the companies with which Burling competes are
substantially larger, have more substantial histories, backgrounds,
experience and records of successful operations, greater financial,
technical, marketing and other resources, more employees and more extensive
facilities than Burling now has, or will have in the foreseeable future. It
is also likely that other competitors will emerge in the near future. There
is no assurance that Burling's products will compete successfully with other
established and/or well regarded products. Primary competition are
companies such as United Electric, Fenwal, Part Low, Barksdale, Love
Controls, Athena, Robertshaw, Sensors and Switches and RANCO. Burling shall
compete on the basis of quality and cost of its products. Inability to
compete successfully might result in increased costs, reduced yields and
additional risks to the investors herein
Environment. Burling has spent under $500 per year to have hazardous
waste materials shipped to a licensed disposal site with appropriate paper
work supporting compliance with existing Federal and New Jersey laws
governing such removal.
Employees. Burling presently employs nineteen (19) people, fifteen
(15) of them full time.
Legal Proceedings. There are no existing legal proceedings involving
Burling.
Properties. Burling currently leases an 11,000 square foot, single
story building in good condition at 16 River Road, Chatham, New Jersey. The
building is currently on a six (6) month extension of a five (5) year lease.
Management of Burling believes that building has adequate insurance
protection.
Market for Burling's Common Equity and Related Stockholder Matters.
Burling's common stock is privately held and there is no market for Burling's
common stock. The approximate number of holders of record of Burling's $.001
par value common stock, as of December 31, 1995, was two. Currently, as of
March 31, 1996, there are two holders of record. Holders of Burling's
common stock are entitled to receive such dividends as may be declared by its
Board of Directors. Since inception no dividends on the Company's common
stock have ever been paid, and the Company does not anticipate that dividends
will be paid on its common stock in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BURLING.
Trends and Uncertainties. Burling has tried to limit the major
variables of interest rates and operating expense. However, as Burling has
little or no control as to the demand for its products and services,
inflation and changing prices could have a material effect on the future
profitability of Burling.
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The gross profit as a percent of sales has remained fairly steady (40% for
fiscal 1994, 44% for fiscal 1995 and 40% for fiscal 1996. However, net
income (1% of gross sales in fiscal 1994, 3.0% of gross sales in fiscal 1995
and 1.% of gross sales in fiscal 1996) is usually subject to year end
adjustments and is therefore harder to project at this time. There can be
no assurance that gross profit as a percent of sales will remain at current
levels or that net income as a percentage of gross sales will not continue to
decline.
Capital Resources and Source of Liquidity. Burling currently has no
material commitments for capital expenditures. Burling currently has a
negative cash flow from investing activities and financing activities,
however, Burling has positive cash flow from operating activities which is
sufficient to cover Burling's working capital needs on a short-term basis.
For the year ended February 29, 1996, Burling made capital expenditures for
equipment of $1,137. Net cash used in investing activities for the year
ended February 29, 1996 was $1,137.
For the year ended February 28, 1995, Burling made capital expenditures for
equipment of $10,000, and paid a security deposit of $321, resulting in
cash used by investing activities of $10,321.
Burling made principal payments on its long-term debts of $20,595 for the year
ended February 29, 1996. Burling received $20,000 on a temporary bank loan
for the year ended February 29, 1996. As a result, net cash used by
financing activities for the year ended February 29, 1996 was $595.
Burling made principal payments on its long-term debts of $100,000 for the
year ended February 28, 1995. As a result, net cash used in financing
activities for the year ended February 28, 1995 was $100,000.
On a long term basis, liquidity is dependent on increased revenues from
operations, additional infusions of capital and debt financing. The Company
and Burling believes that additional capital and debt financing in the short
term will allow Burling to increase its marketing and sales efforts and
thereafter result in increased revenue and greater liquidity in the long
term. The Company and Burling believes that Burling's increased revenue
from operations will result in sufficient working capital and liquidity in
the long term. However, there can be no assurance that Burling will be able
to obtain additional equity or debt financing in the future, if at all.
Plan of Operation. The Company and Burling plan to increase Burling's
current revenues and net earnings by using the Company's current industry
knowledge to expand Burling's sales in high-tech areas.
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The current operations of Burling of the Company are estimated to generate
approximately $1,700,000 in revenues in the fiscal year 1996 and are
projected to generate at least that same amount in fiscal year 1997. No
external matters in the industry have occurred that have effected Burling in
an adverse way. Burling has not experienced any labor difficulties or any
other internal impediments.
The nature of Burling's business does not require any significant ongoing
capital expenditures, only increases in working capital. If revenues were
not sufficient, to maintain working capital needs, management would pursue
lines of credit.
For the year ended February 28, 1995, the Company had a positive cash flow
from operations of $83,338, had a positive cash flow of $44,514 for the nine
months ended November 30, 1995 and the preliminary estimate for 1996
indicates that the Company's performance should retain a positive cash flow
and that its cash flow needs can be met through current operations.
Management's assessment of future performance is limited to projections based
on current conditions and does not include any uncertainties which may arise.
Potential investors should not attribute undue certainty to management's
assessment. Management does not intend to furnish updated projections.
RESULTS OF OPERATIONS:
Burling had sales of $1,313,400 and $1,309,900 for the ten months ended
November 30, 1995 and November 30, 1994 respectively. The gross profit
decreased in dollars and percentages from $619,999 (40%) in 1994 to $573,400
(44%) in 1995. This was due to an increase in the cost of goods sold from
$619,000 for the nine months ended November 30, 1994 to $740,000 for the nine
months ended November 30, 1995 mainly due to the purchase of $92,568 in
thermostats included in raw materials. Net income decreased to $43,900 for
the nine months ended November 30, 1995 from $71,500 for the nine months
ended November 30, 1994.
Burling had sales of $1,725,449 and $1,669,392 for the fiscal years ended
February 28, 1995 and February 28, 1994 respectively. The gross profit
increased in dollars and percentages from $660,300 (40%) in 1994 to $763,050
(44%) in 1995. This resulted from a reduction in cost of goods sold made
possible by the purchase of an added lathe allowing for machining of parts by
Burling that had formerly been purchased from an outside source. Prices had
also been increased in mid 1993 and thus there was the effect on a full year
of sales. Net income increased to $53,052 in fiscal year 1995 from $9,426
in fiscal year 1994.
Burling is seeking to reduce its operating expenses while increasing its
customer base and operating revenues. The major change in 1996 will be from
increased sales in the bulb and capillary thermostats which are currently
being imported from Germany under a Private Label agreement. In the second
quarter of 1996, Burling intends to enter into an agreement with the German
supplier, Jumo Process Control, Inc. which will enable Burling to assemble
these products in Chatham, New Jersey by shipping Burling component parts.
The agreement to potentially assemble those products in the United States is
in the early stages of negotiations. This will enable Burling to produce the
Thermostats more economically since German labor rates are significantly
higher than Burling rates for similar work. These lower costs will permit
Burling to be more competitive in the market place and result in higher
sales. Burling currently has a private label agreement with this supplier
whereby Burling markets in the United States and Canada, a series of bulb and
capillary thermostats which the German supplier manufactures in German.
Other than described above, no past, present or proposed material contracts,
arrangements, understandings, relationships, negotiations or transactions
have occurred during the
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periods for which financial statements are presented between the John L.
Kemmerer, Jr. Trust, Burling and the Company.
The high and low sale prices of the Common Shares of the Company as of the
date preceding public announcement of the acquisition (January 9, 1996) were
5 1/8 and 6 7/8 respectively. Representatives of Rubin, Brown & Gornstein,
principal accountants for the Company are expected to be present at the
Annual Meeting of the Shareholders, will have the opportunity to make a
statement if they desire to do so; and are expected to be available to
respond to appropriate questions.
Similar information on the Company is hereby incorporated by reference to the
Annual Report which accompanies this proxy statement.
FINANCIAL STATEMENTS OF BURLING:
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BURLING INSTRUMENTS, INC. EXHIBIT A
------------------------- ---------
COMPARATIVE BALANCE SHEETS
--------------------------
FEBRUARY 28, 1995 AND 1994
--------------------------
ASSETS
------
1995 1994
------------ ------------
Current assets
- --------------
Cash $ 30,860 $ 57,842
Accounts receivable, net of allowance for
doubtful accounts 205,476 182,111
Inventories (Note 1, 2) 453,630 476,557
Prepaid expenses 4,688 4,513
Prepaid corporate taxes 2,205 10,225
------------ ------------
Total current assets 696,859 731,248
Plant, property and equipment
- -----------------------------
Equipment, furniture and fixtures at cost -
net of accumulated depreciation (Note 1, 3) 60,644 86,871
Other assets
- ------------
Security deposits 2,224 1,903
Intangible assets - EXHIBIT A-1 22,180 25,431
- ----------------- ------------ ------------
Total assets $ 781,907 $ 845,453
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
- -------------------
Current maturities of long-term debt (Note 4) $ 100,000 $ 100,000
Accounts payable - trade 35,688 56,293
Corporate income tax payable 3,929 -
Profit-sharing payable (Note 5) - -
Accrued expenses - EXHIBIT A-1 66,895 67,371
Deferred Federal income tax (Note 1, 6) 20,950 20,396
------------ ------------
Total current liabilities 227,462 244,060
Long-term debt, net of current maturities (Note 4) - 100,000
------------ ------------
Total liabilities 227,462 344,060
------------ ------------
Shareholders' equity
- --------------------
Common stock - at cost
No par value 1,000 shares authorized
issued and outstanding 1,075 1,075
Additional paid-in capital 373,925 373,925
Accumulated earnings - EXHIBIT B 179,445 126,393
------------ ------------
Total shareholders' equity 554,445 501,393
------------ ------------
Total liabilities
and shareholders' equity $ 781,907 $ 845,453
============ ============
The accompanying notes are an integral part of this statement.
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BURLING INSTRUMENTS, INC. EXHIBIT A-1
------------------------- -----------
SUPPORTING EXHIBIT
------------------
FEBRUARY 28, 1995 AND 1994
--------------------------
1995 1994
---------- ---------
Intangible Assets
- -----------------
Goodwill - net of accumulated amortization
of $5,400 and $4,800 in 1995 and 1994 $ 18,600 $ 19,200
Deferred loan costs-net of accumulated amortization
of $10,721 and $8,061 in 1995 and 1994 3,580 6,231
---------- ---------
Total - carried to EXHIBIT A $ 22,180 $ 25,431
----- ========== =========
Accrued Expenses
- ----------------
Commissions $ 18,126 $ 17,487
Payroll and related taxes 42,969 44,174
Other accrued expenses 5,800 5,710
---------- ---------
Total - carried to EXHIBIT A $ 66,895 $ 67,371
----- ========== =========
The accompanying notes are an integral part of this statement.
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BURLING INSTRUMENTS, INC. EXHIBIT B
------------------------- ---------
STATEMENTS OF INCOME AND EXPENSES
---------------------------------
AND CHANGES IN RETAINED EARNINGS
--------------------------------
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
----------------------------------------------
1994-95 1993-94
------------------------- -------------------------
% OF % OF
AMOUNT SALES AMOUNT SALES
------------ ----- ------------ -----
Net sales $ 1,725,449 100 $ 1,660,392 100
Cost of goods sold (Schedule 1) 962,399 56 1,000,092 60
------------ --- ------------ ---
Gross Profit 763,050 44 660,300 40
------------ --- ------------ ---
Operating expenses
- ------------------
Selling 287,742 17 281,728 17
Administrative 369,149 21 352,581 21
Profit-sharing Plan
Contributions -
------------ --- ------------ ---
Total Operating
Expenses 656,891 38 634,309 38
------------ --- ------------ ---
Income from Operations 106,159 6 25,991 2
Other income (expenses)
- ----------------------
Interest expense (14,857) (1) (21,992) (1)
Miscellaneous 253 3,665
------------ --- ------------ ---
Net income before provision
- ---------------------------
for taxes 91,555 5 7,664 1
---------
Provision for taxes (Note 6) (38,503) 2 1,762
------------ --- ------------ ---
Net income for the year 53,052 3 9,426 1
- ----------------------- === ===
Accumulated earnings -
Beginning of year 126,393 116,967
------------ ------------
Accumulated earnings -
End of year - carried
to EXHIBIT A $ 179,445 $ 126,393
============ ============
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BURLING INSTRUMENTS, INC. EXHIBIT C
------------------------- ---------
COMPARATIVE STATEMENTS OF CASH FLOWS
------------------------------------
FEBRUARY 28, 1995 AND 1994
--------------------------
INCREASE (DECREASE) IN CASH
---------------------------
FEBRUARY 28,
----------------------------
1994-95 1993-94
---------- ----------
Cash flows from operating activities
- ------------------------------------
Net income - EXHIBIT B $ 53,052 $ 9,426
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 39,478 39,233
Bad debts -
Change in accounts receivable (23,365) 37,806
Change in inventory 22,927 (4,937)
Change in prepaid items 7,845 11,599
Change in reserve for medical claims - (10,000)
Change in accounts payable and accrued expenses (17,153) 16,350
Change in deferred taxes payable 554 (7,329)
---------- ----------
Net cash provided by operating activities 83,338 92,148
---------- ----------
Cash flows from investing activities
- ------------------------------------
Additional security deposit (321) (726)
Capital expenditures (10,000) (8,398)
---------- ----------
Net cash used by investing activities (10,321) (9,124)
---------- ----------
Cash flows from financing activities
- ------------------------------------
Principal payments on long-term debts (100,000) (100,000)
---------- ----------
Net cash used by financing activities (100,000) (100,000)
---------- ----------
Net increase (decrease) in cash and
- -----------------------------------
cash equivalents (26,983) (16,976)
----------------
Cash balance - Beginning of year 57,843 74,819
- -------------------------------- ---------- ----------
Cash balance - End of Year $ 30,860 $ 57,843
- -------------------------- ========== ==========
Cash paid for interest $ 15,404 $ 22,390
Cash paid for income taxes $ 34,020 $ (6,069)
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BURLING INSTRUMENTS, INC.
-------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
FEBRUARY 28, 1995 AND 1994
--------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
-----------
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Depreciation
------------
Depreciation is provided for on the straight-line method over their
estimated useful lives. The estimated lives used in determining
depreciation are:
Furniture and fixtures 5 years
Machinery and equipment 10 years
Amortization
------------
Intangible assets are amortized on the straight-line method over the
following periods:
Goodwill 480 months
Covenant not to compete 60 months
Deferred loan costs 180 months
Organization costs 60 months
Income Taxes
------------
The deferred income taxes in the accompanying financial statements
reflect the timing differences in reporting results of operations for
income tax and financial accounting purposes. Deferred taxes are
classified as current or noncurrent depending on the classification of
the assets and liabilities which they relate.
2. INVENTORIES
Inventories consists of the following:
1995 1994
---------- ----------
Work-in process (assemblies) $ 190,190 $ 190,205
Raw materials 263,440 286,352
---------- ----------
Totals $ 453,630 $ 476,557
========== ==========
Page 25
26
BURLING INSTRUMENTS, INC.
-------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
FEBRUARY 28, 1995 AND 1994
--------------------------
3. EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consists of the following:
1995 1994
---------- ----------
Building improvements $ 4,988 $ -
Furniture and fixtures 133,828 133,828
Machinery and equipment 349,691 339,691
---------- ----------
Total 488,507 478,507
Less: accumulated depreciation 427,863 391,636
---------- ----------
Net book value $ 60,644 $ 86,871
========== ==========
4. LONG-TERM DEBT
Long-term debt consists of the following:
1995 1994
---------- ----------
Note payable with yearly payments of
$100,000 secured by accounts receivable,
inventories and equipment, interest rate
is variable, currently @7.5% $ 100,000 $ 200,000
Less: current maturities 100,000 100,000
---------- ----------
Net long-term debt $ None $ 100,000
========== ==========
Aggregate maturities of long-term debt are as follows:
1994
----------
1996 $ -
1995 100,000
----------
Total $ 100,000
==========
Page 26
27
BURLING INSTRUMENTS, INC.
-------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
FEBRUARY 28, 1995 AND 1994
--------------------------
5. COMMITMENTS
The Company has a discretionary profit-sharing plan covering
substantially all employees. The Company's contribution to the plan is
determined annually by the Board of Directors. No contribution will be
made for the years ended February 28, 1995 or 1994.
The Company conducts its operations in a leased facility. The Company
exercised the option to extend the lease for an additional five year
period expiring February 28, 1996.
The approximate minimum annual rental payments under the above lease
are as follows:
1995-96 $ 73,080
=========
Rent expense for the years ended February 28, 1995 and 1994 was $75,201
and $73,080 respectively.
The Company maintains 3 automobiles on lease. The lease commitments are
as follows:
1995 1994
---------- ----------
1994-95 $ - $ 8,242
1995-96 10,775 7,459
1996-97 10,775 7,459
1997-98 8,824 1,549
1998-99 2,625 -
---------- ----------
Total $ 32,999 $ 24,709
========== ==========
6. INCOME TAXES
The components of income tax expense are:
1995 1994
---------- ----------
Current portion $ 37,949 $ 10,241
Deferred taxes (Note 1) 554 343
---------- ----------
Total income tax expense $ 38,503 $ 10,584
========== ==========
Page 27
28
AUDITOR'S REPORT
ON SUPPLEMENTARY INFORMATION
Our examination of the basic financial statements was made primarily to form
an opinion on such financial statements taken as a whole. The supplementary
information contained in the following pages is presented for the purpose of
additional analysis and, although not required for a fair presentation of
financial position, results of operations, and cash flows, was subjected to
the adult procedures applied in the examinations of the basic financial
statements. In our opinion, the supplementary information is fairly
presented in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Noke and Heard
NOKE AND HEARD
Page 28
29
BURLING INSTRUMENTS, INC. SCHEDULE 1
------------------------- ----------
SCHEDULES OF COST OF GOODS SOLD
-------------------------------
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
----------------------------------------------
1994-95 1993-94
----------------------- -----------------------
% OF % OF
AMOUNT SALES AMOUNT SALES
---------- ----- ---------- -----
Inventories - beginning of year $ 476,557 28 $ 471,620 28
Purchases - net 339,566 20 392,663 24
Direct labor 348,209 20 361,757 22
---------- ---- ---------- ----
Subtotal 1,164,332 68 1,226,040 74
Depreciation 34,388 2 33,888 2
Factory materials and supplies 15,063 1 14,410 1
Cleaning service 4,130 0 5,150 0
Insurance - general 13,590 1 13,238 1
Insurance - group 46,809 3 55,152 3
Payroll taxes 32,330 2 31,077 2
Real estate taxes 15,411 1 14,775 1
Rent 54,800 3 54,814 3
Repairs and maintenance 9,342 0 5,765 0
Shipping supplies 8,535 0 4,430 0
Utilities 17,299 1 17,910 1
---------- ---- ---------- ----
Goods available for sale 1,416,029 82 1,476,649 89
- ------------------------
Less: Inventories - end of
year 453,630 26 476,557 29
---------- ---- ---------- ----
Cost of goods sold $ 962,399 56 $1,000,092 60
- ------------------ ========== ==== ========== ====
Page 29
30
BURLING INSTRUMENTS, INC. SCHEDULE 1
------------------------- ----------
SCHEDULES OF ADMINISTRATIVE EXPENSES
------------------------------------
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
----------------------------------------------
1994-95 1993-94
----------------------- -----------------------
% OF % OF
AMOUNT SALES AMOUNT SALES
---------- ----- ---------- -----
Salaries and wages
Executive $ 158,607 9 $ 150,189 9
Other 58,411 4 57,511 4
---------- ---- ---------- ----
217,018 13 207,700 13
Agency approval 12,721 1 2,668 0
Amortization 3,251 0 3,251 0
Automobile 11,563 1 11,582 1
Bad debts 1,200 0 3,130 0
Charitable contributions 94 0 369 0
Cleaning service 1,340 0 1,718 0
Computer service 2,717 0 2,054 0
Depreciation 1,506 0 2,094 0
Director's fees 2,951 0 4,202 0
Dues and subscriptions 1,068 0 910 0
Employee's group insurance 17,191 1 21,789 1
Employment services - - 200 0
General insurance 7,940 1 8,866 1
Miscellaneous 4,084 0 3,624 0
Miscellaneous taxes 632 0 165 0
Office supplies 5,102 0 6,800 1
Payroll taxes 20,038 1 18,745 1
Postage 5,027 0 4,581 0
Professional fees 6,364 0 6,693 0
Real estate taxes 4,791 0 4,925 0
Rent 20,401 1 18,266 1
Repairs and maintenance 2,734 0 1,113 0
Research and development 532 0 43 0
Service contracts 1,882 0 1,405 0
Telephone 10,530 1 9,307 1
Temporary help 725 0 - 0
Utilities 5,747 1 6,381 0
---------- ---- ---------- ----
Total $ 369,149 21 $ 352,581 21
----- ========== ==== ========== ====
Page 30
31
BURLING INSTRUMENTS, INC.
- --------------------------------------------------------------------------------
BALANCE SHEET
NOVEMBER 30, 1995
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 44,514
Accounts receivable 223,036
Inventory 520,988
Prepaid expenses 27,260
-------------
TOTAL CURRENT ASSETS 815,798
-------------
EQUIPMENT AND IMPROVEMENTS
Building improvements 4,988
Machinery and equipment 349,691
Furniture and fixtures 134,966
-------------
489,645
Less: Accumulated depreciation and amortization 455,904
-------------
TOTAL EQUIPMENT AND IMPROVEMENTS 33,741
-------------
OTHER ASSETS 21,955
-------------
$ 871,494
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - bank $ 100,000
Accounts payable 61,246
Accrued expenses 46,430
Commissions payable 19,098
Income tax payable 25,425
Deferred income tax liability 20,950
-------------
TOTAL CURRENT LIABILITIES 273,149
-------------
STOCKHOLDERS' EQUITY
Capital stock:
Authorized 1,000 shares of no par value;
issued and outstanding 1,000 shares 1,075
Additional paid-in capital 373,925
Retained earnings 223,345
-------------
TOTAL STOCKHOLDERS' EQUITY 598,345
-------------
$ 871,494
=============
- --------------------------------------------------------------------------------
Page 31
32
BURLING INSTRUMENTS, INC.
- -----------------------------------------------------------------------------------------------
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
(ROUNDED TO THE NEAREST HUNDRED)
STATEMENT OF INCOME
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------------------------------------------------
1994 1995 1994 1995
------------------------------------------------------------
Net Sales $ 427,300 $ 444,400 $ 1,309,900 $ 1,313,400
Cost Of Goods Sold 228,800 253,500 690,900 740,000
- ------------------------------------------------------------------------------------------------
Gross Profit 198,500 190,900 619,000 573,400
- ------------------------------------------------------------------------------------------------
Administrative Expenses 88,100 85,000 270,600 261,700
Selling Expenses 70,700 73,200 215,500 229,100
- ------------------------------------------------------------------------------------------------
158,800 158,200 486,100 490,800
- ------------------------------------------------------------------------------------------------
Operating Income 39,700 32,700 132,900 82,600
Other Income (Expense) (3,500) (2,500) (11,400) (7,700)
- ------------------------------------------------------------------------------------------------
Income Before Provision For Income
Taxes 36,200 30,200 121,500 74,900
Provision For Income Taxes 8,000 6,600 50,000 31,000
- ------------------------------------------------------------------------------------------------
Net Income $ 28,200 $ 23,600 $ 71,500 $ 43,900
================================================================================================
STATEMENT OF RETAINED EARNINGS
Balance - Beginning Of Period $ 169,693 $ 199,745 $ 126,393 $ 179,445
Net Income 28,200 23,600 71,500 43,900
- ------------------------------------------------------------------------------------------------
Balance - End Of Period $ 197,893 $ 223,345 $ 197,893 $ 223,345
================================================================================================
- --------------------------------------------------------------------------------
Page 32
33
BURLING INSTRUMENTS, INC.
- --------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
--------------------------------------------------------
1994 1995 1994 1995
--------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 28,200 $ 23,600 $ 71,500 $ 43,900
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,164 10,163 30,480 30,487
Change in assets and liabilities:
(Increase) decrease in accounts
receivable 6,386 8,859 (57,523) (17,560)
Increase in inventories (21,065) (252) (19,681) (67,358)
(Increase) decrease in prepaid
expenses 2,303 (24,704) 20,813 (20,367)
Increase in security deposit -- -- (246) --
Increase (decrease) in accounts
payable and accrued expenses (16,242) (10,862) 7,344 45,687
Increase in deferred tax liability -- 554 -- --
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 9,746 7,358 52,687 14,789
CASH FLOWS USED IN INVESTING ACTIVITIES
Payments for equipment -- -- -- (1,135)
CASH FLOWS USED IN FINANCING ACTIVITIES
Net amounts paid on note payable - bank (30,000) (10,000) (70,000) --
- --------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (20,254) (2,642) (17,313) 13,654
CASH - BEGINNING OF PERIOD 60,783 47,156 57,842 30,860
- --------------------------------------------------------------------------------------------------------
CASH - END OF PERIOD $ 40,529 $ 44,514 $ 40,529 $ 44,514
========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 3,500 $ 2,800 $ 11,600 $ 8,200
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 33
34
BURLING INSTRUMENTS, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
by the first-in, first-out method.
DEPRECIATION
Depreciation is provided for on the straight-line method over their
estimated useful lives. The estimated lives used in determining
depreciation are:
Furniture and fixtures 5 years
Machinery and equipment 10 years
AMORTIZATION
Intangible assets are amortized on the straight-line method over the
following periods:
Goodwill 480 months
Covenant not to compete 60 months
Deferred loan costs 180 months
Organization costs 60 months
INCOME TAXES
The deferred income taxes in the accompanying financial statements reflect
the timing differences in reporting results of operations for income tax and
financial accounting purposes. Deferred taxes are classified as current or
noncurrent depending on the classification of the assets and liabilities
which they relate.
2. NOTE PAYABLE - BANK
The note payable - bank at December 31, 1995 consists of the following:
Note payable - bank, secured by accounts receivable, inventories and
equipment, interest payable monthly at 1.5% over the prime rate, due
February 29, 1996. $100,000 was outstanding at November 30, 1995.
- --------------------------------------------------------------------------------
Page 34
35
BURLING INSTRUMENTS, INC.
- --------------------------------------------------------------------------------
Notes To Financial Statements (Continued)
3. COMMITMENTS
The Company has a discretionary profit sharing plan covering substantially
all employees. The Company's contribution to the plan is determined annually
by the Board of Directors.
The Company conducts its operations in a leased facility. The Company
exercised the option to extend the lease for an additional five-year period
expiring February 28, 1996.
The approximate minimum annual rental payments remaining under the above
lease are as follows:
YEAR AMOUNT
-------------------------------
1995-96 $18,270
===============================
Rent expense for the nine months ended November 30, 1994 and 1995 was
$56,151 and $57,231, respectively.
Rent expense for the three months ended November 30, 1994 and 1995 was
$18,717 and $19,077, respectively.
4. INCOME TAXES
The provision for income taxes consists of:
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------- ---------------------
1994 1995 1994 1995
-------------------------------------------------
Current portion $ 8,000 $ 6,046 $ 50,000 $ 31,000
Deferred taxes (Note 1) -- 554 -- --
--------------------------------------------------------------------------------
$ 8,000 $ 6,600 $ 50,000 $ 31,000
================================================================================
- --------------------------------------------------------------------------------
Page 35
36
VOTING AND SOLICITATION OF PROXIES
Stockholders represented by properly executed proxies received by the Company
prior to or at the Meeting and not duly revoked will be voted in accordance
with the instructions thereon. If proxies will be voted in instructions are
indicated thereon, such proxies will be voted in favor of Items 1 through 5
inclusive. Execution of a proxy will not prevent a stockholder from
attending the Meeting and revoking his proxy by voting in person (although
attendance at the Meeting will not in itself revoke a proxy). Any
stockholder giving a proxy may revoke it at any time before it is voted by
giving to the Company's Secretary/Treasurer written notice bearing a later
date than the proxy, by delivery of a later dated proxy, or by voting in
person at the Meeting. Any written notice revoking a proxy should be sent to
Applied Cellular Technology, Inc., Highway 160 & CC, Suite 3, Nixa, Missouri
65714.
The Company's Board of Directors does not know of any other matters which
will be presented for consideration at the Meeting. However, if any other
matters which will be presented for consideration at the Meeting. However,
if any other matters are properly presented for action at the Meeting, it is
the intention of the person(s) named in the accompanying Form of Proxy to
vote the shares represented thereby in accordance with their best judgment on
such matters.
All costs relating to the solicitation of proxies made hereby will be borne
by the Company. Proxies may be solicited by officers and directors of the
Company personally, by mail or by telephone or telegraph, and the Company may
pay brokers and other persons holding shares of stock in their names of those
of their nominees for their reasonable expenses in forwarding soliciting
material to their principals.
It is important that proxies be returned promptly. Stockholders who do not
expect to attend the Meeting in person are urged to sign and date the
accompanying Form of Proxy and mail it in a timely fashion so that their vote
can be recorded.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has approved a resolution retaining Rubin, Brown,
Gornstein & Co. as the independent certified public accountants of the
Company for the fiscal year ending December 31, 1996. This firm has acted
as such accountants for the Company and its predecessor companies for many
years.
In additional to its principal service of examining the financial statement
of the Company, Rubin, Brown, Gornstein & Co. provided certain non-audit
services for the Company during the preceding fiscal year and such services
were approved management. In approving the services, management determined
that the nature of the services and the estimated fees to be charged would
have no adverse effect on the independence of the accountants.
Representatives of Rubin, Brown, Gornstein & Co. are expected to be present
at the Annual Meeting and to have the opportunity to make a statement should
they desire to do so and to be available to respond to appropriate questions.
ADDITIONAL INFORMATION
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1995, including the consolidated financial statements and
related notes thereto, together with the report of the independent auditors
and other information with respect to the Company, accompanies this Proxy
Statement.
PRELIMINARY COPY
- FOR THE INFORMATION OF THE SECURITIES EXCHANGE COMMISSION ONLY
Page 36
37
OTHER MATTERS
The Company is not aware of any other business to be presented at the Annual
Meeting. If matters other than those described herein should properly
arise at the meeting, the proxies will vote on such matters in accordance
with their best judgment.
SHAREHOLDER PROPOSALS
Proposals by Shareholders intended to be presented at the 1997 Annual Meeting
must be received by the Company no later than November 15, 1996.
PRELIMINARY COPY
- FOR THE INFORMATION OF THE SECURITIES EXCHANGE COMMISSION ONLY
Page 37