1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
AMENDMENT NO. 1 TO FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 21, 1996
SAVIN ELECTRONICS INC.
(Exact name of registrant as specified in charter)
New Jersey 33-36670 22-3061278
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
C/O GARY B. WOLFF, P.C.
747 THIRD AVENUE, NEW YORK, NEW YORK 10017
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 212-644-6446
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On April 4, 1996 the Registrant filed, with the Securities and Exchange
Commission, a Form 8-K with date of report of March 21, 1996, wherein it
referred to various changes in Registrant as indicated in Items 1, 5 and 6 of
such Form 8-K, the full contents of such 8-K inclusive of Exhibits A and B
thereto being herewith incorporated by reference as if fully set forth and
repeated herein; such exhibits being Acquisition Agreement dated March 21, 1996
(Exhibit A) and certified financial statements of acquired business for calendar
years ended December 31, 1993 and 1994 (Exhibit B).
Item 7(a) of such Form 8-K indicated, in part, that when the December
31, 1995 audited financial statements of the acquired company became available
same would be filed as an amendment to the aforesaid Form 8-K. Further, Item
7(b) indicated that in accordance with Item 7(a)(4) of the general instructions
to Form 8-K pro forma financial statements would similarly be provided in an
amendment to aforesaid 8-K. Accordingly, this first amendment to such Form 8-K
is being filed solely for the purposes heretofore indicated and referred to in
Item 7 hereof.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired - Audited consolidated
financial statements for calendar year ended December 31, 1995 are enclosed as
Exhibit A.
(b) Pro Forma Financial Information - In accordance with Item 7(a)(4)
of the general instructions to Form 8-K pro forma financial information is filed
as Exhibit B.
(c) Exhibits -
Exhibit A - Consolidated financial statements of business acquired
for calendar year ended December 31, 1995.
Exhibit B - Pro forma financial information.
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3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SAVIN ELECTRONICS INC.
By /Meir Portnoy/
------------------------------------
Meir Portnoy, President
By /Avi Pines/
------------------------------------
Avi Pines, Secretary
Dated: June 20, 1996
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Exhibit A
SAVIN ELECTRONICS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
5
[LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF
SAVIN ELECTRONICS LTD.
We have audited the accompanying consolidated balance sheets of Savin
Electronics Ltd. ("the Company") and its subsidiaries at December 31, 1995 and
1994 and the related statements of operations, shareholders' deficiency and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Auditors' (Mode of Performance)
Regulations (Israel), 1973. Such auditing standards are substantially identical
to generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the management, as
well as evaluating the overall financial statements presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries at December 31, 1995 and 1994 and their
consolidated results of operations and cash flows for each of the three years in
the period ended December 31, 1995, in conformity with accounting principles
generally accepted in the United States.
The consolidated financial statements have been translated into dollars for the
purposes of their inclusion in the financial statements of Savin Electronics
Inc. (see Notes 1 and 2b to the financial statements).
/s/ BDO Almagor & Co.
- -------------------------------
BDO ALMAGOR & CO.
CERTIFIED PUBLIC ACCOUNTANTS
Ramat-Gan, Israel,
May 14, 1996
6
SAVIN ELECTRONICS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 2
CONSOLIDATED FINANCIAL STATEMENTS:
BALANCE SHEETS 3
as at December 31, 1995, 1994 and 1993
STATEMENTS OF OPERATIONS 5
for the years ended December 31, 1995, 1994 and 1993
STATEMENT OF SHAREHOLDERS' EQUITY 6
for the years ended December 31, 1995, 1994 and 1993
STATEMENTS OF CASH FLOWS 7
for the years ended December 31, 1995, 1994 and 1993
NOTES TO FINANCIAL STATEMENTS 9-18
- 1 -
7
SAVIN ELECTRONICS LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
ASSETS
Current assets (Note 16)
Cash and cash equivalents (Notes 2e) 12 169
Marketable securities (Notes 2f&3) - 80
Receivables:
Trade less allowance for doubtful accounts
of US$ 32 thousand at December 31, 1995 and
US$ 27 thousand at December 31, 1994 (Note 2k) 1,756 1,983
Other and prepaid expenses (Note 5) 227 196
Inventories (Notes 2g&6) 2,045 1,954
----- -----
Total current assets 4,040 4,382
----- -----
Related parties - shareholders (Note 4) 293 280
----- -----
Property and equipment (Notes 2h&7)
Cost 1,177 1,287
Less - Accumulated depreciation 563 528
----- -----
614 759
----- -----
Other assets, net (Note 8) - 16
----- -----
4,947 5,437
===== =====
The accompanying notes are an integral part of the
consolidated financial statements.
- 3 -
8
SAVIN ELECTRONICS LTD.
DECEMBER 31,
----------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities (Notes 14&16)
Short-term credits (Note 9) 3,628 3,596
Payables:
Trade 1,236 1,385
Other and accrued expenses (Note 10) 702 570
----- ------
Total current liabilities 5,566 5,551
----- -----
Long-term liabilities
Long-term debt (Note 11) 215 513
Accrued severance pay (Note 12) 174 145
----- ------
389 658
----- ------
Commitments and contingent liabilities (Note 13)
Shareholders' deficiency
Share capital:
Ordinary shares of NIS 1 par value
(Authorized - 2,200,000 shares, issued and
outstanding - 1,950,000 at December 31, 1995 and 1994)
Ordinary shares of NIS 0.0001 par value
(Authorized - 499,000 shares, issued and
outstanding - 449,000 at December 31, 1995 and 1994)
Management shares of NIS 0.0001 par value
(Authorized - 998 shares, issued and
outstanding - 998 at December 31, 1995 and 1994)
Deferred shares of NIS 0.0001 par value
(Authorized - 2 shares, issued and
outstanding - 2 at December 31, 1995 and 1994) 793 793
Foreign currency translation adjustment 60 99
Unrealized gains on marketable securities, net - 28
Accumulated deficit (1,861) (1,692)
----- -----
(1,008) (772)
----- ------
4,947 5,437
===== =====
/s/ M. Portnoy /s/ A. Pines
---------------------------------- -----------------------------------
M. Portnoy A. Pines
Chairman of the Board of Directors Member of the Board of Directors
and Chief Executive Officer and Deputy Chief Executive Officer
The accompanying notes are an integral part of the
consolidated financial statements.
- 4 -
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SAVIN ELECTRONICS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------------------------
1 9 9 5 1 9 9 4 1 9 9 3
------- ------- -------
($ IN THOUSANDS, EXCEPT SHARE DATA)
Revenues (Notes 2i&17a)
Systems sales 5,865 5,678 5,138
Maintenance and other services 756 558 488
---------- ---------- ----------
Total revenues 6,621 6,236 5,626
Cost of revenues (Note 17b):
Systems sales 4,119 3,699 3,165
Maintenance and other services 185 155 110
---------- ---------- ----------
Total cost of revenues 4,304 3,854 3,275
---------- ---------- ----------
Gross profit 2,317 2,382 2,351
Research and development costs, net (Notes 2j&17c) 207 285 407
Selling, general and administrative expenses (Note 17d) 1,717 1,626 1,251
---------- ---------- ----------
Operating profit 393 471 693
Financial expenses, net (Note 17e) (640) (539) (592)
Other income (expenses), net 78 (14) (10)
---------- ---------- ----------
Net income (loss) (169) (82) 91
========== ========== ==========
Earnings (loss) per share (Note 17f) (0.09) (0.04) 0.05
========== ========== ==========
Weighted average number of
shares outstanding (Note 17f) 1,950,045 1,950,045 1,950,045
========== ========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
- 5 -
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SAVIN ELECTRONICS LTD.
STATEMENT OF SHAREHOLDERS' EQUITY
FOREIGN CURRENCY TOTAL
SHARE TRANSLATION UNREALIZED ACCUMULATED SHAREHOLDERS'
CAPITAL ADJUSTMENT GAINS, NET DEFICIT EQUITY
------- ---------- ---------- ------- ------
($ IN THOUSANDS)
------------------------------------------------------------------------------
Balance at January 1, 1993 709 (1,617) (908)
Distribution of bonus shares 84 (84) -
Foreign currency transaction adjustment 114 114
Unrealized gains on marketable securities, net 41 41
Net income for the year 91 91
--- --- --- ------ ---
Balance at December 31, 1993 793 114 41 (1,610) (662)
Foreign currency translation adjustment (15) (15)
Unrealized losses on marketable securities, net (13) (13)
Loss for the year (82) (82)
--- --- --- ------ ---
Balance at December 31, 1994 793 99 28 (1,692) (772)
Foreign currency translation adjustment (39) (39)
Realized gains on marketable securities, net (28) (28)
Loss for the year (169) (169)
--- --- --- ------ ------
Balance at December 31, 1995 793 60 - (1,861) (1,008)
=== === === ====== ======
The accompanying notes are an integral part of the
consolidated financial statements.
- 6 -
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SAVIN ELECTRONICS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------
1 9 9 5 1 9 9 4 1 9 9 3
------- ------- -------
($ IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (169) (82) 91
Adjustments to reconcile net income (loss)
to net cash used in operating activities (Appendix A) 156 (808) (209)
------ ------ ------
Net cash used in operating activities (13) (890) (118)
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 78 -- --
Non-current related parties (13) (54) (100)
Purchase of property and equipment and other assets, net (71) (246) (347)
Proceeds from sale of property and equipment 7 -- --
Investment in marketable securities, net -- (3) 17
Proceeds from sale of investment in 50% -
owned affiliate (Appendix B) 17 -- --
------ ------ ------
Net cash provided by (used in) investing activities 18 (303) (430)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt of long-term debt 77 104 309
Repayment of long-term debt (665) (494) (34)
Short-term credit received (paid), net 428 1,653 217
------ ------ ------
Net cash provided by (used in) financing activities (160) 1,263 492
------ ------ ------
Effect on exchange rate changes on cash (2) (1) 12
------ ------ ------
Increase (decrease) in cash and cash equivalents (157) 69 (44)
Cash and cash equivalents at beginning of year 169 100 144
------ ------ ------
Cash and cash equivalents at end of year 12 169 100
====== ====== ======
APPENDIX A - Adjustments to reconcile net income (loss)
to net cash used in
operating activities:
Depreciation and amortization 154 156 121
Gain on sale of marketable securities (26) -- --
Gain on sale of property and equipment (3) -- --
Increase (decrease) in accrued severance pay, net 29 63 (5)
Erosion in value of long-term loans 4 17 104
Gain on sale of investment in 50%-owned affiliate (13) -- --
------ ------ ------
145 236 220
------ ------ ------
Changes in assets and liabilities:
Decrease (increase) in assets:
Trade receivables 15 (872) (156)
Other receivables and prepaid expenses (28) 14 (167)
Inventories (151) (620) (443)
Increase (decrease) in liabilities:
Trade payables (4) 333 232
Other payables and accrued expenses 179 101 105
------ ------ ------
11 (1,044) (429)
------ ------ ------
156 (808) (209)
====== ====== ======
The accompanying notes are an integral part of the
consolidated financial statements.
- 7 -
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SAVIN ELECTRONICS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTD.)
APPENDIX B
YEAR ENDED DECEMBER 31,
-----------------------
1 9 9 5
-------
$ IN THOUSANDS
--------------
Cash and cash equivalents from sale
of investment in 50%-owned affiliate:
Working capital excluding cash (15)
Fixed assets (34)
Other assets (12)
Long term debt 57
Gain on disposal (13)
----
(17)
====
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SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
a. Savin Electronics Ltd. ("the Company") is an Israeli corporation, which
develops, manufactures and markets power electronic products oriented
towards supplying quality power to sensitive computer and electronic
systems, utilized in the data-processing industry, medical institutions,
etc. The Company sells its products mainly in Israel, the United States
and Europe.
b. The Company was founded in 1977. In recent years, the Company has incurred
losses, mainly attributable to financial expenses. As of December 31,
1995, the Company has deficiencies on working capital and shareholders'
equity of approximately $ 1.5 million and $ 1 million, respectively.
Subsequent to the balance sheet date, in March 1996, the shareholders of
the Company effected a share exchange transaction with the shareholders of
an United States company, American Acquisition Company, which subsequently
changed its name to Savin Electronics Inc. ("Savin Inc.") As a result of
the share exchange transaction, the Company became a 100%-subsidiary of
Savin Inc. Following this transaction, Savin Inc. invested $ 880 thousand
into the Company's equity.
As a result of this investment, Company management anticipates that the
Company's financial expenses will be reduced in the future, and its
working capital will be improved.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
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 and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period.
Actual results could differ from those estimates.
b. TRANSLATION INTO U.S. DOLLARS
The functional currency of the Company is the new Israeli shekel ("NIS").
The consolidated financial statements have been translated into U.S.
dollars in accordance with Statement No. 52 of the Financial Accounting
Standards Board (FASB). Assets and liabilities have been translated at
year-end exchange rates and statement of operations have been translated
at average rates prevailing during the year. Such translation adjustments
have been recorded as a separate component of shareholders' equity.
c. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and its subsidiaries. All significant inter-company
transactions and balances have been eliminated.
d. RATE OF EXCHANGE AND LINKAGE BASIS
Assets and liabilities in, or linked to, foreign currency are included on
the basis of the representative exchange rate prevailing at the balance
sheet date. Representative rates of exchange for the U.S. dollar were as
follows:
December 31, 1995 - NIS 3.135
December 31, 1994 - NIS 3.018
December 31, 1993 - NIS 2.986
Balances linked to the C.P.I. are stated using the specific index to which
the balances are linked.
e. CASH EQUIVALENTS
Cash equivalents include all highly liquid deposits with an original
maturity of less than three months.
- 9 -
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SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (contd.)
f. MARKETABLE SECURITIES
The Company classifies its marketable securities as "available-for-sale"
securities in accordance with Statement No. 115 of the FASB. Unrealized
holding gains and losses related to "available-for-sale" securities are
reported as part of shareholders' equity until realized.
g. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
as follows:
Purchased goods, components and accessories - by first-in-first-out
method. Products-in-process and finished products - at computed cost.
h. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated by
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized by the straight-line method over the
term of the lease, which is shorter than the estimated useful life of the
improvements. Annual rates of depreciation and amortization are as
follows:
Machinery and equipment 10-15% (mainly 15%)
Motor vehicles 15%
Office furniture and equipment 6-20% (mainly 20%)
Leasehold improvements 10-12.5%
i. REVENUE RECOGNITION
Sales are recognized upon shipment and upon acceptance by customers.
j. RESEARCH AND DEVELOPMENT COSTS
Research and development costs, net of third-party participation, are
expensed as incurred.
k. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts has been made on the basis of specific
accounts receivable.
l. DEFERRED INCOME TAXES
Deferred income taxes are provided for temporary differences between the
assets and liabilities, as measured in the financial statements, and for
tax purposes at the tax rates expected to be in effect when these
differences reverse, in accordance with Statement No. 109 of the FASB
(Accounting for Income Taxes).
m. PROVISION FOR WARRANTIES
The Company warrants its products, on the basis of past experience, at a
rate of 1/2% of sales of systems in Israel.
o. RECLASSIFICATION
Certain figures from prior years have been reclassified in order to
conform to the 1995 presentation.
- 10 -
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SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - MARKETABLE SECURITIES
Comprised as follows:
DECEMBER 31,
------------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
Shares - 2
Mutual funds - 78
----- --
- 80
===== ==
NOTE 4 - RELATED PARTIES - SHAREHOLDERS
The balance represents loans made to two of the Company's shareholders. The
highest balance during the year was $ 312 thousand. Through December 31, 1995,
the balance was linked to the Israel consumer price index. Subsequent to the
balance sheet date, the Company signed an agreement with the two shareholders
which changed the terms of the loans, such that the loans will be linked to the
Israeli consumer price index or the dollar with the addition of 3%-interest
whichever is higher and will be repayable in 36 equal monthly instalments
commencing January 1, 1999. At the date of each instalment, interest or linkage
difference, as applicable, will be added to the repayment. The shareholders may
repay the outstanding balance of their loans, or any part thereof, at any time
earlier than the due dates.
NOTE 5 - OTHER RECEIVABLES AND PREPAID EXPENSES
Comprised as follows:
DECEMBER 31,
------------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
Tax authorities 102 100
Income receivable 33 57
Advances to suppliers 48 -
Prepaid expenses - 16
Others 44 23
--- ---
227 196
=== ===
NOTE 6 - INVENTORIES
Comprised as follows:
DECEMBER 31,
----------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
Components and accessories 1,008 851
Work-in-process 501 451
Finished products 536 652
----- -----
2,045 1,954
===== =====
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SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - PROPERTY AND EQUIPMENT
a. COMPRISED AS FOLLOWS:
DECEMBER 31,
----------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
Cost:
Machinery and equipment 387 406
Motor vehicles 259 232
Office furniture and equipment 105 171
Leasehold improvements 426 478
--- ---
1,177 1,287
===== =====
Accumulated depreciation and amortization:
Machinery and equipment 246 253
Motor vehicles 92 72
Office furniture and equipment 71 77
Leasehold improvements 154 126
--- ---
563 528
===== =====
b. Liens - see Note 14.
NOTE 8 - OTHER ASSETS, NET
Comprised as follows:
DECEMBER 31,
-------------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
Goodwill:
Cost - 41
Accumulated amortization - - 25
--- --
- 16
=== ==
NOTE 9 - SHORT-TERM CREDITS
a. COMPRISED AS FOLLOWS:
DECEMBER 31,
AVERAGE ----------------------------
RATE OF INTEREST 1 9 9 5 1 9 9 4
---------------- ------- -------
% ($ IN THOUSANDS)
Bank overdraft: Unlinked 17.2% - 20.2% 1,226 688
Short-term bank loans: Unlinked 8% - 17.5% 2,075 2,238
Current maturities of long-term debt 327 670
----- -----
3,628 3,596
===== =====
b. Liens - see Note 14.
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SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - OTHER PAYABLES AND ACCRUED EXPENSES
Comprised as follows:
DECEMBER 31,
------------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
Payroll and related accruals (1) 366 271
Accrued expenses 229 143
Prepaid income 88 79
Tax authorities 7 76
Others 12 1
--- ---
702 570
=== ===
(1) Including provision for vacation pay 107 130
=== ===
NOTE 11 - LONG-TERM DEBT
a. Comprised as follows:
DECEMBER 31,
AVERAGE ----------------------------
RATE OF INTEREST 1 9 9 5 1 9 9 4
---------------- ------- -------
% ($ IN THOUSANDS)
Israeli Banks LIBOR+3% 430 1,139
Other (mainly in respect of
capital leases) (*) 112 44
--- -----
542 1,183
Less - Current maturities 327 670
--- -----
Total long-term debt 215 513
=== =====
(*) - linked to the Israeli consumer price index + 5.4%
b. Aggregate maturities of long-term debt are as follows:
DECEMBER 31,
------------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
First year - current maturities 327 670
--- -----
Second year 132 313
Third year 52 85
Fourth year 26 59
Fifth year and thereafter 5 56
---
215 513
--- -----
542 1,183
=== =====
c. Securities - see Note 14.
- 13 -
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SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - ACCRUED SEVERANCE PAY
a. Comprised as follows:
DECEMBER 31,
------------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
Liability to severance pay 188 176
Less - amount funded 14 31
174 145
=== ===
b. The Company's liability for severance pay is calculated in accordance with
Israeli law based on the latest salary paid to employees and the length of
employment in the Company. Part of the liability is funded through
managers' insurance policies, which are not under the Company's control.
NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES
a. ROYALTIES
1. The Company is committed to pay royalties to the Office of the Chief
Scientist of the Government of Israel ("Chief Scientist") at a rate
of 2-3% on proceeds of sales of products in the research and
development of which the Chief Scientist participates by way of
grants, up to 100% of the grants received (in dollar terms). The
total amount of grants received, net of royalties paid, as at
December 31, 1995 was approximately $ 461,000.
2. The Company is obliged to pay royalties to the Government of Israel
Fund for the Encouragement of Marketing Activities, at a rate of 3%
on the increase in export sales compared to a base year of 1991, up
to the amount granted on a dollar basis. The balance of the amount
received, as at December 31, 1995 was approximately $ 122,000.
The royalty expenses to the Chief Scientist and the Fund for the
Encouragement of Marketing Activities in 1995 were $64,000 and $ 0,
respectively. There were no expenses in respect of royalties in
1994.
b. LEASE COMMITMENTS
The Company's premises are rented under operating leases. The future
annual operating rental payments under the above leases, in effect at
December 31, 1995, are US$ 193 thousand.
c. CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number of entities comprising the Company's
customer base and their wide geographical dispersion. The Company
maintains an allowance for doubtful accounts, which management believes
adequately covers all anticipated losses in respect of trade receivables.
- 14 -
19
SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - LIENS AND SECURITIES
The total secured liabilities of the Company as at December 31, 1995 are
comprised of bank loans and performance guarantees totalling US$ 4 million.
The liabilities of the Company are secured as follows:
1. Fixed first-priority lien on some of the plant and machinery and insurance
rights
2. Floating lien on plant and machinery totalling US$ 1.5 million.
3. Government guarantee, pursuant to the Law for the Encouragement of Capital
Investments, 1959, totalling US$ 1.5 million (see Note 15).
4. The liabilities of the Company to leasing companies totalling US$ 31
thousand are secured under the ownership of the leasing company on the
leased assets and a lien on the contractual rights of the Company in the
leasing agreement and the assets.
NOTE 15 - TAXES ON INCOME
a. TAXATION UNDER VARIOUS LAWS
1. Taxation under inflationary conditions
All of the Company's income is subject to the provisions of the
Income Tax Law (Adjustments for Inflation), 1985, pursuant to which
the results for tax purposes are measured in real terms in
accordance with changes in the Israeli consumer price index.
2. Industrial Company:
The Company is an "Industrial Company" as defined by the Law for the
Encouragement of Industry (Taxes), 1969, and as such, is entitled to
certain tax benefits, mainly accelerated depreciation of machinery
and equipment.
3. Approved Enterprise:
Some of the Company's production facilities have been granted
"Approved Enterprise" status with respect to an investment program
approved under the Law for Encouragement of Capital Investments,
1959. Pursuant to the said law, the Company elected to adopt the
"alternative benefits program" which entitles the Company to a
complete exemption from tax on income derived therefrom for a period
of two years out of a seven-year-period of benefits from the year in
which such enterprises first generates taxable income. Income
derived during the remaining years of benefits is taxable at the
rate of 25%. The period of benefits is limited to twelve years from
the commencement of production or fourteen years from the date of
approval, whichever is earlier.
In the event of a distribution of cash dividends, the Company will
be liable for tax at a rate of 25%.
As of December 31, 1995, the Company had not submitted the final
performance report on the approved investment program, and
consequently, investment program had not received final approval and
the period of benefits had not commenced.
- 15 -
20
SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - TAXES ON INCOME (contd.)
b. INCOME TAX ASSESSMENTS
i. The Company has received final tax assessments for the tax years up
to and including tax year 1991.
ii. The Company has received discretionary assessments for the tax years
1992-1994. According to these assessments, instead of the loss for
1994 of $ 228 thousand, the tax authorities assessed the Company's
income for 1994 at $ 320 thousand, which would result in a tax
liability of approximately $ 120 thousand. The Company has appealed
the abovementioned assessments. In the opinion of management,
following discussions with the tax authorities, the abovementioned
assessments will be reduced and no additional tax liability will be
incurred.
iii. As a result of an audit of the Company's tax deductions (salaries,
travelling expenses, etc.) carried out by the income tax authorities
in respect of the years 1993 and 1994, the Company received an
assessment of approximately $ 500,000. Most of this amount relates
to loans made by the Company to two shareholders in the
abovementioned years, which the tax authorities deem to be
benefits-in-kind. This claim is rejected by the Company.
This matter is the subject of discussion between the Company's
management and the income tax authorities. In management's opinion,
the final tax liability in respect of this assessment will not be in
excess of $ 100 thousand. A provision for this amount has been made
in these financial statements under general and administrative
expenses.
c. DEFERRED INCOME TAXES
DECEMBER 31,
------------------------------
1 9 9 5 1 9 9 4
------- -------
($ IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards 74 80
Other 117 35
--- ---
191 115
Less valuation allowance (191) (80)
--- ---
- 35
--- ---
Deferred tax liabilities:
Depreciation - (35)
--- ---
- -
=== ===
The deferred taxes are computed at a rate of 36%.
Under Statement No. 109 of the FASB, deferred tax assets are to be
recognized for the anticipated tax benefits associated with net operating
loss carryforward and deductible temporary differences, unless it is more
likely than not that some or all of the deferred tax asset will not be
realized. The adjustment is made by a valuation allowance.
NOTE 16 - MONETARY BALANCES IN ISRAELI CURRENCIES
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------- ------------------------
LINKED TO LINKED TO
UNLINKED ISRAELI CPI UNLINKED ISRAELI CPI
-------- ----------- -------- -----------
($ IN THOUSANDS) ($ IN THOUSANDS)
---------------------- ------------------------
Assets:
Current assets 1,004 304 1,361 408
===== ===== ===== =====
Liabilities:
Current liabilities 3,471 48 3,422 32
===== ===== ===== =====
- 16 -
21
SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
a. CLASSIFICATION OF TOTAL REVENUES BY GEOGRAPHICAL DISTRIBUTION:
YEAR ENDED DECEMBER 31,
-----------------------------------
1 9 9 5 1 9 9 4 1 9 9 3
------- ------- -------
($ in thousands)
Israel 3,430 2,860 2,489
Europe 1,011 1,375 1,600
America 1,179 909 624
Far East 777 962 863
Other 224 130 50
----- ----- ------
Total revenues 6,621 6,236 5,626
===== ===== =====
In 1995 and 1994, sales to one customer accounted for 10% or more of total
revenues (1995 - 12%, 1994 - 10%).
b. COST OF REVENUES
YEAR ENDED DECEMBER 31,
-----------------------------------
1 9 9 5 1 9 9 4 1 9 9 3
------- ------- -------
($ IN THOUSANDS)
Materials and components 2,809 2,827 2,314
Salaries and employees' benefits 1,423 972 731
Depreciation 79 61 72
Other costs 279 253 378
----- ------ -----
4,590 4,113 3,495
Less - Increase in finished goods and
work-in-process (286) (259) (220)
----- ----- -----
4,304 3,854 3,275
===== ===== =====
c. RESEARCH AND DEVELOPMENT EXPENSES, NET
YEAR ENDED DECEMBER 31,
-----------------------------------
1 9 9 5 1 9 9 4 1 9 9 3
------- ------- -------
($ IN THOUSANDS)
Research and development expenses 288 460 527
Less - Participation 81 175 120
--- --- ---
Research and development expenses, net 207 285 407
=== === ===
d. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
YEAR ENDED DECEMBER 31,
-----------------------------------
1 9 9 5 1 9 9 4 1 9 9 3
------- ------- -------
($ IN THOUSANDS)
Selling expenses 725 698 628
General and administrative expenses 992 928 623
----- ------ -----
1,717 1,626 1,251
===== ===== =====
- 17 -
22
SAVIN ELECTRONICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION (CONTD.)
e. FINANCIAL EXPENSES, NET
YEAR ENDED DECEMBER 31,
-----------------------------------
1 9 9 5 1 9 9 4 1 9 9 3
------- ------- -------
($ IN THOUSANDS)
Financial income 50 - 7
----- ----- ----
Financial expenses:
Interest and bank commissions 598 444 -
Loss on currency hedging transaction (*) 92 95 599
----- ---- ---
690 539 599
----- ----- -----
Financial expenses, net 640 539 592
===== ===== =====
(*) There are no outstanding forward contracts as at December 31, 1995.
f. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are computed on the basis of the weighted
average number of shares outstanding during each year.
- 18 -
23
Exhibit B
SAVIN ELECTRONICS, LTD AND SAVIN ELECTRONICS, INC (SVPS)
PRO FORMA BALANCE SHEET
DECEMBER 31, 1995
($ 000'S OMITTED)
SAVIN PRO FORMA
ELECTRONICS LTD SVPS ADJUSTMENTS PRO FORMA
---------------------------------------------------------------
CURRENT ASSETS
Cash and Cash Equivalents............................... 12 0 (12)(2) 883
883 (3)
Trade less allowance for doubtful accounts.............. 1,756 0 1,756
Other and Prepaid expenses.............................. 227 227
Inventories............................................. 2,045 2,045
---------------------------------------------------------------
TOTAL CURRENT ASSETS.................................... 4,040 0 871 4,911
---------------------------------------------------------------
Related Parties -- shareholders......................... 293 293
---------------------------------------------------------------
Property and equipment
Cost.................................................. 1,177 1,177
Less -- Accumulated depreciation...................... 563 563
---------------------------------------------------------------
Total Property and equipment............................ 614 614
---------------------------------------------------------------
TOTAL ASSETS............................................ 4,947 871 5,818
===============================================================
CURRENT LIABILITIES
Short-term credits.................................... 3,628 3,628
Payables:............................................... 0
Trade................................................. 1,236 1,236
Other and accrued expenses............................ 702 702
Due to Shareholders................................... 5 5
---------------------------------------------------------------
TOTAL CURRENT LIABILITIES............................... 5,566 5 5,571
---------------------------------------------------------------
Long-Term debt........................................ 215 215
Accrued severance pay................................. 174 174
---------------------------------------------------------------
Subtotal................................................ 389 389
---------------------------------------------------------------
TOTAL LIABILITIES....................................... 5,955 5 5,960
===============================================================
STOCKHOLDERS EQUITY
Common Stock $.004 Par value; 10,000,000 authorized..... 793 1 25 (1) 825
8,150,000 issued and outstanding........................ 6 (3)
Additional paid-in capital.............................. 48 25 (1) 900
877 (3)
Accumulated Deficit..................................... (1,861) (54) (12)(2) (1,927)
Foreign currency translation adjustment................. 60 60
---------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY.............................. (1,008) (5) 871 (142)
===============================================================
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.............. 4,947 0 871 5,818
===============================================================
24
SAVIN ELECTRONICS, LTD AND SAVIN ELECTRONICS, INC (SVPS)
PRO FORMA STATEMENT OF OPERATIONS
DECEMBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
SAVIN
SVPS ELECTRONICS LTD PRO FORMA
--------------------------------------
Revenues
System Sales 0 5,865 5,865
Maintenance & other services 0 756 756
--------------------------------------
Total Revenues 0 6,621 6,621
Expenses:
Materials and components 0 2,523 2,523
Salaries 8 1,423 1,431
Rent 1 1
Depreciation 0 79 79
Miscellaneous (1) 279 278
--------------------------------------
Cost of Revenues 8 4,304 4,312
--------------------------------------
Gross Profit (8) 2,317 2,309
Research and development costs (net) 0 207 207
Selling, general and administrative 0 1,717 1,717
--------------------------------------
Operating Profit (8) 393 385
Financial Expenses 0 (640) (640)
Other Income 0 78 78
--------------------------------------
Net Loss (8) (169) (177)
======================================
Loss Per Share (0.00) (0.03) (0.03)
======================================
25
SAVIN ELECTRONICS, LTD AND SAVIN ELECTRONICS, INC (SVPS)
NOTES TO PRO FORMA FINANCIAL INFORMATION
DECEMBER 31, 1995
1. Reflects the issuance of 6,150,000 shares of SVPS to the stockholders of
Savin Electronics, Ltd.
2. To record the out of pocket costs incurred in connection with the
acquisition.
3. To record the private placement of 1,545,000 of common stock for net
proceeds of $883,000.
4. Combines the operations of Savin Electronics Ltd. with Savin Electronics Inc
(SVPS) as if the acquisition had been consummated at January 1, 1995. Costs
of the acquisition and extraordinary items have been omitted. The pro forma
statements of operations are presented for informational purposes only and do
not purport to be indicative of the results of operations that actually would
have resulted if the acquisition had been consummated on January 1, 1995 nor
which may result from future operations.
26
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule