EXHIBIT 10.28
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8
AMENDMENT TO APPLICATION OR REPORT
Filed Pursuant to Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934
SUMMAGRAPHICS CORPORATION
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portion of its current report on Form
8-K as set forth in the pages attached hereto.
(List all such items, financial statements, exhibits or other portions amended)
Financial Statements
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SUMMAGRAPHICS CORPORATION
Registrant
1/23/95 /s/ Robert B. Sims
- ------------------------------- -------------------------------
Date: ROBERT B. SIMS
Senior Vice President
Legal Counsel & Corporate Secretary
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 November 23,1994)
SUMMAGRAPHICS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-16071 06-0888312
- --------------------------------------------------------------------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
8500 Cameron Road Austin, Texas 78754
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 873-1540
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changes since last report)
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Supplemental Consolidated Financial Statements are attached
hereto as an amendment to Form 8-K dated November 23, 1994.
(b) Pro-Forma Financial Information
The registrant has filed Form 10-Q for the second quarter ended
November 30, 1994, reflecting historical financial statements which
include CAD Warehouse, Inc. In addition the supplemental consolidated
financial statements attached hereto reflect the historical financial
statements of Summagraphics Corporation and CAD Warehouse, Inc.
Therefore the filing of pro-forma financial statements as noted in the
previous Form 8-K is no longer required.
SIGNATURE
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 thereto duly authorized.
SUMMAGRAPHICS CORPORATION
By: /s/ Robert B. Sims
--------------------------
Robert B.Sims
Senior Vice President
Secretary and General Counsel
Dated: January 23, 1994
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
May 31, 1993 1994
- ------- ------------- -----------
Assets
Current assets:
Cash $ 2,648,635 $ 818,733
Accounts receivable (less allowance for doubtful accounts of
$1,118,515 in 1993 and $1,089,944 in 1994) 18,007,933 17,914,496
Inventories:
Materials 4,477,873 5,268,551
Work-in-process 1,271,577 1,043,386
Finished goods 6,557,373 5,223,825
------------- -----------
12,306,823 11,535,762
Prepaid expenses and other current assets 1,152,520 1,117,440
------------- -----------
TOTAL CURRENT ASSET 34,115,911 31,386,431
------------- -----------
Fixed assets:
Land 299,000 290,000
Building 1,301,000 1,319,000
Machinery and equipment 10,816,418 12,133,009
Furniture and fixtures 1,267,029 1,227,762
Leasehold improvements 1,017,115 1,009,171
Construction-in-progress 422,394 186,372
------------- -----------
15,122,956 16,165,314
Less: accumulated depreciation and amortization (7,364,913) (9,724,663)
------------- -----------
Net fixed assets 7 758,043 6,440,651
------------- -----------
Intangible and other assets, net of accumulated amortization (note 3) 10 401,590 9,508,739
------------- -----------
$ 52,275,544 $47,335,821
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,102,321 $ 9,582,737
Accrued liabilities (notes 2 and 4) 14,137,686 9,273,696
Notes payable (note 5) 2,805,000 -
Current portion of long-term debt (note 5) 232,000 148,019
Current obligations under capital leases 510,247 458,022
------------- -----------
TOTAL CURRENT LIABILITIES 22,787,254 19,462,474
------------- -----------
Long-term liabilities, less current portion:
Long-term debt (note 5) 3,627,000 947,306
Capital lease obligations 878,893 534,863
Deferred gain on sale of building 544,149 510,139
Restructuring charges (note 2) 2,124,528 1,803,844
------------- -----------
Total long-term liabilities 7,174,570 3,796,152
------------- -----------
Commitments and contingencies (note 9)
Stockholders' equity (note 6):
Preferred stock, $.01 par value, authorized 5,000,000 shares
Common stock, $.01 par value, authorized 20,000,000 shares,
issued 4,480,405 shares in 1993 and 4,545,692 shares in 1994 44,804 45,457
Additional paid-in capital 38,397,288 38,639,427
Retained earnings (accumulated deficit) (15,660,892) (13,830,207)
Cumulative translation adjustment 7,064 (302,938)
------------- -----------
22,788,264 24,551,739
------------- -----------
Less: Treasury stock, at cost - 48,720 shares in 1993 and 1994 (465,044) (465,044)
Stockholder note receivable (9,500) (9,500)
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 22,313,720 24,077,195
------------- -----------
$ 52,275,544 $47,335,821
============= ===========
See accompanying notes to supplemental consolidated financial statements.
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 1992 1993 1994
- ------------------- ----------- ------------ ----------
Net sales $77,295,442 $ 81,403,985 $77,755,350
Cost of sales 43,834,023 51,771,743 50,526,127
----------- ------------ -----------
GROSS PROFIT 33,461,419 29,632,242 27,229,223
Selling, general and administrative 24,050,888 29,892,137 18,933,930
Research and development 7,476,842 8,002,614 5,630,796
Restructuring and other charges (note 2) 1,124,000 8,487,461 -
----------- ------------ -----------
OPERATING INCOME (LOSS) 809,689 (16,749,970) 2,664,497
----------- ------------ -----------
Other income (expense):
Interest income 97,621 124,494 104,870
Interest expense (633,329) (429,420) (421,375)
Miscellaneous, net (445,726) 220,097 (206,429)
----------- ------------ -----------
(981,434) (84,829) (522,934)
----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY GAIN AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING METHOD (171,745) (16,834,799) 2,141,563
Provision for income taxes (note 8) 1,058,981 - -
----------- ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD (1,230,726) (16,834,799) 2,141,563
Extraordinary gain (note 5) - - 645,122
Cumulative effect of change in method of
accounting for income taxes - 411,247 -
----------- ------------ -----------
NET INCOME (LOSS) $(1,230,726) $(16,423,552) $ 2,786,685
Net income (loss) per common share:
Income (loss) before extraordinary gain and
cumulative effect of change in
accounting method $(0.30) $(3.89) $ 0.47
Extraordinary gain - - 0.14
Cumulative effect of change in method of
accounting for income taxes - 0.09 -
----------- ------------ -----------
NET INCOME (LOSS) PER COMMON SHARE $(0.30) $(3.80) $ 0.61
=========== ============ ===========
Weighted average share used in computing
net income (loss) per common share 4,113,458 4,323,325 4,519,096
=========== ============ ===========
See accompanying notes to supplemental consolidated financial statements.
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
REPRESENTING INCREASES (DECREASES) IN CASH
YEARS ENDED MAY 31, 1992 1993 1994
- ------------------- ---- ---- ----
Cash flows from operating activities: $ (1,230,726) $ (16,423,552) $ 2,786,685
Net income (loss)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Gain on retirement of debt - - (645,122)
Cumulative effect of change in
accounting method - (411,247) -
Depreciation and amortization 5,287,421 5,536,187 3,579,741
Restructuring charges 660,832 8,487,461 -
(Gain) loss on sale of fixed assets 31,348 253,268 (3,994)
Compensation in form of stock 44,837 110,088 35,135
Changes in assets and liabilities:
Accounts receivable (3,838,002) 2,359,708 34,438
Inventories (152,133) (1,111,469) 644,061
Prepaid and other current assets (83,971) 125,506 (7,755)
Accounts payable 100,701 (1,424,087) 4,465,416
Accrued liabilities 993,713 (197,639) (4,828,368)
Other liabilities (11,001) - (320,683)
------------- ------------- -------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES 1,803,019 (2,695,776) 5,739,554
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (1,967,348) (2,781,865) (1,527,561)
Proceeds from sale of fixed assets 6,133,450 28,761 54,850
Intangible assets, principally patent costs (614,882) (516,405) 37,979
------------- ------------- -------------
NET CASH (USED IN) PROVIDED BY
INVESTMENT ACTIVITIES 3,551,220 (3,269,509) (1,434,732)
------------- ------------- -------------
Cash flows from financing activities:
Cash dividends paid - (450,000) (956,000)
Proceeds from long-term borrowings - 983,000 -
Proceeds from short-term borrowings - 2,805,000 -
Proceeds from sales of common stock 378,600 354,206 207,657
Purchases of treasury stock (106,552) (369,420) -
Repayment of short-term debt - - (2,805,000)
Repayment of long-term debt and capital
lease obligations (373,640) (2,864,320) (2,623,379)
------------- ------------- -------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (101,592) 458,466 (6,176,722)
------------- ------------- -------------
Effect of exchange rate changes on cash (471,154) (321,691) 41,998
------------- ------------- -------------
Net change in cash 4,781,493 (5,828,510) (1,829,902)
Cash at beginning of year 3,695,652 8,477,145 2,648,635
------------- ------------- -------------
Cash at end of year $ 8,477,145 $ 2,648,635 $ 818,733
============= ============= =============
See accompanying notes to supplemental consolidated financial statements.
SUMMARGRAPHICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Retained Treasury
------------------ Additional Earnings Cumulative Stock and
Number of Paid-in (Accumulated Translation Stockholder Stockholders'
Years ended May 31, 1992, 1993 and 1994 Shares Amount Capital Deficit) Adjustment Note Equity
--------- ------- ----------- ------------ ----------- ----------- -------------
Balance at May 31, 1991 4,090,913 $40,909 $37,485,194 $ 2,443,387 $(266,463) $(184,717) $ 39,518,310
Sale of common stock 121,000 1,210 48,519 - - - 49,729
Sale of common stock pursuant to
the 1987 Employee Stock Plan 14,047 140 84,142 - - - 84,282
Sale of common stock pursuant to the
1988 Employee Stock Purchase Plan 36,656 367 244,222 - - - 244,589
Awards granted pursuant to the 1987 stock plan 5,400 54 44,783 - - - 44,837
Tax benefit from the exercise of options
below fair market value - - 14,403 - - - 14,403
Net loss - - - (1,230,726) - - (1,230,726)
Purchase of treasury stock at $7.10 per share - - - - - (106,552) (106,552)
Unrealized translation gain - - - - 420,219 - 420,219
--------- ------- ----------- ------------ --------- --------- ------------
Balance at May 31, 1992 4,268,016 42,680 37,921,263 1,212,661 153,756 (291,269) 39,039,091
--------- ------- ----------- ------------ --------- --------- ------------
Sale of common stock 145,929 1,460 58,540 - - - 60,000
Sale of common stock pursuant to the
1987 Employee Stock Plan 3,000 30 17,970 - - - 18,000
Imputed benefit from the granting of options
below fair market value - - 75,000 - - - 75,000
Sale of common stock pursuant to the
1988 Employee Stock Purchase Plan 58,610 586 275,620 - - - 276,206
Awards granted pursuant to the 1987 stock plan 4,850 48 35,040 - - - 35,088
Net loss - - - (16,423,553) - - (16,423,553)
Sale of treasury stock at $8.00 per share - - 13,855 - - 186,145 200,000
Purchase of treasury stock at $7.69 per share - - - - - (369,420) (369,420)
Unrealized translation gain - - - - (146,692) - (146,692)
Dividends paid to stockholders' of
CAD Warehouse, Inc., an S-corporation - - - (450,000) - - (450,000)
--------- ------- ----------- ------------ --------- --------- ------------
Balance at May 31, 1993 4,480,405 44,804 38,397,288 (15,660,892) 7,064 (474,544) 22,313,720
--------- ------- ----------- ------------ --------- --------- ------------
Sale of common stock pursuant to the
1987 Employee Stock Plan 11,333 113 42,219 - - - 42,332
Sale of common stock pursuant to the
1988 Employee Stock Purchase Plan 46,854 469 164,856 - - - 165,325
Awards granted pursuant to the 1987 stock plan 7,100 71 35,064 - - - 35,135
Net income - - - 2,786,685 - - 2,786,685
Unrealized translation gain - - - - (310,002) - (310,002)
Dividends paid to stockholders' of
CAD Warehouse, Inc., an S-corporation - - - (956,000) - - (956,000)
--------- ------- ----------- ------------ --------- --------- ------------
Balance at May 31, 1994 4,545,692 $45,457 $38,639,427 $(13,830,207) $(302,938) $(474,544) $ 24,077,195
========= ======= =========== ============ ========= ========= ============
See accompanying notes to supplemental consolidated financial statements.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1992, 1993 and 1994 Summagraphics Corporation and Subsidiaries
NOTE 1:
SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
Principles of Consolidation. The Company is primarily engaged in
the manufacture and sale of digitizing tablets (computer input devices), and
plotters (computer output devices). These products are used in applications
with high performance computer graphics systems such as computer-aided
design. The Company also engages in the manufacture and sale of cutters. The
consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated.
Cash Equivalents. For the purpose of cash flows, the Company
considers all highly liquid investments which maturities of three months
or less to be cash equivalents. The Company had no cash equivalents at May
3l, 1993 and 1994.
Inventories. Inventories are stated at the lower of cost or
market. Cost is applied on a first-in. first-out (FIFO) basis; market is
determined on the basis of estimated net realizable value.
Fixed Assets. Fixed assets acquired are stated at cost.
Equipment and furniture under capital leases are stated at the lower of
the present value of future minimum lease payments or fair value are the
inception of the lease.
Building depreciation is provided on the straight-line method
ova a period of 15 years, depreciation of furniture and fixtures and
machinery and equipment (including amortization of assets covered by
capital leases) is provided on the straight-line method, based on
estimated useful lives ranging from 3 to 10 years. Amortization of
leasehold improvements is provided over the lesser of estimated useful
life of the improvement or the life of the lease. Maintenance and repairs
are charged to operations as incurred; significant betterments are
capitalized.
Intangible Assets. Goodwill represents the amount by which the
cost to purchase Houston Instrument exceeded the fair market value of the
related net assets. Goodwill is being amortized over 40 years using the
straight-line method.
Other acquired identifiable intangible assets are amortized
using the straight-line method over lives not exceeding 7.5 years.
Other intangibles consist of patent application costs which are
amortized on a straight-line basis over the lesser of the lives of the
applicable patents or estimated life of the product utilizing the patent.
Revenue Recognition. The Company recognizes revenue when product
is shipped to customers. Under contract, certain customers may return a
small percentage of the prior quarter's net purchases provided the product
is in resale condition and a new order of equal value is placed for
delivery within 30 days. The Company carries reserves for these and other
returns based on historical trends.
Income Taxes. Effective June 1, 1992, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109) which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
Prior to June 1, 1992 the Company recorded taxes under the
provisions set forth in Statement of Financial Accounting Standards No.
96.
Per Share Data. Net income (loss) per common and common
equivalent share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of stock options and warrants,
calculated by using the Treasury Stock method, and are included when their
effect is not antidilutive.
Foreign Exchange. Assets and liabilities of foreign subsidiaries
generally are translated into U.S. dollars at exchange rates in effect at
the end of the year whereas revenues and expenses are translated using
average exchange rates that prevailed during the year. Gains and losses that
result from this process are shown as an adjustment in stockholders' equity.
Reclassifications. Certain reclassifications have been made to
conform prior years' data to the current presentation.
Basis of Presentation. The supplemental consolidated financial
statements of the Company have been prepared to give retroactive effect to
the merger with Cad Warehouse, Inc., an S-Corporation, on November 10, 1994.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation,
however, they will become the historical consolidated financial statements
of the Company after financial statements covering the date of consummation
of the business combination are issued.
NOTE 2:
RESTRUCTURING
AND OTHER
CHARGES
In the fourth quarter of 1993, the Company incurred an $8,487,461
restructuring charge in response to the difficult worldwide economic
conditions as well as to maximize cost efficiencies. The restructuring
charge was provided to cover costs of reductions in workforce and the
relocation of the Company's Connecticut manufacturing operations to its
Texas facility. The charge included a provision of $248,000 for fixed asset
write downs due to the consolidation. $2,606,000 of lease and leasehold
improvement costs for the unused portion of its Connecticut facility,
S2,629,127 for severance and related charges due to a 15% reduction of
workforce in June 1993 and $l,636,334 for manufacturing consolidation costs
consisting of moving, relocation, and severance.
In the third quarter of 1992, the Company incurred a $1,124,000
restructuring charge as a result of implementing a computer system
allowing the management and administrative processes of the Connecticut and
Texas operations to be
consolidated. The charge included a provision of $70,000 for asset write downs.
$702,000 for severance and related charges and $352,000 for consolidation
costs.
NOTE 3:
INTANGIBLE AND
OTHER ASSETS
Significant components of intangible and other assets at May 31, 1993 and 1994
are as follows:
1993 1994
---- ----
Goodwill $ 9,570,084 $ 9,570,084
Other acquired intangibles 3,149,191 2,788,776
----------- -----------
12,719,275 12,358,860
Less accumulated amortization 2,703,829 3,232,121
----------- -----------
10,015,446 9,126,739
Other assets 386,144 382,000
=========== ===========
$10,401,590 $ 9,508,739
NOTE 4:
ACCRUED
LIABILITIES
Significant components of accrued liabilities at May 31, 1993 and 1994 are as
follows:
1993 1994
---- ----
Payroll and other compensation $ 2,048,649 $ 1,460,817
Federal, state, foreign and
payroll withholding taxes 1,367,516 774,286
Sales returns and allowances 409,900 1,040,343
Restructuring costs 6,115,091 2,081,346
Other 4,196,530 3,916,904
----------- -----------
$14,137,686 $ 9,273,696
=========== ===========
NOTE 5:
INDEBTEDNESS
a. Long-Term Debt. Long-term debt at May 31, 1993 and 1994 consists of the
following:
1993 1994
---- ----
Convertible subordinated note (i) $ 2,500,000 $ -
Other (ii) 1,359,000 1,095,325
----------- -----------
3,859,000 1,095,325
Less current maturities 232,000 148,019
----------- -----------
$ 3,627,000 $ 947,306
=========== ===========
The aggregate maturities of long-term debt are as follows:
1995 $ 148,019
1996 148,017
1997 88,810
1998 88,810
1999 and thereafter 621,669
-----------
$ 1,095,325
===========
i. Convertible Subordinated Note. In connection with the acquisition of Houston
Instrument, the Company issued to the seller an 8%, five-year, interest only,
$5,000,000 convertible subordinated note due on May 1, 1995. The note was
convertible at any time after May 1, 1991 into 333,333 shares of common stock of
the Company at $15.00 per share, subject to adjustment, through the exercise
of attached warrants. In July 1992, the Company exercised its option to prepay
$2,500,000, thereby reducing the remaining note balance to $2,500,000. In May
1994, the Company repurchased the note (with a remaining balance of $2,500,000)
for $1,800,000 resulting in an extraordinary gain, net of related costs, of
$645,122. In connection with the more repayment, the Company cancelled the
existing 333,000 warrants. The Company then issued 300,000 warrants to purchase
shares of the Company's common stock (150,000 of which are exercisable at $15.00
a share, subject to adjustment, and expire on May 1, 1995 and 150,000 of which
are exercisable at $9.00 a share, subject to adjustment, and expire on May 1,
1997).
ii. Other. Consists primarily of local borrowings of a Belgian subsidiary,
including a $1,065,600 mortgage due in the year 2005, on the subsidiary's
facility in Gistel, Belgium. Interest rates on this debt range from 7.55% to 10%
per annum.
b. Revolving Credit Agreements. On May 25. 1992, the Company entered into an
$8,000,000 Revolving Credit Agreement which was amended in May 1994, reducing
the credit line to $6,000,000 and extending the expiry to November 30, 1994.
Borrowings under this agreement may be in the form of various bank instruments
at rates based on either the bank's base rate or the London Inter-Bank Offered
Rate ("LIBOR"), at the Company's option, and are secured by substantially all of
the Company's North American assets. Under the terms of the agreement the
Company is subject to certain covenants and restrictions. At May 31, 1994, the
Company was in compliance with all covenants and restrictions. At May 31, 1994,
$5,560,239 was available under this agreement, net of outstanding letters of
credit of $439,761.
In July 1994, the Company entered into an $8,000,000 Credit Agreement with a new
bank replacing the $6,000,000 facility in place at May 31, 1994. Under the terms
of the agreement the Company is subject to certain covenants and restrictions.
Borrowings under this agreement may be in the form of various bank instruments
at rates based on the bank's base rate and are secured by substantially all of
the Company's North American assets.
On October 12, 1992, one of the Company's Belgian subsidiaries entered into a
$4,000,000 Credit Agreement. This agreement has no defined expiry date and
requires the bank to give six months notice of termination, if no defaults
exist. Borrowings under this agreement may be in the form of various bank
instruments, in various currencies and at various rates, at the Company's
option, and are secured by essentially all of the subsidiary's assets except
real property. Under the terms of the agreement the subsidiary is subject to
certain covenants and restrictions. As of May 31, 1994 the subsidiary was in
compliance with all covenants and restrictions. At May 31, 1994, $4,000,000 was
available under this agreement.
The following table sets forth the Company's borrowing activity and
financing rates under bank note agreements during the years ended May 31,
1993 and 1994:
1993 1994
---- ----
Average of daily balances outstanding $1,055,462 $ 260,422
Maximum amount outstanding $6,004,100 $2,805,000
Weighted average daily interest rate 5.78% 5.22%
a. Common Stock Reserved. The following amounts of shares of common stock are
reserved for issuance at May 31, 1994:
Stock Option Plans:
Employee stock plan 1,274,914
Non-employee director stock option plan 75,000
Performance unit plan 50,000
---------
1,399,914
Warrants 300,000
Employee stock purchase plan 72,138
---------
1,772,052
=========
b. Stock Option Plans. The Company's 1987 Stock Plan was amended at a Special
Meeting of Stockholders held on May 25, 1994 increasing the number of shares
authorized for issuance from 750,000 to 1,350,000. This plan provides for the
granting of options to purchase a total of 1,350,000 shares of common stock to
directors, consultants, officers and other employees.
The Company's 1988 Non-Employee Director Stock Option Plan ("Directors' Plan")
for outside directors provides for the issuance of options for 75,000 shares
of common stock exercisable for a period of ten years from date of the
option grant. Under the Directors' Plan, each member of the Board of Directors
("Board") who is neither an employee nor an officer of the Company will be
automatically granted on October 31 of each year an option to purchase 3,000
shares of the Company's common stock.
In addition to these two plans the Board may also grant qualified and
non-qualified options, stock purchase rights and stock awards.
Any options, awards, etc. granted under these plans are required to be at
prices which are not less than the fair market value per share of common stock
on the date of grant. The options, awards, etc. shall either be fully
exercisable on the date of grant or shall become exercisable thereafter in such
installments as the Board may specify. Each option shall expire on the date
specified by the Board, subject to earlier termination provisions, but not more
than, under the 1987 Stock Plan, ten years and one day and, under the
Directors' Plan, ten years, from the date of grant.
A summary of changes in stock issuable under employee and non-employee
option plans follows:
Range of
Shares Exercise Prices
- -----------------------------------------------------------------------------------------
Outstanding at May 31, 1991 471,026 S6.00-S14.25
Granted 129,800 7.00- 13.25
Exercised (19,847) 6.00- 13.25
Cancelled (80,079) 6.00- 14.25
- -----------------------------------------------------------------------------------------
Outstanding at May 31, 1992 500,900 6.00- 13.25
Granted 284,850 3.75- 9.00
Exercised (7,850) 4.00- 9.00
Cancelled (152,300) 7.00- 12.00
- -----------------------------------------------------------------------------------------
Outstanding at May 31, 1993 625,600 3.75- 13.25
Granted 543,673 .0l- 7.13
Exercised (18,233) 3.50- 7.13
Cancelled (201,937) 3.13- 11.50
- -----------------------------------------------------------------------------------------
Outstanding aa May 31,1994 949,103 $ .01-S13.25
- -----------------------------------------------------------------------------------------
At May 31, 1994, 308,962 options were exercisable at prices ranging from $.01 to
$13.25 a share.
c. Employee Stock Purchase Plan. The 1988 Employee Stock Purchase Plan
which was approved by stockholders in 1989, provides that eligible employees may
authorize payroll deductions between 2% and 10% of their regular pay to
purchase up to a maximum of 2,000 shares of the Company's common stock in a
fiscal year. The purchase price of the stock is the lesser of 85% of the average
market price of the Company's common stock on either the first or last business
day of the Payment Period. Payment Periods begin on June 1 and December 1 each
year. The aggregate number of shares which may be purchased under this plan is
250,000, of which 177,862 have been purchased to date.
d. Performance Unit Plan. The 1989 Performance Unit Plan which was approved
by stockholders in fiscal 1990, provides that officers and key employees of the
Company may be granted performance units by the Board or a committee comprised
of at least three Board members (no such committee has been appointed).
Performance units, which are the equivalent of $100 each, may be granted either
in cash or shares of common stock or any combination thereof, to participants
upon the attainment of certain achievement objectives as established by the
Board. No performance units have been granted to date.
e. Share Repurchase Plan. In January 1991, the Company announced a program
to expend up to a maximum of $1 million to repurchase shares of the Company's
common stock from time-to-time at current market prices. During 1992, 1993 and
1994 shares repurchased under this plan were 15,000, 48,037 and 0, respectively.
Sales, operating income (loss) and identifiable assets of the Company by
geographical area are as follows:
NOTE 7:
FOREIGN AND
DOMESTIC
OPERATIONS,
EXPORT SALES
AND MAJOR
CUSTOMERS
Years Ended May 31, 1992 1993 1994
- ---------------------------------------------------------------------------
Sales to unaffiliated customers:
North America $39,701,057 $ 47,002,266 $43,667,203
Europe 25,086,598 21,881,239 21,435,080
Other 12,507,787 12,520,480 12,653,067
- ---------------------------------------------------------------------------
$77,295,442 $ 81,403,985 $77,755,350
- ---------------------------------------------------------------------------
Operating income (loss):
North America $ (797,688) $(10,869,830) $ 1,451,220
Europe 1,375,853 (4,254,825) 954,297
Other 231,524 (1,625,314) 258,980
- ---------------------------------------------------------------------------
$ 809,689 $(16,749,970) $ 2,664,497
- ---------------------------------------------------------------------------
Balance at May 31, 1992 1993 1994
---- ---- ----
Identifiable assets:
North America $45,589,053 $38,236,994 $35,081,750
Europe 19,161,252 20,066,457 18,751,166
Eliminations (3,664,005) (6,027,907) (6,497,095)
----------- ----------- -----------
$61,086,300 $52,275,544 $47,335,821
=========== =========== ===========
During 1992, 1993 and 1994, export sales were $8,913,022, $9,751,641, and
12,089,444, respectively. No one customer accounted for greater than 10% or net
sales in any of these years.
NOTE 8:
INCOME TAXES
No provison for income taxes was recorded in 1994 due to the Company's tax net
operating loss position. The provison (benefit) for income taxes consists of the
following for 1992 and 1993:
Year ended May 31, 1992 Current Deferred Total
------- -------- -----
Federal $ 413,658 $ - $ 413,658
State 115,623 - 115,623
Foreign 529,700 - 529,700
---------- ---------- ----------
Total $1,058,981 $ - $1,058,981
========== ========== ==========
Year ended May 31, 1993 Current Deferred Total
------- -------- -----
Federal $ (411,247) $ 789,773 $ 378,526
State - (88,276) (88,276)
Foreign - (290,250) (290,250)
---------- ---------- ----------
Total $ (411,247) $ 411,247 $ -
========== ========== ==========
Effective June 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
The components of the net deferred tax asset (liability) as of May 31, 1994 were
as follows:
U.S. Federal
& State Foreign
------------ -----------
Deferred tax assets:
Other assets $ 328,125 $ -
Inventory reserves 1,495,081 -
Restructuring accruals 1,261,054 354,003
Other miscellaneous items 1,179,505 196,632
Tax credit carryforwards 1,985,988 -
Net operating loss carryforwards 1,708,387 2,084,937
Valuation allowance (7,439,904) (900,669)
---------- ----------
Total deferred tax asset 518,236 1,734,903
Deferred tax liabilities:
property, plant and equipment 518,236 -
Tax deductible goodwill - 1,734,903
---------- ----------
Total deferred tax liability 518,236 1,734,903
Net deferred tax asset (liability) $ - $ -
========== ==========
The valuation allowance for deferred tax assets as of June 1, 1993 was
$9,030,763. The net change in the valuation allowance for the year ended May 31,
1994 was a decrease of $690,190. Subsequently recognized tax benefits relating
to the valuation allowance for deferred tax assets as of May 31, 1994 will be
allocated as follows:
Income tax benefit that would be reported in the
consolidated statement of operations $8,086,652
Goodwill 253,921
----------
$8,340,573
==========
The provision for income taxes varies from the amounts computed by applying
the U.S. Federal Income Tax Rate of 34% as follows:
1992 1993 1994
----------------------------------------------------------------
Amount % Amount % Amount %
------ -- ------ -- ------ --
Computed "expected" tax expense (benefit) $ (58,393) (34.0) $ (5,723,832) (34.0) $ 947,473 34.0
Increase (reduction) resulting from:
Benefit of Subchapter S Corporation status (45,656) (26.6) (169,573) (1.0) (333,520) (12.0)
Utilization of capital loss (163,000) (94.9) - - - -
Utilization of tax credits (763,000) (444.3) - - - -
Change in the beginning of the year
balance of the valuation allowance for
deferred tax assets allocated to income
tax expense - - 6,298,431 37.4 (690,190) (24.8)
Tax effect of other expenses
not deductible for income
tax purposes 1,864,428 1085.7 - - - -
Differing foreign tax rates 107,564 62.6 (166,204) (1.0) 57,217 2.1
State taxes-net of federal benefit 76,311 44.4 (223,487) (1.3) - -
Amortization of goodwill 28,333 16.7 28,454 .2 25,614 .9
Other permanent differences 12,094 7.0 (43,789) (.3) (6,594) (.2)
---------- ------ ------------ ---- ---------- ----
$1,058,981 616.6 $ - - $ - -
========== ====== ============ ==== ========== ====
At May 31,1994, the Company had available NOL carryforwards of approximately
$4,495,000 and $5,341,700 for U.S. and foreign tax reporting purposes,
respectively. The NOL carryforwards for tax reporting purposes expire in
varying amounts in the U.S. through the year 2008. The NOL's in foreign
jurisdictions carryforward indefinitely. Further, the Company has general
business credit carryforwards of approximately $674,300 which expire through
the year 2007, foreign tax credits of $803,300 which expire through the year
2000, and alternative minimum tax carryforwards of $322,000 which have no
expiration dates.
U.S. and foreign income (loss) from operations before federal, state, and
foreign income taxes are as follows:
1992 1993 1994
---- ---- ----
U.S $(1,547,602) $(14,257,507) $1,344,314
Foreign 1,241,575 (3,076,037 461,431
----------- ------------ ----------
$ (306,027) $(17,333,544) $1,805,745
=========== ============ ==========
The Company is currently undergoing an audit of its 1991 through 1993 U.S.
Federal income tax returns. The Company does not expect the results of this
audit to have a material effect on its financial position.
NOTE 9:
COMMITMENTS
AND
CONTINGENCIES
a. Leases. In May 1992, The Company concluded a sale and leaseback of its
Austin, Texas facility. The Company recorded a $612,167 gain on the sale which
was deferred and is being amortized over the lease term. The lease is an 18 year
operating lease expiring in the year 2010. The lease provides for a fixed rental
charge plus additional rent based on increases in the Consumer Price Index.
Under the terms of the agreement, the Company is subject to certain covenants
and restrictions.
The Company leases various assets used in its operations, primarily buildings
and equipment. Substantially all of the leases provide that the Company pay
for maintenance and insurance.
Future minimum lease payments for leased capital assets total $1,101,727 of
which $108,842 represents interest. Capital leases and non-cancelable
operating leases at May 31,1994 require the following annual minimum lease
payments:
Capital Operating
leases leases
------- ---------
1995 $ 521,255 $ 1,826,351
1996 298,391 1,764,800
1997 260,381 1,740,944
1998 21,700 1,678,164
1999 - 1,385,908
Later years - 9,488,556
---------- -----------
$1,101,727 $17,884,723
========== ===========
Rental expense on operating leases for 1992, 1993 and 1994 was $1,031,685,
$1,783,999 and $1,510,958, respectively. The original cost and net book value
of furniture and equipment under capital lease at May 31, 1994 was $2,675,871
and $1,136,611, respectively.
b. SOURCING AGREEMENTS. On February 4, 1993, the Company entered into an
eighteen-month (from date of first shipment) sourcing agreement with a foreign
manufacturer, which requires minimum quantities of each of the covered products
to be ordered and the total value of all ordered products must be at least
$6,500,000. Under the agreement, the Company has the ability to inspect (and
reject) all delivered products and retains its propriety position.
c. Employee 401 (k) Plan. The Company's 401(k) Plan covers all full-time
employees who have completed six months of continuous employment and are
eighteen years of age or older. Under the terms of the plan an employee may
contribute up to 20% of annual compensation, up to 5% of which will be matched
by the Company at 25%, 50%, 75% or 100% of the employee contribution depending
on years of service. Employee contributions vest fully upon contribution while
employer contributions vest at 20% per year. Employer contributions for 1992,
1993 and 1994 were $322,426, $268,299 and $0, respectively. Additional
contributions may be authorized by the Board of Directors predicated on Company
performance.
d. Litigation. In the second quarter of 1994 the Company entered into
an agreement with California Computer Products and Sanders Associates, each of
which is a subsidiary of Lockheed Corporation, that resolved all outstanding
litigation between the parties. As part of the accord, the Company received a
settlement amount which resulted in a gain being recorded in the second quarter
of the year.
The Company is party to various legal actions and administrative proceedings
and subject to various claims arising in the normal course of business. The
Company believes that the disposition of these matters will not have a material
adverse effect on its financial position or results of operations taken as a
whole.
NOTE 10:
SUPPLEMENTARY
DATA
Advertising expenditures for the years 1992, 1993 and 1994 were $5,197,273,
$5,941,915 and $4,360,218, respectively.
NOTE 11:
SUPPLEMENTARY
CASH FLOW
INFORMATION
For the years ended May 31, 1992, 1993 and 1994 certain supplementary cash flow
information follows:
Cash paid during the year for: 1992 1993 1994
---- ---- ----
Interest $702,420 $449,511 $421,375
Income taxes $168,736 $498,955 -
Non-cash financing activities, capital leases $409,592 $693,268 $174,570
NOTE 1:
ACQUISITION
AND
SUBSEQUENT
EVENT
On November 10, 1994 the Company merged with CAD Warehouse, Inc., an
S-Corporation, (CAD Warehouse) in exchange for 510,129 shares of the Company's
common stock. Under terms of the merger agreement each share of CAD Warehouse
common stock was exchanged for 170.043 shares of the Company's common stock. The
merger was accounted for using the pooling of interests method.
Financial information for the periods prior to the business combination is
summarized below. The combined financial statement amounts are based on the
respective historical financial statements and the notes thereto. The combined
revenues and net earnings summarized below combine the Company's historical
revenues and net earnings for the years ended May 31, 1992, 1993, and 1994, with
CAD Warehouse's historical revenues and net earnings for the same periods.
Intercompany sales between the Company and CAD Warehouse, a distributor of the
Company's products, have been eliminated.
1992 1993 1994
---- ---- ----
Revenues:
Summagraphics $ 73,894,603 70,337,420 64,670,079
CAD Warehouse 3,699,109 13,770,301 15,865,464
Elimination (298,270) (2,703,736) (2,780,193)
------------ ----------- -----------
Combined $ 77,295,442 81,403,985 77,755,350
------------ ----------- -----------
Net Earnings (Loss):
Summagraphics $ (1,365,008) (16,922,296) 1,805,745
CAD Warehouse 134,282 498,744 980,940
Combined $ (1,230,726) (16,423,552) 2,786,685
------------ ----------- -----------
Combined net income
(loss) per share $ (0.30) (3.80) 0.61
------ ------ ----
INDEPENDENT
AUDITORS'
REPORT
The Board of Directors and Shareholders Summagraphics Corporation:
We have audited the accompanying supplemental consolidated balance sheets of
Summagraphics Corporation and subsidiaries as of May 31, 1993 and 1994. and the
related supplemental consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended May 31,
1994. These supplemental consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of Summagraphics Corporation and CAD Warehouse, Inc. on November
10,1994, which has been accounted for as a pooling of interests as described in
Note 12 to the supplemental consolidated financial statements. Generally
accepted accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they will
become the historical consolidated financial statements of Summagraphics
Corporation and subsidiaries after financial statements covering the date of
consummation of the business combination are issued.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Summagraphics Corporation and subsidiaries as of May 31, 1993 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended May 31,1994, in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
As discussed in Note 8 to the supplemental consolidated financial statements,
the Company changed its method of accounting for income taxes in 1993.
KPMG Peat Marwick LLP
Austin, Texas
June 28, 1994, except as to Notes 5b
and 12, which are as of July 18, 1994
and November 10, 1994, respectively.
INDEPENDENT
AUDITORS'
REPORT
The Board of Directors and Shareholders
Summagraphics Corporation:
We have audited the accompanying supplemental consolidated balance sheets of
Summagraphics Corporation and subsidiaries as of May 31, 1993 and 1994, and the
related supplemental consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended May 31,
1994. These supplemental consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examination on a test basis evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of Summagraphics Corporation and CAD Warehouse Inc. on November 10,
1994, which has been accounted for as a pooling of interests as described in
Note 12 to the supplemental consolidated financial statements. Generally
accepted accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they will
become the historical consolidated financial statements of Summagraphics
Corporation and subsidiaries after financial statements covering the date of
consummation of the business combination are issued.
In our opinion the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Summagraphics Corporation and subsidiaries as of May 31, 1993 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended May 31, 1994, in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
As discussed in Note 8 to the supplemental consolidated financial statements,
the Company changed its method of accounting for income taxes in 1993.
/s/ KPMG Peat Marwick LLP
Austin, Texas
June 28, 1994, except as to Notes 5b
and 12, which are as of July 18, 1994
and November 10, 1994, respectively.