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EXHIBIT 10.2
[DELOITTE & TOUCHE LLP LOGO]
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RJS, INCORPORATED AND SUBSIDIARY
Consolidated Financial Statements for the
Years Ended September 30, 1995 and 1994 and
Independent Auditors' Report
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[DELOITTE TOUCHE TOHMATSU INTERNATIONAL LOGO]
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[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
RJS, Incorporated:
We have audited the accompanying consolidated balance sheets of RJS,
Incorporated and subsidiary (the "Company") as of September 30, 1995 and 1994,
and the related consolidated statements of income and retained earnings and
cash flows for the years then ended. 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. 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.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at September 30, 1995
and 1994, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
November 22, 1995
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RJS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
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ASSETS 1995 1994
CURRENT ASSETS:
Cash ............................................................... $ 10,000 $ 757,000
Accounts receivable - trade, less allowance or doubtful accounts of
$153,000 and $172,000 in 1995 and 1994, respectively (Note 4)..... 2,189,000 1,854,000
Inventories (Notes 1, 2 and 4)...................................... 2,316,000 1,878,000
Deferred income tax assets (Notes 1 and 7).......................... 468,000 330,000
Prepaid expenses and other current assets........................... 118,000 70,000
Current portion of notes receivable from shareholders (Note 3)...... 17,000
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Total current assets.......................................... 5,118,000 4,889,000
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PROPERTY AND EQUIPMENT (Notes 1 and 4):
Machinery, equipment, and furniture and fixtures.................... 482,000 355,000
Less accumulated depreciation....................................... 307,000 239,000
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Property and equipment, net................................... 175,000 116,000
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NOTES RECEIVABLE FROM SHAREHOLDERS (Note 3)........................... 246,000
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OTHER ASSETS.......................................................... 99,000 49,000
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TOTAL................................................................. $5,638,000 $5,054,000
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LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
CURRENT LIABILITIES:
Line of credit (Note 4)............................................. $ 768,000 $1,000,000
Accounts payable.................................................... 1,706,000 1,442,000
Accrued expenses and other current liabilities...................... 366,000 437,000
Deferred service contract revenue (Note 1).......................... 215,000 199,000
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Total current liabilities..................................... 3,055,000 3,078,000
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EXCESS OF FAIR VALUE OVER COST OF NET ASSETS
ACQUIRED, Net (Note 1).............................................. 226,000 369,000
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SHAREHOLDERS' EQUITY (Note 6):
Preferred stock - Class A, no par value; 10,000,000 shares
authorized; none issued or outstanding
Common stock - Class A, no par value; 10,000,000 shares
authorized; 4,570,000 shares issued and
outstanding at September 30, 1995 and 1994........................ 175,000 175,000
Common stock - Class B, no par value; 10,000,000 shares
authorized; none issued or outstanding
Retained Earnings................................................... 2,182,000 1,432,000
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Total shareholders' equity.................................... 2,357,000 1,607,000
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TOTAL................................................................. $5,638,000 $5,054,000
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See accompanying notes to consolidated financial statements.
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RJS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
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1995 1994
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REVENUES (Note 1):
Product sales and service contract revenue ........ $12,764,000 $11,463,000
License fees ...................................... 400,000
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Total revenues .............................. 12,764,000 11,863,000
COST OF SALES ....................................... 8,164,000 7,616,000
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GROSS PROFIT ........................................ 4,600,000 4,247,000
SELLING EXPENSES .................................... 1,719,000 1,614,000
GENERAL AND ADMINISTRATIVE EXPENSES ................. 1,223,000 1,182,000
RESEARCH AND DEVELOPMENT EXPENSES (Note 1) .......... 904,000 713,000
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INCOME FROM OPERATIONS .............................. 754,000 738,000
INTEREST EXPENSE .................................... 103,000 115,000
OTHER (EXPENSE) INCOME, Net (Note 1) ................ (4,000) 61,000
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INCOME BEFORE BENEFIT FOR INCOME TAXES .............. 647,000 684,000
BENEFIT FOR INCOME TAXES (Notes 1 and 6) ............ 103,000 26,000
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NET INCOME .......................................... 750,000 710,000
RETAINED EARNINGS, BEGINNING OF YEAR ................ 1,432,000 722,000
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RETAINED EARNINGS, END OF YEAR ...................... $ 2,182,000 $ 1,432,000
=========== ===========
See accompanying notes to consolidated financial statements.
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RJS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
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1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 750,000 $ 710,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization....................... 85,000 74,000
Amortization of excess of fair value over cost of
net assets acquired................................ (143,000) (142,000)
Deferred income taxes............................... (138,000) (130,000)
Changes in operating assets and liabilities:
Accounts receivable - trade........................ (335,000) 63,000
Inventories........................................ (438,000) (313,000)
Prepaid expenses and other current assets.......... (48,000) (22,000)
Accounts payable................................... 264,000 375,000
Accrued expenses and other current liabilities..... (71,000) 116,000
Deferred service contract revenue.................. 16,000 23,000
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Net cash (used in) provided by operating
activities...................................... (58,000) 754,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................... (127,000) (46,000)
Other assets......................................... (67,000) (24,000)
Loans to shareholders................................ (263,000)
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Net cash used in investing activities............ (457,000) (70,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment of line of credit...................... (232,000) (100,000)
Repayment of long-term debt.......................... (100,000)
Issuance of common stock............................. 7,000
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Net cash used in financing activities............ (232,000) (193,000)
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(DECREASE) INCREASE IN CASH........................... (747,000) 491,000
CASH, BEGINNING OF YEAR............................... 757,000 266,000
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CASH, END OF YEAR..................................... $ 10,000 $ 757,000
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Cash paid during year for:
Interest.......................................... $ 103,000 $ 154,000
Income taxes...................................... $ 104,000 $ 2,000
See accompanying notes to consolidated financial statements.
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RJS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
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1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - RJS, Incorporated ("RJS") and its wholly owned subsidiary, RJS
International, GmbH ("RJS-GMBH"), a West German corporation
(collectively, the "Company"), are engaged in the design, development,
production and distribution of electronic instruments related to the
scanning and printing of bar code labels used in the identification of
industrial and consumer products. The Company sells its products
throughout the United States and Canada, Europe, South America,
Australia and the Pacific Basin.
The reporting entity RJS changed its name during the year from IDM
Technologies, Inc. to RJS, Incorporated.
Consolidation - The accompanying consolidated financial statements
include the accounts of RJS and RJS-GMBH. All significant intercompany
balances and transactions have been eliminated in consolidation.
Fiscal Year - The Company's fiscal year is the 52- or 53-week period
ending the Sunday nearest to September 30. References to the years ended
September 30, 1995 and 1994 in these consolidated financial statements
are to the 52 weeks ended October 1, 1995 and October 2, 1994,
respectively.
Revenue Recognition - The Company recognizes revenue as products are
shipped, net of estimated returns. The Company offers its customers
extended service contracts for the products it sells. Deferred service
contract revenue is recognized over the life of the service contract on
a straight-line basis, with service costs recognized as incurred.
Research and Development - Research and development costs are expensed
as incurred and consist of engineering expenses related to the
development of new products and the refinement and modification of
existing products. During 1994, the Company granted a perpetual,
nonexclusive license for a limited portion of the laser printer
technology it previously developed to an unrelated entity.
Other Income (Expense) - Other income consists principally of
amortization of the excess of fair value over cost of net assets
acquired. Other expense consists principally of foreign currency
transaction losses, which were $157,000 and $62,000 in 1995 and 1994,
respectively.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out (FIFO) method.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of their useful lives or the related lease
terms. Useful lives range from three to five years.
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Excess of Fair Value over Cost of Net Assets Acquired--The excess of fair
value over cost of net assets acquired (relating to the acquisition of RJS
and RJS-GMBH during 1987) is being amortized to income over ten years. The
amount of such amortization, recorded as other income, was $143,000 and
$142,000 during 1995 and 1994, respectively.
Foreign Currency Translation--The financial statements of RJS-GMBH are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. Assets and liabilities are translated using the
exchange rate at the balance sheet date, and revenues, expenses, gains and
losses are translated using an average exchange rate for the year. The
foreign currency translation adjustment was immaterial during 1995 and 1994.
Income Taxes--Deferred income taxes reflect the tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Temporary differences result primarily from net operating loss
carryforwards, general business tax credits and inventory reserves. The
Company records a valuation allowance for deferred income tax assets when,
based on management's best estimate of taxable income in the foreseeable
future, it is more likely than not that some portion of the deferred income
tax assets may not be realized.
Concentration of Credit Risk--Financial instruments which potentially
subject the Company to concentrations of credit risk consist of accounts
receivable. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers comprising the
Company's customer base and their geographic dispersion. The Company grants
uncollateralized credit to domestic and international customers.
Reclassifications--Certain reclassifications have been made to the 1994
amounts to conform to the 1995 presentation.
2. INVENTORIES
Inventories consist of the following:
1995 1994
Raw materials $1,244,000 $1,058,000
Work-in-process 112,000 202,000
Finished goods 960,000 618,000
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Total inventories $2,316,000 $1,878,000
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3. NOTES RECEIVABLE FROM SHAREHOLDERS
Notes receivable from shareholders consist of five-year notes that accrue
interest at 6% per annum. Monthly payments of principal and interest,
computed as if the notes were to be fully amortized over fifteen years, are
due through December 1999. The remaining balance is due in January 2000.
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4. LINE OF CREDIT
RJS has a line-of-credit facility with a bank under which $2,000,000 is
available for working capital advances and $450,000 is available for letters
of credit issuance. Aggregate borrowings under the facility are limited to
the lesser of $2,000,000 or the sum of (1) 80% of eligible accounts
receivable, as defined, plus (2) the lesser of 15% of eligible inventories,
as defined, or $250,000. The credit facility, which expires on March 1,
1996, is collateralized by accounts receivable, inventories and property and
equipment and is guaranteed by the principal shareholders of RJS. Advances
under the credit facility bear interest at the bank's prime rate (8.75% at
September 30, 1995) plus .50%. At September 30, 1995, RJS had $798,000 in
available credit under this arrangement. Loan covenants in connection with
the line of credit include the maintenance of certain financial ratios,
limitations on additional indebtedness, and certain other restrictions.
5. COMMITMENTS
The Company leases its facilities under a month-to-month lease. Rent
expense charged to operations during each of 1995 and 1994 was $122,000.
6. STOCK OPTION PLAN
The Company has a nonqualified stock option plan under which 225,000 shares
of Class A common stock have been reserved for issuance to certain key
employees. Stock options may be granted at prices not less than 100% of the
fair market value at the date of the grant. All options expire at periods
determined by the Board of Directors. Stock options for 6,333 shares were
exercised during 1994 for a total of $7,000. Stock options for 6,333 shares
expired during 1994. There were no outstanding options at September 30,
1995.
7. INCOME TAXES
The (benefit) provision for income taxes consists of the following:
1995 1994
Current:
Federal, net of effect of net operating
loss carryforwards of $180,000 and
$289,000 in 1995 and 1994, respectively $ 3,000 $ 10,000
State 32,000 54,000
Foreign 40,000
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Total current 35,000 104,000
Deferred (138,000) (130,000)
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Total $(103,000) $ (26,000)
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The Company has recorded a valuation allowance to reduce net deferred income
tax assets to the amount expected to be realized, which, at September 30,
1995 and 1994, consisted of the following:
1995 1994
Deferred income tax assets $1,354,000 $1,378,000
Deferred income tax liabilities (35,000) (42,000)
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Total 1,319,000 1,336,000
Less valuation allowance 851,000 1,006,000
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Net deferred income tax assets $ 468,000 $ 330,000
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At September 30, 1995 and 1994, the Company had net operating loss
carryforwards of $1,397,000 and $1,781,000, respectively, available to
reduce future federal taxable income. These carryforwards expire through
2002. The investment tax, research and other credits expire between 1999 and
2001. In addition, at September 30, 1995 and 1994, RJS-GMBH had in excess of
$1,500,000 of tax loss carryforwards available to offset taxable income
reportable in Germany, if any, earned by RJS-GMBH in the future. A valuation
allowance has been recorded for the full amount of such net operating loss
carryforwards.
The provision for income taxes differs from that which would result from
applying the federal statutory tax rates to pretax income due principally to
state income taxes, foreign losses, amortization of the excess of fair value
over cost of net assets acquired, changes in the valuation allowance,
research credits and officers' life insurance.
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings and profit sharing plan that is available
to substantially all of its employees. Under the plan, employees can make
voluntary contributions not to exceed the lesser of an amount equal to 15%
of their compensation or limits established by the Internal Revenue Code.
The Company, at its discretion, matches a portion of the employees' annual
contributions. Company contributions during each of 1995 and 1994 were
$18,000.
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