SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1997
The Failure Group, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-18655 77-0218904
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
149 Commonwealth Drive, Menlo Park, California 94025
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 326-9400
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N/A
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(Former name or former address, if changed since last report)
FORM 8-K/A
Current Report
Amendment No. 1
--------------------------------
The Registrant hereby amends Item 7 of its Current Report on Form 8-K filed
May 30, 1997 in its entirety to read as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements and exhibits are filed as part of
this report where indicated.
(a) Financial Statements of the Registrant's and Business Acquired:
PTI Environmental Services, Inc. Unaudited Condensed Statement of
Income For the 3 Months Ended March 31, 1997.
PTI Environmental Services, Inc. Unaudited Condensed Balance Sheet for
March 31, 1997.
PTI Environmental Services, Inc. Independent Auditors' Report and
Audited Financial Statements For the 12 Months Ended December 31, 1996
and 1995.
The Failure Group, Inc. Unaudited Condensed Statement of Income For
the 3 Months Ended April 4, 1997 and March 29, 1996 is incorporated by
reference from the Registrant's Form 10-Q, filed on May 19, 1997.
The Failure Group, Inc. Unaudited Condensed Balance Sheets For the
Periods Ended April 4, 1997 and January 3, 1997. The Failure Group
Inc., financial statements are incorporated by reference from the
Registrant's Annual Report, on Form 10-K filed on April 3, 1997, as
amended on May 5, 1997.
(b) Pro Forma Financial Information:
The following unaudited pro forma combined financial data presents the
Pro Forma Combined Balance Sheets at March 31, 1997, giving effect to
the acquisition of Performance Technologies, Incorporated ("PTI") as
if they were consummated on that date. Also presented are the Pro
Forma Combined Statements of Income for the Three months ended March
31, 1997 and the fiscal year ended December 31, 1996 after giving
effect to the acquisition as if they were consummated on January 1,
1996. The pro forma data is based on the historical consolidated
financial statements of the Registrant and the historical financial
statements of PTI giving effect to the transaction under the
assumption and adjustments outlined in the accompanying notes to
Unaudited Pro Forma Combined Financial Data.
The unaudited pro forma data is provided for comparative purposes
only. It does not purport to be indicative of the results that
actually would have occurred if the acquisition had been consummated
on the date indicated or which may be obtained in the future.
The pro forma combined financial data should be read in conjunction
with the notes thereto contained elsewhere herein and the audited
financial statements of PTI and the related notes thereto contained
elsewhere herein and the audited consolidated financial statements of
the Registrant and the related notes thereto incorporated herein by
reference.
The Failure Group, Inc. and PTI, Inc. Unaudited Pro Forma Condensed
Statements of Income for the 3 Months Ended March 31, 1997.
The Failure Group, Inc. and PTI, Inc. Unaudited Pro Forma Condensed
Statements of Income, for the Year Ended December 31, 1996
The Failure Group, Inc. and PTI, Inc. Unaudited Pro Forma Condensed
Balance Sheets for the period Ended March 31, 1997
(c) Exhibits:
23.1 Consent of Moss Adams LLP.
27.1 Financial Data Schedule.
PTI Environmental Services, Inc.
UNAUDITED CONDENSED STATEMENT OF INCOME
For The 3 Months Ended March 31, 1997
(in thousands)
================================================================================
Revenues
- --------
Total revenue $3,715
Operating Expenses
- ------------------
Professional compensation and related expenses 974
Subcontract costs 282
Other operating expenses 500
General and administrative expenses 1,458
---------
3,214
---------
Operating Income 501
Provision for income taxes 9
---------
Net income $ 492
=========
PTI Environmental Services, Inc.
UNAUDITED CONDENSED BALANCE SHEET
March 31, 1997
(in thousands)
Assets
Current Assets:
Cash and cash equivalents $ 297
Accounts receivable 3,495
Prepaid expenses and other assets 175
---------
Total current assets 3,967
---------
Property, equipment and leasehold improvements, net 445
Other assets 50
---------
$4,462
=========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $1,107
Accrued payroll and employee benefits 414
---------
Total current liabilities 1,521
Long-term obligations, net of current installments 1
---------
Total liabilities 1,522
---------
Stockholders' equity:
Common stock 491
Retained earnings 2,449
---------
Total stockholders' equity 2,940
---------
$4,462
=========
[MOSS-ADAMS LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Performance Technologies, Incorporated
We have audited the accompanying balance sheet of Performance Technologies,
Incorporated d/b/a PTI Environmental Services as of December 31, 1996 and 1995
and the related statements of income, stockholders' equity, 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Performance Technologies,
Incorporated d/b/a PTI Environmental Services as of December 31, 1996 and 1995
and the results of its operations and cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Moss-Adams LLP
- ------------------
Seattle, Washington
February 14, 1997
PERFORMANCE TECHNOLOGIES, INCORPORATED
d/b/a PTI ENVIRONMENTAL SERVICES
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
CONTRACT REVENUE $15,177,900 $13,290,315
----------- -----------
PROJECT EXPENSES
Direct payroll 3,404,418 3,049,958
Subcontract costs 2,516,029 2,433,026
Other direct costs 1,645,022 1,445,075
----------- -----------
Total project expenses 7,565,469 6,928,059
----------- -----------
REVENUE NET OF PROJECT EXPENSES 7,612,431 6,362,256
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 5,963,154 5,227,711
----------- -----------
NET INCOME $ 1,649,277 $ 1,134,545
=========== ===========
The accompanying notes are an integral
part of these financial statements.
PERFORMANCE TECHNOLOGIES, INCORPORATED
d/b/a PTI ENVIRONMENTAL SERVICES
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
CURRENT ASSETS
Cash $ 511,171 $ 126,418
Contracts receivable, less allowance
of $48,315 in 1996 and $82,188 in 1995 3,102,652 3,148,671
Costs and estimated earnings in excess
of billings on uncompleted contracts 60,829 232,240
Prepaid expenses 185,656 121,904
---------- ----------
Total current assets 3,860,308 3,629,233
FURNITURE, FIXTURES AND EQUIPMENT, net 403,159 450,001
OTHER ASSETS 49,638 38,831
---------- ----------
$4,313,105 $4,118,065
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 595,608 $ 603,896
Billings in excess of cash and estimated
earnings on uncompleted contracts 59,500 4,570
Accrued liabilities 57,285 74,098
Accrued compensation 499,098 593,743
Dividends payable 158,346 130,943
---------- ----------
Total current liabilities 1,369,837 1,407,250
---------- ----------
COMMITMENTS AND CONTINGENCY (Note 6)
STOCKHOLDERS' EQUITY
Common stock - 10,000,000 shares authorized 488,380 426,640
Retained earnings 2,454,888 2,284,175
---------- ----------
2,943,268 2,710,815
---------- ----------
$4,313,105 $4,118,065
========== ==========
The accompanying notes are an integral
part of these financial statements.
PERFORMANCE TECHNOLOGIES, INCORPORATED
d/b/a PTI ENVIRONMENTAL SERVICES
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
Common Stock
-------------------------- Retained
Shares Amount Earnings Total
------------ ------------ ----------- -----------
BALANCE, December 31, 1994 5,104,800 $437,640 $ 2,270,032 $ 2,707,672
Shares repurchased (30,800) (11,000) (29,040) (40,040)
Dividends - - (1,091,362) (1,091,362)
Net income - - 1,134,545 1,134,545
---------- -------- ----------- -----------
BALANCE, December 31, 1995 5,074,000 426,640 2,284,175 2,710,815
Shares repurchased (85,000) (5,060) (125,061) (130,121)
Issuance of common stock 40,000 66,800 - 66,800
Dividends - - (1,353,503) (1,353,503)
Net income - - 1,649,277 1,649,277
---------- -------- ----------- -----------
BALANCE, December 31, 1996 5,029,000 $488,380 $ 2,454,888 $ 2,943,268
========== ======== =========== ===========
The accompanying notes are an integral
part of these financial statements.
PERFORMANCE TECHNOLOGIES, INCORPORATED
d/b/a PTI ENVIRONMENTAL SERVICES
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,649,277 $1,134,545
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 250,117 236,555
Loss on sale of furniture and equipment 1,478 -
Changes in assets and liabilities
Contracts receivable 46,019 (895,899)
Costs and estimated earnings in excess
of billings on uncompleted contracts 171,411 (184,682)
Prepaid expenses and other assets (64,559) 19,179
Accounts payable (8,288) 56,787
Accrued liabilities (56,528) 44,797
---------- ----------
1,988,927 411,282
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures, and
equipment, net (207,055) (295,654)
Proceeds from sale of furniture and equipment 2,302 -
Advances under notes receivable (10,000) -
Repayment of notes receivable - 23,000
---------- ----------
(214,753) (272,654)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,326,100) (1,062,401)
Issuance of common stock 66,800 -
Common stock repurchased (130,121) (40,040)
---------- ----------
(1,389,421) (1,102,441)
---------- ----------
NET INCREASE (DECREASE) IN CASH 384,753 (963,813)
CASH BALANCE
Beginning of year 126,418 1,090,231
---------- ----------
End of year $ 511,171 $ 126,418
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 2,926 $ 5,610
========== ==========
Noncash transaction
Distributions declared to stockholders at
December 31, 1996 and 1995 $ 27,403 $ 130,943
========== ==========
The accompanying notes are an integral
part of these financial statements.
PERFORMANCE TECHNOLOGIES, INCORPORATED
d/b/a PTI ENVIRONMENTAL SERVICES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS - Performance Technologies, Incorporated (the Company)
operates under the trade name PTI Environmental Services, and is incorporated
in the State of Washington. The Company is headquartered in Bellevue,
Washington and has additional offices in Colorado, Massachusetts, Maryland and
Oregon. In 1997, the Company opened an office in Wisconsin and expects to
open another in Georgia during the year. The Company provides scientific and
engineering consulting services related to environmental issues for private
industry and governmental entities throughout the United States.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
CREDIT RISK CONCENTRATION - Financial instruments which potentially
subject the Company to concentrations of credit risk consist of cash in excess
of federally insured limits, contracts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts. The Company's cash is
on deposit with quality financial institutions and is accessible on demand.
Management therefore believes balances in excess of federally insured limits
are subject to minimal risk. The Company provides services under contracts and
generally does not require collateral. Historically, the Company's credit-
related losses have not been significant.
CONTRACT REVENUE RECOGNITION - Sales under cost reimbursement contracts
are recorded as costs are incurred and fees are earned. Sales under fixed price
contracts are recognized on the percentage-of-completion method as indicated
by the relationship of incurred costs to total estimated costs for each
contract. Estimated contract losses are recognized in total when they become
evident. Revenue associated with contract revisions, penalty provisions, or
final settlements is recognized when the amount is determinable and collection
is reasonably assured.
MAJOR CUSTOMERS - The Company has three customers which combined
constitute 34% and 35% of annual revenues, and 38% and 22% of the outstanding
receivables for the years ended December 31, 1996 and 1995, respectively.
DEPRECIATION - Furniture, fixtures, and equipment are recorded at cost
and are depreciated principally on the straight-line method over their
estimated useful lives.
PERFORMANCE TECHNOLOGIES, INCORPORATED
d/b/a PTI ENVIRONMENTAL SERVICES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INCOME TAXES - The Company and its stockholders have elected, for
Federal income tax purposes, to be treated as an S corporation in accordance
with the Internal Revenue Code. Accordingly, earnings, losses, and credits
resulting from the operations of the Company are reportable in the income tax
returns of the individual stockholders; accordingly, no provision for income
taxes is included in the accompanying financial statements.
NOTE 2 - FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures, and equipment consist of the following at
December 31:
1996 1995
----------- ----------
Computer equipment $ 1,124,603 $ 1,003,681
Furniture and fixtures 420,354 641,564
Other 353,561 138,863
----------- -----------
1,898,518 1,784,108
Less accumulated depreciation 1,495,359 1,334,107
----------- -----------
$ 403,159 $ 450,001
=========== ===========
NOTE 3 - LINE OF CREDIT
The Company has a $1,000,000 line of credit agreement with a bank
with interest at the bank's prime rate plus 1/2%. The line is subject to
renewal May 1, 1997, has certain operating covenants and is collateralized by
the assets of the Company. At December 31, 1996 and 1995, there were no
amounts outstanding under the line of credit.
NOTE 4 - STOCKHOLDERS' EQUITY
STOCK RESTRICTION - The Company and its stockholders are subject to a
stock restriction agreement which sets forth certain limitations on the
transfer of stock, values of compensatory stock, and the various rights and
obligations of other stockholders and the Company in the event a stockholder
desires to sell his or her stock.
PERFORMANCE TECHNOLOGIES, INCORPORATED
d/b/a PTI ENVIRONMENTAL SERVICES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN - The Company has a stock option plan under which
employees may be awarded incentive and non-qualified options to purchase
shares of common stock at an exercise price determined by the plan
administrator. Options generally vest to the grantee at 20% per year over five
years from the date granted. Vested options are exercisable in part or in full
at any time prior to their expiration date, not to exceed ten years from the
date granted. The plan prohibits the transfer of options.
The Company granted 125,000 and 100,000 options under the stock option
plan during 1996 and 1995. The Plan allows up to 500,000 options to be
granted. At December 31, 1996 and 1995, 108,200 and 223,000 options awarded
were available. The options have an exercise price of between $.48 and $1.94
per share. During 1996 and 1995, no options were exercised.
During 1996, 85,000 shares were repurchased from two former employees
at $1.52 and $1.98 per share. During 1995, 30,800 shares were repurchased from
former employees at $1.30 per share.
In 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (Statement 123). This statement established a fair
value based method of financial accounting and reporting for stock-based
employee compensation plans. The effect of applying Statement 123's fair value
method to the Company's stock options results in net income that is not
materially different from the amount reported. Therefore, the Company has
recognized no compensation expense for options granted.
NOTE 5 - RETIREMENT PLAN
The Company sponsors a defined contribution 401(k) plan covering
substantially all employees. A participant is able to contribute up to 15% of
their total earnings. The Company matches 100% of the first 3% of a
participant's contribution and 50% is matched on the next 3%. The Company's
contribution expense was $242,086 and $186,895 in 1996 and 1995, respectively.
PERFORMANCE TECHNOLOGIES, INCORPORATED
d/b/a PTI ENVIRONMENTAL SERVICES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 6 - COMMITMENTS AND CONTINGENCY
LEASES - The Company has operating leases for buildings and certain
equipment under noncancellable lease agreements with expiration dates ranging
from 1996 to 2001. Rent expense amounted to $865,000 and $787,000 in 1996 and
1995, respectively. Future minimum lease payments are as follows for years
ending December 31:
1997 $ 884,000
1998 838,000
1999 530,000
2000 252,000
2001 and thereafter 87,000
----------
$2,591,000
==========
GOVERNMENT AND CUSTOMER REVIEWS - At times, the U.S. Government and
certain customers will conduct audits of the Company's business practices and
cost classifications from which legal or administrative proceedings could
result. Any claims or assessments arising from such audits are recorded in the
year they become known. Historically, amounts have been insignificant.
INCENTIVE COMPENSATION PLAN - During 1995, the Company began a bonus
plan to provide incentive compensation for certain designated employees. Bonuses
to be awarded are in accordance with the plan document and are dependent on the
Company's operating results. Bonuses of $205,576 and $0 were granted for the
years ended December 31, 1996 and 1995, respectively, under the terms of this
plan.
LITIGATION - The Company is defendant in a litigation case. The Company
believes the ultimate outcome of this matter will not have a material effect on
the accompanying financial statements.
THE FAILURE GROUP, INC. AND PTI, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
For The 3 Months Ended March 31, 1997 (f)
(in thousands, except per share data)
================================================================================
Pro Forma
---------------------------------
FGI, Inc. PTI, Inc. Total
Actual Actual Adjustments Footnotes Combined
--------- --------- ----------- --------- --------
Revenues
- --------
Total revenue $17,877 $3,715 $(601) (a.) $20,991
Operating Expenses
- ------------------
Professional compensation and related
expenses 11,312 974 - 12,286
Subcontract costs - 282 (282) (a.) -
Other operating expenses 3,365 500 90 (b.) 3,955
General and administrative expenses 1,587 1,458 (319) (a.) 2,726
------- ------ ------ -------
16,264 3,214 (511) 18,967
------- ------ ------ -------
Operating Income 1,613 501 (90) 2,024
Other income 355 - - 355
------- ------ ------ -------
Income before taxes 1,968 501 (90) 2,379
Provision for income taxes 797 9 158 (c.) 964
------- ------ ------ -------
Net income $ 1,171 $ 492 $(248) $ 1,415
======= ====== ====== =======
Net income per share $ 0.17 $ 0.19
======= =======
Weighted average number of common shares 6,938 480 (d.) 7,418
======= ====== =======
THE FAILURE GROUP, INC. AND PTI, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
December 31, 1996 (e.)
(in thousands, except per share data)
================================================================================
Pro Forma
---------------------------------
FGI, Inc. PTI, Inc. Total
Actual Actual Adjustments Footnotes Combined
--------- --------- ----------- --------- --------
Revenues
- --------
Total revenue $58,665 $15,178 $ (3,656) (a.) $70,187
Operating Expenses
- ------------------
Professional compensation and related expenses 33,611 3,405 - 37,016
Subcontract costs - 2,516 (2,516) (a.) -
Other operating expenses 13,882 1,645 681 (a.),(b.) 16,208
General and administrative expenses 9,720 5,963 (1,431) (a.) 14,252
Impairment of long-lived assets 1,572 - - 1,572
------- ------- ------- -------
58,785 13,529 (3,266) 69,048
------- ------- ------- -------
Operating Income (loss) (120) 1,649 (390) 1,139
Other income 470 - - 470
------- ------- ------- -------
Income before taxes 350 1,649 (390) 1,609
Provision for income taxes 343 - 510 (c.) 853
------- ------- ------- -------
Income before extraordinary item $ 7 $ 1,649 $ (900) $ 756
Extraordinary item (net of taxes of $301) (443) - - (443)
------- ------- ------- -------
Net income (loss) $ (436) $ 1,649 $ (900) $ 313
======= ======= ======= =======
Income per share before extraordinary item $ 0.00 $ 0.11
======= =======
Extraordinary item per share $ (0.07) $ (0.07)
======= =======
Net income (loss) per share $ (0.07) $ 0.04
======= =======
Weighted average number of common shares
before extraordinary item 6,702 480 (d.) 7,182
======= ======= =======
Weighted average number of common shares for
extraordinary item and net income (loss) 6,663 480 (d.) 7,143
======= ======= =======
Notes To Unaudited Pro Forma Condensed Statements of Income
The accompany unaudited combined pro forma balance sheets have been prepared to
reflect the acquisition of PTI under the purchase method of accounting. The
total acquisition price was $9.9 million. In addition to $7.5 million in cash,
an aggregate of 480,002 shares of The Failure Group's Common Stock were issued
in connection with the Merger. As a result of the Merger, $7.2 million of
goodwill was recorded on PTI's Balance Sheet reflecting acquisition price in
excess of identifiable net assets acquired. This goodwill balance is being
amortized over a 20 year period.
The pro forma combined balance sheets and statements of income have been
adjusted to reflect the acquisition as follows:
(a.) Reclassification of PTI revenue from a gross basis to a net basis
to conform to FGI presentation. Net revenue consists of net professional
fees, equipment fees and net billed expenses
(b.) Amortization expense of goodwill resulting from FGI's acquisition of PTI
(c.) Federal and State income tax provision for the period then resulting from
PTI's S Corp to C Corp tax basis transition
(d.) Issuance of 480,002 shares of IFGI stock in connection with the
acquisition.
(e.) FGI's financial statements are as of January 3, 1997, but for purposes of
convenience in this presentation, December 31 headings are used
(f.) FGI's financial statements are as of April 4, 1997, but for purposes of
convenience in this presentation, March 31, 1997 headings are used
THE FAILURE GROUP, INC. AND PTI, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEETS
March 31, 1997 (g)
(in thousands)
Pro Forma
---------------------------------
FGI, Inc. PTI, Inc. Total
Actual Actual Adjustments Footnotes Combined
--------- --------- ----------- --------- --------
Assets
Current Assets:
Cash and cash equivalents $ 4,672 $ 297 - $ 4,969
Short-term investments 12,238 - (7,516) (a.) 4,722
Accounts receivable 24,697 3,495 - 28,192
Prepaid expenses and other assets 4,955 175 - 5,130
--------- -------- --------- --------
Total current assets 46,562 3,967 (7,516) 43,013
--------- -------- --------- --------
Property, equipment and leasehold improvements, net 29,043 445 - 29,488
Other assets 2,800 50 7,208 (b.) 10,058
--------- -------- --------- --------
$78,405 $4,462 $ (308) $82,559
========= ======== ========= ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 2,661 $1,107 $ - $ 3,768
Notes payable and current installments of
long-term obligations 626 - - 626
Accrued payroll and employee benefits 5,183 414 - 5,597
Income taxes payable - - 166 (c.) 166
--------- -------- --------- --------
Total current liabilities 8,470 1,521 166 10,157
--------- -------- --------- --------
Long-term obligations, net of current installments 18,525 1 - 18,526
Deferred income taxes 987 - - 987
--------- -------- --------- --------
Total liabilities 27,982 1,522 166 29,670
--------- -------- --------- --------
Stockholders' equity:
Common stock 8 491 - 499
Additional paid-in capital 33,001 - (401) (d.) 32,600
Net unrealized gain on investments 7 - - 7
Retained earnings 22,815 2,449 (2,449) (e.) 22,815
Treasury shares, at cost, 1,096,659 shares (5,408) - 2,376 (f.) (3,032)
--------- -------- --------- --------
Total stockholders' equity 50,423 2,940 (474) 52,889
--------- -------- --------- --------
$78,405 $4,462 $ (308) $82,559
========= ======== ========= ========
Notes To Unaudited Pro Forma Condensed Balance Sheets
The accompany unaudited combined pro forma balance sheets have been prepared to
reflect the acquisition of PTI under the purchase method of accounting. The
total acquisition price was $9.9 million. In addition to $7.5 million in cash,
an aggregate of 480,002 shares of Failure Group Common Stock were issued in
connection with the Merger. As a result of the Merger, $7.2 million of goodwill
was recorded on PTI's Balance Sheet reflecting acquisition price in excess of
identifiable net assets acquired. This goodwill balance is being amortized over
a 20 year period.
The pro forma combined balance sheets and statements of income have been
adjusted to reflect the acquisition as follows:
(a.) Portion of acquisition price paid by FGI in cash to PTI shareholders
(b.) Goodwill recorded on PTI's Balance Sheet reflecting acquisition price in
excess of identifiable net assets acquired
(c.) Provision on PTI's Balance Sheet for Federal and State income taxes for
the period then ended resulting from PTI's S Corp to C Corp transition
(d.) Net adjustment required to properly reflect acquisition
(e.) Elimination of cumulative Retained Earnings on PTI's Balance Sheet
recorded prior to acquisition
(f.) Portion of acquisition price paid by FGI in stock (480,002 shares) to PTI
shareholders
(g.) FGI's financial statements are as of April 4, 1997, but for purposes of
convenience in this presentation, March 31, 1997 headings are used
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 hereunto duly authorized.
THE FAILURE GROUP, INC
Dated: July 30, 1997 By: /s/ Michael R. Gaulke
---------------------
Michael R. Gaulke
President and Chief Executive Officer
INDEX TO EXHIBITS
Exhibit No.
- -----------
23.1 Consent of Moss Adams LLP
27.1 Financial Data Schedule