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) SEPTEMBER 2, 2005
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EMRISE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 001-10346 77-0226211
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
9485 HAVEN AVENUE, SUITE 100, RANCHO CUCAMONGA, CALIFORNIA 91730
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (909) 987-9220
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On September 2, 2005, Emrise Electronics Corporation ("Emrise
Electronics"), a wholly-owned subsidiary of Emrise Corporation ("Emrise"),
entered into a stock purchase agreement dated effective as of August 31, 2005
to acquire RO Associates Incorporated, a California corporation ("RO").
Effective September 28, 2005, Emrise Electronics entered into an amendment
to the stock purchase agreement. The disclosure regarding this acquisition
contained in Item 2.01 of this Form 8-K is incorporated herein by reference.
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to the terms of the stock purchase agreement, as amended, Emrise
Electronics acquired all of the issued and outstanding shares of common stock
of RO. Prior to the acquisition, all of the common stock of RO was owned by
Robert H. Okada, as Trustee of the Robert H. Okada Trust Agreement dated
February 11, 1992, and Sharon Vavro, an individual.
RO is based in Sunnyvale, California and designs and manufactures DC-DC
converters and AC-DC PFC modules for telecom, industrial, commercial, and
quasi-military applications. As a result of the acquisition, Emrise Electronics
acquired all of the assets and liabilities of RO, including the intellectual
property, cash, accounts receivable and inventories owned by RO. Emrise
Electronics intends to use these acquired assets for the same purpose for which
they were used by RO.
The purchase price consisted of $2,400,000 in cash paid at closing and an
additional $600,000 in cash payable in two equal installments on October 6, 2005
and March 31, 2006. The acquisition purchase price was funded with cash on-hand.
The purchase price is subject to adjustment based on the value of the
shareholders' equity, accounts receivable, accounts payable, cash on hand and
net inventory of RO, as determined by the consolidated, unaudited balance sheet
as of August 31, 2005, prepared in accordance with accounting principles
generally accepted in the United States of America. In addition, concurrently
with the closing of the acquisition of RO, Emrise Electronics paid in full all
then existing credit facilities of RO in the aggregate amount of $1,602,060.
In determining the purchase price for RO, Emrise Electronics considered
account the historical and expected earnings and cash flow of RO, as well as the
value of companies of a size and in an industry similar to RO, comparable
transactions and the market for such companies generally. The purchase price
represented a premium of approximately $1,845,000 over the $1,155,000 recorded
net worth of the assets of RO. In determining this premium, Emrise Electronics
considered the synergistic and strategic advantages provided by having a
U.S.-based power converter manufacturer and the value of the goodwill, customer
relationships and technology of RO. Goodwill associated with the RO acquisition
totaled approximately $1,308,000. Emrise intends to commission a valuation firm
to determine what portion of the purchase price should be allocated to
identifiable intangible assets. Emrise has estimated that RO's technology is
valued at approximately $484,000, its trademarks are valued at $300,000 and its
customer relationships are valued at $200,000. The valuation of the identified
intangible assets is expected to be completed in December 2005 and could result
in changes to the value of these identified intangible assets and corresponding
changes to the value of goodwill. However, Emrise does not believe these changes
will be material to Emrise's consolidated financial position or results of
operations.
2
In connection with the execution of the stock purchase agreement, Emrise
Electronics executed a lease agreement with Caspian Associates for the lease of
25,700 square feet of a 30,700 square feet building located at 246 Caspian
Drive, Sunnyvale, California. The lease provides for a two-year term, commencing
on September 1, 2005 and ending on August 31, 2007, at a base rent of $9,210 per
month. Additionally, the lease provides for an extension of the lease term for
an additional three years, to August 31, 2010 if RO achieves net sales of at
least $14,500,000 and cumulative gross profit of at least $3,987,500. If RO
achieves the net sales and cumulative gross profit targets, the monthly base
rent for the facility will be increased to the fair market value as of the first
day of the next calendar month. The facility will continue to be used for the
design, manufacture and sale of power conversion products.
In connection with the stock purchase agreement, Emrise Electronics also
executed an employment agreement with Richard Okada, effective as of September
1, 2005, to serve as president of RO. Mr. Okada will receive an annual base
salary of $115,000 for the two-year term of the employment agreement. In
addition, Mr. Okada is entitled to receive an incentive bonus based upon
performance criteria to be determined in the future. In connection with Mr.
Okada's employment agreement, Emrise granted Mr. Okada an incentive stock option
under Emrise's 2000 Stock Option Plan to purchase up to 50,000 shares of
Emrise's common stock at an exercise price of $1.35 per share. This option vests
50% on September 1, 2006 and 50% on September 1, 2007. The option expires on
August 31, 2015.
3
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
-------------------------------------------
The following financial statements of RO Associates are included in this
report:
Page
----
Independent Auditors' Report.................................................F-1
Balance Sheet for the Year Ended May 31, 2005................................F-2
Statements of Income and Retained Earnings for the Year Ended May 31, 2005...F-4
Statements of Cash Flows for the Year Ended May 31, 2005.....................F-5
Notes to Financial Statements................................................F-6
4
RO ASSOCIATES INCORPORATED
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
RO ASSOCIATES INCORPORATED
We have audited the balance sheet of RO Associates Incorporated as of May 31,
2005 and the related statement of income and retained earnings and cash flows
for the year 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 audit.
We conducted our audit in accordance with U.S. 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 audit provides 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 RO Associates Incorporated as of May
31, 2005, and the results of its operations and its cash flows for the year then
ended in conformity with U.S. generally accepted accounting principles.
/S/ Mayer Hoffman McCann P.C.
San Jose, California
August 9, 2005
(except for Note 12, as to
which the date is August 26, 2005)
F-1
RO ASSOCIATES INCORPORATED
BALANCE SHEET
May 31, 2005
ASSETS
------
CURRENT ASSETS
Cash $ 56,615
Accounts receivable, net 792,127
Inventories 3,107,451
Deferred income taxes 281,000
Prepaid expenses 17,113
-----------
TOTAL CURRENT ASSETS 4,254,306
-----------
PROPERTY AND EQUIPMENT, net 395,091
-----------
OTHER ASSETS
Deferred income taxes 55,000
Other assets 10,618
-----------
TOTAL OTHER ASSETS 65,618
-----------
TOTAL ASSETS $ 4,715,015
===========
See Notes to Financial Statements
F-2
RO ASSOCIATES INCORPORATED
BALANCE SHEET
May 31, 2005
LIABILITIES
-----------
CURRENT LIABILITIES
Accounts payable $ 692,833
Accrued expenses 342,845
Current portion of long-term debt 482,298
Current portion of obligation under capital lease 12,567
-----------
TOTAL CURRENT LIABILITIES 1,530,543
-----------
LONG-TERM DEBT, less current portion above 1,018,000
-----------
OBLIGATION UNDER CAPITAL LEASE, less current
portion above 50,010
-----------
STOCKHOLDERS' EQUITY
--------------------
CAPITAL CONTRIBUTED
Common stock, no par value; 7,500 shares
authorized; 1,210 shares issued and outstanding 12,500
RETAINED EARNINGS 2,103,962
-----------
TOTAL STOCKHOLDERS' EQUITY 2,116,462
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 4,715,015
===========
See Notes to Financial Statements
F-3
RO ASSOCIATES INCORPORATED
STATEMENT OF INCOME AND RETAINED EARNINGS
Year Ended May 31, 2005
NET SALES $ 6,041,264
COST OF GOODS SOLD 3,750,254
------------
GROSS PROFIT 2,291,010
OPERATING EXPENSES 1,699,501
------------
OPERATING INCOME 591,509
------------
OTHER INCOME (EXPENSE)
Miscellaneous income 4,754
Interest expense (129,487)
------------
TOTAL OTHER INCOME (EXPENSE) (124,733)
------------
INCOME BEFORE INCOME TAXES 466,776
INCOME TAX EXPENSE 168,000
------------
NET INCOME 298,776
RETAINED EARNINGS
Balance, beginning of year 1,805,186
------------
TOTAL RETAINED EARNINGS $ 2,103,962
============
See Notes to Financial Statements
F-4
RO ASSOCIATES INCORPORATED
STATEMENT OF CASH FLOWS
Year Ended May 31, 2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 298,776
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 318,341
(Gain) on disposal of assets (4,246)
Deferred income taxes 42,000
(Decrease) in allowance for doubtful accounts (18,750)
Decrease (increase) in operating assets:
Receivables 72,258
Inventories 186,326
Prepaid expenses (4,707)
Increase (decrease) in operating liabilities:
Accounts payable 210,344
Accrued expenses 201,828
------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,302,170
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 9,394
Investment in property and equipment (28,539)
------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (19,145)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (repayment) (35,227)
Net (repayment) on line-of-credit (2,138,655)
Proceeds from long-term debt 1,500,000
Repayment of long-term debt (543,787)
Repayment of capital lease obligation (8,741)
------------
NET CASH FLOWS FROM FINANCING ACTIVITIES (1,226,410)
------------
NET INCREASE (DECREASE) IN CASH 56,615
CASH, BEGINNING OF YEAR -
------------
CASH, END OF YEAR $ 56,615
============
See Notes to Financial Statements
F-5
RO ASSOCIATES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
( 1 ) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
NATURE OF OPERATIONS - RO Associates Incorporated (the Company) is
engaged principally in the development, manufacturing and marketing of
electronic power conversion devices. The Company sells principally to
original equipment manufacturers in North America. In addition, the
Company has licensed the right to manufacture and sell its proprietary
products to companies based in North America, Europe, Taiwan and Japan.
REVENUE RECOGNITION - The Company recognizes revenue as follows:
Product Sales - Revenue from product sales is recognized upon shipment.
Licenses - For those agreements that provide the licensees the right to
manufacture and sell the Company's proprietary products, initial
license fee revenue is recognized upon delivery of the product
technology. Guaranteed minimum license royalties are recognized as
revenue as they become due. Per unit royalties that exceed the
guaranteed minimum are recognized as earned when reported.
USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
INVENTORY VALUATION - Inventories are stated at the lower of cost or
market. Cost has been determined on the first-in, first-out basis.
Market is based upon realizable value less allowance for selling and
distribution expenses and normal gross profit.
An inventory reserve is provided for obsolete and slow moving inventory
to write it down to net realizable value (market), if necessary. The
reserve is calculated as a percentage of the cost of inventory
identified as slow moving. The carrying amount for inventory has been
reduced by $156,000 at May 31, 2005.
DEPRECIATION AND AMORTIZATION - Depreciation is computed on the
straight-line method over the following estimated useful lives:
ASSETS USEFUL LIVES
------ ------------
Machinery and equipment 3 - 7 years
Furniture and fixtures 5 - 10 years
Auto and trucks 5 - 10 years
Leasehold improvements 5 - 39 years
F-6
( 1 ) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
subject the Company to a concentration of credit risk include cash and
trade receivables. At various times throughout the year, the Company
maintained cash balances in excess of federally insured limits. All
cash balances are held by credit worthy financial institutions.
Two customers accounted for approximately 26% of revenues for the year
ended May 31, 2005. Neither customer had an accounts receivable balance
as of May 31, 2005.
ACCOUNTS RECEIVABLE, NET - Accounts receivable are stated at the amount
management expects to collect from outstanding balances. An allowance
for doubtful accounts is maintained for potential credit losses based
upon an assessment of the expected collectibility of all accounts
receivable. The allowance for doubtful accounts is reviewed
periodically to assess the adequacy of the allowance. The allowance for
doubtful accounts was approximately $93,000 as of May 31, 2005.
INCOME TAXES - The Company utilizes the asset and liability method of
accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis, and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is
provided to the extent such deferred tax assets are not expected to be
realized.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development
expenditures, which are expensed as incurred, totaled $584,226 during
the year ended May 31, 2005.
ADVERTISING COSTS - Advertising costs are charged to operations when
incurred. Advertising expense was $87,953 for the year ended May 31,
2005.
( 2 ) INVENTORIES
-----------
MAY 31,
2005
-----------
Raw materials $ 1,879,163
Work-in-process 572,970
Finished goods 655,318
-----------
Total inventories $ 3,107,451
===========
F-7
( 3 ) PROPERTY AND EQUIPMENT
----------------------
MAY 31,
2005
-----------
Cost of owned property and equipment:
Machinery and equipment $ 2,985,066
Furniture and fixtures 126,236
Leasehold improvements 228,441
-----------
Total cost of owned property and equipment 3,339,743
Accumulated depreciation 3,004,673
-----------
Net owned property and equipment 335,070
-----------
Cost of property and equipment under capital lease:
Machinery and equipment 71,317
Accumulated amortization 11,296
-----------
Net leased property and equipment under
capital lease 60,021
-----------
Total net property and equipment $ 395,091
===========
The aggregate depreciation and amortization on the above property and
equipment charged to operations was $318,341 for the year ended May 31,
2005.
( 4 ) LINE OF CREDIT
---------------
On August 17, 2004, the Company converted its existing $3,000,000 line
of credit into a $1,000,000 line of credit and a $1,500,000 note
payable.
The Company's line of credit bears interest at the bank's prime rate
(6.0% at May 31, 2005) plus 0.25% and expires on December 15, 2005. The
line is guaranteed by a partnership (the Partnership) whose partners
include the majority shareholder of the Company. As of May 31, 2005, no
amounts were outstanding against the line of credit.
F-8
( 5 ) LONG-TERM DEBT
--------------
MAY 31,
2005
-----------
Former line of credit converted into note payable to bank,
guaranteed by the Partnership and secured by all fixtures in
the building owned by the Partnership, payable in monthly
principal installments of $27,000, plus interest at the bank's
prime rate (6.0% as of May 31, 2005) plus 1.25% through July
15, 2009. $ 1,342,000
Non-revolving equipment acquisition line of credit,
collateralized by substantially all the Company's assets,
payable in monthly principal and interest installments of
$27,578; interest accrues at the bank's prime rate (6.0% as of
May 31, 2005) plus 0.5% through October 15, 2005. 135,634
Equipment note payable, collateralized by substantially all the
Company's assets, payable in monthly principal and interest
installments of $4,663; interest is at the bank's prime rate
(6.0% as of May 31, 2005) plus 0.5% through October 15, 2005. 22,664
Equipment note payable, collateralized by substantially all the
Company's assets, paid in full in 2005. -
-----------
Total long-term debt 1,500,298
Less current portion 482,298
-----------
Noncurrent portion $ 1,018,000
===========
F-9
( 5 ) LONG-TERM DEBT (CONTINUED)
--------------------------
The line of credit, non-revolving equipment acquisition line of credit
and notes payable require the Company to meet certain financial
covenants. As of May 31, 2005, the Company was in compliance with all
of its covenants.
Estimated maturities of long-term debt are as follows:
YEARS ENDING MAY 31,
--------------------
2006 $ 482,298
2007 324,000
2008 324,000
2009 324,000
2010 46,000
------------
$ 1,500,298
============
( 6 ) OBLIGATION UNDER CAPITAL LEASE
------------------------------
The Company entered into a capital equipment lease on July 14, 2004.
The lease is payable in monthly principal and interest installments of
approximately $1,500 through August 8, 2009 and bears interest at 8.5%.
Future minimum lease payments under the capital lease together with the
present value of the net minimum lease payments are as follows:
YEARS ENDING MAY 31,
--------------------
2006 $ 18,177
2007 18,177
2008 18,177
2009 18,177
2010 3,030
------------
Total minimum lease payments 75,738
Less amount representing interest 13,162
------------
Present value of net minimum lease payments 62,576
Less current portion 12,567
------------
Noncurrent portion $ 50,010
============
F-10
( 7 ) OPERATING LEASES AND RELATED PARTIES TRANSACTION
------------------------------------------------
The Company leases office equipment under an operating lease.
The future minimum rental payments required under the operating lease
that have initial or remaining non-cancelable lease terms in excess of
one year are as follows:
YEARS ENDING MAY 31,
--------------------
2006 $ 7,779
2007 7,779
2008 7,779
2009. 1,945
------------
Totals $ 25,282
============
The Company leases its manufacturing facilities under a month-to-month
lease from the Partnership. Rent expense was approximately $110,000 for
the year ended May 31, 2005.
( 8 ) INCOME TAXES
------------
Temporary differences principally arise from differences in
depreciation, allowance for doubtful accounts, reserves and
liabilities, and inventory valuation. The deferred tax asset totaled
$336,000 at May 31, 2005.
The provision for income taxes consists of the following:
YEAR ENDED MAY 31,
2005
------------------
Current income taxes $ 125,000
Federal income taxes
State and local income taxes 1,000
------------------
Total current income tax expense 126,000
------------------
Deferred income tax expense 6,000
Federal income taxes
State and local income taxes 36,000
------------------
Total deferred income tax expense 42,000
------------------
Total income tax expense $ 168,000
==================
The effective tax rate differs from the combined federal and state
statutory tax rates of approximately 40% principally due to the
utilization of certain federal and state research and development
credits.
As of May 31, 2005, the Company had state research and development
credit carryforwards of $41,506.
F-11
( 9 ) PROFIT SHARING PLAN
-------------------
The Company has a profit sharing plan covering substantially all of its
employees. Contributions are made at the discretion of the Company's
board of directors. During the year ended May 31, 2005, the Company
made a contribution to the plan of $50,000. As of May 31, 2005, plan
assets totaled $2,622,887.
( 10 ) PRODUCT WARRANTY
----------------
The Company accrues an estimate of its exposure to warranty claims
based on warranty costs incurred. The Company provides a 24-month
warranty on its products. The Company assesses the adequacy of its
recorded warranty liability annually and adjusts the amount as
necessary. The warranty liability is included in accrued liabilities in
the accompanying balance sheet. Changes to the Company's warranty
liability were as follows:
YEAR ENDED
MAY 31,
---------
2005
---------
Warranty accrual, beginning of year $ 49,572
Charges to costs and expenses 34,288
Actual warranty expenditures (34,288)
---------
Warranty accrual, end of year $ 49,572
=========
( 11 ) CASH FLOW DISCLOSURES
---------------------
The following is a summary of supplemental cash flow information:
YEAR ENDED
MAY 31,
---------
2005
---------
Cash paid:
Interest $ 129,487
=========
Income taxes $ 800
=========
Noncash investing & financing activities:
Equipment acquisitions through capital lease $ 71,317
=========
F-12
( 12 ) SUBSEQUENT EVENTS
-----------------
Subsequent to May 31, 2005, the Company entered into a letter of intent
to sell all of its outstanding capital stock to an acquiring company.
The closing date is expected to be approximately August 31, 2005.
F-13
(b) Pro Forma Financial Information.
-------------------------------
As described in Item 2.01 of this report, effective as of August 31, 2005,
Emrise Electronics acquired all of the issued and outstanding capital stock of
RO. The accompanying unaudited pro forma condensed consolidated balance sheet
and unaudited pro forma condensed consolidated statements of operations as of
and for the periods ended June 30, 2005 and December 31, 2004 are set forth
herein to give effect to the acquisition of RO as if the acquisition had been
consummated at the beginning of the earliest period presented (January 1, 2004).
Emrise previously acquired, effective as of March 18, 2005, all of the
issued and outstanding common stock of Pascall Electronic (Holdings) Limited
("PEHL"). The accompanying unaudited pro forma condensed consolidated statements
of operations for the year ended December 31, 2004 also give effect to the
acquisition of PEHL and PEHL's subsidiary as if that acquisition had been
consummated at January 1, 2004. The balance sheets of PEHL and PEHL's subsidiary
were included in Emrise's quarterly report on Form 10-Q for the six months ended
June 30, 2005.
Emrise previously acquired, effective as of July 13, 2004, all of the
issued and outstanding common stock of Larus Corporation. The accompanying
unaudited pro forma condensed consolidated statements of operations for the year
ended December 31, 2004 also give effect to the acquisition of Larus Corporation
and Larus Corporation's subsidiary as if that acquisition had been consummated
at January 1, 2004. The balance sheets of Larus Corporation and Larus
Corporation's subsidiary were included in Emrise's quarterly report on Form 10-Q
for the six months ended June 30, 2005.
The acquisitions were accounted for under the purchase method of accounting
in accordance with accounting principles generally accepted in the United
States. Under this method, tangible and identifiable intangible assets acquired
and liabilities assumed are recorded at their estimated fair values. The excess
of the purchase price, plus estimated fees and expenses related to the
acquisitions, over the fair value of net assets acquired are recorded as
goodwill.
The unaudited pro forma condensed consolidated balance sheet and statements
of operations do not reflect any potential cost savings that were or may be
realized following the acquisitions. The pro forma adjustments and assumptions
are based on estimates, evaluations and other data currently available and, in
Emrise's opinion, provide a reasonable basis for the fair presentation of the
estimated effects directly attributable to the acquisition and related
transactions. The unaudited pro forma condensed consolidated balance sheet and
statements of operations are provided for illustrative purposes only and are not
necessarily indicative of what the consolidated results of operations or
financial position would actually have been had the acquisitions occurred on
January 1, 2004, nor do they represent a forecast of the consolidated results of
operations or financial position for any future period or date.
All information contained herein should be read in conjunction with
Emrise's annual report on Form 10-K for the year ended December 31, 2004, its
quarterly report on Form 10-Q for the six months ended June 30, 2005, the
consolidated financial statements and notes thereto of RO included in Item
9.01(a) of this Form 8-K and the notes to unaudited pro forma financial
information included herein. The following pro forma financial information is
included in this report:
5
Page
----
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2005..........F-14
Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 2004..................................F-16
Pro Forma Condensed Consolidated Statement of Operations for
the Six Months Ended June 30, 2005................................F-17
6
EMRISE CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF
JUNE 30, 2005
(IN THOUSANDS)
ASSETS PRO FORMA
EMRISE RO ADJUSTMENTS TOTALS
----------- ----------- ----------- -----------
Cash $ 6,435 $ 57 $ (4,000) (a) $ 2,492
Accounts receivable 7,635 792 - 8,427
Inventories 8,596 3,107 (856) (b) 10,847
Deferred tax assets 345 281 - 626
Prepaids and other current 573 17 - 590
----------- ----------- ----------- -----------
Total current assets 23,584 4,254 (4,856) 22,982
Net fixed assets 2,079 395 - 2,474
Goodwill 12,368 - 1,250 (c) 13,618
Intangibles 2,062 - 984 (b) 3,046
Other assets 573 66 - 639
Investments - - - -
----------- ----------- ----------- -----------
Total other assets 15,003 66 2,234 17,303
----------- ----------- ----------- -----------
Total assets $ 40,666 $ 4,715 $ (2,622) $ 42,759
=========== =========== =========== ===========
(a) Cash for $2,400 purchase price, $1,500 to pay off RO bank debt, estimated transaction fees of
$100. At the time of the acquisition, the RO bank debt had grown to $1,602
(b) Recalculation of inventory reserve for excess and obsolete parts
(c) Goodwill
(d) Estimated fair value of $484 for RO's technology, $300 for RO's trademarks and $200 for RO's customer
relationships
F-14
EMRISE CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF
JUNE 30, 2005 (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY PRO FORMA
EMRISE RO ADJUSTMENTS TOTALS
----------- ----------- ----------- -----------
Borrowings under credit lines $ 811 $ - $ - $ 811
Current portion of long-term debt 892 482 (482) (e) 892
Notes payable to stockholders, current portion 500 - - 500
Accounts payable 3,171 693 - 3,864
Income taxes payable 594 - - 594
Accrued expenses 3,707 356 - 4,063
----------- ----------- ----------- -----------
Total current liabilities 9,675 1,531 (482) 10,724
Long-term debt, less current portion 322 1,018 (1,018) (f) 322
Notes payable to stockholders, less current
portion 2,000 - - 2,000
Deferred income taxes 1,420 - 394 (g) 1,814
Other liabilities 887 50 600 (h) 1,537
----------- ----------- ----------- -----------
Total non current liabilities 4,629 1,068 (24) 5,673
----------- ----------- ----------- -----------
Total liabilities 14,304 2,599 (506) 16,397
Stockholders' Equity
Common stock 123 12 (12) (i) 123
Additional paid in capital 43,243 - - 43,243
Retained earnings (accumulated deficit) (16,735) 2,104 (2,104) (j) (16,735)
Accumulated comprehensive income (269) - - (269)
----------- ----------- ----------- -----------
Total stockholders' equity 26,362 2,116 (2,116) 26,362
Total liabilities and stockholders' equity $ 40,666 $ 4,715 $ (2,622) $ 42,759
=========== =========== =========== ===========
---------------
(e) Payoff of RO's bank debt
(f) Payoff of RO's bank debt
(g) Deferred income taxes provided on intangibles at a composite federal and state rate of 40%
(h) Deferred portion of purchase price is $600
(i) To eliminate RO's stock in consolidation
(j) To reduce RO's retained earnings to zero
F-15
EMRISE CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(IN THOUSANDS, EXCEPT PER SHARE DATA)
RO LARUS PEHL
JAN. 1 JAN. 1 JAN. 1 PRO FORMA
EMRISE TO DEC. 31 TO JULY 12 TO DEC. 31 ADJUSTMENTS TOTALS
----------- ----------- ----------- ----------- ----------- -----------
Sales $ 29,861 $ 6,597 $ 2,625 $ 13,912 $ - $ 52,995
Cost of sales 16,146 4,000 1,260 10,782 (60) (a) 32,128
----------- ----------- ----------- ----------- ----------- -----------
Gross profit 13,715 2,597 1,365 3,130 60 20,867
Selling, general and
administrative 10,226 1,034 682 2,822 (15) (b) 14,749
135 (c) 135
Engineering and product
development 1,521 635 220 359 - 2,735
----------- ----------- ----------- ----------- ----------- -----------
Total 11,747 1,669 902 3,181 120 17,619
Operating profit 1,968 928 463 (51) (60) 3,248
Interest expense (433) (132) - (110) 132 (d) (543)
(76) (e) (76)
Other, net (6) - 2 - - (4)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes 1,529 796 465 (161) (4) 2,625
Income taxes 49 287 181 (151) (106) (f) 260
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 1,480 $ 509 $ 284 ($ 10) $ 102 $ 2,365
=========== =========== =========== =========== =========== ===========
Earnings Per Share - Basic $0.06 $0.10
Earnings Per Share - Diluted $0.06 $0.10
Shares Outstanding - Basic 24,063 24,063
Shares Outstanding - Diluted 24,839 24,839
---------------
(a) Reduction of $60 Larus rent allocated to cost of sales due to new lease at Larus
(b) Reduction of $15 Larus rent allocated to selling and administration due to new lease at Larus
(c) Amortization for Larus Corporation for technology and customer relationships of $135
(d) Elimination of interest expense due to payoff of RO's bank debt of $132
(e) Increase in interest cost of $76 for long-term note issued for the Larus acquisiton. The notes were for
$3,000 and carry an interest rate of 30-day LIBOR plus 1%
(f) Utilization of Emrise net operating loss tax carryovers offsetting Larus and RO tax provision
F-16
EMRISE CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005
(IN THOUSANDS, EXCEPT PER SHARE DATA)
RO PEHL
JAN. 1 JAN. 1 TO PRO FORMA
EMRISE TO JUNE 30 MAR. 17 ADJUSTMENTS TOTALS
----------- ----------- ----------- ------------ -----------
Sales $ 17,261 $ 2,714 $ 3,241 $ - $ 23,216
Cost of sales 10,186 1,849 1,648 - 13,683
----------- ----------- ----------- ----------- -----------
Gross profit 7,075 865 1,593 0 9,533
Selling, general and administrative 6,278 667 1,070 - 8,015
Engineering and product development 1,136 254 359 - 1,749
----------- ----------- ----------- ----------- -----------
Total 7,414 921 1,429 0 9,764
Operating profit (339) (56) 164 0 (231)
Interest income 109 - - (46)(a) 63
Interest expense (196) (56) - 56 (b) (196)
Other, net 112 - - - 112
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (314) (112) 164 10 (252)
Income taxes 15 (39) - 39 (c) 15
----------- ----------- ----------- ----------- -----------
Net (loss) income $ (329) $ (73) $ 164 $ (29) $ (267)
=========== =========== =========== =========== ===========
Loss Per Share - Basic ($0.01) ($0.01)
Loss Per Share - Diluted ($0.01) ($0.01)
Shares Outstanding - Basic 37,017 37,017
Shares Outstanding - Diluted 37,017 37,017
(a) Reduction of interest income due to $4,600 paid for RO and payoff of its debt
(b) Elimination of interest expense due to pay off of RO's bank debt
(c) Elimination of RO's tax benefit due to Emrise's net operating tax losses
F-17
(c) Exhibits.
--------
Number Description
------ -----------
2.1 Stock Purchase Agreement dated September 2, 2005 between Emrise
Electronics Corporation, a New Jersey corporation, Robert H. Okada, as
Trustee of the Robert H. Okada Trust Agreement dated February 11, 1992,
and Sharon Vavro, an individual (1)
2.2 Amendment No. 1 dated effective as of September 28, 2005 to Stock
Purchase Agreement dated September 2, 2005 between Emrise Electronics
Corporation, a New Jersey corporation, Robert H. Okada, as Trustee of
the Robert H. Okada Trust Agreement dated February 11, 1992, and Sharon
Vavro, an individual
---------------
(1) Filed as an exhibit to the initial filing of this Form 8-K and incorporated
herein by reference.
7
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.
Date: October 4, 2005 EMRISE CORPORATION
By: /S/ RANDOLPH D. FOOTE
---------------------------------------
Randolph D. Foote, Chief Financial Officer
8
EXHIBITS FILED WITH THIS AMENDMENT NO. 1 TO FORM 8-K
Number Description
------ -----------
2.2 Amendment No. 1 dated effective September 28, 2005 to Stock Purchase
Agreement dated September 2, 2005 between Emrise Electronics
Corporation, a New Jersey corporation, Robert H. Okada, as Trustee of
the Robert H. Okada Trust Agreement dated February 11, 1992, and Sharon
Vavro, an individual