UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- - - - - - - - - - - -
Form 8-K/A
AMEMDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 10, 2005
Henry Bros. Electronics, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 005-62411 22-3690168
(State or other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
280 Midland Avenue 07663
Saddle Brook, New Jersey (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code
(201) 794-6500
(Former name or former address, if changed from last report)
N/A
- - - - - - - - - - - -
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:
[ ] 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 2.01 Completion of Acquisition or Disposition of Assets.
On October 14, 2005, Henry Bros. Electronics, Inc., a Delaware
corporation, (the "Company") filed a Current Report on Form 8-K (the "8-K")
reporting that Henry Bros. Electronics, Inc., a Colorado corporation ("Buyer"),
the Company, Securus Inc. ("Securus"), the Paul Marcus Trust ("PM Trust"), the
Phyllis C. Marcus Trust ("PCM Trust"), Neal Marcus and Jeffrey Marcus (each of
the PM Trust, the PCM Trust, Neal Marcus and Jeffrey Marcus is hereinafter
referred to as the "Sellers") entered into a stock purchase agreement (the
"Stock Purchase Agreement"). Pursuant to the Stock Purchase Agreement, Buyer, a
wholly owned subsidiary of the Company, purchased all of the issued and
outstanding stock of Securus from the Sellers. This Amendment Number 1 amends
Item 9.01 of the 8-K to provide the financial statements and pro forma financial
information as set forth in Item 9.01.
Item 9.01 Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Securus, Inc. for the years ended
February 28, 2005 and February 29, 2004
2
SECURUS, INC.
BALANCE SHEET
AS OF FEBRUARY 28, 2005
Assets
Current assets
Cash and cash equivalents $ 15,374
Trade receivables, less allowance for doubtful accounts of $25,000 762,760
Inventories 91,778
Costs and estimated earnings in excess of billings on uncompleted contracts 81,693
Notes receivable, related parties 41,944
Retainage receivable on sold leases, current portion 29,949
Investment in sales-type leases, current portion 29,266
Prepaid expenses 24,647
Deferred income taxes, net, current portion 71,500
-----------
Total current assets 1,148,911
-----------
Property and equipment, at cost:
Furniture and fixtures 707,987
Trucks and vehicles 32,096
Leasehold improvements 43,614
Equipment 285,680
-----------
1,069,377
Less accumulated depreciation (1,048,638)
-----------
Property and equipment, net 20,739
-----------
Retainage receivable on sold leases, net of current portion 100,262
Investment in sales-type leases, net of current portion 76,408
Cash surrender value of life insurance 25,076
Deposits 16,452
Investment in Professional Systems Associates, Inc., at cost 15,092
Deferred income taxes, net of currrent portion 68,500
-----------
Total assets $ 1,471,440
===========
The accompanying notes are an integral part of these financial statements.
3
SECURUS, INC.
BALANCE SHEET
AS OF FEBRUARY 28, 2005
(CONTINUED)
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable, trade $ 567,227
Deferred revenue, current portion 324,580
Line of credit 240,000
Accrued salaries and benefits 135,909
Deferred compensation 94,365
Other accrued expenses 78,841
Customer deposits, current portion 33,644
-----------
Total current liabilities 1,474,566
-----------
Deferred revenue, net of current portion 300,632
Customer deposits, net of current portion 42,588
-----------
Total liabilities 1,817,786
-----------
Commitments and contingencies
Stockholders' equity (deficit)
Common stock:
Voting, no par value. Authorized 50,000 shares;
113 shares issued and outstanding 10,000
Accumulated (deficit) (356,346)
-----------
Total stockholders' equity (deficit) (346,346)
-----------
Total liabilities and stockholders' equity (deficit) $ 1,471,440
===========
The accompanying notes are an integral part of these financial statements.
4
SECURUS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004
2005 2004
----------- -----------
Revenues, net $ 5,000,802 $ 5,404,282
Cost of goods and services sold 2,809,846 3,107,954
----------- -----------
Gross profit 2,190,956 2,296,328
Selling, general, and administrative expenses 2,449,236 2,634,613
----------- -----------
(Loss) from operations (258,280) (338,285)
----------- -----------
Other income (expense):
Interest (expense) (15,174) (17,913)
Net gain (loss) on sale of leases and early lease terminations (36,537) 8,178
Interest income 12,251 24,661
Other, net (7,297) 15,978
----------- -----------
Net other (expense) (46,757) 30,904
----------- -----------
(Loss) before income taxes (305,037) (307,381)
Deferred expense (benefit) for federal and state income taxes 87,000 (87,000)
----------- -----------
Net income (loss) $ (392,037) $ (220,381)
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
SECURUS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004
Common stock Total
------------- Accumulated Stockholders'
Shares Amount earnings (deficit) equity (deficit)
------ ------ ------------------ ----------------
Balance March 1, 2003 126 $ 20,000 $ 256,072 $ 276,072
Net (loss) - - (220,381) (220,381)
------------- ------------ ------------------- -----------------
Balance February 29, 2004 126 20,000 35,691 55,691
Repurchase of stock (13) (10,000) - (10,000)
Net (loss) - - (392,037) (392,037)
------------- ------------ ------------------- -----------------
Balance February 28, 2005 113 $ 10,000 $ (356,346) $ (346,346)
============= ============ =================== =================
The accompanying notes are an integral part of these financial statements.
6
SECURUS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004
2005 2004
------------- -------------
Cash flows from operating activities:
Net income (loss) $ (392,037) $ (220,381)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 28,281 21,742
Expense (benefit) for deferred income taxes 87,000 (87,000)
Bad debt expense 8,190 --
Unrealized (gain) loss on cash surrender value of life insurance (1,204) 40,075
Changes in operating assets and liabilities, net of impact
of business acquisition:
(Increase) decrease in trade receivables, net (218,328) 109,916
Decrease (increase) in inventories 80,617 (20,110)
Decrease (increase) in costs and estimated earnings
in excess of billings 277,476 (241,437)
(Increase) in notes receivable, related parties (1,374) (34,372)
(Increase) decrease in retainage receivables on sold leases (35,329) 7,293
Decrease in net investment in sales-type leases 240,607 45,890
Decrease in prepaid expenses 5,501 6,674
(Decrease) increase in trade payables (57,814) 283,186
Increase in deferred revenues 68,415 14,127
(Decrease) increase in accrued salaries and benefits (13,168) 5,691
Increase in other accrued expenses 54,224 1,177
(Decrease) in deferred compensation (29,581) (34,052)
(Decrease) increase in customer deposits (67,990) 25,359
------------- -------------
Net cash (used in) provided by operating activities 33,486 (76,222)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (22,537) (11,331)
------------- -------------
Net cash (used) by investing activities (22,537) (11,331)
------------- -------------
Cash flows from financing activities:
Borrowings under the line of credit 501,100 1,161,550
(Repayments) under line of credit (513,850) (1,123,395)
Common stock repurchase (10,000) --
------------- -------------
Net cash (used) by financing activities (22,750) 38,155
------------- -------------
Net increase (decrease) (11,801) (49,398)
Cash and cash equivalents, beginning of year 27,175 76,573
------------- -------------
Cash and cash equivalents, end of year $ 15,374 $ 27,175
============= =============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 16,547 $ 18,506
============= =============
Cash paid for income taxes $ -- $ --
============= =============
The accompanying notes are an integral part of these financial statements.
7
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
--------------------
Securus, Inc. (the "Company") was incorporated in the State of Colorado in
March, 1970. The Company is engaged in two related lines of business: the
leasing, sales, installation and maintenance of closed-circuit television and
related security systems and of security access control systems.
Basis of presentation
---------------------
The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.
Use of estimates in the preparation of financial statements
-----------------------------------------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of contingent assets
and liabilities and disclosure of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue recognition
-------------------
Leases: Long-term lease contracts, generally covering five years, are accounted
for as sales-type leases, in accordance with generally accepted accounting
principles. The present value of all payments due under the lease contracts
(excluding maintenance and interest charges) are recorded as revenue from
product sales at the time equipment is accepted by a customer, and interest and
maintenance charges are recorded as income over the lease term. Cost of sales is
charged with the cost of the equipment. The lease term generally covers the
estimated economic life of the equipment. Rentals for equipment under other
leases are accounted for under the operating method and are included in revenue
as earned over the lease term; related costs consist mainly of depreciation.
Contracts: The Company uses the percentage-of-completion method of accounting
for contracts for the sales and installation of security systems. Sales are
recorded based upon the percentage that costs incurred to date bear to total
estimated costs. General and administrative expenses are accounted for as period
charges and, therefore, are not included in the calculation of the estimates to
complete. The Company also has retainage provisions for contracts that are
uncompleted as of February 28, 2005 totaling approximately $130,000.
The Company's use of the percentage-of-completion method of revenue recognition
requires estimates of the degree of project completion. To the extent these
estimates prove to be
8
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
(continued)
inaccurate, the revenues and gross profits, if any, reported for the period
during which work on the project is ongoing may not accurately reflect the final
results of the project, which can only be determined upon project completion.
Provisions for any estimated losses on uncompleted contracts are made in the
period in which such losses are determinable.
Costs and estimated earnings in excess of billings on uncompleted contracts
consist of amounts recognized but not billed of $81,693 as of February 28, 2005.
Such billings are generally made and collected in the subsequent year. At
February 28, 2005, the Company had contracts in progress of $784,632, of which
$702,939 had been billed.
Operating cycle
---------------
The Company performs its work under fixed price, unit-price and material
contracts. The length of the Company's contracts varies, but is typically less
than one year.
Cash and cash equivalents
-------------------------
The Company considers short-term, highly liquid investments with an initial
maturity of three months or less to be cash equivalents. At February 28, 2005,
cash and cash equivalents consisted of currency on hand and demand deposits with
banks and other financial institutions.
Trade accounts and notes receivable
-----------------------------------
The Company offers unsecured credit in the form of trade accounts and notes
receivable to substantially all of its customers. Trade accounts and notes
receivable are affected by conditions and occurrences within the economy and the
industries within which the Company's customers operate. The Company's customer
base is located primarily in Colorado and consists mostly of commercial
entities.
The Company maintains an allowance for doubtful accounts at a level believed
adequate by management to absorb potential losses on trade accounts and notes
receivable. Management's determination of the adequacy of the allowance is based
on an evaluation of the receivables, loss experience, economic conditions, and
other relevant factors. As of February 28, 2005, the Company has established a
reserve for doubtful accounts of $25,000.
Equipment inventory
-------------------
Inventory consists of equipment held for lease or sale. Equipment is valued at
the lower of cost or market, using the specific identification method.
9
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property and equipment
----------------------
Equipment leased under capital leases, together with other property and
equipment at February 28, 2005, are stated at historical cost and depreciated
over their estimated useful lives, approximating the straight-line method, as
follows:
Historical
Cost Useful Life
---------------- -------------
Furnishings and office equipment $ 707,987 5-7 Years
Spare and maintenance equipment 285,680 7 Years
Leasehold improvements 43,614 7 Years
Trucks and vehicles 32,096 7 Years
---------------
1,069,377
Less: Accumulated depreciation (1,048,638)
---------------
$ 20,739
===============
Additions, improvements and expenditures for repairs and maintenance on property
and equipment that are material in nature and significantly add to the
productivity or extend the economic life of assets are capitalized. Amounts
incurred as recurring expenditures for repairs are charged to operations.
For the fiscal years ended February 28, 2005 and February 29, 2004, deprecation
expense was $28,281 and $21,742, respectively.
Impairment of long-lived assets
-------------------------------
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
144, "Accounting for the Impairment and Disposal of Long-Lived Assets," which
requires that long-lived assets to be held and used be reviewed for impairment
wherever events of changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company will assess the recoverability of
the carrying cost of long-lived assets based on a review of projected
undiscounted cash flows related to the asset held for use. If assets are
determined to be impaired, then the asset is written down to its fair value
based on the present value of the discounted cash flows of the related asset or
other relevant measures (quoted stock prices or third-party offers). As of
February 28, 2005, the Company believes that all asset values are recoverable in
future periods.
Investment in Professional Systems Associates, Inc.
---------------------------------------------------
The Company owns a 6% investment in Professional Systems Associates, Inc.
("PSA") common stock, which it accounts for using the cost method of accounting.
PSA is a related party to the Company providing it with an opportunity to
purchase significant amounts of inventory and supplies (Notes 11 and 12).
Therefore, the Company records any capital contributions when made as an
increase in the investment, and any distributions declared as
10
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
(continued)
income. Based upon a formula book value method used by PSA to redeem the shares
of former members, the Company's investment at PSA's September 30, 2005 fiscal
year end had an estimated fair value of approximately $168,000.
The carrying amounts of the Company's other financial instruments approximate
fair value because of their short maturities or because their pricing and terms
are indicative of current rates and credit risk.
Unearned Maintenance Income
---------------------------
Unearned maintenance contract income at February 28, 2005, represents amounts
billed and collected in the current fiscal year which will not be earned until
succeeding fiscal years. Such amounts result mainly from the sale of the related
leases.
Nonrefundable Deposits on Leases
--------------------------------
At the inception of a sales-type lease, the lessee generally is required to pay
for the last three lease payments up-front which will then be applied at the end
of the lease. Such payments are generally not refundable if the lease terminates
early. The Company has recorded the payments as deferred revenue until such time
that the lease ends or is terminated.
Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes". This statement
requires recognition of deferred income tax assets and liabilities for the
expected future income tax consequences, based upon enacted tax laws, of
temporary differences between the financial reporting and tax basis of assets,
liabilities and carryforwards. Deferred tax assets are then reduced, if deemed
necessary, by a valuation allowance for any tax benefits which are not expected
to be realized on a more likely than not basis.
Redemption of Common Stock
--------------------------
In fiscal 2005, the Company purchased 13 shares of the Company's common stock
from an unrelated third party for a purchase price of $10,000. The redemption of
common stock was accounted for as a retirement of common stock.
Advertising and Promotion Costs
-------------------------------
The Company expenses all advertising and promotion costs, including direct
response advertising costs, as they are incurred. Total advertising and
promotion cost for the fiscal years ended February 28, 2005 and February 29,
2004 was $71,717 and $78,300, respectively.
11
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 2 - Net investment in sales-type leases
The components of net investment in sales-type leases as of February 28, 2005,
are as follows:
Total minimum lease payments to be received $ 201,110
Less: amounts representing estimated maintenance costs,
including profit thereon, included in total minimum
lease payments (64,711)
---------
Minimum lease payments receivable 136,399
Less: unearned interest income (30,725)
---------
Net investment in sales-type leases $ 105,674
=========
Minimum lease payments to be received on sales-type leases (including
maintenance costs) for each of the five years succeeding the fiscal year ended
February 28, 2005, are as follows:
Fiscal Year Ending
------------------
February 28, 2006 $ 59,774
February 28, 2007 53,174
February 29, 2008 45,310
February 28, 2009 28,240
February 28, 2010 14,612
--------
$201,110
========
Note 3 - Future operating lease and maintenance contract revenues
Operating Leases
----------------
Minimum lease payments to be received on operating leases for each of the five
years succeeding the fiscal year ended February 28, 2005, are as follows:
Fiscal Year Ending
------------------
February 28, 2006 $ 61,654
February 28, 2007 28,990
February 29, 2008 14,092
February 28, 2009 11,341
February 28, 2010 6,929
--------
$123,006
========
12
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Future operating lease and maintenance contract revenues (continued)
Maintenance Contracts
---------------------
Minimum payments to be received on maintenance contracts for each of the five
years succeeding the fiscal year ended February 28, 2005, are estimated as
follows:
Fiscal Year Ending
------------------
February 28, 2006 $268,075
February 28, 2007 241,404
February 29, 2008 152,089
February 28, 2009 83,496
February 28, 2010 13,180
--------
$758,244
========
Note 4 - Line of credit
At February 28, 2005, the Company was indebted to First National Bank of
Colorado in the amount of $240,000, pursuant to a line-of-credit agreement. The
line provides maximum total borrowings of $240,000, requires monthly payments of
interest calculated at the Wall Street Journal prime rate plus 3% (a combined
total of 8.5% at February 28, 2005) and is due in full on October 30, 2005. The
Company was in violation of certain financial covenants associated with the debt
as of February 28, 2005. As a result, the note was not renewed and was
subsequently paid in full and is presented as a currently outstanding liability
on the accompanying balance sheet. The related promissory note was secured by
the Company's inventory, accounts receivable, equipment and general intangibles.
Note 5 - Sales of leases
During the fiscal years ended February 28, 2003 and February 29, 2004, the
Company assigned various sales-type lease contracts to an unrelated party for
total purchase price of approximately $1,513,000. Ninety percent of the purchase
price was paid at closing with ten percent held in reserve by the assignee to be
paid over the remaining term of the leases. The Company continues to be
obligated to perform any maintenance required under the lease contracts. Also,
the assignee retains full recourse against the Company for any amount owing but
unpaid by the lessees. During the fiscal year ended February 28, 2005, the
Company assigned various other sales-type lease contracts, under similar terms,
totaling approximately $571,000. As of February 28, 2005, the Company has
recorded retainage receivables related to the 10% reserve held back on the sales
of the leases totaling $130,211.
The unearned maintenance income under these leases, totaling approximately
$468,000 at February 28, 2005, will be earned and recognized as revenue over the
course of the associated lease terms.
13
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Income taxes
Under allowable Federal income tax treatment, the Company prepares its income
tax returns reporting all leases as operating leases and all security systems
installation contracts on the completed contract method of accounting. For the
year ended February 28 2005, the Company reported net taxable income, of
approximately $256,000. Prior net operating losses carried forward were applied
against this income. The remaining net operating losses of approximately
$450,000 may be carried forward for nineteen years to offset future taxable
income.
The Company accounts for deferred income taxes based upon the estimated tax
liability or benefit in future years of the reversal of temporary differences in
the recognition of income or deduction of expenses between financial and tax
reporting methods. The principal items resulting in the differences are
recognition of income from leases and contracts, recognition of maintenance
contract income, and deduction of deferred compensation amounts.
At February 28, 2005, the Company had gross deferred income tax assets of
approximately $353,000 and gross deferred income tax liabilities of
approximately $78,000. An average graduated tax rate of 30% was used to compute
these approximate deferred tax amounts. In conjunction with the subsequent sale
of the Company (Note 13), a portion of the deferred tax assets are not expected
to be realizable. Accordingly, the Company has established a valuation allowance
for the entire deferred tax asset related to the net operating loss
carryforwards.
Net deferred tax assets (liabilities) as of February 28, 2005 consist of the
following components:
Deferred tax assets:
Unearned maintenance income $ 608,000
Net operating loss carryforwards 450,000
Deferred compensation 94,000
Allowance for doubtful accounts 25,000
-------------------
1,177,000
Total deferred tax assets 353,000
-------------------
Deferred tax liabilities:
Estimated billings in excess (232,000)
Investment in sales type leases (106,000)
Other, net 78,000
-------------------
(260,00)
Total deferred tax liabilities (78,000)
-------------------
Less valuation allowance: (135,000)
-------------------
Deferred tax assets, net $ 140,000
===================
14
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Lease commitments
The Company is obligated on a July 1984 lease agreement, subsequently modified,
for its primary operating facility located in Denver, Colorado. The lease, which
was extended through April 2010, requires monthly rental payments of $7,354, as
well as payment of real estate taxes and other expenses on the property.
Additionally, the Company is obligated on a December 1998 lease agreement,
subsequently modified, for its Colorado Springs office. The lease, which was
extended through December 2010, requires monthly rental payments that will
increase annually (reaching $2,319 per month), as well as payment of real estate
taxes and other expenses. For the year ended February 28, 2005 and February 29,
2004 the Company's total rent expense for these facilities was $148,376 and
$141,235, respectively.
Additionally, the Company is obligated on one lease for vehicles and four leases
for office equipment, requiring rental payments totaling approximately $3,200
per month. The leases terminate at various dates between May 2005 and November
2007.
Total future minimum lease payments, excluding real estate taxes and other
expenses on the Denver and Colorado Springs property, for each of the five years
succeeding the fiscal year ended February 28, 2005, are as follows:
Fiscal Year Ending
------------------
February 28, 2006 $111,324
February 28, 2007 112,240
February 29, 2008 113,191
February 28, 2009 114,177
February 28, 2010 115,198
Thereafter 37,895
--------
$604,025
========
Note 8 - Deferred compensation and salary continuation agreements
The Company is obligated under Deferred Compensation Agreements and Executive
Salary Continuation Agreements with a major stockholder, who continues to be
employed on a part-time basis by the Company. Under the terms of the Deferred
Compensation Agreements, the employee deferred $13,840 of his annual
compensation while a full-time employee of the Company. Upon his termination of
full-time employment, the accumulated balance in the deferred compensation
account is being paid to him, in equal installments, over a ten-year period. The
Executive Salary Continuation Agreements provide for an annual retirement
benefit in the form of salary continuation of $30,000 per year, for ten years,
to be paid effective upon his termination of full-time employment. These
agreements were entered into effective February 27, 1987. Payments under the
agreements began July 1996 and a final payment was made October 10, 2005 in
conjunction with the sale of the Company (Note 13).
15
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 8 - Deferred compensation and salary continuation agreements (continued)
The accompanying financial statements reflect charges to income in the amount of
$6,864 and $8,981 in 2005 and 2004, respectively, for the Executive Salary
Continuation Agreements. The Company's estimated liability under the Executive
Salary Continuation Agreements is computed as the present value of future
benefits to be paid, approximately $59,000 at February 28, 2005. The annual cost
of these agreements is unfunded. The payments total $36,444 annually.
Note 9 - 401(k) plan
The Company has adopted a Section 401(k) retirement plan, allowing qualified
employees to contribute a portion of their pre-tax compensation to the Plan. On
a discretionary basis, the Company may match a portion of employees'
contributions and may make additional discretionary contributions. For the
fiscal years ended February 28, 2005 and February 29, 2004, the Company incurred
total costs of $4,447 and $17,619, respectively, for Plan matching contributions
and administrative expenses.
Note 10 - Major customers
At February 28, 2005, approximately 46% of future minimum lease payments under
sales-type leases were due from six major customers, the largest representing
10% of total future payments. Approximately 57% of future maintenance contract
receipts were due from six major customers, the largest representing
approximately 14% of total maintenance contract receipts.
Note 11 - Major suppliers
For the years ended February 28, 2005 and 2004, approximately 55% and 67%,
respectively, of equipment and materials were acquired from two major suppliers,
the largest (PSA) representing 42% and 54%, respectively, of the total.
Note 12 - Related party transactions
As of February 28, 2005, the Company held a note receivable from a shareholder
and President of the Company of approximately $41,000. Subsequently, and in
conjunction with the purchase of the Company on October 10, 2005 (Note 13), the
shareholder repaid the promissory note to the Company.
As discussed in Notes 1 and 11, the Company has an investment interest in PSA, a
cooperative through which a significant portion of the Company's purchases are
made (42% in 2005).
16
SECURUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 12 - Related party transactions (continued)
During the years ended February 28, 2005 and 2004, the Company purchased
approximately $840,000 and $1,337,000, respectively, in inventory and material
from PSA.
Note 13 -Events Subsequent to February 28, 2005
On October 10, 2005, the Company and all of the Company's outstanding common
stock, was purchased for $770,000 cash and the issuance of up to 150,000 shares
of common stock of the acquirer, Henry Brothers Electronics, Inc., a Delaware
corporation based in Saddle Brook, New Jersey. The shares of stock are to be
placed in escrow and paid over each of the next 5 years ending December 31,
2010.
17
(b) Pro Forma Financial Information Unaudited pro forma condensed
consolidated balance sheet at September 30, 2005 and Unaudited
pro forma condensed consolidated statements of operations for
the nine and twelve months ended September 30, 2005 and
December 31, 2004, respectively.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined financial information have been derived from
the historical financial statements of Henry Bros. Electronics, Inc. ("HBE") and
Securus, Inc. ("Securus") and gives effect to the acquisition of Securus by HBE
using the purchase method of accounting for business combinations based upon the
assumptions and adjustments described in the accompanying notes to the unaudited
pro forma combined financial information.
The Securus assets acquired and the liabilities assumed are recorded at fair
values and assumes that the acquisition had taken place at September 30, 2005
for balance sheet purposes. The pro forma condensed consolidated statements of
operations for the nine months ended September 30, 2005 and twelve months ended
December 31, 2004 assume the acquisition took place on January 1, 2005 and 2004,
respectively.
The pro forma adjustments do not reflect any operational efficiencies and cost
savings that HBE may achieve with respect to the combined entities. The pro
forma adjustments do not include any adjustments to historical revenues for any
future price changes or any adjustments to operating, marketing and general and
administrative expenses for any future operating changes.
The unaudited pro forma consolidated results may not be necessarily indicative
of the actual operating results that would have occurred had the transaction
been consummated at the beginning of the periods presented for which such
acquisition has been given effect. In addition, the unaudited pro forma
consolidated results are not necessarily indicative of the consolidated results
of future operations.
18
HENRY BROS. ELECTRONICS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
Historic
--------
ASSETS HBE Securus Adjustments Pro Forma
--- ------- ----------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 714,489 $ 25,472 $ 739,961
Accounts receivable-net 13,091,812 379,886 13,471,698
Inventory 981,199 89,169 1,070,368
Costs in excess of billings and estimated profits 3,345,236 314,322 3,659,558
Investment in sales type leases 26,598 26,598
Deferred tax asset 1,044,660 55,120 1,099,780
Prepaid expenses and income tax receivable 82,574 55,910 138,484
Other assets 36,907 162,953 199,860
------------ ------------ ------------ ------------
Total current assets 19,296,877 1,109,430 20,406,307
PROPERTY AND EQUIPMENT - net 1,148,936 28,793 1,177,729
GOODWILL 2,134,344 A 689,225 2,823,569
INTANGIBLE ASSETS - net 1,085,281 A 450,000 1,535,281
DEFERRED TAX ASSET 547,264 156,880 704,144
OTHER ASSETS 1,145,994 56,581 1,202,575
------------ ------------ ------------ ------------
TOTAL ASSETS $ 25,358,696 $ 1,351,684 $ 1,139,225 $ 27,849,605
============ ============ ============ ============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 3,462,936 $ 543,613 $ 4,006,549
Accrued taxes and expenses 2,917,107 137,409 3,054,516
Billings in excess of costs and estimated profits 1,949,333 1,949,333
Investment in sales type leases net of current portion 410,846 410,846
Deferred income 42,494 28,644 71,138
Current portion of long term debt 107,390 240,000 A (240,000) 107,390
Deferred tax liability 44,673 44,673
------------ ------------ ------------ ------------
Total current liabilities 8,523,933 1,360,512 (240,000) 9,644,445
LONG-TERM DEBT, LESS CURRENT PORTION 1,154,386 A 1,110,000 2,264,386
DEFERRED REVENUE -- 260,397 260,397
DEFERRED TAX LIABILITY 149,822 149,822
------------ ------------ ------------ ------------
TOTAL LIABILITIES 9,828,141 1,620,909 870,000 12,319,050
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value; 10,000,000 shares authorized;
no shares issued
Common stock, $.01 par value; 10,000,000 shares authorized; --
5,889,398 shares issued and outstanding 57,394 13,634 (13,634) 57,394
Additional paid in capital 16,935,188 4,305 (4,305) 16,935,188
Deferred compensation (376,314) 77,158 (77,158) (376,314)
Accumulated deficit (1,085,713) (364,322) 364,322 (1,085,713)
------------ ------------ ------------ ------------
TOTAL EQUITY (DEFICIT) 15,530,555 (269,225) A 269,225 15,530,555
------------ ------------ ------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 25,358,696 $ 1,351,684 $ 1,139,225 $ 27,849,605
============ ============ ============ ============
See accompanying Notes to the Unaudited Pro Forma Combined Financial
Information.
19
HENRY BROS. ELECTRONICS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2005
Historic
--------
HBE Securus Adjustments Pro Forma
--- ------- ----------- ---------
Revenue $ 30,110,696 $ 3,732,099 $ 33,842,795
Cost of revenue 22,161,167 2,074,191 24,235,358
------------ ------------ ------------
Gross profit 7,949,529 1,657,908 9,607,437
------------ ------------ ------------
Operating Expenses:
Selling general & administrative expenses 6,650,688 1,558,130 B 52,500 8,261,318
------------ ------------ ------------ ------------
Operating profit (loss) 1,298,841 99,778 (52,500) 1,346,119
------------ ------------ ------------ ------------
Interest Income 10,892 22,609 33,501
Net (Loss) on Sale and Early Term of Leases (19,448) (19,448)
Other Expense (4,079) 3,455 (624)
Interest (expense) (59,854) (17,381) C (45,675) (122,910)
------------ ------------ ------------ ------------
Income (loss) before tax expense (benefit) 1,245,800 89,013 (90,113) 1,244,781
Tax expense (benefit) 589,719 (25,000) D (42,353) 522,366
------------ ------------ ------------ ------------
Net income (loss) after taxes $ 656,081 $ 114,013 ($ 47,760) $ 722,334
============ ============ ============ ============
BASIC EARNINGS (LOSS) PER COMMON SHARE:
---------------------------------------
Basic Profit (Loss) Per Common Share $ 0.11 $ 0.13
============ ============
Weighted Average Common Shares 5,739,398 5,739,398
============ ============
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
-----------------------------------------
Diluted Profit (Loss) Per Common Share: $ 0.11 $ 0.13
============ ============
Weighted Average Diluted Common Shares 5,739,398 5,851,898
============ ============
See accompanying Notes to the Unaudited Pro Forma Combined Financial
Information.
20
HENRY BROS. ELECTRONICS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
Historic
--------
HBE Securus Adjustments Pro Forma
--- ------- ----------- ---------
Revenue $ 29,725,718 $ 4,995,602 $ 34,721,320
Cost of revenue 22,305,632 3,069,208 25,374,840
------------ ------------ ------------ ------------
Gross profit 7,420,086 1,926,394 0 9,346,480
------------ ------------ ------------ ------------
Operating Expenses:
Selling general & administrative expenses 7,020,885 2,197,706 B 70,000 9,288,591
------------ ------------ ------------ ------------
Operating profit (loss) 399,201 (271,312) (70,000) 57,889
------------ ------------ ------------ ------------
Interest income 12,624 27,264 39,888
Net (loss) on sale and early terminations of leases -- (35,677) (35,677)
Other Expense -- (5,929) (5,929)
Interest (expense) (94,039) (15,038) C (66,600) (175,677)
------------ ------------ ------------ ------------
Income (loss) before tax expense (benefit) 317,786 (300,692) (136,600) (119,506)
Tax expense (benefit) 273,765 (86,000) D (64,202) 123,563
------------ ------------ ------------ ------------
Net income (loss) after taxes $ 44,021 ($ 214,692) ($ 72,398) ($ 243,069)
============ ============ ============ ============
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Basic Profit (Loss) Per Common Share $ 0.01 ($ 0.04)
============ ============
Weighted Average Common Shares 5,411,964 5,411,964
============ ============
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Diluted Profit (Loss) Per Common Share: $ 0.01 ($ 0.04)
============ ============
Weighted Average Diluted Common Shares 5,411,964 5,561,964
============ ============
See accompanying Notes to the Unaudited Pro Forma Combined Financial
Information.
21
HENRY BROS. ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
A To give effect to the acquisition of Securus and the
preliminary allocation of the purchase price on the basis of
estimated fair values of the assets acquired and the
liabilities assumed as follows:
Components of purchase price:
Cash paid at closing $ 770,000
Refinance outstanding bank debt 240,000
Costs of completing the transaction 100,000
-----------
Total purchase price $ 1,110,000
===========
Allocation of purchase price:
Net assets acquired (29,225)
Service rights 100,000
Customer list 250,000
Trade name 50,000
-----------
Total allocated purchase price 370,775
-----------
Excess purchase price assigned to goodwill $ 739,225
===========
The purchase accounting adjustments have been made solely for the
purpose of presenting the unaudited pro forma financial information.
HBE has engaged a third party to perform a valuation study to assist in
the determination of the fair market valuation of the assets acquired
and liabilities assumed in the acquisition of Securus. Therefore these
estimates may be adjusted upon the completion of such study.
B To record the amortization of intangible assets from the
assumed acquisition date of based upon the estimated fair
values of such assets and using a useful life of 5 years for
customer lists, 5 years for service rights and an indefinite
life for trade name and goodwill. All amortization has been
included within selling, general and administrative expenses.
C To record interest at 6% on the total purchase price reduced
by the $240,000 in debt being refinanced by HBE from the
assumed acquisition date.
D To record the income tax effects of the pro forma adjustments
to the statement of operations at the effective income tax
rate of 47% which approximates HBE's effective tax rate.
(d) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
2.1 Stock Purchase Agreement by and among Henry Bros. Electronics, Inc., a
Colorado corporation, Henry Bros. Electronics Inc., a Delaware
corporation, Securus Inc., Paul Marcus Trust, Phyllis C. Marcus Trust,
Neal Marcus and Jeffrey Marcus.(1)
22
The following are schedules or attachments to the Stock Purchase
Agreement.(2)
o Escrow Agreement
o General Release from Sellers
o Opinion of Sellers' Counsel
o Sellers' Certificates
o Officers' Certificates
o Resignation of certain officers and directors of the Company
o Opinion of Counsel to the Parent and the Buyer
o Sellers' Schedule
o Certificates of Parent and Buyer
o Employment Letter - Neal Marcus
o Employment Letter - Jeffrey Marcus
o Stock Option Agreement - Neal Marcus
o Stock Option Agreement - Jeffrey Marcus
23.1 Consent of Gordon, Hughes & Banks, LLP*
-------------
(1) Incorporated by reference to the Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 14, 2005.
(2) All schedules and attachments to this Exhibit have been omitted in
accordance with Item 601(b) of Regulation S-B. The Company agrees to
furnish supplementally a copy of all omitted schedules and exhibits to the
Securities and Exchange Commission upon request.
* Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HENRY BROS ELECTRONICS, INC.
Date: December 27, 2005 By: /s/Philip A. Timpanaro
----------------- ----------------------
Philip A. Timpanaro
Chief Financial Officer
23
EXHIBIT INDEX
2.1 Stock Purchase Agreement by and among Henry Bros. Electronics, Inc., a
Colorado corporation, Henry Bros. Electronics Inc., a Delaware corporation,
Securus Inc., Paul Marcus Trust, Phyllis C. Marcus Trust, Neal Marcus and
Jeffrey Marcus.(1)
The following are schedules or attachments to the Stock Purchase
Agreement.(2)
o Escrow Agreement
o General Release from Sellers
o Opinion of Sellers' Counsel
o Sellers' Certificates
o Officers' Certificates
o Resignation of certain officers and directors of the Company
o Opinion of Counsel to the Parent and the Buyer
o Sellers' Schedule
o Certificates of Parent and Buyer
o Employment Letter - Neal Marcus
o Employment Letter - Jeffrey Marcus
o Stock Option Agreement - Neal Marcus
o Stock Option Agreement - Jeffrey Marcus
23.1 Consent of Gordon, Hughes & Banks, LLP*
-------------
(1) Incorporated by reference to the Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 14, 2005.
(2) All schedules and attachments to this Exhibit have been omitted in
accordance with Item 601(b) of Regulation S-B. The Company agrees to
furnish supplementally a copy of all omitted schedules and exhibits to the
Securities and Exchange Commission upon request.
* Filed herewith.
24