UNITED STATES
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): October 2, 2002
PERFORMANCE TECHNOLOGIES, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-27460 16-1158413
(Commission File Number) (I.R.S. Employer Identification No.)
205 Indigo Creek Drive, Rochester, New York 14626
(Address of principal executive offices) (Zip Code)
(585) 256-0200
(Company's telephone number, including area code)
(Not Applicable)
(Former name or former address, if changed since last report)
This Amendment is being filed to provide historical financial information
required by Item 7(a) and the pro forma financial information required by Item
7(b) of Form 8-K, which information was unavailable when the Registrant's
Current Report of Form 8-K, dated October 17, 2002, was filed.
Item 7. Financial Statements and Exhibits.
On October 2, 2002, Performance Technologies, Incorporated ("Registrant")
acquired a portion of Intel Corporation's ("Intel") Embedded Communications
Platform Division. The acquisition was completed pursuant to the Stock Purchase
Agreement, dated September 12, 2002, between Intel and the Registrant to acquire
all the issued and outstanding shares of Ziatech Corporation.
Intel acquired Ziatech Corporation ("Ziatech") on October 10, 2000. Prior to
that date, Ziatech was a privately held company operated on a stand-alone basis.
Upon acquisition, Ziatech became a part of the Embedded Communications Platform
Division in the Intel Communication Group. While Ziatech was maintained as a
separate legal entity, Ziatech was not managed as a separate and discrete
operating unit within Intel. After the acquisition by Intel, Ziatech's
operations were increasingly integrated into Intel. During 2001, Ziatech ceased
to have its own sales and marketing function and sales of Ziatech product began
to be handled at the corporate Intel level. In addition, the Intel corporate
level was involved in certain research and development activities conducted with
the Ziatech business. In addition to the foregoing, the cash needs of the
business were met with Intel corporate funds and Ziatech's tax and treasury
functions were provided for at the Intel corporate level, making it difficult,
if not impossible, to prepare a meaningful statement of cash flows with respect
to Ziatech.
Based on these facts and recent discussions with the Securities and Exchange
Commission, it was determined that complete audited financial statements for
Ziatech would be provided for 1999 and for the period January 1, 2000 through
October 10, 2000. For the periods subsequent to October 10, 2000, it was deemed
appropriate to provide financial statements prepared to present the assets to be
acquired and liabilities to be assumed and the related net revenues and direct
expenses of the Ziatech business. The accompanying financial statements of
Ziatech exclude certain assets and liabilities of the Ziatech legal entity,
include all net revenues and direct expenses of the Ziatech legal entity and
include an allocation of certain expenses for services provided by Intel from
the date of acquisition (as discussed in the footnotes to such financial
statements). Separate complete historical financial information was not
maintained for Ziatech and as a result, allocations were required to
appropriately reflect the operating activity of the Ziatech business.
(a) Financial Statements of Business Acquired.
The historical financial information required by this Current Report on
Form 8-K is incorporated herein by reference from pages F1 through F23
hereto.
(b) Unaudited Pro Forma Combined Financial Statement.
The pro forma financial information required by this Current Report on
Form 8-K is incorporated herein by reference from pages F24 through F26
hereto.
(c) Exhibits.
(2) * Stock Purchase Agreement between Intel Corporation and Performance
Technologies, Incorporated, dated as of September 12, 2002
(23.1) Consent of Ernst and Young, LLP
(23.2) Consent of Deloitte and Touche, LLP
* Previously filed with Registrant's Current Report of Form 8-K, dated
October 17, 2002.
1.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
FINANCIAL STATEMENTS
CONTENTS
ZIATECH CORPORATION
Report of Ernst & Young LLP, Independent Auditors F-2
Report of Deloitte & Touche LLP, Independent Auditors F-3
Statements of Income for the period from January 1, 2000 through
October 10, 2000 (acquisition date) and the year ended December 31, 1999 F-4
Statements of Stockholders' Equity for the period from January 1, 2000
through October 10, 2000 (acquisition date) and the year ended
December 31, 1999 F-5
Statements of Cash Flows for the period from January 1, 2000 through
October 10, 2000 (acquisition date) and the year ended December 31, 1999 F-6
Notes to Financial Statements F-7
ZIATECH
Report of Ernst & Young LLP, Independent Auditors F-14
Statement of Assets Acquired and Liabilities Assumed as of
December 29, 2001, December 30, 2000, and
September 28, 2002 (unaudited) F-15
Statement of Net Revenues and Direct Expenses for the year ended
December 29, 2001, the period from October 11, 2000 through
December 30, 2000, and the nine months ended September 28, 2002
(unaudited) and September 29, 2001 (unaudited) F-16
Notes to Financial Statements F-17
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ziatech Corporation
We have audited the accompanying statements of income, stockholders' equity
and cash flows of Ziatech Corporation for the period from January 1, 2000
through October 10, 2000 (acquisition date). 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 auditing standards generally
accepted in the United States. 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 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 results of operations and cash flows of Ziatech
Corporation for the period from January 1, 2000 through October 10, 2000
(acquisition date) in conformity with accounting principles generally accepted
in the United States.
/s/Ernst & Young LLP
--------------------
Ernst & Young LLP
San Jose, California
December 10, 2002
F-2
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ziatech Corporation
We have audited the accompanying statements of income, stockholders' equity
and cash flows of Ziatech Corporation for the year ended December 31, 1999.
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 auditing standards generally
accepted in the United States of America. 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, such 1999 financial statements present fairly, in all
material respects, the results of operations and cash flows of Ziatech
Corporation for the year ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
/s/Deloitte & Touche
--------------------
Deloitte & Touche
San Jose, California
March 28, 2000
F-3
ZIATECH CORPORATION
STATEMENTS OF INCOME
Period From
January 1, 2000
Through
October 10, 2000 Year Ended
(acquisition date) December 31, 1999
------------------ ------------------
Net sales $ 63,959,749 $ 53,531,917
Cost of goods sold 43,491,469 35,499,107
------------------ ------------------
Gross profit 20,468,280 18,032,810
Selling, general and administrative 10,888,596 10,397,922
Research and development 5,231,400 4,565,671
(Gain) loss on disposal of equipment (6,996) 196,715
------------------ ------------------
Total operating expenses 16,113,000 15,160,308
------------------ ------------------
Income from operations 4,355,280 2,872,502
Interest income 21,716 26,377
Interest expense (412,323) (314,861)
------------------ ------------------
Income before provision for income taxes 3,964,673 2,584,018
Provision for income taxes 1,268,167 784,800
------------------ ------------------
Net income $ 2,696,506 $ 1,799,218
================== ==================
See accompanying Notes to Financial Statements
F-4
ZIATECH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock
------------------------------------
Total
Retained Stockholders'
Shares Amount Earnings Equity
---------------- ------------------ --------------------- ---------------------
Balance at December 31, 1998 1,397,115 $ 344,812 $ 8,080,522 $ 8,425,334
Repurchase of common stock (25) (172) - (172)
Exercise of stock options 24,560 144,828 - 144,828
Net and comprehensive income - - 1,799,218 1,799,218
---------------- ------------------ --------------------- ---------------------
Balance at December 31, 1999 1,421,650 489,468 9,879,740 10,369,208
Exercise of stock options, including
tax benefit of $742,087 56,210 1,070,080 - 1,070,080
Net and comprehensive income - - 2,696,506 2,696,506
---------------- ------------------ --------------------- ---------------------
Balance at October 10, 2000
(acquisition date) 1,477,860 $ 1,559,548 $ 12,576,246 $ 14,135,794
================ ================== ===================== =====================
See accompanying Notes to Financial Statements
F-5
ZIATECH CORPORATION
STATEMENTS OF CASH FLOWS
Period From
January 1, 2000
Through Year Ended
October 10, 2000 December 31,
(acquisition date) 1999
------------------- -------------------
Cash flows from operating activities:
Net income $ 2,696,506 $ 1,799,218
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 206,635 411,102
(Gain) loss on disposal of equipment (6,996) 196,715
Changes in operating assets and liabilities:
Accounts receivable (2,958,830) (3,817,795)
Inventories 5,695,959 (6,334,623)
Deposits, prepaid expenses and other current assets (769,959) 520,728
Accounts payable and accrued liabilities 1,398,239 4,310,305
Income taxes payable (761,309) 782,000
Tax benefit from employee stock plan 742,087 -
Deferred taxes (2,271,898) (41,761)
Deferred revenue (327) 99,311
------------------- -------------------
Net cash provided by (used in) operating activities 3,970,107 (2,074,800)
Cash flows from investing activities:
Purchases of property & equipment (964,708) (296,205)
Collection of note receivable from related party 53,822 66,444
------------------- -------------------
Net cash used in investing activities (910,886) (229,761)
------------------- -------------------
Cash flows from financing activities:
Net (payments) borrowings under line-of credit agreement (3,294,737) 2,068,805
Payments on long-term debt and capital lease (74,421) (91,663)
Proceeds from exercise of stock options 327,993 144,656
Increase in cash management liability - 190,102
------------------- -------------------
Net cash (used in) provided by financing activities (3,041,165) 2,311,900
------------------- -------------------
Net increase in cash and cash equivalents 18,056 7,339
Cash and cash equivalents at beginning of period 13,210 5,871
------------------- -------------------
Cash and cash equivalents at end of period $ 31,266 $ 13,210
=================== ===================
Supplemental information
Income taxes paid in cash $ 4,478,025 $ 62,341
Interest paid in cash $ 412,323 $ 314,861
See accompanying Notes to Financial Statements
F-6
ZIATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation and Accounting Policies
Business Activity
Ziatech Corporation (the "Company") was incorporated in California in 1977.
The Company is engaged in the research, development, manufacture and marketing
of industrial microcomputer systems for use in the telecommunications industry.
The Company is headquartered in San Luis Obispo, California and has additional
marketing and technical support offices in Texas, Massachusetts, Pennsylvania
and California. The Company also has a network of representatives and
distributors in North and South America, Europe and Asia.
Basis of Presentation
Intel Corporation (Intel) acquired the stock of the Company on October 10,
2000 (acquisition date). The accompanying audited financial statements for the
year ended December 31, 1999 and the period from January 1, 2000 through October
10, 2000 (acquisition date) represent the results of the Company as a standalone
entity during such periods prior to its acquisition by Intel.
Concentration of Credit Risk
Substantially all of the Company's revenues are from customers in the
telecommunications industry located throughout the U.S. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral.
Inventories
Inventories are stated at the lower of cost or market utilizing a method
that approximates the first-in, first-out ("FIFO") method. Provision for
potentially obsolete or slow-moving inventory is made based on management's
analysis of inventory levels and future sales forecasts.
Property and Equipment
Expenditures for additions and major improvements are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. Depreciation
of property and equipment and amortization of leasehold improvements is computed
on a straight line method over estimated useful lives of the assets or the lease
term, whichever is shorter. The estimated useful lives are generally five to ten
years.
The Company changed its capitalization policy during 1999 to expense
certain personal computer and related equipment purchase costs when incurred
rather than capitalizing and depreciating such costs. The effect of the change
was to decrease 1999 income before provision for income tax by $192,218.
F-7
ZIATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation and Accounting Policies, continued
Comprehensive Income
Comprehensive income for the year ended December 31, 1999 and the period
from January 1, 2000 through October 10, 2000 (acquisition date) was equal to
the net income for the respective periods.
Income Taxes
Deferred income taxes are determined by applying enacted tax laws and rates
to cumulative temporary differences between the carrying value of assets and
liabilities for financial statement and income tax purposes. Such differences
relate primarily to inventory reserves, accelerated depreciation, state
franchise taxes and certain accrued expenses.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board No. 25,
Accounting for Stock Issued to Employees ("APB 25"). The disclosure requirements
of Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123") are described in Note 7.
Statement of Cash Flows
For purposes of reporting cash flows, the Company considers all highly
liquid instruments with maturity of 90 days or less at acquisition to be cash
equivalents.
Revenue Recognition
Revenue is recognized upon shipment of products, net of allowances for
estimated returns and warranty repair costs which are provided at the time of
the sale based on the Company's policies and historical experience. Arrangements
with distributor customers do not provide for unconditional rights of return.
Research and Development
Research and development costs are charged to expense when incurred and are
all Company funded.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the
year ended December 31, 1999 was $548,126. Advertising expense for the period
from January 1, 2000 through October 10, 2000 (acquisition date) was $716,223.
F-8
ZIATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation and Accounting Policies, continued
Use of Estimates
The preparation of the 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 in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
2. Related Party Transactions
On January 15, 1997, the Company sold its headquarters building to
Southwood Properties LLC ("Southwood"), owned by certain shareholders of the
Company. Under the sales agreement, Southwood assumed a $1,915,000 note payable
from the Company, issued a promissory note to the Company for $425,000 and paid
the Company $385,000 in cash in return for the building and the land, with a
cost basis of $2,760,755 and accumulated depreciation of $328,716. The Company
then leased the building from Southwood under an operating lease containing a
rent escalation clause based on the Consumer Price Index but not less than 2%
per year. The gain on sale of the building, totaling approximately $292,000, is
being deferred and amortized at a rate of $24,293 per year over the 12-year life
of the lease. Rent expense was $348,573 for the period between January 1, 2000
and October 10, 2000 (acquisition date) and $472,106 for the year ended December
31, 1999. The note receivable from Southwood is guaranteed by the shareholders
of Southwood, earns interest at an annual rate of 9.0% and is payable to the
Company in monthly installments of $7,660 through January 14, 2003. The Company
issued a promissory note to Southwood for $40,000 in lieu of a security deposit
on the operating lease. The note earns interest at an annual rate of 9.5%,
payable in annual installments of $3,800, with principal payable at maturity on
January 14, 2007.
The Company sub-leases a portion of the building to an unrelated party. The
lessee agreed to lease the premises through June 30, 2001, after which the lease
has and will continue indefinitely until terminated by either party with a
written notification at least six months prior to the date the premises are to
be vacated. Rental income of approximately $105,418 was recorded in the period
from January 1, 2000 through October 10, 2000 (acquisition date) and $134,000
was recorded during the year ended December 31, 1999.
3. Lease Commitments
Total rent expense was $464,524 for the period from January 1, 2000 through
October 10, 2000 (acquisition date) and $535,626 for the year ended December 31,
1999. Rental income of approximately $126,000 and $151,000 was recorded in the
period from January 1, 2000 through October 10, 2000 (acquisition date) and the
year ended December 31, 1999, respectively.
Capital Lease
The Company leases equipment under a five-year capital lease. Such
equipment has a cost of $272,512 and accumulated amortization of $133,228 as of
October 10, 2000 (acquisition date). Payments of $5,589, including interest at
8.8%, are due by the first of each month and continue until April 2003.
Amortization of assets held under the capital lease was $46,933 in the period
from January 1, 2000 through October 10, 2000 (acquisition date) and $54,502 for
the year ended December 31, 1999 and is included in depreciation and
amortization.
F-9
ZIATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
4. Income Taxes
The provision for income taxes consists of the following for the period
from January 1, 2000 through October 10, 2000 (acquisition date) and the year
ended December 31, 1999:
Period From
January 1, 2000
Through Year Ended
October 10, 2000 December 31,
(acquisition date) 1999
------------------ ------------------
Current:
Federal $ 3,103,262 $ 838,263
State 436,803 41,208
------------------ ------------------
3,540,065 879,471
------------------ ------------------
Deferred:
Federal (1,918,330) (48,263)
State (353,568) (46,408)
------------------ ------------------
(2,271,898) (94,671)
------------------ ------------------
Provision for income taxes $ 1,268,167 $ 784,800
------------------ ------------------
For the period from January 1, 2000 through October 10, 2000 (acquisition
date) and the year ended December 31, 1999, the income tax provision varies from
the amount computed using the federal statutory income tax rate as follows:
Period From
January 1, 2000
Through Year Ended
October 10, 2000 December 31,
(acquisition date) 1999
------------------ -------------------
Computed expected tax 34.0% 34.0%
General business credits (4.6) (6.5)
Other 2.6 2.9
------------------- ------------------
32.0% 30.4%
------------------- ------------------
5. Employee Benefit Plan
The Company has a salary deferral plan (the "Plan") that is available to
substantially all employees meeting certain service requirements, and is
qualified under Internal Revenue Code Section 401(k). The Company matches 20% of
employee contributions to the Plan and can also make discretionary matching
contributions. Company contributions charged to operations for the period from
January 1, 2000 through October 10, 2000 (acquisition date) were approximately
$203,000 and for the year ended December 31, 1999 were approximately $199,000.
6. Debt Financing
Interest charged to expense under the Company's operating line of credit,
note payable to a bank and note payable to Southwood for the period from January
1, 2000 through October 10, 2000 (acquisition date) was $412,323 and for the
year ended December 31, 1999 was $314,861.
F-10
ZIATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
7. Incentive Stock Option Plans
The Company has four stock option plans covering officers, directors,
employees and consultants; the 1996, 1997, second 1997 and 1999 Stock Option
Incentive Plans (the "Plans"). A total of 440,000 shares of common stock were
authorized for grant under these plans. Grant prices are determined by the Stock
Option Committee, which is made up of at least two persons appointed by the
Board of Directors. Under the terms of the Plans, options may be granted at
prices not less than 85% of the fair market value of the stock on the grant date
with respect to any option or not less than 100% of the fair market value of the
stock on the grant date with respect to Incentive Stock Options. Individuals who
are not employees of the Company may not be granted Incentive Stock Options. In
addition, if an individual owns more than 10% of the total voting power of the
Company's stock on the grant date, the exercise price shall not be less than
110% of the fair market value of the stock. As defined in the stock option
agreements executed in connection with the Plans, options are for a maximum term
of 8 to 10 years, become exercisable at a minimum rate of 20% annually upon each
anniversary of the grant, and in the event of a Change in Control, as defined,
all unvested shares may become immediately exercisable (at the discretion of the
Committee) unless the Plans are appropriately assumed or substituted by the
successor.
A summary of the stock option activity under the Plans is as follows:
Outstanding Options
Weighted-Avg.
Exercise Price
Number of Shares per share
----------------------------------
Balance, December 31, 1998 190,970 $6.10
Options granted 13,200 $6.89
Options expired or cancelled (8,575) $6.32
Options exercised (24,560) $5.90
----------------
Balance, December 31, 1999 171,035 $6.18
Options granted 196,542 $31.89
Options expired or cancelled (9,497) $5.84
Options exercised (54,910) $7.95
----------------
Balance, October 10, 2000 (acquisition date) 303,170 $22.81
================
Options outstanding at October 10, 2000 (acquisition date) have exercise
prices ranging from $5.82 to $121.58 per share. These options will expire if not
exercised at specific dates through August 2010. There were 86,430 shares
available for future grant under the Plans at October 10, 2000 (acquisition
date). All options outstanding at October 10, 2000 (acquisition date) were
assumed by Intel as part of the acquisition.
The following table summarizes information concerning all outstanding and
exercisable options at October 10, 2000 (acquisition date):
Options Outstanding Options Exercisable
--------------------------------------- -----------------------
Weighted-
Avg. Weighted- Weighted-
Remaining Avg. Avg.
Range of Number of Contractual Exercise Number of Exercise
Exercise Price Shares Life Price Shares Price
-------------- --------- ----------- -------- --------- ---------
(in years)
-----------
$5.82 - $8.12 195,729 7.88 $7.03 63,584 $6.64
$41.64 94,114 9.66 $41.64 10,253 $41.64
$121.58 13,327 9.83 $121.58 250 $121.58
------- ---- ------- ------ --------
303,170 8.52 $22.81 74,087 $11.87
======= ---- ------- ====== --------
F-11
ZIATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
7. Incentive Stock Option Plans, continued
The Company continues to account for its stock-based awards using the
intrinsic value method in accordance with APB 25 and its related
interpretations. SFAS 123 requires disclosure of pro forma net income had the
company adopted the fair value method for valuation of stock-based compensation
prescribed by that statement. Under SFAS 123, the fair value of stock-based
awards to employees is calculated using option pricing models, even though such
models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which differ significantly
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the Black-Scholes option pricing model (minimum value method)
with the following weighted average assumptions:
Period From
January 1, 2000
Through
October 10, 2000 Year Ended
(acquisition date) December 31, 1999
------------------ -------------------
Expected life 7 years 7 years
Risk-free interest rate 6.5% 6.5%
Dividend yield 0.0% 0.0%
The Company's calculations are based on a single option valuation approach
and forfeitures are recognized as they occur. The weighted average estimated
fair value of options granted during the period from January 1, 2000 through
October 10, 2000 (acquisition date) and the year ended December 31, 1999 was
$11.80 and $2.50 per share, respectively. If the computed fair values of the
Company's awards had been amortized to expense over the vesting periods of the
awards, net income would have been decreased to the pro forma amounts indicated
in the table below:
Period From
January 1, 2000
through
October 10, 2000 Year Ended
(acquisition date) December 31, 1999
------------------ -------------------
Net income - as reported $2,696,506 $1,799,218
Net income - pro forma $2,453,293 $1,763,218
8. Major Customers
During the year ended December 31, 1999, the Company had net sales to three
major customers that comprised 21%, 19% and 10% of net sales for the period,
respectively. For the period from January 1, 2000 through October 10, 2000
(acquisition date), sales to one customer comprised approximately 40% of the
Company's total sales.
F-12
ZIATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
9. Commitments and Contingencies
The Company is involved in various legal matters arising from the normal
course of business. While the ultimate outcome of these matters cannot be
predicted with certainty, management believes that the outcome will not have a
significant impact on its financial position or results of operations.
F-13
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Intel Corporation
We have audited the accompanying statement of assets acquired and
liabilities assumed of Ziatech (see note 1 - basis of presentation) as of
December 29, 2001 and December 30, 2000, and the related statements of net
revenues and direct expenses for the year ended December 29, 2001 and the period
from October 11, 2000 through December 30, 2000. 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 auditing standards generally
accepted in the United States. 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.
As described in Note 1, the accompanying financial statements were prepared
solely to present the assets to be acquired and liabilities to be assumed and
the related net revenues and direct expenses of Ziatech pursuant to the Stock
Purchase Agreement, dated September 12, 2002, between Intel Corporation and
Performance Technologies Incorporated and are not intended to be a complete
presentation of the assets and liabilities or the results of operations of
Ziatech.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets to be acquired and liabilities to be
assumed of Ziatech as of December 29, 2001 and December 30, 2000 and the related
net revenues and direct expenses for the year ended December 29, 2001 and the
period from October 11, 2000 through December 30, 2000 in conformity with
accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
----------------------
Ernst & Young LLP
San Jose, California
December 10, 2002
F-14
ZIATECH
STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
September 28, December 29, December 30,
2002 2001 2000
--------------- ------------- -------------
(Unaudited)
ASSETS
Current Assets:
Current portion of note receivable from
related party $ 37,449 $ 86,398 $ 78,905
Inventory, net 1,166,752 6,797,644 15,953,250
Prepaids and deposits 38,847 107,626 98,671
--------------- ------------- -------------
Total current assets 1,243,048 6,991,668 16,130,826
Note receivable from related party, less
current portion - 15,060 101,457
Property and equipment, net 917,218 1,165,600 1,305,520
Acquired identified intangibles, net 18,875,003 25,953,128 35,390,625
--------------- -------------- -------------
Total assets $ 21,035,269 $ 34,125,456 $ 52,928,428
--------------- -------------- -------------
LIABILITIES
Liabilities:
Deferred gain on sale leaseback $ 151,836 $ 170,534 $ 194,827
Deferred rent 166,647 161,864 147,456
Other liabilities 20,000 20,000 39,185
--------------- -------------- -------------
Total liabilities 338,483 352,398 381,468
--------------- -------------- -------------
Net assets acquired and liabilities assumed $ 20,696,786 $ 33,773,058 $ 52,546,960
=============== ============== =============
See accompanying Notes to Financial Statements
F-15
ZIATECH
STATEMENTS OF NET REVENUES AND DIRECT EXPENSES
Period from
October 11, Nine-Month Period Ended
Year Ended 2000 through -------------------------------
December 29, December 30, September 28, September 29,
2001 2000 2002 2001
------------- ------------- ------------- -------------
(Unaudited)
Net revenues $ 31,698,455 $ 13,203,535 $ 17,235,786 $ 25,412,195
Cost of goods sold 32,475,404 7,680,264 13,154,859 27,521,575
------------- ------------- ------------- -------------
Gross profit (loss) (776,949) 5,523,271 4,080,927 (2,109,380)
Direct operating expenses:
Research and development 7,725,972 1,690,717 4,478,666 6,150,569
Selling, general, and administrative 14,694,426 2,177,141 5,902,154 11,835,643
Amortization of identified
intangibles 9,437,497 2,359,375 7,078,125 7,078,125
------------- ------------- ------------- ------------
Total direct operating expenses 31,857,895 6,227,233 17,458,945 25,064,337
------------- ------------- ------------- -------------
Total direct expenses 64,333,299 13,907,497 30,613,804 52,585,912
------------- ------------- ------------- -------------
Direct expenses in excess of net
revenues $(32,634,844) $ (703,962) $(13,378,018) $(27,173,717)
============= ============= ============= =============
See accompanying Notes to Financial Statements
F-16
ZIATECH
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 28, 2002 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 28, 2002 AND SEPTEMBER 29, 2001 IS UNAUDITED)
1. Basis of Presentation
Relationship with Intel Corporation
The Ziatech legal entity was formed upon Intel Corporation's (Intel)
acquisition of the stock of Ziatech Corporation on October 10, 2000 (acquisition
date). Prior to this time, Ziatech was a privately held company. Since the
acquisition date and up until October 2, 2002, Ziatech was a wholly owned
subsidiary of Intel operating within the Intel Communication Group. Ziatech is
engaged in the research, development, manufacture and marketing of industrial
microcomputer systems for use in the telecommunications industry.
The accompanying financial statements were prepared to present, pursuant to
the Stock Purchase Agreement, dated September 12, 2002, between Intel
Corporation and Performance Technologies Incorporated (PTI), the assets to be
acquired and liabilities to be assumed and the related net revenues and direct
expenses of the Ziatech business. The accompanying financial statements of
"Ziatech" exclude certain assets and liabilities of the Ziatech legal entity,
include all net revenues and direct expenses of the Ziatech legal entity and
include an allocation of certain expenses for services provided by Intel from
the date of acquisition as described in further detail in Note 2. Separate
complete historical financial information was not maintained for Ziatech and as
a result, allocations were required to appropriately reflect the operating
activity of the Ziatech business (see Note 2).
The accompanying financial statements have been prepared from the
historical accounting records of Intel and do not purport to reflect the assets
to be acquired and liabilities to be assumed, and the net revenues and direct
expenses that would have resulted if Ziatech had operated as an unaffiliated
independent company. It is not practical for management to reasonably estimate
expenses that would have resulted if Ziatech had operated as an unaffiliated
independent company. Since separate complete financial statements were not
maintained for the Ziatech operations, preparation of statements of operations
and cash flows, including amounts charged for income taxes, interest and
indirect expenses, is impractical. Additionally, since only certain assets are
being acquired and certain liabilities are being assumed, a balance sheet and
statement of stockholders' equity is not applicable.
Unaudited Financial Statements
The Statement of Assets Acquired and Liabilities Assumed as of September
28, 2002 and the Statements of Net Revenues and Direct Expenses for the nine
months ended September 28, 2002 and September 29, 2001 are unaudited, but
include all adjustments (consisting of normal recurring adjustments) that
Ziatech considers necessary for a fair presentation of its assets acquired and
liabilities assumed as of those dates and net revenues and direct expenses for
those periods. The net revenues and direct expenses for the nine months ended
September 28, 2002 are not necessarily indicative of the results that may be
expected for the entire year or any future period.
F-17
ZIATECH
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. Basis of Presentation, continued
Fiscal Year End
Ziatech has a fiscal year that ends on the last Saturday in December.
Fiscal year 2000 was a 53-week year and fiscal year 2001 was a 52-week year. The
nine-month periods ended September 28, 2002 and September 29, 2001 represented
39-week periods.
2. Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost or market utilizing a method
that approximates the first-in, first-out ("FIFO") method. Provision for
potentially obsolete or slow-moving inventory is made based on management's
analysis of inventory levels and future sales forecasts.
Identified Intangibles
On October 10, 2000 (acquisition date), Intel acquired the stock of Ziatech
Corporation in a business combination accounted for under the purchase method of
accounting. Of the total purchase price, $55,400,000 was allocated to identified
intangible assets, including in-process technology of $17,650,000 which is
included as a direct operating expense in the period from October 11, 2000
through December 30, 2000 and developed technology of $37,750,000, based on the
estimated fair values of the identified technologies on the acquisition date.
The identified developed technologies are being amortized on a straight-line
basis over their estimated useful lives of four years. Direct operating expenses
include amortization of developed technology of $9,437,497, $2,359,375,
$7,078,125 and $7,078,125 for the year ended December 29, 2001, the period from
October 11, 2000 through December 30, 2000 and the nine months ended September
29, 2001 and September 28, 2002, respectively. The goodwill recorded by Intel as
a result of this acquisition has not been included in the Statement of Assets
Acquired and Liabilities Assumed. At the date Intel acquired Ziatech
Corporation, all other tangible assets and liabilities acquired by Intel were
recorded at their respective fair values.
Identified intangibles are reviewed for recoverability periodically and
whenever events or changes in circumstances indicate that the carrying value
amount may not be recoverable. The carrying amount was compared to the
undiscounted cash flows of the relevant Intel and Ziatech products, and if the
review indicated that the identified intangibles were not recoverable, their
carrying amount would be reduced by the estimated shortfall of the discounted
cash flows. No write-downs were taken during the period from October 11, 2000
through September 28, 2002.
F-18
ZIATECH
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. Significant Accounting Policies, continued
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions and
major improvements are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. Depreciation of property and equipment and amortization of
leasehold improvements is computed on a straight line method over estimated
useful lives of the assets or the lease term, whichever is shorter. The
estimated useful lives are generally five years.
Ziatech changed its capitalization policy upon the acquisition by Intel to
conform with Intel's capitalization policy. The principal change was to increase
the dollar threshold when costs are capitalized versus expensed. The effect of
the change was not material for the period subsequent to acquisition.
Revenue Recognition
Ziatech recognizes net revenues on sales directly to original equipment
manufacturers and distributors, and sales to original equipment manufacturers
and distributors through Intel when the earnings process is complete, as
evidenced by an agreement with the customer, transfer of title, fixed pricing,
and collection is probable. Revenue is net of allowances for estimated returns.
Arrangements with distributor customers do not provide for unconditional rights
of return.
Beginning in late 2001, Ziatech began selling all products to Intel for
ultimate sales to original equipment manufacturers and distributors or to Intel
for inclusion in other Intel products or Intel's internal use. Ziatech
recognizes revenues on sales to Intel at the time of shipment to Intel. Intel
was responsible for marketing and selling Ziatech product. For the marketing and
sales services, Ziatech sold the product to Intel at a 15% discount off of the
third party sales price. Net revenues for the year ended December 29, 2001,
include sales to Intel of $5,329,077, of which $2,581,284 represented sales to
Intel for inclusion in other Intel products or for Intel's internal use. These
sales have been adjusted to reflect the sales price as if Ziatech had sold these
products directly to the third party customer. In the period from October 11,
2000 through December 30, 2000, Ziatech had sales of $443,074 to Intel for
inclusion in other Intel products or for Intel's internal use. In the nine-month
period ended September 28, 2002, Ziatech had sales to Intel of $17,235,786, of
which $3,338,831 represented sales to Intel for inclusion in other Intel
products or for Intel's internal use. In the nine-month period ended September
29, 2001, Ziatech had sales of $1,555,039 to Intel for inclusion in other Intel
products or for Intel's internal use.
F-19
ZIATECH
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. Significant Accounting Policies, continued
Direct Operating Expenses
The caption `direct expenses' on the accompanying financial statements
represent the total direct expenses of Intel incurred by and recorded within the
Ziatech legal entity and/or allocated to Ziatech from Intel cost centers or from
the Intel Communications Group segment (ICG) in which Ziatech resides. While
Ziatech has been maintained as a separate legal entity, not all of the research
and development and sales, general and administrative expenses for Ziatech were
maintained within separate Ziatech accounts or cost centers. However, certain
research and development and sales, general and administrative costs were
extracted from Intel's accounts based upon specifically identifiable cost
centers associated with the activities of the Ziatech legal entity. These cost
centers capture a portion of Ziatech's total direct expenses. All other direct
expenses, including portions of research and development and sales, general and
administrative expenses, are allocations from ICG based primarily on headcount.
Management believes the allocation by headcount of direct expenses not directly
captured in specifically identifiable Intel cost centers or within the Ziatech
legal entity fairly reflect the direct expenses of Ziatech. Included in
Ziatech's direct expenses is an allocation of approximately $3,400,000 for sales
and marketing expenses and $1,136,000 for research and development expenses for
the year ended December 30, 2001. For the nine months ended September 28, 2002
and September 29, 2001, allocations of sales, general and administrative
expenses of approximately $3,569,000 and $1,500,000, respectively, have been
made. Additionally, approximately $957,000 of research and development expenses
have been allocated to Ziatech for the nine month period ended September 29,
2001. Ziatech's direct operating expenses do not include any allocations for
certain corporate related activities incurred by Intel such as human resources,
legal, sales and marketing support, or certain profit dependent amounts in
excess of accruals allocated to Ziatech. Additionally, Ziatech's Statements of
Net Revenues and Direct Expenses also excludes allocations of interest income,
interest expense and income taxes. None of the aforementioned expenses or income
are allocated by Intel to either Ziatech or the Intel Communication Group.
The direct operating expenses are not necessarily indicative of the
expenses that would have been incurred had Ziatech operated as an unaffiliated,
independent business. It is not practical for management to reasonably estimate
the expenses that would have been incurred had Ziatech operated as an
unaffiliated, independent business.
F-20
ZIATECH
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Inventories
Inventories are comprised of the following:
September 28,
2002 December 29, December 30,
(Unaudited) 2001 2000
------------- ------------- -------------
Raw materials $ 374,607 $ 4,346,145 $ 9,124,484
Work in process 187,176 782,745 1,126,312
Finished goods 604,969 1,668,754 5,702,454
------------- ------------- -------------
Net inventory $ 1,166,752 $ 6,797,644 $15,953,250
============= ============= =============
Immediately prior to the acquisition of Ziatech by PTI, Ziatech shipped
certain inventory totaling $450,000 to Intel to allow Intel to fulfill existing
customer orders. This inventory has been excluded from the net inventory at
September 28, 2002. The inventory balances at December 29, 2001 and December 30,
2000 have not been adjusted to reflect the intercompany transfer of inventory
held by Intel.
4. Property and Equipment
Property and Equipment is comprised of the following:
September 28,
2002 December 29, December 30,
(Unaudited) 2001 2000
------------- ------------- -------------
Machinery and equipment $ 759,761 $ 797,434 $ 735,037
Furniture and fixtures 581,524 588,955 493,634
Leasehold improvements 185,613 185,613 164,448
------------- ------------- -------------
1,526,898 1,572,002 1,393,119
Less accumulated depreciation and
amortization (609,680) (406,402) (87,599)
------------- ------------- -------------
Property and equipment, net $ 917,218 $ 1,165,600 $ 1,305,520
============= ============= =============
Direct expenses include depreciation expense of approximately $319,000,
$88,000, $242,000 and $203,000 for the year ended December 29, 2001, the period
from October 11, 2000 through December 30, 2000 and the nine months ended
September 29, 2001 and September 28, 2002, respectively.
F-21
ZIATECH
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Related Party Transactions
Southwood
On January 15, 1997, Ziatech Corporation sold its headquarters building to
Southwood Properties LLC ("Southwood"), owned by certain former shareholders of
Ziatech Corporation. Certain of the Southwood owners subsequently became
employees of Intel when Intel acquired Ziatech Corporation. Under the sales
agreement, Southwood assumed a $1,915,000 note payable from Ziatech Corporation,
issued a promissory note to Ziatech Corporation for $425,000 and paid Ziatech
Corporation $385,000 in cash in return for the building and the land, with a
cost basis of $2,760,755 and accumulated depreciation of $328,716. Ziatech
Corporation then leased the building from Southwood under an operating lease
containing a rent escalation clause based on the Consumer Price Index but not
less than 2% per year. The gain on sale of the building, totaling approximately
$292,000, is being deferred and amortized at a rate of $24,293 per year over the
12 year life of the lease. Direct operating expenses include rent expense of
$468,012, $101,326, $360,099 and $351,009 for the year ended December 29, 2001,
the period from October 11, 2000 through December 30, 2000 and the nine months
ended September 29, 2001 and September 28, 2002, respectively. The note
receivable from Southwood is guaranteed by the shareholders of Southwood, earns
interest at an annual rate of 9.0% and is payable to Ziatech in monthly
installments of $7,660 through January 14, 2003. The balance on the note
receivable is $101,457, $180,362, and $37,449 at December 30, 2001, December 29,
2000, and September 28, 2002, respectively. Ziatech Corporation issued a
promissory note to Southwood for $40,000 in lieu of a security deposit on the
operating lease. The note was subsequently paid off in December 2000.
Ziatech subleases a portion of the building to an unrelated party. The
lessee agreed to lease the premises through June 30, 2001, after which the lease
has and will continue indefinitely until terminated by either party with a
written notification at least six months prior to the date the premises are to
be vacated. Direct operating expenses include rental income of approximately
$142,000, $30,475, $106,000, and $106,000 for the year ended December 29, 2001,
the period from October 11, 2000 through December 30, 2000 and the nine months
ended September 29, 2001 and September 28, 2002, respectively.
Intel
Beginning in late 2001, Ziatech began selling all products to Intel for
ultimate sales to original equipment manufacturers and distributors or to Intel
for inclusion in other Intel products or Intel's internal use. Intel was
responsible for marketing and selling Ziatech product. For the marketing and
sales services, Ziatech sold the product to Intel at a 15% discount off of the
third party sales price. Net revenues for the year ended December 29, 2001,
include sales to Intel of $5,329,077, of which $2,581,284 represented sales to
Intel for inclusion in other Intel products or for Intel's internal use. These
sales have been adjusted to reflect the sales price as if Ziatech had sold these
products directly to the third party customer. In the period from October 11,
2000 through December 30, 2000, Ziatech had sales of $443,074 to Intel for
inclusion in other Intel products or for Intel's internal use. In the nine-month
period ended September 28, 2002, Ziatech had sales to Intel of $14,650,418, of
which $2,838,006 represented sales to Intel for inclusion in other Intel
products or for Intel's internal use. In the nine-month period ended September
29, 2001, Ziatech had sales of $1,555,039 to Intel for inclusion in other Intel
products or for Intel's internal use.
F-22
ZIATECH
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. Lease Commitments
Operating Lease
Ziatech has operating leases for equipment and two facilities (one with
Southwood, see Note 5 above) with lease terms expiring between 2002 and 2008.
The minimum lease payments on the operating leases are as follows:
For the fiscal year ending December
2002 $ 488,259
2003 489,735
2004 499,529
2005 509,520
2006 519,710
Thereafter 1,070,812
---------------
$ 3,577,565
===============
Direct expenses include rent expense of $471,527, $110,255, $363,319 and
$377,862 for the year ended December 29, 2001, the period from October 11, 2000
through December 30, 2000 and the nine months ended September 29, 2001 and
September 28, 2002, respectively.
7. Major Customers
During the period from October 11, 2000 through December 30, 2000, two
customers accounted for 36% and 11.1% of Ziatech's total sales. During the year
ended December 29, 2001 taking into consideration sales through Intel (not a
third-party customer), one third-party customer accounted for 15% of Ziatech's
total sales. For the nine months ended September 29, 2001, one third-party
customer accounted for 14% of total sales. For the nine months ended September
28, 2002 taking into consideration sales through Intel (not a third-party
customer), no individual third-party customer accounted for more than 10% of
total sales.
F-23
Item 7. Financial Statements and Exhibits.
(b) Unaudited Pro Forma Combined Financial Statement.
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 2002
(in thousands)
ASSETS
HISTORICAL PRO FORMA
PTI ZIATECH ADJUSTMENTS COMBINED
--------------- --------------- --------------- ---------------
Current assets:
Cash and cash equivalents $25,791 $ (3,643) (A) (F) $22,148
Marketable securities 2,011 2,011
Accounts receivable, net 2,532 2,532
Inventories, net 3,892 $ 1,167 503 (B) 5,562
Prepaid expenses and other 371 39 2 (H) 412
Income taxes receivable 271 (C) 271
Note receivable - current portion 37 37
Deferred taxes 626 995 (D) 1,621
--------------- --------------- --------------- ---------------
Total current assets 35,223 1,243 (1,872) 34,594
Property, equipment and improvements, net 2,346 917 (363) (E) 2,900
Software development costs, net 2,028 2,028
Acquired identified intangibles - net 18,875 (18,875) (H) 0
Note receivable from unconsolidated 1,000 1,000
company
Investment in unconsolidated company 1,488 1,488
--------------- --------------- --------------- ---------------
Total assets $42,085 $21,035 $(21,110) $42,010
=============== =============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 557 $ 557
Income taxes payable 108 108
Accrued expenses 2,406 $ 20 $ 271 (C) 2,697
Deferred gain on sale leaseback 152 (152) (G)
Deferred rent 167 (167) (G)
--------------- --------------- --------------- ---------------
Total current liabilities 3,071 339 (48) 3,362
Deferred taxes 826 826
--------------- --------------- --------------- ---------------
Total liabilities 3,897 339 (48) 4,188
--------------- --------------- --------------- ---------------
Stockholders' equity:
Preferred stock
Common stock 133 133
Additional paid-in capital 10,934 10,934
Retained earnings 39,848 (366) (I) 39,482
Treasury stock (12,663) (12,663)
Accumulated other comprehensive loss (64) (64)
--------------- --------------- --------------- ---------------
Total stockholders' equity 38,188 (366) 37,822
--------------- --------------- --------------- ---------------
Total liabilities and stockholders' $42,085 $ 339 $ (414) $42,010
equity =============== =============== =============== ===============
The accompanying notes are an integral part of this pro forma combined balance
sheet.
F-24
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET
Note 1. Basis of Presentation
On October 2, 2002, Performance Technologies, Incorporated (the "Company")
acquired a portion of Intel Corporation's Embedded Communications Platform
Division. The acquisition was completed pursuant to the Stock Purchase
Agreement, dated September 12, 2002, between Intel Corporation and Performance
Technologies, Incorporated to acquire all the issued and outstanding shares of
Ziatech Corporation ("Ziatech"). The stock purchase was completed at a cash
purchase price of $2,967,000. The Company paid the purchase price in cash from
funds on hand. In addition, the Company has incurred related transaction costs
of approximately $676,000.
The Ziatech line of CompactPCI, PICMG 2.16 and STD 32-based processor modules
and system platforms will become an important extension to the Company's product
family that management believes can contribute to the future growth and
expansion of the Company. The combined products will allow the Company to serve
a broader set of embedded applications in the data communications,
telecommunications, military, industrial automation, transportation and medical
markets.
The unaudited pro forma combined balance sheet has been presented assuming the
acquisition of Ziatech by the Company as of September 30, 2002. The unaudited
pro forma combined balance sheet as of September 30, 2002 combines, with
appropriate adjustments, Ziatech's unaudited statement of assets acquired and
liabilities assumed as of September 28, 2002 and the Company's unaudited
consolidated balance sheet as of September 30, 2002.
The unaudited pro forma combined balance sheet has been prepared on the basis of
preliminary assumptions and estimates. The pro forma adjustments represent the
Company's preliminary determinations of these adjustments and are based on
available information and certain assumptions the Company considers reasonable
under the circumstances. Final amounts could differ from those set forth herein
and as a result would affect the allocation and the amount of the purchase price
(including transaction costs). Certain reclassifications were made to conform
Ziatech's historical financial statements to the Company's historical financial
statements.
Note 2. Accounting Policies
The Ziatech acquisition by the Company was completed on October 2, 2002. The
unaudited pro forma combined balance sheet reflects the application of Statement
of Financial Accounting Standard ("SFAS") No. 141 "Business Combinations" to
this transaction. SFAS No. 141 applies to all business combinations consummated
after June 30, 2001 and requires the purchase method of accounting. SFAS No. 141
also establishes new criteria for determining whether intangible assets should
be recognized apart from goodwill. SFAS No. 142 provides that goodwill and
intangible assets with indefinite lives will not be amortized, but rather will
be tested for impairment annually.
F-25
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET, CONTINUED
Note 3. Pro Forma Adjustments
The pro forma combined balance sheet has been prepared to reflect the
acquisition of Ziatech by the Company for a cash purchase price of $2,967,000,
plus transaction costs. Pro forma adjustments are made to the balance sheet to
reflect:
(A) Payment of the cash purchase price of $2,967,000. The purchase price
was paid in cash by the Company from funds on hand.
(B) Adjustment of inventory to fair value in accordance with SFAS No. 141
"Business Combinations."
(C) Income tax receivable and related payable to Intel Corporation. Under
the terms of the Purchase Agreement, a receivable for income taxes once
received is then remitted to Intel Corporation.
(D) Adjustment to deferred taxes arising from purchase accounting.
(E) Allocation of the purchase price to the estimated fair value of the
fixed assets at the acquisition date in accordance with SFAS No. 141
"Business Combinations."
(F) Transaction costs (i.e. investment banking, legal and accounting)
associated with the Ziatech acquisition are estimated to be $676,000.
(G) Adjustment to deferred liabilities in accordance with EITF 01-03
"Accounting in a Purchase Business Combination for Deferred Revenue of
an Acquiree."
(H) Adjustments to assets and liabilities included in the historical
financial statements arising from purchase accounting.
(I) In-process research and development identified with the Ziatech
acquisition. This value was determined in accordance with SFAS No. 141
"Business Combinations."
The pro forma combined balance sheet does not include integration costs, other
transactions or events that the combined entity may undertake or experience as a
result of the acquisition. As such, any restructuring charges, anticipated
increases in revenues, or cost savings, are not presented in the pro forma
combined balance sheet.
F-26
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.
PERFORMANCE TECHNOLOGIES, INCORPORATED
December 16, 2002 By: /s/ Donald L. Turrell
--------------------------------------------
Donald L. Turrell
President and Chief Executive Officer
December 16, 2002 By: /s/ Dorrance W. Lamb
--------------------------------------------
Dorrance W. Lamb
Chief Financial Officer and Vice President, Finance
2.
INDEX TO EXHIBITS
(2) * Stock Purchase Agreement between Intel Corporation and Performance
Technologies, Incorporated, dated as of September 12, 2002.
(23.1) Consent of Ernst and Young, LLP
(23.2) Consent of Deloitte and Touche, LLP
* Previously filed with Registrant's Current Report of Form 8-K, dated
October 17, 2002.
3.
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
333-94371 on Form S-3 and Registration Statement No. 333-24477 on Form S-8 of
Performance Technologies, Incorporated, of our report dated December 10, 2002,
related to the financial statements of Ziatech Corporation for the period from
January 1, 2000 through October 10, 2000 (acquisition date) and our report dated
December 10, 2002, related to the financial statements of Ziatech for the period
from October 11, 2000 through December 30, 2000 and the year ended December 29,
2001, appearing in this Current Report on Form 8-K/A of Performance
Technologies, Incorporated.
/s/Ernst & Young LLP
------------------------
Ernst & Young LLP
San Jose, California
December 13, 2002
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-94371 on Form S-3 and Registration Statement No. 333-24477 on Form S-8 of
Performance Technologies, Incorporated, of our report dated March 28, 2000,
related to the financial statements of Ziatech Corporation for the year ended
December 31, 1999, appearing in this Current Report on Form 8-K/A of Performance
Technologies, Incorporated.
/s/Deloitte & Touche LLP
------------------------
Deloitte & Touche LLP
San Jose, California
December 12, 2002