UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
August 18, 2008
NAPCO SECURITY SYSTEMS, INC.
(Exact name of registrant as specified in charter)
Delaware 0-10004 11-2277818
------------------------ ------------------------ ------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction Identification No.)
of incorporation)
333 Bayview Avenue, Amityville, New York 11701
(Address of principal executive offices)
Registrant's telephone number, including area code (631) 842-9400
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2 below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
--------------------------------------------------------------------------------
Item 9.01 is hereby amended to read in its entirety as follows:
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED F-1
Report of Independent Public Accountants F-3
Balance Sheets - July 31, 2008 and 2007 F-4
Statements of Income - Years ended July 31, 2008 and 2007 F-5
Statements of Stockholder's Equity - Years ended July 31, 2008 and 2007 F-6
Statements of Cash Flows - Years ended July 31, 2008 and 2007 F-7
Notes to Financial Statements F-8
(b) PRO-FORMA FINANCIAL INFORMATION (UNAUDITED) F-12
Pro-forma Balance Sheet - June 30, 2008 F-13
Pro-forma Statement of Income - Year ended June 30, 2008 F-14
Notes to Unaudited Consolidated Pro-forma Financial Information F-15
(d) EXHIBITS
----------- ------------------------------------------------------------ ----------------------------------
Exhibit No. Title Reference
----------- ------------------------------------------------------------ ----------------------------------
Ex-2.1 Asset Purchase Agreement - A list of the Exhibits and Incorporated by reference to
Schedules to the Asset Purchase Agreement is filed herewith Exhibit 2.1 to Report on Form 8-K
and any omitted Shedule will be filed with the Commission dated August 18, 2008.
upon request.
----------- ------------------------------------------------------------ ----------------------------------
Ex-4.1 $50,000,000 Amended and Restated Credit Agreement Incorporated by reference to
Exhibit 4.1 to Report on Form 8-K
dated August 18, 2008.
----------- ------------------------------------------------------------ ----------------------------------
Ex-99.1 Press Release dated August 19, 2008 Incorporated by reference to
Exhibit 99.1 to Report on Form 8-K
dated August 18, 2008.
----------- ------------------------------------------------------------ ----------------------------------
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
NAPCO SECURITY SYSTMES, INC.
Date: November 11, 2008 By: /s/ RICHARD SOLOWAY
-------------------
Chairman of the Board of Directors,
President and Chief Executive Officer
NAPCO SECURITY SYSTEMS, INC.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Financial Statements of Business Acquired F-2
On August 18, 2008, Napco Security Systems, Inc. (the "Company") pursuant to an
Asset Purchase Agreement with G. Marks Hardware, Inc. ("Marks") of Amityville,
New York, acquired substantially all of the assets and business of Marks for $25
million, the repayment of $1 million of bank debt and the assumption of current
liabilities as described more fully in the Asset Purchase Agreement.
The Marks business involves the manufacturing and distribution of door-locking
devices. The Company plans to continue to use the equipment and other physical
property acquired in the Company's door-locking device business.
F-1
G. MARKS HARDWARE, INC.
FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2008 AND 2007
G. MARKS HARDWARE,
INC. INDEX
Report of Independent Registered Public Accounting Firm F-3
Balance Sheets - July 31, 2008 and 2007 F-4
Statements of Income - Years ended July 31, 2008 and 2007 F-5
Statements of Stockholder's Equity - Years ended July 31, 2008 and 2007 F-6
Statements of Cash Flows - Years ended July 31, 2008 and 2007 F-7
Notes to Financial Statements F-8
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder
G. Marks Hardware, Inc.
We have audited the accompanying balance sheets of G. Marks Hardware, Inc. (an
"S" Corporation) as of July 31, 2008 and 2007, and the related statements of
income, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of G. Marks Hardware, Inc. as of
July 31, 2008 and 2007, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 10 to the financial statements, on August 18, 2008,
substantially all of the Company's assets have been acquired for an aggregate
purchase price of $25,000,000, including the repayment of $1,000,000 of bank
debt and the assumption of current liabilities.
/s/ J.H. Cohn LLP
Jericho, New York
November 11, 2008
F-3
G. MARKS HARDWARE, INC.
BALANCE SHEETS
JULY 31, 2008 and 2007
2008 2007
----------- -----------
ASSETS
------
Current assets:
Cash and cash equivalents $ 876,435 $ 284,574
Accounts receivable, net of allowance for doubtful accounts of $10,000 1,704,162 2,276,366
Inventories, net 6,057,838 4,972,446
Prepaid expenses and other receivables 83,416 78,700
----------- -----------
Total current assets 8,721,851 7,612,086
----------- -----------
Equipment and leasehold improvements:
Tools and dies 1,299,944 1,299,944
Transportation equipment 172,096 172,096
Machinery and equipment 687,193 654,793
Furniture and fixtures 612,165 612,165
Leasehold improvements 83,918 83,918
----------- -----------
2,855,316 2,822,916
Less accumulated depreciation and amortization 2,702,379 2,642,263
----------- -----------
Equipment and leasehold improvements, net 152,937 180,653
----------- -----------
Other assets:
Deposits 439,420 303,212
Loan receivable - employee -- 10,000
----------- -----------
Total other assets 439,420 313,212
----------- -----------
Total assets $ 9,314,208 $ 8,105,951
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Line of credit borrowings $ 1,000,000 $ --
Accounts payable 767,435 1,278,254
Accrued expenses 571,407 590,463
----------- -----------
Total liabilities 2,338,842 1,868,717
----------- -----------
Commitments and contingencies
Stockholder's equity:
Common stock: $1 par value, voting, 20,000 shares authorized, 5,100
shares issued and 3,825 shares outstanding 5,100 5,100
Additional paid-in capital 51,198 51,198
Retained earnings 7,126,513 6,388,381
Less treasury stock, at cost, (1,275 shares) (207,445) (207,445)
----------- -----------
Total stockholder's equity 6,975,366 6,237,234
----------- -----------
Total liabilities and stockholder's equity $ 9,314,208 $ 8,105,951
=========== ===========
See notes to financial statements.
F-4
G. MARKS HARDWARE, INC.
STATEMENTS OF INCOME
YEARS ENDED JULY 31, 2008 AND 2007
2008 2007
----------- -----------
Net sales $23,727,391 $18,806,489
Cost of goods sold 15,985,425 12,583,103
----------- -----------
Gross profit 7,741,966 6,223,386
----------- -----------
Operating expenses:
Selling 1,716,600 1,196,348
Shipping 668,459 519,348
General and administrative 1,763,389 1,537,528
----------- -----------
Total operating expenses 4,148,448 3,253,224
----------- -----------
Operating income 3,593,518 2,970,162
Other expense:
Interest expense 43,390 20,348
----------- -----------
Net income $ 3,550,128 $ 2,949,814
=========== ===========
See notes to financial statements.
F-5
G. MARKS HARDWARE, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED JULY 31, 2008 AND 2007
Common Stock Additional Treasury Stock Total
------------------------ Paid-in Retained ------------------------ Stockholder's
Shares Amount Capital Earnings Shares Amount Equity
----------- ----------- ----------- ----------- ----------- ----------- -------------
Balance, August 1, 2006 5,100 $ 5,100 $ 51,198 $ 4,584,988 1,275 $ (207,445) $ 4,433,841
Net income -- -- -- 2,949,814 -- -- 2,949,814
Less distributions to stockholder -- -- -- (1,146,421) -- -- (1,146,421)
----------- ----------- ----------- ----------- ----------- ----------- -------------
Balance, July 31, 2007 5,100 5,100 51,198 6,388,381 1,275 (207,445) 6,237,234
Net income -- -- -- 3,550,128 -- -- 3,550,128
Less distributions to stockholder -- -- -- (2,811,996) -- -- (2,811,996)
----------- ----------- ----------- ----------- ----------- ----------- -------------
Balance, July 31, 2008 5,100 $ 5,100 $ 51,198 $ 7,126,513 1,275 $ (207,445) $ 6,975,366
=========== =========== =========== =========== =========== =========== =============
See notes to financial statements.
F-6
G. MARKS HARDWARE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2008 AND 2007
2008 2007
----------- -----------
Operating activities:
Net income $ 3,550,128 $ 2,949,814
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 60,116 72,601
Changes in operating assets and liabilities:
Accounts receivable 572,204 (244,510)
Inventories (1,085,392) (1,415,728)
Prepaid expenses and other receivables (4,716) (14,550)
Deposits (136,208) (124,091)
Accounts payable (510,819) 485,876
Accrued expenses (19,056) (4,336)
----------- -----------
Net cash provided by operating activites 2,426,257 1,705,076
----------- -----------
Investing activities:
Loan receivable - employee 10,000 --
Acquisition of equipment and leasehold improvements (32,400) (15,503)
----------- -----------
Net cash used in investing activities (22,400) (15,503)
----------- -----------
Financing activities:
Net borrowings (repayments) under line of credit 1,000,000 (500,000)
Distributions to stockholder (2,811,996) (1,146,421)
----------- -----------
Net cash used in financing activities (1,811,996) (1,646,421)
----------- -----------
Net increase in cash and cash equivalents 591,861 43,152
Cash and cash equivalents, beginning of year 284,574 241,422
----------- -----------
Cash and cash equivalents, end of year $ 876,435 $ 284,574
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 43,390 $ 20,348
=========== ===========
See notes to financial statements.
F-7
G. MARKS HARDWARE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of operations:
G. Marks Hardware, Inc. (the "Company") (an "S" Corporation) is
engaged in the manufacturing and sale of door locks and decorative
hardware to locksmiths, wholesale distributors and door manufacturers
throughout the United States. The Company's manufacturing facility
and principal place of business is located in Amityville, New York.
Note 2 - Summary of significant accounting policies:
Revenue recognition:
Revenue is recognized when products are shipped to customers. The
Company believes that the shipment date is the most appropriate point
in time indicating the completion of the earnings process because it
does not have any post-shipment obligations, the product price is
fixed and determinable and the collection of the resulting receivable
is probable.
Cash and cash equivalents:
Cash and cash equivalents include all cash balances and highly liquid
securities with original maturities of three months or less when
acquired.
Accounts receivable:
Accounts receivable from the sale of door locks and decorative
hardware are based on standard prices. The Company provides an
allowance for doubtful accounts, which is based upon a review of
outstanding receivables, historical collection information, and
existing economic conditions. Accounts receivable are due 30 days
after issuance of the invoice. Accounts receivable past due more than
60 days are considered delinquent. Delinquent receivables are
written-off based on individual credit evaluation and specific
circumstances of the customer.
Inventory:
Inventory, consisting primarily of raw materials for the production
of door locks and decorative hardware, is valued at the lower of cost
or market, determined on a first-in, first-out basis.
Equipment and leasehold improvements:
Equipment and leasehold improvements are stated at cost. Depreciation
is computed over the estimated useful lives of the assets using the
straight-line method. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives of
the assets or the lease term. Expenditures for repairs and
maintenance are charged to operations in the period incurred.
Domestic purchases of tools and dies are capitalized and depreciated
over their estimated useful lives. Tools and dies purchased by
foreign suppliers on behalf of the Company are charged to operations
in the period purchased, as their estimated useful life is not
determinable due to the uncertainty of turnover of foreign suppliers.
There were no significant tools and dies purchased from foreign
suppliers during the year.
Advertising:
Advertising expense, which consists of trade shows, catalogs and
direct mailings, is expensed as incurred. Advertising expense for the
years ended July 31, 2008 and 2007 was $310,388 and $187,698,
respectively.
Shipping expenses:
Shipping and handling expense, which consists of shipping supplies,
trucking expenses and freight out, is expensed as incurred and
included on the statements of income as operating expenses, under the
caption, "Shipping". Shipping expense for the years ended July 31,
2008 and 2007 was $668,459 and $519,348, respectively.
F-8
G. MARKS HARDWARE, INC.
NOTES TO FINANCIAL STATEMENTS
Summary of significant accounting policies (continued):
Income taxes:
The Company has elected, and the stockholder has consented, under the
applicable provisions of the Internal Revenue and New York State
Franchise Tax Codes, to have the Company report its income for
Federal Corporation and New York State Franchise tax purposes as an
"S" Corporation. The stockholders report their respective shares of
the net taxable income or loss on their personal tax returns.
Therefore, no provision is made for Federal Corporation or New York
State Franchise Taxes, except for the New York State tax imposed on
"S" Corporations, when applicable.
As an "S" Corporation with a non-calendar fiscal year-end, the
Company is obligated under the Internal Revenue Code, to make
"required payments" to the government representing the tax that would
otherwise be due from the stockholder had the Company used a calendar
year end. These payments are held on deposit by the Internal Revenue
Service and are adjusted annually based upon the Company's reported
taxable income or loss. At July 31, 2008 and 2007, the Company had
tax deposits with the Internal Revenue Service in the amount of
$439,420 and $272,768, respectively, which are included in the
balance sheets under the caption "Deposits".
Use of estimates:
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 assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. The accounting estimates that require
management's most difficult and subjective judgments include
provisions for bad debts, inventory valuation, depreciable lives,
impairment of long-lived assets and other reserves. Because of the
uncertainty in such estimates, actual results may differ from these
estimates.
Recent accounting pronouncements:
In September 2006, the FASB issued SFAS No. 157, Fair-Value
Measurements ("SFAS No. 157"), which defines fair value, establishes
guidelines for measuring fair value and expands disclosures regarding
fair value measurements. SFAS No. 157 does not require any new fair
value regarding fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting
pronouncements. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. Management is evaluating the impact of SFAS
No. 15, effective January 1, 2008, but does not currently expect the
adoption of SFAS No. 157 to have a material impact on the financial
condition and results of operations.
On February 15, 2007, the FASB issued SFAS NO. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115" ("SFAS 159"). This standard
permits an entity to measure financial instruments and certain other
items at estimated fair value. Most of the provisions of SFAS No. 159
are elective; however, the amendment to FASB No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," applies to all
entities that own trading an available-for-sale securities. The fair
value option created by SFAS 159 permits an entity to measure
eligible items at fair value as of specified election dates. The fair
value option (a) may generally be applied instrument by instrument,
(b) is irrevocable unless a new election date occurs, and (c) must be
applied to the entire instrument and not to only a portion of the
instrument. SFAS 159 is effective for years beginning after November
15, 2007. Management is currently evaluating the impact of SFAS 159,
if any, on the Company's financial statements.
Note 3 - Inventories:
At July 31, 2008 and 2007, inventories consisted of the following:
2008 2007
---------- ----------
Raw materials and parts $5,673,200 $4,870,537
Work - in - process 375,016 311,296
Finished goods 222,045 23,036
---------- ----------
6,270,261 5,204,869
Less allowances for obsolete and slow moving inventories 212,423 232,423
---------- ----------
Totals $6,057,838 $4,972,446
========== ==========
F-9
G. MARKS HARDWARE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 4 - Line of credit:
At July 31, 2008 and 2007, the Company has a $3,000,000 line of
credit agreement with a bank available for working capital loans,
letters of credit and acceptances. At July 31, 2008 and 2007, the
Company has outstanding loans payable of $1,000,000 and $0,
respectively. The line of credit expires on January 15, 2009.
Borrowings under the line of credit bear interest at LIBOR plus 1.5%.
Borrowings are collateralized by substantially all of the Company's
assets and a personal guarantee by the Company's Stockholder.
In connection with the sale of substantially all of the Company's
assets (see Note 10), the above loan was paid in full.
Note 5 - Concentration risks:
Credit risk:
The Company maintains its cash in one financial institution. The
balance is insured by the Federal Deposit Insurance Corporation up to
$100,000. From time to time, the Company's balance may exceed this
limit. At July 31, 2008 and 2007, the uninsured cash balance is
approximately $879,000 and $267,000, respectively. The Company limits
its credit risk by selecting financial institutions considered to be
highly creditworthy.
Customers:
Trade accounts receivable are due primarily from locksmiths,
wholesale distributors and door manufacturers. The Company does not
require collateral; however, it performs ongoing credit evaluations
of customer accounts. At both July 31, 2008 and 2007, approximately
44% of trade accounts receivable was due from three customers.
Direct labor:
The Company's direct labor is covered by a union, which has a
collective bargaining agreement due to expire in December 2008. The
Company's past experience was favorable with respect to resolving
conflicting demands with this union and none has had a significant
effect on the Company's financial statements. Although management
expects that there will initially be some differences between the
Company and the union demands, management believes it is very
unlikely that those differences will result in a protracted conflict.
The Company does not contribute to a union pension plan.
Note 6 - 401(k) profit-sharing plan:
The Company maintains a 401(k) profit sharing plan which covers
substantially all employees. Employer contributions are
discretionary. Eligible employees may make pre-tax contributions to
the plan. For the years ended July 31, 2008 and 2007, employer
contributions in the amount of $30,104 and $29,958, respectively,
were charged to operations.
Note 7 - Lease commitments:
As of July 31, 2008, the Company leased automobiles under
noncancelable operating leases expiring through January 2011. Lease
expense charged to operations for the years ended July 31, 2008 and
2007 were $42,195 and $35,495, respectively.
Future minimum rental payments under lease agreements are as follows:
Years ending
July 31, Amount
-------- ------
2009 $ 42,687
2010 25,124
2011 3,194
---------
Total $ 71,005
=========
F-10
G. MARKS HARDWARE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 8 - Contingencies:
Guarantees:
The Company guaranteed a mortgage obligation of its stockholder which
is collateralized by the stockholder's building in which the Company
operates its business (see Note 9). At July 31, 2008, $81,530
remained outstanding to a bank under this obligation.
In addition, the Company guaranteed a second mortgage on the building
payable to the New York Job Development Authority. On August 8, 2002,
the Company's stockholder refinanced the remaining balance on this
mortgage by obtaining a promissory note in the amount of $600,000
payable to a bank in monthly installments commencing on October 1,
2002. The loan bears interest at LIBOR plus 1.5%. At July 31, 2008,
$112,902 remained outstanding under this second mortgage.
In connection with the sale of substantially all of the Company's
assets (see Note 10), the above obligations were paid in full by the
stockholder.
Letters of credit:
There were no outstanding commercial letters of credit at July 31,
2008 and 2007 (see Note 4).
Legal proceedings:
The Company is, from time to time, involved in litigation incidental
to the conduct of its business. However, the company is not party to
any lawsuit or proceeding which, in the opinion of management is
likely to have a material adverse effect on its financial condition.
Note 9 - Related party transactions:
Loan receivable - employee:
At July 31, 2007, the Company has a loan receivable from an employee
who is a relative of the Company's stockholder in the amount of
$10,000. The loan was noninterest bearing and has no set repayment
terms. The receivable was settled during the year ended July 31,
2008.
Operating lease:
The Company leases, on month to month basis, land and a building for
its operations from its stockholder (see Note 8). Rent expense for
the year ended July 31, 2008 amounted to $292,800 of which
approximately $228,700 was charged to cost of goods sold and $64,100
was charged to operations. Building expenses for the year ended July
31, 2008 (including real estate taxes) due under the lease amounted
to approximately $259,900 of which approximately $203,000 was charged
to cost of goods sold and $56,900 was charged to operations.
Note 10 - Subsequent event:
On August 18, 2008, Napco Security Systems, Inc., a diversified
manufacturer of security products, encompassing intrusion and fire
alarms, building access control systems and electronic locking
devices, acquired substantially all of the assets of the Company for
an aggregate purchase price of $25,000,000, including the repayment
of $1,000,000 of bank debt and the assumption of current liabilities.
At the date of acquisition, $21,500,000 was received in cash and
$3,500,000 of the purchase price was placed in escrow. The
distribution of the escrow balance is scheduled at various dates
until December 31, 2009, subject to adjustment for, among other
things, non-performance of certain milestones, such as turnover of
accounts receivable and inventories.
F-11
NAPCO SECURITY SYSTEMS, INC.
(b) PRO-FORMA FINANCIAL INFORMATION (UNAUDITED)
Unaudited Consolidated Pro-forma Financial Information F-13
The following unaudited consolidated pro-forma financial data have been derived
from the historical financial statements of Napco Security Systems, Inc.
("Napco") for the fiscal year ended June 30, 2008 G. Marks Hardware, Inc.
("Marks") as of and for the fiscal year ended July 31, 2008. The unaudited
consolidated pro-forma balance sheet gives effect to the Purchase Transaction as
if it had occurred on June 30, 2008. The unaudited consolidated pro-forma
statements of income for the fiscal year ended June 30, 2008 give effect to the
Purchase Transaction as if it had occurred at the beginning of the period
presented. The pro-forma adjustments are based upon available information and
certain assumptions that management believes are reasonable and are described in
the notes accompanying the unaudited consolidated pro-forma financial
statements. The unaudited consolidated pro-forma financial data do not purport
to represent what our results of operations or financial position would have
been had the Purchase Transaction occurred on the dates indicated, or to project
our results of operations or financial position for any future period or date,
nor does it give effect to any matters other than those describe in the notes
thereto. The Purchase Transaction will be accounted for as a purchase for
financial accounting purposes.
Pursuant to the purchase method of accounting, the total estimated purchase
price, in these unaudited pro-forma consolidated financial statements, has been
allocated to assets acquired and liabilities assumed based on a preliminary
determination by Napco's management. The difference between the fair value of
the consideration issued and the liabilities assumed and the fair value of the
identifiable tangible and intangible assets acquired has been recorded as
goodwill. These allocations are subject to change pending a final valuation of
certain fixed assets acquired as well as a potential purchase price adjustment
related to a subsequent measurement of the collectibility of receivables and
sale of inventory. As such, these allocations may differ from the information
presented herein.
F-12
NAPCO SECURITY SYSTEMS, INC.
PRO-FORMA BALANCE SHEET
At June 30, 2008 Napco Security G. Marks
Systems, Inc. Hardware, Inc.
Historical; Historical; Transaction
ASSETS June 30, 2008 July 31, 2008 Adjustments Pro-Forma
------ ---------------- ---------------- --------------- ---------------
(Audited) (Audited) (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,765,000 $ 876,000 $ -- $ 3,641,000
Accounts receivable, net 25,823,000 1,704,000 -- 27,527,000
Inventories 19,548,000 6,058,000 900,000 (a) 26,506,000
Prepaid expenses and other current
assets 1,121,000 83,000 -- 1,204,000
Deferred income taxes, net 769,000 -- -- 769,000
---------------- ---------------- --------------- ---------------
Total current assets 50,026,000 8,721,000 900,000 59,647,000
Inventories, non-current, net 7,724,000 -- -- 7,724,000
Property, plant and equipment, net 8,989,000 153,000 650,000 (a) 9,792,000
Intangible assets, net -- -- 16,100,000 (b) 16,100,000
Goodwill, net 9,686,000 -- 845,000 (c) 10,531,000
Other assets 298,000 440,000 (12,000)(d) 726,000
---------------- ---------------- --------------- ---------------
TOTAL ASSETS $ 76,723,000 $ 9,314,000 $ 18,483,000 $ 104,520,000
================ ================ =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 1,000,000 $ 2,679,000 (e) $ 3,679,000
Accounts payable 4,857,000 768,000 -- 5,625,000
Accrued and other current liabilities 1,333,000 571,000 458,000 (f) 2,362,000
Accrued salaries and wages 2,543,000 -- -- 2,543,000
Accrued taxes -- -- -- --
---------------- ---------------- --------------- ---------------
Total current liabilities 8,733,000 2,339,000 3,137,000 14,209,000
Long-term debt 12,400,000 -- 22,321,000 (e) 34,721,000
Accrued income taxes 294,000 -- -- 294,000
Deferred income taxes 1,607,000 -- -- 1,607,000
Minority interest in subsidiary 147,000 -- -- 147,000
---------------- ---------------- --------------- ---------------
Total liabilities 23,181,000 2,339,000 25,458,000 50,978,000
---------------- ---------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 201,000 5,000 (5,000)(g) 201,000
Additional paid-in-capital 13,424,000 51,000 (51,000)(g) 13,424,000
Retained earnings 45,532,000 7,126,000 (7,126,000)(g) 45,532,000
---------------- ---------------- --------------- ---------------
59,157,000 7,182,000 (7,182,000) 59,157,000
Less: Treasury stock, at cost (5,615,000) (207,000) 207,000 (g) (5,615,000)
---------------- ---------------- --------------- ---------------
Total stockholders' equity 53,542,000 6,975,000 (6,975,000) 53,542,000
---------------- ---------------- --------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 76,723,000 $ 9,314,000 $ 18,483,000 $ 104,520,000
================ ================ =============== ===============
See notes to unaudited pro-forma consolidated financial information.
F-13
NAPCO SECURITY SYSTEMS, INC.
PRO-FORMA STATEMENT OF INCOME
For the year ended June 30, 2008
Napco Security G. Marks
Systems, Inc. Hardware, Inc.
Historical; Historical; Transaction
June 30, 2008 July 31, 2008 Adjustments Pro-Forma
-------------- -------------- -------------- --------------
(Audited) (Audited) (Unaudited)
Net sales $ 68,367,000 $ 23,727,000 $ -- $ 92,094,000
Cost of sales 47,955,000 15,985,000 209,000 (l) 64,149,000
-------------- -------------- -------------- --------------
Gross profit 20,412,000 7,742,000 (209,000) 27,945,000
Selling, general and administrative
expenses 17,275,000 4,149,000 1,026,000 (h) 22,450,000
-------------- -------------- -------------- --------------
Operating income 3,137,000 3,593,000 (1,235,000) 5,495,000
-------------- -------------- -------------- --------------
Other income (expense):
Interest expense, net (819,000) (43,000) (1,189,000)(i) (2,051,000)
Other, net (42,000) -- (33,000)(j) (75,000)
-------------- -------------- -------------- --------------
(861,000) (43,000) (1,222,000) (2,126,000)
-------------- -------------- -------------- --------------
Income before minority interest
and (benefit)/provision for
income taxes 2,276,000 3,550,000 (2,457,000) 3,369,000
Minority interest in loss
of subsidiary 34,000 -- -- 34,000
-------------- -------------- -------------- --------------
Income before (benefit)/provision
for income taxes 2,310,000 3,550,000 (2,457,000) 3,403,000
(Benefit) provision for income taxes (1,408,000) -- 437,000 (k) (971,000)
-------------- -------------- -------------- --------------
Net income $ 3,718,000 $ 3,550,000 $ (2,894,000) $ 4,374,000
============== ============== ============== ==============
Earnings per share:
Basic $ 0.19 $ 0.23
============== ==============
Diluted $ 0.19 $ 0.22
============== ==============
Weighted average number of
shares outstanding:
Basic 19,263,000 19,263,000
============== ==============
Diluted 19,802,000 19,802,000
============== ==============
See notes to unaudited pro-forma consolidated financial information.
F-14
NAPCO SECURITY SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO-FORMA FINANCIAL INFORMATION
UNAUDITED PRO-FORMA BALANCE SHEET ADJUSTMENTS
We have made the following pro-forma adjustments to arrive at our pro-forma
consolidated balance sheet as of June 30, 2008:
(a) Represents adjustment of inventories and certain fixed assets to fair
value.
(b) Represents the fair value of intangible assets acquired.
(c) Represents the excess of the purchase price over the fair value of the
net assets acquired arising as a result of the Purchase Transaction.
(d) Represents deferred financing costs associated with the Term Loan,
capitalized costs relating to the due diligence and legal expenses
associated with the acquisition, the fair value of the Marks'
executive's covenant not to compete and the elimination of an asset
not acquired.
(e) Represents the current and non-current portions of the term loan
utilized to finance the asset purchase.
(f) Represents the accrual of acquisition and financing costs and a
purchase price adjustment resulting from the difference in value
between working capital as defined in the asset purchase agreement and
the actual working capital at the acquisition date.
(g) Represents the elimination of Marks' Stockholder's Equity.
UNAUDITED PRO-FORMA STATEMENTS OF INCOME ADJUSTMENTS
We have made the following pro-forma adjustments to arrive at our pro-forma
consolidated statements of income:
(h) Includes additional salary expense and stock option expense for Marks'
executive who will be Napco employee, not previously included in
salary expense in Marks' historical financial statements, as well as
amortization expense relating to intangible assets acquired and
covenant not to compete.
(i) Represents interest expense as a result of the issuance of the Term
Loan, which was used to finance the Purchase Transaction at a rate of
5% per annum.
(j) Represents amortization of deferred financing costs over the 5 year
life of the Term Loan.
(k) Represents the estimated tax provision resulting from a 40% effective
tax rate applied to the Marks historical net income for fiscal 2008 as
adjusted by the transaction adjustments.
(l) Represents additional depreciation expense on fixed assets recorded at
fair value on the acquisition date.
F-15