VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1. Nature of Operations
The Company is a leading provider of engineered lifting solutions. The Company designs, manufactures and distributes a diverse group of products that serve different functions and are used in a variety of industries.
Through its Manitex subsidiary it markets a comprehensive line of boom trucks and sign cranes. Manitexs boom trucks and crane products are primarily used for industrial projects, energy exploration and infrastructure development, including,
roads, bridges and commercial construction. The Manitex Liftking subsidiary sells a complete line of rough terrain forklifts and special mission oriented vehicles, as well as other specialized carriers, heavy material handling transporters and steel
mill equipment. Manitex Liftkings rough terrain forklifts are used in both commercial and military applications. Specialty mission oriented vehicles and specialized carriers are designed and built to meet the Companys unique customer
needs and requirements. The Companys specialized lifting equipment has met the particular needs of customers in various industries that include utility, ship building and steel mill industries.
Historically, the Company also designed, developed, and built specialty testing and assembly equipment for the automotive and heavy equipment industries that identifies
defects through the use of signature analysis and in-process verification. Against the background of the operating losses generated in recent history by the Testing & Assembly Equipment segment operations based at Wixom, Michigan, the
Company conducted a strategic review of these operations. On March 29, 2007, our Board of Directors approved a plan to sell our Testing & Assembly Equipment segments operating assets including its inventory, machinery, equipments
and patents. As a result, our Testing & Assembly Equipment segment has been accounted for as a discontinued operation starting with the first quarter of 2007. On August 1, 2007, the assets used in connection with the Companys
diesel engine testing equipment were sold to EuroMaint Industry, Inc., a Delaware corporation (EuroMaint). As of August 31, 2007, all operations of the former Testing and Assembly Equipment segment had ceased. (See Note 5)
As result of discontinuing our former Testing and Assembly Equipment segment, the Company again operates in only a single business segment, Lifting
Equipment. Accordingly, our financial statements no longer include segment information. The Companys consolidated financial statements for all years presented reflects the Testing and Assembly Equipment segment as a discontinued operation.
Note 2. Basis of Presentation
The consolidated
financial statements, included herein, have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission. Pursuant to these rules and regulations, the financial statements are
prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statement includes the accounts of Veri-Tek International Corp., and its subsidiaries. Significant intercompany
transactions have been eliminated in consolidation. Acquisitions accounted for as purchases have been included in the Companys results from their respective dates of acquisition July 3, 2006 for the QVM acquisition, November 30, 2006
for the Manitex Liftking acquisition, and July 31, 2007, for the Noble Forklift Product Line acquisition.
Discontinued Operations
As result of discontinuing our former Testing and Assembly Equipment segment, the Company again operates in only a single business segment, Lifting Equipment.
Accordingly, our financial statements no longer include
45
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 2. Basis of Presentation(Continued)
segment information. The Companys consolidated financial statements for all years presented reflects the Testing and Assembly Equipment segment as a
discontinued operation.
Note 3. Summary of Significant Accounting Policies
This summary of significant accounting policies of Veri-Tek International Corp. is presented to assist in understanding the Companys financial statements. The financial statements and notes are representations
of the Companys management who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all short-term securities purchased with
maturity dates of three months or less to be cash equivalents.
Marketable Securities
The Company had investments in corporate debt
instruments that are available for sale to meet working capital needs. These investments are short term and considered cash equivalents. Cost represents estimated fair value at the balance sheet date and there are no gross unrealized gains or
losses. Interest earned is included in interest income.
Warrants
The Company has issued warrants, which allow the warrant holder to
purchase one share of stock at specified price for specific period of time. The Company records equity instruments including warrants issued to non-employees based on the fair value at date of issue. The fair value of the warrants at date of
issuance are estimated using the Black-Scholes Model.
Revenue Recognition
For products shipped FOB destination, sales are recognized
when the product reaches its FOB destination, or when the services are rendered, which represents the point when the risks and rewards of ownership are transferred to the customer. For products shipped FOB shipping point, revenue is recognized when
the product is shipped, as this is the point when title and risk of loss pass from us to our customers.
Customers may be invoiced prior to the time
customers take physical possession. Revenue is recognized in such cases only when the customer has a fixed commitment to purchase the units, the units have been completed, tested and made available to the customer for pickup or delivery, and the
customer has authorized in writing that we hold the units for pickup or delivery at a time specified by the customer. In such cases, the units are invoiced under our customary billing terms, title to the units and risks of ownership pass to the
customer upon invoicing, the units are segregated from our inventory and identified as belonging to the customer and we have no further obligations under the order.
The Company establishes reserves for future warranty expense at the point when revenue is recognized by the Company and is based on percentage of revenues. The provision for estimated warranty claims, which is
included in cost of sales, is based on sales.
Allowance for Doubtful Accounts
The Company has adopted a policy consistent with U.S.
GAAP for the periodic review of its accounts receivable to determine whether the establishment of an allowance for doubtful accounts is warranted based on the Companys assessment of the collectibility of the accounts. The Company established
an allowance for bad debt of $175 and $177 December 31, 2007 and 2006, respectively.
46
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 3. Summary of Significant Accounting
Policies(Continued)
Property, Equipment and
Depreciation
Property and equipment are stated at cost. Depreciation of property and equipment is provided over the following useful lives:
|
|
|
Asset Category
|
|
Depreciable Life
|
Machinery and Equipment
|
|
5 15 years
|
Furniture and Fixtures
|
|
7 12 years
|
Leasehold Improvements
|
|
12 years
|
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation expense for continuing operations for the years ended December 31, 2007, 2006, and 2005 was $324, $87 and $0 respectively.
Goodwill and Other Intangible Assets
The Company accounts for Other Intangible Assets under the guidance of SFAS No. 142, Goodwill
and Other Intangible Assets. Under SFAS No. 142, Other Intangible Assets with definite lives are amortized over their estimated useful lives. Indefinite and definite lived intangible assets are subject to annual impairment testing.
The Company capitalizes certain costs related to patent technology. Additionally, a substantial portion of the purchase price related to the
Companys acquisitions has been assigned to patents or unpatented technology, trade name, customer backlog, and customer relationships. The intangibles acquired in acquisitions have been valued using a discounted cash flow approach.
Intangibles, except goodwill, are being amortized over their estimated useful lives.
Impairment of Long Lived Assets
In accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews its long-lived assets, including property and equipment, and other identifiable intangibles for impairment annually in the fourth quarter of the
year or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.
To determine
recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. Impairment is measured at fair value.
As required by SFAS No. 142, Goodwill and Other Intangibles, the Company evaluates goodwill for impairment annually in the fourth quarter of the year
or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company evaluates goodwill for impairment using the required business valuation method, which is calculated as of a
measurement date by determining the present value of debt-free, after-tax projected future cash flows, discounted at the weighted average cost of capital of a hypothetical third party buyer.
The Company has recorded $5,932 loss on impairment of long-lived assets of its discontinued Testing and Assembly Equipment segment during 2006. No impairment charges
were recorded in 2007 and 2005. (See Note 26 for detail regarding the impairment charge)
Discontinued Operations
The consolidated
financial statements present the Testing and Assembly Equipment Segment as a discontinued operation in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
47
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 3. Summary of Significant Accounting
Policies(Continued)
Inventory
Inventory consists
of stock materials and equipment stated at the lower of cost (first in, first out) or market. All equipment classified as inventory is available for sale. The company records excess and obsolete inventory reserves. Selling, general and
administrative expenses are expensed as incurred and are not capitalized as a component of inventory.
Foreign Currency Translation and
Transactions
The financial statements of the Companys non-U.S. subsidiaries are translated using the current exchange rate for assets and liabilities and the weighted-average exchange rate for the year for income and expense
items. Resulting translation adjustments are recorded to Accumulated Other Comprehensive Income (OCI) as a component of stockholders equity.
The
Company converts receivables and payables denominated in other than the Companys functional currency at the exchange rate as of the balance sheet date. The resulting transaction exchange gains or losses, except for certain transactions gains
or loss related to intercompany receivable and payables, are included in other income and expense. Transaction gains and losses related to intercompany receivables and payables not anticipated to be settled in the foreseeable future are excluded
from the determination of net income and are recorded as a translation adjustment to Accumulated Other Comprehensive Income (OCI) as a component of stockholders equity.
Forward Currency Exchange Contracts
Beginning in September 2007, the Company entered in forward currency exchange contracts in relationship such that the exchange gains and losses on the assets and
liabilities denominated in other than the reporting units functional currency would be offset by the changes in the market value of the forward currency exchange contracts it holds. In accordance with FAS No. 52, the Company records at
the balance sheet date the forward currency exchange contracts at its market value with any associated gain or loss being recorded in current earnings as a currency gain or loss.
Financial Instruments and Credit Risk Concentrations
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash, trade receivables and
payables.
The Company maintains its cash balances and marketable securities at banks in Detroit, Michigan and Toronto, Canada. Accounts in the United
States are insured by the Federal Deposit Insurance Corporation up to $100. At December 31, 2007 and 2006, the Company had uninsured balances of $469 and $515, respectively.
As of December 31, 2007 no single customer accounted for more than 10% of accounts receivables. As of December 31, 2006 two customers accounted for 23% of accounts receivable. For the year ended
December 31, 2007 no single customer accounted for more than 10% of the Companys revenue. For the year ended December 31, 2006 two customers accounted for 25% of the Companys revenue. For 2007, purchases from any single
supplier did not exceed 10% of total purchases. For the year ended December 31, 2006, the Company purchased 18% of total purchases from a single vendor.
Research and Development Expenses
.
The Company expenses research and development costs as incurred. For the periods ended December 31, 2007, 2006, and 2005 expenses were $807, $206, and $0, respectively.
Advertising
Advertising costs are expensed as incurred and were $289, $74 and $0 for the years ended December 31, 2007, 2006, and
2005, respectively.
Litigation Claims
In determining whether liabilities should be recorded for pending litigation claims, the Company
must assess the allegations and the likelihood that it will successfully defend itself. When the
48
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 3. Summary of Significant Accounting
Policies(Continued)
Company believes it is probable that it will not prevail in a particular matter, it will then make an estimate of the amount of liability based, in part, on
advice of outside legal counsel.
Shipping and Handling
The Company records the amount of shipping and handling costs billed to
customers as revenue. The cost incurred for shipping and handling is included in the cost of sales.
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 certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Companys financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based on the differences between the financial accounting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income prior to the expiration of any net operating loss carryforwards. The Company could not conclude that it
was more likely than not that the entire deferred tax asset related to the Companys net operating losses (NOL) would be fully utilized. As such, valuation allowances are established for the amount that total deferred tax assets
exceed total deferred tax liabilities. See Note 11, Income Taxes, for further details.
Accrued Warranties
Warranty costs are accrued at
the time revenue is recognized. The Companys products are typically sold with a warranty covering defects that arise during a fixed period of time. The specific warranty offered is a function of customer expectations and competitive forces.
A liability for estimated warranty claims is accrued at the time of sale. The liability is established using historical warranty claim experience.
Historical warranty experience is, however, reviewed by management. The current provision may be adjusted to take into account unusual or non-recurring events in the past or anticipated changes in future warranty claims. Adjustments to the initial
warranty accrual are recorded if actual claim experience indicates that adjustments are necessary. Warranty reserves are reviewed to ensure critical assumptions are updated for known events that may impact the potential warranty liability.
Sale and Leaseback
In accordance with FASB 13, 66 and 98, the Company has recorded deferred revenue in relationship to the sale and
leaseback of one of our operating facilities. As such, the gain on the sale of the land and building has been deferred and is being amortized on a straight line basis over the life of the lease.
Computation of EPS
Basic Earnings per Share (EPS) was computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the period.
The number of shares related to options, warrants, restricted stock and similar instruments included in diluted EPS
(EPS) is based on the Treasury Stock Method prescribed in SFAS No. 128. This method assumes theoretical repurchase of shares using proceeds of the respective stock option or warrant exercised, and for
49
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 3. Summary of Significant Accounting
Policies(Continued)
restricted stock the amount of compensation cost attributed to future services which has not yet been recognized and the amount of current and deferred tax
benefit, if any, that would be credited to additional paid in capital upon the vesting of the restricted stock, at a price equal to the issuers average stock price during the related earnings period. Accordingly, the number of shares
includable in the calculation of EPS in respect of the stock options, warrants, restricted stock and similar instruments is dependent on this average stock price and will increase as the average stock price increases.
Securities of a subsidiary that are convertible into its parent companys common stock shall be considered among potential common shares of the parent company for
the purposes of computing consolidated diluted EPS.
Including the contingently convertible debt and warrants in the diluted EPS calculation is
anti-dilutive when there is a loss and is, therefore, excluded from the diluted per share calculation under paragraph 16 of SFAS 128. The effect of applying paragraph 16 of SFAS 128 was to exclude 820,044, and 26,283 shares from the diluted EPS
calculation of the years ended December 31, 2006, and 2005, respectively.
Stock Based Compensation
In accordance with SFAS
No. 123R Share Based Payments share-based payments to employees, including grants of restricted stock units, are measured at fair value as of the date of grant and are expensed in the consolidated statement of operations over the
service period (generally the vesting period).
Comprehensive income
Statement of Financial Accounting Standard (SFAS)
No. 130 Reporting Comprehensive Income requires reporting and displaying comprehensive income and its components. Comprehensive income includes, in addition to net earnings, other items that are reported as direct adjustments to
stockholders equity. Currently, the only Comprehensive income adjustment required for the Company is a foreign currency translation adjustment. Comprehensive income was $2,038, ($8,945), ($2,252), for the years ended December 31, 2007,
2006, and 2005.
Reclassifications
Certain reclassifications have been made to the 2006 and 2005 financial statements to conform to the
2007 presentation.
Variable Interest Entities
In December 2003, the Financial Accounting Standards Board (FASB) issued Interpretation
No. 46 (Revised), Consolidation of Variable Interest Entities (FIN No. 46R). This pronouncement clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, and changes the criteria
by which one Company includes another entity in its consolidated financial statements. This may occur when equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional financial subordinated support from other parties. Although the Company is not required to consolidate under FIN 46R; the Company has determined that it has a variable interest in a related entity, for
which it is not the primary beneficiary.
The Company has a variable interest in the related entity primarily because of the common shareholder ownership
between the Company and GT Distribution, LLC; the Company is exposed to risk in regards to its variable interest. The Company both purchases from and sells to GT Distribution. The Companys exposure will vary in the future and is dependent on
purchase from and sales to GT Distribution as well as payment made to or received from GT Distribution. As of December 31, 2007, the Company had net receivable from GT Distribution or its subsidiaries of approximately $300.
50
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 3. Summary of Significant Accounting Policies(Continued)
GT Distribution financial statements for the year ended December 31, 2007 are not yet available. In 2007, GT Distribution sold the Noble Forklift Product Line (the Product Line) assets to the Company
in exchange for the discharge of obligations and trade payables of GT Distribution and certain of its subsidiaries totaling $4,219 and assumption by the Company of certain liabilities associated with the Product Line. Except for the impact of the
aforementioned transaction, the Company does not expect the financial position of GT Distribution to change significantly between 2006 and 2007.
At
June 30, 2007, the company had a significant variable interest in a related entity GT Distribution, LLC in the form of a receivable in the amount of $4,219. Primarily because of the common shareholder ownership between the Company and GT
Distribution, LLC, the Company is exposed to risk in regards to its variable interest. At December 31, 2006, the carrying amount of the assets of GT Distribution, LLC totaled $12,413 and the carrying amount of its debt totaled $11,228. During
the year ended December 31, 2006 GT Distribution, LLC had revenue of approximately $21,279. At June 30, 2007, the exposure to the Company was the carrying amount of the receivable recorded at $4,219. On July 31, 2007, the Company
completed the acquisition of certain assets of GT Distribution (the Noble forklift product line assets) from GT Distribution. The Company received the Noble product line assets in settlement of the $4,219 receivable from GT Distribution. See Note
17Noble Product Line Assets Acquisition for further details regarding the transaction.
Note 4.
Initial Public Offering
On February 14, 2005, the Company offered 2,500,000 shares of common stock at $6.00 per share in its initial public
offering. All shares were purchased and the Company received $13,950, net of fees of $1,050, on February 18, 2005.
On March 2, 2005, the
underwriter exercised its option to purchase an additional 375,000 shares at $6.00 per share. The Company received $2,093, net of fees of $157, on March 2, 2005.
The Company had additional expenses related to its initial public offering of $985, which includes accounting, legal and printing costs. The Companys net cash proceeds after fees and expenses were $15,057.
Upon completion of the initial public offering, the Company used approximately $8,000 of the net proceeds to repay the then outstanding balance of a
revolving credit facility. Approximately $4,600 of the initial public offering proceeds was primarily used by the Company to fund operations or acquire capital equipment. Approximately, $2,500 of initial offering proceeds remained at the time of the
Quantum Value Management (QVM) acquisition. The remaining funds were used to pay down debt acquired in the QVM acquisition that occurred on July 3, 2006.
5. Discontinued Operations
Against the background of operating losses generated in recent history by the
Testing and Assembly Equipment segment operations based at Wixom, Michigan, the Company conducted a strategic review of these operations. On March 29, 2007, our Board of Directors approved a plan to sell our Testing and Assembly
Equipment segments operating assets including its inventory, machinery and equipment and patents. As a result, our Testing and Assembly Equipment segment has been accounted for as a discontinued operation starting with the first quarter
of 2007 until its disposition.
51
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
5. Discontinued Operations(Continued)
In December 2006, the Company recorded an impairment charge of $6,632 relating to the
carrying value of the segments long lived assets and its inventory. In the three months ended March 31, 2007, the Company recorded a provision for the expected loss on the sale of discontinued operations of $366. The reserve for loss on
sale of discontinued operations was reduced by $76 in the second quarter 2007 and $33 in the third quarter 2007 as the severance accrual was decreased as the Companys estimate for severance costs was lowered.
On July 5, 2007 the Company entered into an Asset Purchase Agreement with EuroMaint Industry, Inc., a Delaware corporation (EuroMaint). Under the terms
of the Asset Purchase Agreement, the Company agreed to sell and EuroMaint agreed to purchase certain assets of the Company used in connection with the Companys diesel engine testing equipment business. EuroMaint also assumed and agreed to pay,
perform and discharge when due certain obligations of the Company arising in connection with the operation of the Companys diesel engine testing equipment business. In addition to the assumption of those certain assumed liabilities, EuroMaint
agreed to pay to the Company the aggregate purchase price of $1,100. This transaction closed on August 1, 2007. In August 2007, the Company sold at auction all the remaining tangible assets of the former Testing and Assembly Equipment segment,
comprised of inventory and fixed assets. The Company recorded a gain of $209 on the sale of assets in the third quarter of 2007. The remaining balance of $172 shown as assets held for sale is comprised of trade receivables and other receivables
which are expected to be collected in normal course.
The following table sets forth the detail of balance sheet captions for discontinued operations as of
December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Accounts receivable, net
|
|
$
|
132
|
|
$
|
436
|
Cost and estimated earnings in excess of billings, net
|
|
|
40
|
|
|
200
|
Inventory, net
|
|
|
|
|
|
600
|
Prepaid expenses, and other
|
|
|
|
|
|
194
|
|
|
|
|
|
|
|
Total current assets
|
|
|
172
|
|
|
1,430
|
Total fixed assets, net
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
172
|
|
$
|
1,730
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
$
|
287
|
Accrued expenses
|
|
|
265
|
|
|
230
|
Other current liabilities
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
265
|
|
$
|
572
|
|
|
|
|
|
|
|
The following table sets forth the detail of the net loss from discontinued operations for the year ended
December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenues from discontinued operations
|
|
$
|
1,524
|
|
|
$
|
5,092
|
|
|
$
|
7,641
|
|
Loss from discontinued operations before income taxes
|
|
|
(1,122
|
)
|
|
|
(9,429
|
)
|
|
|
(2,907
|
)
|
Benefit from income taxes
|
|
|
|
|
|
|
(1,087
|
)
|
|
|
(942
|
)
|
Net loss from discontinued operations
|
|
|
(1,122
|
)
|
|
|
(8,342
|
)
|
|
|
(1,965
|
)
|
Loss on sale of discontinued operations
|
|
$
|
(48
|
)
|
|
$
|
|
|
|
$
|
|
|
52
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
5. Discontinued Operations(Continued)
In 2007, the Company did not record a tax benefit attributable to losses from discontinued
operations as the Company may not utilize such loss in future years.
The estimated loss on sale is shown below:
|
|
|
|
|
Category of Closure Cost
|
|
Estimated Cost
|
|
Employee termination costs
|
|
$
|
57
|
|
Provision for termination of contracts
|
|
|
200
|
|
Net gain on sale of assets
|
|
|
(209
|
)
|
|
|
|
|
|
Total loss on sale of discontinued operations
|
|
$
|
48
|
|
|
|
|
|
|
The years 2006 and 2005 are adjusted to reflect the Testing and Assembly Equipment segment as a discontinued
operation as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Year Ended
December 31, 2006
|
|
|
The Year Ended
December 31, 2005
|
|
|
|
As
Initially
Reported
|
|
|
Reclassified to
Discontinued
Operations
|
|
|
As Reported
|
|
|
As
Initially
Reported
|
|
|
Reclassified to
Discontinued
Operations
|
|
|
As Reported
|
|
Net revenues
|
|
$
|
45,768
|
|
|
$
|
(5,092
|
)
|
|
$
|
40,676
|
|
|
$
|
7,641
|
|
|
$
|
(7,641
|
)
|
|
$
|
|
|
Cost of sales
|
|
|
41,646
|
|
|
|
(6,743
|
)
|
|
|
34,903
|
|
|
|
7,405
|
|
|
|
(7,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,122
|
|
|
|
1,651
|
|
|
|
5,773
|
|
|
|
236
|
|
|
|
(236
|
)
|
|
|
|
|
Operating expenses
|
|
|
12,392
|
|
|
|
(7,778
|
)
|
|
|
4,614
|
|
|
|
3,668
|
|
|
|
(3,084
|
)
|
|
|
584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(8,270
|
)
|
|
|
9,429
|
|
|
|
1,159
|
|
|
|
(3,432
|
)
|
|
|
2,848
|
|
|
|
(584
|
)
|
Other income and (expense)
|
|
|
(1,945
|
)
|
|
|
|
|
|
|
(1,945
|
)
|
|
|
96
|
|
|
|
(59
|
)
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(10,215
|
)
|
|
|
9,429
|
|
|
|
(786
|
)
|
|
|
(3,336
|
)
|
|
|
2,907
|
|
|
|
(429
|
)
|
Income tax (benefit)
|
|
|
(1,326
|
)
|
|
|
1,087
|
|
|
|
(239
|
)
|
|
|
(1,084
|
)
|
|
|
942
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(8,889
|
)
|
|
|
8,342
|
|
|
|
(547
|
)
|
|
|
(2,252
|
)
|
|
|
1,965
|
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of discontinued Testing and Assembly Equipment segment
|
|
|
|
|
|
|
(8,342
|
)
|
|
|
(8,342
|
)
|
|
|
|
|
|
|
(1,965
|
)
|
|
|
(1,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,889
|
)
|
|
$
|
|
|
|
$
|
(8,889
|
)
|
|
$
|
(2,252
|
)
|
|
$
|
|
|
|
$
|
(2,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 6. Inventory
The components of inventory at December 31 are summarized as follows:
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Raw Materials and Purchased Parts
|
|
$
|
13,047
|
|
$
|
11,726
|
Work in Process
|
|
|
1,429
|
|
|
4,589
|
Finished Goods and Replacement Parts
|
|
|
1,572
|
|
|
515
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
16,048
|
|
$
|
16,830
|
|
|
|
|
|
|
|
Note 7. Property, Plant and Equipment
Property, plant and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Building
|
|
$
|
4,913
|
|
|
$
|
4,913
|
|
Machinery and Equipment
|
|
|
991
|
|
|
|
802
|
|
Furniture and Fixtures
|
|
|
9
|
|
|
|
9
|
|
Leasehold Improvements
|
|
|
71
|
|
|
|
157
|
|
Assets under Development
|
|
|
270
|
|
|
|
403
|
|
Computer Software & Equipment
|
|
|
450
|
|
|
|
59
|
|
Motor Vehicles
|
|
|
59
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
6,763
|
|
|
|
6,395
|
|
Less: Accumulated Depreciation
|
|
|
(985
|
)
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
Net Property and Equipment
|
|
$
|
5,778
|
|
|
$
|
6,117
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $324 (net of $380 amortization of deferred gain on building) and $87 (net of $190
amortization of deferred gain on building), in 2007, and 2006 respectively. The Company had no continuing operations in 2005 and, therefore, no depreciation expense in 2005. All Company assets were recorded in compliance with the provisions of SFAS
No. 13. The gross value of the building capitalized was $4,913. Included in accumulated depreciation is $624 of depreciation recorded related to the building capitalized during 2006.
Note 8. Goodwill and Other Intangible Assets
The Company accounts
for Other Intangible Assets under the guidance of SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, Other Intangible Assets with definite lives are amortized over their estimated useful lives. Indefinite
and definite lived intangible assets are subject to annual impairment testing.
The Company capitalizes certain costs related to patent technology.
Additionally, a substantial portion of the purchase price related to the Companys acquisitions has been assigned to patents or unpatented technology, trade name, customer backlog, and customer relationships. The intangibles acquired in
acquisitions have been valued using a discounted flow approach. Intangibles, except goodwill, are being amortized over their estimated useful lives.
54
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 8. Goodwill and Other Intangible
Assets(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Useful Lives
|
Patented and unpatented technology
|
|
$
|
10,684
|
|
|
$
|
10,083
|
|
|
10-17 years
|
Amortization
|
|
|
(1,501
|
)
|
|
|
(479
|
)
|
|
|
Customer relationships
|
|
|
8,310
|
|
|
|
7,348
|
|
|
20 years
|
Amortization
|
|
|
(554
|
)
|
|
|
(172
|
)
|
|
|
Trade names and trademarks
|
|
|
4,675
|
|
|
|
4,337
|
|
|
25 years
|
Amortization
|
|
|
(262
|
)
|
|
|
(85
|
)
|
|
|
Customer Backlog
|
|
|
474
|
|
|
|
506
|
|
|
< 1 year
|
Amortization
|
|
|
(474
|
)
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
21,352
|
|
|
|
21,283
|
|
|
|
Goodwill
|
|
|
14,065
|
|
|
|
13,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangibles
|
|
$
|
35,417
|
|
|
$
|
34,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $1,784 and $962 for the period ended December 31, 2007 and December 31, 2006
respectively. The Company had no continuing operations in 2005 and, therefore, no amortization expense.
As part of the Companys required annual
impairment analysis and its segment disposal review, an impairment charge in the former Testing & Assembly Equipment segment of $3,915 was made relating to patent carrying value as of December 31, 2006 resulting in a $0 carrying value.
Estimated amortization expense for the next five years and subsequent is as follows:
|
|
|
|
2008
|
|
$
|
1,671
|
2009
|
|
|
1,671
|
2010
|
|
|
1,671
|
2011
|
|
|
1,671
|
2012
|
|
|
1,671
|
And subsequent
|
|
|
12,997
|
|
|
|
|
Total
|
|
$
|
21,352
|
|
|
|
|
55
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 9. Accrual Detail
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2007
|
|
2006
|
Account detail:
|
|
|
|
|
|
|
Trade Payables
|
|
$
|
9,543
|
|
$
|
13,354
|
Bank Overdraft
|
|
|
|
|
|
827
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
9,543
|
|
$
|
14,181
|
|
|
|
|
|
|
|
Accrued Payroll
|
|
$
|
120
|
|
$
|
125
|
Accrued Employee Health
|
|
|
216
|
|
|
170
|
Accrued Insurance
|
|
|
40
|
|
|
86
|
Accrued Bonuses
|
|
|
1,359
|
|
|
369
|
Accrued Vacation Expense
|
|
|
388
|
|
|
216
|
Accrued Interest
|
|
|
237
|
|
|
237
|
Accrued Commissions
|
|
|
219
|
|
|
101
|
Accrued Utilities
|
|
|
14
|
|
|
|
Accrued ExpensesOther
|
|
|
316
|
|
|
130
|
Accrued Warranty
|
|
|
950
|
|
|
822
|
Accrued Taxes
|
|
|
179
|
|
|
52
|
Accrued Product Liability
|
|
|
370
|
|
|
657
|
|
|
|
|
|
|
|
Total Accrued Expenses
|
|
$
|
4,408
|
|
$
|
2,965
|
|
|
|
|
|
|
|
Note 10. Line of Credit and Debt
Revolving Credit Facility
At December 31, 2007, the Company had drawn $12,710 under a revolving credit
facility. The Company is eligible to borrow up to $18,500, with interest at prime rate (prime was 7.25% at December 31, 2007) plus .25%. The maximum amount of outstanding is limited to the sum of 85% of eligible receivable, 75% eligible
Canadian accounts and the lesser of 65% of eligible inventory or $8,000 plus $2,500. On January 1, 2008 the $2,500 is reduced to $2,000 and is further reduced by $500 on the first day of each subsequent quarter. The credit facilitys
original maturity date was January 2, 2005. The maturity date has subsequently been extended and the note is now due on April 1, 2009. The indebtedness is collateralized by substantially all of the Company assets. Additionally, certain
shareholders or former shareholders of the Company have personally guaranteed $2,000 of the note. The facility contains customary limitations including, but not limited to, acquisitions, dividends, repurchase of the Companys stock and capital
expenditures. The Agreement also requires the Company to have a minimum Tangible Effective Net Worth, as defined in the agreement.
Revolving Canadian
Credit Facility
At December 31, 2007, the Company had drawn $1,481 (US) under a revolving credit agreement with a bank. The Company is eligible to
borrow up to $4,500 (US) with interest at the Canadian prime rate (the Canadian prime was 6.00% at December 31, 2007) plus 1.5%. The maximum amount outstanding is limited to the sum of 80% of eligible receivables and the lesser of 50% of
eligible inventory or $2,500 (US). At December 31, 2007, the maximum the Company could borrow based on available collateral was capped at approximately $4,100. The indebtedness is collateralized by substantially all of Manitex Liftking
ULCs assets.
56
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 10. Line of Credit and Debt(Continued)
Note Payable Issued to Acquire QVM
In connection with the Acquisition, the Company has a note payable to the former Members of QVM for $1,072. The note matures on July 2, 2009 or earlier if there is a
change in control as defined in the note or if the Company receives cash proceeds of at least $25,000 from the sale of its common stock or securities convertible or exchange for its common stock. Interest is payable on the first day of each calendar
quarter, commencing on September 1, 2006. The Interest is computed using the prime rate announced by Comerica Bank at its Detroit office on the last business day immediately preceding the applicable interest payment date. In the event of
default interest is accelerated and increase to prime plus 3%.
Note Payable Issued to Acquire Liftking Industries
In connection with the Liftking Industries Acquisition, the Company has a note payable to the seller for $2,600 (CDN) or $2,623 (US). The Note shall provide
for interest at 1% over the prime rate of interest charged by Comerica Bank for Canadian dollar loans, calculated from the closing date and payable quarterly in arrears commencing April 1, 2007, and for principal payments of two hundred
thousand dollars (CDN) quarterly commencing April 1, 2007, with the final installment of principal and interest thereon due December 31, 2011. The note payable is subject to a general security agreement which subordinates the sellers
security interest to the interest of the buyers senior secured credit facility, but shall otherwise rank ahead of the sellers other secured creditors.
Note PayableBank
At December 31, 2007, the Company has a $2,323 note payable to a bank. The note payable to the bank was assumed
in connection with the QVM acquisition. The note was due on September 10, 2006 .The maturity date has subsequently been extended and the note is now due on April 1, 2009. The note has an interest rate of prime plus 1% until maturity,
whether by acceleration or otherwise, or until default, as defined in the agreement, and after that at a default rate of prime plus 4%. Interest is payable the first day of each month. The bank has been granted security interest in substantially all
the assets of the Companys Manitex subsidiary. Until October 18, 2007, the former members of QVM guaranteed the note. On October 18, 2007, the bank released the former members of QVM from their guarantees.
Note PayableBank
At December 31, 2007, the Company has an
$82 note payable to a bank. The note dated October 21, 2007 had an original principal amount of $109 and an annual interest rate of 6.25%. Under the terms of the note the company is required to make eight monthly payments of $14 commencing
November 13, 2007. The proceeds from the note were used to pay annual premiums for certain insurance policies carried by the Company. The holder of the note has a security interest the insurance policies it financed and has the right upon
default to cancel these policies and receive any unearned premiums.
Capital Leases
The Company has a twelve year lease which expires in April 2018 that provides for monthly initial lease payments of $68 for its Georgetown, Texas facility. The lease has been classified as a capital lease under the
provisions of FASB Statement No. 13. The Company has also entered into several small equipment leases, with lease terms of three years or less that it has determined are required to be capitalized under the provisions of
57
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 10. Line of Credit and Debt(Continued)
FASB Statement No. 13. The remaining minimum lease payments for these leases are approximately $45. As of December 31, 2007, the Company had total
capital lease obligations of $4,703. See Note 13 for further information regarding capital lease obligations.
Subordinated Debt
The Company had a note payable to a shareholder with interest at 20% per annum which required quarterly interest only payments of 8% with the remaining 12% added to
principal when due. The principal balance and all outstanding interest were originally due in full on August 1, 2008. The note was subordinate to the line of credit. In April 2004, the agreement was modified to accrue all interest and add the
interest to the principal. In October 2004, the rate was modified to include a conversion option to convert the total amount due, including interest, upon the Companys completion of its initial public offering. In February 2005, the Company
issued 1,195,900 shares of common stock as settlement for the $7,175 of debt, including $1,275 of interest.
Note 11. Income Taxes
Information pertaining to the Companys income before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
|
2005
|
|
Net income (loss) from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
1,856
|
|
$
|
(295
|
)
|
|
$
|
(429
|
)
|
Foreign
|
|
|
433
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net income (loss) before income taxes
|
|
$
|
2,289
|
|
$
|
(786
|
)
|
|
$
|
(429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Information pertaining to the Companys provision (benefit) for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
2006
|
|
Provision (benefit) for income taxes:
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
|
|
State and local
|
|
|
163
|
|
|
34
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
34
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
(273
|
)
|
State and local
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
163
|
|
$
|
(239
|
)
|
|
|
|
|
|
|
|
|
The Company recorded a tax provision (benefit) of $163 (an effective tax rate of 7.12%) and ($239) (an effective
tax rate of 30.44%) for the years ended December 31, 2007 and 2006, respectively.
58
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 11. Income Taxes(Continued)
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Companys deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
1,087
|
|
|
$
|
1,303
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Deferred gain
|
|
|
1,336
|
|
|
|
1,465
|
|
Property, plant and equipment
|
|
|
|
|
|
|
613
|
|
Unrealized foreign currency loss
|
|
|
|
|
|
|
30
|
|
Net operating loss carryforwards
|
|
|
3,586
|
|
|
|
3,325
|
|
Tax credit carryforwards
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
6,040
|
|
|
|
6,767
|
|
Valuation allowance
|
|
|
(1,385
|
)
|
|
|
(2,127
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset net of valuation allowance
|
|
|
4,655
|
|
|
|
4,640
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
31
|
|
|
|
|
|
Intangibles
|
|
|
4,285
|
|
|
|
4,640
|
|
Unrealized foreign currency gain
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
4,655
|
|
|
|
4,640
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate before income taxes varies from the current statutory
federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Statutory rate
|
|
34.00
|
%
|
|
34.00
|
%
|
State and local taxes
|
|
1.25
|
|
|
-2.85
|
|
Permanent differences
|
|
1.02
|
|
|
-0.71
|
|
Change in tax reserves
|
|
4.33
|
|
|
0.00
|
|
Change in valuation allowance
|
|
-33.48
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
7.12
|
%
|
|
30.44
|
%
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income prior to the expiration of any net operating loss carryforwards. Due to
the uncertainty regarding the Companys ability to utilize its net operating losses in the future, the Company has provided a full valuation allowance against its net deferred tax assets. The decrease in
59
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 11. Income Taxes(Continued)
the valuation of ($742) during the year ended December 31, 2007 was primarily attributable to an increase in the deferred tax liabilities attributable
to unrealized foreign currency exchange and intangible assets and a decrease in the deferred tax assets attributable to inventory reserves and fixed assets.
The Company has approximately $10,500 and $9,800 of federal net operating loss carryforwards at December 31, 2007 and 2006, respectively. Such loss carryforwards expire beginning in 2023 through 2027, if not utilized, and may be
subject to certain utilization limitations provided by the Internal Revenue Code.
The Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48), on January 1, 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
Balance at January 1, 2007
|
|
$
|
66
|
Increases in tax positions for prior years
|
|
|
|
Decreases in tax positions for prior years
|
|
|
|
Increases in tax positions for current year
|
|
|
81
|
Settlements
|
|
|
|
Lapse in statute of limitations
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
147
|
|
|
|
|
The amount of unrecognized tax benefits if recognized that would reduce the annual effective tax rate is $184. As
of January 1, 2007, the Company had approximately $19 of accrued interest and penalties and $37 as of December 31, 2007. Upon the adoption of FIN No. 48, the Company elected to classify interest and penalty as a component of tax
expense. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.
The Company files income tax returns
in the United States and Canada as well as various state and local tax jurisdictions with varying statutes of limitations. The 2004 through 2007 tax years generally remain subject to examination by federal and most state tax authorities. The Company
has been contacted by the IRS that they will begin an examination of Manitex, LLC for the tax year ended December 31, 2005.
In October 2004, the
American Jobs Creation Act of 2004 (the Act) became effective. The Act made changes to the income tax laws that affected the Company beginning in 2005, the most significant of which is a new deduction relating to qualifying domestic
production activities. The deduction is equal to 3% of qualifying income for 2005 and 2006, 6% in 2007 through 2009, and by 2010, and 9% of such income. Due to limitations associated with claiming the benefits of this deduction, the Company did not
derive any benefits in 2007 or 2006.
60
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 12. Supplemental Cash Flow Disclosures
Interest received and paid, income taxes paid and non-cash transactions incurred during the years ended December 31, 2007, 2006, and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
Interest Received
|
|
$
|
6
|
|
$
|
39
|
|
$
|
155
|
Interest Paid
|
|
|
3,467
|
|
|
1,713
|
|
|
54
|
Income Taxes
|
|
|
157
|
|
|
631
|
|
|
|
Non-Cash Transactions:
|
|
|
|
|
|
|
|
|
|
Acquisition noteQVM
|
|
|
|
|
|
1,072
|
|
|
|
Acquisition noteLifting Industries, Inc.
|
|
|
|
|
|
2,796
|
|
|
|
Acquisition stockQVM
|
|
|
|
|
|
916
|
|
|
|
Acquisition stockLiftking Industries, Inc
|
|
|
|
|
|
1,024
|
|
|
|
Offset of inventory purchases against related party note (see note 23)
|
|
|
502
|
|
|
|
|
|
|
Reserves for uncertain tax positions
|
|
|
99
|
|
|
|
|
|
|
Forgiveness of GT Distribution debt in connection with acquisition of Noble forklift product line assets (see note 17)
|
|
|
4,219
|
|
|
|
|
|
|
Conversion of Debt to Stock
|
|
|
|
|
|
|
|
|
7,175
|
Note 13. Operating and Capital Leases
The Company has a twelve year lease which expires in April 2018 that provides for monthly lease payments of $68 for its Georgetown, Texas facility. The lease has been
classified as a capital lease under the provisions of FASB Statement No. 13. The Company has also entered into several small equipment leases, with lease terms of three years or less that it has determined are required to be capitalized under
the provisions of FASB Statement No. 13. The remaining minimum lease payments for these leases are approximately $45.
The Company leases its
Woodbridge, Ontario facility under an operating lease. Monthly payments under the lease are $38. The lease expires May 31, 2009. Total rent expense related to this lease was $458 and $32 for the year ended December 31, 2007 and 2006,
respectively. The Company also paid rent of approximately $100 to lease a facility in Georgetown, Ontario for part of 2007. The lease on the Georgetown, Ontario facility expired before December 31, 2007.
Total rent expense was $67 and $28, and $0 for the years ended December 31, 2007, 2006, and 2005 for the remaining operating leases of the Company as determined
under FASB No, 13 which includes leases for certain equipment and vehicles.
61
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 13. Operating and
Capital Leases(Continued)
Future
Minimum Lease Payments are:
|
|
|
|
|
|
|
Years
|
|
Operating Leases
|
|
Capital Leases
|
2008
|
|
$
|
546
|
|
$
|
849
|
2009
|
|
|
260
|
|
|
804
|
2010
|
|
|
67
|
|
|
804
|
2011
|
|
|
67
|
|
|
804
|
2012
|
|
|
20
|
|
|
804
|
Subsequent
|
|
|
86
|
|
|
4,288
|
|
|
|
|
|
|
|
Total Minimum Lease Payments
|
|
$
|
1,046
|
|
$
|
8,353
|
|
|
|
|
|
|
|
Less: imputed interest of approximately 12%
|
|
|
|
|
|
3,650
|
|
|
|
|
|
|
|
Present value of minimum lease payment
|
|
|
|
|
$
|
4,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Item as of or for the year ended December 31, 2007
|
|
Cost
|
|
Accumulated
Depreciation
|
|
Depreciation
Expense
|
|
Interest
Expense
|
BuildingGeorgetown, TX
|
|
$
|
4,913
|
|
$
|
623
|
|
$
|
35
|
|
$
|
595
|
Other Capitalized leases
|
|
|
472
|
|
|
89
|
|
|
82
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Equipment Totals
|
|
$
|
5,385
|
|
$
|
712
|
|
$
|
117
|
|
$
|
605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Item as of or for the year ended December 31, 2006
|
|
Cost
|
|
Accumulated
Depreciation
|
|
Depreciation
Expense
|
|
Interest
Expense
|
BuildingGeorgetown, TX
|
|
$
|
4,913
|
|
$
|
208
|
|
$
|
18
|
|
$
|
307
|
Other Capitalized leases
|
|
|
87
|
|
|
8
|
|
|
2
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Equipment Totals
|
|
$
|
5,000
|
|
$
|
216
|
|
$
|
20
|
|
$
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Leaseback
In accordance with FASB 13, 66 and 98, at December 31, 2007 and 2006,
the Company has deferred revenue of $3,930 and $4,310, respectively, related to the sales and leaseback of Georgetown operating facilities.
Note 14.
401K Profit Sharing Plan
The Companys sponsors a 401K profit sharing plan that covers all the former Testing & Assembly Equipment
segment employees of the Company. The plan allowed eligible employees to withhold amounts from their pay on a pre-tax basis and invest in self directed investment accounts. The Company is in the process of terminating this plan.
The Companys Manitex, Inc. subsidiary also sponsors a 401K plan for all Manitex employees. The plan is open to employees 21 years of age & older. There is
no minimum employment duration required before eligibility. The plan allows for monthly enrollment and contribution changes.
The current discretionary
match authorized by Manitex, Inc. is a dollar for dollar match on the first 3% of income, followed by a $.50 contribution for each dollar invested on the next 3% of income. There is currently no dollar limit regarding matched funds and the plan also
calls for immediate vesting of the employer contribution component. The employer match is paid when payroll is processed.
62
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 14. 401K Profit Sharing Plan(Continued)
The amount paid in matching contributions by the company for 2007 and 2006
(a partial year from July 3, 2006, the QVM acquisition date, and December 31, 2006) are $208 and $91, respectively.
Note 15. Accrued
Warranties
A liability for estimated warranty claims is accrued at the time of sale. The liability is established using historical warranty claim
experience. Historical warranty experience is, however, reviewed by management.
The current provision may be adjusted to take into account unusual or
non-recurring events in the past or anticipated changes in future warranty claims. Adjustments to the initial warranty accrual are recorded if actual claim experience indicates that adjustments are necessary. Warranty reserves are reviewed to ensure
critical assumptions are updated for known events that may impact the potential warranty liability.
The following table
summarizes the changes in product warranty liability:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Balance January 1,
|
|
$
|
822
|
|
|
$
|
|
|
Business acquired
|
|
|
30
|
|
|
|
849
|
|
Accrual for warranties issued during the year
|
|
|
1,211
|
|
|
|
821
|
|
Warranty Services provided
|
|
|
(1,160
|
)
|
|
|
(821
|
)
|
Changes in estimates
|
|
|
|
|
|
|
(27
|
)
|
Foreign currency translation
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31,
|
|
$
|
950
|
|
|
$
|
822
|
|
|
|
|
|
|
|
|
|
|
Note 16. Geographic information
Acquisitions accounted for as purchases have been included in the Companys results from their respective dates of acquisition. QVM and Manitex Liftking were acquired on July 3, 2006 and November 30,
2006, respectively, July 31, 2007 for the Noble Product Line acquisitions. The Company attributes revenue to different geographic areas based on the location of the installation or shipment of the equipment sold. Long-Lived Assets are based on
where the operating unit is domiciled. Revenues and Long-Lived Assets for the years ended December 31, 2007, 2006, and 2005 are as follows:
The percentage of our revenue by country for the past three years is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
United States
|
|
81
|
%
|
|
88
|
%
|
|
|
Canada
|
|
17
|
|
|
11
|
|
|
|
Mexico
|
|
2
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
63
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 16. Geographic information(Continued)
The Company had no revenues from
continuing operations in 2005.
Long Lived Asset break-out
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
United States
|
|
$
|
44,007
|
|
$
|
46,036
|
Other North America
|
|
|
1,128
|
|
|
1,694
|
|
|
|
|
|
|
|
Total Long-Lived Assets
|
|
$
|
45,135
|
|
$
|
47,730
|
|
|
|
|
|
|
|
Due to the nature of the Companys business, the Companys sales are concentrated with a small number of
customers comprising a significant percentage of revenues. In the past, one or more customers have individually exceeded 10% of revenues. However, in 2007 no single customer represented 10% or greater of total Company revenues. In 2006, the Company
had two customers with revenues that equaled or exceeded 10% of total revenues. The percentage for these two customers was 14% and 11%.
Note 17.
Acquisitions
QVM (Manitex) Acquisition
On
July, 3, 2006, pursuant to the Purchase Agreement, dated as of May 16, 2006 and as amended on July 3, 2006 with Quantum Value Management, LLC (QVM or the Parent) and all of the members of the Parent (the
Members), the Company purchased from the Members all the outstanding membership interest of the Parent (the Acquisition). The Company acquired Manitex through its acquisition of all the membership interest in the Parent. The
aggregate consideration (the Consideration) paid in connection with the Acquisition was approximately $1,998, which is subject to post-closing working capital adjustments, consisting of (i) 234,875 shares of the Company common stock
valued at $916, and (ii) a Non-Negotiable Subordinated Promissory Note for approximately $1,072.
The Acquisition has been accounted for as a purchase
business combination. Under the purchase method of accounting, the assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values.
The results of operations for the Acquisition have been included in the accompanying consolidated statement of operations from the date of the Acquisition. The total cost of the acquisition is as follows:
|
|
|
|
|
Acquisition Cost:
|
|
|
|
|
Promissory note issued by Veri-Tek
|
|
$
|
1,072
|
|
Veri-Tek common stock (234,875 @$3.90)
|
|
|
916
|
|
Direct transaction fees and expenses
|
|
|
11
|
|
Cash and cash equivalents received
|
|
|
(1
|
)
|
|
|
|
|
|
Total purchase price paid
|
|
$
|
1,998
|
|
Less non-cash items:
|
|
|
|
|
Note
|
|
|
(1,072
|
)
|
Common Stock
|
|
|
(916
|
)
|
|
|
|
|
|
Net consideration paid
|
|
$
|
10
|
|
|
|
|
|
|
64
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 17. Acquisitions(Continued)
The stock issued in connection with the acquisition of QVM is valued based on the average of
closing prices for a four day period starting two days before the announcement of the acquisition and two days after the announcement of the acquisition.
The above purchase price has been allocated based on the fair values of assets acquired and liabilities assumed. The purchase price has been allocated based as follows (in thousands):
|
|
|
|
|
Purchase Price Allocation:
|
|
|
|
|
Trade receivables (net)
|
|
$
|
10,453
|
|
Receivable from related parties
|
|
|
4,945
|
|
Inventories
|
|
|
10,197
|
|
Prepaid expense
|
|
|
480
|
|
Building and Equipment
|
|
|
5,913
|
|
Tradename & Trademarks
|
|
|
4,200
|
|
Patented & Unpatented Technology
|
|
|
9,500
|
|
Customer Backlog
|
|
|
400
|
|
Customer Relationships
|
|
|
6,800
|
|
Goodwill
|
|
|
13,390
|
|
Accounts payable
|
|
|
(10,241
|
)
|
Accrued expenses & other current liabilities
|
|
|
(7,494
|
)
|
Federal taxes Payable
|
|
|
(579
|
)
|
Line of credit
|
|
|
(16,156
|
)
|
Note payable
|
|
|
(20,000
|
)
|
Capital Lease Obligations
|
|
|
(5,207
|
)
|
Deferred tax liability
|
|
|
(4,518
|
)
|
Other long term liabilities
|
|
|
(85
|
)
|
|
|
|
|
|
Total purchase price paid
|
|
$
|
1,998
|
|
|
|
|
|
|
The above purchase price allocation is materially different from the one that is in our 8-K/A that was filed on
September 19, 2006. Building and equipment is now estimated at $5,913. In the earlier filing, it was estimated at $1,000. The material increase is the result of capitalizing the lease related to the Georgetown facility. Subsequent to the filing
of the 8-K/A, it was determined that the lease was required to be capitalized under the provisions of FASB Statement No. 13. Capitalization of the lease results in an increase in building and equipment and a corresponding increase in capital
lease obligations.
Intangibles assets and goodwill increased from $27,180 to $34,290 which is principally the result of increases in liabilities at the
date of acquisition. The increase reflects a deferred tax change of $6,208 (resulting in a deferred tax liability of $4,518) and an increase in accounts payable and accruals. The deferred tax liability is based on analysis of the differences between
financial accounting and tax basis of the assets liabilities.
Also since the 8-K/A was filed on September 19, 2006, a valuation study was completed
in 2006 to allocate the purchase price. This resulted in a significant reduction of goodwill with an offsetting increase in identifiable intangibles. The identifiable intangibles have definitive lives and, therefore, are amortized. The amortization
of the identifiable intangibles is not deductible for taxes purposes and, therefore, gives rise to a deferred tax liability. The non-deductible amortization was taken into account in completing the analysis referred to in preceding paragraph.
65
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 17. Acquisitions(Continued)
Accounts payable and accruals were adjusted to account for additional liabilities that were
discovered after the 8-K/A was filed.
A history of operating margins and profitability, service and manufacturing base and a leading presence in the
lifting equipment industry resulted in the recognition of $13,390 of Goodwill.
Note payable Assumed in the QVM Acquisition
QVM, at the date of the Acquisition, had a $20,000 note payable to a bank that was due on September 10, 2006. The maturity date has subsequently been extended and
the note is now due on April 1, 2009. The note has an interest rate of prime plus 1% until maturity, whether by acceleration or otherwise, or until default, as defined in the agreement, and after that at a default rate of prime plus 4%.
Interest is payable the first day of each month. The bank has been granted security interest in substantially all the assets of the Companys Manitex subsidiary. The former members of QVM unconditionally guarantee the note.
Liftking Acquisition
On November 30, 2006, the Company, through
its wholly owned subsidiary, Manitex Liftking, ULC, an Alberta unlimited liability company (Manitex Liftking) completed the acquisition (the Liftking Acquisition) of all of the operating assets of Liftking Industries, Inc. an
Ontario, Canada corporation (Lifting). The aggregate consideration (the Consideration) paid in connection with the Acquisition was approximately $7,140. The Consideration paid includes $3,320 of cash, 266,000
exchangeable shares of common stock of Manitex Liftking, valued at $1,024 and a Non-Negotiable Subordinated Promissory Note for approximately $2,796.
The total cost of the Liftking Industries acquisition is as follows:
|
|
|
|
|
Acquisition Cost:
|
|
|
|
|
Promissory note issued
|
|
$
|
2,796
|
|
Exchangeable subsidiary common stock
|
|
|
1,024
|
|
Cash and cash equivalents
|
|
|
3,320
|
|
|
|
|
|
|
Total purchase price paid
|
|
$
|
7,140
|
|
Less non cash items:
|
|
|
|
|
Note
|
|
|
(2,796
|
)
|
Exchangeable Subsidiary Stock
|
|
|
(1,024
|
)
|
|
|
|
|
|
Net cash consideration paid
|
|
$
|
3,320
|
|
|
|
|
|
|
66
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 17. Acquisitions(Continued)
The purchase price has been allocated as follows:
|
|
|
|
|
Purchase Price Allocation:
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
Accounts Receivable (Net)
|
|
$
|
2,293
|
|
Inventory
|
|
|
6,926
|
|
Prepaid Expenses
|
|
|
174
|
|
Equipment
|
|
|
385
|
|
Other Assets
|
|
|
164
|
|
Trade names & Trademarks
|
|
|
83
|
|
Technology
|
|
|
351
|
|
Customer Backlog
|
|
|
63
|
|
Customer Relationships
|
|
|
330
|
|
Accounts Payable
|
|
|
(2,669
|
)
|
Accrued Expense
|
|
|
(355
|
)
|
Progress & Customer Deposits
|
|
|
(605
|
)
|
|
|
|
|
|
Total Purchase Price paid
|
|
$
|
7,140
|
|
|
|
|
|
|
Noble Product Line Asset Acquisition
On July 31, 2007, Veri-Tek International, Corp. (the Company) entered into an asset purchase agreement with GT Distribution, LLC, a related party, (GT Distribution) pursuant to which GT
Distribution transferred all of its rights and interest in the Noble forklift product line (the Product Line) to the Company in exchange for the discharge of obligations and trade payables of GT Distribution and certain of its
subsidiaries totaling $4,219 and assumption by the Company of certain liabilities associated with the Product Line.
David J. Langevin, the Companys
Chairman and Chief Executive Officer, has a significant ownership interest in GT Distribution. As a result, the Company received a fairness opinion from an independent financial advisor and the approval of a special independent committee of the
Companys board of directors prior entering into this transaction.
The Noble Product line production is being integrated into our two current
production facilities which are located in Woodbridge, Ontario and Georgetown, Texas. The results for the Noble Product line Acquisition have been included in the accompanying consolidated statement of operations from the date of the Acquisition.
Noble Product Line sales from August 1, 2007 to December 31, 2007 were approximately $1,300 or slightly more than one percent of the Companys 2007 annual sales.
The purchase price of $4,219 has been allocated based on an estimate of the fair values of assets acquired and liabilities assumed. The Company is still in the process of assessing the fair value of assets and
liabilities, particularly the inventory, acquired in the transaction. The final valuation of net assets is expected to be completed as soon as possible, but no later than one year from the acquisition date in accordance with generally accepted
accounting principals.
67
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 17. Acquisitions(Continued)
The purchase price has been preliminarily allocated based on
managements estimates as follows (in thousands):
|
|
|
|
|
Purchase Price Allocation:
|
|
|
|
|
Trade receivables
|
|
$
|
195
|
|
Inventories
|
|
|
1,267
|
|
Trade names & trademarks
|
|
|
380
|
|
Patented & Unpatented Technology
|
|
|
780
|
|
Customer Relationships
|
|
|
1,130
|
|
Goodwill
|
|
|
675
|
|
Accounts payable
|
|
|
(156
|
)
|
Accrued expenses & other current liabilities
|
|
|
(30
|
)
|
Payable to related parties
|
|
|
(22
|
)
|
|
|
|
|
|
Total purchase price paid
|
|
$
|
4,219
|
|
|
|
|
|
|
A reputation for superior product design, access to a preferred network of dealers and a leading presence in the
lifting equipment industry resulted in the recognition of $675 of Goodwill.
The following unaudited pro forma information assumes the acquisitions of QVM
and Liftking occurred on January 1, 2006. The proforma results do not include the Noble Product Line, as it does not meet the criteria to be an acquisition of a business. The unaudited pro forma results have been prepared for informational
purposes only and do not purport to represent the results of operations that would have been had the acquisition occurred as of the date indicated, nor of future results of operations. The unaudited pro forma results for the year ended
December 31, 2006 are as follows (in thousand, except per share data)
|
|
|
|
|
|
|
Year Ended
December 31,
2006
|
|
Net revenues
|
|
$
|
89,768
|
|
Net loss from continuing operations
|
|
$
|
(3,230
|
)
|
Loss per share from continuing operations:
|
|
|
|
|
Basic
|
|
$
|
(0.56
|
)
|
Diluted
|
|
$
|
(0.56
|
)
|
Pro Forma Adjustment Note
Pro Forma adjustments were made to give effect to the amortization of the intangibles recorded as a result of the acquisition, which would have resulted in $993 of additional amortization expense in 2006.
Additionally, Pro Forma adjustments were made to give effect to the interest on the notes to sellers issued in connection with the acquisitions (Manitex and Manitex Liftking), which would have resulted in $184 of additional interest expense in 2006.
Note 18. Equity
Issuance of Common Stock and
Warrants
Stock Split
On February 7, 2005,
the Board of Directors authorized a 1 for 3.730879244 reverse stock split to shareholders of record on February 7, 2005 effective on February 7, 2005.
68
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 18. Equity(Continued)
Initial Public Offering
In February 2005, in connection with the Companys initial offering the Company issued 2,875,000 shares of common stock. (See Note 4.)
Conversion of Debt Securities
In February 2005, Veri-Teks $7,175 contingently convertible subordinated debt
was converted into 1,195,900 shares of common stock upon consummation of the initial public offering.
On July 3, 2006, the Company issued 234,875
shares of common stock in connection with its purchase of Manitex through the acquisition of all the membership interests of QVM.
Private Placement
On November 15, 2006, the Company closed a $11,136 private placement of its common stock (the Private Placement) pursuant to the terms
of a security purchase agreement entered into among the Company and certain institutional investors on November 3, 2006 (the Securities Purchase Agreement). Pursuant to the Securities Purchase Agreement, Veri-Tek issued 2,750,000
shares of its common stock. In connection with the sale of stock the Company incurred investment banking fees of $778 and legal fees of approximately $61. The Companys net cash proceeds after fees and expenses were $10,298 with $8,026 and
$2,272 being allocated to common stock and warrants, respectively.
In connection with the Private Placement, the Company has filed a Registration
Statement on Form S-3 to register resale of shares issued in the Private Placement and the shares underlying the warrants. The registration statement was declared effective on June 7, 2007.
Stock Warrants
The Company accounts for equity instruments issued to
non-employees based on the fair value of the equity instruments issued. The Warrants will be exercisable on a cashless basis under certain circumstances, and are callable by the Company on a cashless basis under certain circumstances. Roth Capital
Partners, LLC acted as exclusive placement agent for the 2007 Private Placement and received cash and 105,000 warrants to purchase the Companys common stock as a placement agent fee. The Warrants were issued the day after the closing of the
2007 Private Placement (September 11, 2007) and will be exercisable after the sixth month anniversary of the issuance date of the Warrants until September 11, 2012. The warrant holder can purchase 105,000 shares of the Companys common
stock. The Warrants have an exercise price of $7.18 per share.
The Security Purchase Agreement provided for the issuance of Series A and Series B
warrants. The Series A Warrants and the Series B Warrants (together the Warrants) were issued upon the closing of the Private Placement (November 15, 2006) and will be exercisable after the sixth month anniversary of the issuance date of
the Warrants until November 15, 2011. The Series A warrant holders can purchase 550,000 shares of the Companys common stock. The Series A Warrants have an exercise price of $4.05 per share. The Series B warrant holders can purchase
550,000 shares of the Companys common stock. The Series B Warrants have an exercise price of $4.25 per share. During the 2007, the warrant holders exercised 100,000 Series A warrants and 346,000 Series B warrants.
69
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 18. Equity(Continued)
On November 15, 2006, the Company issued warrants to purchase an aggregate of 192,500
shares of the Companys common stock to a finder and to Roth Capital Partners, LLC for acting as placement agent in connection with the Private Placement. These warrants will be exercisable until November 15, 2011, and have an exercise
price of $4.62 per share. On June 18, 2007, the Company and Hayden Communications, Inc. (Hayden) entered into a contract under which Hayden will provide public and investor relation services to the Company for a period of one year.
The contract provides for the issuance of 15,000 warrants to Hayden Communications, Inc. Each warrant allows Hayden to purchase one share of Company Common Stock for $7.08 per share. The warrants are exercisable beginning on June 15, 2008 and
expire on June 15, 2011. The warrants are exercisable on a cashless basis under certain circumstances. The warrants and underlying common stock are not registered under federal or state securities laws and, therefore, may not be sold or
transferred by Hayden in the absence of registration or an exemption therefrom.
At December 31, 2007 and
December 31, 2006, the Company had issued and outstanding warrants as follows:
|
|
|
|
|
|
|
|
|
|
Number of Warrants Shares
|
|
|
|
|
|
|
December 31,
2007
|
|
December 31,
2006
|
|
Exercise Price
|
|
Expiration Date
|
|
In Connection With
|
450,000
|
|
550,000
|
|
$
|
4.05
|
|
November 15, 2011
|
|
Private placement
|
204,000
|
|
550,000
|
|
$
|
4.25
|
|
November 15, 2011
|
|
Private placement
|
192,500
|
|
192,500
|
|
$
|
4.62
|
|
November 15, 2011
|
|
Placement Agent Fee
|
15,000
|
|
|
|
$
|
7.08
|
|
June 15, 2011
|
|
Investor Relation Service
|
105,000
|
|
|
|
$
|
7.18
|
|
September 11, 2012
|
|
Placement Agent Fee
|
During 2007, 100,000 and 346,000 Series A and Series B warrants have been
exercised.
The following table contains information regarding warrants for the years ended December 31, 2007 and 2006 respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Warrants
|
|
|
Price per Share
|
|
Warrants
|
|
Price per Share
|
Outstanding on January 1
|
|
|
1,292,500
|
|
|
$
|
4.05-$4.62
|
|
|
|
|
|
|
Issued
|
|
|
120,000
|
|
|
$
|
7.08-$7.18
|
|
|
1,292,500
|
|
$
|
4.05-$4.62
|
Exercised
|
|
|
(446,000
|
)
|
|
$
|
4.05-$4.25
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding on December 31
|
|
|
966,500
|
|
|
$
|
4.05-$7.18
|
|
|
1,292,500
|
|
$
|
4.05-$4.62
|
Weighted average exercise price
|
|
$
|
4.59
|
|
|
|
|
|
$
|
4.22
|
|
|
|
Weighted average fair value of warrants granted during the year
|
|
$
|
276,368
|
|
|
|
|
|
$
|
2,272,291
|
|
|
|
Weighted average remaining life of warrants at December 31
|
|
|
3.96 years
|
|
|
|
|
|
|
4.87 years
|
|
|
|
70
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 18. Equity(Continued)
The fair value of the warrants at date of issuance was estimated using the Black-Scholes
Model with the following assumptions:
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Risk-free interest rate
|
|
4.070%-5.049
|
%
|
|
4.632
|
%
|
Expected life
|
|
4-5 years
|
|
|
5 years
|
|
Expected dividends
|
|
None
|
|
|
None
|
|
Expected volatility
|
|
32.089%-35.099
|
%
|
|
52.189
|
%
|
Stock Issuance
On June 11, 2007, Company issued 198,000 shares of common stock as warrant holders exercised 99,000 Series A warrants and 99,000 Series B warrants. The exercise of warrants resulted in an increase in common stock of $1,161, of which
approximately $822 represented cash received upon the exercise of the warrants and the balance of approximately $339 represent the value of the exercised warrants as determined upon issuance of the warrants on November 15, 2006. As a result of
exercise, the $339 which was previously included in shareholders equity under the caption warrants is transferred to common stock.
On July 5,
2007, Company issued 246,000 shares of common stock as warrant holders exercised 246,000 Series B warrants. The exercise of warrants resulted in an increase in common stock of $1,463 of which approximately $1,046 represented cash received upon the
exercise of the warrants and the balance of approximately $417 represent the value of the exercised warrants as determined upon issuance of the warrants on November 15, 2006. As a result of exercise, the $417 which was previously included in
shareholders equity under the caption warrants is transferred to common stock.
On July 30, 2007, Company issued 2,000 shares of common stock as
a warrant holder exercised 1,000 Series A warrants and 1,000 Series B warrants. The exercise of warrants resulted in an increase in common stock of $12 of which approximately $8 represented cash received upon the exercise of the warrants and the
balance of approximately $3 represent the value of the exercised warrants as determined upon issuance of the warrants on November 15, 2006. As a result of exercise, the $3 which was previously included in shareholders equity under the
caption warrants is transferred to common stock.
On December 31, 2007, the Company issued in aggregate 3,465 shares of common stock to three
independent Directors as restricted stock unites issued under the Companys 2004 Incentive Plan to these Directors vested on that day.
2007
Private Placement
On September 10, 2007, the Company closed a $9,000 private placement of its common stock (the 2007 Private
Placement) pursuant to the terms of a security purchase agreement entered into among the Company and certain institutional investors on August 30, 2007 (the 2007 Securities Purchase Agreement). Pursuant to the 2007 Securities
Purchase Agreement, Veri-Tek issued 1,500,000 shares of its common stock. The Company also issued warrants (as described below) to the investment banker who acted as its exclusive placement agent for the 2007 Private Placement. In connection with
the 2007 Private Placement, the Company incurred investment banking fees of $630 and legal fees and expenses of approximately $155. The Companys net cash proceeds after fees and expenses were $8,215 with $7,983 and $231 being allocated to
common stock and warrants, respectively.
71
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 18. Equity(Continued)
In connection with the Private Placement, the Company has filed a Registration Statement on
Form S-3 to register resale of shares issued in the Private Placement and the shares underlying the warrants. The registration statement was declared effective on October 15, 2007.
2004 Equity Incentive Plan
In 2004, the Company adopted the 2004 Equity Incentive Plan and subsequently amended and
restated the plan on September 13, 2007. The maximum number of shares of common stock reserved for issuance under the plan is 350,000 shares. The total number of shares reserved for issuance may, however, may be adjusted to reflect certain
corporate transactions or changes in our capital structure. Our employees and members of our board of directors who are not our employees or employees of our affiliates are eligible to participate in the plan. The plan is administered by a committee
of our board comprised of members who are outside directors. The plan provides that the committee has the authority to, among other things, select plan participants, determine the type and amount of awards, determine award terms, fix all other
conditions of any awards, interpret the plan and any plan awards. Under the plan, the committee can grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units, except Directors
may not be granted stock appreciation rights, performance shares and performance units. During any calendar year, participants are limited in the number of grants they may receive under the plan. In any year, an individual may not receive options
for more than 15,000 shares, stock appreciate rights with respect to more than 20,000 shares, more than 20,000 shares of restricted stock and/or an award for more than 10,000 performance shares or restricted stock units or performance units. The
plan requires that the exercise price for stock options and stock appreciation rights be not less than fair market value of our common stock on date of grant.
On November 12, 2007, the Company awarded under the Amended and Restated 2004 Equity Incentive Plan 55,615 and 10,500 restricted stock units to employees and to the independent Directors, respectively. The restricted stock units are
subject to the same conditions as the restricted stock awards except the restricted stock units will not have voting rights and the common stock will not be issued until the vesting criteria are satisfied. The employee restricted stock units will
vest 33%, 33% and 34% on October 1, 2008, October 1, 2009 and October 1, 2010, respectively. Units granted to Directors will vest 33%, 33% and 34% on December 31, 2007, December 31, 2008 and December 31, 2009,
respectively. The restricted stock units awarded were valued at $416 or $6.30 per share, which was the closing price of the Companys common stock on the date of grant. The value of the restricted stock units is being charged to compensation
expense over the vesting period, included in 2007 is $94 of compensation expense related to restricted stock units. Compensation expense related to restricted stock units will be $203, $90 and $29 for the years 2008, 2009 and 2010, respectively.
|
|
|
|
|
|
Restricted
Stock
Units
|
|
Outstanding on January 1, 2007
|
|
|
|
Issued
|
|
66,115
|
|
Vested
|
|
(3,465
|
)
|
Forfeited
|
|
|
|
|
|
|
|
Outstanding on December 31 2007
|
|
62,650
|
|
|
|
|
|
No awards or grants were made under the 2004 Equity Incentive Plan before
January 1, 2007
72
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 19. Employee Stock Based Compensation
The Company adopted SFAS No. 123R. SFAS No. 123R requires the recognition of all stock-based payments in the financial statements based on the fair value of the award on the grant date after July 1,
2005. Prior to the adoption of SFAS No. 123R, the Company accounted for its stock-based compensation using the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
and related interpretations as allowed under SFAS No. 123, Accounting for Stock-Based Compensation. The adoption of SFAS No. 123R had no effect as no options or stock appreciation rights have been issued under the
Companys 2004 Equity Incentive Plan as date of adoption.
Note 20. Minority Interest
On November 30, 2006, the Company issued 266,000 shares of stock in Manitex Liftking Canadian Subsidiary with a value of $1,024. These shares are exchangeable into
266,000 shares of the Companys Common Stock. As of December 31, 2007, the shares had not yet been exchanged for Veri-Tek International Corp. Common Stock. Until the shares are exchanged, the value of the exchangeable shares is shown as a
minority interest. The Company expects that the shares will be exchanged for Veri-Tek International Corp. Common Stock.
Note 21. New Accounting
Pronouncements
In February of 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which is
intended to simplify the accounting and improve the financial reporting of certain hybrid financial instruments (i.e. derivatives embedded in other financial instruments). The statement amends SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilitiesa replacement of FASB Statement No. 125. SFAS No. 155 is
effective for all financial instruments issued or acquired after the beginning of an entitys first fiscal year beginning after September 15, 2006. The Company adopted the SFAS No. 155 on January 1, 2007. The adoption of the
Statement did not have a material impact on its financial position, results of operations or cash flows.
In March 2006, the FASB issued Statement of
Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140 which is effective for the fiscal years beginning after September 15, 2006. The FASB issues
this statement to simplify the accounting for servicing rights and to reduce the volatility that results from using different measurement attributes. The Company adopted the SFAS No. 156 on January 1, 2007. The adoption of the Statement
did not have a material impact on its financial position, results of operations or cash flows.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework
for measuring fair value, and expands the related disclosure requirements. The Company is currently evaluating the potential impact of this statement.
In
September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106 and
132(R) (SFAS 158). This statement requires balance sheet recognition of the over funded or under funded status of pension and postretirement benefit plans. Under SFAS 158, actuarial gains and losses, prior service costs or credits, and any
remaining transition assets or obligations that have not been recognized
73
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 21. New Accounting Pronouncements(Continued)
under previous accounting standards must be recognized in Accumulated Other Non-Shareowners Changes in Equity, net of tax effects, until they are
amortized as a component of net periodic benefit cost. In addition, the measurement date, the date at which plan assets and the benefit obligation are measured, is required to be the companys fiscal year end. SFAS 158 is effective for
publicly-held companies for fiscal years ending after December 15, 2006, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008. On January 1, 2007, the Company adopted SFAS
No. 158, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008. The adoption of the Statement did not have a material impact on its financial position, results of operations or cash
flows.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108), to address diversity in practice in quantifying financial statement misstatements. SAB 108 requires that misstatements be quantified based on their impact on each of the Companys
financial statements and related disclosures. On December 31, 2006, the Company adopted SAB 108. The adoption of SAB 108 did not impact the Companys financial statements.
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 No. 159) in
February 2007. SFAS No. 159 permits a company to choose to measure many financial instruments and other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by
providing a company with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. A company shall report unrealized gains
and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 will be effective for fiscal years that begin after November 15, 2007. We are currently assessing the impact
SFAS No. 159 will have on our consolidated financial statements.
See Note 11 regarding the companys adoption FASB Interpretation No. 48
Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109) which is effective for fiscal years beginning after December 15, 2006.
In December 2007, the FASB Statement 141R, Business Combinations (SFAS 141R) was issued. SFAS 141R replaces SFAS 141. SFAS 141R requires the acquirer of a business to recognize and
measure the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at fair value. SFAS 141R also requires transactions costs related to the business combination to be expensed as incurred.
SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The effective date for the Company will be
January 1, 2009. We have not yet determined the impact of SFAS 141R related to future acquisitions, if any, on our consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 (Statement
No. 160). Statement No. 160 requires (i) that noncontrolling (minority) interests be reported as a component of shareholders equity, (ii) that net income attributable to the parent and to the noncontrolling
interest be separately identified in the consolidated statement of operations, (iii) that changes in a parents ownership interest while the parent retains its controlling interest be accounted for as equity transactions, (iv) that
any retained noncontrolling
74
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 21. New Accounting Pronouncements(Continued)
equity investment upon the deconsolidation of a subsidiary be initially measured at fair value, and (v) that sufficient disclosures are provided that
clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. Statement No. 160 is effective for annual periods beginning after December 15, 2008 and should be applied prospectively.
However, the presentation and disclosure requirements of the statement shall be applied retrospectively for all periods presented. We are currently assessing the impact SFAS No. 160 will have on our consolidated financial statements
Note 22. Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Payments due by period
|
Contract obligations
|
|
Total
|
|
2008
|
|
2009-2010
|
|
2011-2012
|
|
Thereafter
|
Revolving credit Facility
|
|
$
|
14,191
|
|
$
|
|
|
$
|
14,191
|
|
$
|
|
|
$
|
|
Term Loan
|
|
|
2,323
|
|
|
|
|
|
2,323
|
|
|
|
|
|
|
Note to Former QVM members
|
|
|
1,072
|
|
|
|
|
|
1,072
|
|
|
|
|
|
|
Note to Liftking Industries, Inc.
|
|
|
2,623
|
|
|
807
|
|
|
1,614
|
|
|
202
|
|
|
|
Note payable bank
|
|
|
82
|
|
|
82
|
|
|
|
|
|
|
|
|
|
Operating Lease Obligations
|
|
|
1,046
|
|
|
546
|
|
|
327
|
|
|
87
|
|
|
86
|
Capital Lease Obligations
|
|
|
8,353
|
|
|
849
|
|
|
1,608
|
|
|
1,608
|
|
|
4,288
|
Purchase Obligations (1)
|
|
|
19,422
|
|
|
19,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,112
|
|
$
|
21,706
|
|
$
|
21,135
|
|
$
|
1,897
|
|
$
|
4,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Purchase obligations include commitments of approximately $18.8 relating to inventory items. The balance is attributable to non-inventory items, including fixed assets, research and
development materials, supplies and services.
|
(2)
|
At December 31, 2007, the Company had unrecognized tax benefits of $184 for which the Company is unable to make reasonably reliable estimates of the period of cash settlement with
the respective tax authority. Thus, these liabilities have not been included in the contractual obligations table.
|
Note 23. Transactions
Between the Company and Related Parties
In the course of conducting its business, the Company has entered into certain related party transactions. On
July, 3, 2006, pursuant to the Purchase Agreement, dated as of May 16, 2006 and as amended on July 3, 2006 with Quantum Value Management, LLC (QVM) and all of the members of QVM (the Members), the Company purchased
from the Members all the outstanding membership interests of QVM (the Acquisition). The Company acquired Manitex through this Acquisition, as Manitex was a wholly owned subsidiary of QVM. The aggregate consideration paid in connection
with the Acquisition was approximately $1,998, consisting of (i) 234,875 shares of the Company common stock valued at $916, and (ii) a Non-Negotiable Subordinated Promissory Note for approximately $1,072, in the aggregate, payable to the
Members.
Michael C. Azar, the Companys Vice President and Secretary at the date of Acquisition, David Langevin and Robert J. Skandalaris, were each
Members and owned 6.1%, 12.1% and 12.1%, respectively, of the Companys outstanding common stock at such time. Mr. Langevin became the Companys Chief Executive Officer in connection with this Acquisition.
J Giordano Securities Group was paid a fee to be a financial advisor to the Company in connection with the Acquisition and rendered a fairness opinion to the
Companys Board of Directors as to the fairness, from a financial point of view to the Company and its shareholders, of the consideration to be paid by the Company in the transaction.
Prior to the Acquisition, Manitex completed a sale and leaseback transaction in April 2006 of its Georgetown, Texas facility to an entity controlled by one of its
affiliates, Robert J. Skandalaris, who was also a significant
75
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 23. Transactions Between the Company and Related
Parties(Continued)
shareholder of the Company. The sale price was $5,000 and the proceeds of the transactions were used to reduce the balance under Manitexs credit
facility. The lease has a twelve year term and provides for monthly rent of $68. Although the Company did not obtain an independent valuation of the property or the terms of the sale and leaseback transaction in connection with the Acquisition, it
believes the terms of the lease are at least as favorable to the Company as they could have obtained from an unaffiliated third party.
The sale and
leaseback transaction resulted in a gain of approximately $4,600. Per paragraph 33 of FASB Statement No. 13 Accounting for Leases, sales-leaseback transactions are treated as a single financing transaction in which any profit
or loss on the sale is deferred and amortized. As such, the gain has been deferred and is being amortized on a straight line basis over the life of the lease. The lease has been classified as a capital lease under the provisions of FASB Statement
No. 13. Furthermore, the land and building are treated as a single unit in this transaction because the fair value of the land is less than 25% the total fair value of the leased property at the inception of the lease. The amortization of the
deferred gain offsets depreciation expense.
The Company through its Manitex Liftking subsidiary, provides parts and services to LiftMaster, Ltd
(LiftMaster). LiftMaster is a rental company that rents and services rough terrain forklifts. LiftMaster is owned by the President of Manitex Liftking, ULC and a relative. The Company has receivable from LiftMaster for $67.
The Company, through its Manitex and Manitex Liftking subsidiaries, purchase and sell parts to GT Distribution, Inc. (GT). The Companys Chairman and
Chief Executive Officer, David Langevin, owns approximately 37% of GT. Although the Company does not independently verify the cost of such parts, it believes the terms of such purchases and sales were at least as favorable to the Company as terms
that it could obtain from a third party. As of December 31, 2007, the Company had $461 outstanding Accounts Receivable from GT and $162 outstanding Accounts Payable due to GT with respect to the purchase and sale of parts. At December 31,
2006, the Company had $37 outstanding Accounts Receivable from GT and $253 outstanding Accounts Payable to GT with respect to the purchase and sale of parts.
76
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 23. Transactions Between the Company and Related
Parties(Continued)
GT has three operating subsidiaries, BGI USA,
Inc. (BGI), Crane & Machinery, Inc., and Schaeff Lift Truck, Inc. BGI is a distributor of assembly parts used to manufacture various lifting equipment. Crane & Machinery, Inc. distributes Terex and Manitex cranes, and
services and sells replacement parts for most brands of light duty and rough terrain cranes. Schaeff Lift Truck, Inc. manufactures electric forklifts. Schaeff Lift Truck, Inc. has a 100% owned subsidiary domiciled in Bulgaria, SL Industries,
Ltd. The following is a summary of the amounts attributable to certain related party transactions as described in the footnotes to the table, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
Georgetown Facility (1)
|
|
$
|
816
|
|
$
|
565
|
|
n.a
|
Woodbridge Facility (2)
|
|
|
458
|
|
|
32
|
|
n.a
|
Allocation of Insurance Expense (3)
|
|
|
n.a
|
|
|
139
|
|
n.a
|
|
|
|
|
Sales to:
|
|
|
|
|
|
|
|
|
Crane & Machinery
|
|
|
402
|
|
|
67
|
|
n.a.
|
LiftMaster
|
|
|
299
|
|
|
n.a
|
|
n.a.
|
BGI
|
|
|
76
|
|
|
n.a
|
|
n.a.
|
Schaeff Lift Truck
|
|
|
655
|
|
|
n.a
|
|
n.a.
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
|
1,432
|
|
|
67
|
|
n.a.
|
|
|
|
|
Purchases from:
|
|
|
|
|
|
|
|
|
BGI
|
|
|
879
|
|
|
367
|
|
n.a.
|
SL Industries, Ltd
|
|
|
1,337
|
|
|
512
|
|
n.a.
|
LiftMaster (4)
|
|
|
98
|
|
|
n.a
|
|
n.a.
|
Noble International
|
|
|
n.a
|
|
|
168
|
|
n.a.
|
Crain & Machinery
|
|
|
59
|
|
|
n.a
|
|
n.a.
|
Schaeff Lift Truck
|
|
|
570
|
|
|
n.a
|
|
n.a.
|
|
|
|
|
|
|
|
|
|
Total Purchases
|
|
$
|
2,943
|
|
$
|
1,047
|
|
n.a.
|
(1)
|
The Company leases its 188,000 sq. ft. Georgetown, Texas manufacturing facility from an entity owned by one of the Companys significant shareholders in fiscal 2006. Pursuant
to the terms of the lease, the Company makes monthly lease payment of $68. The Company is also responsible for all the associated operating expenses including, insurance, property taxes and repairs. Under the lease, which expires April 30,
2018, monthly rent is adjusted annually by the lesser of increase in the Consumer Price Index or 2%.
|
(2)
|
The Company leases its 85,000 sq. ft. Woodbridge facility from an entity owned by a stockholder of the Company and relative of Manitex Liftking ULCs, president and CEO.
Pursuant to the terms of the lease, the Company makes monthly lease payments of $38. The Company is also responsible for all the associated operations expenses, including insurance, property taxes, and repairs. The lease will expire on May 31,
2009.
|
(3)
|
For 2006, GT Distribution, Inc. and its subsidiaries are covered under Manitexs general, product liability and umbrella insurance policies. In exchange for this coverage, GT
Distribution will pay Manitex $139 based on GT Distributions annual sales. The above table includes a prorated portion covering the amount relating to the period starting from the date of the acquisition.
|
(4)
|
The Company provides parts and services to LiftMaster, Inc. LiftMaster is a rental company that rents and services rough terrain forklifts. LiftMaster is owned by a relative of the
President of Manitex Liftking, ULC.
|
In February 2005, the Company issued 1,195,900 shares of common stock to Quantum Value Partners, LP, a
Delaware limited partnership (QVP), as settlement for its $7,175 of subordinated debt, including interest of $1,275 owed to such shareholder.
77
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 23. Transactions Between the Company and Related
Parties(Continued)
As of December 31, 2006, the Company had a
receivable of $4,722 from GT Distribution, which includes amounts owed to Crane & Machinery, Inc. At July 31, 2007, the receivable from GT Distribution was $4,219.
During the first Quarter 2007, it was agreed that the net payable or receivable for certain inventory transactions with the Company would be offset against the receivable the Company has from GT Distribution. The
Statement of Cash Flows does not reflect the reduction of related party receivable as it is a non-cash item, with offsetting non-cash items of $394 and $109 that effect inventory and accounts payable, respectively. The non-cash amount related to
inventory represents the amount that was sold to the Company during the first and second quarters of 2007 and is still in inventory. The balance of $109 represents inventory that was sold to the Company during the fourth quarter of 2006 and was in
accounts payable at the time of offset.
On July 31, 2007, the Company entered into an asset purchase agreement with GT Distribution, LLC (GT
Distribution) pursuant to which GT Distribution transferred all of its rights and interest in the Noble forklift product line (the Product Line) to the Company in exchange for the discharge of obligations and trade payables of GT
Distribution and certain of its subsidiaries totaling $4,219 and assumption by the Company of certain liabilities associated with the Product Line.
David
J. Langevin, the Companys Chairman and Chief Executive Officer, has a 37% has an ownership interest in GT Distribution. Consequently, the Company received a fairness opinion from an independent financial advisor that the Companys
purchase of the Product Line was fair to its shareholders from a financial point of view and the approval of a special independent committee of the Companys board of directors prior entering into this transaction.
The Company has a note payable to the former members of QVM for $1,072 issued in connection with the acquisition of the membership interests of QVM. Upon the closing of
such acquisition, Michael C. Azar, served as the Companys Vice President and Secretary and David Langevin served as the Companys Chief Executive Officer. In addition, three of the members of QVM, Michael Azar, David Langevin and Robert
J. Skandalaris, owned 6.1%, 12.1% and 12.1%, respectively, of the Companys outstanding common stock at such time.
The Company has a note payable to
the former owners of Liftking Industries, Inc. for $2,623 issued in connection with the acquisition of Liftking Industries ULC. It was determined subsequent to the acquisition, that the note would be a related party transaction since Manitex
Liftkings President & CEO is a relative of the primary holder of the note.
Note 24. Legal Proceedings and Other Contingencies
The Company is involved in various legal proceedings, including product liability and workers compensation matters which have arisen in the normal course of
operations. The Company has product liability insurance with self insurance retention that range form $50 to $1,000. Certain cases are at a preliminary stage, and it is not possible to estimate the amount or timing of any cost to the Company.
However, the Company does not believe that these contingencies, in the aggregate, will have a material adverse effect on the Company. When it is probable that a loss has been incurred and possible to make a reasonable estimates of the Companys
liability with respect to such matters, a provision is recorded for the amount of such estimate or the minimum amount of a range of estimates when it is not possible to estimate the amount within the range that is most likely to occur.
78
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 24. Legal Proceedings and Other
Contingencies(Continued)
It is reasonably possible that the
Estimated Reserve for Product Liability Claims may change within the next 12 months. A change in estimate could occur if a case is settled for more or less than anticipated, or if additional information becomes known to the Company.
Note 25. Quarterly Financial Data (Unaudited)
Unaudited Quarterly Financial Data
Summarized quarterly financial data for 2007 and 2006 are as follows (in thousands, except per share
amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (1)
|
|
2006 (1)
|
|
|
|
1st Qtr
|
|
|
2nd Qtr
|
|
|
3rd Qtr
|
|
|
4th Qtr
|
|
1st Qtr
|
|
|
2nd Qtr
|
|
|
3rd Qtr
|
|
|
4th Qtr
|
|
Sales
|
|
$
|
23,105
|
|
|
$
|
29,951
|
|
|
$
|
26,600
|
|
|
$
|
27,257
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,021
|
|
|
$
|
20,655
|
|
Gross Profit
|
|
|
4171
|
|
|
|
5814
|
|
|
|
5,006
|
|
|
|
4,895
|
|
|
|
|
|
|
|
|
|
|
2,761
|
|
|
|
3,012
|
|
Income (loss) from continuing operations
|
|
|
69
|
|
|
|
499
|
|
|
|
872
|
|
|
|
686
|
|
|
(37
|
)
|
|
|
(90
|
)
|
|
|
(17
|
)
|
|
|
(403
|
)
|
Income (loss) from discontinued operationsnet of tax
|
|
|
(732
|
)
|
|
|
(234
|
)
|
|
|
(196
|
)
|
|
|
40
|
|
|
(333
|
)
|
|
|
(324
|
)
|
|
|
(549
|
)
|
|
|
(7,136
|
)
|
Loss on disposition of discontinued operationsnet of tax
|
|
|
(366
|
)
|
|
|
76
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,029
|
)
|
|
$
|
341
|
|
|
$
|
918
|
|
|
$
|
726
|
|
$
|
(370
|
)
|
|
$
|
(414
|
)
|
|
$
|
(566
|
)
|
|
$
|
(7,539
|
)
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
0.10
|
|
|
$
|
0.07
|
|
$
|
0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.06
|
)
|
Income (loss) from discontinued operationsnet of tax
|
|
$
|
(0.09
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(1.10
|
)
|
Loss on disposition of discontinued operationsnet of tax
|
|
$
|
(0.05
|
)
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net income (loss)
|
|
$
|
(0.13
|
)
|
|
$
|
0.04
|
|
|
$
|
0.11
|
|
|
$
|
0.07
|
|
$
|
(0.08
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(1.16
|
)
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.06
|
)
|
Income (loss) from discontinued operationsnet of tax
|
|
$
|
(0.09
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(1.10
|
)
|
Loss on disposition of discontinued operationsnet of tax
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net income (loss)
|
|
$
|
(0.12
|
)
|
|
$
|
0.04
|
|
|
$
|
0.10
|
|
|
$
|
0.07
|
|
$
|
(0.08
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(1.16
|
)
|
Shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,859,875
|
|
|
|
7,903,391
|
|
|
|
8,636,940
|
|
|
|
9,805,913
|
|
|
4,875,000
|
|
|
|
4,875,000
|
|
|
|
5,104,769
|
|
|
|
6,514,766
|
|
Diluted
|
|
|
8,512,189
|
|
|
|
8,636,771
|
|
|
|
9,239,276
|
|
|
|
10,374,586
|
|
|
4,875,000
|
|
|
|
4,875,000
|
|
|
|
5,104,769
|
|
|
|
6,514,766
|
|
79
VERI-TEK INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 25. Quarterly Financial Data
(Unaudited)(Continued)
(1)
|
The financial data for the years 2007 and 2006 present the former Testing and Assembly Equipment segment as a discontinued operation.
|
Acquisitions accounted for as purchases have been included in the Companys results from their respective dates of acquisition. QVM and Manitex Liftking were
acquired on July 3, 2006 and November 30, 2006, respectively. The Noble Forklift Product line was acquired on July 31, 2007.
In the fourth
quarter 2006, the Company allocated goodwill recorded in connection with the Manitex acquisition to the following specific intangibles: patented and unpatented technology, trade name and trademarks, customer relationships and customer backlog. The
foregoing intangible assets are assets with definite lives. Under SFAS No. 142, Intangible Assets with definite lives are amortized over their estimated useful lives. In the fourth quarter, the Company recorded amortization against these
intangibles of $992 for the period from the date of the acquisition through December 31, 2006. Approximately $485 relates to amortization for the period from acquisition date through September 30, 2006
Note 26. Impairment of Former Testing & Assembly Equipment Segment
Against the background of the operating losses generated in recent history by the former Testing & Assembly Equipment segment operations based at Wixom, Michigan, the Company conducted a strategic review of these operations and in
March 2007 adopted a plan to dispose of most of its plant assets, machinery and equipment, and furniture and fixtures and patents. In connection with the plan of disposal, but recognizing the fact that there can be no certainty that a buyer can be
identified and that disposal may therefore be by other than sale, the Company determined that the carrying values of some of the underlying assets exceeded their fair values. Managements estimation of realizable value established that the
value of patents was fully impaired, ($3,915), tangible assets and software were impaired ($2,017), costs in excess of billing impaired, ($224), and inventory impaired ($476). Consequently, the Company recorded an impairment loss of $6,632 which
represents the excess of the carrying values of the assets over their fair values, less cost to sell. The impairment loss was recorded within the following expense categories in 2006:
|
|
|
|
Cost of Sales:
|
|
$
|
700
|
Reserve for costs in excess of billing
|
|
|
|
Inventory reserve for lower of cost or market
|
|
|
|
|
|
Long lived assets
|
|
$
|
5,932
|
Reserve for impairment of PP&E
|
|
|
|
Reserve for impairment of patents
|
|
|
|
|
|
Total impairment cost
|
|
$
|
6,632
|
80