SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) JULY 13, 2004
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EMRISE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 001-10346 77-0226211
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
9485 HAVEN AVENUE, SUITE 100, RANCHO CUCAMONGA, CALIFORNIA 91730
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (909) 987-9220
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to the terms of the Stock Purchase Agreement executed as of July
13, 2004, Emrise Corporation (formerly MicroTel International Inc. ("Emrise"))
acquired, effective as of July 13, 2004, all of the issued and outstanding
common stock of Larus Corporation, a California corporation ("Larus"). Prior to
the acquisition, all of the common stock of Larus was owned by Noel C.
McDermott, as Trustee of the Noel C. McDermott Revocable Living Trust dated
December 18, 1995, and Warren P. Yost and Gail A. Yost, as Co-Trustees Under
Declaration of Trust dated March 9, 1988.
Larus was based in San Jose, California and engaged in the manufacturing
and sale of telecommunications products. Larus had one wholly-owned subsidiary,
Vista Labs, Incorporated ("Vista"), which provided engineering services to
Larus. As a result of the acquisition, Emrise acquired all of the assets and
liabilities of Larus in this transaction, including the intellectual property,
cash, accounts receivable and inventories owned by each of Larus and Vista.
Emrise intends to use these acquired assets for the same purpose for which they
were used by each of Larus and Vista. In December 2004, CXR Telcom Corporation,
a subsidiary of Emrise, changed its name to CXR Larus when it succeeded by
merger to the assets and liabilities of Larus and Vista.
The $6,539,000 purchase price consisted of $1,000,000 in cash, the issuance
of 1,213,592 shares of Emrise's common stock with a fair value of $1,000,000,
$887,500 in the form of two short-term, zero interest promissory notes that were
repaid in 2004, $3,000,000 in the form of two subordinated secured promissory
notes, warrants to purchase up to an aggregate of 150,000 shares of Emrise's
common stock at $1.30 per share, and approximately $580,000 of acquisition
costs. The number of shares of Emrise common stock issued as part of the
purchase price was calculated based on the $0.824 per share average closing
price of our common stock for the five trading days preceding the transaction.
The warrants to purchase shares of common stock were valued at approximately
$72,000 using a Black-Scholes formula that included a volatility of 107.19%, an
interest rate of 3.25%, a life of three years and no assumed dividend.
In addition, Emrise assumed $245,000 worth of accounts payable and accrued
expenses and entered into an above-market seven-year real property lease with
the sellers. This lease represents an obligation that exceeds the fair market
value by approximately $756,000 and is part of the acquisition accounting. The
cash portion of the acquisition purchase price was funded with proceeds from
Emrise's credit facility with Wells Fargo Bank, N.A. and cash on-hand.
In determining the purchase price for Larus, Emrise took into account the
historical and expected earnings and cash flow of Larus, as well as the value of
companies of a size and in an industry similar to Larus, comparable transactions
and the market for such companies generally. The purchase price represented a
significant premium over the $1,800,000 recorded net worth of the assets of
Larus and Vista. In determining this premium, Emrise considered Emrise's
potential ability to refine various Larus products and to use Emrise's marketing
resources and status as a qualified supplier to qualify and market those
products for sale to large telecommunications companies. Emrise believes that
large telecommunications companies desired to have an additional choice of
suppliers for those products and would be willing to purchase Larus' products
following some refinements. Emrise also believes that if Larus had remained
independent, it was unlikely that it would have been able to qualify to sell its
products to the large telecommunications companies due to its small size and
lack of history selling to such companies. Therefore, Larus had a range of value
separate from the net worth it had recorded on its books.
2
In conjunction with Emrise's July 2004 acquisition of Larus, Emrise has
commissioned a valuation firm to determine what portion of the purchase price
should be allocated to identifiable intangible assets. Although the valuation
analysis is still in progress, Emrise has estimated that the Larus tradename and
trademark are valued at $2,800,000 and that the technology and customer
relationships are valued at $800,000. Goodwill associated with the Larus
acquisition totaled $3,363,000 and is not deductible for tax purposes. The Larus
tradename and trademark were determined to have indefinite lives and therefore
are not being amortized but rather are being periodically tested for impairment.
The technology and customer relationships were both estimated to have ten-year
lives and, as a result, $40,000 of amortization expense was recorded and charged
to administrative expense in 2004. The valuation of the identified intangible
assets is expected to be completed in May 2005 and could result in changes to
the value of these identified intangible assets and corresponding changes to the
value of goodwill. However, Emrise does not believe these changes will be
material to its financial position or results of operations.
3
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
-------------------------------------------
The following financial statements of Larus Corporation and its subsidiary
are included in this report:
Page
----
Report of Independent Registered Public Accounting Firm.....................F-1
Consolidated Balance Sheet as of November 30, 2003..........................F-2
Consolidated Statement of Operations for the Twelve Months
Ended November 30, 2003..................................................F-3
Consolidated Statement of Stockholders' Equity for the Twelve Months
Ended November 30, 2003..................................................F-4
Consolidated Statement of Cash Flows for the Twelve Months Ended
November 30, 2003........................................................F-5
Notes to Consolidated Financial Statements for the Twelve Months
Ended November 30, 2003..................................................F-6
Condensed Consolidated Balance Sheets for the Six Months Ended
May 31, 2004 and 2003 (Unaudited)........................................F-11
Condensed Consolidated Statements of Operations for the Six Months
Ended May 31, 2004 and 2003 (Unaudited)..................................F-12
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended May 31, 2004 and 2003 (Unaudited)..................................F-13
Notes to Condensed Consolidated Financial Statements for the Six
Months Ended May 31, 2004 and 2003 (Unaudited)...........................F-14
4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of Emrise Corporation
We have audited the accompanying consolidated balance sheet of Larus
Corporation and its wholly owned subsidiary, Vista Lab Incorporated, (both
California corporations) as of November 30, 2003, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements,assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Larus
Corporation as of November 30, 2003, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 10, Larus Corporation and its subsidiary were sold to
Emrise Corporation on July 13, 2004.
/s/ GRANT THORNTON LLP
Los Angeles, California
July 9, 2004, except for Note 10,
as to which the date is July 13, 2004
F-1
LARUS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 2003
(In Thousands, Except Per Share Amounts)
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 340
Short-term certificates of deposit ............................. 232
Accounts receivable, net of allowance for doubtful
accounts of $24 .............................................. 934
Inventories .................................................... 722
Prepaid and other current assets ............................... 70
----------
Total current assets .............................................. 2,298
Property, plant and equipment, net ................................ 116
Long-term certificates of deposit ................................. 72
----------
$ 2,486
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 549
Accrued expenses ............................................... 198
Income tax payable ............................................. 58
----------
Total current liabilities ......................................... 805
Deferred income taxes ............................................. 20
----------
Total liabilities ................................................. 825
Stockholders' equity:
Common stock, zero par value. Authorized
1,000 shares; issued and outstanding 910 shares .............. 42
Retained earnings .............................................. 1,619
----------
Total stockholders' equity ........................................ 1,661
----------
$ 2,486
==========
See accompanying notes to financial statements.
F-2
LARUS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED NOVEMBER 30, 2003
(In Thousands, Except Per Share Amounts)
Net sales ........................................................ $ 5,857
Cost of sales .................................................... 2,752
----------
Gross profit ..................................................... 3,105
Operating expenses:
Selling, general and administrative ........................... 1,867
Engineering and product development ........................... 1,098
----------
Income from operations ........................................... 140
Other income .................................................. 98
----------
Income before income taxes ....................................... 238
Income tax expense ............................................... 93
----------
Net income ....................................................... $ 145
==========
Earnings per share:
Net income
Basic ....................................................... $ 0.16
==========
Diluted ..................................................... $ 0.16
==========
Outstanding weighted average shares
Basic and diluted ........................................... 910
==========
See accompanying notes to financial statements.
F-3
LARUS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
TWELVE MONTHS ENDED NOVEMBER 30, 2003
(In Thousands)
Common Stock
----------------------- Retained
Shares Amount Earnings Total
---------- ---------- ---------- ----------
Balance at December 1, 2002 ..... 910 $42 $1,474 $1,516
Net income ................... - - 145 145
---------- ---------- ---------- ----------
Balance at November 30, 2003 .... 910 $42 $1,619 $1,661
========== ========== ========== ==========
See accompanying notes to financial statements.
F-4
LARUS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
TWELVE MONTHS ENDED NOVEMBER 30, 2003
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 145
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization ................................ 74
Deferred income taxes ........................................ 10
Changes in operating assets and liabilities:
Accounts receivable ........................................ 87
Inventories ................................................ 122
Other assets ............................................... 59
Accounts payable and accrued expenses ........................ (435)
---------
Cash provided by operating activities ............................. 62
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................ (12)
---------
Cash used in investing activities ................................. (12)
---------
Net increase in cash and cash equivalents ......................... 50
---------
Cash and cash equivalents at beginning of period .................. 290
---------
Cash and cash equivalents at end of period ........................ $ 340
=========
Cash paid for:
Income taxes ................................................. $ 8
=========
Interest ..................................................... $ --
=========
See accompanying notes to financial statements.
F-5
LARUS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED NOVEMBER 30, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Larus Corporation (the "Company") operates out of one leased facility in
San Jose, California. It designs, manufactures and markets telecommunications
timing devices and network access equipment. The Company has a wholly-owned
subsidiary, Vista Labs Incorporated, which performs most of the research and
engineering work on a contract basis for the Company.
BASIS OF PRESENTATION
The accompanying consolidated financial statements for the year ended
November 30, 2003 have been prepared in conformity with accounting principles
generally accepted in the United States of America and include the accounts of
the Company and its subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues are recorded when products are shipped if shipped FOB shipping
point or when received by the customer if shipped FOB destination.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all highly liquid investments with an
original maturity of three months or less when purchased.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
principally using the straight-line method over the useful lives of the assets
(or lease term, if shorter) as follows:
Machinery, equipment and fixtures 3 - 7 years
Maintenance and repairs are expensed as incurred, while renewals and
betterments are capitalized.
LONG-LIVED ASSETS
The Company reviews the carrying amount of its long-lived assets for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
F-6
LARUS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TWELVE MONTHS ENDED NOVEMBER 30, 2003
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income taxes are recognized based on the differences
between financial statement and income tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the year and the change during the
year in deferred tax assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INVESTMENT POLICY
The investments consist of various short-term and long-term certificates of
deposit. Investments are classified as available for sale and are carried at
estimated fair market value. Net aggregated unrealized gains were not
significant at November 30, 2003.
(2) EARNINGS PER SHARE
The following table illustrates the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
TWELVE MONTHS ENDED
NOVEMBER 30, 2003
-----------------
NUMERATOR:
Net income ................................................... $145
---------
Income attributable to common stockholders ................... $145
=========
DENOMINATOR:
Weighted average number of common shares outstanding
during the period ......................................... 910
Incremental shares from assumed conversions of warrants,
options and preferred stock ............................... --
---------
Diluted weighted average number of outstanding shares ........ 910
---------
Basic earnings per share ..................................... $0.16
=========
Diluted earnings per share ................................... $0.16
=========
F-7
LARUS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TWELVE MONTHS ENDED NOVEMBER 30, 2003
(3) INVENTORIES
Inventories consist of the following (in thousands):
NOVEMBER 30, 2003
-----------------
Raw materials ...................................... $342
Work-in-process .................................... 233
Finished goods ..................................... 147
---------
$722
=========
(4) REPORTABLE SEGMENTS
The Company is centrally managed and operates in one business segment:
communications equipment.
(5) INCOME TAXES
The effective tax rate for the twelve months ended November 30, 2003 is
different than the 34% statutory federal rate because of an additional 5%
provided for state income tax.
Income tax expense consists of the following (in thousands):
Current
Federal ........................................ $72
State .......................................... 11
---------
Total current ...................................... $83
=========
Deferred
Federal ........................................ $ 9
State .......................................... 1
---------
Total deferred ..................................... $10
=========
Total
Federal ........................................ $81
State .......................................... 12
---------
Total .............................................. $93
=========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets (liabilities)
Revenue for doubtful accounts .................. $ 9
Depreciation ................................... (29)
---------
Net deferred tax liability ......................... $(20)
=========
F-8
LARUS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TWELVE MONTHS ENDED NOVEMBER 30, 2003
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
Machinery, equipment and fixtures .............. $ 2,327
Accumulated depreciation ....................... (2,211)
---------
Net property, plant and equipment .................. $ 116
=========
(7) RELATED PARTY TRANSACTIONS - OPERATING LEASE
During the twelve months ended November 30, 2003, the Company operated in a
facility it leased from its then majority stockholders under an operating lease
agreement. Lease expenses incurred by the Company for this lease were $463,000
for the twelve months ended November 30, 2003. Subsequent to the sale of the
Company to Emrise Corporation (see note 10), the Company continued to lease the
building from the former majority stockholders of the Company under a seven-year
lease contract with renewal option. Future minimum rental commitments payable to
the former majority stockholders as of November 30, 2003 are as follows (in
thousands):
Twelve Months Ending November 30 Amount
---------------------------------------------------- ---------
2004................................................ $ 324
2005................................................ 324
2006................................................ 324
2007................................................ 324
2008 and thereafter................................. 1,134
--------
$ 2,430
========
(8) RETIREMENT PLANS
The Company provides a defined benefit 401(k) plan to its employees and a
qualified profit share plan to its Vista employees only. For the twelve months
ended November 30, 2003, the Company made no contributions to the 401(k) plan
and $56,000 to the profit sharing plan.
(9) CONCENTRATION OF CREDIT RISK
Sales for the twelve months ended November 30, 2003 to the Company's
largest customer accounted for 13% of total sales. No other customer represented
sales of over 10% of total sales. At November 30, 2003, the customer referenced
above represented 12% of total accounts receivable. In addition to this, two
other customers accounted for 21% and 13%, respectively, of accounts receivable.
Management believes that the Company's customer acceptance, billing and
collection policies are adequate to minimize potential credit risk on trade
receivables.
(10) SUBSEQUENT EVENT
Pursuant to the terms of the Stock Purchase Agreement executed as of July
13, 2004, Emrise Corporation (formerly MicroTel International Inc. ("Emrise"))
acquired, effective as of July 13, 2004, all of the issued and outstanding
common stock of the Company. Prior to the acquisition, all of the common stock
of the Company was owned by Noel C. McDermott, as Trustee of the Noel C.
McDermott Revocable Living Trust dated December 18, 1995, and Warren P. Yost and
Gail A. Yost, as Co-Trustees Under Declaration of Trust dated March 9, 1988.
F-9
LARUS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TWELVE MONTHS ENDED NOVEMBER 30, 2003
The purchase price consisted of $1,000,000 in cash, the issuance of
1,213,592 shares of Emrise's common stock with a fair value of $1,00,000,
$887,500 in the form of two short-term, zero interest promissory notes,
$3,000,000 in the form of two subordinated secured promissory notes, warrants to
purchase up to an aggregate of 150,000 shares of Emrise's common stock at $1.30
per share, and approximately $580,000 of acquisition costs. The number of shares
of Emrise common stock issued as part of the purchase price was calculated based
on the $0.824 per share average closing price of our common stock for the five
trading days preceding the transaction. The warrants to purchase shares of
common stock were valued at approximately $72,000 using a Black-Scholes formula
that included a volatility of 107.19%, an interest rate of 3.25%, a life of
three years and no assumed dividend. In addition, Emrise assumed $245,000 worth
of accounts payable and accrued expenses and entered into an above-market real
property lease with the sellers. This lease represents an obligation that
exceeds the fair market value by approximately $756,000 and is part of the
acquisition accounting. The cash portion of the acquisition purchase price was
funded with proceeds from Emrise's credit facility with Wells Fargo Bank, N.A.
and cash on-hand.
F-10
LARUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 2004 AND MAY 31, 2003
(In Thousands)
(Unaudited)
MAY 31, 2004 MAY 31, 2003
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 722 $ 461
Short-term certificates of deposit ................................... 321 310
Accounts receivable, net of allowance for doubtful
accounts of $24 .................................................... 619 653
Inventories .......................................................... 642 708
Prepaid and other current assets ..................................... 59 66
---------- ----------
Total current assets .................................................... 2,363 2,198
Property, plant and equipment, net ...................................... 109 222
Long-term certificates of deposit ....................................... 75 335
---------- ----------
$ 2,547 $ 2,755
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................... $ 306 $ 378
Accrued expenses ..................................................... 39 516
Income tax payable .................................................. 237 127
---------- ----------
Total current liabilities ............................................... 582 1,021
Deferred income taxes ................................................... 20 10
---------- ----------
Total liabilities ....................................................... 602 1,031
Stockholders' equity:
Common stock, zero par value. Authorized 1,000 shares; issued and
outstanding 910 shares ............................................. 42 42
Retained earnings .................................................... 1,903 1,682
---------- ----------
Total stockholders' equity .............................................. 1,945 1,724
---------- ----------
$ 2,547 $ 2,755
========== ==========
See accompanying notes to condensed consolidated financial statements.
F-11
LARUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MAY 31, 2004 AND MAY 31, 2003
(In Thousands, Except Share Amounts)
(Unaudited)
SIX MONTHS ENDED SIX MONTHS ENDED
MAY 31, 2004 MAY 31, 2003
---------------- ----------------
Net sales .................................... $ 2,625 $ 2,875
Cost of sales ................................ 1,260 1,347
---------- ----------
Gross profit ................................. 1,365 1,528
Operating expenses:
Selling, general and administrative ....... 682 742
Engineering and product development ....... 220 450
---------- ----------
Income from operations ....................... 463 336
Other income .............................. 2 5
---------- ----------
Income before income taxes ................... 465 341
Income tax expense ........................... 181 133
---------- ----------
Net income ................................... $ 284 $ 208
========== ==========
Earnings per share:
Net income
Basic ................................... $ 0.31 $ 0.23
========== ==========
Diluted ................................. $ 0.31 $ 0.23
========== ==========
See accompanying notes to condensed consolidated financial statements.
F-12
LARUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31, 2004 AND MAY 31, 2003
(In Thousands)
(Unaudited)
SIX MONTHS SIX MONTHS
ENDED MAY 31, ENDED MAY 31,
2004 2003
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 284 $ 208
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization ........................ 34 30
Deferred income taxes ................................ 4 6
Changes in operating assets and liabilities:
Accounts receivable ................................ 315 368
Inventories ........................................ 80 136
Other assets ....................................... (81) (340)
Accounts payable and accrued expenses ................ (227) (225)
--------- ---------
Cash provided by operating activities ..................... 409 183
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of property, plant and equipment ......... (27) (12)
--------- ---------
Cash used in investing activities ......................... (27) (12)
--------- ---------
Net increase in cash and cash equivalents ................. 382 171
--------- ---------
Cash and cash equivalents at beginning of period .......... 340 290
--------- ---------
Cash and cash equivalents at end of period ................ $ 722 $ 461
========= =========
Cash paid for:
Income taxes ......................................... $ 2 $ --
========= =========
Interest ............................................. $ -- $ --
========= =========
See accompanying notes to condensed consolidated financial statements.
F-13
LARUS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 2004 AND 2003
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Larus Corporation (the "Company") operates out of one leased facility in
San Jose, California. It designs, manufactures and markets telecommunications
timing devices and network access equipment. The Company has a wholly-owned
subsidiary, Vista Labs Incorporated, which performs most of the research and
engineering work on a contract basis for the Company.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the
six-month periods ended May 31, 2004 and 2003 are presented as unaudited, but in
the opinion of management, these financial statements include normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows for such periods. The condensed consolidated financial
statements include the accounts of the Company and its subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The condensed consolidated interim financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto of the Company and subsidiary included in Item 9.01(a) of this Form
8-K/A.
REVENUE RECOGNITION
Revenues are recorded when products are shipped if shipped FOB shipping
point or when received by the customer if shipped FOB destination.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all highly liquid investments with an
original maturity of three months or less when purchased.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
principally using the straight-line method over the useful lives of the assets
(or lease term, if shorter) as follows:
Machinery, equipment and fixtures 3 - 7 years
Maintenance and repairs are expensed as incurred, while renewals and
betterments are capitalized.
F-14
LARUS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED MAY 31, 2004 AND 2003
(Unaudited)
LONG-LIVED ASSETS
The Company reviews the carrying amount of its long-lived assets for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income taxes are recognized based on the differences
between financial statement and income tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the year and the change during the
year in deferred tax assets and liabilities.
(2) EARNINGS PER SHARE
The following table illustrates the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
SIX MONTHS SIX MONTHS
ENDED ENDED
MAY 31, 2004 MAY 31, 2003
------------ ------------
NUMERATOR:
Net income ................................................ $284 $208
---------- ----------
Income attributable to common stockholders ................ 284 208
========== ==========
DENOMINATOR:
Weighted average number of common shares outstanding
during the period ...................................... 910 916
Incremental shares from assumed conversions of warrants,
options and preferred stock ............................ -- --
---------- ----------
Diluted weighted average number of outstanding shares ..... 910 916
---------- ----------
Basic earnings per share .................................. $0.31 $0.23
========== ==========
Diluted earnings per share ................................ $0.31 $0.23
========== ==========
F-15
LARUS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED MAY 31, 2004 AND 2003
(Unaudited)
(3) INVENTORIES
Inventories consist of the following (in thousands):
SIX MONTHS SIX MONTHS
ENDED ENDED
MAY 31, 2004 MAY 31, 2003
------------ ------------
Raw materials ....................... $306 $316
Work-in-process ..................... 206 257
Finished goods ...................... 130 135
---------- ----------
$642 $708
========== ==========
(4) REPORTABLE SEGMENTS
The Company is centrally managed and operates in one business segment:
communications equipment.
(5) INCOME TAXES
The effective tax rates for the six-month periods ended May 31, 2004 and
2003 are different than the 34% statutory federal rate because of an additional
5% provided for state income tax.
(6) RELATED PARTY TRANSACTIONS - OPERATING LEASE
During the six-month periods ended May 31, 2004 and 2003, the Company
operated in a facility it leased from its then majority stockholders under an
operating lease agreement. Lease expenses incurred by the Company for this lease
were $201,000 and $262,000 for the six-month periods ended May 31, 2004 and
2003, respectively. Subsequent to the sale of the Company to Emrise Corporation
(see note 7), the Company continued to lease the building from the former
majority stockholders of the Company under a seven-year lease contract with
renewal option.
(7) SUBSEQUENT EVENT
Pursuant to the terms of the Stock Purchase Agreement executed as of July
13, 2004, Emrise Corporation (formerly MicroTel International Inc. ("Emrise"))
acquired, effective as of July 13, 2004, all of the issued and outstanding
common stock of the Company. Prior to the acquisition, all of the common stock
of the Company was owned by Noel C. McDermott, as Trustee of the Noel C.
McDermott Revocable Living Trust dated December 18, 1995, and Warren P. Yost and
Gail A. Yost, as Co-Trustees Under Declaration of Trust dated March 9, 1988.
The purchase price consisted of $1,000,000 in cash, the issuance of
1,213,592 shares of Emrise's common stock with a fair value of $1,000,000,
$887,500 in the form of two short-term, zero interest promissory notes,
$3,000,000 in the form of two subordinated secured promissory notes, warrants to
purchase up to an aggregate of 150,000 shares of Emrise's common stock at $1.30
per share, and approximately $580,000 of acquisition costs. The number of shares
of Emrise common stock issued as part of the purchase price was calculated based
F-16
LARUS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED MAY 31, 2004 AND 2003
(Unaudited)
on the $0.824 per share average closing price of our common stock for the five
trading days preceding the transaction. The warrants to purchase shares of
common stock were valued at approximately $72,000 using a Black-Scholes formula
that included a volatility of 107.19%, an interest rate of 3.25%, a life of
three years and no assumed dividend. In addition, Emrise assumed $245,000 worth
of accounts payable and accrued expenses and entered into an above-market real
property lease with the sellers. This lease represents an obligation that
exceeds the fair market value by approximately $756,000 and is part of the
acquisition accounting. The cash portion of the acquisition purchase price was
funded with proceeds from Emrise's credit facility with Wells Fargo Bank, N.A.
and cash on-hand.
F-17
(b) Pro Forma Financial Information.
-------------------------------
Pursuant to the terms of the Stock Purchase Agreement dated as of July 13,
2004, Emrise acquired, effective as of July 13, 2004, all of the issued and
outstanding common stock of Larus Corporation. The accompanying unaudited
consolidated statements of operations for the periods ended December 31, 2003
and June 30, 2004 are set forth herein to give effect to the acquisition of
Larus Corporation and Larus Corporation's subsidiary as if the acquisition had
been consummated at the beginning of the earliest period presented (January 1,
2003). The accompanying unaudited pro forma condensed consolidated balance sheet
as of June 30, 2004 has been presented assuming the acquisition of Larus
Corporation occurred on June 30, 2004.
The acquisition was accounted for under the purchase method of accounting
in accordance with generally accepted accounting principles. Under this method,
tangible and identifiable intangible assets acquired and liabilities assumed are
recorded at their estimated fair values. The excess of the purchase price, plus
estimated fees and expenses related to the acquisition, over the fair value of
net assets acquired is recorded as goodwill.
The unaudited pro forma condensed consolidated statements of operations do
not reflect any potential cost savings that may be realized following the
acquisition. The pro forma adjustments and assumptions are based on estimates,
evaluations and other data currently available and, in Emrise's opinion, provide
a reasonable basis for the fair presentation of the estimated effects directly
attributable to the acquisition and related transactions. The unaudited pro
forma consolidated statements of operations are provided for illustrative
purposes only and are not necessarily indicative of what the consolidated
results of operations or financial position would actually have been had the
acquisition occurred on January 1, 2003, nor do they represent a forecast of the
consolidated results of operations or financial position for any future period
or date.
All information contained herein should be read in conjunction with
Emrise's annual report on Form 10-K for the year ended December 31, 2003, its
quarterly report on Form 10-Q for the quarter ended June 30, 2004, the
consolidated financial statements and notes thereto of Larus included in Item
9.01(a) of this Form 8-K and the notes to unaudited pro forma financial
information included herein. The following pro forma financial information is
included in this report:
Page
----
Pro Forma Consolidated Statement of Operations for the
Year Ended December 31, 2003.............................................F-18
Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 2004............................................................F-20
Pro Forma Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 2004 ..................................F-22
5
EMRISE CORPORATION AND LARUS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
(Dollars In Thousands, Except Per Share Data)
PRO FORMA
EMRISE LARUS ADJUSTMENT TOTALS
----------- ----------- ----------- -----------
Sales ................................... $ 25,519 $ 5,857 $ - $ 31,376
Cost of sales ........................... 14,835 2,752 (71)(a) 17,516
----------- ----------- ----------- -----------
Gross profit ............................ 10,684 3,105 71 13,860
Selling and administration .............. 7,812 1,867 (168)(a) 9,591
80 (b)
Research and development, engineering ... 951 1,098 (10)(a) 2,039
----------- ----------- ----------- -----------
Total ................................... 8,763 2,965 (98) 11,630
Income from operations .................. 1,921 140 169 2,230
Interest expense ........................ (416) (152)(c)
- - (35)(d) (603)
Other, net .............................. (58) 98 - 40
----------- ----------- ----------- -----------
Income before tax ....................... 1,447 238 (18) 1,667
Income tax .............................. 286 93 24 (e) 403
----------- ----------- ----------- -----------
Net income .............................. $ 1,161 $ 145 $ (42) $ 1,264
=========== =========== =========== ===========
Earnings per share - basic (f) .......... $ 0.05 $ 0.05
Earnings per share - diluted (f) ........ $ 0.05 $ 0.05
----------------------
(a) Reduction of $71 rent allocated to manufacturing overhead, $168 allocated to selling and
administration and $10 allocated to research and development due to a recording of a liability in
purchase accounting for an unfavorable lease. The lease expense will be reduced from approximately
$39 per month to approximately $19 per month.
(b) Amortization of intangible assets (technology and customer relationships) totaled $80 for the year
based on the following estimated values and service lives: technology - $500 and 10 years; customer
relationships - $300 and 10 years.
(c) Increase in interest cost of $152 for long-term notes. The long-term notes for $3,000 carry an
interest rate of 30-day LIBOR plus 1.0% (average interest rate of 5.05% would have resulted in
interest expense of $152).
(d) Increase of $35 for working capital interest. Working capital interest is expected to be 5.0% of
expected additional capital needs of approximately $700.
(e) Income tax effect of additional income from the pro forma adjustments.
F-18
EMRISE CORPORATION AND LARUS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 2003
(Dollars In Thousands, Except Per Share Data)
(f) The following table summarizes the combined pro forma basic and diluted earnings per share as if Emrise
had acquired Larus as of January 1, 2003:
PRO FORMA
EMRISE LARUS ADJUSTMENT TOTALS
----------- ----------- ----------- -----------
Earnings per share
Numerator:
Net income ..................................... $ 1,161 $ 145 $ (42) $ 1,264
Less accretion of the excess value over the
carrying value of redeemable preferred stock ... (4) (4)
Income attributable to common stockholders ..... 1,157 1,260
Denominator:
Weighted average number of common shares
outstanding during the period - basic .......... 22,567 22,567
Common shares issued to acquire Larus .......... - 1,214 1,214
Adjusted weighted average shares ............... 22,567 23,781
Incremental shares from assumed conversions
of warrants, options and preferred stock ....... 1,244 1,244
Adjusted weighted average shares ............... 23,811 25,025
Earnings per share - basic ........................ $ 0.05 $ 0.05
Earnings per share - diluted ...................... $ 0.05 $ 0.05
The warrants issued in the Larus acquisition to acquire 150,000 shares of Emrise common stock at $1.30 per
share were excluded from the diluted earnings per share calculation as the effect would be anti-dilutive.
F-19
EMRISE CORPORATION AND LARUS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(In Thousands)
PRO FORMA
EMRISE LARUS ADJUSTMENTS (A) PRO FORMA
----------- ----------- --------------- -----------
ASSETS
Cash ....................................... $ 1,436 $ 722 $ (1,580)(b) $ 578
Accounts receivable ........................ 4,871 619 - 5,490
Short-term certificates of deposit ......... - 321 - 321
Inventories ................................ 6,109 642 - 6,751
Prepaids and other current ................. 545 59 - 604
----------- ----------- ----------- -----------
Total current assets ....................... 12,961 2,363 (1,580) 13,744
Net fixed assets ........................... 410 109 - 519
Investments ................................ - 75 - 75
Intangible assets other than goodwill ...... - - 3,600 (c) 3,600
Goodwill ................................... 2,464 - 3,151 (d) 5,615
Other assets ............................... 655 - - 655
----------- ----------- ----------- -----------
Total other assets ......................... 3,119 75 6,751 9,945
----------- ----------- ----------- -----------
Total assets ............................... $ 16,490 $ 2,547 $ 5,171 $ 24,208
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable .............................. $ 2,458 $ - $ - $ 2,458
Current portion of long-term debt .......... 262 - 888 (f) 1,150
Accounts payable ........................... 1,582 306 - 1,888
Accrued expenses ........................... 2,769 39 756 (e) 3,564
Income tax payable ......................... - 237 237
----------- ----------- ----------- -----------
Total current liabilities .................. 7,071 582 1,644 9,297
Notes payable .............................. 853 - 3,000 (f) 3,853
Deferred income taxes ...................... - - 1,400 1,400
Other ...................................... 274 20 - 294
----------- ----------- ----------- -----------
Total non-current liabilities .............. 1,127 20 4,400 5,547
----------- ----------- ----------- -----------
Total liabilities .......................... 8,198 602 6,044 14,844
----------- ----------- ----------- -----------
Stockholders' equity
Preferred stock ............................ 1 - - 1
Common stock ............................... 77 42 (42) (g) 81
4 (h)
Additional paid in capital ................. 25,617 996 (h) 26,685
72 (i)
Retained earnings (deficit) ................ (17,447) 1,903 (1,903) (j) (17,447)
Accumulated comprehensive income ........... 44 - - 44
----------- ----------- ----------- -----------
Total stockholders' equity ................. 8,292 1,945 (873) 9,364
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity . $ 16,490 $ 2,547 $ 5,171 $ 24,208
=========== =========== =========== ===========
F-20
EMRISE CORPORATION AND LARUS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 2004
(Dollars In Thousands)
-----------------
(a) The components of the purchase price for the Larus acquisition were as
follows:
$1,000 cash
$ 888 zero interest short-term promissory notes
$3,000 subordinated promissory notes payable over 3 years with annual
interest based on 30-day LIBOR rate plus 1.0%
$1,000 value of Company common stock issued (1,213,592 shares at $0.824)
$ 72 value of Company common stock purchase warrants issued (150,000
underlying shares; value was calculated using the Black-Scholes
pricing model with the following assumptions: risk-free interest
rate of 3.25%, expected life of three years, no dividend yield,
and an expected volatility of 107.19%)
$ 580 costs of acquisition (legal, audit and other acquisition-related
expenses)
------- ----------------------------------------------------------------
$ 6,540 total purchase price
(b) Cash paid to sellers of $1,000 and direct costs of acquisition of $580.
(c) Identifiable intangible assets with estimated fair value of $3,600 consists
of the following: trademarks/tradenames - $2,800; technology - $500, and
customer relationships - $300.
(d) Goodwill representing the excess of purchase price over the fair value of
net assets acquired computed as follows as of June 30, 2004:
Amount
in Thousands
------------
Purchase price, from note (a) above $6,540
Assets acquired:
Current assets $2,363
Property, plant and equipment 109
Intangible assets other than goodwill 3,600
Other long term assets 75
Total assets acquired 6,147
Liabilities assumed:
Current liabilities (582)
Deferred income taxes (1,400)
Unfavorable lease obligation and other
liabilities (776)
Total liabilities assumed (2,758)
-------
Net assets acquired (excluding goodwill) 3,389
=======
Excess of purchase price over fair value of
net assets acquired (goodwill) $3,151
=======
(e) To recognize 7-year lease cost in excess of market value required in order
to acquire Larus.
(f) Long-term notes of $3,000 and short term notes of $888 issue to selling
shareholders for acquisition of Larus.
(g) Elimination of subsidiary capital stock for consolidating purposes.
(h) Common stock issued to selling shareholders (1,213,592 shares of Emrise
common stock) with a fair value of $1,000. Increase of common stock of $4
and increase to total paid in capital of $996.
(i) Warrants issued to acquire Larus valued at $72 using the Black-Scholes
formula.
(j) Elimination of Larus' retained earnings to reflect purchase accounting
rules.
F-21
EMRISE CORPORATION AND LARUS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004
(Dollars In Thousands, Except Per Share Data)
PRO FORMA
EMRISE LARUS ADJUSTMENT TOTALS
----------- ----------- ----------- -----------
Sales .................................... $ 12,624 $ 2,625 $ 15,249
Cost of sales ............................ 6,978 1,260 (60)(a) 8,178
----------- ----------- ----------- -----------
Gross profit ............................. 5,646 1,365 60 7,071
Selling and administration ............... 4,284 682 (15)(a) 4,991
40 (b)
Research and development, engineering .... 595 220 - 815
----------- ----------- ----------- -----------
Total .................................... 4,879 902 25 5,806
Operating profit ......................... 767 463 35 1,265
Interest expense ......................... (190) - (76)(c) (284)
(18)(d)
Other, net ............................... (36) 2 - (34)
----------- ----------- ----------- -----------
Income before tax ........................ 541 465 (59) 947
Income tax ............................... 102 181 (7)(e) 276
----------- ----------- ----------- -----------
Net income ............................... $ 439 $ 284 $ (52) $ 671
=========== =========== =========== ===========
Earnings per share - basic (f) ........... $ 0.02 $ 0.03
Earnings per share - diluted (f) ......... $ 0.02 $ 0.03
Shares outstanding - basic ............... 23,481 24,695
Shares outstanding - diluted ............. 24,352 25,566
---------------
(a) Reduction of $60 rent allocated to manufacturing overhead and $15 allocated to selling and
administration due to a recording of a liability in purchase accounting for an unfavorable lease.
(b) Amortization of intangible assets (technology and customer relationships) totaled $40 for the six
month period based on the following estimated values and service lives: technology - $500 and 10
years; customer relationships - $300 and 10 years
(c) Increase in interest cost of $76 for long-term notes. The long-term notes for $3,000 carry an
interest rate of 30-day LIBOR plus 1.0% (average interest rate of 5.% would have resulted in
interest expense of $76 for the six month period.)
(d) Increase of $18 for working capital interest. Working capital interest is expected to be 5.0% of
expected additional capital needs of approximately $700 on an annual basis.
(e) Income tax effect of additional income from the pro forma adjustments.
F-22
EMRISE CORPORATION AND LARUS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2004
(Dollars In Thousands, Except Per Share Data)
(f) The following table summarizes the combined pro forma basic and diluted earnings per share as if Emrise
had acquired Larus as of January 1, 2004:
PRO FORMA
EMRISE LARUS ADJUSTMENT TOTALS
----------- ----------- ----------- -----------
Earnings per share
Numerator:
Net income attributable to common stockholders .. $ 439 $ 284 $ (52) $ 671
Denominator:
Weighted average number of common shares
outstanding during the period - basic ........... 23,481 23,481
Common shares issued to acquire Larus ........... - 1,214 1,214
Adjusted weighted average shares - basic ........ 23,481 24,695
Incremental shares from assumed conversions
of warrants, options and preferred stock ........ 871 871
Adjusted weighted average shares ................ 24,352 25,566
Earnings per share - basic ......................... $ 0.02 $ 0.03
Earnings per share - diluted ....................... $ 0.02 $ 0.03
The warrants issued in the Larus acquisition to acquire 150,000 shares of Emrise common stock at $1.30 per
share were excluded from the diluted earnings per share calculation as the effect would be anti-dilutive.
F-23
(c) Exhibits.
--------
Number Description
------ -----------
2.1 Stock Purchase Agreement dated July 13, 2004 between MicroTel
International Inc.; Noel C. McDermott; Warren P. Yost; Noel C.
McDermott, as Trustee of the Noel C. McDermott Revocable Living
Trust dated December 19, 1995; and Warren P. Yost and Gail A.
Yost, as Co-Trustees Under Declaration of Trust dated March 9,
1988 (1)
2.2 Subordinated Secured Promissory Note dated July 13, 2004 in the
principal amount of $1,681,318.68 made by MicroTel International
Inc. in favor of Noel C. McDermott Revocable Living Trust dated
December 19, 1995 (2)
2.3 Subordinated Secured Promissory Note dated July 13, 2004 in the
principal amount of $1,318,681.32 made by MicroTel International
Inc. in favor of Warren P. Yost and Gail A. Yost, as Co-Trustees
Under Declaration of Trust dated March 9, 1988 (2)
2.4 Pledge and Security Agreement dated July 13, 2004 between
MicroTel International Inc.; Noel C. McDermott, as Collateral
Agent; Noel C. McDermott, as Trustee of the Noel C. McDermott
Revocable Living Trust dated December 19, 1995; and Warren P.
Yost and Gail A. Yost, as Co-Trustees Under Declaration of Trust
dated March 9, 1988 (2)
2.5 Intercreditor Agreement dated July 13, 2004 between MicroTel
International Inc.; Noel C. McDermott, as Trustee of the Noel C.
McDermott Revocable Living Trust dated December 19, 1995; and
Warren P. Yost and Gail A. Yost, as Co-Trustees Under Declaration
of Trust dated March 9, 1988 (2)
2.6 Continuing Guarantee dated July 13, 2004 made by Larus
Corporation in favor of Noel C. McDermott, as Trustee of the Noel
C. McDermott Revocable Living Trust dated December 19, 1995, and
Warren P. Yost and Gail A. Yost, as Co-Trustees Under Declaration
of Trust dated March 9, 1988 (2)
2.7 Continuing Guarantee dated July 13, 2004 made by Vista Labs
Incorporated in favor of Noel C. McDermott, as Trustee of the
Noel C. McDermott Revocable Living Trust dated December 19, 1995,
and Warren P. Yost and Gail A. Yost, as Co-Trustees Under
Declaration of Trust dated March 9, 1988 (2)
2.8 Continuing Guarantee dated July 13, 2004 made by CXR Telcom in
favor of Noel C. McDermott, as Trustee of the Noel C. McDermott
Revocable Living Trust dated December 19, 1995, and Warren P.
Yost and Gail A. Yost, as Co-Trustees Under Declaration of Trust
dated March 9, 1988 (2)
2.9 Security Agreement dated July 13, 2004 made by Larus Corporation
in favor of Noel C. McDermott, as Trustee of the Noel C.
McDermott Revocable Living Trust dated December 19, 1995, and
Warren P. Yost and Gail A. Yost, as Co-Trustees Under Declaration
of Trust dated March 9, 1988 (2)
2.10 Security Agreement dated July 13, 2004 made by Vista Labs
Incorporated in favor of Noel C. McDermott, as Trustee of the
Noel C. McDermott Revocable Living Trust dated December 19, 1995,
and Warren P. Yost and Gail A. Yost, as Co-Trustees Under
Declaration of Trust dated March 9, 1988 (2)
6
Number Description
------ -----------
2.11 Security Agreement dated July 13, 2004 made by CXR Telcom in
favor of Noel C. McDermott, as Trustee of the Noel C. McDermott
Revocable Living Trust dated December 19, 1995, and Warren P.
Yost and Gail A. Yost, as Co-Trustees Under Declaration of Trust
dated March 9, 1988 (2)
10.1 Commercial Lease dated July 13, 2004 between MicroTel
International Inc., as Tenant, and Noel C. McDermott and Warren
P. Yost, as Landlord, for the premises located at 894 Faulstich
Court, San Jose, California (2)
------------------------
(1) Filed with the Securities and Exchange Commission on
July 28, 2004 as an exhibit to the initial filing of
this Form 8-K and incorporated herein by reference.
(2) Filed with the Securities and Exchange Commission on
August 16, 2004 as an exhibit to Emrise's Form 10-Q
for June 30, 2004 and incorporated herein by
reference.
7
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 12, 2005 EMRISE CORPORATION
By: /S/ CARMINE T. OLIVA
-------------------------------
Carmine T. Oliva, Acting Chief
Financial Officer
8