-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C4t8K0YmpX89JaZYsASZhiQQm/PyOwe6XEuVrmv5x7zmRFPoJMdiQWgZjX8VUnYF sXxJQEiJNBw68/fXqg7Dnw== 0000950148-96-001071.txt : 19960531 0000950148-96-001071.hdr.sgml : 19960531 ACCESSION NUMBER: 0000950148-96-001071 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960328 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960530 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUARTERDECK CORP CENTRAL INDEX KEY: 0000707668 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 954320650 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19207 FILM NUMBER: 96574642 BUSINESS ADDRESS: STREET 1: 13160 MINDANAO WAY CITY: MARINA DEL REY STATE: CA ZIP: 90292 BUSINESS PHONE: 3103093700 MAIL ADDRESS: STREET 1: 13160 MINDANAO WAY CITY: MARINA DEL RAY STATE: CA ZIP: 90292 FORMER COMPANY: FORMER CONFORMED NAME: QUARTERDECK OFFICE SYSTEMS INC DATE OF NAME CHANGE: 19940510 8-K/A 1 FORM 8-K/A CURRENT REPORT FOR MARCH 28, 1996 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------------------- DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 28, 1996 COMMISSION FILE NUMBER 0-19207 QUARTERDECK CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 95-4320650 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13160 MINDANAO WAY, MARINA DEL REY, CALIFORNIA 90292 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 309-3700 - -------------------------------------------------------------------------------- 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS (AS PREVIOUSLY STATED IN FORM 8-K FILED ON APRIL 12, 1996) On March 28, 1996, Quarterdeck Corporation (the "Company") consummated the acquisition of Datastorm Technologies, Inc. ("Datastorm"), pursuant to the terms of the Agreement and Plan of Reorganization, dated as of March 28, 1996 (the "Reorganization Agreement"), by and among the Company, DTI Acquisition Corporation, a wholly-owned subsidiary of the Company ("Acquisition Sub"), Datastorm and the shareholders of Datastorm (the "Shareholders"). The acquisition of Datastorm was effectuated by way of a merger (the "Merger") of Acquisition Sub with and into Datastorm. As a result of the merger, Datastorm became a wholly-owned subsidiary of the Company. The merger is being treated as a "pooling of interests" for accounting purposes. Pursuant to the Reorganization Agreement, the Shareholders received an aggregate of 5,200,000 shares (the "shares") of common stock, $.001 par value of the Company ("Quarterdeck Common Stock"). Pursuant to the terms of the Reorganization Agreement and the Escrow Agreement, dated as of March 28, 1996, by and among the Company, American Stock Transfer and Trust Company, as Escrow Agent, Acquisition Sub and the Shareholders, 520,000 of the Shares were placed in escrow to satisfy potential indemnification obligations of the Shareholders under the Reorganization Agreement. The Shares were issued pursuant to an exemption under the Securities Act of 1933, as amended. In connection with the Merger, the Company and the Shareholders entered into a Registration Rights Agreement, dated as of March 28, 1996, by and among the Company and the Shareholders, pursuant to which the Shareholders are entitled to certain registration rights with respect to the Shares. Pursuant to the Registration Rights Agreement, the Company has agreed to file a registration statement with the Securities and Exchange Commission by April 28, 1996 to register the resale of up to 50% of the Shares, and to keep such registration statement effective through March 28, 1997. Datastorm develops and publishes a data communications package called Procomm Plus which runs on personal computers utilizing Microsoft Windows 95 and 3.1. Datastorm's product includes an integrated fax package, a Winsock-compliant TCP/IP stack and a complete set of graphical applications for accessing the Internet, all of which are designed to enable the user to more effectively and efficiently communicate with users at other computer sites. 2 3 ITEM 7. FINANCIAL STATEMENTS QUARTERDECK CORPORATION INDEX
PAGE NO. -------- (a) Financial statements of Datastorm Technologies, Inc. Consent of Independent Accountants....................................................... 5 Report of Independent Accountants as of December 31, 1995................................ 7 Balance Sheets as of December 31, 1995 and 1994.......................................... 8 Statements of Income and Retained Earnings for the years ended December 31, 1995 and 1994......................................................... 9 Statements of Cash Flows for the years ended December 31, 1995 and 1994.................. 10 Notes to Financial Statements - December 31, 1995 and 1994............................... 11 Consent of Independent Accountants....................................................... 17 Report of Independent Accountants as of December 31, 1993................................ 20 Balance Sheets as of December 31, 1993 and 1992.......................................... 21 Statements of Income for the years ended December 31, 1993 and 1992...................... 22 Statements of Retained Earnings for the years ended December 31, 1993 and 1992................................................................................. 23 Statements of Cash Flows for the years ended December 31 1993 and 1992................... 24 Notes to Financial Statements - December 31, 1993 and 1992............................... 26 (b) Unaudited Pro Forma Financial Information. Basis of Presentation.................................................................... 33 Unaudited Pro Forma Condensed Combining Balance Sheet as of September 30, 1995....................................................................... 34 Unaudited Pro Forma Condensed Combining Statements of Operations for the fiscal years ended September 30, 1995, 1994 and 1993................................. 35
3 4 Notes to Unaudited Pro Forma Condensed Combining Financial Statements.................... 38 The accompanying unaudited pro forma condensed combining financial statements of Quarterdeck Corporation and Datastorm Technologies, Inc. give retroactive effect to the acquisition which is being accounted for as a pooling of interests and, as a result, the unaudited pro forma condensed combining balance sheets and statements of operations are presented as if the combining companies had been combined for all periods presented. The unaudited pro forma condensed combining financial statements will become the historical financial statements of Quarterdeck Corporation. These unaudited pro forma condensed combining financial statements may not be indicative of the results that actually may be obtained in the future. The unaudited pro forma condensed combining financial statements, including the notes thereto, should be read in conjunction with the historical consolidated financial statements of Quarterdeck Corporation and Datastorm Technologies, Inc. SIGNATURE......................................................................................... 39
4 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated March 1, 1996, relating to the balance sheets of Datastorm Technologies, Inc. as of December 31, 1995 and 1994, and the related statements of income and changes in retained earnings, and cash flows for the years then ended, included in the Form 8-K/A of Quarterdeck Corporation dated May 24, 1996, into the previously filed registration statements (No. 33-96064 and No. 333-4606) on Form S-3, the registration statement (No. 333-03723) on Form S-4 and the registration statements (No. 333-01766 and No. 333-4602) on Form S-8 of Quarterdeck Corporation. \s\ Arthur Andersen LLP - ------------------------ St. Louis, Missouri, May 24, 1996 5 6 ARTHUR ANDERSEN LLP DATASTORM TECHNOLOGIES, INC. FINANCIAL STATEMENTS AND SCHEDULE AS OF DECEMBER 31, 1995 AND 1994 TOGETHER WITH AUDITORS' REPORT 6 7 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of DATASTORM Technologies, Inc.: We have audited the accompanying balance sheets of DATASTORM Technologies, Inc. (a Missouri corporation) as of December 31, 1995 and 1994, and the related statements of income and changes in retained earnings, and cash flows for the years then ended. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DATASTORM Technologies, Inc., as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying Schedule of Operating Expenses and Other Income is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in our audit of the basic financial statements, and in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. \s\ Arthur Andersen LLP - ----------------------- St. Louis, Missouri, March 1, 1996 7 8 DATASTORM TECHNOLOGIES, INC. BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
1995 1994 ----------- ----------- ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 95,293 $ 3,804,988 Marketable securities 15,688,916 9,875,607 Receivables 808,780 1,032,353 Inventories 630,718 671,137 Notes receivable from affiliate 469,427 30,000 Prepaid expenses and other current assets 121,171 135,418 ----------- ----------- Total current assets 17,814,305 15,549,503 EQUIPMENT 2,543,816 2,296,996 CAPITALIZED SOFTWARE COSTS 115,054 89,422 ----------- ----------- Total assets $20,473,175 $17,935,921 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 2,674,830 $ 4,045,906 Accrued royalties 2,464,155 969,217 Accrued vacation 1,124,636 876,440 Accrued payroll and related taxes 454,700 589,589 Accrued profit sharing 713,187 450,528 Accrued bonus 375,000 -- Deferred revenues 398,250 625,000 Other accrued liabilities 397,429 895,753 ----------- ----------- Total current liabilities 8,602,187 8,452,433 LOANS PAYABLE TO AFFILIATE 1,015,411 527,315 ----------- ----------- Total liabilities 9,617,598 8,979,748 ----------- ----------- STOCKHOLDERS' EQUITY Capital stock- Common stock, $10 par value; 3,000 shares authorized; 1,020 shares issued and outstanding 10,200 10,200 Retained earnings 10,706,229 8,945,973 Unrealized gain on marketable securities 139,148 -- ----------- ----------- Total stockholders' equity 10,855,577 8,956,173 ----------- ----------- Total liabilities and stockholders' equity $20,473,175 $17,935,921 =========== ===========
The accompanying notes are an integral part of these balance sheets. 8 9 DATASTORM TECHNOLOGIES, INC. STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 ------------ ------------ NET SALES $ 38,829,101 $ 42,401,969 COST OF SALES 16,356,073 11,507,352 ------------ ------------ Gross profit 22,473,028 30,894,617 ------------ ------------ OPERATING EXPENSES: Selling 2,950,830 2,029,655 General and administrative 13,061,897 12,659,635 ------------ ------------ Total operating expenses 16,012,727 14,689,290 ------------ ------------ Income from operations 6,460,301 16,205,327 OTHER INCOME (EXPENSE): Interest income 607,739 280,762 Other income (expense) 129,717 (243,370) ------------ ------------ Total other income, net 737,456 37,392 ------------ ------------ Net income 7,197,757 16,242,719 RETAINED EARNINGS, beginning of year 8,945,973 4,330,756 DIVIDENDS (5,437,501) (11,627,502) ------------ ------------ RETAINED EARNINGS, end of year $ 10,706,229 $ 8,945,973 ============ ============
The accompanying notes are an integral part of these statements. 9 10 DATASTORM TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,197,757 $ 16,242,719 Adjustments to reconcile net income to net cash flows provided by operating activities- Depreciation and amortization 1,199,787 917,630 Commission expense 488,096 527,315 Loss on sale or abandonment of assets 37,801 270,773 Changes in assets and liabilities- Receivables 223,573 (378,321) Inventories 40,419 10,122 Prepaid expenses and other current assets 14,247 8,794 Accounts payable (1,371,076) 3,732,112 Deferred revenues (226,750) 625,000 Accrued liabilities 1,747,580 936,863 ------------ ------------ Net cash flows provided by operating activities 9,351,434 22,893,007 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment (1,388,068) (1,500,817) Proceeds from sale of equipment 9,158 4,391 Additions to capitalized software costs (131,130) (108,212) Additions to notes receivable from affiliate (976,867) (30,000) Payments of notes receivable from affiliate 537,440 167,252 Purchases of marketable securities (70,833,024) (30,532,059) Proceeds from sale of marketable securities 65,158,863 23,841,441 ------------ ------------ Net cash flows used in investing activities (7,623,628) (8,158,004) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on loan payable -- (450,000) Payments of dividends (5,437,501) (11,627,502) ------------ ------------ Net cash flows used in financing activities (5,437,501) (12,077,502) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,709,695) 2,657,501 CASH AND CASH EQUIVALENTS, beginning of year 3,804,988 1,147,487 ------------ ------------ CASH AND CASH EQUIVALENTS, end of year $ 95,293 $ 3,804,988 ============ ============
The accompanying notes are an integral part of these statements. 10 11 DATASTORM TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 1. DESCRIPTION OF BUSINESS: DATASTORM Technologies, Inc. (the Company) is a Missouri S Corporation. The Company's products include communications software and related manuals. The software and manuals are reproduced by unrelated companies and are packaged by the Company at its facility in Columbia, Missouri. The Company sells its products to major software distributors for resale through software dealers throughout the world. In 1995 and 1994, sales to two distributors accounted for approximately 74% and 82%, respectively, of total net sales. Periodically, the Company introduces major new products and enhancements of existing products that can have a significant impact on the Company's net sales. In February 1996, the Company introduced a major new product PROCOMM PLUS for Windows 3.0. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Cash and Cash Equivalents The Company considers cash on hand and deposits in commercial banks or brokerage houses to be cash and cash equivalents. Marketable Securities The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," on January 1, 1994. All of the Company's marketable securities are classified as "available for sale" and are carried at fair value with the unrealized gains and losses reported as a separate component of stockholders' equity. The amortized cost of available-for-sale debt securities are adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in other income (expense). Realized gains and losses are included in other income (expense). The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in other income. Inventories Inventories consist primarily of software and manuals for resale and shipping materials, and are stated at the lower of cost (first-in, first-out) or market. Equipment Equipment is carried at cost. Depreciation and amortization are computed using both accelerated and straight-line methods over the estimated useful lives, generally ranging from three to seven years. Income Taxes The Company is an S corporation and files its income tax return on an accrual basis. As an S corporation, taxable income flows through to the owners of the Company; and, therefore, no provision for income taxes is provided. 11 12 - 2 - Revenue Recognition The Company recognizes revenue from the sale of software products upon shipment. Revenue from technical support agreements bundled with the initial licensing fee is deferred until the period in which the related services are provided. Certain limited rights of return from customers exist. Sales returns are recorded as reductions to net sales and totaled $1,951,893 in 1995 and $999,586 in 1994. Reclassification Certain reclassifications were made to the 1994 financial statements to conform to the 1995 presentation. 3. RECEIVABLES: Receivables consists of:
December 31 ------------------------------ 1995 1994 ----------- ----------- Due from customers $ 1,212,720 $ 969,038 Interest receivable 109,521 38,873 Miscellaneous 63,516 31,244 Allowance for sales returns (576,977) (6,802) ----------- ----------- $ 808,780 $ 1,032,353 =========== ===========
4. MARKETABLE SECURITIES: The amortized cost and estimated market values of marketable securities as of December 31, 1995, are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- ----------- Municipal bonds and municipal bond mutual funds $15,549,768 $142,210 $3,062 $15,688,916
As of December 31, 1994, estimated market values of marketable securities approximated amortized cost. The amortized cost and estimated market value of available-for-sale securities as of December 31, 1995, by contractual maturity, consisted of the following:
Estimated Amortized Market Cost Value ----------- ----------- Due in one year or less $15,549,768 $15,688,916 Due in one to five years -- -- Due in five years or greater -- -- ----------- ----------- $15,549,768 $15,688,916 =========== ===========
12 13 - 3 - 5. EQUIPMENT: Equipment consist of:
December 31 ---------------------------- 1995 1994 ----------- ----------- Furniture and fixtures $ 803,996 $ 587,576 Computers and other equipment 3,669,082 2,731,974 Vehicles 52,986 35,656 Purchased software for internal use 709,725 630,779 Leasehold improvements 99,114 99,114 ----------- ----------- Total 5,334,903 4,085,099 Accumulated depreciation and amortization (2,791,087) (1,788,103) ----------- ----------- $ 2,543,816 $ 2,296,996 =========== ===========
Depreciation and amortization expense totaled to $1,094,289 for 1995 and $801,453 for 1994. 6. CAPITALIZED SOFTWARE COSTS: The Company accounts for software costs in accordance with Statement of Financial Accounting Standards No. 86. Costs related to establishing the technological feasibility of software are charged to operations as incurred. Costs incurred after establishing technological feasibility are capitalized until the product is available for general distribution or is abandoned. Capitalized costs are reported at the lower of unamortized cost or net realizable value and amortized on the straight-line method over the shorter of estimated useful life or one year. Software development costs capitalized and related amortization were as follows:
December 31 ------------------------ 1995 1994 --------- --------- Beginning of year, net $ 89,422 $ 341,339 Additions, at cost 131,130 108,212 Amortization expense (105,498) (360,129) --------- --------- Capitalized software costs, net $ 115,054 $ 89,422 ========= =========
Research and development costs charged directly to cost of sales were $4,053,214 and $1,955,346 in 1995 and 1994, respectively. During 1994, the Company charged $251,072 to other expense relating to software costs for abandoned technology. 13 14 - 4 - 7. RELATED-PARTY TRANSACTIONS: DATASTORM Ltd. The Company sells products to DATASTORM Ltd., a foreign company affiliated through common ownership. Sales to DATASTORM Ltd. totaled $2,016,458 and $1,413,383 in 1995 and 1994, respectively. As a result of these sales, outstanding receivables from DATASTORM Ltd. as of December 31, 1995 and 1994, totaled $674,220 and $409,902, respectively. Three Guys With a Building The Company leases office and warehouse space from Three Guys With a Building partnership, a company affiliated through common ownership. The lease expires on December 31, 2001, however, upon completion of a new office building currently under construction for the Company, the existing lease may be terminated in exchange for the Company entering into a long-term lease on the new building. Lease expense for 1995 and 1994 totaled $685,703 and $666,948, respectively. At December 31, 1995, the Company has a $469,427 note receivable from Three Guys with a Building partnership. The note bears interest at the applicable federal midterm rate (5.91% as of December 31, 1995), and is payable on demand. Intersoft, Inc. The Company owed Intersoft, Inc., an Interest Charge Domestic International Sales Corporation ("IC-DISC") affiliated through common ownership, $1,015,411 and $527,315 as of December 31, 1995 and 1994, for commission expenses and interest related to international sales. Loans are entered into at the end of each month for each month's commission expense. Simple interest is accrued at the applicable federal midterm rate (5.91% as of December 31, 1995). The loans and related accrued interest are due on December 31, 1998. Intersoft, Inc. was formed on December 31, 1993. An election to treat Intersoft, Inc. as an IC-DISC was made effective January 1, 1994. Employment Contracts The Company has employment contracts, with each of the three officers of the Company, that define the officers' responsibilities, annual compensation, vacation and fringe benefits, means of termination, and covenant-not-to-compete. The contracts are effective until the agreement terminates as defined within the contract. 8. 401(k) AND PROFIT SHARING PLAN: Employees of the Company participate in the DATASTORM Technologies, Inc., Integrated Profit Sharing Plan and Trust (the Plan). Annually, the Company contributes to the Plan an amount determined by the Board at its discretion. Profit sharing expense totaled $713,187 and $450,528 for the years ended December 31, 1995 and 1994, respectively. To participate in the Plan, an employee must complete six months of service with the Company and attain the age of 20.5 years. To qualify for the Employer Contribution to the Plan, participants must complete 1,000 hours of service during a plan year and be employed by the Company on the last day of the plan year. For each plan year the Employer contributes to the Plan, the Trustees will allocate this contribution to the separate accounts maintained for participants. An employee-participant may (but is not required to) contribute to the Plan. Participant accounts are invested among five investment funds as directed by the participant. 14 15 - 5 - 9. COMMITMENTS AND CONTINGENCIES: The Company leases facilities and equipment under leases expiring through 2011. Rent expense under these agreements totaled $871,456 and $758,953 in fiscal years 1995 and 1994, respectively. Future minimum lease payments under all noncancelable operating leases are as follows: 1996 $ 821,676 1997 713,326 1998 706,874 1999 704,211 2000 702,171 Thereafter 7,723,881 ----------- Total minimum lease payments $11,372,139 ===========
Cross Stock Purchase Agreement The Company has a cross stock purchase agreement with all of the stockholders of the Company that provides for the repurchase of common stock in certain situations. The circumstances under which the Company would repurchase the shares would be in the event of a stockholder's death, the permanent disability of a stockholder, retirement of a stockholder or voluntary sales of shares during the stockholder's lifetime. The price to be paid for the shares and the payment methods and terms are set forth in the agreement. Line of Credit The Company has a $500,000 line of credit with a bank that is secured by accounts receivable and is charged interest at prime rate, adjusted quarterly. The Company did not use this line of credit during 1995 or 1994. Software License Arrangements The Company enters into development and license arrangements with individuals or other companies relating to software technology. Certain agreements call for minimum guaranteed license fees and advance royalties that are recoupable against future royalties. Royalty expense was $3,069,450 and $4,761,685 in 1995 and 1994, respectively. Future minimum guaranteed license fees due under these agreements totaled $1,694,735 as of December 31, 1995, and are reflected as accrued royalties on the balance sheet. 15 16 DATASTORM TECHNOLOGIES, INC. SCHEDULE OF OPERATING EXPENSES AND OTHER INCOME FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 ------------ ------------ SELLING EXPENSES: Product advertising $ 2,082,686 $ 1,384,808 Marketing salaries 833,991 598,457 Delivery expense - net 26,651 57,561 Bad debts 7,502 (11,171) ------------ ------------ Total selling expenses $ 2,950,830 $ 2,029,655 ============ ============ GENERAL AND ADMINISTRATIVE EXPENSES: Salaries $ 5,750,714 $ 6,855,002 Payroll taxes 830,250 584,707 Employee benefits 1,376,932 805,789 Contract labor 1,947 37,176 Equipment rentals, maintenance and repairs 194,200 62,282 Vehicle insurance, maintenance and repairs 3,474 578 Building rentals, maintenance and repairs 893,102 820,645 Utilities 360,198 295,188 Depreciation and amortization of equipment 1,094,289 801,453 Professional service fees 607,385 772,691 Travel and entertainment 368,289 328,324 Office supplies and expenses 474,853 400,895 Postage 149,112 160,385 Insurance 159,322 118,915 Other taxes 92,548 48,410 Interest 51,968 17,267 Donations 12,226 24,075 Miscellaneous 641,088 525,853 ------------ ------------ Total general and administrative expenses $ 13,061,897 $ 12,659,635 ============ ============ OTHER INCOME (EXPENSE): Interest income $ 607,739 $ 280,762 Abandoned technology -- (251,072) Loss on disposal of equipment (37,801) (19,701) Miscellaneous 167,518 27,403 ------------ ------------ Other income, net $ 737,456 $ 37,392 ============ ============
16 17 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the following registration statements: Forms S-3; Nos. 33-96064, and 333-4606 Form S-4; No. 333-03723 Forms S-8; Nos. 333-01766, and 333-4602 of Quarterdeck Corporation of our report dated February 25, 1994, with respect to the balance sheets of Datastorm Technologies, Inc. as of December 31, 1993 and 1992 and the related statements of Income and Retained Earnings and statements of Cash Flows for each of the years in the two year period ended December 31, 1993, which report appears in the Form 8-K/A of Quarterdeck Corporation dated May 24, 1996. \s\ Williams-Keepers - -------------------- Columbia, Missouri, May 24, 1996 17 18 REPORT OF DATASTORM TECHNOLOGIES, INC. COLUMBIA, MISSOURI December 31, 1993 18 19 C O N T E N T S
Page INDEPENDENT ACCOUNTANTS' REPORT 20 FINANCIAL STATEMENTS Balance sheets 21 Statements of income 22 Statements of retained earnings 23 Statements of cash flows 24 Notes to financial statements 26 SUPPLEMENTARY INFORMATION Schedule of operating expenses and other income 32
19 20 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors of Datastorm Technologies, Inc. Columbia, Missouri We have audited the accompanying balance sheets of Datastorm Technologies, Inc. as of December 31, 1993 and 1992, and the related statements of income, retained earnings and cash flows for the years then ended. These financial statements are the responsibility of Datastorm Technologies, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Datastorm Technologies, Inc., as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying information on page 12 is presented for purposes of analysis and is not necessary for a fair presentation of the basic financial statements in conformity with generally accepted accounting principles. The accompanying information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is stated fairly in all material respects in relation to the basic financial statements taken as a whole. \s\ Williams-Keepers, LLP February 25, 1994 20 21 DATASTORM TECHNOLOGIES, INC. BALANCE SHEETS December 31, 1993 and 1992
1993 1992 ASSETS CURRENT ASSETS Cash and cash equivalents $1,147,487 $2,924,629 Accounts receivable (Notes 2, 6 and 8) 654,032 779,911 Notes receivable (Notes 2 and 6) 167,252 401,475 Inventories 681,259 716,004 Prepaid expenses 144,212 180,813 ---------- ---------- Total current assets 2,794,242 5,002,832 INVESTMENTS (Note 9) 3,192,109 1,643,966 FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET (Note 3) 1,621,724 1,080,859 NOTES RECEIVABLE (Notes 2 and 6) - 565,743 SOFTWARE DEVELOPMENT COSTS, NET (Note 4) 341,339 845,255 ---------- ---------- Total assets $7,949,414 $9,138,655 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 313,794 $ 406,672 Accrued payroll and related taxes 116,461 120,652 Accrued vacation 275,850 356,420 Accrued profit sharing (Note 7) 429,240 352,006 Accrued other liabilities 2,023,113 728,580 Accrued dividends payable - 1,875,000 Accrued bonus payable - 625,000 Notes payable - current portion (Note 5) 450,000 - ---------- ---------- Total current liabilities 3,608,458 4,464,330 NOTE PAYABLE (Note 5) - 450,000 ---------- ---------- Total liabilities 3,608,458 4,914,330 ---------- ---------- STOCKHOLDERS' EQUITY (Note 8) Capital stock Common $10 par value; authorized 3,000 shares; issued and outstanding 1,020 shares 10,200 10,200 Retained earnings 4,330,756 4,214,125 ---------- ---------- Total stockholders' equity 4,340,956 4,224,325 ---------- ---------- Total liabilities and stockholders' equity $7,949,414 $9,138,655 ========== ==========
The Notes to Financial Statements are an integral part of these statements. 21 22 DATASTORM TECHNOLOGIES, INC. STATEMENTS OF INCOME Years Ended December 31, 1993 and 1992
1993 1992 SALES $ 26,769,386 $ 24,983,348 COST OF SALES 6,549,039 6,282,083 ------------ ------------ Gross profit 20,220,347 18,701,265 ------------ ------------ OPERATING EXPENSES Selling 2,215,254 2,660,368 General and administrative 8,968,765 7,764,667 ------------ ------------ Total operating expenses 11,184,019 10,425,035 ------------ ------------ Income from operations 9,036,328 8,276,230 OTHER INCOME (LOSS) - NET 268,982 (4,657) ------------ ------------ Net income $ 9,305,310 $ 8,271,573 ============ ============
The Notes to Financial Statements are an integral part of these statements. 22 23 DATASTORM TECHNOLOGIES, INC. STATEMENTS OF RETAINED EARNINGS Years Ended December 31, 1993 and 1992
1993 1992 Balance, beginning of year $ 4,214,125 $ 2,667,534 Net income 9,305,310 8,271,573 Dividends (9,188,679) (6,724,982) ----------- ------------ Balance, end of year $ 4,330,756 $ 4,214,125 =========== ============
The Notes to Financial Statements are an integral part of these statements. 23 24 DATASTORM TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 1993 and 1992
1993 1992 Cash flows provided by operating activities: Net income $ 9,305,310 $ 8,271,573 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization of fixed assets 475,368 324,596 Amortization of software technology 509,083 533,423 Loss on disposal of fixed assets 3,326 184,976 Adjustments for (increases) decreases in operating assets and increases (decreases) in operating liabilities: Accounts receivable 125,879 115,403 Inventory 34,745 (159,353) Prepaid expenses 36,601 (125,502) Accounts payable (92,877) 337,472 Accrued payroll (4,191) 63,404 Accrued vacation (80,570) 210,078 Profit sharing payable 77,234 158,335 Accrued bonuses (625,000) 625,000 Other accrued liabilities 1,294,532 342,537 ------------ ----------- Net cash flows provided by operating activities 11,059,440 10,881,942 ------------ ----------- Cash flows (used) by investing activities: Purchases of furniture, equipment and leasehold improvements (1,019,559) (868,626) (Increase) in software development costs (5,167) (647,581) (Increase) decrease in notes receivable 799,966 (515,572) (Increase) in investments (1,548,143) (1,643,966) ------------ ----------- Net cash flows (used) by investing activities (1,772,903) (3,675,745) ------------ ----------- Cash flows (used) by financing activities: Increase in note payable - 450,000 Payments of dividends (11,063,679) (4,849,983) ------------ ----------- Net cash flows (used) by financing activities (11,063,679) (4,399,983) ------------ ----------- Net increase (decrease) in cash and cash equivalents (1,777,142) 2,806,214 Cash and cash equivalents, beginning of year 2,924,629 118,415 ------------ ----------- Cash and cash equivalents, end of year $ 1,147,487 $ 2,924,629 ============ =========== Supplementary information:
The Notes to Financial Statements are an integral part of these statements. 24 25 DATASTORM TECHNOLOGIES, INC. Interest paid $ 16,530 $ 19,270 =========== ===========
The Notes to Financial Statements are an integral part of these statements. 25 26 DATASTORM TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Cash and Cash Equivalents: For the Statement of Cash Flows, the Company considers cash on hand and deposits in commercial banks or brokerage houses to be cash and cash equivalents. Investments: Investments are accounted for at cost and adjusted for unamortized premiums and discounts. Inventories: Inventories consist primarily of goods for resale and shipping materials and are stated at the lower of cost (first-in first-out) or market. Prepaid Expenses: Prepaid expenses are carried at cost and consist primarily of advance deposits for product purchases. Prepaid expenses will be realized within one year. Furniture, Equipment, and Leasehold Improvements: Furniture, equipment, and leasehold improvements are carried at cost. Depreciation is computed using both accelerated and straight-line methods for both tax and financial statement purposes using the following estimated useful lives.
Years ----- Furniture and fixtures 7 Equipment 5 Van 5 Software 5 Leasehold improvements 18
Cooperative Advertising Credits: The Company grants certain distributors credits to be used for future advertising. The credits are generated based on the volume of distributors' purchases of the Company's products. At December 31, 1993 and 1992, respectively, the estimated amount of outstanding credits was $248,800. These have been recorded as accrued other liabilities. 26 27 DATASTORM TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - Continued Note 1. Summary of Significant Accounting Policies - Continued Income Taxes: The Company is an S corporation and files its income tax return on an accrual basis. As an S Corporation, taxable income flows through to the owners of the Company and is reported on their personal income tax returns; thus, no provision for income taxes is reported at the corporate level. Revenue Recognition: The Company recognizes revenue from the sale of software when the product is delivered. Reclassification: Certain balances for 1992 have been reclassified for comparative presentation. Note 2. Accounts and Notes Receivable The net accounts receivable balance consists of:
December 31, 1993 1992 Due from customers (see Note 6 regarding related parties) $ 630,665 $ 764,191 Estimated bundling receivables 3,819 45,000 Employee notes receivable 6,351 2,876 Allowance for bad debts - - Allowance for sales returns - (70,697) Allowance for sales discounts (260) (1,161) Interest and other receivables 13,457 39,702 --------- ---------- $ 654,032 $ 779,911 ========= ========== The notes receivable balance consists of: December 31, 1993 1992 Unsecured note receivable from an affiliated company, interest at 7.5%. No specified maturity date. (Note 6) $ - $ 143,007 Unsecured note receivable from an affiliated company, interest at 6%. Monthly principal and interest payments of $25,074, amortizing principal balance by July 1, 1994. (Note 6) 167,252 824,211 --------- ---------- 167,252 967,218 Current 167,252 401,475 --------- ---------- Long term $ - $ 565,743 ========= ==========
27 28 DATASTORM TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - Continued Note 3. Furniture, Equipment and Leasehold Improvements Furniture, equipment and leasehold improvements consists of:
December 31, 1993 1992 Furniture and fixtures $ 477,164 $ 305,247 Equipment 1,676,350 1,196,583 Van 15,470 15,470 Software 448,970 89,413 Leasehold improvements 42,311 41,246 ---------- ---------- Total 2,660,265 1,647,959 Accumulated depreciation (1,038,541) (567,100) ---------- ---------- $1,621,724 $1,080,859 ========== ==========
Depreciation and amortization expense amounted to $475,368 for 1993 and $324,596 for 1992. Note 4. Software Development Costs The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86. Software development costs related to establishing the technological feasibility of software are charged to operations as incurred. Software development costs incurred after establishing the technological feasibility are capitalized until the product is available for general distribution, and are amortized over twelve months. Software development costs capitalized and related amortization were as follows:
December 31, 1993 1992 Software development capitalized costs $ 850,422 $1,378,678 Amortization of capitalized costs (509,083) $ (533,423) ---------- ---------- Capitalized costs, net $ 341,339 $ 845,255 ========== ==========
Amortization of software development costs totalled $509,083 and $533,423 for the years ended December 31, 1993 and 1992, respectively. Note 5. Note Payable
1993 1992 Demand note payable to a bank, interest computed at a rate of 4.4%. Principal and interest are due on March 5, 1993. Secured by real estate owned by an affiliated partnership. On March 5, 1993, the Company paid the accrued interest and renewed the note with a new maturity date of March 5, 1994, at 4.0% interest. $ - $ 450,000
28 29 DATASTORM TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - Continued Note 5. Note Payable - Continued Demand note payable to a bank, interest computed at a rate of 4.0%. Principal and interest are due on March 5, 1994. Secured by real estate owned by an affiliated partnership. $ 450,000 $ - --------- --------- $ 450,000 $ 450,000 ========= =========
Note 6. Related Party Transactions Datastorm Ltd. The Company sells products to Datastorm Ltd., a foreign company affiliated through common ownership. Sales to Datastorm Ltd. totalled $1,382,529 and $584,337 in 1993 and 1992, respectively. As a result of these sales, outstanding trade receivables from Datastorm Ltd. at December 31, 1993 and 1992, totalled $479,251 and $320,157, respectively, and are included in the Due From Customers totals disclosed in Note 2. The Company had a note receivable from Datastorm Ltd. with interest at 7.5%. Principal outstanding at December 31, 1993 and 1992, totalled $-0- and $143,007, respectively (See Note 2). Three Guys With A Building The Company leases office and warehouse space from Three Guys With A Building partnership, a company affiliated through common ownership. The lease terminates in December 1994, with two year renewal options through December 31, 1998, and right of first refusal options thereafter. The agreement also has a provision that allows the lessor to adjust rent in January 1994, and every 12 months thereafter, based on the Consumer Price Index. Lease expense for 1993 and 1992 totalled $631,725 and $575,214, respectively. Minimum required lease payments as of December 31, 1993 are: 1994 666,948 ---------- Total $ 666,948 ==========
The Company has a note receivable from Three Guys With A Building partnership. Interest accrues at 6% of the unpaid principal. Payments of principal and interest of $25,074 are required monthly, paying off in July 1994. Principal outstanding at December 31, 1993 and 1992, totalled $167,252 and $824,211, respectively. (See Note 2.) GarvinSoft, Inc. The Company owed GarvinSoft, Inc., a foreign sales corporation affiliated through common ownership, $100,000 and $98,421 at December 31, 1993 and 1992, respectively, for commission expenses related to international sales. The expense is included with accrued other liabilities. 29 30 DATASTORM TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - Continued Note 7. Profit Sharing Plan Employees of the Company participate in the Datastorm Technologies, Inc., Integrated Profit Sharing Plan and Trust (the Plan). Annually, the Company contributes to the Plan an amount determined by the Board at its discretion. Profit sharing expense totalled $429,240 and $352,006, for the years ended December 31, 1993 and 1992, respectively. To participate in the Plan, an employee must complete 1,000 hours of service during a Plan year, attain age 20 1/2 and be employed by the Company on the last day of the Plan year. An employee - participant may (but is not required to) contribute to the Plan. The Plan is an integrated profit sharing plan, which means the Plan takes into account contributions the Employer makes for employees under the Federal Social Security Act in making Employer contribution allocations. For each plan year the Employer contributes to the Plan, the Trustees will allocate this contribution to the separate accounts maintained for participants. Participants prior to September 1, 1989 became 100% vested in their account balance after two years of service. Participants joining the plan after September 1, 1989 become 100% vested after six years of service. Regardless of length of service a participant becomes 100% vested in his/her account balance when separating employment on or after normal retirement age, upon permanent disability, or upon death. Note 8. Contingent Liabilities Cross Stock Purchase Agreement: The Company has a cross stock purchase agreement with the shareholders of the Company which provides for the repurchase of currently outstanding shares by the Company. The circumstances under which the Company would repurchase the shares would be in the event of a stockholder's death, the permanent disability of a stockholder, retirement of a stockholder, or voluntary sales of shares during the stockholder's lifetime. The price to be paid for the shares and the payment methods and terms are set forth in the agreement. Line of Credit: The Company has a $500,000 open line of credit with a bank that is secured by accounts receivable and is charged interest at prime rate, adjusted quarterly. The balance outstanding was $0 at December 31, 1993 and 1992, respectively. The Company did not use this line of credit during 1993 or 1992. 30 31 DATASTORM TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - Continued Note 8. Contingent Liabilities - Continued Software Licensee Arrangements: The Company, as a part of ongoing efforts to remain at the leading edge of software technologies, in the normal course of business enters into arrangements with individuals or other companies relating to software technology license or purchase rights. These arrangements may call for lump sum or royalty payments to be made by the Company if certain products or product derivatives are sold to customers of the Company. Note 9. Investments Investments at December 31, 1993 and 1992 consist of:
Approximate 1993 Carry Value Market Value Municipal bonds $ 3,192,109 $ 3,179,158 ----------- ----------- $ 3,192,109 $ 3,179,158 =========== ===========
1992 Corporate Notes $ 1,639,966 $ 1,624,386 Other 4,000 4,000 ----------- ----------- $ 1,643,966 $ 1,628,386 =========== ===========
31 32 DATASTORM TECHNOLOGIES, INC. SCHEDULE OF OPERATING EXPENSES AND OTHER INCOME For the Years Ended December 31, 1993 and 1992
1993 1992 Selling expenses: Product advertising $ 496,401 $ 1,324,284 Technical support 1,155,662 991,309 Marketing salaries 449,107 338,726 Delivery (income) expense - net 77,411 (7,103) Bad debts 36,292 12,515 Miscellaneous 381 637 ----------- ----------- Total selling expenses $ 2,215,254 $ 2,660,368 =========== =========== General and administrative expenses: Salaries $ 5,344,538 $ 4,284,459 Payroll taxes 339,324 239,347 Employee benefits 687,121 513,226 Contract labor 32,763 105,001 Equipment rentals, maintenance and repairs 25,941 21,050 Vehicle insurance, maintenance and repairs 1,014 720 Building rentals, maintenance and repairs 677,521 625,066 Utilities 219,763 198,698 Depreciation and amortization of fixed assets 475,367 324,596 Professional service fees 233,813 245,679 Travel and entertainment 197,784 312,718 Office supplies and expenses 256,319 212,525 Postage 78,759 293,028 Insurance 123,016 74,558 Other taxes 33,625 7,533 Interest 14,630 22,520 Donations 15,660 19,265 Miscellaneous 211,807 264,678 ----------- ----------- Total general and administrative expenses $ 8,968,765 $ 7,764,667 =========== =========== Other income (loss): Interest income $ 241,046 $ 156,483 Royalties 31,262 23,836 Loss on disposal of equipment (3,326) (184,976) ----------- ----------- Other income (loss) - net $ 268,982 $ (4,657) =========== ===========
32 33 QUARTERDECK CORPORATION AND DATASTORM TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS The following Unaudited Pro Forma Condensed Combining Balance Sheet as of September 30, 1995 and the Unaudited Pro Forma Condensed Combining Statements of Operations for the fiscal years ended September 30, 1995, 1994 and 1993, have been prepared giving effect to the acquisition of Datastorm Technologies, Inc. ("Datastorm") by Quarterdeck Corporation ("Quarterdeck"). On March 28, 1996, Quarterdeck acquired 100% of the common stock of Datastorm in exchange for 5,200,000 shares of Quarterdeck Common Stock. This transaction has been accounted for as a pooling of interests, and, as a result, the unaudited pro forma condensed combining financial statements are presented as if the combining companies had been combined for all periods presented. Datastorm had a calendar year end and accordingly, the Datastorm Statements of Operations for the years ended December 31, 1995, 1994 and 1993 have been combined with the Quarterdeck Statements of Operations for the fiscal years ended September 30, 1995, 1994 and 1993. The Datastorm historical amounts included in the accompanying unaudited pro forma condensed combining financial statements include the results of operations, for the year ended December 31, 1995 and financial position as of December 31, 1995, of an entity under common control with Datastorm which was acquired as part of the Datastorm acquisition, Datastorm Technologies Limited, a registered United Kingdom Company. Intercompany transactions have been eliminated in the consolidation of Datastorm. The results from this entity are immaterial for all periods prior to January 1, 1995 and are, therefore, not included. Certain other amounts have been reclassified to provide consistent presentation. The historical financial statements of Quarterdeck as of September 30, 1995, and for each of the years in the three year period then ended, reflect the acquisition and pooling with Inset Systems, Inc. ("Inset") as reported in the Current Report on Form 8-K dated January 11, 1996. 33 34 QUARTERDECK CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET AS OF SEPTEMBER 30, 1995 (AMOUNTS IN THOUSANDS)
ASSETS QUARTERDECK DATASTORM HISTORICAL HISTORICAL PRO FORMA SEPTEMBER 30, DECEMBER 31, ADJUSTMENTS PRO FORMA 1995 1995 (NOTE 5) COMBINED ------------- ------------ ----------- --------- Current assets: Cash and short-term investments $ 23,369 $ 16,300 $ 39,669 Trade Accounts receivable 12,607 1,014 13,621 Deferred tax assets 2,178 -- 2,178 Inventories 1,964 317 2,281 Note receivable from related party-building 469 (469) -- Other current assets 3,636 370 4,006 -------- -------- -------- -------- Total current assets 43,754 18,470 (469) 61,755 Note receivable from related party-building 469 469 Equipment and leasehold improvements 5,731 2,604 8,335 Capitalized software costs 2,692 115 2,807 Other assets 3,318 15 3,333 -------- -------- -------- -------- $ 55,495 $ 21,204 $ 76,699 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 8,051 $ 5,531 $ 13,582 Accrued liabilities 10,029 3,929 1,015 14,973 Current portion of long-term obligations 255 255 Accrued acquisition, restructuring and other charges 3,455 3,455 -------- -------- -------- -------- Total current liabilities 21,790 9,460 1,015 32,265 Loan payable - affiliate 1,015 (1,015) -- Long-term obligations, less current portion 164 -- 164 -------- -------- -------- -------- 21,954 10,475 32,429 Stockholders' equity: (see Note 5) Preferred stock (authorized: 2,000 shares) -- Common stock (authorized: 50,000 shares) 26 10 (5) 31 Treasury stock (559) -- (559) Additional paid-in capital 29,269 -- 10,724 39,993 Retained earnings 5,359 10,719 (10,719) 5,359 Foreign currency translation adjustment (554) -- (554) -------- -------- -------- -------- Total stockholders' equity 33,541 10,729 44,270 -------- -------- -------- -------- $ 55,495 $ 21,204 -- $ 76,699 ======== ======== ======== ========
See notes to unaudited pro forma condensed combining balance sheet 34 35 QUARTERDECK CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 (AMOUNTS IN THOUSANDS)
QUARTERDECK DATASTORM 12 MONTHS ENDED 12 MONTHS ENDED SEPTEMBER 30, DECEMBER 31, PRO FORMA 1995 1995 COMBINED --------------- --------------- --------- Net revenues $77,107 $40,499 $117,606 Cost of revenues 18,848 16,036 34,884 ------- ------- -------- Gross margin 58,259 24,463 82,722 Operating expenses: Research and development 10,106 4,180 14,286 Sales and marketing 25,128 5,496 30,624 General and administrative 12,424 8,280 20,704 Restructuring and acquisition costs 7,409 -- 7,409 ------- ------- -------- Total operating expenses 55,067 17,956 73,023 ------- ------- -------- Operating income 3,192 6,507 9,699 Interest income, net 1,283 601 1,884 ------- ------- -------- Income before income taxes 4,475 7,108 11,583 Provision for income taxes 213 118 331 ------- ------- -------- Net income $ 4,262 $ 6,990 $ 11,252 ======= ======= ======== Net income per share: Primary $ 0.16 $ 0.35 ======= ======== Fully diluted $ 0.15 $ 0.34 ======= ======== Shares used to compute net income per share: Primary 26,857 5,200 32,057 ======= ======= ======== Fully diluted 27,798 5,200 32,998 ======= ======= ======== Additional unaudited pro forma data: Income before income taxes $ 4,475 $ 7,108 $ 11,583 Pro forma income taxes 918 2,488 3,406 ------- ------- -------- Pro forma net income $ 3,557 $ 4,620 $ 8,177 ======= ======= ======== Pro forma net income per share: Primary $ 0.13 $ 0.26 ======= ======== Fully diluted $ 0.13 $ 0.25 ======= ========
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS 35 36 QUARTERDECK CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994 (AMOUNTS IN THOUSANDS)
QUARTERDECK DATASTORM 12 MONTHS ENDED 12 MONTHS ENDED SEPTEMBER 30, DECEMBER 31, PRO FORMA 1994 1994 COMBINED --------------- --------------- --------- Net revenues $ 42,313 $ 42,402 $ 84,715 Cost of revenues 16,667 10,736 27,403 -------- -------- -------- Gross margin 25,646 31,666 57,312 Operating expenses: Research and development 4,963 2,557 7,520 Sales and marketing 23,143 3,964 27,107 General and administrative 11,722 9,186 20,908 Restructuring costs 13,478 -- 13,478 -------- -------- -------- Total operating expenses 53,306 15,707 69,013 -------- -------- -------- Operating income (loss) (27,660) 15,959 (11,701) Interest income (expense), net 811 283 1,094 -------- -------- -------- Income (loss) before income taxes (26,849) 16,242 (10,607) Provision (benefit) for income taxes (5,982) -- (5,982) -------- -------- -------- Net income (loss) $(20,867) $ 16,242 ($ 4,625) ======== ======== ======== Net income (loss) per share: ($ 0.87) ($ 0.16) ======== ======== Shares used to compute net income (loss) per share: 23,995 5,200 29,195 ======== ======== ======== Additional unaudited pro forma data: Income (loss) before income taxes ($26,849) $ 16,242 ($10,607) Pro forma income taxes (5,109) 5,685 576 -------- -------- -------- Pro forma net income (loss) ($21,740) $ 10,557 ($11,183) ======== ======== ======== Pro forma net income (loss) per share: ($ 0.91) ($ 0.38) ======== ========
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS 36 37 QUARTERDECK CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1993 (AMOUNTS IN THOUSANDS)
QUARTERDECK DATASTORM 12 MONTHS ENDED 12 MONTHS ENDED SEPTEMBER 30, DECEMBER 31, PRO FORMA 1993 1993 COMBINED --------------- --------------- --------- Net revenues $56,780 $26,798 $83,578 Cost of revenues 16,829 7,705 24,534 ------- ------- ------- Gross margin 39,951 19,093 59,044 Operating expenses: Research and development 2,589 -- 2,589 Sales and marketing 24,715 1,060 25,775 General and administrative 11,747 8,969 20,716 ------- ------- ------- Total operating expenses 39,051 10,029 49,080 ------- ------- ------- Operating income 900 9,064 9,964 Interest income, net 903 241 1,144 ------- ------- ------- Income before income taxes 1,803 9,305 11,108 Provision for income taxes 639 -- 639 ------- ------- ------- Net income $ 1,164 $ 9,305 $10,469 ======= ======= ======= Net income per share: $ 0.05 $ 0.35 ======= ======= Shares used to compute net income per share: 24,521 5,200 29,721 ======= ======= ======= Additional unaudited pro forma data: Income before income taxes $ 1,803 $ 9,305 $11,108 Pro forma income taxes 720 3,257 3,977 ------- ------- ------- Pro forma net income $ 1,083 $ 6,048 $ 7,131 ======= ======= ======= Pro forma net income per share: $ 0.04 $ 0.24 ======= =======
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS 37 38 QUARTERDECK CORPORATION AND DATASTORM TECHNOLOGIES, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEETS AND UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
1. These unaudited pro forma condensed combining balance sheet and statements of operations reflect the financial position and results of operations of Quarterdeck Corporation ("Quarterdeck") and Datastorm Technologies, Inc. The financial position and results of operation of Datastorm Technologies Ltd. are included for the year ended and as of September 30, 1995. 2. The pro forma condensed combining statements of operations of Quarterdeck and Datastorm were prepared as if the acquisition occurred as of the beginning of the periods presented and are not necessarily indicative of operating results which would have been achieved had the acquisition been consummated at the beginning of such period and should not be construed as representative of future operations. 3. The pro forma condensed combining financial statements should be read in conjunction with the 1995 Annual Report on Form 10-K of Quarterdeck, the Quarterly Report on Form 10-Q of Quarterdeck for the period ended March 31, 1996, the current report on Form 8-K regarding Quarterdeck's acquisition of Datastorm filed with the Securities and Exchange Commission on April 12, 1996 and the audited financial statements of Datastorm included in this Form 8-K filing. On March 28, 1996, Quarterdeck acquired Datastorm in exchange for 5,200,000 shares of Quarterdeck common stock in a transaction which was accounted for as a pooling of interests. Accordingly, all financial information has been restated to reflect the combined operations of Datastorm and Quarterdeck. Due to differing year ends of Datastorm and Quarterdeck, financial information related to Datastorm's fiscal years ended December 31, 1995, 1994 and 1993 were combined with financial information related to Quarterdeck's fiscal years ended September 30, 1995, 1994 and 1993, respectively. 4. Adjustments have been made to reflect the exchange of Datastorm's common stock for Quarterdeck common stock. 5. Certain adjustments and reclassifications have been made to the Datastorm financial statements in the unaudited pro forma condensed combining financial statements to conform to Quarterdeck presentation and to reflect the reclassification of undistributed earnings of Datastorm to additional paid in capital upon termination of Datastorm's S corporation status. These reclassifications and adjustments have been made to all periods presented. Other pro forma adjustments include the reclassification of the note receivable from related party from current to long term and the reclassification of the Loan payable to affiliate from long term to current. The note receivable from related party represents advances made by Datastorm, prior to being acquired by Quarterdeck, to a partnership, whose partners were Datastorm shareholders, which the partnership used to commence the construction of a new building which is planned to house Datastorm. At March 31, 1996 the partnership still owned the building and the partners are now shareholders and employees or consultants of Quarterdeck. In connection with the acquisition, the Company is obligated to acquire the building from the partnership. The Company plans to complete the acquisition of the building in the near future. It is planned to be acquired in exchange for, among other things, cancellation of the Note receivable. The Loan payable to affiliate represents sales commissions due from Datastorm to a related party which were paid in entirety prior to March 31, 1996. 6. In order to conform to evolving financial reporting practices by the software industry, Quarterdeck is reporting revised statements of operations for the periods presented classifying the amortization of capitalized software costs and technical support costs as costs of revenues for all periods presented. Quarterdeck had previously reported amortization of capitalized software as research and development expense, and technical support costs as sales and marketing expense. 7. The Company recorded acquisition and related restructuring costs amounting to $7.3 million for financial advisory, legal, accounting services, personnel severance and benefits, and other related expenses in connection with the acquisitions of Datastorm and Inset. These costs have been reflected in the condensed statements of operations and balance sheets of the combined companies for the period ended March 31, 1996 as filed with the Securities and Exchange Commission on May 15, 1996. 8. The additional unaudited pro forma data is based upon historical combined income before taxes adjusted to reflect a provision for income taxes as if Datastorm had been a C corporation for all periods presented.
38 39 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. QUARTERDECK CORPORATION (REGISTRANT) Date: May 24, 1996 \s\ Gaston Bastiaens --------------- ------------------------------------- Gaston Bastiaens President and Chief Executive Officer Date: May 24, 1996 \s\ Frank Greico --------------- ------------------------------------- Frank Greico Sr. Vice President and Chief Financial Officer 39 -----END PRIVACY-ENHANCED MESSAGE-----