-----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, NWM3VVoD0WdDXGNw3uYhM1E4RKu/UyvDgV0caIpdiLAmDEtp5qjAN8/MOmsT9/Cc l6meYrHMdoTLEn7k3+pzvQ== 0001047469-98-040408.txt : 19981116 0001047469-98-040408.hdr.sgml : 19981116 ACCESSION NUMBER: 0001047469-98-040408 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980909 ITEM INFORMATION: FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERLEAF INC /MA/ CENTRAL INDEX KEY: 0000793604 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 042729042 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-14713 FILM NUMBER: 98746022 BUSINESS ADDRESS: STREET 1: 62 FOURTH AVE STREET 2: 9 HILLSIDE AVE CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6172900710 MAIL ADDRESS: STREET 1: 62 FOURTH AVENUE CITY: WALTHAM STATE: MA ZIP: 02154 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 9, 1998 INTERLEAF, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Massachusetts 0-14713 04-2729042 - ---------------------------- ----------------------- ------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 62 Fourth Avenue Waltham, Massachusetts 02451 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781) 290-0710 The undersigned hereby amends its Current Report on Form 8-K filed on September 24, 1998 as follows: Item 7. Financial Statements and Exhibits (a) Financial Statements of Businesses Acquired PDR Automated Systems and Publications, Inc. Financial Statements Independent Auditors' Report and Independent Accountants' Compilation Report Audited Balance Sheet at June 30, 1998 and December 31, 1997 Audited Statement of Operations for the six months ended June 30, 1998 and the year ended December 31, 1997 and for the six months ended June 30, 1997 (unaudited) Audited Statement of Stockholders Equity for the six months ended June 30, 1998 and the year ended December 31, 1997 and for the six months ended June 30, 1997 (unaudited) Audited Statement of Cash Flows for the six months ended June 30, 1998 and the year ended December 31, 1997 and for the six months ended June 30, 1997 (unaudited) Notes to Financial Statements (b) Pro Forma Financial Information Interleaf, Inc. and PDR Automated Systems and Publications, Inc. Unaudited Pro Forma Combined Balance Sheet at June 30, 1998 Interleaf, Inc. and PDR Automated Systems and Publications, Inc. Unaudited Pro Forma Combined Statement of Operations for the twelve months ended March 31, 1998 Interleaf, Inc. and PDR Automated Systems and Publications, Inc. Unaudited Pro Forma Combined Statement of Operations for the three months ended June 30, 1998 2 (c) Exhibits. 10.1 Stock Purchase Agreement by and among Interleaf, Inc., PDR Automated Systems and Publications, Inc. and Dona D. Ray, with variable information for otherwise identical agreements with Messrs. Marksbury and Kloiber.* 23.1 Consent of Dulworth, Breeding & Karns, Independent Accountants - ------------------ *Previously filed by the Company in its Current Report on Form 8-K dated September 24, 1998. -------------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERLEAF, INC. Date: November 12, 1998 By: /s/ Peter J. Rice -------------------------------- Peter J. Rice, Vice President, Finance and Administration, Chief Financial Officer and Treasurer 3 [LETTERHEAD] INDEPENDENT AUDITORS' REPORT AND INDEPENDENT ACCOUNTANTS' COMPILATION REPORT - ------------------------------------------- The Board of Directors of PDR Automated Systems and Publications, Inc.: We have audited the accompanying balance sheets of PDR Automated Systems and Publications, Inc. (an S Corporation) as of June 30, 1998, and December 31, 1997, and the related statements of operations, of stockholders' equity, and of cash flows for the six months ended June 30, 1998, and for the year ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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 PDR Automated Systems and Publications, Inc., as of June 30, 1998, and December 31, 1997, and the results of its operations and its cash flows for the six months ended June 30, 1998, and for the year ended December 31, 1997, in conformity with generally accepted accounting principles. We have compiled the accompanying statements of operations and of cash flows of PDR Automated Systems and Publications, Inc., for the six months ended June 30, 1997, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying statements of operations and of cash flows for the six months ended June 30, 1997, and, accordingly, do not express an opinion or any other form of assurance on them. /s/ Dulworth, Breeding & Karns, LLP September 17, 1998 PDR AUTOMATED SYSTEMS AND PUBLICATIONS, INC. Six Months Ended June 30, 1998 and 1997, and Year Ended December 31, 1997 Financial Statements BALANCE SHEETS PDR AUTOMATED SYSTEMS AND PUBLICATIONS, INC.
June 30, December 31, 1998 1997 ---------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 384,162 $ 305,624 Trade accounts receivable: Billed 1,233,343 1,465,725 Work in process 12,780 7,078 Note receivable (including accrued interest) - current portion 1,186,172 1,149,144 Prepaid expenses and other current assets 10,392 13,359 ---------- ---------- Total current assets 2,826,849 2,940,930 Property and Equipment, at cost: Furniture and equipment 260,374 249,135 Less accumulated depreciation and amortization 247,303 233,765 ---------- ---------- Net property and equipment 13,071 15,370 Other Assets 14,105 14,588 Note Receivable (including accrued interest) 1,144,020 ---------- ---------- TOTAL ASSETS $2,854,025 $4,114,908 ---------- ---------- ---------- ----------
See the accompanying notes to financial statements. 1
June 30, December 31, 1998 1997 ---------- ----------- LIABILITIES Current Liabilities: Accounts payable $ 137,114 $ 123,287 Accrued expenses 213,833 210,390 ---------- ---------- Total current liabilities 350,947 333,677 STOCKHOLDERS' EQUITY Common stock (authorized 10,000 shares, issued 10,000 shares, no par value) 12,032 12,032 Retained earnings 2,491,046 3,769,199 ---------- ---------- Total stockholders' equity 2,503,078 3,781,231 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,854,025 $4,114,908 ---------- ---------- ---------- ----------
2 STATEMENTS OF OPERATIONS PDR AUTOMATED SYSTEMS AND PUBLICATIONS, INC.
(Unaudited) Six Months Year Ended Six Months Ended December 31, Ended June 30, 1998 1997 June 30, 1997 ----------------------------------------- Revenue: Services revenue $ 3,274,577 $ 5,695,830 $ 2,339,912 ----------- ----------- ----------- Total revenue 3,274,577 5,695,830 2,339,912 Cost of Revenues: Services 2,774,881 4,761,097 2,073,668 ----------- ----------- ----------- Total cost of revenue 2,774,881 4,761,097 2,073,668 Gross Margin 499,696 934,733 266,244 Operating Expenses: Selling, general and administrative 144,415 163,106 73,477 Research and development 72,714 1,732 ----------- ----------- ----------- Total operating expenses 144,415 235,820 75,209 Income From Operations 355,281 698,913 191,035 Interest Income 57,710 181,890 85,672 ----------- ----------- ----------- Net Income $ 412,991 $ 880,803 $ 276,707 ----------- ----------- ----------- ----------- ----------- ----------- Income Per Share: Basic $ 41.30 $ 88.08 $ 27.67 ----------- ----------- ----------- ----------- ----------- ----------- Diluted $ 41.30 $ 88.08 $ 27.67 ----------- ----------- ----------- ----------- ----------- ----------- Shares Used In Computing Income Per Share: Basic 10,000 10,000 10,000 ----------- ----------- ----------- ----------- ----------- ----------- Diluted 10,000 10,000 10,000 ----------- ----------- ----------- ----------- ----------- -----------
See the accompanying notes to financial statements and independent auditors' report and independent accountants' compilation report. 3 STATEMENTS OF STOCKHOLDERS' EQUITY PDR AUTOMATED SYSTEMS AND PUBLICATIONS, INC.
Common Stock ------------ Number of Retained Shares Amount Earnings ----------- ----------- ----------- Balance at December 31, 1996 10,000 $ 12,032 $ 7,093,645 Net income 880,803 Distribution to stockholders (4,205,249) ----------- ----------- ----------- Balance at December 31, 1997 10,000 12,032 3,769,199 Net income 412,991 Distribution to stockholders (1,691,144) ----------- ----------- ----------- Balance at June 30, 1998 10,000 $ 12,032 $ 2,491,046 ----------- ----------- ----------- ----------- ----------- -----------
See the accompanying notes to financial statements. 4 STATEMENTS OF CASH FLOWS PDR AUTOMATED SYSTEMS AND PUBLICATIONS, INC.
(Unaudited) Six Months Year Ended Six Months Ended December 31, Ended June 30, 1998 1997 June 30, 1997 ------------------------------------------ Cash flows from operating activities: Net income $ 412,991 $ 880,803 $ 276,707 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 9,450 33,768 14,627 Amortization 482 1,625 330 Changes in assets and liabilities: Decrease (increase) in trade accounts receivable 226,680 (672,519) (339,522) Decrease in prepaid expenses and other current assets 2,967 4,079 2,955 Decrease in accrued interest on note receivable 106,992 10,662 96,361 Increase in accounts payable 13,827 95,906 124,733 Increase in accrued expenses 3,443 81,653 58,077 ---------- ----------- ----------- Total adjustments 363,841 (444,826) (42,439) ---------- ----------- ----------- Net cash provided by operating activities 776,832 435,977 234,268 Cash flows from investing activities: Purchases of property and equipment (7,150) (19,780) (2,838) Purchases of other assets (2,891) Proceeds from note receivable 1,000,000 3,750,000 3,750,000 ---------- ----------- ----------- Net cash provided by investing activities 992,850 3,727,329 3,747,162
(continued on next page) 5 STATEMENTS OF CASH FLOWS (continued) PDR AUTOMATED SYSTEMS AND PUBLICATIONS, INC.
(Unaudited) Six Months Year Ended Six Months Ended December 31, Ended June 30, 1998 1997 June 30, 1997 ------------------------------------------ Cash flows from financing activities: Distributions paid to stockholders (1,691,144) (4,205,249) (4,130,247) ---------- ---------- ---------- Net cash used in financing activities (1,691,144) (4,205,249) (4,130,247) ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 78,538 (41,943) (148,817) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 305,624 347,567 347,567 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 384,162 $ 305,624 $ 198,750 ---------- ---------- ---------- ---------- ---------- ----------
See the accompanying notes to financial statements and independent auditors' report and independent accountants' compilation report. 6 NOTES TO FINANCIAL STATEMENTS PDR AUTOMATED SYSTEMS AND PUBLICATIONS, INC. Six months ended June 30, 1998 and 1997, and Year Ended December 31, 1997 (See independent auditors' report and independent accountants' compilation report.) NOTE A - SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS Nature of Business PDR Automated Systems and Publications, Inc. (the "Company") is a nationally recognized provider of services to support corporations in the development, management and distribution of information. The Company's clients operate primarily in high technology industries within the United States. Established in 1985 as a partnership and then incorporated in 1988, the Company is headquartered in Lexington, Kentucky, with operating offices in Santa Clara, California, Research Triangle Park, North Carolina and Acton, Massachusetts. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company's policy is to classify investments with maturities of ninety days or less as cash and cash equivalents in the accompanying statements of cash flows because they are readily convertible to a known amount of cash. Allowance for Doubtful Accounts Management believes an allowance for doubtful accounts was not considered necessary at June 30, 1998, and December 31, 1997. As is customary in the industry, the Company does not require collateral from customers in the ordinary course of business. 7 Property and Equipment Property and equipment are recorded at cost. Depreciation is provided using both straight-line and accelerated methods over the estimated useful lives of the depreciable assets, ranging from five to seven years. Computer Software Costs The Company classifies the costs of planning, designing, and establishing the technological feasibility of a computer software product as research and development costs and charges those costs to expense when incurred. After technological feasibility has been established, costs of producing a marketable product and product masters are capitalized and amortized over the estimated life of the product. For the periods ended June 30, 1998, and December 31, 1997, there were no capitalizable costs incurred. In addition, there were no costs for duplicating computer software from product masters documentation and training manuals, and for packaging the product for distribution. There were no costs for product maintenance and support incurred either. Revenue Recognition Services revenue is recognized when earned. Income Taxes The Company has elected under Internal Revenue Code Section 1362(a) to be treated as a small business corporation (an S corporation election) for federal and state income tax purposes. Under those provisions, income and tax credits are passed through to the stockholders. The stockholders are taxed individually on their share of corporate earnings. The Company has elected the cash basis of accounting for income tax purposes. NOTE B - CASH AND CASH EQUIVALENTS At June 30, 1998, and December 31, 1997, the Company had invested $380,654 and $302,116, respectively, in a cash management account. The underlying investment fund invests in short-term US Treasury and US Government Agency obligations, repurchase agreements relating to such obligations, and a PNC Bank, N.A. deposit account. The average maturities of the fund generally range between 20 and 60 days. The account is not guaranteed or insured by any bank or government agency. The Company has not experienced any losses with this account. 8 NOTE C - PROPERTY AND EQUIPMENT Property and Equipment consisted of the following:
June 30, December 31, 1998 1997 -------- ------------ Office and other equipment $213,715 $202,476 Furniture 46,659 46,659 -------- -------- Furniture and equipment 260,374 249,135 Less allowance for depreciation and amortization 247,303 233,765 -------- -------- Net property and equipment $ 13,071 $ 15,370 -------- -------- -------- --------
NOTE D - LONG-TERM LEASES All noncancelable long-term leases have been categorized as operating leases. The Company has leases for office space ranging from monthly to five years. The month to month lease is with an entity partially owned by a related party. Property taxes, insurance, maintenance and expenses related to the leased property are included in all but one of the leases. One lease does require the Company to pay maintenance and utilities directly. Total rental expense under operating leases was $66,999 during the six months ended June 30, 1998, and $135,969 during the year ended December 31, 1997, with approximately $5,280 and $10,560, respectively, of these amounts being to the entity partially owned by a related party. During the unaudited period from January 1, 1997, through June 30, 1997, total rental expense under operating leases was $64,960 with approximately $5,280 of this amount being to the entity partially owned by a related party. Minimum future obligations on operating leases in effect at June 30, 1998, are as follows for the periods ended December 31: July 1, 1998, through December 31, 1998 $ 61,243 January 1, 1999, through December 31, 1999 76,636 January 1, 2000, through December 31, 2000 56,088 January 1, 2001, through December 31, 2001 40,658 --------- Total $ 234,625 --------- ---------
9 NOTE E - ACCRUED EXPENSES Accrued expenses consisted of the following:
June 30, December 31, 1998 1997 -------- ------------ Accrued payroll and withholdings $153,628 $150,513 Accrued vacation 29,965 15,016 Accrued unemployment 8,474 19,821 Other 21,766 25,040 -------- -------- $213,833 $210,390 -------- -------- -------- --------
NOTE F - 401(k) PROFIT SHARING PLAN AGREEMENT The Company maintains a 401(k) profit sharing plan covering employees who have completed one year of service and attained the age of 21. Employees may elect to contribute up to 15% of their salary on a pretax basis. Employer matching contributions and profit sharing contributions are determined annually by the Board of Directors. Employees become partially vested in employer matching and profit sharing contributions after three years of employment with the Company with a gradual increase in the vesting percentage over the next four years, at which time they become fully vested. Any non-vested amounts will be forfeited by the terminating participant and will be used to offset future contributions. The match for the year ended December 31, 1997, and for the six months ended June 30, 1998, was 50% on the first 5% of salary deferred with $16,713 and $8,441, respectively, paid from forfeitures. For the unaudited period from January 1, 1997, through June 30, 1997, there was $16,713 paid from forfeitures. The profit sharing/401(k) match expenses for the six months ended June 30, 1998, and for the year ended December 31, 1997, were $19,362 and $20,003, respectively. Due to forfeitures, there was no profit sharing/401(k) match expense for the unaudited period from January 1, 1997, through June 30, 1997. NOTE G - MAJOR CUSTOMER One major customer comprised approximately 53% and 52%, respectively, of the Company's services revenue during the six months ended June 30, 1998, and the year ended December 31, 1997. This customer accounted for $1,725,420 and $2,953,519, respectively, of services revenue during the six months ended June 30, 1998, and the year ended December 31, 1997. The related trade accounts receivable-billed at June 30, 1998, and December 31, 1997, were $562,300 and $565,315, respectively. For the unaudited period from January 1, 1997, through June 30, 1997, there was $1,243,785 of service revenue from this customer and related trade accounts receivable-billed at June 30, 1997, of $626,738. 10 NOTE H - SALE OF ASSETS Effective April 1, 1996, the Company entered into an agreement to sell certain assets of the Advanced Technology division to a major customer. The purchase price of $6,000,000 was payable in cash and a note receivable as follows: (a) $250,000 in cash at the closing; (b) $2,750,000, plus interest at the average rate of interest on 90 day commercial paper, payable in January 1997; (c) $1,000,000, plus interest at the prime rate, payable in January 1997; (d) $1,000,000, plus interest at the prime rate, payable not later than January 31, 1998; and (e) $1,000,000, plus interest at the prime rate, payable not later than January 31, 1999. The agreement transferred ownership of the fixed assets ($23,993 of net book value at April 1, 1996) and intangible assets including software products and all customer contracts of the division. The Company was released from responsibility on equipment leases and maintenance contracts transferred. The operations of the Information Services division continued unchanged. NOTE I - INCOME PER SHARE There were 10,000 shares of common stock outstanding for all periods presented. There were no dilutive securities issued or outstanding. NOTE J - CHANGE IN OWNERSHIP Effective August 31, 1998, the Company's stockholders sold all their common stock to an unrelated corporate entity. The Company's S corporation election terminated with the sale of the stock. Thereafter, the Company will be included in the consolidated tax filings of its acquiror, a C corporation. 11 INTERLEAF, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations that actually would have been realized had Interleaf, Inc. ("Interleaf") and PDR Automated Systems and Publications, Inc. ("PDR") been a combined company during the specific periods. Additionally, they are not indicative of the results of future combined operations. The following pro forma combined financial statements give effect to the business combination of Interleaf and PDR using the purchase method of accounting. The pro forma combined financial statements utilize the audited financial statements of Interleaf for the fiscal year ended March 31, 1998 and of PDR for the fiscal year ended December 31, 1997, and the unaudited financial statements of Interleaf and of PDR for the three months ended June 30, 1998. The pro forma combined statements of operation assume that the acquisition took place as of the beginning of the periods presented. The pro forma combined balance sheet assumes that the acquisition took place as of the end of the interim period. Due to the differing fiscal years of the combining entities, the results of PDR's quarter ended March 31, 1998 have not been reflected in the pro forma results of operations. PDR's revenue and net income for the three months ended March 31, 1998 were $1.6 million and $.2 million, respectively. The unaudited pro forma combined financial statements have been prepared by management and should be read in conjunction with the historical financial statements of Interleaf and PDR. An independent third party appraisal company has been engaged to conduct a valuation of the intangible assets acquired. The unaudited pro forma combined financial statements are based on certain assumptions and preliminary estimates which may be subject to change. F-1 Interleaf, Inc. and PDR Automated Systems and Publications, Inc. Pro Forma Combined Balance Sheets* June 30, 1998 (Unaudited) In thousands, except for share and per share amounts
Assets Dr(Cr) ---------------------------------------------------------- Pro Forma ---------- Acquisition Adjustments Interleaf, Inc. PDR (Note 1) Combined --------------- --- -------- --------- Current Assets Cash and cash equivalents $23,486 $ 384 $(2,863) (a) $21,007 Accounts receivable, net of reserve for doubtful accounts 8,416 1,246 -- 9,662 Note receivable -- 1,186 -- 1,186 Prepaid expenses and other current assets 880 11 -- 891 ------- ------- ------ ------- Total Current Assets 32,782 2,827 (2,863) 32,746 Property and equipment, net 2,605 13 -- 2,618 Intangible assets 416 -- 1,554 (b) 1,970 Other assets 417 14 -- 431 ------- ------- ------ ------- Total Assets $36,220 $ 2,854 $(1,309) $37,765 ------- ------- ------ ------- ------- ------- ------ -------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) (Dr)Cr ------------------------------------------------------- Current Liabilities Accounts payable $ 2,012 $ 137 -- $ 2,149 Accrued expenses 11,025 214 2,034 (c) 13,273 Unearned revenue 10,546 -- -- 10,546 Accrued restructuring 1,353 -- -- 1,353 -------- -------- -------- -------- Total Current Liabilities 24,936 351 2,034 27,321 Long-term restructuring 1,692 -- -- 1,692 -------- -------- -------- -------- Total Liabilities 26,628 351 2,034 29,013 -------- -------- -------- -------- Shareholders' Equity (Deficit) Preferred stock, par value $.10 per authorized 5,000,000 shares: Series B, C and D, C & D 188 188 Common stock 185 12 (12) (d) 185 Additional paid-in capital 93,393 -- -- 93,393 Retained earnings(deficit) (83,818) 2,491 (3,331) (e) (84,658) Cumulative translation adjustment (356) -- -- (356) -------- -------- -------- -------- Total Shareholders' Equity (Deficit) 9,592 2,503 (3,343) 8,752 -------- -------- -------- -------- Total Liabilities and Shareholders' Equity (Deficit) $ 36,220 $ 2,854 $ (1,309) $ 37,765 -------- -------- -------- -------- -------- -------- -------- --------
Note 1 - The pro forma balance sheet has been prepared to reflect the acquisition of PDR Automated Systems and Publications Inc. ("PDR") by Interleaf, Inc. (the "Company) for an aggregate price of $ 3,711 plus future consideration of cash, stock or a combination of both at Interleaf's discretion, the amount of which is dependent upon the resolution of certain earn out provisions . Pro forma adjustments have been made to reflect: (a) The initial cash payment of $2,863 for the purchase of PDR. (b) Goodwill and other intangibles recorded. (c) Minimum contingent amounts due to the former shareholders of PDR, estimated acquisition costs and for the proceeds of an asset not acquired by the Company. (d) The elimination of the common stock account of PDR. (e) The elimination of the acquired retained earnings of PDR, and write off of $840 of acquired in-process research and development expense. F-2 INTERLEAF, INC. AND PDR AUTOMATED SYSTEMS AND PUBLICATIONS, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS TWELVE MONTHS Unaudited
Pro Forma -------------------------------- Acquisition 3/31/98 12/31/97 Adjustments Interleaf, Inc. PDR (Note 2) Combined --------------- --- -------- In thousands, except for per share amounts Revenues: Products $ 13,335 $ - $ - $ 13,335 Maintenance 26,083 26,083 Services 13,159 5,696 18,855 ------------------------------------------------------------------ Total Revenue 52,577 5,696 0 58,273 ------------------------------------------------------------------ Costs of revenues: Products 3,966 3,966 Maintenance 3,747 3,747 Services 11,324 4,761 16,085 ------------------------------------------------------------------ Total costs of revenues 19,037 4,761 0 23,798 ------------------------------------------------------------------ Gross Margin 33,540 935 0 34,475 ------------------------------------------------------------------ Operating Expenses: Selling, general and administrative 22,281 163 155 (a) 22,599 Research and development 8,897 73 8,970 ------------------------------------------------------------------ Total Operating Expenses 31,178 236 155 31,569 ------------------------------------------------------------------ Income (loss) from operations 2,362 699 (155) 2,906 Other Income (expense) 153 182 (122) (b) 213 ------------------------------------------------------------------ Income (loss) before income taxes 2,515 881 (277) 3,119 Provision for income taxes 79 0 0 79 ------------------------------------------------------------------ Net income (loss) 2,436 881 (277) 3,040 Dividends on preferred stock (458) 0 0 (458) ------------------------------------------------------------------ Net income (loss) applicable to common stockholders 1,978 881 (277) 2,582 ------------------------------------------------------------------ ------------------------------------------------------------------ Earnings per share: Basic $ 0.11 $ 0.14 ------------------------------------------------------------------ ------------------------------------------------------------------ Diluted $ 0.09 $ 0.11 ------------------------------------------------------------------ ------------------------------------------------------------------ Shares used in computing primary earnings per share: Basic 17,857 17,857 ------------------------------------------------------------------ ------------------------------------------------------------------ Diluted 24,808 24,808 ------------------------------------------------------------------ ------------------------------------------------------------------
Note 2 - The above statement gives effect to the following pro forma adjustments necessary to reflect the acquisition of PDR as of April 1, 1997 as described in Note 1 to the pro forma balance sheet. (a) Annual amortization of goodwill and other purchased intangibles based on ten year useful life. (b) Interest income forgone from April 1, 1997 due to the acquisition of PDR for cash of $ 2,863 Management estimates that approximately $840 of the purchase price represents purchased in-process technology that has not yet reached technological feasibility and has no alternative future use. This amount will be expensed as a non-recurring charge. This amount has been reflected as reduction to stockholders' equity and has not been included in the pro forma combined statements of operations due to its non-recurring nature. The pro forma share impact would have been as follows:
FISCAL YEAR ENDED 3/31/98 Basic $ (0.05) -------- -------- Diluted $ (0.03) -------- --------
F-3 INTERLEAF, INC. AND PDR AUTOMATED SYSTEMS AND PUBLICATIONS, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30,1998 Unaudited
Pro Forma ------------------------------ Acquisition Adjustments Interleaf, Inc. PDR (Note 3) Combined -------------- ----- ------------ ----------- In thousands, except for per share amounts Revenues: Products $ 2,227 $ - $ 2,227 Maintenance 5,848 5,848 Services 2,933 1,630 4,563 ----------------------------------------------------------------- Total Revenue 11,008 1,630 - 12,638 ----------------------------------------------------------------- ----------------------------------------------------------------- Costs of revenues: Products 636 636 Maintenance 825 825 Services 2,697 1,374 4,071 ----------------------------------------------------------------- Total costs of revenues 4,158 1,374 5,532 ----------------------------------------------------------------- Gross Margin 6,850 256 - 7,106 ----------------------------------------------------------------- Operating Expenses: Selling, general and administrative 4,970 70 39 (a) 5,079 Research and development 1,773 1,773 ----------------------------------------------------------------- Total Operating Expenses 6,743 70 39 6,852 ----------------------------------------------------------------- Income (loss) from operations 107 186 (39) 254 Other Income (expense) 147 29 (30) (b) 146 ----------------------------------------------------------------- Income (loss) before income taxes 254 215 (69) 400 Provision for income taxes ----------------------------------------------------------------- Net income (loss) 254 215 (69) 400 Dividends on preferred stock (574) 0 0 (574) ----------------------------------------------------------------- Net income (loss) applicable to common stockholders (320) 215 (69) (174) ----------------------------------------------------------------- ----------------------------------------------------------------- Earnings per share: Basic $ (0.02) $ (0.01) ----------------------------------------------------------------- ----------------------------------------------------------------- Diluted $ (0.02) $ (0.01) ----------------------------------------------------------------- ----------------------------------------------------------------- Shares used in computing primary earnings per share Basic 18,378 18,378 ----------------------------------------------------------------- ----------------------------------------------------------------- Diluted 18,378 18,378 ----------------------------------------------------------------- -----------------------------------------------------------------
Note 3 - The above statement gives effect to the following pro forma adjustments necessary to reflect the acquisition of PDR as of April 1, 1998 as described in Note 1 to the pro forma balance sheet. (a) Quarterly amortization of goodwill and other purchased intangibles based on ten year useful life. (b) Quarterly interest income forgone for the three months ended June 30, 1998 due to the acquisition of PDR for cash of $ 2,863 Management estimates that approximately $840 of the purchase price represents purchased in-process technology that has not yet reached technological feasibility and has no alternative future use. This amount will be expensed as a non-recurring charge. This amount has been reflected as reduction to stockholders' equity and has not been included in the pro forma combined statements of operations due to its non-recurring nature. The pro forma share impact would have been as follows:
THREE MONTHS ENDED 6/30/98 Basic $ (0.05) -------- -------- Diluted $ (0.05) -------- --------
F-4 EXHIBIT INDEX
Exhibit No. Description 10.1 Stock Purchase Agreement by and among Interleaf, Inc., PDR Automated Systems and Publications, Inc. and Dona D. Ray, with variable information for otherwise identical agreements with Messrs. Marksbury and Kloiber.* 23.1 Consent of Dulworth, Breeding & Karns, LLP
- ------------ * Previously filed by the Company in its Current Report on Form 8-K dated September 24, 1998. EX-23.1 2 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS - ---------------------------------- November 12, 1998 The Board of Directors PDR Automated Systems and Publications, Inc. 800 Corporate Drive, Suite 200 Lexington, KY 40503 To the Board of Directors: We agree to the inclusion in the Form 8-K/A (Amendment No. 1) of Interleaf, Inc., dated September 9, 1998, of our independent auditors' report and independent accountants' compilation report, dated September 17, 1998, on our audit of the financial statements of PDR Automated Systems and Publications, Inc., as of June 30, 1998, and December 31, 1997, and for the six months ended June 30, 1998, and for the year ended December 31, 1997, and our compilation of the financial statements for the six months ended June 30, 1997. Yours truly, /s/ Dulworth, Breeding & Karns, LLP Dulworth, Breeding & Karns, LLP -----END PRIVACY-ENHANCED MESSAGE-----