-----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, N/oSDyYiJpK0PMgWg8gKsVVGrRQZo7Wb5+spqwJcLFdrfy3fsmDkkrOM7qUqyuA6 BYftXaDO7UufgB6zda4bOA== 0001010303-96-000008.txt : 19960402 0001010303-96-000008.hdr.sgml : 19960402 ACCESSION NUMBER: 0001010303-96-000008 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960315 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TMS INC /OK/ CENTRAL INDEX KEY: 0000835412 STANDARD INDUSTRIAL CLASSIFICATION: RAILROAD EQUIPMENT [3743] IRS NUMBER: 911098155 STATE OF INCORPORATION: OK FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-22780-NY FILM NUMBER: 96543326 BUSINESS ADDRESS: STREET 1: 206 WEST SIXTH AVENUE STREET 2: P O BOX 1358 CITY: STILLWATER STATE: OK ZIP: 74076 BUSINESS PHONE: 4053770880 MAIL ADDRESS: STREET 1: 206 W. 6TH AVE. , P.O. BOX 1358 CITY: STILLWATER STATE: OK ZIP: 74076-1358 FORMER COMPANY: FORMER CONFORMED NAME: TMS INC DATE OF NAME CHANGE: 19920703 8-K 1 MERGER SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): March 15, 1996 TMS, INC. (Exact name of registrant as specified in its charter) Oklahoma 0-18250 91-1098155 (State or other (Commission (I.R.S. Employer jurisdiction of File Number) Identification No.) incorporation or organization) 206 West Sixth Avenue P.O. Box 1358 Stillwater, Oklahoma 74074 (Address of Principal Executive Offices) (Zip Code) (405) 377-0880 (Registrant's telephone number, including area code) Item 2. Acquisition or Disposition of Assets. On March 15, 1996, the registrant, TMS, Inc. (the "Registrant"), completed the merger (the "Merger") of its wholly-owned subsidiary SCC Acquisition Corp., an Oklahoma corporation ("SAC") with and into Sequoia Computer Corporation, a California corporation ("Sequoia"). The Merger was effected pursuant to the terms of an Amended Plan of Reorganization and Agreement of Merger by and among the Registrant, Sequoia, SAC and Dana R. Allen dated November 7, 1995. In the Merger each share of Sequoia's common stock (the "Sequoia Stock") issued and outstanding immediately prior to March 15, 1996, the effective date of the Merger (the "Effective Date"), was converted into the right to receive 2.837 shares of the Registrant's common stock, par value $.05 per share (the "TMS Common Stock"). At the Closing of the Merger, the Registrant issued 3,643,220 shares of TMS Common Stock in exchange for all 1,284,180 shares of Sequoia Stock issued and outstanding. Upon the Effective Date, options to purchase 588,656 shares of Sequoia Stock (the "Sequoia Options") were also converted entitling the holders thereof to purchase 2.837 shares of TMS Common Stock for each share of Sequoia Stock (an aggregate of 1,670,018 shares of TMS Common Stock) purchasable under such options at an exercise price equal to 35.24% of the exercise price thereunder. As a consequence of the Merger, the former Sequoia shareholders own approximately 30.1% of the issued and outstanding shares of TMS Common Stock (without giving effect to the possible exercise of outstanding Sequoia Options). The Merger was accounted for as a "pooling of interests" for accounting and financial reporting purposes. Prior to the Merger, there were no material relationships between Sequoia and its shareholders, and the Registrant, or any of its affiliates, directors or officers or any associates of such directors or officers. Item 7. Financial Statements and Exhibits. (a) Financial statements of businesses acquired. The following financial statements of Sequoia are submitted herewith: 1. Independent Auditors' Report 2. Balance Sheets as of November 30, 1995 (Unaudited), and August 31, 1995 and 1994 3. Statements of Earnings, Three Months ended November 30, 1995 and 1994 (Unaudited), and Years ended August 31, 1995 and 1994 4. Statements of Shareholders' Equity, Three Months ended November 30, 1995 (Unaudited), and Years ended August 31, 1995 and 1994 5. Statements of Cash Flows, Three Months ended November 30, 1995 and 1994 (Unaudited), and Years ended August 31, 1995 and 1994 6. Notes to Financial Statements (b) Pro forma financial information. The following pro forma financial statements are submitted herewith: 1. Unaudited Pro Forma Combined Balance Sheet as of November 30, 1995. 2. Unaudited Pro Forma Combined Statement of Operations for the Three Months ended November 30, 1995. 3. Unaudited Pro Forma Combined Statement of Operations for the Year Ended August 31, 1995. 4. Unaudited Pro Forma Combined Statement of Operations for the Year ended August 31, 1994. 5. Unaudited Pro Forma Combined Statement of Operations for the Year Ended August 31, 1993. 6. Notes to Unaudited Pro Forma Combined Financial Statements. (c) Exhibits. The following exhibits are filed with this report: Exhibit No. Name of Exhibit 2.1 Plan of Reorganization and Agreement of Merger (the "Merger Agreement") dated November 7, 1995, by and among TMS, Inc., SCC Acquisition Corp., Sequoia Computer Corporation and Dana R. Allen (incorporated herein by reference to Exhibit 2.1 to the Registrant's Form S-4 Registration Statement No. 33-64649 (the "Form S-4")). 2.2 Amendment No. 1 to the Merger Agreement (incorporated herein by reference to Exhibit 2.2 to the Form S-4). SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. REGISTRANT: TMS, INC. Date: March 29, 1996 By: /s/ Maxwell Steinhardt -------------------------- Maxwell Steinhardt, President INDEX TO FINANCIAL STATEMENTS Sequoia Computer Corporation (dba Sequoia Data Corporation): Independent Auditors' Report Balance Sheets as of November 30, 1995 (Unaudited), and August 31, 1995 and 1994 Statements of Earnings, Three Months ended November 30, 1995 and 1994 (Unaudited), and Years ended August 31, 1995 and 1994 Statements of Shareholders' Equity, Three Months ended November 30, 1995 (Unaudited), and Years ended August 31, 1995 and 1994 Statements of Cash Flows, Three Months ended November 30, 1995 and 1994 (Unaudited), and Years ended August 31, 1995 and 1994 Notes to Financial Statements Independent Auditors' Report The Board of Directors Sequoia Computer Corporation: We have audited the accompanying balance sheets of Sequoia Computer Corporation (the Company), dba Sequoia Data Corporation, as of August 31, 1995 and 1994, and the related statements of earnings, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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. As discussed in Note 12 to these financial statements, the Company is expected to merge with TMS, Inc., a publicly held computer software company, early in the Company's fiscal 1996, subject to negotiation and execution of a definitive agreement between the two companies. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sequoia Computer Corporation as of August 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. As discussed in Notes 3 and 9 to the financial statements, in 1994 the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. KPMG Peat Marwick LLP San Jose, California October 6, 1995 SEQUOIA COMPUTER CORPORATION (dba Sequoia Data Corporation) Balance Sheets November 30, 1995, and August 31, 1995 and 1994
November 30, August 31, 1995 1995 1994 Assets ------------ ------ ----- ------ (Unaudited) Current assets: Cash and cash equivalents $ 376,347 290,049 45,075 Short-term investments 4,673 4,673 84,673 Trade accounts receivable, net of allowance for returns and doubtful accounts of $32,359 at November 30, 1995, and $35,133 and $64,799 at August 31, 1995 and 1994, respectively 199,941 230,979 85,590 Other receivables - 1,073 8,102 Prepaid expenses 11,401 7,953 - Deferred income taxes 18,512 27,623 134,704 -------- -------- ------- Total current assets 610,874 562,350 358,144 Property and equipment, net 38,412 36,333 29,045 Capitalized software development costs, net 160,417 134,578 48,336 Patent costs 17,814 17,569 9,766 -------- -------- ------- $ 827,517 750,830 445,291 ======== ======== ======= Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 55,574 29,292 9,852 Commissions payable 28,153 22,461 17,938 Other accrued liabilities 29,562 12,217 1,587 -------- -------- ------- Total current liabilities 113,289 63,970 29,377 -------- -------- ------- Deferred income taxes 68,204 63,204 25,783 -------- -------- ------- Shareholders' equity: Series A preferred stock, no par value; 10,000,000 shares authorized; no shares issued and outstanding as of November 30, 1995, and 70,000 shares issued and outstanding as of August 31, 1995 and 1994 - 105,000 105,000 Common stock, no par value; 20,000,000 shares authorized; 1,284,180 issued and outstanding as of November 30, 1995, and 1,214,180 and 1,200,180 shares issued and outstanding as of August 31, 1995 and 1994, respectively 632,086 527,086 506,086 Accumulated earnings (deficit) 13,938 (8,430) (220,955) -------- -------- -------- Total shareholders' equity 646,024 623,656 390,131 Commitments and contingencies (note 10) -------- -------- ------- $ 827,517 750,830 445,291 ======== ======= =======
See accompanying notes to financial statements. SEQUOIA COMPUTER CORPORATION (dba Sequoia Data Corporation) Statements of Earnings Three Months ended November 30, 1995 and 1994, and Years ended August 31, 1995 and 1994
Three Months ended Years ended November 30, August 31, ------------- ----------- 1995 1994 1995 1994 ---- ---- ---- ---- (Unaudited) Net sales $ 303,140 206,239 988,949 535,323 Cost of sales 26,931 9,343 54,828 52,639 -------- -------- -------- -------- Gross profit 276,209 196,896 934,121 482,684 ------- -------- -------- -------- Operating expenses: General and administrative 130,698 51,452 278,728 207,603 Sales and marketing 112,770 60,784 306,753 160,469 ------- -------- ------- ------- Operating expenses 243,468 112,236 585,481 368,072 ------- -------- ------- ------- Earnings from operations 32,741 84,660 348,640 114,612 -------- -------- ------- ------- Other income (expense) 370 1,032 (384) 2,733 Interest income 4,168 1,595 9,570 2,140 -------- -------- -------- -------- Total other income 4,538 2,627 9,186 4,873 -------- -------- -------- -------- Earnings before income tax provision and cumulative effect of change in accounting principle 37,279 87,287 357,826 119,485 Provision for income taxes 14,911 35,445 145,301 49,591 -------- -------- ------- ------- Earnings before cumulative effect of change in accounting principle 22,368 51,842 212,525 69,894 Cumulative effect of change in accounting principle - - - 157,768 --------- --------- -------- ------- Net earnings $ 22,368 51,842 212,525 227,662 ========= ========= ======== =======
See accompanying notes to financial statements. SEQUOIA COMPUTER CORPORATION (dba Sequoia Data Corporation) Statements of Shareholders' Equity Three Months ended November 30, 1995, and Years ended August 31, 1995 and 1994
Years ended August 31, Three Months ended ------------------------ November 30, 1995 1995 1994 ------------------- ---- ---- Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ (Unaudited) Preferred stock: Balance, beginning of period 70,000 $ 105,000 70,000 $ 105,000 70,000 $ 105,000 Conversion of preferred shares to common shares (70,000) (105,000) - - - - ----------- --------- --------- ---------- --------- -------- Balance, end of period - - 70,000 105,000 70,000 105,000 =========== --------- ========= ---------- ========= -------- Common stock: Balance, beginning of period 1,214,180 527,086 1,200,180 506,086 1,198,780 505,142 Exercise of stock options - - 14,000 21,000 1,400 944 Conversion of preferred shares to common shares 70,000 105,000 - - - - ----------- --------- --------- --------- ---------- -------- Balance, end of period 1,284,180 632,086 1,214,180 527,086 1,200,180 506,086 =========== --------- ========= --------- ========= -------- Accumulated earnings (deficit): Balance, beginning of period (8,430) (220,955) (448,617) Net earnings 22,368 212,525 227,662 --------- --------- -------- Balance, end of period 13,938 (8,430) (220,955) --------- --------- -------- Total shareholders' equity $ 646,024 $ 623,656 $ 390,131 ========= ========= ========
See accompanying notes to financial statements. SEQUOIA COMPUTER CORPORATION (dba Sequoia Data Corporation) Statements of Cash Flows Three Months ended November 30, 1995 and 1994, and Years ended August 31, 1995 and 1994
Three Months ended Years ended November 30, August, 31 -------------- ----------- 1995 1994 1995 1994 ---- ---- ---- ---- (Unaudited) Cash flows from operating activities: Net earnings $ 22,368 51,842 212,525 227,662 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 14,315 5,328 37,611 15,712 Realized loss from sale of short-term investments - - 1,957 - Cumulative effect of change in accounting principle - - - (157,768) Deferred income taxes 14,111 35,445 144,501 48,791 Issuance of common stock under options in exchange for services rendered - - 9,000 - Changes in operating assets and liabilities: Trade accounts receivable, net 31,038 (72,553) (145,389) 4,326 Other receivables 1,073 (4,057) 7,028 (1,219) Prepaid expenses and other current assets (3,448) - (7,953) 2,043 Accounts payable 26,282 (3,485) 19,440 (1,907) Commissions payable 5,692 3,773 4,523 7,719 Deferred revenue - - - (23,900) Other accrued liabilities 17,345 (1,098) 10,630 (12,829) -------- -------- --------- --------- Net cash provided by operating activities 128,776 15,195 293,873 108,630 -------- -------- -------- -------- Cash flows from investing activities: Capital expenditures (8,374) (1,179) (18,352) (11,969) Proceeds from sale of property and equipment 3,635 - - - Purchase of short-term investments - - - (84,673) Proceeds from the sale of short-term investments - - 78,043 - Additions to software development costs (37,494) (39,889) (112,787) (52,606) Additions to patent costs (245) - (7,803) - -------- --------- -------- -------- Net cash used in investing activities (42,478) (41,068) (60,899) (149,248) -------- -------- -------- -------- Cash flows provided by financing activities - proceeds from issuance of common stock - - 12,000 944 -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 86,298 (25,873) 244,974 (39,674) Cash and cash equivalents at beginning of period 290,049 45,075 45,075 84,749 -------- -------- -------- -------- Cash and cash equivalents at end of period $ 376,347 19,202 290,049 45,075 ======== ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $ 800 800 1,268 800 ======== ======== ======== ========
See accompanying notes to financial statements. SEQUOIA COMPUTER CORPORATION (dba Sequoia Data Corporation) Notes to Financial Statements November 30, 1995 and 1994 (Unaudited), and August 31, 1995 and 1994 (1) Description of Company Sequoia Computer Corporation (the Company), dba Sequoia Data Corporation, was incorporated in the state of California in 1987. The Company develops and markets innovative software products in the document image processing, image enhancement, forms processing, and data entry industries. The Company's products include ScanFix, FormFix, and GrayFix software tool kits. (2) Unaudited Financial Information The unaudited interim financial statements as of November 30, 1995, and for the three-month periods ended November 30, 1995 and 1994, reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows. All adjustments are normal and recurring. The financial information for the interim periods may not necessarily be indicative of the results expected for the year. (3) Summary of Significant Accounting Policies Revenue Recognition Revenue is recognized at the time of shipment, net of allowances for estimated future product returns. The Company's obligations after the point of sale are insignificant. Costs relating to any post sale obligations are therefore expensed as incurred. Cash and Cash Equivalents Cash and cash equivalents consist primarily of highly liquid money market accounts carried at cost plus accrued interest, which approximates market value. All cash equivalents have maturities of less than three months at the time of purchase. Short-Term Investments The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, for investments held as of September 1, 1994. Under the provisions of SFAS No. 115, the Company has classified its investments as "available-for-sale." Such investments are recorded at fair value and unrealized gains and losses, if material, are reported as a separate component of equity until realized. The cost of securities sold is based upon the specific identification method. There was no cumulative effect on earnings as a result of the adoption of SFAS No. 115. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, which range from three to seven years. Capitalized Software Development Costs The Company capitalizes software development costs after the technological feasibility of the product has been established in accordance with SFAS No. 86, Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed. Such costs are amortized using the straight-line method over the estimated economic life of the product, which is generally two years from the date of product release. The amortization expense was $11,655 and $2,562 for each of the three months ended November 30, 1995 and 1994, respectively, and $26,545 and $4,270 for each of the years ended August 31, 1995 and 1994, respectively. This amortization approximates or is greater than that which would be determined using the ratio of current product revenue to the total anticipated product revenue. The Company periodically evaluates unamortized capitalized software costs to determine that such costs are recoverable. Income Taxes Effective September 1, 1993, the Company adopted the provisions of SFAS No. 109, Accounting for Income Taxes, and has reported the cumulative effect of that change in the method of accounting for income taxes in the accompanying 1994 statement of earnings. SFAS No. 109 prescribes an asset and liability approach that results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than future enactment's of changes in tax laws or rates. Patent Costs Patent costs are comprised of capitalized costs associated with obtaining patent rights for certain software products. Such costs will be amortized over the useful life of the patents on the straight-line method once the patents have been obtained. (4) Property and Equipment Property and equipment consisted of the following as of November 30 and August 31:
August 31, November 30, ---------------- 1995 1995 1994 ---- ---- ---- (Unaudited) Furniture and fixtures $ 39,170 39,170 35,333 Computer equipment and software 97,521 89,147 74,631 Motor vehicles - 10,386 10,386 ------- ------- ------- 136,691 138,703 120,350 Less accumulated depreciation 98,279 102,370 91,305 ------- ------- ------- $ 38,412 36,333 29,045 ======= ======= =======
(5) Short-Term Investments Short-term investments consisted of the following as of November 30 and August 31:
August 31, November 30, ---------------- 1995 1995 1994 ---- ---- ---- (Unaudited) Corporate bond $4,673 4,673 4,673 Government bond mutual fund -- -- 80,000 ----- ----- ------ $4,673 4,673 84,673 ===== ===== ======
The values of the short-term investments included in the accompanying balance sheets as of November 30, 1995, and August 31, 1995 and 1994 are at cost and approximate fair value. During December 1994, the Company sold its investment in a government bond mutual fund for a realized loss of $1,957. The cost and estimated fair value of available-for-sale investments as of November 30, 1995, and August 31, 1995, by contractual maturity, was as follows:
Estimated Cost Fair Value ---- ---------- Corporate bond maturing in 2005 $4,673 4,673 ===== =====
(6) Shareholders' Equity At the discretion of the Board of Directors, the Company grants incentive options to employees, including officers and directors, and warrants to nonemployees (collectively referred to as options). Options become exercisable at such times and under such conditions as determined by the Board of Directors at the date of grant. To date, all options have been issued with an exercise price no less than the fair value at the date of grant. The fair value of the Company's stock is determined by the Board of Directors. As of November 30, 1995, and August 31, 1995, 578,656 options were outstanding of which 444,656 were vested, and as of August 31, 1994, 564,020 options were outstanding of which 499,020 were vested. Activity associated with the Company's stock options for the years ended August 31, 1995 and 1994 is as follows:
Options Price outstanding per share ----------- --------- Balance as of August 31, 1993 437,670 $.15 -- 1.50 Options granted 136,750 1.50 Options exercised (1,400) .67 Options expired or canceled (9,000) 1.25 -------- ------------ Balance as of August 31, 1994 564,020 .15 -- 1.50 Options granted 122,480 1.50 Options exercised (14,000) 1.50 Options expired or canceled (93,844) .90 -- 1.25 -------- ------------ Balance as of August 31, 1995, and November 30, 1995 578,656 .15 -- 1.50 ========
There was no activity for the three months ended November 30, 1995. (7) Preferred Stock Each share of Series A preferred stock is convertible at the option of the shareholder at a rate of one share of common stock for one share of Series A preferred stock. Preferred stock would be automatically converted by the Company to common stock on the occurrence of any major event. In addition, preferred stock shareholders have preference over common stock shareholders in a liquidation, and would receive the first 15 cents per share of any dividend announced by the Company, on a noncumulative basis. To date, no dividends have been announced by the Company. During the three months ended November 30, 1995, the preferred stock was converted to common stock. (8) Retirement Savings Plan The Company has established a retirement savings plan that is available to all employees with a minimum of five years of service. Employees may elect to contribute up to 15% of their annual salary, subject to special limitations imposed by the Internal Revenue Service. The Company made no contributions to the plan for the three months ended November 30, 1995 and 1994, or for the years ended August 31, 1995 and 1994. (9) Income Taxes As discussed in Note 3, the Company adopted SFAS No. 109 as of September 1, 1993. The cumulative effect of this change in accounting for income taxes of $157,768 was determined as of September 1, 1993, and is reported separately in the accompanying statement of earnings for the year ended August 31, 1994. Income tax expense for the years ended August 31, 1995 and 1994 consisted of:
1995 1994 ---- ---- Current: Federal $ -- -- State 800 800 -------- ------ 800 800 Deferred: Federal 110,892 37,600 State 33,609 11,191 -------- ------ 144,501 48,791 -------- ------ $ 145,301 49,591 ======== ======
As of August 31, 1995, the Company has federal net operating loss carryforwards of approximately $273,000, which expire in the years 2005 through 2008. The state of California allows 50% of net operating losses incurred to be carried forward for five years. Accordingly, the Company has a net operating loss carryforward for state tax purposes of approximately $32,000 as of August 31, 1995. The carryforward expires in the year 1998. The Internal Revenue Code of 1986 and the California Conformity Act of 1987 substantially restrict the ability of a corporation to utilize existing net operating losses in the event of an "ownership change" of the Company, as defined. The tax effect of differences that give rise to significant portions of deferred tax assets and liabilities are presented below:
1995 1994 ---- ---- Deferred asset: Deferred state taxes $ 9,552 -- Net operating loss carryover 95,864 162,566 --------- ------- 105,416 162,566 Less valuation allowance -- -- --------- ------- Net deferred asset 105,416 162,566 --------- ------- Deferred tax liability: Cash method of accounting employed for tax purposes (77,792) (25,986) Software development expenses capitalized for book purposes (63,204) (25,783) Deferred state taxes -- -- -------- ------- Net deferred liability (140,996) (53,645) ------- ------- Net deferred asset (liability) $ (35,580) 108,921 ========= =======
The Company believes that it is more likely than not that the results of future operations will generate significant taxable earnings to realize the deferred tax asset, thus, no valuation allowance has been provided. The difference between the effective income tax rate and the federal statutory rate of 34% is as follows:
1995 1994 ---- ---- Statutory federal income tax rate $121,661 40,625 State tax, net of federal benefit 22,710 7,914 Other 930 1,052 ------- ------ $145,301 49,591 ======= ======
(10) Commitments and Contingencies The Company leases office space for its headquarters facility. The lease term expires on June 1, 1996 with an option to renew for an additional 25 months. The minimum future commitment under this lease is approximately $17,000. Rental expense amounted to approximately $8,347 and $4,620 for the three months ended November 30, 1995 and 1994, respectively, and $22,266 and $18,840 for the years ended August 31, 1995 and 1994, respectively. In the normal course of business, the Company is from time to time involved in various asserted and unasserted claims. In the opinion of management, the ultimate disposition of such matters will not have a material effect on the Company's financial position or future results of operations. (11) Export Sales Information regarding the Company's operations by geographic area as of and for the years ended August 31, 1995 and 1994, follows:
1995 1994 ---- ---- Revenues: United States $ 778,227 444,441 Europe (export sales) 135,456 35,201 Asia/austrialia (export sales) 39,624 31,470 Other (export sales) 35,642 24,211 ------- ------- $ 988,949 535,323 ======= ======= Accounts receivable (gross): United States 221,453 129,748 Europe 26,032 8,286 Asia/Australia 4,151 4,400 Other 14,476 7,955 ------- ------- $ 266,112 150,389 ======= =======
(12) Subsequent Events On September 6, 1995, the Company entered into a Letter of Intent for a plan of merger with TMS, Inc. (TMS), a publicly held computer software company. On September 21, 1995, the Company and TMS agreed to amend the Letter of Intent for changes in the number of TMS shares to be issued for all of the issued and outstanding shares of the Company's common stock. Under the amended Letter of Initent, TMS will issue a maximum of 5,000,000 shares of its common stock in exchange for all outstanding shares of the Company's common stock. In addition, holders of the Company's common stock options at the time of the merger will receive TMS common stock options of corresponding value. The Company anticipates that the merger will be consummated during the first quarter of the Company's fiscal 1996 and will be accounted for using the pooling-of-interests method. Consummation of the merger is subject to several conditions, including negotiation and execution of a definitive agreement. In addition, in anticipation of the merger, the holders of all of the preferred stock converted their holdings to common stock in October at the rate of one share of common stock for one share of preferred stock, as outlined in Note 7. UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION Set forth on the following pages is certain unaudited pro forma combined financial information with respect to the Merger, including an unaudited pro forma combined balance sheet as of November 30, 1995 and unaudited pro forma combined statements of operations for the three months ended November 30, 1995 and for the years ended August 31, 1995, 1994 and 1993. The pro forma combined balance sheet has been prepared on the basis that the Merger occurred on November 30, 1995. The pro forma combined statements of operations have been prepared on the basis that the Merger occurred at the beginning of the earliest period presented. The Merger is expected to qualify as a "pooling-of-interests" for accounting and financial reporting, and has been structured to qualify as a tax free reorganization. The unaudited pro forma combined financial statements should be read in conjunction with the notes thereto. The pro forma combined results of operations are not necessarily indicative of future operations of TMS or results that actually would have occurred had the Merger been effected on the dates indicated.
TMS, INC. UNAUDITED PRO FORMA COMBINED BALANCE SHEET NOVEMBER 30, 1995 TMS/Sequoia TMS Sequoia Pro Forma Merger Assets Historical Historical Adjustments Pro Forma ------ ---------- ---------- ----------- ---------- Current Assets: Cash and cash equivalents $140,915 376,347 --- 517,262 Short-term investments --- 4,673 --- 4,673 Trade accounts receivable 1,027,431 232,300 --- 1,259,731 Allowance for returns and doubtful accounts (65,370) (32,359) --- (97,729) Contract service work in process 112,495 --- --- 112,495 Deferred income taxes 180,000 18,512 --- 198,512 Prepaid expenses and other current assets 79,774 11,401 --- 91,175 ---------- -------- --------- ---------- Total current assets 1,475,245 610,874 --- 2,086,119 ---------- -------- --------- ---------- Property and equipment 2,034,552 136,690 --- 2,171,242 Less accumulated depreciation and amortization (621,603) (98,278) --- (719,881) ---------- -------- --------- ---------- Net property and equipment 1,412,949 38,412 --- 1,451,361 ---------- -------- --------- ---------- Other assets: Capitalized software development costs, net 259,827 160,417 --- 420,244 Deferred income taxes 140,000 --- (68,204) /(2)/ 71,796 Other assets 13,259 17,814 --- 31,073 ---------- -------- --------- ---------- Total other assets 413,086 178,231 (68,204) 523,113 ---------- -------- --------- ---------- Total assets $3,301,280 827,517 (68,204) 4,060,593 ========== ======== ======== ========== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Current installments of long-term debt 18,294 --- --- 18,294 Accounts payable 190,418 55,574 50,000 /(3)/ 295,992 Accrued payroll and commissions 215,341 45,257 --- 260,598 Other liabilities 15,250 12,458 --- 27,708 Deferred revenue 69,559 --- --- 69,559 ---------- -------- ---------- ---------- Total current liabilities 508,862 113,289 50,000 672,151 Long-term debt, net of current installments 371,528 --- --- 371,528 Deferred income taxes --- 68,204 (68,204) /(2)/ --- ----------- -------- -------- ---------- Total liabilities 880,390 181,493 (18,204) 1,043,679 ---------- -------- -------- ---------- Shareholders' Equity Common stock 423,925 632,086 (449,924) /(1)/ 606,087 Additional paid-in capital 10,554,932 --- 449,924 /(1)/ 11,004,856 Unamortized deferred compensation (3,034) --- --- (3,034) Accumulated (deficit) earnings (8,554,933) 13,938 (50,000) /(3)/ (8,590,995) ---------- -------- -------- ---------- Total shareholders' equity 2,420,890 646,024 (50,000) 3,016,914 $3,301,280 827,517 (68,204) 4,060,593 ========== ======== ======== ==========
See accompanying notes to the unaudited pro forma combined financial statements.
TMS, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS THREE MONTHS ENDED NOVEMBER 30, 1995 TMS/Sequoia TMS Sequoia ProForma Merger Historical Historical Adjustments Pro Forma ---------- ---------- ----------- ---------- Revenue: Software development and document conversion services $486,504 --- --- 486,504 Licensing and royalties 813,804 303,140 --- 1,116,944 --------- --------- --------------- ---------- 1,300,308 303,140 --- 1,603,448 --------- --------- --------------- ---------- Operating costs and expenses: Software development and document conversion services 375,056 --- --- 375,056 Selling, general and administrative 651,423 270,399 --- 921,822 Research and development 138,149 --- --- 138,149 --------- --------- --------------- ---------- 1,164,628 270,399 --- 1,435,027 ---------- --------- --------------- ---------- Operating income 135,680 32,741 --- 168,421 Other income (expense): Interest income 3,063 4,168 --- 7,231 Interest expense (9,887) --- --- (9,887) Other, net 25,134 370 --- 25,504 ---------- --------- --------------- ---------- Income before income taxes 153,990 37,279 --- 191,269 Income tax expense --- (14,911) --- (14,911) ---------- --------- --------------- ---------- Net income $153,990 22,368 --- 176,358 ========== ========= =============== ========== Net income per common and common equivalent share $0.02 0.02 0.01 ========== ========= ========== Weighted average common and common equivalent shares 9,384,300 1,342,056 13,673,727 /(5)/ ========== ========= ==========
See accompanying notes to the unaudited pro forma combined financial statements.
TMS, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1995 1995 TMS/Sequoia TMS Sequoia Pro Forma Merger Historical Historical Adjustments Pro Forma ---------- ---------- ----------- ---------- Revenue: Software development and document conversion services $1,889,672 --- --- 1,889,672 Licensing and royalties 2,331,448 988,949 --- 3,320,397 --------- ------- ------- ----------- 4,221,120 988,949 --- 5,210,069 --------- ------- ------- ----------- Operating costs and expenses: Software development and document conversion services 1,109,253 --- --- 1,109,253 Selling, general and administrative 2,205,511 640,309 --- 2,845,820 Research and development 470,559 --- --- 470,559 --------- -------- ------- ----------- 3,785,323 640,309 --- 4,425,632 --------- -------- ------- ----------- Operating income 435,797 348,640 --- 784,437 Other income (expense): Interest income 4,837 9,570 --- 14,407 Interest expense (11,305) --- --- (11,305) Other, net 26,312 (384) --- 25,928 --------- -------- ------- ----------- Income before income taxes 455,641 357,826 --- 813,467 Income tax benefit (expense) 315,840 (145,301) --- 170,539 --------- -------- ------- ----------- Net income $ 771,481 212,525 --- 984,006 ========= ======== ======== =========== Net income per common and common equivalent share $ 0.08 0.16 0.08 ========= ======== =========== Weighted average common and common equivalent shares 9,188,351 1,343,739 13,105,194 /(5)/ ========= ========= ===========
See accompanying notes to the unaudited pro forma combined financial statements.
TMS, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1994 1994 TMS/Sequoia TMS Sequoia Pro Forma Merger Historical Historical Adjustments Pro Forma ---------- ---------- ----------- ----------- Revenue: Software development and document conversion services $ 1,216,935 --- --- 1,216,935 Licensing and royalties 2,219,826 535,323 --- 2,755,149 --------- ------- -------- --------- 3,436,761 535,323 --- 3,972,084 --------- ------- -------- --------- Operating costs and expenses: Software development and document conversion services 721,826 --- --- 721,826 Selling, general and administrative 1,903,706 420,711 --- 2,324,417 Research and development 471,462 --- --- 471,462 --------- ------- -------- --------- 3,096,994 420,711 --- 3,517,705 --------- ------- -------- --------- Operating income 339,767 114,612 --- 454,379 Other income (expense): Interest income 4,424 2,140 --- 6,564 Interest expense (1,075) --- --- (1,075) Other, net 9,205 2,733 --- 11,938 --------- -------- -------- --------- Income before income taxes 352,321 119,485 --- 471,806 Income tax expense (1,700) (49,591) --- (51,291) --------- --------- -------- --------- Net income $ 350,621 69,894 /(4)/ --- 420,515 ========= ========= ======== ========= Net income per common and common equivalent share $ 0.04 0.05 0.03 ========= ======== =========== Weighted average common and common equivalent shares 9,012,191 1,347,652 12,768,824 /(5)/ ========= ========= ==========
See accompanying notes to the unaudited pro forma combined financial statements.
TMS, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1993 1993 TMS/Sequoia TMS Sequoia Pro Forma Merger Historical Historical Adjustments Pro Forma ---------- ---------- ----------- --------- Revenue: Software development and document conversion services $ 422,815 --- --- 422,815 Licensing and royalties 2,378,050 300,621 --- 2,678,671 --------- ------- ------- ---------- 2,800,865 300,621 --- 3,101,486 --------- ------- ------- ---------- Operating costs and expenses: Software development and document conversion services 277,624 --- --- 277,624 Selling, general and administrative 1,570,134 313,180 --- 1,883,314 Research and development 513,597 --- --- 513,597 --------- ------- ------- --------- 2,361,355 313,180 --- 2,674,535 --------- ------- ------- ---------- Operating income (loss) 439,510 (12,559) --- 426,951 Other income (expense): Interest income 6,452 978 --- 7,430 Interest expense (22,339) --- --- (22,339) Other, net 10,430 1,182 --- 11,612 --------- -------- ------- --------- Income (loss) before income taxes 434,053 (10,399) --- 423,654 Income tax (expense) benefit (4,000) 4,160 --- 160 --------- -------- ------- --------- Net income (loss) $ 430,053 (6,239) --- 423,814 ========= ======== ======= ========= Net income (loss) per common and common equivalent share $ 0.05 (0.01) 0.03 ========= ========= ========= Weighted average common and common equivalent shares 9,093,162 1,198,780 13,409,459 /(5)/ ========= ========= ==========
See accompanying notes to the unaudited pro forma combined financial statements. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (1) Adjustment reflects the exchange of Sequoia common shares at November 30, 1995 for 2.837 shares of TMS common shares, and the resulting increase in additional paid-in-capital. At November 30, 1995, after giving effect to the Merger, TMS would have had outstanding 12,121,730 common shares, par value, $.05. On November 30, 1995, TMS and Sequoia had 8,478,511 and 1,284,180 common shares outstanding, respectively. (2) Adjustment reflects offset of TMS' non-current deferred tax asset by the amount of Sequoia's non-current deferred tax liability. (3) Merger costs incurred of approximately $120,000 have been recognized in the pro forma combined statement of operations for the three months ended November 30, 1995. Additional merger costs estimated at approximately $30,000 to $50,000 will be charged to operations as incurred. The pro forma combined balance sheet gives effect to $50,000 of such expenses as if they had been incurred as of November 30, 1995. (4) Sequoia adopted Statement of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes, as of September 1, 1993, and recorded the cumulative effect of the accounting change in its 1994 Statement of Operations. The cumulative effect of the accounting change ($157,768) has been excluded from the 1994 unaudited pro forma combined statement of operations. (5) In calculating the pro forma weighted average common and common equivalent shares, the 2.837 exchange ratio was applied to the Sequoia stock options and the exercise price was adjusted to 35.24% of the Sequoia exercise price. Dilutive effect of Sequoia stock options was determined by reference to market prices of TMS Common Stock. -----END PRIVACY-ENHANCED MESSAGE-----