-----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, PuWTvzXOT3cOSQNLteTthgGbYIA64TPwWsn/qEJkjxDw5XulXN6YqDMoSVoXOrF2 pLMyXZSxTykWwPgOyzYiZA== 0000912057-96-009489.txt : 19960619 0000912057-96-009489.hdr.sgml : 19960619 ACCESSION NUMBER: 0000912057-96-009489 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960229 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED DIGITAL ACCESS INC CENTRAL INDEX KEY: 0000919048 STANDARD INDUSTRIAL CLASSIFICATION: 5065 IRS NUMBER: 680132939 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23698 FILM NUMBER: 96563477 BUSINESS ADDRESS: STREET 1: 9855 SCRANTON RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6196232200 8-K/A 1 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT (AMENDMENT NO. 1) Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 February 29, 1996 ---------------------------------------------------- Date of Report (Date of earliest event reported) APPLIED DIGITAL ACCESS, INC. ----------------------------------------------------------- (Exact name of registrant as specified in its charter) California 0-23698 68-0132939 - - ---------------------------- ------------- -------------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 9855 Scranton Road San Diego, CA 92121 -------------------------------------------- (Address of principal executive offices) (619) 623-2200 ------------------------------------------------------- (Registrant's telephone number, including area code) Total number of pages: 20 The undersigned hereby amends Item 7 of its Current Report on Form 8-K filed with the Commission on March 15, 1996 to read as follows: ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Report of Independent Accountants.......................... 4 Consolidated Balance Sheets as of April 30, 1995 and 1994... 5 Consolidated Statements of Operations for the years ended April 30, 1995 and 1994..................................... 6 Consolidated Statements of Cash Flows for the years ended April 30, 1995 and 1994..................................... 7 Consolidated Statements of Changes in Stockholders' Equity for the years ended April 30, 1995 and 1994.................. 8 Notes to Consolidated Financial Statements................... 9 (b) Introduction to Pro Forma Financial Statements............... 17 Pro Forma Combined Balance Sheet (Unaudited) as of December 31, 1995............................................ 18 Pro Forma Combined Statement of Operations (Unaudited) for the year ended December 31, 1995......................... 19 Notes to Pro Forma Combined Financial Statements (Unaudited). 20
2 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 hereunto duly authorized. Applied Digital Access, Inc. Dated: May 14, 1996 By: /s/ PETER P. SAVAGE ------------------------------------ Peter P. Savage President and Chief Executive Officer 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Applied Computing Devices, Inc. We have audited the accompanying consolidated balance sheets of Applied Computing Devices, Inc. and subsidiary as of April 30, 1995 and 1994 and the related consolidated statements of operations, cash flows and changes in stockholders' equity 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Applied Computing Devices, Inc. and subsidiary as of April 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Indianapolis, Indiana June 28, 1995 4 APPLIED COMPUTING DEVICES, INC. CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 1995 AND 1994
ASSETS 1995 1994 Current assets: Cash and cash equivalents $ 194,885 $ 524,190 Accounts receivable, net of allowance for doubtful accounts of $113,000 in 1995 and $23,000 in 1994 5,737,965 2,524,916 Inventories 299,901 406,150 Deferred income taxes 270,188 223,063 Other current assets 147,693 326,686 ------------ ------------ Total current assets 6,650,632 4,005,005 Property and equipment, net 3,702,990 3,801,459 Computer software development costs, net of accumulated amortization and net realizable value adjustments 3,440,358 3,288,432 Other assets 26,592 51,441 ------------ ------------ $ 13,820,572 $ 11,146,337 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to bank $ 2,905,546 $ -- Accounts payable 460,510 463,246 Contract prepayments 409,369 1,205,141 Accrued payroll and related taxes 465,526 500,366 Current portion of long-term obligations 222,215 312,086 Accrual for product warranty 274,000 225,000 Income taxes payable 123,634 53,635 Other current liabilities 342,244 191,122 ------------ ------------ Total current liabilities 5,203,044 2,950,596 Long-term obligations, net of current portion 1,291,606 1,479,337 Deferred income taxes 1,074,504 1,000,205 ------------ ------------ 7,569,154 5,430,138 ------------ ------------ Minority interest 63,115 15,789 ------------ ------------ Stockholders' equity: Common stock, no par value, 250,000 shares authorized; 105,528 shares issued for 1995 and 105,379 shares issued for 1994, including treasury shares 1,091,058 1,069,517 Retained earnings 5,758,274 5,291,922 Treasury stock, at cost, 9,282 shares for 1995 and 1994 (661,029) (661,029) ------------ ------------ Total stockholders' equity 6,188,303 5,700,410 ------------ ------------ $ 13,820,572 $ 11,146,337 ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 5 APPLIED COMPUTING DEVICES, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1995 AND 1994
1995 1994 Revenues: Sales $ 10,693,973 $ 9,708,003 Service income 3,616,616 2,747,326 ------------ ------------ Total revenues 14,310,589 12,455,329 ------------ ------------ Cost of product sales 1,782,098 1,519,255 Operating expenses: Marketing and sales operations 1,781,442 2,008,249 Operations division 2,916,934 2,813,585 General and administrative 1,365,838 991,152 Research and development 5,470,425 4,442,339 ------------ ------------ Total costs and operating expenses 13,316,737 11,774,580 ------------ ------------ Income from operations 993,852 680,749 Interest expense (315,534) (226,105) Other income 53,860 54,179 ------------ ------------ Income before income taxes, minority interest and cumulative effect of accounting change 732,178 508,823 Provision for income taxes 218,500 165,000 ------------ ------------ Income before minority interest and cumulative effect of accounting change 513,678 343,823 Minority interest in (income) net loss of subsidiary (47,326) 47,191 ------------ ------------ Income before cumulative effect of accounting change 466,352 391,014 Cumulative effect of change in method of accounting for income taxes -- 47,987 ------------ ------------ Net income $ 466,352 $ 439,001 ------------ ------------ ------------ ------------ Net income per common share $ 4.81 $ 4.50 ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 6 APPLIED COMPUTING DEVICES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED APRIL 30, 1995 AND 1994
1995 1994 Cash flows from operating activities: Net income $ 466,352 $ 439,001 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,627,597 2,333,390 Minority interest in net income of subsidiary 47,326 (8,321) Deferred income taxes 74,299 (52,023) Common stock issued as compensation 12,442 21,039 Cumulative effect of accounting change -- (47,987) Changes in assets and liabilities: (Increase) decrease in accounts receivable (3,213,048) 639,211 Decrease in inventories 106,249 28,908 Decrease (increase) in other current assets 131,868 (276,228) Decrease in other assets 24,849 4,971 Decrease in accounts payable (2,736) (129,731) (Decrease) increase in contract prepayments (795,772) 1,062,651 (Decrease) increase in accrued payroll and related taxes (34,840) 54,034 (Decrease) increase in income taxes payable (5,001) 18,900 Increase (decrease) in other current liabilities 185,251 (330,355) ------------ ------------ Total adjustments (841,516) 3,318,459 ------------ ------------ Net cash provided by (used in) operating activities (375,164) 3,757,460 ------------ ------------ Cash flows from investing activities: Purchases of property and equipment (578,256) (269,710) Computer software expenditures (2,102,799) (1,593,678) ------------ ------------ Net cash used in investing activities (2,681,055) (1,863,388) ------------ ------------ Cash flows from financing activities: Net borrowing (payments) for notes payable to bank 2,905,547 (1,093,646) Principal repayments of long-term obligations (187,732) (367,647) Proceeds from issuance of common stock 9,099 13,386 ------------ ------------ Net cash provided by (used in) financing activities 2,726,914 (1,447,907) ------------ ------------ Net increase (decrease) in cash (329,305) 446,165 Cash and cash equivalents, beginning of year 524,190 78,025 ------------ ------------ Cash and cash equivalents, end of year $ 194,885 $ 524,190 ------------ ------------ ------------ ------------ Supplemental disclosure of cash flow information: Cash paid during the year: Income taxes $ 73,568 $ 209,351 ------------ ------------ ------------ ------------ Interest $ 287,700 $ 236,121 ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 7 APPLIED COMPUTING DEVICES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED APRIL 30, 1995 AND 1994
COMMON STOCK ---------------------- RETAINED TREASURY SHARES AMOUNT EARNINGS STOCK TOTAL -------- ----------- ----------- ---------- ---------- Balance at May 1, 1993 105,126 $ 1,035,092 $ 4,852,921 $ (661,029) $5,226,984 Common stock issued under Employee Stock Purchase Plan 98 13,386 -- -- 13,386 Common stock issued as compensation 155 21,039 -- -- 21,039 1994 net income -- -- 439,001 -- 439,001 -------- ----------- ----------- ---------- ---------- Balance at April 30, 1994 105,379 1,069,517 5,291,922 (661,029) 5,700,410 Common stock issued under Employee Stock Purchase Plan 64 9,099 -- -- 9,099 Common stock issued as compensation 85 12,442 -- -- 12,442 1995 net income -- -- 466,352 -- 466,352 -------- ----------- ----------- ---------- ---------- Balance at April 30, 1995 105,528 $ 1,091,058 $ 5,758,274 $ (661,029) $6,188,303 -------- ----------- ----------- ---------- ---------- -------- ----------- ----------- ---------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 8 APPLIED COMPUTING DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. GENERAL: Applied Computing Devices, Inc. (ACD) is an Indiana corporation whose principal business is designing and developing computer software and hardware products for the telecommunications industry. International Centers for Telecommunication Technology, Inc. (ICTT), a majority-owned subsidiary, performs research and development services for the industry (see Note 2). The companies' manufacturing and research facilities are located in Terre Haute, Indiana, and sales are made primarily throughout the United States, with some sales derived from international customers. Significant accounting policies are described below. b. BASIS OF CONSOLIDATION: The consolidated financial statements include ACD and its majority-owned subsidiary (the Company). All significant intercompany accounts are eliminated. Minority ownership in ICTT is reported separately. c. CASH EQUIVALENTS: For purposes of the consolidated statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. d. INVENTORIES: Inventories are stated at the lower of cost or market, with cost determined utilizing the first-in, first-out (FIFO) method. Inventories consisted of the following at April 30, 1995 and 1994:
1995 1994 Purchased materials $145,524 $183,977 Work-in-process 129,303 158,141 Finished goods 25,074 64,032 -------- -------- $299,901 $406,150 -------- -------- -------- --------
e. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Substantially all assets are depreciated using the straight-line method over their estimated lives, which range from 3 to 40 years. f. COMPUTER SOFTWARE DEVELOPMENT COSTS: The Company accounts for computer software development costs in accordance with the provisions of Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED. Costs incurred prior to establishing the technological feasibility of computer software products and enhancements to such products are expensed as incurred. Capitalization of software development costs begins upon the establishment of technological feasibility through detailed program designs. The establishment of technological feasibility and the ongoing assessment of the recoverability of capitalized software development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: Capitalized costs are amortized on a product-by-product basis once the product is available for general release. Amortization is the greater of the amount computed using the ratio of the current year's gross revenues and the total of current and anticipated future gross revenues for that product or the straight-line method over the remaining estimated economic life of the product (see Note 4). The estimated economic lives of the Company's products range from 24 to 36 months. At each balance sheet date, the Company compares the unamortized costs of individual computer software products to the related estimated net realizable value and writes off any excess amounts. g. REVENUE RECOGNITION: The Company enters into contracts for a substantial portion of its revenue from the sale of software products and other services. Such contracts, which are generally short-term, are periodically reviewed by management to determine whether estimated costs to complete exceed contractual revenue. Provisions for anticipated losses are recorded in the period they become determinable. Revenues from the sale of the Company's products are generally recognized as products are shipped. Revenues related to services and installation are recognized upon completion and billing of the specific project phases. The Company also sells professional services ("development services"), in addition to its internal product development activities, for customer application development using the Company's standard products. Revenue related to such development services is recognized when the development services are rendered using the percentage of completion, cost-to-cost method. During fiscal 1995, two customers represented an aggregate of 83% of the Company's revenue, and during fiscal 1994, two customers represented an aggregate of 61% of the Company's revenue. In accordance with the terms of contracts with certain customers, ACD may require payments in advance of product shipment or completion of services. Such prepayments are deferred and recognized as revenue when the terms of the related contracts have been met. h. ACCRUAL FOR PRODUCT WARRANTY: ACD warrants most products for one year from the date of sale or installation. The estimated cost of repairs under such warranties, which includes consideration of the Company's prior experience and other factors, has been provided in the consolidated financial statements. i. DEFERRED INCOME TAXES: Effective May 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, (SFAS No. 109), which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the Company's financial statements or tax returns. Under SFAS No. 109, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The cumulative effect of the change in the method of accounting for income taxes was a benefit of $47,987 for fiscal year 1994. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: j. EARNINGS PER COMMON SHARE: Earnings per common share are computed based on the weighted average number of shares outstanding during the year, including the dilutive effect of common stock equivalents for stock options. 2. CONSOLIDATION OF MAJORITY-OWNED SUBSIDIARY: Summary financial data for ICTT, the Company's consolidated, sixty percent-owned subsidiary as of April 30, 1995 and 1994 is shown below. Total revenues include sales to ACD of $1,789,000 and $1,049,417 for 1995 and 1994, respectively. These intercompany sales and related profits are eliminated in the consolidated financial statements.
1995 1994 Total assets $ 386,606 $ 519,600 ---------- ---------- ---------- ---------- Total liabilities $ 228,819 $ 480,128 ---------- ---------- ---------- ---------- Total revenues $1,809,772 $1,211,179 ---------- ---------- ---------- ---------- Net income (loss) $ 118,315 $ (117,978) ---------- ---------- ---------- ----------
3. PROPERTY AND EQUIPMENT: Property and equipment consist of the following at April 30, 1995 and 1994:
1995 1994 Building $ 2,802,742 $ 2,802,742 Office furniture and fixtures 1,328,711 1,245,864 Manufacturing and test equipment 707,192 585,681 Research and development equipment 3,085,894 2,866,663 Operations division equipment 1,263,970 1,157,984 Other equipment 609,604 560,924 ----------- ----------- 9,798,113 9,219,858 Less accumulated depreciation (6,095,123) (5,418,399) ----------- ----------- $ 3,702,990 $ 3,801,459 ----------- ----------- ----------- -----------
Depreciation expense for the years ended April 30, 1995 and 1994 was $676,724 and $811,765, respectively. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 3. PROPERTY AND EQUIPMENT, CONTINUED: ACD leases land and office space from Aleph Park Corporation (the Corporation), an Indiana not-for-profit corporation, which is controlled by certain members of the Company's management. Annual rentals of $177,888 were paid in both 1995 and 1994 (the Articles of Incorporation of Aleph Park Corporation prohibit its officers and directors from personally and/or directly profiting from control of the Corporation). The land is leased under a lease agreement which provides for a 20-year initial lease term with renewal options. The initial land lease term expires in April 2005. The office space is leased under a lease agreement which expires in April 1996 and has renewable options. Office space is also leased by ICTT under a lease agreement with the Corporation which expires in April 1996 and has renewable options. Annual rentals under the ICTT lease were $41,688 in both 1995 and 1994. 4. COMPUTER SOFTWARE DEVELOPMENT COSTS: During fiscal 1995 and 1994, the Company incurred amortization expense of $1,950,873 and $1,521,621, respectively, for capitalized computer software development costs. Such amortization is included in operating expenses in the accompanying Consolidated Statement of Operations. There were no net realizable value adjustments required during fiscal 1995 or 1994. 5. NOTES PAYABLE TO BANK: ACD's revolving credit agreement (Agreement) provides for aggregate borrowings of up to $4,500,000 as of April 30, 1995. Amounts outstanding are due on demand and are collateralized by substantially all of ACD's assets not otherwise encumbered. Interest is payable monthly at the bank's applicable prime rate, plus .5% per annum (9.5% at April 30, 1995). The Agreement includes certain restrictions and other covenants, the most significant of which is that the principal balance outstanding cannot exceed an amount based on percentages of ACD's eligible accounts receivable and inventories. The agreement also requires that ACD maintain a minimum net worth of $6,000,000 and adhere to certain other financial ratios. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. LONG-TERM OBLIGATIONS: Long-term obligations at April 30, 1995 and 1994 consist of the following:
1995 1994 City of Terre Haute Economic Development First Mortgage Revenue Bonds; monthly payments include principal of $13,170 plus interest at 75% of the prime rate established by Terre Haute First National Bank adjusted on each June 1 and December 1 (6.375% at April 30, 1995), payable through December 2003 $1,369,607 $1,527,643 Various equipment notes payable; interest ranging from 8% to 12.5%, aggregate monthly principal and interest payments of $20,306, maturing at various dates through November 1997. All equipment notes payable are collateralized by the specific equipment acquired. 144,214 263,780 ---------- ---------- 1,513,821 1,791,423 Less current portion (222,215) (312,086) ---------- ---------- $1,291,606 $1,479,337 ---------- ---------- ---------- ----------
The Economic Development First Mortgage Revenue Bonds are collateralized by a building and all property and equipment purchased with the proceeds of the bonds (see Note 5). At April 30, 1995, the aggregate maturities of the above long-term obligations are as follows: Year ending April 30: 1996 $ 222,215 1997 216,254 1998 179,854 1999 158,036 2000 158,036 Thereafter 579,426 ---------- $1,513,821 ---------- ----------
The Company is also obligated under certain noncancelable operating leases. Future minimum payments at April 30, 1995 are as follows: Year ending April 30: 1996 $ 684,039 1997 336,307 1998 239,346 1999 182,861 2000 26,400 Thereafter 129,800 ---------- $1,598,753 ---------- ----------
Rent expense charged to operations amounted to $669,174 and $603,287 in 1995 and 1994, respectively. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. STOCKHOLDERS' EQUITY: a. EMPLOYEE STOCK PURCHASE PLAN: All employees of ACD, except those who are members of the Board of Directors, who meet certain eligibility requirements, may participate in ACD's voluntary employee stock purchase plan. Eligible employees may elect to participate in the plan by executing a stock purchase agreement, which provides ACD with a right of first refusal to repurchase such shares in the event plan participants choose to sell the shares. The agreement provides that plan participants may designate up to 10% of their salary to purchase shares of common stock at the price determined quarterly by the Board of Directors. b. COMMON STOCK OPTION PLAN: In connection with the terms of an employment agreement, one employee has stock options, which expire in 1997, to purchase 1,000 shares of ACD common stock at a price of $33 per share. The exercise price of the options when granted was fair market value, as estimated by the Board of Directors and the option price equaled or exceeded the price per share of the employee stock purchase plan. Sales of stock obtained under the options are subject to ACD's right of first refusal. During 1995, ACD issued stock options to purchase an aggregate of 5,500 shares of ACD common stock to two employees at an exercise price of $100 per share. Under the agreements, the employees' right to exercise these options vest ratably over three years, in the absence of certain events. If, in the vesting period, ACD were involved in a transaction that could result in a change in control with terms sufficiently favorable to shareholders, the options vest immediately at an exercise price of $50 per share. If unexercised, 500 of the options expire in the year 2000, and the remainder expire in 2005. At April 30, 1995, no options were exercisable. 8. INCOME TAXES: The provision for income taxes for the years ended April 30, 1995 and 1994 is as follows:
1995 1994 Federal: Current $101,500 $ 72,000 Deferred 26,000 2,000 -------- -------- 127,500 74,000 -------- -------- State: Current 38,000 41,000 Deferred 4,000 -- -------- -------- 42,000 41,000 Foreign--current 49,000 50,000 -------- -------- Total income tax provision $218,500 $165,000 -------- -------- -------- --------
14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 8. INCOME TAXES, CONTINUED: As described in Note 1, in 1994, the Company adopted the provisions of SFAS No. 109. The components of the deferred tax asset and liability computed under the accounting method as of April 30, 1995 are as follows:
CURRENT LONG-TERM TOTAL -------- ----------- ----------- Deferred tax assets: Research and experimentation credits $ -- $ 1,123,897 $ 1,123,897 Accrual for product warranty 107,408 -- 107,408 Accrued payroll 71,985 -- 71,985 Other 90,795 12,059 102,854 -------- ----------- ----------- 270,188 1,135,956 1,406,144 Less valuation reserve -- (350,000) (350,000) -------- ----------- ----------- 270,188 785,956 1,056,144 -------- ----------- ----------- Deferred tax liabilities: Computer software development costs -- (1,347,128) (1,347,128) Property and equipment -- (462,790) (462,790) Other -- (50,542) (50,542) -------- ----------- ----------- -- (1,860,460) (1,860,460) -------- ----------- ----------- $270,188 $(1,074,504) $ (804,316) -------- ----------- ----------- -------- ----------- -----------
The following table accounts for the difference between the actual tax provision and the amount obtained by applying the statutory federal income tax rate of 34% to income before income taxes:
1995 1994 Tax provision computed at statutory rate $ 249,000 $173,000 Increase (reductions) in taxes due to: Research and experimentation credits (169,272) (71,073) Prior years' taxes 75,150 -- State taxes, net of federal benefit 31,780 27,060 Other 31,842 36,013 --------- -------- Income tax provision $ 218,500 $165,000 --------- -------- --------- --------
The Company has been subject to alternative minimum tax for income tax reporting purposes primarily because of ACD's available tax credits for research and experimentation expenditures. Because utilization of these credits is limited for alternative minimum tax purposes, a valuation allowance of $350,000 was recorded at April 30, 1994 to reduce the value of the related deferred tax asset. For federal income tax reporting purposes, ACD and ICTT file separate income tax returns. ACD has research and experimentation tax credit carryforwards for federal income tax purposes of approximately $1,123,897, which expire commencing in 1999. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 9. PROFIT SHARING PLAN: ACD has a profit sharing retirement plan which incorporates the salary-deferral provisions of Section 401(k) of the Internal Revenue Code. All full-time employees are eligible to participate. ACD's contributions to the plan are discretionary and are determined and approved by the Board of Directors. The contribution expense included in the accompanying consolidated statement of operations was approximately $119,577 and $62,000 for fiscal 1995 and 1994, respectively. 10. CONTINGENCIES AND COMMITMENTS: In the normal course of business, ACD is subject to various claims and other pending and possible legal actions. Management believes that the results of these claims and possible legal actions will not have a material adverse effect on the financial condition of the Company. As part of a 1991 settlement agreement with two customers, ACD committed to pay one of the customers a percentage (up to an aggregate of two million dollars) of future payments ACD may receive in license fees from the other customer through January 1, 1997. No payments are required unless ACD receives license fees from the other customer. The commitment expires January 1, 1997 regardless of whether or not an aggregate of two million dollars has been paid. Payments expensed under this agreement were $61,119 in fiscal 1994. No payments were made under this agreement in 1995, and cumulative payments under this commitment were $236,604 at April 30, 1995. 16 APPLIED DIGITAL ACCESS, INC. AND APPLIED COMPUTER DEVICES, INC. INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS ---------- On February 29, 1996, Applied Digital Access, Inc. ("ADA"), acquired certain assets of Applied Computing Devices, Inc. ("ACD") for $1,700,000 in cash and incurred $200,000 in related costs. The assets were acquired at an auction held in Federal Bankruptcy Court, Southern District of Indiana. The transaction has been accounted for as a purchase. ACD developed and marketed operations support software used primarily by independent telephone companies to manage certain functions in their networks. Since filing bankruptcy in September 1995, ACD had not generated significant revenue. ADA intends to continue to market and enhance the ACD software products. The attached unaudited pro forma combining financial statements for the year ended December 31, 1995 give effect to the acquisition accounted for by the purchase method. The pro forma combining statements of operations assume that the acquisition took place as of January 1, 1995. The pro forma combining financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated at the beginning of the periods presented, nor is it necessarily indicative of future operating results. The pro forma combining financial information should be read in conjunction with the historical financial statements and the related notes thereto of ADA, previously filed, and the historical financial statements and related notes thereto of ACD included herein. 17 APPLIED DIGITAL ACCESS, INC. AND APPLIED COMPUTER DEVICES, INC. PRO FORMA COMBINING BALANCE SHEET (UNAUDITED) DECEMBER 31, 1995 (IN THOUSANDS)
ADA ACD ADJUSTMENTS COMBINED ------- ------- ----------- -------- ASSETS Current assets: Cash and cash equivalents $ 1,673 $ - $ - $ 1,673 Investments - current 25,079 - (1,700)(a) 23,379 Accounts receivable, net 5,358 2,616 (2,616)(b) 5,358 Inventory, net 6,572 30 (30)(b) 6,572 Deferred income taxes 750 - - 750 Prepaid expenses and other current assets 1,296 21 (21)(b) 1,296 ------- ------ ------- ------- Total current assets 40,728 2,667 (4,367) 39,028 Investments, non-current 5,095 - - 5,095 Property and equipment, net 3,361 3,331 (2,954)(b) 3,738 Computer software development costs, net - 1,235 (1,235)(b) - Other 752 44 293 (b) 1,089 ------- ------ ------- ------- $49,936 $7,277 $(8,263) $48,950 ------- ------ ------- ------- ------- ------ ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable to bank and long-term obligations $ - $5,953 $(5,953)(b) $ - Accounts payable 1,820 1,384 (1,384)(b) 1,820 Accrued expenses 843 1,182 (982)(a,b) 1,043 Accrued warranty 1,305 274 (274)(b) 1,305 Current portion of obligations under capital lease 32 - - 32 ------- ------ ------- ------- Total current liabilities 4,000 8,793 (8,593) 4,200 Obligations under capital leases, net of current portion 49 - - 49 ------- ------ ------- ------- Total liabilities 4,049 8,793 (8,593) 4,249 Shareholders' equity: Common stock 49,000 1,095 (1,095)(b) 49,000 Additional paid-in capital 2,492 - - 2,492 Unrealized gain on investments 147 - - 147 Deferred compensation (101) - - (101) Accumulated deficit (5,651) (1,950) 764 (a,b) (6,837) Treasury stock - (661) 661 (b) - ------- ------ ------- ------- Total shareholders' equity 45,887 (1,516) 330 44,701 ------- ------ ------- ------- $49,936 $7,277 $(8,263) $48,950 ------- ------ ------- ------- ------- ------ ------- -------
18 APPLIED DIGITAL ACCESS, INC. AND APPLIED COMPUTER DEVICES, INC. PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) ----------
ADA ACD ADJUSTMENTS COMBINED ------- ------- ----------- -------- Revenue $20,470 $ 7,865 $ - $28,335 Cost of revenue 8,717 1,141 67 (c) 9,925 ------- ------- ------- ------- Gross profit 11,753 6,724 (67) 18,410 Operating expenses: Research and development 5,807 7,740 (2,045)(c) 11,502 In-process research and development related to acquisition - - 1,186 (a) 1,186 Sales and marketing 4,234 3,264 (228)(c) 7,270 General and administrative 2,985 4,245 (45)(c) 7,185 ------- ------- ------- ------- Total operating expenses 13,026 15,249 (1,132) 27,143 ------- ------- ------- ------- Operating loss (1,273) (8,525) 1,065 (8,733) Interest income 2,023 - - 2,023 Interest expense - (302) 302 (c) - Other income, net 9 144 - 153 ------- ------- ------- ------- Loss before income taxes 759 (8,683) 1,367 (6,557) Income tax benefit - 810 (810)(c) - ------- ------- ------- ------- Net loss $ 759 $(7,873) $ 557 $(6,557) ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) per common share $.06 $(.56) ------- ------- ------- ------- Shares used in per share computations 12,848 11,806 ------- ------- ------- -------
19 APPLIED DIGITAL ACCESS, INC. AND APPLIED COMPUTER DEVICES, INC. NOTE TO PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) ---------- PRO FORMA FINANCIAL STATEMENTS: The pro forma financial statements are provided as of December 31, 1995 and for the year then ended. ACD had a fiscal year end of April 30. Financial information for ACD is as of January 31, 1996 and for the twelve months then ended. In September 1995, after incurring a $2.3 million pre-tax loss on a receivable previously believed to be fully collectible, ACD violated the credit agreement with its major financial institution and filed for protection under Chapter 11 of the bankruptcy code. While in bankruptcy, ACD's management significantly reduced the number of its personnel, reevaluated the company's products and strategic direction and, as a result, significantly reduced the net carrying value of capitalized software. The pro forma combined financial statements have been prepared to reflect the acquisition of certain assets of ACD by ADA. Pro forma adjustments are made to reflect the following: a. Cash price paid $1,700,000 Transaction costs incurred 200,000 ---------- Total purchase price $1,900,000 ---------- ---------- Purchase price allocation: In-process research and development acquired $1,186,000 Purchased technology 337,000 Property and equipment 377,000 ---------- Total $1,900,000 ---------- ----------
b. Reflects the adjustment of ACD's assets, liabilities and capital not acquired. c. Reflects adjustments of ACD's results for the write-off of capitalized software, interest expense, income taxes and depreciation as a result of the acquisition. Property and equipment of $377,000 with a three year life results in annual depreciation of $126,000 (allocated to research and development, sales and marketing, and general and administrative expenses at $60,000, $55,000 and $11,000, respectively). Purchased technology of $337,000 with a five year life results in annual amortization of $67,000. 20 -----END PRIVACY-ENHANCED MESSAGE-----