<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
May 31, 1996
Date of Report (Date of earliest event reported)
INTELLIQUEST INFORMATION GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-27680 74-2775377
-------- ------- ----------
(State or other jurisdiction (Commission file number) (I.R.S. Employer
of incorporation) Identification Number)
1250 Capital of Texas Highway
Building Two, Plaza One
Austin, TX 78746
(Address of principal executive offices, including zip code)
(512)329-0808
(Registrant's telephone number, including area code)
1
<PAGE>
The undersigned Registrant hereby amends Item 7 of its Current Report on Form 8-
K dated 5/31/96 by filing Exhibits 4.1 and 4.2 to that Current Report. Item 7,
as amended, appears below in its entirety:
1. Item 7 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Audited financial statements of Pipeline
Communications, Inc. ("Pipeline") are filed as Exhibit 4.1
hereto and are incorporated herein by reference.
(b) Pro forma financial information.
The pro forma financial information required by this Item is
filed as Exhibit 4.2 hereto and is incorporated herein by
reference.
(c) Exhibits
2.1 *Agreement and Plan of Reorganization dated May 30,
1996
4.2 Audited financial statements of Pipeline
Communications, Inc.
4.3 Pro forma financial information
-------------------------------
*Previously filed
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned duly authorized.
IntelliQuest Information Group, Inc.
(Registrant)
By: /s/ James Schellhase
-------------------------
James Schellhase
Chief Financial Officer
Date: August 14, 1996
3
<PAGE>
EXHIBIT INDEX
Number in Exhibit Table Exhibit
2.1* Agreement and Plan of Reorganization dated
May 30, 1996
4.1 Audited financial statements of Pipeline
Communications, Inc.
4.2 Pro forma financial information
- - - - - - - - - - - - - - -
* Previously filed
4
<PAGE>
EXHIBIT 4.1
PIPELINE COMMUNICATIONS, INC.
Index to Financial Statements
Page
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1995 and 1994 F-3
Statements of Operations for the Years ended December 31,
1995, 1994, and 1993 F-4
Statements of Shareholders' Equity (Deficit) for the Years ended
December 31, 1995, 1994, and 1993 F-5
Statements of Cash Flows for the Years ended December 31,
1995, 1994, and 1993 F-6
Notes to Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Pipeline Communications, Inc.:
We have audited the accompanying balance sheets of Pipeline Communications, Inc.
as of December 31, 1995 and 1994, and the related statements of operations,
shareholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1995. 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 Pipeline Communications, Inc.
as of December 31, 1995 and 1994 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
March 11, 1996
Atlanta, Georgia
F-2
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets (Note 4) 1995 1994
--------------- ----------- ---------
<S> <C> <C>
Cash and cash equivalents $ 1,096,846 563,086
Accounts receivable, net of allowance for doubtful accounts of
$37,000 and $11,000 at December 31, 1995 and 1994,
respectively 490,349 384,913
Other current assets 4,853 45,835
----------- ---------
Total current assets 1,592,048 993,834
----------- ---------
Property and equipment (note 2) 338,085 167,660
Less accumulated depreciation and amortization 71,586 19,135
----------- ---------
Property and equipment, net 266,499 148,525
----------- ---------
Note receivable from employee (note 3) - 52,911
Other assets 13,759 12,688
----------- ---------
$ 1,872,306 1,207,958
=========== =========
Liabilities, Redeemable Preferred
Stock, and Shareholders' Equity (Deficit)
-----------------------------------------
Accounts payable $ 109,993 132,516
Note payable to bank (note 4) - 50,752
Current installments of long-term debt (note 5) 31,005 -
Deferred revenue 527,633 179,390
----------- ---------
Total current liabilities 668,631 362,658
Long-term debt, excluding current installments (note 5) 60,082 -
----------- ---------
Total current liabilities 728,713 362,658
----------- ---------
Redeemable preferred stock, Series B, convertible, no stated
value; liquidation preference, $4.75 per share plus 10%
compounded annual return; redemption price at the greater
of $7.65 per share or fair market value in November 1999;
300,000 shares authorized, 263,158 and 131,579 shares
issued and outstanding at December 31, 1995 and 1994,
respectively (note 6) 1,343,063 578,707
----------- ---------
Shareholders' equity (deficit) - (notes 6, 7, 10, and 11):
Common stock, no par value; 5,000,000 shares authorized;
933,240 shares issued and 913,655 shares outstanding at
December 31, 1995 and 933,240 shares issued and
outstanding at December 31, 1994 - -
Additional paid-in capital 1,092,723 1,844,308
Accumulated deficit (1,213,853) (728,096)
Unamortized stock option compensation - (849,619)
Treasury stock, 19,585 shares at cost (78,340) -
----------- ---------
Total shareholders' equity (deficit) (199,470) 266,593
Commitments (notes 5, 6, 7, and 9)
----------- ---------
$ 1,872,306 1,207,958
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Statements of Operations
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Revenues (note 10(a)):
Transactions $1,515,744 474,195 -
Software development 447,435 531,972 9,450
Royalties 190,839 - -
---------- --------- --------
Total revenues 2,154,018 1,006,167 9,450
Cost of revenues 818,725 329,914 43,050
---------- --------- --------
Gross profit (loss) 1,335,293 676,253 (33,600)
Selling, general, and administrative expenses
(note 7(d)(ii)) 1,364,773 672,845 213,823
Research and development expenses 345,260 266,085 199,864
---------- --------- --------
Operating loss (374,740) (262,677) (447,287)
Interest (income) expense, net (28,339) 2,382 1,000
---------- --------- --------
Loss before income taxes (346,401) (265,059) (448,287)
Income taxes (note 8) - - -
---------- --------- --------
Net loss $ (346,401) (265,059) (448,287)
========== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Statements of Shareholders' Equity (Deficit)
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Preferred Stock
Class A Total
Convertible Common Stock Additional Unamortized Treasury Stock shareholders
-------------- ---------------- paid-in Accumulated stock option ----------------- equity
Shares Amount Shares Amount capital deficit compensation Shares Amount (deficit)
------- ------ ------- ------- ----------- ------------ ------------ ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization
on 5/20/93 (note 7(a)).. - $ - 500,000 $ - 100 - - - $ - 100
Issuance of common stock
to founding employees
and investor(note 7(a)).. - - 37,000 - - - - - - -
Issuance of common stock
in exchange for note
payable (note 7(a))...... - - 25,000 - 50,000 - - - - 50,000
Issuance of Class A
Convertible preferred
stock in exchange for
$27,000 face amount
convertible note
payable (note 7(b))..... 1,000 27,000 - - - - - - - 27,000
Issuance of common
stock (note 7(c ))...... - - 151,826 - 343,636 - - - - 343,636
Net loss................. - - - - - (448,287) - - - (448,287)
------------------------------------------------------------------------------------------------------
Balance at December 31,
1993.................... 1,000 27,000 713,826 - 393,736 (448,287) - - - (27,551)
Conversion of Class A
convertible preferred
stock to common stock
(note 7(b))..............(1,000)(27,000) - - - - - - - 27,000
Issuance of common stock
(note 7 (c ))........... - - 140,100 - 541,275 - - - - 541,275
Accretion of discount on
Series B convertible
preferred stock (note 6
(b)).................... - - - - - (14,750) - - - (14,750)
Amendment of stock option
resulting in unamortized
compensation (note
7(d)(ii))............... - - - 882,297 - (882,297) - - -
Amortization of
compensation expense - - - - - 32,678 - - 32,678
under stock option
(note 7(d)(ii)).........
Net loss................. - - - - - (265,059) - - - (265,059)
------------------------------------------------------------------------------------------------------
Balance at December 31,
1994.................... - - 933,240 - 1,844,308 (728,096) (849,619) - - 266,593
Accretion of discount on
Series B convertible
preferred stock (note
6(b))................... - - - - - (139,356) - - - (139,356)
Amortization of
compensation expense
under stock option
(note 7(d)(ii))........ - - - - - - 98,034 - - 98,034
Cancellation of stock
option (note 7(d)) - - - - (751,585) - 751,585 - - -
Purchase of treasury stock
stock (note 7(d)(ii))... - - - - - - - 19,585 (78,340) (78,340)
Net loss................. - - - - - (346,401) - - - (346,401)
--------------------------------------------------------------------------------------------------------
Balance at December 31,
1995.................... - $ - 933,240 $ - 1,092,723 (1,213,853) - 19,585 $(78,340) (199,470)
--------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (346,401) (265,059) (448,287)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 54,044 18,560 575
Provision for doubtful accounts 39,124 15,140 -
Loss on disposal of equipment 2,958 - -
Noncash stock option compensation expense 98,034 32,678 -
(Increase) decrease in:
Accounts receivable (144,560) (382,462) (17,591)
Other assets 39,911 (55,092) (3,431)
Increase (decrease) in:
Accounts payable (22,523) 105,238 27,278
Deferred revenue 348,243 64,390 115,000
---------- --------- --------
Net cash provided by (used in)
operating activities 68,830 (466,607) (326,456)
---------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment (174,976) (152,239) (15,421)
Proceeds from repayment of note receivable from
employee 52,911 - -
Advances to employee under note receivable - (40,766) (12,145)
---------- --------- --------
Net cash used in investing activities (122,065) (193,005) (27,566)
---------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock - 541,275 343,736
Proceeds from issuance of Series B convertible
preferred stock 625,000 563,957 -
Proceeds from note payable - - 50,000
Proceeds from convertible note payable - - 27,000
Purchase of treasury stock (78,340) - -
Increase in note payable to bank, net 60,380 50,752 -
Repayment of long-term debt (20,045) - -
---------- --------- --------
Net cash provided by financing activities 586,995 1,155,984 420,736
---------- --------- --------
Net increase in cash and cash equivalents 533,760 496,372 66,714
Cash and cash equivalents at the beginning of the period 563,086 66,714 -
---------- --------- --------
Cash and cash equivalents at the end of the period $1,096,846 563,086 66,714
========== ========= ========
Cash paid during the period for interest $ 10,505 2,382 1,000
========== ========= ========
</TABLE>
(Continued)
F-6
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Supplemental disclosure of noncash transactions:
Refinancing of amount outstanding under credit
facility into long-term debt $ 111,132 - -
======== ======== ========
Exchange of note payable for 25,000 shares of
common stock $ - - 50,000
======== ======== ========
Exchange of convertible note payable for 1,000
shares of Class A preferred stock $ - - 27,000
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
December 31, 1995, 1994, and 1993
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Business and Basis of Presentation
----------------------------------
Pipeline Communications, Inc. (the Company) was incorporated under the
laws of the State of Georgia in June 1992 and began operations in May
1993. The Company was formed to develop, integrate, market, and support
software products used to provide services that facilitate communications
between the Company's customers and the ultimate buyers of products sold
by the Company's customers. The Company provides services which primarily
include electronic warranty registration processing to customers in the
personal computer hardware and software industry under contracts with
terms that range from one to three years. Revenues are derived
principally from developing software and processing electronic warranty
registrations and other transactions for customers.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(b) Revenue Recognition and Deferred Revenue
----------------------------------------
Revenues from processing transactions are recorded as the transactions
are processed for customers and includes revenues associated with certain
contractual monthly transaction minimums. Revenues derived from software
development are recognized upon delivery of the developed software.
Deferred revenues represent payments from customers for services
billed in advance.
In 1994, the Company entered into a reseller arrangement with a related
party to provide the reseller with a fixed number of transactions for
resale in exchange for a fixed payment stream from execution through
September 1995 aggregating $750,000.
The reseller can resell transactions under the terms of this arrangement
through December 1996. The Company has allocated the amount of revenue
received under the terms of this arrangement between (1) revenues from
total expected transactions based upon actual and estimated transaction
volumes and the fixed price per transaction and (2) excess revenues. The
Company is recognizing revenue related to expected transactions as
transactions occur and is recognizing the excess revenues using the
straight-line method beginning in 1995 through December 1996. The
Company's 1995 financial statements include approximately $250,000 in
transaction revenues and $500,000 in deferred revenue related to this
reseller arrangement.
F-8
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
(c) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include amounts on deposit with a commercial
bank and money market mutual funds. The Company classifies all highly
liquid investments with original maturities of 90 days or less as cash
and cash equivalents
(d) Property and Equipment
----------------------
Property and equipment are recorded at cost, less accumulated
depreciation and amortization, which is provided using the straight-line
method over the estimated useful lives of the related assets which is
generally five years.
(e) Research and Development and Software Development
-------------------------------------------------
Research and development costs consist principally of compensation and
benefits paid to the Company's employees and an allocation of related
overhead. All research and development costs are expensed as incurred.
The Company's policy is to expense all software development costs
associated with establishing technological feasibility which the Company
defines as completion of beta testing. Because of the insignificant
amount of cost incurred by the Company between completion of beta testing
and release of the product to customers, the Company has not capitalized
any software development costs in the accompanying financial statements.
(f) Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes" (Statement 109). Under the asset and
liability method of Statement 109, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net
operating loss and tax credit carryforwards. Deferred income tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(g) Fair Values of Financial Instruments
------------------------------------
The Company uses financial instruments in the normal course of its
business. The carrying values of cash equivalents, accounts receivable,
accounts payable, and deferred revenue approximate fair value due to the
short-term maturities of these assets and liabilities. The Company
believes the fair value of its credit facility and long-term debt is not
significantly different from its carrying value.
(h) Reclassifications
-----------------
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the presentation adopted in 1995.
F-9
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
(i) Recent Accounting Pronouncement
-------------------------------
On October 23, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 allows companies
to retain the current approach set forth in APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25) for
recognizing stock-based expense in their financial statements in lieu of
the new accounting method prescribed by SFAS No. 123 based on the
estimated fair value of employee stock options. Companies that do not
follow the new fair value based method will be required to provide
expanded footnote disclosures. The provisions of SFAS No. 123 are
effective for fiscal years beginning after December 15, 1995. However,
disclosure of the pro forma net income and earnings per share, as if the
fair value method of accounting for stock-based compensation had been
elected, is required for all awards granted in fiscal years beginning
after December 15, 1994.
The Company intends to continue accounting for stock-related compensation
using APB Opinion No. 25 and will provide the expanded footnote
disclosures required under SFAS No. 123 beginning with its 1996 financial
statements.
(2) Property and Equipment
----------------------
Property and equipment as of December 31, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Furniture and fixtures $ 19,710 6,258
Computer and telecommunications equipment 273,450 145,493
Purchased computer software 44,925 15,909
-------- -------
338,085 167,660
Less accumulated depreciation and amortization 71,586 19,135
-------- -------
Property and equipment, net $266,499 148,525
======== =======
</TABLE>
(3) Note Receivable from Employee
-----------------------------
On December 21, 1994, the Company formalized certain advances made to an
employee during 1993 and 1994 into a term note receivable, bearing interest
at 8% per annum, due on December 21, 1996. On June 26, 1995, the employee
repaid the Company all amounts outstanding under the note receivable.
(4) Note Payable to Bank
--------------------
The Company maintains a $200,000 revolving credit facility (the facility)
with a commercial bank for working capital and equipment purchases. The
facility bears interest at the prime rate plus 1% with interest payable
monthly through May 15, 1996. Advances under the facility are limited to the
lesser of $200,000 or the sum of 80% of qualifying accounts receivable and
50% of property and equipment. The facility contains certain restrictive
covenants and is secured by all tangible and copyrighted, patented, and
trademarked intangible assets of the Company.
F-10
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
(5) Long-Term Debt
--------------
Long-term debt outstanding at December 31, 1995 consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to bank bearing interest at 11% in equal monthly
installments of principal and interest of $3,648 through
June 1998, secured by telecommunications equipment $ 91,087
Less current installments of long-term debt (31,005)
------
Long-term debt, excluding current installments $ 60,082
======
</TABLE>
Future maturities of long-term debt for the next three years are summarized
as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1996 $ 31,005
1997 39,107
1998 20,975
---------
Total long-term debt $ 91,087
=========
</TABLE>
(6) Series B Convertible Redeemable Preferred Stock
-----------------------------------------------
(a) Amendment to the Articles
-------------------------
On November 8, 1994, the Company's articles of incorporation were
amended to authorize the issuance of up to 300,000 shares of Series B
Convertible Preferred Stock (Series B CPS) and to terminate the previous
authorization of Class A CPS. Holders of Series B CPS are entitled to
voting rights equivalent to the voting rights they would hold as if
their holdings were converted to common stock, are entitled to name a
member to the Company's Board of Directors, and are entitled to
dividends before any dividends are declared or paid on the Company's
common stock. In the event of liquidation of the Company, holders of the
Series B CPS are entitled to a liquidation preference over common
shareholders at an amount per share equal to the greater of (1) $4.75
per share plus a 10% compounded annual return or (2) fair market value
per share, as defined.
Holders of Series B CPS may convert to the Company's common stock at any
time. The number of common shares to be received by the holders upon
conversion is equivalent to the number of shares of Series B CPS held
times $4.75 per share divided by the "Series B Conversion Price," as
defined. At the date of issuance, the Series B Conversion Price was
equal to $4.75 per share and is subject to adjustment from time to time
based upon certain antidilutive provisions. Upon the consummation of an
underwritten public offering, as defined, all outstanding Series B CPS
would automatically convert to the Company's common stock. The holders
of the Series B CPS have a mandatory redemption feature which obligates
the Company to redeem all outstanding shares of the Series B CPS at any
time beginning five years from the date of their initial issuance at a
price per share equal to the greater of (1) $7.65 per share or (2) fair
market value, as defined. The terms of the Series B CPS, among other
things, restrict the Company from creating any senior classes of equity,
consolidating or merging with another company, amending or repealing its
Articles of Incorporation or By-Laws, or repurchasing any class of
equity security from shareholders without the prior consent of the
Series B CPS shareholders.
F-11
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
(b) Issuance of Series B CPS
------------------------
On November 8, 1994, the Company issued 131,579 shares of the Company's
Series B CPS and warrants to acquire another 131,579 shares of Series B
CPS at an exercise price of $4.75 per share resulting in cash proceeds
to the Company, net of offering costs, of $563,957. All proceeds from
the issuance of the Series B CPS and related warrants have been
allocated by the Company to the Series B CPS. On May 4, 1995, warrants
to acquire 131,579 shares of the Company's Series B CPS were exercised
resulting in cash proceeds to the Company of $625,000.
The Company is accreting the discount ($824,202) resulting from the
difference between the initial carrying amount ($1,188,957) of the
Series B CPS and its mandatory redemption value ($2,013,159) using the
straight-line method from the respective issuance date through November
8, 1999, the earliest date that the holders may require redemption.
The Company has reflected $139,356 and $14,750 in discount accretion on
the Series B CPS in the accompanying statement of shareholders' equity
(deficit) for the years ended December 31, 1995 and 1994 through a
charge to the Company's accumulated deficit and an increase in the
carrying value of the Series B CPS.
(7) Shareholders' Equity (Deficit)
------------------------------
(a) Initial Capitalization
----------------------
The Company issued 500,000 shares of common stock to the Company's
founder and chief executive officer for $100 and issued 35,500 shares of
the Company's common stock to certain founding employees during the
initial capitalization and formation of the Company. Because of the
development stage nature of the Company's operations at the date of
issuance, the common stock issued was deemed to have little value and,
therefore, no compensation expense has been reflected in the Company's
1993 statement of operations.
The Company received funding during its start-up phase from an
individual, who later became a shareholder and director, in the form of
a $50,000 note payable bearing interest at 8% due and payable on October
12, 1993. The Company also issued 1,500 shares of common stock to this
individual as additional consideration for providing this start-up
financing. On October 12, 1993, the Company issued 25,000 shares of
common stock and warrants to acquire 17,000 shares of common stock at
$4.00 per share expiring on October 31, 1996 to this individual as
payment in full of the Company's obligations under the $50,000 note
payable. The financing cost associated with the 1,500 shares was not
significant and the carrying value of the note payable was allocated to
the 25,000 shares of common stock issued through a transfer to
shareholders' equity.
F-12
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
(b) Class A Convertible Preferred Stock
-----------------------------------
The Company was also funded by borrowings from an investor (a founding
investor) under a $27,000 face amount note payable convertible into the
Company's Class A Convertible Preferred Stock (Class A CPS), which
entitled the holder to voting rights equivalent to ownership of 10% of
the Company's common stock. On August 9, 1993, this convertible note
payable was converted by the holder into 1,000 shares of the Company's
Class A CPS. The terms of the Class A CPS provided the holders with the
option to convert to common stock at any time and also contained an
automatic conversion feature into the Company's common stock upon the
occurrence of a triggering event, as defined. The conversion features of
the Class A CPS entitled the holders to exchange their ownership in the
Class A CPS for a number of common shares equivalent to 10% of the then
outstanding common stock of the Company.
On January 24, 1994, a triggering event resulted in the conversion of
the 1,000 shares of Class A CPS into 79,314 shares of the Company's
common stock.
(c) Common Equity Offerings
-----------------------
During 1993 and 1994, the Company sold common stock to raise capital to
support and sustain its operations. Cash proceeds from issuances of
common stock, net of related offering costs, were $541,275 (140,100
common shares) and $343,636 (151,826 common shares), respectively, for
the years ended December 31, 1994 and 1993.
(d) Outstanding Warrants and Options
--------------------------------
(i) Warrants
--------
During 1993, the Company granted warrants to acquire 25,000 shares
of the Company's common stock at an exercise price of $4.00 per
share in exchange for services and in connection with certain
financing activities (see note 7(a)). All of these warrants are
currently exercisable, expire on October 31, 1996, and are
outstanding at December 31, 1995.
(ii) Nonqualified Stock Options
--------------------------
Founder Option
--------------
In 1993, the Company's founder and chief executive officer granted
an option to a key employee to acquire 222,241 shares of the
Company's common stock from the founder at an exercise price of
$0.03 per share. The terms of the option provided for the option to
become exercisable only upon a change in control, as defined. On
November 8, 1994, the option was amended and restated to provide
for a vesting in the option to acquire 222,241 common shares
beginning on that date through May 8, 1999.
F-13
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
This amendment and restatement established a new measurement date for
the compensation expense associated with this stock option grant. On
that date, the Company recorded a credit to additional paid-in
capital and a debit to unamortized stock option compensation of
$882,297, the difference in the fair value of the common stock under
option and the exercise price at the new measurement date. The
Company is amortizing the compensation expense associated with this
stock option grant using the straight-line method through a charge to
selling, general, and administrative expenses over the vesting
period. The Company recorded $98,034 in 1995 and $32,678 in 1994 in
compensation expense in the accompanying statements of operations to
reflect this compensatory stock option grant.
On June 26, 1995, the employee resigned from the Company, exercised
his rights under the stock option grant to acquire 23,335 shares of
the Company's common stock from the founder, and forfeited his rights
with respect to the 198,906 shares under the stock option grant that
were not vested at the date of his resignation. Simultaneous with
this event, the Company purchased 18,335 shares from this former
employee in a treasury stock transaction for $73,340 ($4.00 per
share).
Other Nonqualified Stock Options
--------------------------------
The Company has also granted certain nonqualified stock options to
acquire common stock to certain service providers (nonemployees)
during 1993 and 1994 in exchange for consulting and legal services. A
summary of activity in these options is included below :
<TABLE>
<CAPTION>
Outstanding Exercise price
options per share
----------- --------------
<S> <C> <C>
Options outstanding at formation - -
Options granted 7,000 $ 0.10
------ -------------
Options outstanding at December 31, 1993 7,000 $0.10 - $1.00
Options granted 6,000 $ 0.10
------ -------------
Options outstanding at December 31, 1994 13,000 $0.10 - $1.00
Options granted - -
------ -------------
Options outstanding at December 31, 1995 13,000 $0.10 - $1.00
====== =============
</TABLE>
All of these options are exercisable currently and expire beginning
in August 2000 through December 2000.
(iii) Incentive Stock Option Plan
---------------------------
The Company maintains an incentive stock option plan (the Plan) to
encourage key employees to become shareholders of the Company. The
Plan provides for 75,000 shares of the Company's common stock to be
reserved for issuance under the Plan.
F-14
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
All options granted under the terms of the Plan are intended to
qualify for Federal income tax purposes as incentive stock options.
The exercise price of options granted under the Plan is determined by
the Company's Board of Directors, but shall not be less than the
estimated fair market value of the Company's common stock at the date
of grant. Other terms of options granted under the Plan, such as
vesting and exercise period, are determined by the Board of Directors
subject to the terms of the Plan. Activity in outstanding stock
options granted under the Plan are summarized as follows:
<TABLE>
<CAPTION>
Outstanding Exercise price
options per share
------------ --------------
<S> <C> <C>
Options outstanding at formation - -
Options granted - -
Options canceled - -
------ -----
Options outstanding at December 31, 1993 - -
Options granted 37,000 $4.00
Options canceled - -
------ -----
Options outstanding at December 31, 1994 37,000 $4.00
Options granted 18,800 $4.00
Options canceled (8,000) $4.00
------ -----
Options outstanding at December 31, 1995 47,800 $4.00
====== =====
Options exercisable at December 31, 1995 7,250
======
</TABLE>
(e) Stockholders Agreement
----------------------
In connection with the issuance of the Series B CPS described in note 6
above, the Company entered into a Stockholders Agreement (the Agreement)
with all Series B CPS holders and certain common shareholders of the
Company. The Agreement provides, among other things, a formula for
determining the number and composition of the Company's Board of
Directors and provides the Company with the right to repurchase shares
from certain common shareholders of the Company in the event the
employment of any of these employee/shareholders is terminated. The
number of shares available for repurchase and the price at which such
shares can be repurchased by the Company are determined by certain
formulas included among the terms of the Agreement. The Agreement also
restricts the transfer or sale of any shares by any of the preferred or
common shareholders that are parties to the Agreement and provides the
preferred and common shareholders with certain preemptive rights with
respect to equity offerings, as defined.
F-15
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
(8) Income Taxes
------------
The Company has not recorded any income tax expense (benefit) through
December 31, 1995 because of operating losses incurred since inception. The
Company's effective tax rate is different from amounts computed by applying
the statutory U.S. Federal income tax rate of 34% to the loss before income
taxes because the Company has provided a valuation allowance against
substantially all of its deferred income tax assets.
The tax effects of temporary differences that give rise to deferred income
tax assets and liabilities at December 31, 1995 and 1994 are presented
below:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $341,000 327,882
Research and experimentation credit carryforwards 41,000 24,039
Effect of accrual versus cash accounting method 56,150 -
-------- -------
Total deferred income tax assets 438,150 351,921
Less valuation allowance 425,644 280,479
-------- -------
Net deferred income tax assets 12,506 71,442
-------- -------
Deferred income tax liabilities:
Property and equipment, due to differences
in depreciation (12,506) (6,578)
Effect of accrual versus cash accounting method - (64,864)
-------- -------
Total deferred income tax liabilities (12,506) (71,442)
-------- -------
Net deferred income tax asset (liability) $ - -
======== =======
</TABLE>
The net increase in the valuation allowance for the years ended December 31,
1995, 1994, and 1993 was $145,165, $100,257, and $44,908, respectively. In
assessing the recoverability of deferred income tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred income tax assets will be realized. The ultimate realization of
deferred income tax assets is dependent upon the generation of taxable
income during the periods in which those temporary differences are
deductible. The Company considers the scheduled reversal of deferred income
tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. In order to fully realize the deferred
income tax assets, the Company will need to generate future taxable income
of approximately $1,100,000. Because of the uncertainties with respect to
the Company's ability to generate taxable income in the future sufficient to
realize the benefits of the Company's deferred income tax assets, the
Company has provided a valuation allowance against all of the deferred
income tax assets at December 31, 1995 and 1994.
F-16
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
As of December 31, 1995, the Company has net operating loss and research and
experimentation credit carryforwards for Federal income tax purposes of
approximately $875,000 and $41,000, respectively, which are available to
offset future Federal taxable income subject to the limitation described
below. These carryforwards expire beginning 2008 through 2010.
As a result of certain equity transactions that occurred during 1994 and the
resulting ownership changes in the Company, the Company's ability to
recognize income tax benefits from net operating loss and research and
experimentation credit carryforwards in 1996 is limited under Internal
Revenue Code Section 382. Included in the Company's net operating loss and
research and experimentation credit carryforwards disclosed above is
approximately $67,000 in net operating loss carryforwards and $23,000 in
research and experimentation credit carryforwards which the Company cannot
use until 1997.
(9) Commitments
-----------
(a) Lease Commitments
-----------------
The Company leases office facilities and other equipment under
noncancelable operating lease agreements through November 1999. Future
minimum lease payments under all such noncancelable lease agreements
with remaining terms greater than one year for the next four years and
in the aggregate are summarized as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1996 $120,093
1997 111,944
1998 88,832
1999 69,784
--------
$390,653
========
</TABLE>
Rental expense under cancelable and noncancelable operating lease
agreements for the years ended December 31, 1995, 1994, and 1993 was
$99,152, $40,778, and $8,891, respectively.
(b) Employee Benefit Plan
---------------------
Effective August 1995, the Company adopted a contributory retirement plan
qualifying under Section 401(k) of the Internal Revenue Code for the
benefit of all eligible employees. The Company did not make a
contribution to the plan during 1995.
(10) Major Customers and Related Party Transactions
----------------------------------------------
(a) Major Customers
---------------
For the year ended December 31, 1995, three customers accounted for
15%, 14%, and 12% of total revenues. For the year ended December 31,
1994, two customers accounted for approximately 18% and 17% of total
revenues. The Company's total revenues for 1993 were derived from one
customer.
F-17
<PAGE>
PIPELINE COMMUNICATIONS, INC.
Notes to Financial Statements
(b) Related Party Transactions
--------------------------
During the years ended December 31, 1995 and 1994, the Company
received revenue of $172,000 and $99,000 from a company controlled by
one of the Company's shareholders. The Company has also accrued
expenses payable to another shareholder/director of approximately
$9,250, $13,000, and $5,000 for consulting services provided to the
Company during the years ended December 31, 1995, 1994, and 1993,
respectively.
The Company believes the terms and conditions of these transactions
are comparable to terms which could have been obtained in
transactions with unaffiliated parties.
(11) Subsequent Event (Unaudited)
----------------------------
On May 30, 1996, the Company entered into an agreement to merge with
IntelliQuest Delaware, Inc., a wholly owned subsidiary of IntelliQuest
Information Group, Inc. (IntelliQuest) in a tax-free stock for stock
exchange. Pursuant to the agreement, each of the shares of the Company's
common stock and Series B CPS issued and outstanding immediately before the
effective date was automatically converted into the right to receive 0.4318
shares of IntelliQuest common stock. In addition, all options and warrants
to purchase the Company's common stock then outstanding were assumed by
IntelliQuest. The merger was completed on May 31, 1996.
F-18
<PAGE>
EXHIBIT 4.2
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited pro forma consolidated financial information gives
effect to the Merger to be accounted for as a pooling of interests. The
consolidated financial information on the following pages presents (i) the
historical consolidated balance sheets of both IntelliQuest Information Group,
Inc. ("IntelliQuest") and Pipeline Communications, Inc. ("Pipeline") at March
31, 1996 and the pro forma consolidated balance sheet as of March 31, 1996,
giving effect to the Merger as if it had occurred on that date; and (ii) the
historical consolidated statements of income of both IntelliQuest and Pipeline
for the three months ended March 31, 1996, and for each of the three years in
the period ended December 31, 1995, and the pro forma consolidated statements
of income for the three months ended March 31, 1996 and for each of the three
years in the period ended December 31, 1995, giving effect to the Merger as if
it had been effected for all periods presented. Certain reclassifications have
been made to the historical financial information to conform presentation.
Intercompany transactions between IntelliQuest and Pipeline have been eliminated
accordingly.
The pro forma consolidated financial information is intended for
informational purposes and may not be indicative of the combined financial
position or results of operations that actually would have occurred had the
transaction been consummated during the periods or as of the dates indicated, or
which will be attained in the future. The pro forma consolidated financial
information should be read in conjunction with IntelliQuest's Consolidated
Financial Statements and notes thereto located in the Company's Registration
Statement on Form S-1 as filed with the United States Securities and Exchange
Commission on March 21, 1996, and the financial statements and notes thereto of
Pipeline, appearing as exhibit 4.1 to this form 8-KA filing and the Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1996 of
IntelliQuest.
<PAGE>
INTELLIQUEST INFORMATION GROUP INC.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
IntelliQuest Pipeline Adjustments ProForma
------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents............... $26,288 $ 861 $ 27,149
Accounts receivable, net........... 2,586 507 (10) 3,083
Unbilled revenues.................. 1,017 1,017
Projects in process................ 926 926
Prepaid expenses and other assets.. 46 136 182
------- -------- ----------- --------
Total current assets 30,863 1,504 (10) 32,357
Furniture and equipment, net....... 1,530 308 1,838
Other assets....................... 75 27 102
------- -------- ----------- -------
Total assets..................... $32,468 $ 1,839 $ (10) $34,297
======= ======== =========== =======
LIABILTIES, REDEEMABLE
PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................... $ 1,417 $ 165 $ (10) $ 1,572
Accrued liabilities................ 1,076 1,076
Deferred revenues.................. 1,553 390 1,943
Other current liabilities.......... 78 146 224
------- ------- ----------- -------
Total current liabilities........ 4,124 701 (10) 4,815
Capital lease obligations and
deferred rent.................... 117 117
------- ------- ----------- -------
Total liabilities................ 4,241 701 (10) 4,932
------- ------- ----------- -------
Preferred stock....................... 1,343 (1,343) 0
------- ------- ----------- -------
Common stock.......................... 1 1
Capital in excess of par value........ 30,412 1,014 1,187 32,613
Deferred compensation................. (57) (57)
Accumulated deficit................... (2,129) (1,219) 156 (3,192)
------- ------- ----------- -------
Stockholders' equity.................. 28,227 (205) 1,343 29,365
------- ------- ----------- -------
Total liabilities, redeemable
preferred stock and stockholders' $32,468 $ 1,839 ($10) $34,297
equity (deficit)...................... ======= ======= =========== =======
</TABLE>
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
INTELLIQUEST PIPELINE ADJUSTMENTS PRO FORMA
------------ -------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues:
Renewable subscription-based $1,661 $ 0 $ 0 $ 1661
products........................
Renewable proprietary products..... 1,394 612 (13) 1,993
Proprietary project research....... 305 140 0 445
------ ------ -------- ------
Total revenues..................... 3,360 752 (13) 4,099
Operating expenses:
Cost of revenues................... 1,538 297 (13) 1,822
Sales, general and administrative.. 985 377 0 1,362
Product development................ 522 86 0 608
Depreciation and amortization...... 144 3 0 147
------ ------ -------- ------
Total operating expenses........... 3,189 763 (13) 3,939
------ ------ -------- ------
Operating income (loss)................. 171 (11) 0 160
Interest income (expense), net.......... 13 7 0 20
------ ------ -------- ------
Income (loss) before income taxes....... 184 (4) 0 180
Provision (benefit) for income taxes.... 78 0 0 78
------ ------ -------- ------
Net income (loss)....................... $ 106 $ (4) $ 0 $ 102
====== ====== ======== ======
Net income per share.................... .02 (.00) .02
Weighted average number of
common and common
equivalent shares outstanding...... 5,195 1,225 5,724
</TABLE>
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
INTELLIQUEST PIPELINE ADJUSTMENTS PRO FORMA
------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Renewable subscription-based
products........................ $ 8,064 $ 0 $ 0 $ 8064
Renewable proprietary products..... 6,618 1,516 (14) 8,120
Proprietary project research....... 2,292 638 0 2,930
------- ------ ---- -------
Total revenues..................... 16,974 2,154 (14) 19,114
Operating expenses:
Cost of revenues................... 9,298 819 (14) 10,103
Sales, general and administrative.. 4,284 1,291 0 5,575
Product development................ 1,575 404 0 1,979
Depreciation and amortization...... 303 14 0 317
------- ------ ---- -------
Total operating expenses........... 15,460 2,528 (14) 17,974
------- ------ ---- -------
Operating income (loss)................. 1,514 (374) 0 1,140
Interest income (expense), net.......... (10) 28 0 18
------- ------ ---- -------
Income (loss) before income taxes....... 1,504 (346) 0 1,158
Provision (benefit) for income taxes.... 593 0 0 593
------- ------ ---- -------
Net income (loss)....................... $ 911 ($346) $ 0 $ 565
======= ====== ==== =======
Net income per share.................... .18 (.29) .10
Weighted average number of
common and common
equivalent shares outstanding...... 5,012 1,190 5,526
</TABLE>
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
INTELLIQUEST PIPELINE ADJUSTMENTS PRO FORMA
------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Renewable subscription-based $ 6,157 $ 0 $0 $ 6,157
products........................
Renewable proprietary products..... 3,711 474 0 4,185
Proprietary project research....... 3,115 532 0 3,647
------- ------ -- -------
Total revenues..................... 12,983 1,006 0 13,989
Operating expenses:
Cost of revenues................... 8,160 297 0 8,457
Sales, general and administrative.. 3,355 641 0 3,996
Product development................ 1,230 315 0 1,545
Depreciation and amortization...... 249 16 0 265
------- ------ -- -------
Total operating expenses............ 12,994 1,269 0 14,263
------- ------ -- -------
Operating income (loss)................. (11) (263) 0 (274)
Interest income (expense), net.......... (11) (2) 0 (13)
------- ------ -- -------
Income (loss) before income taxes....... (22) (265) 0 (287)
Provision (benefit) for income taxes.... 2 0 0 2
------- ------ -- -------
Net income (loss)....................... ($24) ($265) $0 ($289)
======= ====== == =======
</TABLE>
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
INTELLIQUEST PIPELINE ADJUSTMENTS PRO FORMA
------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Renewable subscription-based $2,055 $ 0 $0 $2,055
products........................
Renewable proprietary products..... 2,055 0 0 2,055
Proprietary project research....... 2,029 10 0 2,039
------ ------ -- ------
Total revenues..................... 6,139 10 0 6,149
Operating expenses:
Cost of revenues................... 3,365 7 0 3,372
Sales, general and administrative.. 2,434 227 0 2,661
Product development................ 657 223 0 880
Depreciation and amortization...... 152 0 0 152
------ ------ -- ------
Total operating expenses........... 6,608 457 0 7,065
------ ------ -- ------
Operating income (loss)................. (469) (447) 0 (916)
Interest income (expense), net.......... (19) (1) 0 (20)
------ ------ -- ------
Income (loss) before income taxes....... (488) (448) 0 (936)
Provision (benefit) for income taxes.... (1) 0 0 (1)
------ ------ -- ------
Net income (loss)....................... ($487) ($448) $0 ($935)
====== ====== == ======
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(A) The pro forma consolidated balance sheet gives effect to the Merger of
IntelliQuest and Pipeline by combining the respective balance sheets of the two
companies at March 31, 1996 on a pooling-of-interest basis. The capital accounts
have been adjusted to reflect 562,500 shares of IntelliQuest Common Stock in
exchange for all the outstanding shares of Pipeline Common Stock and the assumed
exchange of IntelliQuest Common Stock for outstanding Pipeline stock options and
warrants.
(B) The pro forma consolidated statements of income give effect to the Merger
by combining the respective statements of income of the two companies for the
three months ended March 31, 1996 and for each of the three years in the period
ended December 31, 1995. The pro forma consolidated statements of income do not
give effect to anticipated expenses and nonrecurring charges related to the
Merger, which were approximately $198,000 as of June 30, 1996.
Earnings per common share amounts for IntelliQuest and Pipeline are
based on the historical fully diluted weighted average number of common shares
outstanding for each company during the period. With respect to the pro forma
earnings per share computation, shares of Pipeline have been adjusted to the
equivalent shares of IntelliQuest for each period.
