<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 20, 1996
DBT ONLINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 0-9111 85-0439411
(STATE OR OTHER (COMMISSION FILE (I.R.S. EMPLOYER
JURISDICTION OF NUMBER) IDENTIFICATION NO.)
INCORPORATION)
5550 W. FLAMINGO ROAD, SUITE B-5
LAS VEGAS, NEVADA 89103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 257-1112
(NOT APPLICABLE)
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Patlex Corporation and Database
Technologies, Inc.
(1) Financial Statements of Patlex Corporation.
(A) Report of Independent Auditors.
(B) Balance Sheets of Patlex as of June 30, 1996
and June 30, 1995.
(C) Statements of Earnings of Patlex for the
years ended June 30, 1996 and June 30, 1995.
(D) Statements of Stockholders' Equity for the
years ended June 30, 1996 and June 30, 1995.
(E) Statements of Cash Flows for the years ended
June 30, 1996 and June 30, 1995.
(F) Notes to Financial Statements.
(2) Financial Statements of Database Technologies, Inc.
(A) Independent Auditors' Reports.
(B) Balance Sheets of DBT as of June 30, 1996,
December 31, 1995 and December 31, 1994.
(C) Statements of Income for the six months ended
June 30, 1996 and 1995 and the years ended
December 31, 1995 and December 31, 1994.
(D) Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1996 and
the years ended December 31, 1995 and
December 31, 1994.
(E) Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 and the years
ended December 31, 1995 and December 31, 1994.
(F) Notes to Financial Statements.
(b) Pro Forma Financial Information (Unaudited).
(1) Unaudited Pro Forma Condensed Balance Sheet as of
June 30, 1996.
(2) Unaudited Pro Forma Condensed Statements of Income
for the six months ended June 30, 1996.
(3) Unaudited Pro Forma Condensed Statements of Income
for the year ended December 31, 1995.
- 2 -
<PAGE> 3
(c) Exhibits.
2.1+ Agreement of Merger, dated as of February 7, 1996, as
amended and restated on June 28, 1996, by and among
Patlex Holdings, Inc., Patlex Corporation, DBT
Acquisition Corp. and Database Technologies, Inc.
27.1++ Financial Data Schedule
______________________________
+ Incorporated herein by reference to Exhibit 2.1 in the Registration
Statement on Form S-4 of DBT Online, Inc. (File No. 333-2000) filed with the
Securities and Exchange Commission on March 5, 1996.
++ Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 1996.
- 3 -
<PAGE> 4
SIGNATURE
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.
DBT ONLINE, INC.
By: /s/ Hank E. Asher
--------------------------------
Hank E. Asher
President and Chief Executive Officer
Dated: November 4, 1996
-4-
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Patlex Corporation
We have audited the accompanying balance sheets of Patlex Corporation (Patlex)
as of June 30, 1996 and 1995, and the related statements of earnings,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of Patlex'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 Patlex at June 30, 1996 and
1995, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 9, 1996
F-1
<PAGE> 6
PATLEX CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,648 $ 3,703
Accounts and notes receivable, net of allowance for doubtful
accounts of $200 1,240 916
Prepaid expenses 79 25
------------------------------------
Total current assets 8,967 4,644
Property and equipment, net 29 391
Investment in patents, less accumulated amortization 13,994 15,771
-------------------------------------
Total assets $22,990 $20,806
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 714 $ 369
Current portion of long-term debt - 1,044
Due to other laser patents interest holders 1,798 1,612
Income taxes payable 1,425 237
------------------------------------
Total current liabilities 3,937 3,262
Note payable to bank - 243
Deferred income taxes 3,728 4,172
------------------------------------
Total liabilities 7,665 7,677
Stockholders' equity:
Preferred stock, $.10 par value. Authorized 1,000,000 shares; no
shares issued or outstanding - -
Common stock, $.10 par value. Authorized 10,000,000 shares; issued
and outstanding 2,565,736 shares and 1,000 shares at June 30,
1996 and 1995, respectively 256 -
Capital in excess of par value 12,873 13,129
Retained earnings 2,196 -
------------------------------------
Total stockholders' equity 15,325 13,129
------------------------------------
Total liabilities and stockholders' equity $22,990 $20,806
====================================
</TABLE>
See accompanying notes.
F-2
<PAGE> 7
PATLEX CORPORATION
STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995
------------------------------------
<S> <C> <C>
REVENUE
Laser patents royalties $7,978 $6,253
COSTS AND EXPENSES
General and administrative 1,517 1,053
Amortization of patents 1,777 1,943
Depreciation 23 21
Merger and spin-off costs 618 200
------------------------------------
Total costs and expenses 3,935 3,217
------------------------------------
Operating income 4,043 3,036
OTHER INCOME (DEDUCTIONS)
Interest income 284 184
Interest expense (92) (182)
Other, net 62 92
------------------------------------
Total other income (deductions), net 254 94
------------------------------------
Earnings before income taxes 4,297 3,130
Provision for income taxes (2,101) (1,430)
------------------------------------
Net earnings $2,196 $1,700
====================================
Net earnings per common share $ .98 $ .67
====================================
Weighted-average number of common shares and common share
equivalents outstanding (In Thousands) 2,235 2,524
====================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 8
PATLEX CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON STOCK EXCESS OF RETAINED
-----------------------------
SHARES AMOUNT PAR VALUE EARNINGS TOTAL
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 1,000 $ - $13,929 $ - $13,929
Net earnings - - - 1,700 1,700
Dividends paid, per common share
$.99 - - (800) (1,700) (2,500)
-----------------------------------------------------------------------
Balance, June 30, 1995 1,000 $ - 13,129 - 13,129
Common stock distributed in
connection with spin-off 2,523,388 252 (252) - -
Exercise of stock options 41,348 4 (4) - -
Net earnings - - - 2,196 2,196
=======================================================================
Balance, June 30, 1996 2,565,736 $256 $12,873 $2,196 $15,325
=======================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 9
PATLEX CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from operations $2,196 $1,700
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation 23 21
Amortization 1,777 1,943
Note discount 14 31
Gain on sale of assets (50) (75)
Decrease (increase) in receivables, net of increase (decrease)
in due to other laser patents interest holders
(138) 1,823
Decrease (increase) in prepaid expenses (54) 39
Increase (decrease) in income taxes payable 1,188 237
Increase (decrease) in all other current liabilities 345 240
(Decrease) increase in deferred income taxes (444) (484)
------------------------------------
Net cash provided by operating activities 4,857 5,475
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (11) (15)
Proceeds from sale of assets 400 100
------------------------------------
Net cash provided by investing activities 389 85
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt (1,301) (1,057)
Dividends paid to parent corporation - (2,500)
------------------------------------
Net cash used in financing activities (1,301) (3,557)
------------------------------------
Net increase in cash 3,945 2,003
Cash, beginning of period 3,703 1,700
------------------------------------
Cash, end of period $7,648 $3,703
====================================
Supplemental cash flow information:
Interest paid $ 98 $ 169
====================================
Income taxes paid $1,363 $1,639
====================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 10
Patlex Corporation
Notes to Financial Statements
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On September 27, 1995, AutoFinance Group, Inc., a California corporation (AFG),
as the then sole shareholder of the Company, effected the distribution of 95.01%
of the outstanding shares of the Company's common stock to the holders of shares
of common stock of AFG. On September 27, 1995, AFG merged with and into Key Auto
Inc. (Key Auto), an Ohio corporation and a wholly owned subsidiary of KeyCorp
Key Auto, as the successor to AFG, and retained the 4.99% of the outstanding
shares of the Company's common stock which was not distributed in the
distribution. As a consequence of the distribution, the Company is an
independent, public company. The consummation of the distribution was a
condition to the merger because KeyCorp is not permitted under federal banking
law to acquire the assets and business of Patlex. Accounting for the
distribution of the assets and liabilities was based on the recorded amounts
which approximated net realizable value.
On December 11, 1992, Patlex Corporation (Patlex) merged with and became a
subsidiary of AutoFinance Group, Inc. (AFG). The merger was consummated by
exchanging each of the 5,180,863 common shares outstanding of Patlex at the time
of the merger for 1.4 shares of common stock of AFG. The fair values of the
assets acquired and liabilities assumed were fully allocated to Patlex.
ORGANIZATION
Patlex is engaged in enforcing and exploiting a group of laser related patents
(the Laser Patents), through litigation and a licensing program (the Patent
Business). The Patent Business includes the identification of infringers and
laser patent applications which infringe the Laser Patents and the execution of
licensing agreements through normal commercial negotiations or pursuant to
settlements of litigation brought against infringers of the patents. Patlex was
incorporated under the laws of the Commonwealth of Pennsylvania and has engaged
in the Patent Business since 1979.
Patlex conducts its patent enforcement and exploitation business in Las Vegas,
Nevada, with separate executive, legal, treasury, and accounting functions.
Management of Patlex believes that Patlex's general and administrative costs for
the periods prior to the distribution are those Patlex would incur as a separate
company.
F-6
<PAGE> 11
Patlex Corporation
Notes to Financial Statements (continued)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Patlex owns a 64% income interest and a 42.86% ownership interest in several
patents, the most significant of which derive from patent applications
originally filed by Dr. Gordon Gould in 1959. NGN Acquisition Corporation (NGN),
a corporation owned by Dr. Gould and his family, holds the remaining 57.14%
ownership interest in the Laser Patents. Other income interests in the Laser
Patents are held by NGN (20%) and Refac Financial Corporation (REFAC) (16%). In
addition to NGN's 20% income interest, Patlex is contractually obligated to pay
NGN an additional 1.5% of the first $198,800,000 of net royalty income. As of
June 30, 1996, total royalties collected under the Laser Patents were
approximately $103,670,000, approximately $99,246,000 of which constituted net
royalty income from which other income interests payments were calculated.
Patlex has the right to receive out of the laser patent royalty revenues an
amount equal to expenses incurred and paid by Patlex which are directly related
to enforcing and litigating the Laser Patents. Such expenses are deducted from
the total laser patent royalty revenues; the resultant royalty amount
constitutes net laser patent royalties. Royalty payments payable to the Laser
Patent interest holders are computed on the basis of net royalties.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, cash and cash equivalents include
highly liquid investments purchased with the original maturity of three months
or less.
PROVISION FOR INCOME TAXES
Patlex adopted Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes," during the year ended June 30, 1993. SFAS 109
requires a change from the deferred method of accounting for income taxes to the
liability method.
F-7
<PAGE> 12
Patlex Corporation
Notes to Financial Statements (continued)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Under SFAS 109, deferred tax liabilities and assets are determined based on
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. As permitted under SFAS 109, prior years'
financial statements have not been restated. Because there was no significant
statement of earnings effect as a result of the adoption of SFAS 109, Patlex did
not recognize a cumulative effect change in accounting principle.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Betterments and major renewals are
capitalized and included in property and equipment accounts while expenditures
for maintenance and repairs and minor renewals are charged to expense. When
assets are retired or otherwise disposed of, the assets and related allowances
for depreciation are eliminated from the accounts, and any resulting gain or
loss is reflected in income.
Depreciation charges for financial reporting purposes are determined on the
straight-line basis. Accelerated depreciation is generally used for income tax
purposes.
REVENUE RECOGNITION
The basis of reporting royalty revenues is derived from Patent License
Agreements between Patlex and approximately 230 licensees. The licensees are
obligated to file periodic activity reports which reflect gross royalties due
Patlex. Included in the gross royalties reported by the licensees are amounts
due to others as explained in "Organization" herein above. Patlex reports as
royalty revenue only its share of the gross royalties reported by the licensees.
NET EARNINGS PER SHARE
Net earnings per common share for the year ended June 30, 1996, presented was
computed by dividing net income for the period by the weighted-average number of
common shares outstanding during the period plus common stock equivalent shares
issuable upon exercise of stock options using the treasury stock method. Pro
forma net earnings and dividends per share for the prior period presented are
computed by giving effect to the number of shares of Patlex's common stock which
would have been outstanding had the distribution occurred one year earlier with
no change in the number of shares outstanding occurring since that date.
F-8
<PAGE> 13
Patlex Corporation
Notes to Financial Statements (continued)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation," which is effective for financial
statements of Patlex beginning with fiscal years ending after December 15, 1995.
The Statement allows Patlex to charge to expense the fair value of employee
stock options or to continue the current practice of recognizing no compensation
expense because the amount an employee must pay to acquire the Patlex's stock
(the option exercise price) is equal to the stock's market value at the grant
date. Patlex has elected to not charge to expense the fair value of employee
stock options and has disclosed the pro forma effect on operations had the fair
value of the options been charged to expense (see Note 7).
INVESTMENT IN PATENTS
Investment in Patents is recorded at the excess of the cost basis from the
merger with AFG over the fair values of net assets acquired by AFG at the time
of the merger. Investment in Patents costs are amortized on the straight-line
method over the remaining lives of the patents at the date of the merger (see
Note 4).
In accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," Patlex records
impairment losses on long-lived assets used in its operation when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No events or circumstances indicate that the Investment
in Patents might be impaired.
F-9
<PAGE> 14
Patlex Corporation
Notes to Financial Statements (continued)
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at June 30, 1996 and 1995, consist of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------------------------------------
<S> <C> <C>
Amounts due on royalties earned $1,284 $1,008
Other receivables 1 82
Notes receivable from employees 155 26
------------------------------------
Accounts and notes receivable 1,440 1,116
Less: Allowance for doubtful accounts (200) (200)
Accounts and notes receivable, net of allowance
$1,240 $ 916
====================================
</TABLE>
Patlex has agreed to pay other Laser Patents interest holders their respective
portion of all royalties on the Laser Patents collected by Patlex. Accordingly,
Patlex has accrued liabilities due to other Laser Patents interest holders for
their share of the accounts and notes receivable listed above relating to Laser
Patents royalties.
3. PROPERTY AND EQUIPMENT
Asset costs, accumulated depreciation, and estimated useful lives at June 30,
1996 and 1995, are as follows (in thousands, except for years):
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE JUNE 30
(YEARS) 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Land $ - $207
Office building 31 - 193
Furniture and equipment 5-7 42 45
------------------------------------
Total property and equipment, at
cost 42 445
Accumulated depreciation (13) (54)
------------------------------------
Property and equipment, net of
accumulated deprecation $29 $391
====================================
</TABLE>
F-10
<PAGE> 15
PATLEX CORPORATION
Notes to Financial Statements (continued)
3. PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense was $23,000 and $21,000 for the years ended June 30, 1996
and 1995, respectively.
Patlex leases office facilities under noncancelable operating leases. Aggregate
minimum lease commitments as of June 30, 1996, under long-term leases were as
follows:
<TABLE>
<S> <C>
1997 $ 49,050
1998 52,800
1999 52,800
2000 52,800
2001 52,800
------------------
Total minimum payments $260,250
==================
</TABLE>
4. INVESTMENT IN PATENTS
Investment in patents at June 30, 1996 and 1995, consists of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------------------------------------
<S> <C> <C>
Excess of cost over fair value of net assets
acquired resulting from merger with
AFG in 1992 $20,427 $20,427
Less: Accumulated amortization (6,433) (4,656)
------------------------------------
$13,994 $15,771
====================================
</TABLE>
Patlex owns a 64% income interest in laser patent revenue relating to certain
patents issued to Dr. Gordon Gould relating to laser technology.
The Laser Patents and their expiration dates are as follows:
U.S. PATENT EXPIRATION
NUMBER DESCRIPTION OF PATENT DATE
- -------------------------------------------------------------------------------
4,161,436 Use Patent July 1996
4,704,583 Gas Discharge Laser Patent November 2004
4,746,201 Brewster Angle Window Patent May 2005
F-11
<PAGE> 16
Patlex Corporation
Notes to Financial Statements (continued)
4. INVESTMENT IN PATENTS (CONTINUED)
The Optically Pumped Laser Patent (U.S. Patent No. 4,053,845) expired in October
1994. Prior to its expiration, the Optically Pumped Laser Patent accounted for
approximately 28% of the laser patent royalty revenues, the Gas Discharge Laser
patent accounted for approximately 62% of the laser patent royalty revenues, the
Use Patent accounted for approximately 10% of the laser patent royalty revenues
and the Brewster Angle Window Patent accounted for less than 0.25% of laser
patent royalty revenues. Patlex anticipates that the decrease in royalty
revenues as a result of the expiration of the Optically Pumped Laser Patent may
be offset to some extent by increased royalty revenues from the Use and/or
Brewster Angle Window Patents. Patlex's management has determined through its
review of royalty reports filed by its licensees and discussions with
representatives of, and counsel to such licensees, that certain of its licensees
are paying royalties under the Use Patent and/or the Brewster Angle Window
Patent with respect to laser products for which they had previously been paying
royalties under the Optically Pumped Laser Patent.
5. LONG-TERM DEBT
Long-term debt at June 30, 1995 consists of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Mortgage payable to bank, interest at New York
prime plus 1% (9.0% at June 30, 1996 and
June 30, 1995), adjusted daily, payable in
monthly installments of $4,151 secured by
land and building $ 270
Notes payable to individuals in the face amount
of $1,031,000, less unamortized discount of
$14,000 at June 30, 1995, with interest
paid semiannually on the unpaid principal
balance at the rate of 7% per annum (an
affective rate of 10% after discount)
1,017
-------
1,287
Less: Current maturities (1,044)
=======
$ 243
=======
</TABLE>
The aggregate maturities of long-term debt for the five years from June 30, 1995
are as follows (in thousands):
<TABLE>
<S> <C>
1996 $1,058
1997 29
1998 32
1999 35
2000 38
</TABLE>
F-12
<PAGE> 17
Patlex Corporation
Notes to Financial Statements (continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires
disclosure of information about the fair value of financial instruments for
which it is practicable to estimate a value, whether or not such value is
recognized in the balance sheet.
The carrying value and the estimated fair value of financial instruments are as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
BOOK FAIR
VALUE VALUE
------------------------------------
<S> <C> <C>
Cash and cash equivalents $7,648 $7,648
</TABLE>
The carrying amounts of cash and cash equivalents approximate fair value.
7. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
Patlex has employment contracts with its officers and controller which provide
for minimum salary levels. One agreement automatically renews each year for a
three-year period. The other three agreements expire on December 31, 1998. The
aggregate minimum commitments at June 30, 1996, for future salaries under these
agreements are as follows (in thousands):
<TABLE>
<S> <C>
1997 $468
1998 468
1999 234
</TABLE>
Compensation expense is recorded over the term of these agreements in accordance
with the payment terms.
LITIGATION
Due to the nature of Patlex's business, especially its involvement in the
enforcement of patent rights, Patlex has been continually involved in litigation
with alleged infringers of patents in which Patlex owns an interest. Patlex
regards all such lawsuits as occurring in the regular course of business.
Furthermore, as a result of the involvement of the United
F-13
<PAGE> 18
Patlex Corporation
Notes to Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
States Patent and Trademark Office in granting and denying patent applications
and in conducting reexaminations of patents, the Company has in the past been
required to prosecute appeals of United States Patent and Trademark Office
rulings adverse to the Company's interest to the United States District Court.
No such appeals are pending at this time, and the Company does not anticipate
such appeals will be necessary in the future with regard to the Laser Patents.
In connection with suits filed against alleged patent infringers to enforce a
patent, defendants often file counterclaims seeking payment by the plaintiffs of
any damages suffered by the defendants on account of the lawsuit and
reimbursement by the plaintiffs of the defendants' costs and attorneys' fees.
While such counterclaims have been filed against the Company, to date the
Company has not incurred liability with regard to such counterclaims. The
Company may also be required to file suits to enforce collection and compliance
under its patent license agreements with its current licensees.
In November 1994, REFAC Financial Corporation (REFAC) instituted a civil action
in the United States District Court, Eastern District of Pennsylvania, alleging
that Patlex improperly calculated the royalties due REFAC. The manner in which
the royalties due REFAC are calculated has been consistent for more than six
years. Patlex believes that the royalties due REFAC have been properly
calculated and that REFAC's claim is both without merit and time-barred. On
February 28, 1996, a special verdict adverse to Patlex was returned. Post-trial
motions have been denied but no separate judgment has been entered. The amount
of any judgment against Patlex in this action will be less than $225,000. When a
separate judgment is entered, Patlex intends to appeal this judgment. The amount
of the judgment that Patlex is appealing is not material to the Company's
operations.
STOCK OPTIONS
RIGHTS OF HOLDERS OF KEYCORP STOCK OPTIONS
Prior to the merger with AFG, Patlex had a qualified and nonqualified
employee-incentive stock option plan. Under the 1981 Incentive Stock Option
Plan, options to purchase common shares could be granted at prices not less than
fair market value on the date of grant for a period not exceeding 10 years and
were exercisable at the option of the holder. All options were assumed by AFG in
connection with that merger in 1992.
F-14
<PAGE> 19
Patlex Corporation
Notes to Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The merger agreement of KeyCorp and AFG provided that KeyCorp would assume each
AFG Option granted by AFG pursuant to its option plans (the 1989 Stock Option
and Performance Award Plan and the 1991 Stock Option Plan) which were
outstanding and unexercised, whether or not exercisable, and convert each AFG
Option into a KeyCorp Option. In addition, the distribution agreement provided
that the holder of each KeyCorp Option granted upon conversion of an AFG Option
would be entitled to receive upon exercise of such option, in addition to one
share of KeyCorp common stock, one share of Patlex common stock for every eight
shares of AFG common stock that would have been issuable except for the
conversion to the KeyCorp Option.
At June 30, 1996, a total of 31,978 shares of Patlex common stock, for which no
consideration will accrue to Patlex, is issuable upon the exercise of KeyCorp
stock options acquired by holders as a result of the merger of AFG and KeyCorp.
Each holder is entitled to receive one share of Patlex common stock for every
eight shares of KeyCorp common stock issuable upon exercise of such options.
PATLEX STOCK OPTION PLAN
Patlex has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that are not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of Patlex's employees stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
The 1995 Stock Option Plan (the Plan), approved by the Patlex Board of Directors
as of March 31, 1995, and approved by AFG on September 8, 1995, provides for
incentive and nonqualified stock options for designated officers, directors,
employees, and key advisors of Patlex. The aggregate number of shares of common
stock that may be offered pursuant to the Plan amounts to 375,000.
Options to purchase shares of common stock can be granted at a price determined
by a committee appointed by the Board of Directors provided however, that the
purchase price of shares subject to incentive stock options shall be equal to or
greater than fair market value of shares of common stock at date of grant and a
nonqualified stock options shall
F-15
<PAGE> 20
Patlex Corporation
Notes to Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
not be less than 85% of fair market value of a share of common stock at date of
grant. Stock options are exercisable at the discretion of the committee. The
term of each stock option is ten years. At June 30, 1996, 350,000 shares have
been granted and are exercisable at $4.75 per share.
Pro forma information regarding net earnings and earnings per share is required
by Statement 123 and has been determined as if Patlex had accounted for its
employee stock options under the fair value method of the Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
options pricing model with the following assumptions: risk-free interest rate of
6.15%, dividend yields of 0%, volatility factors of the expected market price of
the Patlex's common stock of .10, and an expected life of the option of two
years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
Patlex's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Patlex's pro forma information for the year ended June 30, 1996 is as follows:
<TABLE>
<S> <C>
Pro forma net earnings (in thousands) $2,089
Pro forma net earnings per common share $ .93
</TABLE>
8. INCOME TAXES
PROVISION FOR INCOME TAXES
Patlex adopted SFAS 109, "Accounting for Income Taxes," during 1993. SFAS 109
requires a change from the deferred method of accounting for income taxes to the
liability method. Concurrent with the accounting for the assets acquired and
liabilities assumed in the merger with AFG, a net deferred tax liability and an
increase in intangibles of $3,831,000 was recorded, principally as a result of
the difference between the financial and tax reporting basis of the investment
in patents.
F-16
<PAGE> 21
Patlex Corporation
Notes to Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The SFAS 109 adjustments recognize the deferred tax liability allocated by AFG
in the purchase price accounting and were calculated giving recognition to AFG
net operating loss carryforwards. In 1993 and 1994, Patlex filed a consolidated
tax return with AFG. The carryforwards were utilized in 1993 and 1994 in the
consolidated tax return. Pursuant to a tax-sharing agreement, Patlex paid to its
parent the book income tax provision determined on a separate company basis.
Under the terms of the spin-off of Patlex (see Note 1), the financial statement
and the tax basis of assets and liabilities will carry over to Patlex. As these
temporary differences reverse, Patlex will pay additional current taxes.
Accordingly, deferred tax liabilities related to these temporary differences
have been provided for in the accompanying financial statements. Because in
prior years Patlex paid cash to AFG related to the deferred income tax
provision, such prior payments have been reflected as dividends in the
accompanying financial statements.
The provision for income taxes for the years ended June 30, 1996 and 1995
consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------------------------------------
<S> <C> <C>
Federal:
Current $2,107 $1,589
Deferred (368) (402)
------------------------------------
Total federal 1,739 1,187
State:
Current 438 325
Deferred (76) (82)
------------------------------------
Total state 362 243
------------------------------------
$2,101 $1,430
====================================
</TABLE>
F-17
<PAGE> 22
Patlex Corporation
Notes to Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Patlex's deferred tax liability at June 30, 1996 and 1995 consist of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------------------------------------
<S> <C> <C>
Deferred tax assets:
Capital loss carryover $ - $ 868
Other 414 188
------------------------------------
Total deferred tax assets 414 1,056
Valuation allowance for deferred tax assets - (868)
------------------------------------
Net deferred tax assets 414 188
Deferred tax liabilities:
Patents 4,027 4,201
Other 115 159
------------------------------------
Total deferred tax liabilities 4,142 4,360
------------------------------------
Net deferred tax liability $3,728 $4,172
====================================
</TABLE>
Patlex had available capital loss carryovers for federal income tax purposes of
approximately $2,125,728, which expired unutilized in 1996. For financial
reporting purposes, a valuation allowance had been provided to reduce the
deferred tax asset to an amount the Company believes is realizable.
The provision for income taxes differed from the statutory federal income tax
rate for the years ended June 30, 1996 and 1995, as a result of the following:
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------------------------------------
<S> <C> <C>
Statutory federal income tax rate 35.0% 35.0%
Capitalized merger costs 5.0 2.0
Patent amortization not deductible for tax
purposes 2.4 3.6
State income taxes and other 6.5 5.1
------------------------------------
48.9% 45.7%
====================================
</TABLE>
F-18
<PAGE> 23
Patlex Corporation
Notes to Financial Statements (continued)
9. SIGNIFICANT LICENSEES
Of the total laser patent royalties earned from all licensees, the following
reflects the highest percentage of the total that was contributed by two
licensees for each period. The two licensees are not necessarily the same for
the periods presented.
LICENSEE
NO. 1 NO. 2
------------------------------------
For the year ended June 30, 1995 9.9% 8.5%
For the year ended June 30, 1996 12.4 8.5
10. 401(K) SAVINGS PLAN
Patlex employees participated in the AFG 401(k) Savings Plan, which commenced
July 1, 1994, until the spin-off date of September 27, 1995. After the spin-off
date, no Patlex employees were participants in the plan. Another plan was
established effective April 1, 1996. Contributions to the plan are made at the
discretion of the Board of Directors. The total matching contribution expense of
Patlex for the years ended June 30, 1996 and 1995, was $14,143 and $20,423,
respectively.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED - FISCAL 1996 THREE MONTHS ENDED - FISCAL 1995
-------------------------------------------------------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Laser patent royalties $1,457 $2,205 $1,810 $2,506 $1,384 $1,514 $1,454 $1,901
Operating income 588 1,320 805 1,330 545 811 737 943
Net earnings 273 760 398 765 290 448 405 557
Net earnings per
common share $ .11 $ .27 $ .14 $ .46 $ .11 $ .18 $ .16 $ .22
</TABLE>
12. PROPOSED ACQUISITION
On February 7, 1996, Patlex entered into a definitive merger agreement with
Database Technologies, Inc. (DBT), of Pompano Beach, Florida. The merger is
intended to be a tax-free reorganization in which the shareholders of DBT would
receive a number of shares of Patlex common stock equal to 65% of the sum of the
number of outstanding common shares plus one-half the number of Patlex options
and certain rights to receive Patlex common stock outstanding at the time of the
merger (see Note 7). Consummation of the merger is conditioned on, among other
things, receipt of the necessary shareholder and regulatory approvals.
F-19
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Database Technologies, Inc.
We have audited the accompanying balance sheet of Database Technologies,
Inc. (the "Company") as of December 31, 1995, and the related statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the management of the
Company. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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 Database Technologies, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
January 19, 1996 (February 7, 1996, as to Note 11)
F-20
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Database Technologies, Inc.
We have audited the accompanying balance sheet of Database Technologies,
Inc. (the "Company") as of December 31, 1994, and the related statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the management of the
Company. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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 Database
Technologies, Inc. as of December 31, 1994, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
January 20, 1995
F-21
<PAGE> 26
DATABASE TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
JUNE 30, ----------- ----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 818,100 $ 1,642,700 $ 156,300
Accounts receivable, net of allowances of $32,500
as of June 30, 1996, $17,500 in 1995
and $8,000 in 1994.............................. 1,376,400 839,400 318,000
Receivables from related parties................... 281,200 271,000 3,100
Prepaid insurance.................................. 37,600 58,400 26,600
Other prepaid expenses............................. 322,400 124,500 12,400
--------- --------- ----------
TOTAL CURRENT ASSETS....................... 2,835,700 2,936,000 516,400
--------- --------- ----------
PROPERTY AND EQUIPMENT, net.......................... 4,985,100 3,128,700 898,300
--------- --------- ----------
OTHER ASSETS:
Purchased data, net of accumulated amortization of
$101,900 as of June 30, 1996, $65,300 in 1995
and $8,600 in 1994.............................. 283,000 277,600 97,500
Customer lists, net of accumulated amortization of
$6,600 as of June 30, 1996...................... 192,000 198,600 --
Deposits........................................... 17,700 16,300 12,200
Deferred income taxes.............................. 33,300 16,500 --
--------- --------- ----------
TOTAL OTHER ASSETS......................... 526,000 509,000 109,700
--------- --------- ----------
$ 8,346,800 $ 6,573,700 $1,524,400
========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................. $ 1,430,200 $ 1,010,300 $ 233,400
Bank line-of-credit................................ 600,000 100,000 --
Accounts payable and accrued liabilities........... 1,096,300 968,500 215,600
Customer deposits.................................. 275,600 207,300 71,800
Deferred income taxes.............................. 128,400 157,900 --
--------- --------- ----------
TOTAL CURRENT LIABILITIES.................. 3,530,500 2,444,000 520,800
--------- --------- ----------
LONG-TERM DEBT, less current portion................. 2,066,200 1,531,300 451,300
--------- --------- ----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock ($.001 par value; 10,000,000 shares
authorized; issued and outstanding, 1,736,274 at
June 30, 1996 and December 31, 1995, and
1,333,333 at December 31, 1994.................. 1,700 1,700 1,300
Additional paid-in capital......................... 3,870,700 3,870,700 81,200
Retained earnings (deficit)........................ (1,122,300) (1,274,000) 469,800
--------- --------- ----------
TOTAL STOCKHOLDERS' EQUITY................. 2,750,100 2,598,400 552,300
--------- --------- ----------
$ 8,346,800 $ 6,573,700 $1,524,400
========= ========= ==========
</TABLE>
See notes to financial statements.
F-22
<PAGE> 27
DATABASE TECHNOLOGIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES.................................. $ 7,138,800 $3,393,400 $ 8,076,300 $2,751,100
----------- ---------- ----------- ----------
COST OF REVENUES:
Purchased data.......................... 1,496,600 602,300 1,491,100 304,600
Depreciation, computer equipment........ 844,400 269,000 822,500 216,600
Telephone............................... 454,700 174,100 502,700 155,700
Customer support salaries............... 304,500 89,200 294,800 119,200
Other direct costs...................... 314,500 93,000 261,200 60,100
----------- ---------- ----------- ----------
TOTAL COST OF REVENUES.......... 3,414,700 1,227,600 3,372,300 856,200
----------- ---------- ----------- ----------
GROSS PROFIT.................... 3,724,100 2,165,800 4,704,000 1,894,900
----------- ---------- ----------- ----------
SELLING AND ADMINISTRATIVE EXPENSES:
Selling and promotion................... 805,400 443,900 1,025,700 287,100
General and administrative.............. 1,619,200 685,900 1,908,100 609,900
----------- ---------- ----------- ----------
TOTAL SELLING AND ADMINISTRATIVE
EXPENSES...................... 2,424,600 1,129,800 2,933,800 897,000
RESEARCH AND DEVELOPMENT
COSTS................................... 983,700 374,100 1,017,000 552,700
LOSS ON IRB TRANSACTION................... -- -- 1,660,100 --
----------- ---------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS... 315,800 661,900 (906,900) 445,200
----------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense........................ (119,900) (24,700) (108,000) (15,000)
Interest income......................... 18,300 -- 31,900 1,100
Other................................... -- -- -- (1,500)
----------- ---------- ----------- ----------
OTHER, NET...................... (101,600) (24,700) (76,100) (15,400)
----------- ---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES......................... 214,200 637,200 (983,000) 429,800
INCOME TAX PROVISION...................... 62,500 -- 208,700 --
----------- ---------- ----------- ----------
NET INCOME (LOSS)............... $ 151,700 $ 637,200 $(1,191,700) $ 429,800
=========== ========== =========== ==========
PRO FORMA:
Provision for income taxes...... $ 217,200 $ 247,600 $ 122,300
========== =========== ==========
Net income (loss)............... $ 420,000 $(1,230,600) $ 307,500
========== =========== ==========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 28
DATABASE TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
------------------
SHARES
ISSUED ADDITIONAL RETAINED
AND PAID-IN EARNINGS
OUTSTANDING AMOUNT CAPITAL (DEFICIT) TOTAL
----------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994............... 1,333,333 $1,300 $ 81,200 $ 56,000 $ 138,500
S corporation distributions............. -- -- (16,000) (16,000)
Net income for 1994..................... -- -- 429,800 429,800
--------- ------ ---------- ----------- ----------
BALANCES, December 31, 1994............. 1,333,333 1,300 81,200 469,800 552,300
S corporation distributions paid........ -- -- (117,400) (117,400)
Record distribution payable and other
adjustments upon S corporation
termination........................... -- 230,700 (434,700) (204,000)
Stock issued for acquisition of assets,
net................................... 65,200 100 485,600 -- 485,700
Issuance of common stock for cash....... 17,741 -- 100,000 -- 100,000
Issuance of common stock for cash....... 320,000 300 2,973,200 -- 2,973,500
Net loss for 1995....................... -- -- (1,191,700) (1,191,700)
--------- ------ ---------- ----------- ----------
BALANCES, December 31, 1995............. 1,736,274 1,700 3,870,700 (1,274,000) 2,598,400
Net income for the six months ended
June 30, 1996 (unaudited)............. -- -- 151,700 151,700
--------- ------ ---------- ----------- ----------
BALANCES, June 30, 1996 (unaudited)..... 1,736,274 $1,700 $3,870,700 $(1,122,300) $2,750,100
========= ====== ========== =========== ==========
</TABLE>
See notes to financial statements.
F-24
<PAGE> 29
DATABASE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE YEAR ENDED
30, DECEMBER 31,
------------------------- -------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ 151,700 $ 637,200 $(1,191,700) $ 429,800
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 944,100 316,900 941,900 244,800
Deferred taxes.................................. (46,300) -- 141,400 --
Loss on IRB transaction......................... -- -- 1,660,100 --
Changes in certain current assets and
liabilities:
Accounts receivable and other receivables..... (547,200) (370,500) (789,300) (240,100)
Prepaid insurance and expenses................ (67,100) (109,300) (143,900) (32,700)
Accounts payable and accrued liabilities...... 127,800 393,900 752,900 189,500
Customer deposits............................. 68,300 34,000 135,500 61,500
----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES....... 631,300 902,200 1,506,900 652,800
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchased.................. (2,757,400) (1,208,500) (3,115,600) (961,200)
IRB transaction................................... -- -- (1,373,000) --
Purchases of data................................. (42,000) (203,700) (236,800) (106,100)
Merger costs incurred............................. (109,800) -- -- --
Increase in deposits, and other................... (1,500) (1,300) (4,100) (9,900)
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES.................................... (2,910,700) (1,413,500) (4,729,500) (1,077,200)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.............................. -- 100,000 3,073,500 100
Net change in bank line-of-credit................. 500,000 -- 100,000 --
Proceeds from long-term debt borrowings........... 1,500,000 1,200,000 2,364,000 775,000
Repayments of long-term debt...................... (545,200) (215,600) (507,100) (101,300)
Repayment of note payable, shareholder and
other........................................... -- -- -- (77,400)
S corporation distributions....................... -- (104,700) (321,400) (16,000)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 1,454,800 979,500 4,709,000 580,400
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (824,600) 468,200 1,486,400 156,000
CASH AND CASH EQUIVALENTS,
beginning of period............................... 1,642,700 156,300 156,300 300
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period............ $ 818,100 $ 624,500 $ 1,642,700 $ 156,300
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash (net of amount
capitalized).................................... $ 115,300 $ 24,300 $ 98,800 $ 15,400
=========== =========== =========== ===========
Income taxes paid in cash......................... $ 205,200 $ -- $ 16,500 $ --
=========== =========== =========== ===========
</TABLE>
ADDITIONAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1995, DBT common stock was issued to acquire customer lists and
other intangible assets for a recorded value of $198,600.
Effective July 1, 1995, $230,700 of retained earnings was reclassed to
additional paid-in capital in conjunction with the termination of DBT's status
as an S corporation for income tax purposes.
See notes to financial statements.
F-25
<PAGE> 30
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Database Technologies, Inc. ("DBT" or the "Company") was incorporated in
Florida on February 18, 1992. DBT is an electronic information retrieval company
that provides its customers on-line, real-time access to public records through
computer modem access.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED FINANCIAL STATEMENTS
The unaudited interim financial statements have been prepared by the
Company in accordance with the rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting and, accordingly,
they do not include all the information and disclosures required by generally
accepted accounting principles. In the opinion of management, the interim
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting mainly of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for the periods shown. The results of the
six months ended June 30, 1996 are not necessarily indicative of the results
for the full fiscal year.
REVENUE RECOGNITION
Customers are charged for each minute they are active on the system.
Revenue is recognized at the time of the customer access, net of credits issued.
Accounts receivable are primarily with law enforcement agencies, insurance
companies and similar users of public records. The Company's customers are
numerous and spread over a wide geographic area. As such, the Company believes
that it does not have an abnormal concentration of credit risk within any one
market or any one geographic area.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated using
accelerated methods over the estimated useful lives of the assets. Useful lives
range from five to seven years. Expenditures for routine maintenance and repairs
are charged to expense as incurred.
PURCHASED DATA
Data acquired from third parties with an estimated useful life of a year or
more is recorded at cost and amortized over the estimated periods to be
benefited (primarily five years) using the straight-line method. Amortization
expense in 1995 totaled $56,700 and in 1994 totaled $8,600.
Other purchased data not meeting the capitalization policy is expensed as
acquired.
RESEARCH AND DEVELOPMENT COSTS
Costs for research and development activities are expensed as incurred and
totaled $956,900 and $552,700, respectively, for the years ended December 31,
1995 and 1994.
F-26
<PAGE> 31
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INCOME TAXES
Through June 30, 1995, DBT, with the consent of its shareholders, had
elected under provisions of the Internal Revenue Code to be an S corporation. In
lieu of corporation income taxes, the shareholders of an S corporation are taxed
on their proportionate share of taxable income. Therefore, no provision or
liability for income taxes was included in the accompanying financial statements
for DBT's results of operations through June 30, 1995. Effective July 1, 1995,
DBT terminated this election, which results in DBT directly paying taxes on its
earnings.
Effective July 1, 1995, the Company accounts for its income taxes in
accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes". Deferred tax liabilities and assets are
recognized for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, 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. A
valuation allowance is recognized to reduce net deferred tax assets to amounts
that are more likely than not to be realized.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents include
highly liquid investments purchased with an original maturity of three months or
less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at cost, which approximates fair value
because of the short-term maturity of those instruments. The fair values of the
Company's debt obligations are disclosed in Note 6.
RECLASSIFICATION
Certain 1994 amounts were reclassified to conform with the 1995
presentation.
NOTE 2 -- STOCKHOLDERS' EQUITY
Prior to August 10, 1995, DBT had 10,000 shares of no par common stock
authorized, with a stated value of $1 per share. Effective August 10, 1995, DBT
executed a 1,000 for 1 split of its common stock, which increased authorized
shares to 10,000,000, and restated its par value to $.001 per share. All share
information presented in the accompanying financial statements has been restated
to reflect this stock split.
NOTE 3 -- PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following at December 31st of each
year:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
Computer equipment........................... 5 years $ 3,999,500 $1,120,000
Office furniture and equipment............... 7 years 232,000 46,900
Leasehold improvements....................... 2 to 4 years 76,200 25,200
----------- ----------
Total cost.............................. 4,307,700 1,192,100
Less: Accumulated depreciation............... (1,179,000) (293,800)
----------- ----------
Property and equipment, net............. $ 3,128,700 $ 898,300
=========== ==========
</TABLE>
F-27
<PAGE> 32
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT, NET -- (CONTINUED)
Depreciation expense was $885,200 and $236,200, respectively, for the years
ended December 31, 1995 and 1994.
NOTE 4 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1995 and 1994
consist of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accounts payable............................................... $541,100 $177,000
Accrued liabilities:
S corporation distribution payable........................... 204,000 --
Payroll and related taxes.................................... 118,700 37,100
Currently payable income taxes............................... 50,800 1,500
Other accrued expenses....................................... 53,900 --
------- -------
Total................................................ $968,500 $215,600
======= =======
</TABLE>
NOTE 5 -- TRANSACTIONS WITH SHAREHOLDERS
During 1993, a shareholder advanced funds to DBT for working capital
purposes. The balance outstanding was $74,900 at December 31, 1993 and carried
an interest rate of 7%. The loan was repaid in July 1994.
On November 3, 1995, DBT lent $200,000 to its majority shareholder. The
loan is unsecured, bears interest at 8% and is due on demand. Certain other
non-interest bearing advances totaling $54,100 were outstanding to the
shareholder at December 31, 1995. The advances were repaid on January 12, 1996.
NOTE 6 -- DEBT OBLIGATIONS
The Company has a $600,000 revolving line-of-credit with a commercial bank,
bearing interest at a rate of 1% over prime (9.5% at December 31, 1995) and
expiring March 31, 1996. The line-of-credit is secured by substantially all
assets of DBT and is personally guaranteed by the majority shareholder of the
Company. Outstanding borrowings on the line-of-credit were $100,000 at December
31, 1995, and were repaid on January 11, 1996.
F-28
<PAGE> 33
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DEBT OBLIGATIONS -- (CONTINUED)
Long-term debt consists of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Note payable to a commercial bank with monthly principal
installments of $7,680 plus interest at 9.25% at December 31,
1995. The note matures in November 1997.......................... $ 176,600 $ 266,700
Note payable to a commercial bank with monthly principal
installments of $6,944 plus interest at 9.25% at December 31,
1995. The note matures in November 1997. ........................ 159,700 243,000
Note payable to a commercial bank with monthly principal
installments of $27,778 plus interest at 9.25% at December 31,
1995. The note matures in July 1998.............................. 861,100 --
Note payable to a commercial bank with monthly principal
installments of $35,111 plus interest at 9.25% at December 31,
1995. The note matures in December 1998.......................... 1,264,000 --
Note payable to a consortium of individuals, which are non-interest
bearing. See Note 7 for a description of the agreement and its
repayment terms.................................................. 80,200 175,000
----------- ---------
Total debt......................................................... 2,541,600 684,700
Less: current portion.............................................. (1,010,300) (233,400)
----------- ---------
Long-term portion........................................ $ 1,531,300 $ 451,300
=========== =========
</TABLE>
All debt with the commercial bank is personally guaranteed by the majority
shareholder of the Company and is secured by substantially all assets of DBT. In
addition, DBT must maintain certain financial ratios and comply with specified
covenants.
The estimated fair value of DBT's long-term debt with financial
institutions is the same as its recorded value at December 31, 1995 because the
interest rates and terms approximate current market conditions. Because of the
unique nature of the debt described in Note 7, fair value estimation is not
practicable. This debt is expected to be repaid during 1996.
Future minimum payments of long-term debt at December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------------------------------------------------------------
<S> <C>
1996.......................................................... $1,010,300
1997.......................................................... 915,600
1998.......................................................... 615,700
----------
$2,541,600
==========
</TABLE>
NOTE 7 -- TEXAS DEBT AND ROYALTY AGREEMENT
On February 7, 1994, a debt and royalty agreement was entered into with a
consortium of seven individuals. During 1995, one of these seven became a
shareholder and director of DBT. The agreement provided the financing necessary
for DBT to enter the Texas market with its database services. The agreement
provided for the following:
DEBT AGREEMENT
A loan to DBT of $200,000, repayable without interest as follows: for five
months beginning May 1994, 50% of specified revenues from Texas operations or
$2,000, whichever is greater, then beginning October 1994,
F-29
<PAGE> 34
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- TEXAS DEBT AND ROYALTY AGREEMENT -- (CONTINUED)
50% of specified revenues from Texas operations or $5,000, whichever is greater,
until the $200,000 note is repaid. During 1995 and 1994, $94,800 and $25,000,
respectively, was repaid (see Note 6).
ROYALTY AGREEMENT
A royalty agreement to share in the revenues of the Texas expansion up to
$800,000, computed as follows: after the $200,000 note is repaid, the consortium
will receive 10% of specified revenues from Texas operations until $800,000 is
paid.
NOTE 8 -- IRB TRANSACTION
Effective July 1, 1995, DBT purchased for cash and stock all of the
outstanding shares of common stock of International Research Bureau, Inc.
("IRB"). Subsequent to the acquisition, management of DBT re-evaluated the
future potential of IRB's core document retrieval business and concluded that
IRB's assets, other than its on-line customer list, had no future value to DBT.
Factors which led DBT's management to this evaluation included the conclusions
that DBT's technology was superior to IRB's, and that IRB's data was duplicative
of data which DBT already possessed. On December 13, 1995, IRB's shares were
transferred back to the original owners of IRB in exchange for DBT common stock.
Because DBT's ownership of IRB was temporary, DBT has accounted for its
investment in IRB using the equity method.
As a result of these transactions, DBT acquired IRB's customer list for its
on-line business and a covenant not to compete. The assets of DBT given up
included cash of $1,000,000; common stock of DBT valued at $485,700 (after
accounting for the returned shares); and investments in the operations of IRB
and other costs totaling $373,000. Management's estimate of the fair value of
the acquired assets, totaling $198,600, was recorded on DBT's balance sheet, and
the remainder of the costs incurred were charged to operations.
NOTE 9 -- INCOME TAXES
As discussed in Note 1, DBT was taxed as an S corporation from inception
through July 1, 1995. Effective that date, DBT terminated this election, which
results in DBT directly paying taxes on its earnings. As a result of this
termination, a final S corporation distribution of $204,000 was accrued,
$230,700 of undistributed S corporation earnings were reclassed to additional
paid-in capital and deferred income taxes were established for the tax bases of
assets and liabilities that are different than those recognized for financial
reporting purposes, as follows:
<TABLE>
<S> <C>
Cash basis of accounting for income taxes................................. $106,400
Purchased data, due to differences in amortization........................ 108,300
Property and equipment, due to differences in depreciation................ (59,500)
--------
Net deferred tax liability established at July 1, 1995.......... $155,200
========
</TABLE>
F-30
<PAGE> 35
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES -- (CONTINUED)
A summary of income taxes for the period from July 1, 1995 through December
31, 1995 is as follows:
<TABLE>
<S> <C>
Current:
Federal................................................................. $ 61,000
State................................................................... 6,300
Deferred.................................................................. (13,800)
--------
Income tax provision from July 1, 1995 through December 31, 1995.......... 53,500
Deferred tax liability established July 1, 1995........................... 155,200
--------
Total income tax provision...................................... $208,700
========
</TABLE>
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to net deferred income tax
liability at December 31, 1995 relate to the following:
<TABLE>
<S> <C>
Cash basis of accounting for income taxes................................ $ 157,900
Purchased data, due to differences in amortization....................... 108,300
Property and equipment, due to differences in depreciation............... (124,800)
Capital loss carryforward................................................ 273,000
Valuation allowance for capital loss carryforward........................ (273,000)
---------
Net deferred income tax liability.............................. $ 141,400
=========
</TABLE>
The deferred taxes appear on the accompanying balance sheet as follows:
<TABLE>
<S> <C>
Long-term deferred tax asset.............................................. $(16,500)
Current deferred tax liability............................................ 157,900
--------
Net deferred income tax liability............................... $141,400
========
</TABLE>
DBT has a capital loss carryover of approximately $700,000 for tax
purposes, which expires in 2000. This loss results from the IRB transaction. The
related deferred tax asset has been completely offset by a valuation allowance,
as it is more likely than not that this asset will not be realized prior to its
expiration.
The effective income tax rate for 1995 varied from the statutory Federal
tax rate as follows:
<TABLE>
<S> <C>
Federal statutory rate (benefit)............................................... (34)%
Loss on IRB transaction........................................................ 61%
Income taxed as an S corporation through July 1, 1995.......................... (21)%
Effect of change in tax status from S corporation.............................. 17%
State income taxes, net of federal income tax benefit.......................... (2)%
---
Effective income tax rate 21%
===
</TABLE>
NOTE 10 -- COMMITMENTS
DBT leases office space under various agreements that expire between June
1996 and October 1998; certain of these leases contain three-year renewal
options. Certain office equipment and vehicles are leased under agreements that
expire through October 1999. All of these leases are accounted for as operating
leases. Total rent expense was $284,700 and $62,500, respectively, for the years
ended December 31, 1995 and 1994.
F-31
<PAGE> 36
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMITMENTS -- (CONTINUED)
Minimum future lease payments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1996......................................................... $247,300
1997......................................................... 78,700
1998......................................................... 13,500
1999......................................................... 2,500
-------
$342,000
=======
</TABLE>
DBT obtains the right to use certain of its data under agreements that
require minimum royalty payments during 1996 of approximately $500,000.
NOTE 11 -- SUBSEQUENT EVENT
On February 7, 1996, DBT agreed to merge with Patlex Corporation
("Patlex"). Pursuant to the merger agreement, DBT's shareholders would hold a
majority of the stock in a holding company which will own all of the stock in
both DBT and Patlex. Patlex is engaged in the exploitation and enforcement of
certain laser patents. This merger agreement is subject to the approval of the
shareholders of both companies.
NOTE 12 -- PRO FORMA INCOME TAXES AND EARNINGS (UNAUDITED)
As discussed in Note 1, having elected status as an S corporation, the
shareholders of DBT paid the federal income tax on DBT's earnings through June
30, 1995. Additionally, DBT was exempt from Florida state income tax on its
earnings during that period, as Florida does not separately tax S corporations.
As a result, no income tax expense was provided in the historical financial
statements for taxable income attributable to DBT through June 30, 1995;
however, as disclosed in the Statement of Changes in Stockholders' Equity, S
corporation distributions were made to the shareholders to assist them in making
the corporate tax payments.
The pro forma amounts presented on the accompanying statements of income
reflect the amount of income taxes, and the resulting income after taxes, as if
DBT had not made the election to be taxed as an S corporation. The pro forma
computation of taxes for 1995 excludes the loss on the IRB transaction as the
deferred tax asset arising from this loss has been fully allowanced.
F-32
<PAGE> 37
UNAUDITED CONDENSED PRO FORMA CONDENSED STATEMENTS
The following pro forma information assumes the issuance of 5,091,530
Holdco Common Shares in exchange for all of the outstanding common stock of DBT.
Although Holdco is the surviving corporation, for accounting purposes the
transaction is being treated as a purchase business acquisition of Patlex by DBT
(a reverse acquisition) and a recapitalization of DBT. The following pro forma
condensed financial statements and accompanying notes to pro forma condensed
financial statements present pro forma information with respect to this
transaction.
The Merger is assumed to be consummated as of June 30, 1996, for purposes
of the pro forma condensed balance sheet and the pro forma condensed statements
of income. The pro forma condensed financial statements are presented for
illustrative purposes only and are not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated as of the dates indicated, nor are they necessarily indicative of
future operating results or financial position.
DBT's fiscal year coincides with the calendar year and Patlex's fiscal year
ends on June 30. The pro forma condensed financial statements are derived from
and should be read in conjunction with DBT's historical audited and unaudited
financial statements and Patlex's historical audited and unaudited financial
statements (which, because Patlex's fiscal year ended June 30, have been recast
to conform to DBT's fiscal year ending December 31) included elsewhere in this
Form 8-K.
F-33
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------------------
DBT PATLEX PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 818 $ 7,648 $ -- $ 8,466
Accounts and notes receivable, net.............. 1,376 1,240 -- 2,616
Receivables from related parties................ 281 -- -- 281
Prepaid expenses................................ 360 79 -- 439
------- ------- ----- -------
Total current assets....................... 2,835 8,967 -- 11,802
Property and equipment, net..................... 4,985 29 -- 5,014
Investment in patents, less accumulated
amortization.................................. -- 13,994 (2,338)(a) 14,197
2,541(b)
Other assets.................................... 526 -- -- 526
------- ------- ----- -------
Total assets.......................... $ 8,346 $ 22,990 $ 203 $31,539
======= ======= ===== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses, and
other current liabilities..................... $ 1,372 $ 714 $ -- $ 2,086
Current portion of long-term debt and
bank line of credit........................... 2,030 -- -- 2,030
Due to other laser patents interest holders..... -- 1,798 -- 1,798
Current and deferred income taxes............... 128 1,425 -- 1,553
------- ------- ----- -------
Total current liabilities.................. 3,530 3,937 -- 7,467
Notes payable to bank........................... -- -- -- --
Long-term debt, less current portion............ 2,066 -- -- 2,066
Deferred income taxes........................... -- 3,728 972(b) 4,700
------- ------- ----- -------
Total liabilities..................... 5,596 7,665 972 14,233
Stockholders' equity:
Common stock.................................... 2 256 549(c) 807
Capital in excess of par value.................. 3,871 12,873 (2,338)(a) 17,622
2,196 (b)
1,569(b)
(549)(c)
Retained earnings (deficit)..................... (1,123) 2,196 (2,196)(b) (1,123)
------- ------- ----- -------
Total stockholders' equity................. 2,750 15,325 (769) 17,306
------- ------- ----- -------
Total liabilities and stockholders'
equity.............................. $ 8,346 $ 22,990 $ 203 $31,539
======= ======= ===== =======
</TABLE>
See notes to unaudited pro forma condensed balance sheet.
F-34
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Adjustment to record elimination of the intangible resulting from the merger
with AFG, when Patlex recorded the net deferred tax liability resulting from
the differences between the financial and tax reporting bases of Patlex's
assets and liabilities. DBT as the acquiror in the Patlex/DBT merger would
assign value only to intangibles which can be identified and named.
(b) Adjustments to record the elimination of Patlex's retained earnings and
effects of the acquisition:
<TABLE>
<S> <C>
Fair value of Patlex's outstanding Common Shares 2,527,049
shares at $5.25 per share (market value)...................... $13,267
Fair value of outstanding options to purchase 420,665 shares... 589
Transaction costs.............................................. 700
-------
Total purchase price...................................... 14,556
Carrying value of Patlex's net assets.................. 15,325
Less: Intangible recorded in connection with
Patlex's adoption of SFAS 109................... 2,338 12,987
------ -------
Excess of cost, over carrying value of net assets.............. $ 1,569
=======
Allocation of excess to:
Investment in Patents..................................... $ 2,541
Deferred income taxes..................................... 972
-------
$ 1,569
=======
</TABLE>
Patlex has not completed the determination of the fair values of its net
assets. However, Patlex believes the final valuation, particularly of its
Investments in Patents, will not result in material differences.
(c) Adjustment to restate DBT's historical stockholder's equity (a
recapitalization) to reflect the Patlex common shares which will be
outstanding immediately following the merger.
F-35
<PAGE> 40
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
------------------------------------------------------
DBT PATLEX PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONDENSED
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net laser patents royalties...................... $ -- $4,315 $ -- $ 4,315
Revenues......................................... 7,139 -- -- 7,139
------ ------- ----- -------
Total royalties and revenues........... 7,139 4,315 -- 11,454
------ ------- ----- -------
Costs and expenses:
Costs and expenses applicable to revenues...... 3,415 -- -- 3,415
General and administrative..................... 1,619 1,291 -- 2,910
Selling and promotion.......................... 805 -- -- 805
Research and development costs................. 984 -- -- 984
Amortization of patents........................ -- 889 10(a) 899
------ ------- ----- -------
Total costs and expenses............... 6,823 2,180 10 9,013
------ ------- ----- -------
Operating income................................. 316 2,135 (10) 2,441
------ ------- ----- -------
Other income (deductions):
Interest income................................ 18 161 -- 179
Interest expense............................... (120) (34) -- (154)
Other net...................................... -- 55 -- 55
------ ------- ----- -------
Total other income (deductions), net... (102) 182 -- 80
------ ------- ----- -------
Earnings before income taxes..................... 214 2,317 (10) 2,521
Provision for income taxes....................... (62) 1,153 4(b) (1,211)
------ ------- ----- -------
Net earnings..................................... $ 152 $1,164 $ (6) $ 1,310
====== ======= ===== =======
Earnings per share............................... $(0.09) $ 0.41 $ 0.16
====== ======= =======
Weighted average common and
common equivalent shares (in thousands)........ 1,736 2,875 8,387
====== ======= =======
</TABLE>
See notes to unaudited pro forma condensed statement of income.
F-36
<PAGE> 41
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
DBT PATLEX PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONDENSED
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net laser patents royalties...................... $ -- $ 7,018 $ -- $ 7,018
Revenues......................................... 8,076 -- -- 8,076
-------- ------- ----- --------
Total royalties and revenues........... 8,076 7,018 -- 15,094
-------- ------- ----- --------
Cost and expenses:
Costs and expenses applicable to revenues...... 3,372 -- -- 3,372
General and administrative..................... 1,908 1,652 -- 3,560
Selling and promotion.......................... 1,026 -- -- 1,026
Research and development costs................. 1,017 -- -- 1,017
Amortization of patents........................ -- 1,777 167(a) 1,944
-------- ------- ----- --------
Total costs and expenses............... 7,323 3,429 167 10,919
-------- ------- ----- --------
Operating income................................. 753 3,589 (167) 4,175
-------- ------- ----- --------
Other income (deductions):
Interest income................................ 32 244 -- 276
Interest expense............................... (108) (139) -- (247)
Other net...................................... -- 90 -- 90
Loss on IRB transaction........................ (1,660) -- -- (1,660)
-------- ------- ----- --------
Total other income (deductions), net... (1,736) 195 -- (1,541)
-------- ------- ----- --------
Earnings (loss) before income taxes.............. (983) 3,784 (167) 2,634
Provision for income taxes....................... (209) (1,790) 67(b) (1,932)
-------- ------- ----- --------
Net earnings (loss).............................. $ (1,192) $ 1,994 $ (100) $ 702
======== ======= ===== ========
Earnings (loss) per share........................ $ (0.79) $ 0.77 $ 0.09
======== ======= ========
Weighted average common and
common equivalent shares (in thousands)........ 1,515 2,576 8,039
======== ======= ========
</TABLE>
See notes to pro forma condensed statement of income.
F-37
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(a) Adjustment to record increase in amortization due to increase in Investment
in Patents resulting from the excess of the fair market value of the Patlex
Common Shares over carrying value of net assets of Patlex.
(b) Adjustment to record tax effect of effect of amortization of Investment in
Patents.
F-38
