<PAGE>
_____________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________________________________
FORM 8-KA
(AMENDMENT NO. 1)
_____________________________________________________________________________
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DECEMBER 16, 1998
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
COMMISSION FILE NUMBER [ ]
___________________________________________________________________________
EURONET SERVICES INC.
(Exact name of the registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
74-2806888
(I.R.S. employer identification no.)
14-24 HORVAT U.
1027 BUDAPEST
HUNGARY
(Address of principal executive offices)
36-1-224-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
This Current Report on Form 8-K/A amends and supersedes, to the extent set forth
herein, the Current Report on Form 8-K filed by the Registrant with the
Securities and Exchange Commission December 16, 1998.
<PAGE>
This Amendment No. 1 to the Registrant's Current Report on Form 8-K dated
December 16, 1998 (the "REPORT"), relates to the Euronet Services Inc.'s (the
"Company") completion of the acquisition of Arkansas Systems Inc., a corporation
organized and existing under the laws of the State of Arkansas ("ARKSYS"), by
means of a merger of AE Merger Corp., an Arkansas corporation and a wholly owned
subsidiary of the Company ("Merger Sub"), with and into Arksys (the "Merger")
with Arksys remaining as the surviving corporation, pursuant to the Agreement
and Plan of Merger and Reorganization, December 2, 1998 (the "MERGER
AGREEMENT"), among the Company, Merger Sub and ARKSYS. The purpose of this
Amendment is to amend Item 7(b) to provide the required Financial Statements of
the business acquired and pro forma financial information relating to the
business combination between the Company and ARKSYS which was impracticable to
provide at the time the Registrant filed this report.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits -
(a) Financial Statements of Business Acquired
The following audited financial statements of ARKSYS are contained on pages [ ]
to [ ] of this report:
Report of Independent Auditors
Consolidated Balance Sheets as of December 30, 1997 and December 31, 1996
Consolidated Statements of Income for the years ended December 31, 1997 and
1996
Consolidated Statements of changes in Shareholders' Equity at December 31,
1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1997
and 1996
Notes to Combined Financial Statements
The following unaudited financial statements of ARKSYS are contained on pages
[ ] to [ ] of this report:
Consolidated Balance Sheet as of September 30, 1998
Consolidated Statements of Operations for the nine month periods ended
September 30, 1998 and 1997
Consolidated Statements of Cash Flows for the nine month periods ended
September 30, 1998 and 1997
(b) Pro Forma Financial Information (unaudited):
The following unaudited pro forma financial information is contained on pages
[ ] to [ ] of this report:
Introduction to Unaudited Pro Forma Condensed Combined Financial Information;
Pro Forma Condensed Combined Balance Sheet as of September 30, 1998;
Pro Forma Condensed Combined Statement of Operations for the nine month
period ended September 30, 1998
Pro Forma Condensed Combined Statement of Operations for the year ended
December 30. 1997;
Notes to Unaudited Pro Forma Condensed Combined Financial Information.
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Arkansas Systems, Inc. and Subsidiaries d/b/a ARKSYS
We have audited the accompanying consolidated balance sheet of Arkansas Systems,
Inc. and Subsidiaries d/b/a ARKSYS as of December 31, 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. The consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audit. The financial statements
of ARKSYS for the year ended December 31, 1996, were audited by other auditors
whose report dated May 1, 1997, expressed an unqualified opinion on those
statements.
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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ARKSYS as of December 31, 1997, and the consolidated results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
March 30, 1998
By: /s/ Ernst & Young LLP
----------------------------
Ernst & Young LLP
<PAGE>
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997
AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,438,246 $ 579,308
Investment securities 57,660 4,700
Accounts receivable:
Trade, less allowance for doubtful accounts of $252,000 in
1997 and 1996 2,870,388 1,739,345
Other 33,622 32,215
Note receivable from affiliate 26,555 8,852
Income taxes receivable - 286,930
Costs and estimated earnings in excess of billings on software
installation contracts 640,165 346,138
Deferred income taxes 331,536 228,391
Prepaid expenses and other assets 116,281 171,436
---------------------------------------
Total current assets 6,514,453 3,397,315
Investment in affiliates 499,116 412,951
Receivable from affiliates 390,121 1,077,646
Investment securities - 51,025
Net property and equipment 879,500 2,227,096
Cash surrender value of life insurance policies 847,620 801,387
---------------------------------------
Total assets $9,130,810 $7,967,420
=======================================
LIABILITES
Current liabilities:
Accounts payable $ 388,151 $ 442,226
Income taxes payable 189,055 -
Accrued expenses 1,153,549 742,078
Advance payments on contracts 1,253,385 947,903
Billings in excess of costs and estimated earnings on software
installation contracts 316,713 239,507
---------------------------------------
Total current liabilities 3,300,853 2,371,714
Deferred compensation 476,790 404,195
Deferred income taxes - 21,050
Deferred rent 68,573 43,917
---------------------------------------
Total liabilities 3,846,216 2,840,876
Stockholders' equity:
Common stock, ($.000167 par value, authorized 6,000,000 shares;
issued and outstanding: 1997--2,654,461; 1996--2,651,691
442 442
Additional paid in capital 387,518 368,066
Unrealized gain on investments (net of tax of $1,524 in 1997 and
$959 in 1996) 2,454 1,545
Retained earnings 6,632,772 6,388,778
---------------------------------------
7,023,186 6,758,831
Less treasury stock, at cost (1997--1,090,935 shares;
1996--1,071,388 shares) (1,738,592) (1,632,287)
---------------------------------------
Total stockholders' equity 5,284,594 5,126,544
---------------------------------------
Total liabilities and stockholders' equity $ 9,130,810 $ 7,967,420
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
Arkansas Systems, Inc. and Subsidiaries
d/b/a ARKSYS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
----------------------------------
Revenue:
<S> <C> <C>
Software, maintenance and related revenue $11,143,465 $9,192,581
Gross profit on hardware sales 292,045 412,876
----------------------------------
Total revenue 11,435,510 9,605,457
Operating expense:
Salaries, wages and employee benefits 8,147,139 7,167,775
Depreciation 260,980 283,018
Other general and administrative 3,606,598 2,745,373
Expenses billed to customers (896,984) (820,998)
----------------------------------
Total operating expense 11,117,733 9,375,168
----------------------------------
Earnings from operations 317,777 230,289
Other income (expense):
Interest income 110,663 126,211
Interest expense (12) (5,520)
Gain (loss) on sale of property (157,306) 69,525
Other, net 105,970 143,394
----------------------------------
Total other income 59,315 333,610
----------------------------------
Income before equity in loss of affiliates and income 377,092 563,899
taxes
Equity in loss of affiliates (16,978) (79,646)
----------------------------------
Income before income taxes 360,114 484,253
Provision for income taxes:
Current 240,315 5,570
Deferred (124,195) 85,313
----------------------------------
116,120 90,883
----------------------------------
Net income $ 243,994 $ 393,370
==================================
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AT DECEMBER 31, 1997
AND 1996
Arkansas Systems, Inc. and Subsidiaries
d/b/a ARKSYS
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED
COMMON PAID-IN GAIN (LOSS) RETAINED TREASURY
STOCK CAPITAL ON INVESTMENTS EARNINGS STOCK TOTAL
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $442 $346,766 $(2,143) $5,995,408 $(1,520,456) $4,820,017
Net income for 1996 - - - 393,370 - 393,370
Sales of stock to employees - 21,300 - - - 21,300
Purchases of treasury
stock--(16,090 shares at $6.95
average per share) - - - - (111,831) (111,831)
Change in unrealized gain (loss)
on investments - - 3,688 - - 3,688
--------------------------------------------------------------------------------------------
Balance at December 31, 1996 442 368,066 1,545 6,388,778 (1,632,287) 5,126,544
Net income for 1997 - - - 243,994 - 243,994
Sales of stock to employees - 19,452 - - - 19,452
Purchases of treasury
stock--(19,547 shares at $5.44
average per share) - - - - (106,305) (106,305)
Change in unrealized gain (loss)
on investments - - 909 - - 909
--------------------------------------------------------------------------------------------
Balance at December 31, 1997 $442 $387,518 $ 2,454 $6,632,772 $(1,738,592) $5,284,594
============================================================================================
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
Arkansas Systems, Inc. and Subsidiaries
d/b/a ARKSYS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
-------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 243,994 $ 393,370
Adjustments to reconcile net income to cash provided
by (used in) operating activities:
Provision for bad debts - 52,000
Depreciation 260,980 283,018
(Gain) loss on sale of property 157,305 (69,525)
Undistributed loss of affiliates 16,978 79,646
Deferred income taxes (124,195) 86,272
Changes in operating assets and liabilities:
Accounts and other receivables (1,132,450) (737,798)
Receivable from affiliates 669,822 (477,062)
Income taxes receivable - 38,305
Income taxes payable 475,420 -
Costs and estimated earnings in excess of billings on
software installation contracts (294,027) (202,809)
Prepaid expenses and other assets 55,155 84,315
Cash surrender value of life insurance policies (46,233) 48,431
Accounts payable and accrued expenses 357,396 (139,574)
Advance payments on contracts 305,482 448,810
Billings in excess of costs and estimated earnings on
software installation contracts 77,206 (104,248)
Deferred compensation 72,595 (61,386)
Deferred rent 24,656 43,917
-------------------------------------
Net cash provided (used) by operating activities 1,120,084 (234,318)
INVESTING ACTIVITIES
Proceeds from sale and maturities of investment
securities - 315,539
Proceeds from sale of property and equipment 963,783 193,520
Purchases of property and equipment (50,962) (595,556)
Purchases of investment securities (461) (3,140)
Additional investment in affiliates (86,653) (265,480)
-------------------------------------
Net cash provided (used) by investing activities 825,707 (355,117)
FINANCING ACTIVITIES
Proceeds from sale of stock 19,452 21,300
Purchase of treasury stock (106,305) (111,831)
-------------------------------------
Net cash used by financing activities (86,853) (90,531)
-------------------------------------
Increase (decrease) in cash and cash equivalents 1,858,938 (679,966)
Cash and cash equivalents:
Beginning balance 579,308 1,259,274
-------------------------------------
Ending balance $ 2,438,246 $ 579,308
=====================================
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Founded in 1975 and managed by software professionals Arkansas Systems, Inc. and
Subsidiaries d/b/a ARKSYS, ("ARKSYS" or the "Company") sells payment and
financial transaction delivery systems worldwide. ARKSYS is a closely-held,
independently controlled corporation that is owned 98%, directly and indirectly,
by current employees.
ARKSYS provides payment and transaction processing solutions on the IBM AS/400
platform. Its core solution, Integrated Transaction Management ("ITM"), is a
modular, comprehensive software architecture for ARKSYS' offerings. Offerings
include:
ATM and network processing software
Electronic funds transfer software interfaces
Electronic funds transfer switch control software
Credit/debt card processing software
Corporate cash management and personal financial management access products
Headquartered in Little Rock, Arkansas, ARKSYS has satellite offices in
Budapest, Hungary, and Orlando, Florida. Arkansas-based marketing and regional
sales representatives and a global network of distributors market and sell its
offerings and services. Technical staff members, which include delivery,
development, research and support personnel, are based in Little Rock.
ARKSYS' client base includes more than 350 active clients in the United States
and approximately 70 countries worldwide. ARKSYS has approximately 140
employees.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Arkansas Systems, Inc. and its wholly owned subsidiary, Arkansas Systems, Inc.
International (a Foreign Sales Corporation). All significant intercompany
accounts and transactions have been eliminated in consolidation.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
ARKSYS considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
INVESTMENT SECURITIES
All marketable securities are classified as available-for-sale and are available
to support current operations or to take advantage of other investment
opportunities. Those securities are stated at estimated fair value based upon
market quotes. Unrealized gains and losses, net of tax, are computed on the
basis of specific identification and are included in Retained Earnings. Realized
gains, realized losses, and declines in value, judged to be other-than-
temporary, are included in Other Income. The cost of securities sold is based on
the specific identification method and interest earned is included in Other
Income.
INVESTMENT IN COMMON STOCK OF LIMITED LIABILITY COMPANIES
ARKSYS is accounting for its investments in Arkansas Systems Building Company,
LLC, a 48.389% owned affiliate, Arkansas Systems Land Company, LLC, a 50% owned
affiliated, Chenal Technology Center, LLC, a 17% owned affiliate, and EFT
Network Services, LLC, a 33 1/3% owned affiliate, by the equity method of
accounting. Under this method, ARKSYS's share of the net income or loss of each
affiliate is recognized in ARKSYS's income statement and reflected in ARKSYS's
investment account, and dividends received from an affiliate are treated as a
reduction of the investment account.
RECOGNITION OF REVENUES
ARKSYS offers banking and financial software products under licensing agreements
with monthly and annual maintenance support. Revenues from licensing agreement
contracts are recognized on a percentage of completion basis whereby a pro rata
portion of revenue and related costs are recognized as the work progresses.
Maintenance agreement revenues are recognized over the terms of the maintenance
contracts on a monthly basis. Licensing and maintenance contract revenues
received before they are earned are included in the balance sheets as "Advance
payments on contracts".
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATION OF CREDIT RISK
ARKSYS maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. ARKSYS has not experienced any losses in such accounts
and does not believe it is exposed to any significant credit risk on cash and
cash equivalents.
Also, ARKSYS's investment portfolio is comprised primarily of U.S. Government
obligations which are backed by the full faith and credit of the United States
Government.
The concentration of credit risk in the Company's receivables with respect to
the financial services industry is mitigated by the Company's credit evaluation
policy, reasonably short collection terms and geographical dispersion of sales
transactions. The Company generally does not require collateral or other
security to support accounts receivables.
In 1997 and 1996, sales to foreign customers represented approximately 62% and
38% of total sales, respectively. No individual customer accounted for more than
10% of total sales in either year.
At December 31, 1997, 74% of the Company's total accounts receivable resulted
from foreign sales. Customers in Hungary accounted for approximately 13% of the
Company's total accounts receivable at December 31, 1997.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight line method. The building and
building additions have been assigned depreciable lives of 10 to 30 years. The
depreciable lives of automobiles, office furniture and data processing equipment
are 3 to 8 years.
IMPAIRMENT OF ASSETS
The Company accounts for any impairment of its long-lived assets using SFAS No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-lived Assets
to be Disposed Of". Under SFAS No. 121, impairment losses are recognized when
information indicates the carrying amount of long-lived assets, identifiable
intangibles and any goodwill related to those assets will not be recovered
through future operations or sale.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures, consisting primarily of employee salaries
and computer-related expenses, incurred for the development of new software
systems, are expensed as incurred and amounted to approximately $1,700,000 and
$1,600,000 in 1997 and 1996, respectively.
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 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.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs included
in other general and administrative expenses totaled $66,390 and $33,318 in 1997
and 1996, respectively.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and accordingly, recognized no compensation expense for the stock
option grants.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No. 130
"Reporting Comprehensive Income", ("FAS 130"), and Statement No. 131 "Disclosure
about Segments of an Enterprise and Related Information" ("FAS 131"). The
Company is required to adopt these statements in 1998. FAS 130 establishes new
standards for reporting and displaying comprehensive income and its components.
FAS 131 requires disclosure of certain information regarding operating segments,
products and services, geographic areas of operation and major customers.
Adoption of these Statements is expected to have no impact on the Company's
consolidated financial position, results of operations or cash flows.
RECLASSIFICATIONS
Certain December 31, 1996 amounts have been reclassified to conform to the
December 31, 1997 presentation.
2. INVESTMENT SECURITIES
The cost and fair value of investments in debt and equity securities consist of
the following as of December 31:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity securities $ 3,791 $ 2,844 $ - $ 6,635
Obligations of local governments 49,891 1,134 - 51,025
--------------------------------------------------------------------
$ 53,682 $ 3,978 $ - $ 57,660
====================================================================
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity securities $ 3,330 $ 1,624 $ 254 $ 4,700
Obligations of local governments 49,891 1,134 - 51,025
--------------------------------------------------------------------
$ 53,221 $ 2,758 $ 254 $ 55,725
====================================================================
</TABLE>
<PAGE>
2. INVESTMENT SECURITIES (CONTINUED)
Debt securities at December 31, 1997 have a contractual maturity due date in
1998.
The fair market value of these financial instruments is based upon quoted market
prices for these or similar investments.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
----------------------------------
<S> <C> <C>
Land $ 107,088 $ 346,502
Building and improvements 6,747 1,600,955
Data processing equipment 2,088,947 2,047,767
Office equipment and automobiles 591,935 651,545
----------------------------------
2,794,717 4,646,769
Less accumulated depreciation (1,915,217) (2,419,673)
----------------------------------
Net property and equipment $ 879,500 $ 2,227,096
==================================
</TABLE>
4. CONTRACTS IN PROCESS
The software installation contracts in process consist of the following as of
December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------
<S> <C> <C>
Costs and estimated earnings on software installation
contracts $ 3,911,139 $ 1,874,680
Less billings to date (3,587,687) (1,768,049)
-------------------------------------
$ 323,452 $ 106,631
=====================================
</TABLE>
Components are included in the accompanying balance sheets under the following
captions:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
software installation contracts $ 640,165 $ 346,138
Billings in excess of costs and estimated earnings on
software installation contracts (316,713) (239,507)
-------------------------------------
$ 323,452 $ 106,631
=====================================
</TABLE>
<PAGE>
5. INVESTMENT IN LIMITED LIABILITY COMPANIES (UNAUDITED)
Condensed financial information for Arkansas Systems Building Company, LLC;
Arkansas Systems Land Company, LLC; EFT Network Services, LLC; and Chenal
Technology Center, LLC consist of the following as of and for the year ended
December 31:
<TABLE>
<CAPTION>
1997
BUILDING COMPANY LAND COMPANY NETWORK SERVICES TECHNOLOGY CENTER
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash $ 381,480 $ 267 $ 54,597 $ 17,352
Property and equipment (net) 11,467,503 - 201,297 168,460
Other - 421,453 112,213 2,427,481
------------------------------------------------------------------------------
Total assets $ 11,848,983 $ 421,720 $ 368,107 $ 2,613,293
==============================================================================
Liabilities and equity
Payable to ARKSYS $ 389,121 $ 1,000 $ 26,555 $ -
Other payables - - 42,733 30,939
Debt 10,602,196 421,453 - 2,077,886
Capital 623,398 80,525 676,628 804,662
Retained earnings (deficit) 234,268 (81,258) (377,809) (300,194)
------------------------------------------------------------------------------
Total liabilities and equity $ 11,848,983 $ 421,720 $ 368,107 $ 2,613,293
==============================================================================
Revenue $ 1,999,697 $ - $ 372,453 $ 303,100
Cost of sales - - 39,115 180,931
Operating expenses 1,823,436 41,719 567,892 216,723
------------------------------------------------------------------------------
Net income (loss) $ 176,261 $ (41,719) $ (234,554) $ (94,554)
==============================================================================
Percent owned by ARKSYS 48.389% 50% 33.33% 17%
==============================================================================
</TABLE>
<PAGE>
5. Investment in Limited Liability Companies (Unaudited) (continued)
<TABLE>
<CAPTION>
1996
BUILDING COMPANY LAND COMPANY NETWORK SERVICES TECHNOLOGY CENTER
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash $ 324,700 $ 383 $ 15,714 $ 7,597
Property and equipment (net) 10,696,012 421,453 336,846 2,508,737
Other 46,792 - 176,435 1,000
------------------------------------------------------------------------------
Total assets $ 11,067,504 $ 421,836 $ 528,995 $ 2,517,334
==============================================================================
LIABILITIES AND EQUITY
Payable to ARKSYS $ 1,065,921 $ 1,000 $ 8,851 $ 1,874
Other payables 35,378 5,268 67,770 28,729
Debt 9,543,270 421,453 - 2,218,547
Capital 364,928 33,654 595,629 473,824
Retained earnings (deficit) 58,007 (39,539) (143,255) (205,640)
------------------------------------------------------------------------------
Total liabilities and equity $ 11,067,504 $ 421,836 $ 528,995 $ 2,517,334
==============================================================================
Revenue $ 357,139 $ - $ 109,223 $ 11,003
Cost of sales - - (43,753) -
Operating expenses (299,132) (39,539) (208,726) (216,643)
------------------------------------------------------------------------------
Net income (loss) $ 58,007 $ (39,539) $ (143,255) $ (205,640)
==============================================================================
Percent owned by ARKSYS 50% 50% 33.33% 20%
==============================================================================
</TABLE>
None of the debt incurred by the above entities is with recourse to the owners.
6. EMPLOYEE BENEFIT PLANS
ARKSYS has established a Profit Sharing and 401(k) plan for all employees who
have completed one year of service. Each plan participant can contribute up to
the maximum amount allowed by the Internal Revenue Service to the Plan through
payroll deductions. ARKSYS's matching contribution to the plan is discretionary
and is determined each year by the Board of Directors. The employees' vested
percentage regarding the employer's contribution varies according to years of
service. ARKSYS's expense for contributions to the plan for 1997 and 1996 was
$287,624 and $230,009, respectively.
<PAGE>
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
ARKSYS maintains a self-funded health insurance program which covers all full-
time employees and their families at no charge to the employees. In order to
administer this program, ARKSYS has entered into a contractual agreement with a
third party administrator by which ARKSYS pays a monthly service fee to the
administrator based upon employee enrollment. ARKSYS has also purchased
stop/loss insurance to limit ARKSYS's liability to $25,000 per employee per year
and a total loss on all claims to approximately $21,400 per month. Health care
claims are accrued as the services are rendered and, accordingly, the cost of
claims incurred but not yet paid of approximately $63,000 and $40,000 at
December 31, 1997 and 1996, respectively is included in accounts payable in the
accompanying balance sheets.
Until October 1, 1996, ARKSYS also had a nonqualified, unfunded deferred
compensation plan for certain key executives providing for payments upon
retirement or death. The retirement benefit to be provided was based upon the
length of service rendered and a fixed amount determined at the date of initial
participation. The deferred compensation expense for 1996 was $73,395. The
liability had a present value, at an assumed discount rate of 9%, of $404,195 at
the date of termination ARKSYS had insured the lives of the participants in the
deferred compensation plan to assist in the funding of the deferred compensation
liability. On October 1, 1996, ARKSYS terminated the deferred compensation plan.
As of December 31, 1996, five of the seven participants in the deferred
compensation plan had received life insurance policies in their names, in full
settlement of the related liability, which resulted in a loss of approximately
$55,000.
In 1997, the obligation related to the remaining two participants was converted
into a new retirement agreement under which payments are to be made monthly
beginning in 2012, for a maximum of 15 years, to either the employee or their
beneficiary. The deferred compensation expense under this new agreement was
$72,595 for 1997. The liability had a present value, at an assumed discount rate
of 9%, of $476,790 at December 31, 1997. ARKSYS has insured the lives of the
participants covered by the new retirement agreement to assist in funding of the
deferred compensation liability by acquiring insurance contracts with a combined
cash surrender value of $504,400 at December 31, 1997. The assets and
liabilities are reported gross in the accompanying balance sheets because the
insurance contracts have not been irrevocably assigned to the employees or any
plan or trust and accordingly, the insurance contracts are subject to the claims
of creditors.
<PAGE>
7. STOCK OPTION PLAN
In 1996, ARKSYS established a stock-based compensation plan under which stock
options may be granted to officers and other key employees. The plan provides
for option prices based on the fair value of the stock on the date the option is
granted, as established by the Board of Directors based upon a formula which
takes into consideration the Company's book value, gross sales and retained
earnings. Options granted under this plan become exercisable in five equal
installments commencing one year from the date of the grant.
Shares issued pursuant to options granted under this plan shall not exceed
1,000,000.
Transactions relating to the stock-based compensation plan are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
----------------------------------
<S> <C> <C>
Options outstanding at January 1, 1996 - $ -
Granted 60,250 6.46
Exercised - -
----------------------------------
Options outstanding at December 31, 1996 60,250 6.46
Granted 215,251 6.91
Exercised (200) 6.46
Terminated (9,000) 6.57
----------------------------------
Options outstanding at December 31, 1997 266,301 $ 6.82
==================================
</TABLE>
As of December 31, 1997, options for 27,534 shares were exercisable and 733,499
shares were available for stock option grants under the 1996 plan.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"). Accordingly, no compensation cost has been recognized for the stock
option plans. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 1997 and 1996
consistent with the provisions of SFAS 123, the Company's pro forma net income
would have been $197,131 and $384,460, respectively.
<PAGE>
7. STOCK OPTION PLAN (CONTINUED)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted-average assumptions
were used for grants in 1997: dividend yield of 0%; expected volatility of 0%;
risk-free interest rate of 6.73% and expected life of 5 years. The following
weighted-average assumptions were used for grants in 1996: dividend yield of 0%;
expected volatility of 0%, risk-free interest rate of 6.55% and expected life of
5 years.
8. EMPLOYEE STOCK PLANS
The Company also has an employee stock purchase plan for purposes of providing
employees with ownership opportunities. The Plan is a non-compensatory plan
available to all employees who have completed three full quarters of employment.
After meeting the length of employment requirement, an employee accrues rights
at the rate of twenty shares per full quarter of employment if employed prior to
March 1, 1991. Employees who were employed subsequent to February 28, 1991
accrue ten purchase rights per quarter. Employees who were employed prior to
December 31, 1980 accrue four hundred rights per full quarter of employment.
Rights granted on or after March 1, 1991 expire if not exercised within three
years. Shares of stock purchased with these rights fully vest to the employee
immediately upon purchase. All purchases and sales of stock are at values
established by the Board of Directors based upon a formula which takes into
consideration the Company's book value, gross sales, and retained earnings. The
Company retains a right of first refusal on all proposed sales of Company stock.
The Board of Directors may also grant purchase rights to employees on a
discretionary basis. Shares of stock purchased with these granted rights vest to
the employee over a five year period.
There were rights to purchase 30,213 and 28,653 shares of stock outstanding at
December 31, 1997 and 1996, respectively. Rights were exercised to purchase
2,570 shares in 1997 and 3,201 shares in 1996. During 1996, the Company
purchased 113,441 rights from employees for $1 per right with the purchase price
recorded in operations.
9. LINE OF CREDIT
At December 31, 1997, ARKSYS had a $1,500,000 unused line of credit with a bank
to be drawn upon as needed, with interest at the lower of 10.0% or the New York
Premium rate. The line expires on July 5, 1998.
<PAGE>
10. FEDERAL AND STATE INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as
of December 31, are as follows:
<TABLE>
<CAPTION>
1997
CURRENT NONCURRENT TOTAL
------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Property and equipment $ $(92,534) $ (92,534)
Deferred revenue (123,850) - (123,850)
Other - (940) (940)
Prepaid expenses (4,323) - (4,323)
------------------------------------------------------
Total deferred tax liabilities (128,173) (93,474) (221,647)
Deferred tax assets:
Bad debt reserve 96,491 - 96,491
Deferred rent - 26,257 26,257
Deferred compensation - 182,563 182,563
Accrued medical claims 14,641 - 14,641
Accrued bonuses 111,274 - 111,274
Accrued vacation 118,756 - 118,756
Other 2,262 939 3,201
------------------------------------------------------
Total deferred tax assets 343,424 209,759 553,183
------------------------------------------------------
Net deferred tax (liabilities)/assets $ 215,251 $116,285 $ 331,536
======================================================
</TABLE>
<TABLE>
<CAPTION>
1996
CURRENT NONCURRENT TOTAL
------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Property and equipment $ - $(200,285) $(200,285)
Deferred revenue (132,535) - (132,535)
Other (961) - (961)
------------------------------------------------------
Total deferred tax liabilities (133,496) (200,285) (333,781)
Deferred tax assets:
Bad debt reserve 96,491 - 96,491
Deferred rent - 16,816 16,816
Deferred compensation - 154,766 154,766
Accrued medical claims 14,703 - 14,703
Accrued bonuses - - -
Accrued vacation 144,162 - 144,162
Billings in excess of earnings 91,707 - 91,707
Other 14,824 7,653 22,477
------------------------------------------------------
Total deferred tax assets 361,887 179,235 541,122
------------------------------------------------------
Net deferred tax (liabilities)/assets $ 228,391 $ (21,050) $ 207,341
======================================================
</TABLE>
<PAGE>
10. FEDERAL AND STATE INCOME TAXES (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective rate is presented below.
<TABLE>
<CAPTION>
1997 1996
-----------------------------------
<S> <C> <C>
Income tax at the statutory rate of 34% $122,439 $ 164,646
Federal income tax effects of:
State income taxes (3,637) (5,988)
Nondeductible portion of meals and entertainment 10,915 53,291
Cash surrender value of life insurance (15,719) -
Benefit of nontaxable income from Arkansas Systems, Inc.
International (37,563) (104,752)
Other 28,989 (33,926)
-----------------------------------
Federal income taxes 105,424 73,271
State income taxes 10,696 17,612
-----------------------------------
Provision for income taxes $116,120 $ 90,883
===================================
</TABLE>
Income taxes paid for the years ended December 31, 1997 and 1996 was $6,500 and
$252,500, respectively.
11. RELATED PARTY
During 1996, ARKSYS entered into an agreement with Arkansas Systems Building
Company, LLC, an affiliate, to lease office space. The lease is classified as an
operating lease and provides for specified annual percentage increases. Minimum
future rental payments under this noncancelable operating lease as of December
31, 1997, for each of the next 5 years and in the aggregate are:
<TABLE>
<S> <C>
1998 $ 1,040,625
1999 1,071,844
2000 1,103,999
2001 1,137,119
2002 1,171,233
Thereafter 5,608,532
-----------
Total minimum future rental payments $11,133,352
===========
</TABLE>
ARKSYS incurred $1,071,242 and $366,464 of lease expense in 1997 and 1996,
respectively.
<PAGE>
ESI PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
12. COMMITMENTS
The Company has an agreement with a former shareholder to repurchase shares of
the Company's common stock over a period extending through 2006. Under the terms
of the agreement the Company will pay the former shareholder $60,360 in 1998;
$60,321 in 1999; $60,273 in 2000; $60,306 in 2001; $60,255 in 2002 and $233,208
thereafter.
13. SUBSEQUENT EVENT
In February 1998, the Company entered into a Retirement and General Release
Agreement with its former president. A lump sum payment of $400,000 was made to
the former president in February under the terms of the agreement. In addition,
the agreement obligates the Company to repurchase shares of its common stock
from the former president with an aggregate value up to $1,000,000. The Company
may repurchase as many shares in any given year as the former president is
willing to sell, however, the Company's obligation to repurchase is limited to
an amount equal to 38% of the net after-tax profits of the Company for the
immediately preceding year.
14. YEAR 2000 CONSIDERATION--UNAUDITED
ARKSYS has developed a plan to modify its information technology to be ready for
the year 2000 and has begun converting critical data processing systems. ARKSYS
currently expects the project to be substantially complete by early 1999. ARKSYS
does not expect this project to have a significant effect on operations.
<PAGE>
ARKSYS CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C> <C>
Current assets
Cash and Cash equivalents $ 1,689
Investment securities 7
Accounts receivable, net 3,553
Note receivable from affiliate 27
Costs and estimated earnings in excess of billings on
software installation contracts 475
Income taxes receivable 139
Deferred income taxes 384
Prepaid expenses and other assets 125
--------
Total current assets 6,399
Investment in affiliates 353
Net property and equipment 825
Cash surrender value of life insurance policies 928
--------
TOTAL ASSETS $ 8,505
========
LIABILITIES
Current liabilities
Accounts payable $ 364
Accrued expenses 1,029
Advance payments on contracts 1,384
Billings in excess of costs and estimated earnings on
software installation contracts 293
--------
Total Current Liabilities 3,070
Deferred compensation 500
Deferred rent 175
--------
Total Liabilities 3,745
---
--------
STOCKHOLDERS' EQUITY
Common stock 1
Additional paid in capital 393
Retained earnings 6,192
Treasury stock (1,826)
--------
Total Stockholders equity 4,760
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,505
========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months ended
September 30, September 30,
1998 1997
---- ----
REVENUE
<S> <C> <C>
Software, maintenance and related revenue $ 8,618 $ 8,357
Other 331 53
---------------------------
Total Revenue 8,949 8,410
OPERATING EXPENSE
Salaries, wages and employee benefits 7,018 6,109
Depreciation 201 164
Other general and administrative 2,410 2,047
---------------------------
Total Operating Expenses 9,629 8,320
Earnings (loss) from Operations (680) 90
OTHER INCOME (EXPENSE)
Interest income 65 79
---------------------------
Income (loss) before equity loss of affiliates and
income taxes (615) 169
Equity in loss of affiliates (27) (13)
---------------------------
(Loss) income before income taxes (benefit) expense: (642) 156
---------------------------
Income tax (benefit) expense (199) 9
---------------------------
NET (LOSS) INCOME $ (443) $ 147
===========================
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (-443) $ 147
Adjustments to reconcile net (loss) income to cash
provided by (used in) operating activities:
Depreciation 201 164
Undistributed loss of affiliates 27 13
Loss from sale of property -- 157
Deferred income taxes (-52) (-93)
Changes in operating assets and liabilities:
Accounts and other receivables (-649) (-1,246)
Receivable from affiliates 389 689
Income taxes receivable (-139) 19
Income taxes payable (-189) 60
Costs and estimated earnings in excess of billings on
software installation contracts 165 (-118)
Note receivable from affiliate -- (-18)
Deferred income taxes -- 229
Prepaid expenses and other assets (-10) 42
Investment securities 51
Cash surrender value of life insurance policies (-81) (-39)
Accounts payable and accrued expenses (-149) 20
Advance payments on contracts 131 316
Billings in excess of costs and estimated earnings on
software installation contracts (-23) (-3)
Deferred compensation 23 (-47)
Deferred rent 107 (-14)
---------------------------------
Net cash (used) provided by operating activites (692) 329
---------------------------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment -- 829
Proceeds from maturity of investments 50 16
Purchases of property and equipment (-146) (-45)
Increase in investment in affiliates 120 51
---------------------------------
Net cash provided by investing activities 24 851
---------------------------------
FINANCING ACTIVITIES
Proceeds from sale of stock 6 6
Purchases of treasury stock (-87) (-50)
---------------------------------
Net cash used by financing activities (-81) (-44)
---------------------------------
(Decrease) increase in cash and cash equivalents (749) 1,136
Cash and cash equivalents:
Beginning balance 2,438 579
---------------------------------
Ending balance $ 1,689 $ 1,715
=================================
</TABLE>
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
The unaudited pro forma condensed combined financial information as of and
for the nine months ended September 30, 1998 and for the year ended December 31,
1997 are set forth on the following pages. The unaudited pro forma financial
information has been prepared utilizing the historical financial statements of
Euronet Services Inc ("ESI") and Arkansas Systems Inc. ("ARKSYS"). Accordingly,
the pro forma financial information gives pro forma effect to the acquisition of
ARKSYS as if it had occurred as of January 1, 1997 for purposes of the
statements of operations and the balance sheet.
The acquisition has been accounted for under the purchase method of accounting
and the pro forma financial information has been prepared on such basis of
accounting utilizing estimates and assumptions as set forth below and in the
notes thereto.
The pro forma financial information is presented for informational purposes and
is not necessarily indicative of the future financial position or results of
operations of the combined companies, or of the financial position or the
results of operations of the combined companies, that would have actually
occurred had the acquisitions been consummated on such date or as of the periods
described above.
The preliminary purchase price allocations reflected in the pro forma financial
information have been based on preliminary estimates of the respective fair
value of assets and liabilities which may differ from the actual allocations,
and are subject to revision based on further studies and valuations. Certain
valuations of significant tangibles and intangible assets are being carried out
by independent valuation experts. Management has determined a preliminary
allocation of the purchase price to goodwill, in-progress research and
development, developed technology and other intangibles such as trademarks,
assembled work force and the current installation base. Once the independent
valuation is complete management believes that a portion of the intangibles may
be reallocated. Certain amounts in the historical financial statements of
ARKSYS have been reclassified to conform to the financial presentation of ESI.
<PAGE>
ESI PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Euronet Arkansas ESI/ Pro Forma
Services Inc. Systems Inc. ARKSYS Combined
September 30, September 30, Pro Forma September 30,
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $60,791 $1,689 $(18,255) $44,225
Restricted cash...................................... 12,865 - 12,865
Trade accounts receivable, net....................... 1,299 3,482 (228) 4,553
Costs and estimated earnings in excess of billings on - 475 475
software installation contracts
Investment securities................................ 29,230 7 29,237
Prepaid expenses and other current assets............ 3,471 362 3,833
-------------------------------------------------------------
Total current assets.................................. 107,656 6,015 (18,483) 95,188
Property, plant and equipment, net.................... 29,902 825 (601) 30,126
Deferred financing costs 3,228 - 3,228
</TABLE>
<TABLE>
<CAPTION>
Euronet Arkansas ESI/ Pro Forma
Services Inc. Systems Inc. ARKSYS Combined
September 30, September 30, Pro Forma September 30,
1998 1998 Adjustments 1998
<S> <C> <C> <C> <C>
Purchased research and development - - 1,500 -
(1,500)
Other intangibles, net 11,967 11,967
Investments in affiliates - 353 (153) 200
Cash surrender value of life insurance policies - 928 (500) 428
Deposits for ATM leases............................... 2,020 - 2,020
Deferred income taxes................................. 571 384 607 1,562
--------------------------------------------------------------
Total assets......................................... $ 143,377 $ 8,505 $ (7,163) $ 144,719
==============================================================
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable................................ $ 5,056 $ 364 $ (228) $ 5,192
Advance payments on contracts - 1,384 1,384
Billings in excess of costs and estimated earnings on
software installation contracts - 293 293
Current installments of capital leases obligations.... 4,035 - 4,035
Accrued expenses and other............................ 1,252 1,029 2,281
-------------------------------------------------------------
Total current liabilities............................ 10,343 3,070 (228) 13,185
Obligations under capital leases, excluding
current installments................................. 8,041 8,041
Notes Payable .......................................... 90,807 90,807
Other long-term liabilities........................... - 675 (675) -
-------------------------------------------------------------
Total liabilities................................... 109,191 3,745 (903) 112,033
Stockholders' equity:
Common stock, $0.02 par value; 30,000,000 shares
authorized; issued and outstanding 15,213,453
shares in 1998 and 15,133,321 shares in 1997............ 306 1 (1) 306
Warrants ............................................. 1,725 - 1,725
Treasury stock........................................ (4) (1,826) 1,826 (4)
Additional paid in capital............................ 63,468 393 (393) 63,468
Subscription receivable............................... (51) - (51)
Accumulated losses (retained earnings)................ (32,138) 6,192 (7,692) (33,638)
Restricted reserve 784 - 784
Cumulative transalation adjustment 96 - 96
-------------------------------------------------------------
Total stockholders' equity 34,186 4,760 (6,260) (32,686)
-------------------------------------------------------------
Total liabilities and stockholders' equity $ 143,377 $ 8,505 $ (7,163) $ (149,719)
=============================================================
</TABLE>
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Euronet Arkansas Pro Forma
Services Inc. Systems Inc. Combined
Nine Months Nine Months ESI/ Nine Months
Ended Ended ARKSYS Ended
September 30, September 30, Pro Forma September 30,
1998 1998 Adjustments 1998
Revenue:
<S> <C> <C> <C> <C>
Transaction revenue $7,214 $ - $ - $7,214
Software, maintennce and
related revenue - 8618 (-301) 8,317
Other 537 331 - 868
----------------------------------------------------------
Total revenue 7,751 8,949 (301) 16,399
Operating expenses:
ATM Operating costs 9,226 - - 9,226
Salaries and benefits 5,973 7018 - 12,991
Rent and utilities 1,023 988 - 2,011
Professional fees 1,414 168 - 1,582
Travel & meals 974 429 1,403
Amortization of intangibles - - 1,254 1,254
Depreciation 906 201 (16) 1,091
Other income/expense 2,092 825 - 2,917
----------------------------------------------------------
Total SG&A 21,608 9,629 1,238 32,475
Financial Costs:
Interest expense 4,606 - - 4,606
Equity in loss of affiliates - 27 - 27
Foreign exchange loss 409 - - 409
Interest income (1,704) (-65) (1,769)
----------------------------------------------------------
Total financial costs 3,311 (38) - 3,273
Deferred tax benefit - (-199) - (199)
----------------------------------------------------------
Net (Loss) $(17,168) $ (443) $(1,539) $(19,150)
==========================================================
Loss per common outstanding...................................................................... $ (1.26)
Weighted average shares outstanding.............................................................. 15,168
</TABLE>
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Euronet Arkansas Pro Forma
Services Inc. Systems Inc. ESI/ Combined
Year ended Year ended ARKSYS Year ended
December 30, December 30, Pro Forma December 30,
1997 1997 Adjustments 1997
REVENUE:
<S> <C> <C> <C> <C>
Transaction revenue
Software, maintenance and - 11,143 (358) 10,785
related revenue $4,627 $ - $ - $4,627
Other 663 241 904
--------------------------------------------------------------
Total revenue 5,290 11,384 (358) 16,316
OPERATING EXPENSES:
ATM Operating costs 5,180 - - 5,180
Salaries and benefits 3,796 8,147 - 11,943
Rent and utilities 783 1,039 - 1,822
Professional fees 1,166 177 - 1,343
Travel and meals 701 568 - 1,269
Amortization of intangibles - - 1,672 1,672
Depreciation 268 261 (17) 512
Other income/expense 1,926 925 - 2,851
--------------------------------------------------------------
Total SG&A 13,820 11,117 1,655 26,592
Financial Costs:
Interest expense 1,152 - - 1,152
Equity in loss of affiliates - 17 - 17
Foreign exchange gain (8) - - (8)
Interest income (1,609) (111) - (1,720)
--------------------------------------------------------------
Total financial income (465) (94) - (559)
Deferred tax (benefit)/expense (100) 116 - 16
--------------------------------------------------------------
Net Income (Loss) $(7,965) $ 245 $(2,013) $(9,733)
--------------------------------------------------------------
Loss per common outstanding........................................................................... $ (0.79)
Weighted average shares outstanding................................................................... 12,381
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Balance Sheet
1) Cash and cash equivalents. Adjusted to reflect the cash paid to acquire
ARKSYS.
2) Trade accounts receivable. Elimination of inter-company balances as at
balance sheet date.
3) Property, plant and equipment. Elimination of ARKSYS software capitalized
by ESI and assets (land) not acquired in Merger.
4) Purchased research and development. Records the initial allocation of
identified acquired in-progress research and development of $1,500,000 and
the one time write-off of that amount. This amount has been charged
through the opening retained earnings.
5) Other intangibles. To record the allocation of the purchase price to
identified intangibles including developed technology (approximately
$5,000,000), goodwill (approximately $4,000,000), trademarks, install base
and assembled workforce.
6) Investments in affiliates. Records the elimination of certain affiliates
not acquired in the Merger and the write-up to gain market value of the one
affiliate retained.
7) Cash surrender value of life insurance policies. Records the elimination of
deferred compensation related to the portion not acquired in the Merger.
8) Trade accounts payable. Elimination of inter-company balances as at balance
sheet date.
9) Other long term liabilities. Records the elimination of deferred
compensation related to the portion not acquired in the Merger and the
elimination of deferred rent to adjust to fair market value.
10) Total stockholder's equity. To eliminate ARKSYS' equity.
Statement of operations
1) Software, maintenance and related revenue. To eliminate inter-company
transactions for the periods.
2) Amortization of intangibles. To record the amortization of acquired
identifiable intangibles over periods of four to ten years.
3) Depreciation. To eliminate depreciation charges in the period related to
inter-company assets.
