<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) DECEMBER 17, 1999
-----------------
QUEST SOFTWARE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
CALIFORNIA 333-80543 33-0231678
- ---------------------------- ------------ --------------------
(State or other jurisdiction (Commission (IRS Employer
or incorporation) File Number) (Identification No.)
8001 IRVINE CENTER DRIVE, IRVINE, CALIFORNIA 92618
- -------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 754-8000
--------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
AMENDMENT
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K,
originally filed with the Securities Exchange Commission on December 29, 1999,
as set forth in the pages attached hereto:
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS:
The following financial statements and pro forma financial information
are filed as a part of this report.
<TABLE>
<CAPTION>
Page
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<S> <C>
(a) Financial Statements of Business Acquired. MBR Technologies, Inc.
Report of Independent Accountants (Swenson Advisors, LLP)
(Exhibit 99.1) 1
Statement of Operations for the period April 23, 1998 (inception)
to March 31, 1999 (Exhibit 99.1) 3
Statements of Stockholders' Equity (Deficiency) for the period
April 23, 1998 (inception) to March 31, 1999 (Exhibit 99.1) 4
Statements of Cash Flows for the period April 23, 1998 (inception)
to March 31, 1999 (Exhibit 99.1) 5
Notes to Financial Statements (Exhibit 99.1) 6
(b) Pro Forma Financial Information. Quest Software, Inc. and MBR
Technologies, Inc. (on a consolidated basis) 9
Notes to the Unaudited Pro Forma Condensed Financial Statements
(Exhibit 99.2) 9
Unaudited Pro Forma Condensed Statement of Operations for the Year
Ended December 31, 1999 (Exhibit 99.2) 10
Unaudited Pro Forma Condensed Statement of Operations for the Year
Ended December 31, 1998 (Exhibit 99.2) 11
</TABLE>
2
<PAGE> 3
(c) Exhibits.
* Agreement and Plan of Merger dated as of November 2, 1999 by and
among Quest Software, Inc., Quest Merger Corporation, MBR
Technologies, Inc., John Rocha, Joseph F. Brusatto, Michael Q.
Mai and Vicente Perez de Tudela, as amended by that certain First
Amendment to Agreement and Plan of Merger dated as of December 6,
1999 (Exhibit 2.1)
Consent of Swenson Advisors, LLP (Exhibit 23.1).
* Incorporated by reference to the same Exhibit number of the
Company's Current Report on Form 8-K dated December 17, 1999.
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 thereunto duly authorized.
Quest Software, Inc.
Date: February 17, 2000 By: /s/ JOHN J. LASKEY
----------------------------
John J. Laskey
Chief Financial Officer
4
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1* Agreement and Plan of Merger dated as of November 2,
1999 by and among Quest Software, Inc., Quest Merger
Corporation, MBR Technologies, Inc., John Rocha, Joseph
F. Brusatto, Michael Q. Mai and Vicente Perez de Tudela,
as amended by that certain First Amendment to Agreement
and Plan of Merger dated as of December 6, 1999
23.1 Consent of Independent Accountants
99.1 Financial Statements of Business Acquired
99.2 Pro Forma Financial Information
- ----------------
* Incorporated by reference to the same Exhibit number of the Company's Current
Report on Form 8-K dated December 17, 1999.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the application of our report dated September 29, 1999,
included in this Form 8-K/A of MBR Technologies, Inc., relating to the financial
statements for the year ended March 31, 1999.
SWENSON ADVISORS, LLP
Temecula, California
February, 18, 2000
<PAGE> 1
EXHIBIT 99.1
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors of
MBR Technologies, Inc.
We have audited the accompanying balance sheet of MBR Technologies, Inc., a
California Corporation, as of March 31, 1999, the related statements of
operations, shareholders' equity and cash flows from inception (April 23, 1998)
through March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based upon 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 MBR Technologies Inc. as of
March 31, 1999, and the results of its operations and cash flows from inception
(April 23, 1998) through March 31, 1999, in conformity with generally accepted
accounting principles.
/s/ SWENSON ADVISORS, LLP
- ----------------------------
SWENSON ADVISORS, LLP
Temecula, California
September 29, 1999
1
<PAGE> 2
MBR TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 63,055
Accounts receivable....................................... 94,918
Deposits and prepaid assets............................... 21,831
----------
Total current assets................................. 179,804
----------
Property, equipment and software:
Software.................................................. 262,722
Furniture and fixtures.................................... 55,722
Computers and equipment................................... 114,868
Leasehold improvements.................................... 9,772
----------
443,084
Less: accumulated depreciation.............................. (17,118)
----------
Net property and equipment................................ 425,966
----------
Other assets:
Other assets.............................................. 4,044
----------
Total assets......................................... $ 609,814
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 45,553
Other current liabilities................................. 13,001
Current portion of notes payable to related parties....... 299,136
Current portion of capital lease obligations.............. 30,342
Deferred revenue.......................................... 22,912
----------
Total current liabilities............................ 410,944
----------
Long term liabilities:
Capital lease obligations, net of current portion......... 52,443
----------
Total liabilities.................................... 463,387
----------
Shareholders' equity:
Common stock, no par value; authorized 10,000,000 shares;
Issued and outstanding 1,020,000 shares................ 1,020,000
Accumulated deficit....................................... (873,573)
----------
Total shareholders' equity........................... 146,427
----------
Total liabilities and shareholders' equity........... $ 609,814
==========
</TABLE>
See Accompanying Notes to Financial Statements.
2
<PAGE> 3
MBR TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM INCEPTION
(APRIL 23, 1998)
THROUGH
MARCH 31, 1999
----------------
<S> <C>
Revenue..................................................... $ 267,825
Operating expenses:
Salary expenses and related employee benefits............. 248,859
Research and development.................................. 300,873
Amortization of software costs............................ 337,278
Selling, general and administrative....................... 137,087
Professional fees and outside services.................... 92,710
Amortization and depreciation............................. 17,568
----------
Total operating expenses............................. 1,134,375
----------
Operating loss.............................................. (866,550)
Interest income............................................. 278
----------
Loss before interest and taxes.............................. (866,272)
Interest expense.......................................... 6,501
Income tax provision...................................... 800
----------
Net loss.................................................... $ (873,573)
==========
</TABLE>
See Accompanying Notes to Financial Statements.
3
<PAGE> 4
MBR TECHNOLOGIES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FROM INCEPTION (APRIL 23, 1998) THROUGH MARCH 31, 1999
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK DEFICIT
---------- ---------
<S> <C> <C>
BALANCE, April 23, 1998..................................... $ -- $ --
Net loss.................................................... -- (873,573)
Sale of common stock........................................ 1,020,000 --
---------- ---------
BALANCE, March 31, 1999..................................... $1,020,000 $(873,573)
========== =========
</TABLE>
See Accompanying Notes to Financial Statements.
4
<PAGE> 5
MBR TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM INCEPTION
(APRIL 23, 1998)
THROUGH
MARCH 31, 1999
----------------
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(873,573)
Adjustments used in operating activities:
Depreciation and amortization.......................... 17,568
Amortization of software costs......................... 337,278
Related party equity exchanges......................... 237,040
Change in notes payable to related parties............. 4,136
Changes in assets and liabilities:
Increase in accounts receivable...................... (94,918)
Increase in deposits and prepaid expenses............ (21,831)
Increase in organization costs....................... (4,494)
Increase in accounts payable and accrued
liabilities....................................... 45,553
Increase in other current liabilities................ 13,001
Increase in deferred revenue......................... 22,912
---------
Net cash used in operating activities............. (317,328)
Cash flows from investing activities:
Purchase of property and equipment........................ (82,472)
---------
Net cash used in investing activities............. (82,472)
Cash flows from financing activities:
Proceeds from common stock................................ 173,501
Borrowings from related parties........................... 295,000
Payments on capital lease obligations..................... (5,646)
---------
Net cash provided by financing activities......... 462,855
---------
Increase in cash............................................ 63,055
Cash, beginning of period................................... 0
---------
Cash, end of period......................................... $ 63,055
=========
Supplemental Disclosure of Cash flow Information:
Cash paid for interest.................................... $ 2,364
=========
</TABLE>
See Notes 4 and 6 for supplemental cash flow disclosures.
See Accompanying Notes to Financial Statements.
5
<PAGE> 6
MBR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
MBR Technologies, Inc. (the "Company") was incorporated in California on
April 23, 1998. The Company develops, publishes, markets, and distributes
middleware solutions for enterprise software platforms. The Company's products
are designed to reduce the cost of ownership and maintenance of the PeopleSoft
and CSS/Horizon (ADP) environments. In addition to product sales the Company
also provides annual maintenance for their software and related consulting
services. The Company markets its software through several channels, including:
direct sales, software showcase conferences, joint marketing relationships and
value added resellers (VARs).
NOTE 2 -- LIQUIDITY AND BUSINESS RISK
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has an accumulated deficit
of $873,573 and negative working capital of $231,140 as of March 31, 1999. The
Company's ability to continue business in its present form is subject to a
variety of factors, which include, among other things, the Company's ability to
raise working capital and to generate profitable operations. In the opinion of
management, the Company will be able to improve its profitability and raise
adequate capital to meet its current working capital requirements.
The Company is subject to a number of risks associated with companies at a
similar stage of development including; the need for funding its operations and
growth, marketplace acceptance, competition, technological obsolescence, and the
retention and reliance on key personnel.
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES
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.
Cash and Cash Equivalents -- The Company considers all unrestricted highly
liquid investments purchased with maturity of three months or less to be cash
equivalents. The carrying value of cash equivalents approximates fair value.
Revenue Recognition -- Revenue from training and consulting fees is
recognized when earned. Revenues from product sales and support fees are
recognized in accordance with the provisions outlined in the AICPA SOP 97-2.
Deferred revenue represents certain post contract customer support recognized on
a monthly basis.
Property and Equipment -- Property and equipment is stated at cost, less
accumulated depreciation and amortization. Depreciation is determined using the
straight line method for all assets based on
6
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MBR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
estimated useful lives of the assets, which range from three to seven years for
furniture and equipment, and fifteen years for leasehold improvements.
Software Costs -- Software costs related to the acquisition of the Stat!
software have been capitalized and amortized over the useful life of the
software, estimated to be twenty months. For the year ended March 31, 1999,
$337,278 of these costs have been amortized.
Income Taxes -- For the year ended March 31, 1999, there was no federal tax
liability for financial statement or tax bases. The minimum franchise tax of
NOTE 4 -- RELATED PARTIES
During the year ended March 31, 1999, the Secretary and Chief Financial
Officer of the Company loaned $195,000 and $100,000, respectively, to the
Company to be used for operating and investing activities. The loans are due and
payable no later than September 30, 1999, and interest accrues at a rate of 5%
per annum. The Company has obtained a waiver until December 31, 1999. For the
year ended March 31, 1999, $4,136 of interest was accrued on these notes.
During the year ended March 31, 1999, certain related parties received
stock in exchange for goods and services. The Chief Executive Officer and Chief
Operations Officer of the Company received 350,000 and 300,000 shares,
respectively, in exchange for rights to software and related consulting for the
product. The Chief Financial Officer received approximately 118,100 shares for
consulting and certain equipment.
NOTE 5 -- COMMON STOCK AND CAPITAL FUNDING
The Company has one class of common stock. There are no preferences related
to dividends, voting rights or dissolution. During the year ended March 31,
1999, $173,501 new cash was received for common stock sold to related and
unrelated parties. (See Note 4)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases office space under an operating
lease agreement with monthly rent of $8,192; which increases to a maximum of
$9,558 in 2003. Rent expense under this lease totaled $24,685 for the year ended
March 31, 1999.
The Company also entered into an operating equipment lease at March 31 that
expires in December 2001.
Future minimum lease payments under these operating leases are as follows:
<TABLE>
<S> <C>
2000...................................................... $104,294
2001...................................................... 108,390
2002...................................................... 112,487
2003...................................................... 116,583
--------
$441,754
========
</TABLE>
Capital Leases -- The Company has entered into certain capital leases.
Interest accrues on each of these leases at a rate of 10% annually. Lease terms
range from 36 to 48 months.
7
<PAGE> 8
MBR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future lease payments under capital leases are as follows:
<TABLE>
<S> <C>
2000...................................................... $ 41,160
2001...................................................... 41,160
2002...................................................... 38,476
2003...................................................... 8,293
--------
$129,089
========
</TABLE>
NOTE 7 -- 401(K)PLAN
The Company provides a tax qualified section 401(k) plan for the benefit of
eligible employees. In accordance with Plan guidelines, contributions by the
employer are discretionary. During the year ended March 31, 1999, the Company
contributed $8,546 to the Plan. No contributions were payable at the end of the
fiscal year. The Company paid $1,700 in administrative costs for the Plan.
Contributions made by the Company vest based on the employee's years of
service. Vesting begins after two years of service in 20% annual increments
until the employee is 100% vested after six years.
NOTE 8 -- STOCK OPTION PLAN
In June 1999, the Company adopted the Fiscal Year 2000 Equity Incentive
Plan (2000 Plan.) Under the 1999 Plan, a maximum of 200,000 shares of Common
Stock have been reserved for issuance of options. Options under the 1999 Plan
may be granted at exercise prices determined by the Board of Directors, provided
that the exercise prices shall not be less than 85% of the fair market of the
common stock. The options vest over three years at 33.3% a year commencing on
the grant date. The term of the options are not to exceed 10 years. There were
no options granted under this Plan as of March 31, 1999. Approximately 11,500
options were granted after March 31, 1999 through September 29, 1999.
NOTE 9 -- YEAR 2000 ISSUE (UNAUDITED)
Like other organizations and individuals around the world, the Company
could be adversely affected if the computer systems it uses and those used by
the Company's major customers and vendors do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Issue." Management is assessing its computer
systems and the systems compliance issues of its major service providers. Based
on information available to management, the Company's major customers and
vendors are taking steps that they believe are reasonably designed to address
the Year 2000 Issue with respect to computer systems that they use. At this
time, however, there can be no assurance that these steps will be sufficient,
and the failure of a timely completion of all necessary procedures could have a
material adverse effect on the Company's operations. Management will continue to
monitor the status of, and its exposure to, this issue.
8
<PAGE> 1
EXHIBIT 99.2
QUEST SOFTWARE, INC. AND MBR TECHNOLOGIES, INC.
PRO FORMA INFORMATION
On December 17, 1999 the Company, through a wholly owned subsidiary,
acquired all of the outstanding common stock and stock options of MBR
Technologies, Inc. (MBR) in exchange for 93,471 shares of Quest Common Stock
valued at $9,323,732, a cash payment of $1,313,583 and the assumption of net
liabilities of $340,000. The acquisition was accounted for as a purchase.
The following unaudited pro forma combined results of operations for the
years ended December 31, 1999 and 1998 assumes that the acquisition had occurred
on January 1, 1998. The pro forma combined results of operations is presented
for information purposes only, is based on historical information, and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of the combined enterprise.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) To reflect the increase in goodwill amortization expense ($11,534M/60 x 12)
on a straight-line basis over five years resulting from the acquisition.
(2) To reflect the decrease in interest income due to the use of cash in the
acquisition at a 5% annual yield.
(3) To reflect the decrease in income tax expense resulting from the utilization
of the operating loss of MBR for the year.
(4) To adjust for the 93,471 shares of Quest common stock issued in the
acquisition of MBR.
9
<PAGE> 2
QUEST SOFTWARE, INC. AND MBR TECHNOLOGIES
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUEST MBR COMBINED
SOFTWARE TECHNOLOGIES TOTAL PRO FORMA
DECEMBER 31, DECEMBER 17, DECEMBER 31, PRO FORMA DECEMBER 31,
1999 1999 1999 ADJUSTMENTS 1999
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses.............................. $54,269 $ 380 $54,649 $ -- $54,649
Services.............................. 16,599 190 16,789 -- 16,789
------- ----- ------- ------- -------
Total revenues................... 70,868 570 71,438 -- 71,438
Cost of Revenues:
Licenses.............................. 2,998 346 3,344 -- 3,344
Services.............................. 4,195 195 4,390 -- 4,390
------- ----- ------- ------- -------
Total cost of revenues........... 7,193 541 7,734 -- 7,734
------- ----- ------- ------- -------
Gross profit............................ 63,675 29 63,704 -- 63,704
Operating expenses:
Sales and marketing................... 32,078 149 32,227 -- 32,227
Research and development.............. 15,980 209 16,189 -- 16,189
General and administrative............ 9,906 524 10,430 -- 10,430
Compensation costs and goodwill
amortization....................... 1,243 -- 1,243 2,307(1) 3,550
------- ----- ------- ------- -------
Total operating expenses......... 59,207 882 60,089 2,307 62,396
------- ----- ------- ------- -------
Income (loss) from operations........... 4,468 (853) 3,615 (2,307) 1,308
Other income (expense), net............. 1,202 (31) 1,171 (71)(2) 1,100
------- ----- ------- ------- -------
Income before income tax provision...... 5,670 (884) 4,786 (2,378) 2,408
Income tax provision.................... 2,273 1 2,274 (384)(3) 1,890
------- ----- ------- ------- -------
Net income (loss)....................... 3,397 (885) 2,512 (1,994) 518
Preferred stock dividends............... 590 -- 590 -- 590
------- ----- ------- ------- -------
Net income (loss) applicable to common
shareholders.......................... $ 2,807 $(885) $ 1,922 $(1,994) $ (72)
======= ===== ======= ======= =======
Basic and diluted net income per
share................................. $ 0.07 $ (0.00)
======= =======
Weighted average shares:
Basic................................. 37,677 93(4) 37,270
Diluted............................... 41,805 93(4) 41,898
</TABLE>
10
<PAGE> 3
QUEST SOFTWARE, INC. AND MBR TECHNOLOGIES
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUEST MBR COMBINED
SOFTWARE TECHNOLOGIES TOTAL PRO FORMA
DECEMBER 31, MARCH 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1998 1999 1998 ADJUSTMENTS 1998
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses....................... $24,901 $ 122 $25,023 $ -- $25,023
Services....................... 9,889 146 10,035 -- 10,035
------- ----- ------- ------- -------
Total revenues............ 34,790 268 35,058 -- 35,058
Cost of revenues:
Licenses....................... 3,433 337 3,770 -- 3,770
Services....................... 2,507 66 2,573 -- 2,573
------- ----- ------- ------- -------
Total cost of revenues.... 5,940 403 6,343 -- 6,343
------- ----- ------- ------- -------
Gross profit (loss).............. 28,850 (135) 28,715 -- 28,715
Operating expenses:
Sales and marketing............ 11,836 62 11,898 -- 11,898
Research and development....... 8,047 301 8,348 -- 8,348
General and administrative..... 5,278 368 5,646 2,307(1) 7,953
------- ----- ------- ------- -------
Total operating
expenses............... 25,161 731 25,892 2,307 28,199
------- ----- ------- ------- -------
Income from (loss) operations.... 3,689 (866) 2,823 (2,307) 516
Other income (expense), net...... 336 (7) 329 (71)(2) 258
------- ----- ------- ------- -------
Income before income tax
provision...................... 4,025 (873) 3,152 (2,378) 774
Income tax provision............. 1,679 1 1,680 (394)(3) 1,286
------- ----- ------- ------- -------
Net income (loss)................ $ 2,346 $(874) $ 1,472 $(1,984) $ (512)
======= ===== ======= ======= =======
Basic and diluted net income per
share.......................... $ 0.05 $ (0.01)
Weighted average shares:
Basic.......................... 44,261 93(4) 44,354
Diluted........................ 44,459 93(4) 44,552
</TABLE>
11
