FORM 8-KA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 20, 1996
COMDIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-9023 94-2443673
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
P.O. BOX 7266
1180 SEMINOLE TRAIL
CHARLOTTESVILLE, VIRGINIA 22906-7266
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (804) 978-2200
Registrant hereby files this Current Report on Form 8-KA to amend
Items 2 and 7 of the Current Report on Form 8-K filed March 25, 1996 to
read, in their entirety, as follows:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
KEY VOICE TECHNOLOGIES, INC.
On March 5, 1996, Comdial Corporation (the "Company") entered into a
Stock Purchase Agreement (the "Purchase Agreement") with Nick Branica
and Eoin Heaney (collectively the " Key Voice Technologies, Inc. ("KVT")
Stockholders") pursuant to which the Company purchased from the KVT
Stockholders all the issued and outstanding capital stock of KVT. KVT,
headquartered in Sarasota, Florida, develops and sells voice mail
software and related products for business applications. The closing
occurred on March 20, 1996. The consideration paid to the KVT
Stockholders was determined pursuant to arms-length negotiations and
consisted of (i) $8,528,194 in cash, (ii) a secured subordinated
promissory note in the face amount of $7,000,000, payable in five equal
annual installments of principal (plus accrued interest) over a five-
year period (the "KVT Note"), and (iii) 243,097 shares of the common
stock, par value $0.01 per share, of the Company ("Company Common
Stock"). The KVT Note is secured by a lien and security interest
granted to the KVT Stockholders in certain software and related
intellectual property rights of KVT. The cash portion of the purchase
price is subject to adjustment based on the change in the balance of
certain balance sheet accounts of KVT between February 29, 1996 and
March 20, 1996 (such adjustment to be determined by June 30, 1996).
In addition to the foregoing, the Company agreed to issue to the KVT
Stockholders up to 216,088 additional shares of Company Common Stock
over three years (the "Contingent Shares"). The total and annual
numbers of the Contingent Shares issuable to the KVT Stockholders is
dependent upon KVT's meeting certain post-acquisition annual or
cumulative sales targets. Under the terms of the Purchase Agreement,
the Company may elect, in its discretion, to pay the KVT Stockholders
cash in lieu of the total or annual Contingent Shares in an amount equal
to the market price of the Contingent Shares at the time that such
shares are due to be issued.
Funds for the cash portion of the purchase price were provided by Fleet
Capital Corporation, the Company's principal lender ("Fleet Capital"),
under the terms of a Loan and Security Agreement among the Company, its
subsidiaries and Fleet Capital dated as of February 1, 1994, as amended
and restated by Consolidated Amendment No. 1 dated as of March 13, 1996
(the "Loan Agreement"). The indebtedness represented by the KVT Note
and the payment of principal and interest thereon is subordinated to any
indebtedness of the Company for money borrowed from Fleet Capital.
The description of the transactions contemplated by the Purchase
Agreement is qualified entirely by reference to the Purchase Agreement
by and among the Company and the KVT Stockholders which is incorporated
herein by reference.
AURORA SYSTEMS, INC.
On February 14, 1996, the Company, Aurora Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of the Company ("Sub"),
Aurora Systems, Inc., a Delaware corporation ("Aurora"), Paul M.
Gasparro ("Gasparro") and Maryann P. Walsh ("Walsh") entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which,
among other things, Sub merged with and into Aurora and Aurora became a
wholly-owned subsidiary of the Company (the "Merger"). Aurora,
headquartered in Acton, Massachusetts, develops, markets, and supports
off-the-shelf software products for the computer-telephone integration
market. The effective date of the Merger was March 20, 1996.
The aggregate consideration paid pursuant to the Merger Agreement to the
holders of the outstanding capital stock of Aurora was determined
pursuant to arms-length negotiations and consisted of (i) $1,556,116 in
cash and (ii) 147,791 shares of Company Common Stock. In addition to
the foregoing, the Company paid approximately $345,232 to retire certain
existing indebtedness of Aurora. Funds for the cash portion of the
purchase price and debt retirement were provided by Fleet Capital under
the terms of the Loan Agreement.
The description of the transactions contemplated by the Merger Agreement
is qualified entirely by reference to the Merger Agreement by and among
the Company, Sub, Aurora, Gasparro and Walsh which is incorporated
herein by reference.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of businesses acquired.
AURORA SYSTEMS, INC.
Audited Annual Financial Statements as of September 30, 1995 and for the
year then ended.
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 4
FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1995:
Balance Sheet 5
Statement of Operations 6
Statement of Stockholders' Equity 6
Statement of Cash Flows 7
Notes to Financial Statements 8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Aurora Systems, Inc.
Acton, Massachusetts
We have audited the accompanying balance sheet of Aurora Systems, Inc.
as of September 30, 1995, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our 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, such financial statements present fairly, in all
material respects, the financial position of the Company as of September
30, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Richmond, Virginia
April 30, 1996
AURORA SYSTEMS, INC.
BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
Current Assets:
Cash $5,959
Accounts receivable 257,440
Total current assets 263,399
Property - Net 115,458
Other assets 5,799
Total assets $384,656
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $102,919
Accrued compensation 120,220
Current maturities of long-term debt 116,215
Other accrued liabilities 6,066
Total current liabilities 345,420
Long-term debt 73,381
Total liabilities 418,801
STOCKHOLDERS' EQUITY:
Preferred stock ( $ 0.01 par value)
212,176 shares authorized, issued and outstanding 2,122
Common stock, ( $ 0.01 par value)
2,000,000 shares authorized; 955,914 shares issued
and outstanding 9,559
Additional paid in capital 768,694
Retained deficit (814,520)
Total stockholders' equity (34,145)
Total liabilities and stockholders' equity $384,656
See notes to financial statements.
AURORA SYSTEMS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
Net sales $1,295,217
Operating expenses:
Research and development 519,198
Selling and marketing 662,838
General and Administrative 650,024
Total operating expenses 1,832,060
Operating loss (536,843)
Other Income (expense):
Interest expense (8,917)
Interest income 3,481
Total other income (expense) (5,436)
Loss before income taxes (542,279)
Income tax expense 62,456
Net loss $(604,735)
See notes to financial statements.
AURORA SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1995
Preferred Common Paid-In Retained
Stock Stock Capital Deficit Total
BALANCE AT
SEPTEMBER 30, 1994 $- $9,559 $311,110 $(209,785) $110,884
Proceeds from sale of
preferred stock 2,122 - 497,878 - 500,000
Stock offering costs - - (40,294) - (40,294)
Net loss - - - (604,735) (604,735)
BALANCE AT
SEPTEMBER 30, 1995 $2,122 $9,559 $768,694 $(814,520) $(34,145)
See notes to financial statements.
AURORA SYSTEMS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1995
OPERATING ACTIVITIES:
Net loss $(604,735)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 32,530
Deferred income taxes 62,000
Other noncurrent assets (2,678)
Change in current assets and liabilities:
Accounts receivable (228,272)
Other current assets 7,872
Accounts payable 67,910
Accrued compensation 41,771
Other current liabilities (654)
Net cash used by operating activities (624,256)
INVESTING ACTIVATES:
Purchase of property, plant and equipment (64,424)
FINANCING ACTIVITIES:
Proceeds from borrowings 150,000
Net proceeds from issuance of preferred stock 459,706
Principal payments under capital lease obligations (11,355)
Net cash provided by financing activities 598,351
NET DECREASE IN CASH (90,329)
CASH, BEGINNING OF PERIOD 96,288
CASH, END OF PERIOD $5,959
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $8,918
Cash paid for taxes $390
See notes to financial statements.
AURORA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business - Aurora Systems, Inc. is a United
States based software developer of off-the-shelf Computer-Telephone
Integration (CTI) products. These products enable call centers and
knowledge workers to significantly increase their productivity and
enhance their customer relations. Customers include telephone and
cellular companies, financial institutions, telemarketing companies,
and operation service providers.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of accounts receivable. The accounts receivable
of the Company is represented by three customers, with one customer
representing approximately 99%.
Accounting Estimates - The preparation of financial statements in
conformity with Generally Accepted Accounting Principles ("GAAP")
requires management to make certain estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, and
expenses; and the disclosure of contingent assets and liabilities at
September 30, 1995. Actual results could differ from those
estimates.
Accounts Receivable - The Company accounts for uncollectible
accounts receivable under the allowance method. No allowance for
doubtful accounts existed at September 30, 1995, as the entire
balance of accounts receivable was subsequently collected.
Property - Property is being depreciated on the straight-line basis
over the estimated useful lives of 3 years for software, and 5 years
for office furniture and machinery and equipment.
Software Development Costs - All production start-up, research and
development, and engineering costs are charged to expense as
incurred. The Company believes software development costs incurred
during the period between technological feasibility and general
release are not significant. Accordingly, these costs have not been
capitalized.
Income Taxes - The Company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires the use of the asset and liability
method of accounting for income taxes. Under SFAS No. 109, the
deferred tax liability or asset is determined based on the
difference between the financial statement and tax bases of assets
and liabilities as measured by the enacted tax rates which will be
in effect when the differences reverse. Deferred tax expense is the
result of changes in the liability for deferred taxes. The
measurement of deferred tax assets is reduced by the amount of any
tax benefits where, based on available evidence, the likelihood of
realization can be established. The Company has incurred prior
cumulative operating losses through 1995 for financial statement and
tax reporting purposes. Tax credits will be utilized to reduce
future income tax expense and payments.
Revenue Recognition - The Company recognizes revenue from product
sales upon shipment to the customer. The Company also licenses
products to Original Equipment Manufacturers (OEMs) and recognizes
royalties as specified in the license agreement upon shipment of
product by the OEM.
Fair Value - The carrying value of the Company's long-term debt,
which primarily consist of variable rate borrowings, approximates
fair value at September 30, 1995. The carrying amount of all other
assets and liabilities as reported on the balance sheet at September
30, 1995, which qualify as financial instruments, approximates fair
value.
Stock Based Compensation - The Financial Accounting Standards Board
has issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation." This standard
established a fair value method for accounting for stock based
compensation plans either through recognition or disclosure.
Management intends to adopt this standard in 1996 by disclosing pro
forma net income and earnings per share amounts assuming the fair
value method was adopted on October 1, 1995. The adoption of this
standard will not impact the Company's results of operations,
financial position or cash flows.
2. PROPERTY
Property consists of the following as of September 30, 1995:
Machinery and equipment $145,894
Software 15,729
Office furniture 6,227
Less accumulated depreciation (52,392)
Property - net $115,458
Depreciation expense charged to operations for the year was $32,530.
3. LEASE OBLIGATIONS
The Company has various capital and operating lease obligations.
Future minimum lease commitments for capitalized leases and
aggregate minimum rental commitments under an operating lease
agreement that have initial non-cancelable lease terms in excess of
one year are as follows:
Year Ending Capital Operating
September 30, Leases Leases
1996 $23,111 $68,152
1997 18,866 69,104
1998 8,415 23,120
Total minimum lease commitments 50,392 $160,376
Less amounts representing interest
and other costs 10,796
Principal portion of minimum lease
commitments at September 30, 1995 $39,596
1995 was the first year the Company acquired capital leases.
Assets recorded under capital leases (included in property in the
accompanying Balance Sheet) as of September 30, 1995 are as follows:
Office furniture and equipment $50,950
Less accumulated depreciation 14,246
Property - net $36,704
The operating lease is for office space. The total rent expense for
the operating lease for the year ending September 30, 1995 was
$53,766.
4. DEBT
As of September 30, 1995, Home Loan and Investment Bank of
Providence ("Home Loan") and Poly Ventures II, Limited Partnership
("Poly Ventures") held a significant portion of the Company's
indebtedness.
Note payable to Poly Ventures (1) $100,000
Revolving credit to Home Loan (2) 50,000
Capitalized leases (see Note 3) 39,596
Total debt 189,596
Less current maturities on debt 116,215
Total long-term debt $73,381
(1) The Poly Ventures notes have interest rates of 10%, are
payable on demand, and require the Company to sell to Poly
Ventures a warrant for $84.89 for 8,489 shares of Aurora
common stock at an exercise price of $2.36 per share if the
Company did not close on the sale of additional preferred
stock by January 1, 1996.
This requirement was subsequently eliminated and the note
paid in full after the Company merged with Comdial
Corporation, (see Note 9).
(2) The Home Valley credit facility provides for borrowings of
up to $250,000 which expires March 15, 2001 and has an
interest rate of 2.75% over prime rate. The Company's
indebtedness is collateralized by property, accounts
receivable, the assignment of the Chief Executive Officer
and President's life insurance and also the personal
guarantees of the President and Treasurer. The Home Valley
credit facility places restrictive covenant on shareholder's
annual compensation as defined in the agreement.
This note was paid in full after the merger with Comdial
Corporation, (see Note 9).
5. PREFERRED STOCK
On January 13, 1995 the Company and Poly Ventures entered into a preferred
stock sale agreement pursuant to which Poly Ventures agreed to accept 212,176
shares of Series A 22% cumulative preferred stock for an aggregate purchase
price of $500,000.
The sale also included price of $500,000 transferred warrant to purchase
125,000 shares of common stock at $2.36 per share. In the event of
liquidation of the Company assets the preferred treatment to the common
shareholders and would receive $2.36 per share plus 22% interest compounded
annually.
6. INCOME TAXES
The components of the income tax expense for the year ended
September 30, 1995 is as follows:
Current:
Federal $-
State -
Deferred:
Federal 47,029
State 15,427
Total income tax expense $62,456
The Company has net operating loss and credit carryovers of which,
if not utilized, will expire as follows:
Net
Expiration Dates Operating Losses Tax Credits
1996-2000 $- $-
After 2001 860,169 47,753
$860,169 $47,753
No deferred taxes have been recognized in the accompanying balance
sheet as of September 30, 1995. The components are as follows:
Net loss carryovers $198,484
Tax credit carryovers 47,753
Income reported in different periods for financial
reporting and tax purposes (25,661)
Valuation allowance (220,576)
Total $-
7. BENEFITS
The Company has a defined contribution 401(k) plan covering
substantially all employees. Under the provisions of the plan,
eligible employees may contribute up to 15% of their compensation as
defined in the terms of the plan. The Company is not required to
and did not contribute to the plan during the year ended September
30, 1995.
8. STOCK OPTIONS AND WARRANTS
Options
The Company may grant stock options to directors, officers and
employees. The options granted become exercisable ratably according
to a fixed vesting schedule. Compensation expense resulting in the
difference between the exercise price and stock price at the date of
grant is not significant and therefore, has not been recorded.
Transactions under the incentive stock option plan were as follows:
Outstanding at September 30, 1994 30,500
Add (deduct):
Granted 48,500
Canceled (13,500)
Exercised -
Outstanding at September 30, 1995 65,500
Options exercisable at September 30, 1995 12,625
Remaining shares reserved for issuance 14,500
Options outstanding at September 30, 1995 ranged in price from $0.10
to $2.36.
Warrants
The Company has outstanding 125,000 non-transferable warrants which
are outstanding as a result of the sale of preferred stock to Poly
Ventures in 1995. The warrants are exercisable at $2.36 per share
at any time until January 13, 2002.
9. RELATED PARTIES
The Company had sales of $145,939 to a common stock shareholder in
1995. In addition, the Company had sales of $40,222 to Comdial
Corporation (Comdial).
The Company has approximately $6,366 in payables due to various
officers of the Company for reimbursement of travel related expenses
and contracted services.
10. SUBSEQUENT EVENTS
On February 14, 1996, the Company and Comdial announced an agreement
to merge the two companies. On March 21, 1996, the merger was
consummated and Aurora became a wholly-owned subsidiary of Comdial.
The agreement provided stockholders of the Company with (i) 0.15
shares of Comdial common stock and (ii) an amount in cash equal to
$0.938 for each share of issued and outstanding Aurora common stock.
In addition, each issued and outstanding share of Aurora preferred
stock was converted into an amount in cash equal to the sum of (i)
$2.91 ("Current Liquidation Preference") and (ii) an amount equal to
a 22% per annum, compounded annually, rate of return on the Current
Liquidation Preference from the date of the agreement to the
closing. All warrants issued were canceled and retired as a part of
the agreement. The Home Loan credit facility and Poly Venture notes
were also retired as a part of the agreement.
Interim Financial Statements as of March 31, 1996 and for the six months
then ended.
AURORA SYSTEMS, INC.
BALANCE SHEET
MARCH 31, 1996
(Unaudited)
ASSETS
Cash and cash equivalents $68,719
Accounts receivable 96,365
Other current assets 950
Total current assets 166,034
Property, net 92,030
Other assets 3,222,027
Total assets $3,480,091
LIABILITIES
Accounts payable $202,201
Accrued payroll 63,744
Deferred revenue 150,000
Current portion of long-term debt 16,215
Other accrued liabilities 6,066
Total current liabilities 438,226
Long-term debt 360,605
Total liabilities 798,831
Total stockholder's equity 2,681,260
Total liabilities and stockholder's equity $3,480,091
See notes to interim financial statements.
AURORA SYSTEMS, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
Net sales $475,117 $899,825
Operating expenses 926,737 865,513
Operating income (loss) (451,620) 34,312
Other expenses (income) 28,891 (1,045)
Income (loss) before income taxes (480,511) 35,357
Income tax expense 388 -
Net income (loss) $(480,899) $35,357
See accompanying notes to the unaudited interim financial statements.
AURORA SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
OPERATING ACTIVITIES:
Net income (loss) $(480,899) $35,357
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 25,894 6,823
Other non-current assets (20,000) (2,678)
Changes in current assets and liabilities:
Accounts receivable 161,075 (346,435)
Other current assets (950) (299)
Accounts payable 99,282 80,490
Accrued compensation (56,476) 5,152
Production prepayments 150,000 -
Other current liabilities - 5,279
Net cash used in operating activities (122,074) (216,311)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,466) (55,963)
Net cash used in investing activities (2,466) (55,963)
FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock - 459,706
Proceeds from interco borrowings 345,308 -
Payment on long-term debt (150,000) -
Principal payments on capital leases (8,008) -
Net cash provided by financing activities 187,300 459,706
Net increase in cash 62,760 187,432
Cash beginning of year 5,959 96,288
Cash expected at end of period $68,719 $283,720
See accompanying notes to the unaudited interim financial statements.
AURORA SYSTEMS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. Basis of Presentation
The interim financial information presented herein as of March
31,1996 and for the six months ended March 31, 1996 and 1995 is
unaudited. The financial information reflects all normal recurring
adjustments.
Accounting policies followed by Aurora Systems, Inc. ("Aurora"), are
described in Note 1. to the audited financial statements as of
September 30, 1995. The audited financial statements for 1995 should
be read in conjunction with these interim financial statements. These
interim financial statements reflect the effects of the acquisition
by Comdial Corporation ("Comdial"), on March 20, 1996, as described
in Note 2.
2. Subsequent Events
On March 20,1996 Comdial acquired all of the assets of Aurora for
approximately $3.3 million consisting of cash of $1.9 million and
Comdial common stock of $1.4 million.
Aurora subsequently paid off approximately $152 of it's debt and
preferred stock with the proceeds of the sale.
KEY VOICE TECHNOLOGIES
Audited Annual Financial Statements as of December 31, 1995 and for the
year ended.
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 19
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994:
Balance Sheets 20
Statements of Income 21
Statements of Stockholders' Equity 21
Statements of Cash Flows 22
Notes to Financial Statements 23
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Key Voice Technologies, Inc.
Sarasota, Florida
We have audited the accompanying balance sheets of Key Voice
Technologies, Inc. as of December 31, 1995 and 1994, and the related
statements of income, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company as of December
31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Richmond, Virginia
April 30, 1996
KEY VOICE TECHNOLOGIES
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
Current assets: $318,163 $381,135
Accounts receivable - net 1,006,145 108,125
Employee advances - 2,802
Inventory 668,943 42,408
Total current assets 1,993,251 534,470
Property - Net 500,039 42,215
Other assets 76,952 20,385
Total assets $2,570,242 $597,070
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $470,452 $70,960
Accrued payroll and related expenses 85,069 21,208
Other accrued liabilities 25,552 2,610
Current maturities of debt 7,863 -
Total current liabilities 588,936 94,778
Long-term debt 310,422 -
Total liabilities 899,358 94,778
Stockholders' equity:
Common stock 200 100
Contributed capital 54,528 -
Retained earnings 1,616,156 502,192
Total stockholders' equity 1,670,884 502,292
Total liabilities and stockholders' equity $2,570,242 $597,070
See notes to financial statements.
KEY VOICE TECHNOLOGIES
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
Net sales $6,233,147 $2,172,911
Cost of goods sold 2,250,248 971,796
Gross profit 3,982,899 1,201,115
Operating expenses 1,427,340 669,464
Operating income 2,555,559 531,651
Other income (expense):
Interest expense (16,740) -
Other income 10,145 6,893
Total other income (expense) (6,595) 6,893
Net income $2,548,964 $538,544
See notes to financial statements.
KEY VOICE TECHNOLOGIES
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
Common Contributed Retained
Stock Capital Earnings Total
BALANCE, JANUARY 1, 1994 $100 $- $(36,352) $(36,252)
Net income - - 538,544 538,544
BALANCE, DECEMBER 31, 1994 100 - 502,192 502,292
Contribution of capital from
International VoiceMail - 54,528 - 54,528
Issuance of additional shares 100 - - 100
Net income - - 2,548,964 2,548,964
Distributions - - (1,435,000) (1,435,000)
BALANCE, DECEMBER 31, 1995 $200 $54,528 $1,616,156 $1,670,884
See notes to financial statements.
KEY VOICE TECHNOLOGIES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
OPERATING ACTIVITIES:
Net income $2,548,964 $538,544
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 26,542 12,430
Gain on sale of equipment
Changes in current assets and liabilities:
Accounts receivable (898,020) (54,881)
Employee advances 2,802 (2,802)
Inventory (626,535) (41,118)
Accounts payable 399,492 24,908
Accrued payroll and other related expenses 63,861 16,292
Other accrued liabilities 22,942 2,610
Total adjustments (1,008,916) (42,561)
Net cash provided by operating activities 1,540,048 495,983
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (474,933) (34,618)
FINANCING ACTIVITIES:
Proceeds from long-term debt 320,784 -
Payment on long-term debt (2,499) -
Increase in capitalized software (66,000) (28,000)
Contribution of capital 54,628 -
Other equity changes 22,621 -
Loan from shareholder - (82,273)
Shareholder distributions (1,435,000) -
Net cash used in financing activities (1,128,087) (110,273)
NET INCREASE (DECREASE) IN CASH (62,972) 351,092
CASH AT BEGINNING OF YEAR 381,135 30,043
CASH AT END OF YEAR $318,163 $381,135
See notes to financial statements.
KEY VOICE TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Environment - Key Voice (the "Company") is a United States
("U.S.") based manufacturer of business voice processing systems.
The Company's principle customers are small to medium sized
businesses throughout the U.S. and other international markets. The
dynamic, high technology industry in which the Company operates is
very competitive.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with Generally
Accepted Accounting Principles ("GAAP") requires management to make
certain estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, and expenses; and the disclosure
of contingent assets and liabilities at December 31, 1995. Actual
results could differ from those estimates.
Accounts Receivable - The Company accounts for uncollectible
accounts receivable under the allowance method. The allowance for
doubtful accounts was $11,500 and $2,300 at December 31, 1995 and
1994, respectively.
Inventory - Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property/Depreciation - Depreciation is computed using the
straight-line method for all buildings, land improvements, computer
hardware, computer software, machinery and equipment. Expenditures
for maintenance and repairs of property are charged to expense.
Improvements and renewals which extend economic lives are
capitalized.
The estimated useful lives are as follows:
Buildings 30 years
Land improvements 15 years
Machinery and equipment 7 years
Computer hardware equipment and tooling 5 years
Software 3 years
Revenue Recognition - The Company recognizes revenue from product
sales upon shipment to the customer.
Expensing of Costs - All production start-up, research and
development, and engineering costs are charged to expense, except
for that portion of costs which relate to product software
development (see "Capitalized Software Development Costs").
Capitalized Software Development Costs - In 1995 and 1994, the
Company incurred costs associated with the development of software
related to the Company's various products. The accounting for
such software costs is in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86 which requires capitalization
of those costs once technological feasibility has been achieved.
Costs incurred prior to achieving technological feasibility and
costs incurred once the product is available for general release to
customers is expensed as incurred. The Company's estimate of
product life is approximately three years or more. The total amount
of unamortized software development cost included in other assets is
$75,667 and $19,000 at December 31, 1995 and 1994, respectively.
The amounts capitalized were $66,000 and $28,000, of which $9,333
and $7,333 were amortized in 1995 and 1994, respectively.
Income Taxes - The Company is an S-Corporation and as such does
not pay federal income taxes. All income taxes are the
responsibilities of the shareholders.
Fair Value - The carrying value of the Company's long-term debt
approximates fair value at December 31, 1995. The carrying amount
of all other assets and liabilities as reported on the balance sheet
at December 31, 1995, which qualify as financial instruments,
approximates fair value.
2. PROPERTY
Property consists of the following at December 31:
1995 1994
Land $160,000 $-
Buildings and improvements 266,108 -
Machinery and equipment 58,380 32,201
Software 15,436 2,090
Office furniture 23,347 14,047
Less accumulated depreciation (23,232) (6,123)
Property - net $500,039 $42,215
Depreciation expense charged to operations for the years ended
December 31, 1995 and 1994 was $17,109 and $4,997, respectively.
3. LEASE OBLIGATIONS
The Company has various operating lease obligations. Aggregate
minimum rental commitments under operating lease agreements that
have initial non-cancelable lease terms in excess of one year are as
follows:
Year Ending Operating
December 31, Leases
1996 $42,514
1997 42,514
1998 34,682
Total minimum lease commitments $119,710
Operating leases are for office equipment and vehicles. The total
rent expense for operating leases, including rentals which are
cancelable on short-term notice, for the years ended December 31,
1995 and 1994 was $22,365 and $28,176, respectively.
4. DEBT
In August 1995, the Company entered into a 20 year mortgage
agreement with Northern Trust Bank of Florida ("Northern") for
$318,750. The mortgage agreement provides for monthly payments of
principal and interest through August 1, 2005 at an interest rate of
8.75%. On August 1, 2005 any unpaid balance will be refinanced and
paid over the term of the mortgage.
The scheduled principal payments as of December 31, 1995 are as
follows:
Fiscal Years Amounts
1996 $5,829
1997 6,913
1998 7,543
1999 8,230
2000 8,979
Thereafter 278,757
Total $316,251
The Company also has a $300,000 line of credit with Northern which
carries an interest rate of 0.5% over Northern's prime rate. The
line of credit is secured by the Company's personal property. At
December 31, 1995, the Company had outstanding borrowings under this
agreement of $2,034 at an interest rate of 9.25%.
Subsequent to year-end, the line of credit was closed and the
mortgage was assumed by Comdial Corporation as a result of the
Company being acquired (see Note 6).
During the year, the Company had related party debt consisting of a
promissory note payable to a shareholder in the amount of $142,000.
Interest was payable at a rate of 10.00%, and totaled $3,183. As of
December 31, 1995, the promissory note and related interest had been
repaid.
5. ACQUISITION
On February 28, 1995 the Company acquired International Voice Mail
("IVM"), Inc. IVM is a manufacturer of voice processing software
and was engaged in the same industry as the Company. The
acquisition was accounted for following the standards for purchase
accounting as promulgated by Accounting Principles Board (APB)
Opinion No. 16 "Business Combinations."
The Company acquired all of the net assets of IVM. These net assets
approximated $50,000. The consideration given by the Company
approximated an equal amount of the net assets acquired. This
consideration consisted of 50% of the outstanding common stock of
the Company and cash of $7,000. Results of operations of IVM from
March 1, 1995 are included in the Company's income statement for
December 31, 1995.
The Company had accounts receivable from IVM at December 31, 1994 of
$4,000.
Selected unaudited pro forma financial information for the year
ended December 31, 1994 is as follows:
Sales $2,582,981
Gross Profit 1,546,809
Net Income 805,143
The pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the IVM
acquisition been consummated as of January 1, 1994, nor are they
necessarily indicative of future operating results.
6. SUBSEQUENT EVENTS
Subsequent to its year-end, the Company entered into a definitive
agreement regarding its acquisition by Comdial Corporation
("Comdial"). The closing date of the acquisition was March 19,
1995.
The consideration received from the acquisition aggregates
approximately $19.7 million plus the net book value of certain
Company accounts as of the closing date. The consideration
consisted of $8.5 million in cash, $7.0 million evidenced by a
promissory note, and approximately $2.2 million of Comdial's Common
Stock. The remaining $2.0 million of the consideration is
contingent upon the Company's performance after the acquisition, and
may be paid at Comdial's option in either cash or Comdial's Common
Stock.
The Company had accounts receivable from Comdial at December 31,
1995 and 1994 of $391,639 and $ -0-, respectively.
Interim Financial Statements as of March 31, 1996 and for the three
months then ended.
KEY VOICE TECHNOLOGIES, INC.
BALANCE SHEET
MARCH 31, 1996
(Unaudited)
ASSETS
Cash and cash equivalents $335,918
Accounts receivable 2,044,365
Inventories 168,700
Other current assets 1,000
Total current assets 2,549,983
Property, net 508,638
Net deferred tax asset -
Other assets 16,105,385
Total assets $19,164,006
LIABILITIES
Accounts payable $548,142
Accrued payroll 129,886
Current portion of long-term debt 6,475
Other accrued liabilities 55,317
Total current liabilities 739,820
Long-term debt 308,750
Net deferred tax liabilities -
Long-term employee benefit obligations -
Total liabilities 1,048,570
Total stockholder's equity 18,115,436
Total liabilities and stockholder's equity $19,164,006
See notes to interim financial statements.
KEY VOICE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
Net sales $3,727,663 $1,025,318
Cost of goods sold 1,719,894 436,986
Gross profit 2,007,769 588,332
Operating expenses 717,490 289,052
Operating income 1,290,279 299,280
Other expenses 2,034 121
Income before taxes 1,288,245 299,159
Income tax expense - -
Net income $1,288,245 $299,159
See accompanying notes to unaudited interim financial statements.
KEY VOICE TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
OPERATING ACTIVITIES:
Net income $1,288,245 $299,159
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization - -
Other non-current assets - -
Changes in current assets and liabilities:
Accounts receivable (1,038,220) (127,152)
Other current assets (1,000) 600
Inventory 500,243 (56,567)
Accounts payable 77,690 98,481
Accrued payroll and other related expenses 44,817 7,423
Other current liabilities 29,765 2,631
Other non-current liabilities (100) (167)
Net cash provided by operating activities 901,440 224,408
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (8,599) (10,601)
Net cash used in investing activities (8,599) (10,601)
FINANCING ACTIVITIES:
Proceeds from long-term debt - 267,000
Payment on long-term debt (3,060) -
Decrease in capitalized software 75,667 -
Other equity changes (297,693) -
Shareholder distributions (650,000) (658,000)
Net cash used in financing activities (875,086) (391,000)
Net increase in cash 17,755 (177,193)
Cash beginning of year 318,163 381,135
Cash expected at end of period $335,918 $203,492
See accompanying notes to the unaudited interim financial statements.
KEY VOICE TECHNOLOGIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. Basis of Presentation
The interim financial information presented herein as of March
31,1996 and for the three months ended March 31, 1996 and 1995 is
unaudited. The financial information reflects all normal recurring
adjustments. Accounting policies followed by Key Voice Technologies,
Inc. ("Key Voice") are described in Note 1. to the audited financial
statements as of December 31, 1995. The audited financial statements
for 1995 should be read in conjunction with these interim financial
statements. These interim financial statements reflect the effects of
the acquisition by Comdial Corporation ("Comdial"), on March 20,
1996.
2. Subsequent Events
On March 20, 1996 Comdial acquired all of the assets of Key Voice for
approximately $19.7 million. The acquisition was accounted for by the
purchase method of accounting. The acquisition cost consisted of $8.5
million in cash, $7.0 million in a promissory note, and approximately
$2.2 million in Comdial's common stock. The remaining $2.0 million
is contingent upon Key Voice's performance after the acquisition, and
may be paid in either cash or Comdial stock.
(b) Pro Forma Financial Information.
COMDIAL CORPORATION
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet and combined
statement of operations give effect to the acquisitions of Key Voice
Technologies, Inc. ("Key Voice") and Aurora Systems, Inc. ("Aurora"),
described in item 2 of this Form 8-KA. The pro forma information is
based on historical financial statements of Comdial Corporation, and the
acquired companies, giving effect to the transactions under the purchase
method of accounting and adjustments described in the accompanying
explanatory notes to the unaudited pro forma statements. The December
31, 1995 unaudited pro forma combined balance sheet gives effect to the
acquisitions as if such acquisitions had occurred on December 31, 1995.
The unaudited pro forma statement of operations for the year ended
December 31, 1995, gives effect to the acquisitions as if such
acquisitions had occurred on January 1, 1995, the first day of the
period presented.
The pro forma information has been prepared by the management of the
Registrant based upon financial statements of the Registrant, Key Voice
and Aurora. The pro forma financial statements use Aurora Systems
Inc.'s financial statements as of September 30, 1995 and for the year
then ended, as it is within 93 days of the Registrant's year-end.
These pro forma statements may not be indicative of the results that
actually would have occurred if the acquisitions had occurred on January
1, 1995 or December 31, 1995. The pro forma financial statements should
be read in conjunction with the financial statements and related notes
of the Registrant, Key Voice and Aurora contained elsewhere herein.
COMDIAL CORPORATION
PRO FORMA BALANCE SHEET
YEAR ENDED DECEMBER 31, 1995
(Unaudited)
(Amounts in thousands)
Comdial Key Voice Aurora Pro Forma Pro Forma
Corp. Tech. Systems Adjust. Combined
ASSETS
Cash and cash equivalents $4,144 $318 $6 - $4,468
Accounts Receivable 8,976 1,006 257 - 10,239 a.
Inventories 17,925 669 - - 18,594
Other current assets 2,695 ___-_ __-_ __-_ 2,695
Total current assets 33,740 1,993 263 - 35,996
Property - net 13,943 500 115 - 14,558
Net deferred tax asset 6,694 - - - 6,694
Other assets 2,315 77 6 19,300 a. 21,698
Total assets $56,692 $2,570 $384 $19,300 $78,946
LIABILITIES
Accounts payable $7,988 $470 $103 - $8,561
Accrued payroll 1,518 85 120 - 1,723
Other accrued liabilities 5,963 34 122 2,523 b. 8,642
Total current liab. 15,469 589 345 2,523 18,926
Long-term debt 2,844 310 73 15,478 c. 18,705
Net deferred tax liab. 2,191 - - - 2,191
Long-term employee benefit
obligations 1,894 - - - 1,894
Total liabilities 22,398 899 418 18,001 41,716
STOCKHOLDERS' EQUITY
Preferred stock - - 2 (2) d. -
Common stock 111,625 - 10 3,600 e. 115,235
Additional paid in capital - - 769 - 769
Other (1,014) (1,435) - - (2,449)
Retained earnings,
(accumulated deficit (76,317) 3,106 (815) (2,299) f. (76,325)
Total stockholders'
equity 34,294 1,671 (34) 1,299 37,230
Total liabilities and
stockholders' equity $56,692 $2,570 $384 $19,300 $78,946
See accompanying notes to unaudited pro forma financial statements.
COMDIAL CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(Unaudited)
(Amounts in Thousands)
Combined
Comdial Key Voice Aurora Pro forma Comdial
Corp. Tech. l. Inc. l. Adjust. Corp.
Net Sales $94,802 $6,233 $1,295 - $102,330
Cost of goods sold 64,027 2,250 - - 66,277
Gross profit 30,775 3,983 1,295 - 36,053
Operating expenses 23,484 1,450 1,832 3,586 g. 30,352
Other expenses 1,756 7 5 1,418 h. 3,186
Income before taxes and
extraordinary item 5,535 2,526 (542) (5,004) 2,515
Income tax expense
( benefit) 4,334 (101) (62) - 4,171
Net income (loss) 9,869 2,425 (604) (5,004) 6,686
Dividends on preferred
stock 350 - - - 350
Net income applicable
to common stock $9,519 $2,425 $(604) $(5,004) $6,336
Earnings per
common share $1.24 $0.75 k.
See accompanying notes to the unaudited pro forma financial statements.
COMDIAL CORPORATION
EXPLANATORY NOTES TO PRO FORMA INFORMATION
(Dollars in thousands)
(Unaudited)
a. Represents excess of purchase price over net assets acquired
consisting of existing products of $6,516, products in
development of $904, future products of $4,800 and goodwill of
$7,080 with lives ranging form 1.5 to 8 years. These amounts
are preliminary estimates and are not expected to materially
change.
b. Represents an increase in the revolver of $1,873, a payoff of
$100 in debt held by Aurora and accrued acquisition costs of $750
which include bank, accounting and legal fees.
c. Represents an increase in the acquisition loan of $8,528,
issuance of a note payable to the sellers of Key Voice of $7,000
and a payoff of debt held by Aurora of $50.
d. Payoff of Aurora preferred stock.
e. Issuance of Comdial Common stock to the sellers of Key Voice and
Aurora.
f. Elimination of the investment in the assets related to the
acquisition of Key Voice and Aurora.
g. Amortization of goodwill and other intangibles.
h. Additional interest expense from acquisition loans and note
payable to sellers of Key Voice.
i. To eliminate intercompany sales and cost of sales between Key
Voice and Comdial.
j. Due to Comdial's net operating losses only alternative minimum
tax has been applied to net income of the acquired companies.
k. Includes shares issued to the sellers of Key Voice and Aurora for
purposes of determining pro forma earnings per share.
l. These amounts represent Aurora's results of operations for the
year ended Sept. 30, 1995 and Key Voice's for the year ended
December 31, 1995.
COMDIAL CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,1996
(Unaudited)
(Amounts in thousands except per share data )
Pro Forma
Combined
Comdial Key Voice Aurora Pro Forma Comdial
Corp. Tech. Inc. Adjust. Corp.
Net Sales $21,779 $3,728 $62 $(1,792) i. $23,777
Cost of goods sold 14,888 1,720 - (1,792) i 14,816
Gross profit 6,891 2,008 62 - 8,961
Operating expenses 6,432 716 475 891 g. 8,514
Other expenses 389 2 23 288 h. 702
Income before taxes and
extraordinary item 70 1,290 (436) (1,179) (255)
Income tax - expense
/benefit 714 j. (50) j. - - 664
Net income (loss) 784 1,240 (436) (1,179) 409
Dividends on preferred
stock - - - - -
Net income applicable
to common stock $784 $1,240 ($436) ($1,179) $409
Earnings per
common share $0.14 $0.03 k.
See accompanying notes to the unaudited pro forma financial statements.
(c) Exhibits.
2.1 Stock Purchase Agreement, dated as of March 5, 1996,
among Comdial Corporation, Nick Branica, and Eoin Heaney
(Exhibit 2.1 to Registrant's Form 8-K filed March 25, 1996).*
2.2 Agreement and Plan of Merger, dated as of February 14,
1996, among Comdial Corporation, Aurora Acquisition
Corporation, a Delaware corporation and wholly owned
subsidiary of Comdial Corporation, Aurora Systems, Inc.,
a Delaware corporation, Paul M. Gasparro, and Maryann P.
Walsh (Exhibit 2.2 to Registrant's Form 8-K filed
March 25, 1996).*
23.1 Consent of Deloitte & Touche, LLP
* Incorporated by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COMDIAL CORPORATION
(Registrant)
By: /S/ Wayne R. Wilver
(Signature)
Wayne R. Wilver
Senior Vice President and
Chief Financial Officer
Dated: June 3, 1996
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated April
30, 1996, regarding Key Voice Technologies, Inc. and our report dated
April 12, 1996 of Aurora Systems, Inc. which are wholly owned
subsidiaries of Comdial Corporation ("Comdial"), appearing in this
Current Report on Form 8-KA of Comdial in the following Registration
Statements:
Registration
Form: Number:
S-8 2-89330
S-8 33-53562
S-8 333-03379
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Richmond, Virginia
June 3, 1996