<PAGE>
U.S. 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): July 30, 1999
DESIGN AUTOMATION SYSTEMS, INC.
(Exact Name of Registrant as Specified in Charter)
TEXAS
(State or Other Jurisdiction of
Incorporation or Organization)
0-9129 75-1657943
(Commission File Number) (I.R.S. Employer Identification No.)
3200 WILCREST, SUITE 370, HOUSTON, TEXAS 77042
(Address of principal executive offices including zip code)
(713) 784-2374
(Registrant's telephone number, including area code)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Inapplicable
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective July 30, 1999, Design Automation Systems, Inc. ("Company")
acquired all of the issued and outstanding stock of Connected Software
Solutions, Inc. ("Connected"), an e-business consulting and training firm, in
an arms-length transaction between the Company and the shareholders of
Connected. The consideration for the acquisition was: (1) 300,000 shares of
Company common stock, (2) $ 300,000 cash payable in six quarterly
installments of $ 50,000 each beginning 90 days from the closing date, and
(3) additional stock consideration if on August 1, 2000 the average closing
price for the Company common stock for the 15 business days prior to August
1, 2000 is less than $ 5.15 per share, in an amount equal to 3000 shares for
each $0.01 below $5.15. The Company has reserved 1,500,000 shares of Company
common stock for the additional consideration. The two shareholders of
Connected entered into employment agreements with the Company's wholly-owned
subsidiary, COAD Solutions, Inc., which will continue on a year-to-year basis
and include a non-compete provision for the term of the agreement and one
year thereafter. However, the Company can provide no assurance the
non-compete provision will be enforceable. This transaction has been
accounted for as a purchase. The acquisition of Connected has been deemed
"significant;" accordingly, historical financial statements of Connected and
pro forma financial statements of the Company are filed herewith.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Inapplicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Inapplicable.
ITEM 5. OTHER EVENTS
Inapplicable.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
Inapplicable.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The financial statements relating to the acquisition required
pursuant to Item 310 of Regulation S-B are attached hereto as
Annex A.
(b) Pro Forma Financial Information
The pro forma financial information relating to the
acquisition required pursuant to Item 310 of Regulation S-B is
attached hereto a Annex B.
ITEM 8. CHANGE IN FISCAL YEAR
Inapplicable.
<PAGE>
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 hereunto duly authorized.
DESIGN AUTOMATION SYSTEMS, INC.
By: /s/ Robert E. Nelson
-----------------------------------
Robert E. Nelson
Chief Financial Officer, Principal
Financial and Accounting Officer
DATE: October 13, 1999
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
ANNEX A
<TABLE>
<CAPTION>
INDEX
PAGE
<S> <C> <C>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED -
CONNECTED SOFTWARE SOLUTIONS, LLC
INDEPENDENT AUDITOR'S REPORT...................................................................... F-1
BALANCE SHEETS - December 31, 1998 and June 30, 1999 (unaudited).................................. F-2
STATEMENTS OF INCOME - Year ended December 31, 1998 and the period from
inception, January 8, 1997, through December 31, 1997 and
the six months ended June 30, 1999 and 1998 (unaudited)..................................... F-3
STATEMENTS OF CHANGES IN MEMBERS' EQUITY - Year ended December 31, 1998
and the period from inception, January 8, 1997, through December 31, 1997
and the six months ended June 30, 1999 (unaudited).......................................... F-4
STATEMENTS OF CASH FLOWS - Year ended December 31, 1998 and the period
from inception, January 8, 1997, through December 31, 1997
and the six months ended June 30, 1999 and 1998 (unaudited)................................. F-5
NOTES TO FINANCIAL STATEMENTS..................................................................... F-6
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
OF DESIGN AUTOMATION SYSTEMS, INC................................................................. F-8
STATEMENTS OF OPERATIONS - Year ended December 31, 1998
and six months ended June 30, 1999.......................................................... F-9
BALANCE SHEET - June 30, 1999..................................................................... F-11
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.................................... F-12
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Members
Connected Software Solutions, LLC
We have audited the accompanying balance sheet of Connected Software
Solutions, LLC ("Connected") as of December 31, 1998, and the related
statements of income, changes in members' equity and cash flows for the year
ended December 31, 1998 and the period from inception, January 8, 1997,
through December 31, 1997. These financial statements are the responsibility
of Connected'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 audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Connected Software
Solutions, LLC as of December 31, 1998, and the results of its operations and
its cash flows for the year ended December 31, 1998 and the period from
inception, January 8, 1997, through December 31, 1997, in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Houston, Texas
September 24, 1999
F-1
<PAGE>
CONNECTED SOFTWARE SOLUTIONS, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
--------------- --------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 26,183 $ 32,248
Account receivable - trade, no allowance
for doubtful accounts 262,020 183,402
-------------- --------------
Total current assets 288,203 215,650
OFFICE EQUIPMENT, net $32,319 and $72,796 of accumulated depreciation 2,623 43,099
OTHER, net 1,000 1,000
--------------- ---------------
Total assets $ 291,826 $ 259,749
=============== ===============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ - $ 13,045
Accounts payable 22,072 18,027
Accrued expenses 9,251 16,487
--------------- ---------------
Total current liabilities 31,323 47,559
CONTINGENCIES (Note 4)
MEMBERS' EQUITY 260,503 212,190
--------------- ---------------
Total liabilities and members' equity $ 291,826 $ 259,749
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
CONNECTED SOFTWARE SOLUTIONS, LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION,
JANUARY 8, SIX MONTHS
YEAR ENDED 1997, THROUGH ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------------------
1998 1997 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
(unaudited)
REVENUES $ 1,005,110 $ 584,121 $ 598,076 $ 435,656
OPERATING EXPENSES:
Cost of revenues 412,904 180,923 272,778 169,686
General and administrative 74,670 75,398 53,222 36,059
-------------- -------------- -------------- --------------
487,574 256,321 326,000 205,745
-------------- -------------- -------------- --------------
Net income $ 517,536 $ 327,800 $ 272,076 $ 229,911
============== ============== ============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
CONNECTED SOFTWARE SOLUTIONS, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION,
JANUARY 8, SIX MONTHS
YEAR ENDED 1997, THROUGH ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1998 1997 1999
----------------- ----------------- -----------------
(unaudited)
<S> <C> <C> <C>
BEGINNING MEMBERS' EQUITY $ 131,501 $ - $ 260,503
Net income 517,536 327,800 272,076
Contributions by members - 2,545 -
Distributions to members (388,534) (198,844) (320,389)
-------------- -------------- --------------
ENDING MEMBERS' EQUITY $ 260,503 $ 131,501 $ 212,190
============== ============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
CONNECTED SOFTWARE SOLUTIONS, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION,
JANUARY 8, 1997 SIX MONTHS ENDED
YEAR ENDED THROUGH JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------------------------
1998 1997 1999 1998
----------------- ----------------- ----------------- -----------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 517,536 $ 327,800 $ 272,076 $ 229,911
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 10,626 19,181 - 5,313
Amortization 300 - - -
Changes in:
Accounts receivable (182,881) (79,139) 78,618 15,926
Other assets - (1,300) - -
Accounts payable 3,221 18,851 (4,066) (18,851)
Accrued expenses 9,416 (165) 20,303 8,702
-------------- -------------- -------------- --------------
Net cash provided by operating activities 358,218 285,228 366,931 241,001
CASH FLOWS FROM INVESTING ACTIVITIES -
purchase of office equipment (8,747) (23,683) (40,477) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions by members - 2,545 - -
Distributions to members (388,534) (198,844) (320,389) (243,249)
-------------- -------------- -------------- --------------
Net cash used in financing activities (388,534) (196,299) (320,389) (243,249)
-------------- -------------- -------------- --------------
NET CHANGE IN CASH (39,063) 65,246 6,065 (2,248)
CASH, at beginning of period 65,246 - 26,183 65,246
-------------- -------------- -------------- --------------
CASH, at end of period $ 26,183 $ 65,246 $ 32,248 $ 62,998
============== ============== ============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
CONNECTED SOFTWARE SOLUTIONS, LLC
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Connected Software Solutions, LLC ("Connected"), a Tennessee
limited liability company, was formed in January 1997 in the state of
Tennessee. Connected is an information technology consulting firm providing
services primarily in Tennessee. Connected's primary focus is providing
e-business consulting and training services.
REVENUE RECOGNITION - Connected recognizes revenue as services are
performed.
OFFICE EQUIPMENT - Equipment consists mainly of computer equipment and is
stated at cost, adjusted for accumulated depreciation. Depreciation is
calculated using the accelerated method over the estimated useful lives of
the related assets, which is five years.
INCOME TAXES - Connected is not subject to federal or state taxes on its
income. The members include in their federal and state tax returns their
respective portion of Connected's results of operations. Accordingly, no
provision for federal or state income taxes has been made for Connected.
COMPREHENSIVE INCOME - Comprehensive income is defined as all changes in
members' equity, exclusive of transactions with owners, such as capital
investments. Comprehensive income includes net income or loss, changes in
certain assets and liabilities that are reported directly in capital, such
as translation adjustments on investments in foreign subsidiaries, and
certain changes in minimum pension liabilities. Connected's comprehensive
income was equal to its net income for all periods presented in these
financial statements.
USE OF ESTIMATES - The preparation of Connected's financial statements in
conformity with generally accepted accounting principles requires
Connected's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying results.
Actual results could differ from these estimates.
UNAUDITED INTERIM INFORMATION - The accompanying financial information as
of June 30, 1999 and for the six-month periods ended June 30, 1999 and 1998
has been prepared by Connected, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
statements reflect all adjustments, consisting of normal recurring
accruals, which are, in the opinion of management, necessary to fairly
present such information in accordance with generally accepted accounting
principles.
2. PROFIT SHARING PLAN
In January 1998, Connected adopted a 401(k) profit sharing plan (the
"Plan"). Eligible employees may make voluntary contributions to the Plan up
to 15% of the employee's compensation. The amount of the employee
contribution is limited as specified in the Plan. Connected has elected not
to contribute to the Plan.
3. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Connected to concentration
of credit risk are accounts receivable. Connected performs ongoing credit
evaluations as to the financial condition of its customers. Two customers
made up approximately 62% and 49% of accounts receivable at December 31,
1998 and June 30, 1999. Four customers and three customers accounted for
approximately 67% and 46% of total revenues for the year ended December 31,
1998 and the period from inception, January 8, 1997, through December 31,
1997, respectively. Three and two customers accounted for approximately 55%
and 63% of total revenues for the six months ended June 30, 1999 and 1998,
respectively.
F-6
<PAGE>
CONNECTED SOFTWARE SOLUTIONS, LLC
4. YEAR 2000
Connected has begun to address possible remedial efforts in connection with
computer software that could be affected by the Year 2000 problem. The Year
2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure
or miscalculations. The Year 2000 problem may impact or be impacted by
other entities with which Connected transacts business.
5. SUBSEQUENT EVENT
Subsequent to December 31, 1998, Connected completed its conversion to a
corporation and, accordingly, changed its name to Connected Software
Solutions, Inc. (the "Corporation"). All assets, rights, liabilities and
obligations of Connected were transferred to the Corporation. The members
of Connected became shareholders of the Corporation, and their membership
units were converted into common stock of the Corporation on a one-for-one
basis.
Effective July 30, 1999, 100% of the stock of the Corporation was acquired,
and the Corporation was merged into COAD Solutions, Inc., a wholly-owned
subsidiary of Design Automation Systems, Inc. ("DASI"), through a forward
triangular merger for consideration in the form of $300,000 cash and
approximately $1,500,000 of DASI common stock.
F-7
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
ANNEX B
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of operations of
Design Automation Systems, Inc. ("DASI" or the "Company") for the year ended
December 31, 1998 and the six months ended June 30, 1999 and the unaudited pro
forma balance sheet as of June 30, 1999 (collectively, the "Unaudited Pro Forma
Consolidated Financial Statements") give effect to (i) the Connected Software
Solutions, Inc. ("Connected") acquisition under the purchase method of
accounting, (ii) the Dynamic Professional Services, LLP ("Dynamic") acquisition
under the purchase method of accounting, and (iii) the COAD Solutions, Inc.
("COAD") acquisition under the purchase method of accounting.
The unaudited pro forma consolidated statements of operations for the year ended
December 31, 1998 and the unaudited six months ended June 30, 1999 were prepared
assuming that the transactions described above were consummated at the beginning
of 1998. The unaudited pro forma consolidated balance sheet as of June 30, 1999
was prepared assuming the Connected acquisition was consummated on June 30,
1999.
The Unaudited Pro Forma Consolidated Financial Statements are based upon the
historical financial statements of (i) the Company, which were previously filed
on Form 10-K, (ii) Connected, which are included elsewhere herein, for the year
ended December 31, 1998, and (iii) Dynamic and COAD, which were previously filed
on Form 8-K/A, for the year ended December 31, 1998, and should be read in
conjunction with those statements and notes thereto. The Unaudited Pro Forma
Consolidated Financial Statements may not be indicative of the results that
actually would have occurred if the acquisitions of Connected, Dynamic and COAD
had been in effect on the dates indicated or of future results of operations of
the combined entities.
The pro forma adjustments and the resulting Unaudited Pro Forma Consolidated
Financial Statements have been prepared based upon information and certain
assumptions and estimates deemed appropriate by the Company. The Company's
management believes, however, that the pro forma adjustments and the underlying
assumptions and estimates reasonably present the significant effects of the
transaction reflected thereby and that any subsequent changes in the underlying
assumptions and estimates will not materially affect the Unaudited Pro Forma
Consolidated Financial Statements presented herein. The Unaudited Pro Forma
Consolidated Financial Statements do not purport to represent what the Company's
results of operations actually would have been had the transaction occurred on
the date indicated or to project the Company's financial position or results of
operations for any future date or period. Furthermore, the Unaudited Pro Forma
Consolidated Financial Statements do not reflect changes that may occur as the
result of post-transaction activities and other matters.
F-8
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
--------------------------------------------------------- (a) (b) PRO FORMA
DASI CONNECTED DYNAMICS COAD and (c) OPERATIONS
------------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 20,442,937 1,005,110 $ 1,265,368 $ 2,138,586 $ - $ 24,852,001
OPERATING EXPENSES:
Cost of Revenues 18,124,043 412,904 1,027,373 1,924,083 - 21,488,403
Selling, general and
administrative 2,058,842 74,670 24,565 108,610 611,679 2,878,366
------------ ----------- ------------ ------------ ----------- ------------
20,182,885 487,574 1,051,938 2,032,693 611,679 24,366,769
------------ ----------- ------------ ------------ ----------- ------------
INCOME FROM OPERATIONS 260,052 517,536 213,430 105,893 (611,679) 485,232
OTHER INCOME (EXPENSE):
Interest expense (61,060) - - - - (61,060)
Interest income 56,074 - - - - 56,074
Other income 5,266 - - - - 5,266
------------ ----------- ------------ ------------ ----------- ------------
280 - - - - 280
------------ ----------- ------------ ------------ ----------- ------------
INCOME FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES 260,332 517,536 213,430 105,893 (611,679) 485,512
INCOME TAXES - - - - (409,371) (409,371)
------------ ----------- ------------ ------------ ----------- ------------
INCOME FROM CONTINUING
OPERATIONS $ 260,332 517,536 $ 213,430 $ 105,893 $(1,021,050) $ 76,141
============ =========== ============ ============ =========== ============
BASIC EARNINGS PER
COMMON SHARE FROM
CONTINUING OPERATIONS-
BASIC AND DILUTED $ -
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING -
BASIC and DILUTED 21,583,986
============
</TABLE>
F-9
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- ------------------------------------------
ADJUSTMENTS
(a) (b) PRO FORMA
DASI CONNECTED DYNAMICS (d) COAD (d) and (c) OPERATIONS
------------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 14,371,727 $ 598,076 $ 848,906 $ 578,644 $ - $ 16,397,353
OPERATING EXPENSES:
Cost of Revenues 12,775,905 272,778 731,733 422,847 - 14,203,263
Selling, general and
administrative 1,736,819 53,020 30,335 142,011 316,853 2,279,038
------------ ----------- ----------- ------------ ----------- ------------
14,512,724 325,798 762,068 564,858 316,853 16,482,301
------------ ----------- ----------- ------------ ----------- ------------
INCOME FROM OPERATIONS (140,997) 272,278 86,838 13,786 (316,853) (84,948)
OTHER INCOME (EXPENSE):
Interest expense (648) (202) - - - (850)
Interest income 28,478 - 450 - - 28,928
Other income 41,254 - - 165 - 41,419
------------ ----------- ----------- ------------ ----------- ------------
69,084 (202) 450 165 - 69,497
------------ ----------- ----------- ------------ ----------- ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES (71,913) 272,076 87,288 13,951 (316,853) (15,451)
INCOME TAXES (11,040) - - - (108,854) (119,894)
------------ ----------- ----------- ------------ ----------- ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ (82,953) $ 272,076 $ 87,288 $ 13,951 $ (425,707) $ (135,345)
============ =========== =========== ============ =========== ============
BASIC EARNINGS
PER COMMON SHARE
FROM CONTINUING
OPERATIONS -
BASIC AND DILUTED $ -
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING-
BASIC AND DILUTED 21,583,986
============
</TABLE>
F-10
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------- PRO FORMA
DASI CONNECTED ADJUSTMENTS (c) PRO FORMA
----------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 169,715 $ 32,248 $ (32,248) $ 169,715
Account receivable - trade, no allowance for doubtful
accounts 4,479,419 183,402 (183,402) 4,479,419
Net assets - discontinued operations 81,486 - - 81,486
Other assets 364,540 - - 364,540
--------------- ------------ --------------- ---------------
Total current assets 5,095,160 215,650 (215,650) 5,095,160
PROPERTY AND EQUIPMENT, net 195,469 43,099 - 238,568
OTHER, net - 1,000 (1,000) -
GOODWILL 5,647,102 - 1,846,213 7,493,315
--------------- ------------ --------------- ---------------
Total assets $ 10,937,731 $ 259,749 $ 1,629,563 $ 12,827,043
=============== ============ =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 175,000 $ 13,045 $ 300,000 $ 488,045
Accounts payable 3,858,501 18,027 13,240 3,889,768
Accounts payable to affiliate 41,186 - - 41,186
Accrued expenses and other current liabilities 1,570,031 16,487 (16,487) 1,570,031
--------------- ------------ --------------- ---------------
Total current liabilities 5,644,718 47,559 296,753 5,989,030
SHAREHOLDERS' EQUITY:
Common stock 212,840 - - 212,840
Additional paid-in capital 5,408,388 - 1,545,000 6,953,388
Members' equity - 212,190 (212,190) -
Retained earnings (accumulated deficit) (328,215) - - (328,215)
--------------- ------------ --------------- ---------------
Total shareholders' equity 5,293,013 212,190 1,332,810 6,838,013
--------------- ------------ --------------- ---------------
Total liabilities and shareholders' equity $ 10,937,731 $ 259,749 $ 1,629,563 $ 12,827,043
============== ============ =============== ==============
</TABLE>
F-11
<PAGE>
DESIGN AUTOMATION SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND JUNE 30, 1999
1. BASIS OF PRESENTATION:
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1998 and the six months ended June 30, 1999 are
presented as if the transaction occurred at the beginning of 1998. The
Unaudited Pro Forma Consolidated Balance Sheet is presented as if the
Connected acquisition occurred on June 30, 1999. The Unaudited Pro Forma
Consolidated Statements of Operations for the periods presented may not be
indicative of the results which would have actually occurred if the
transactions had been in effect on the date or for the periods indicated or
which may result in the future.
2. PRO FORMA ADJUSTMENTS:
The pro forma adjustments to the unaudited pro forma consolidated financial
statements reflect the following:
a) SALARIES - The adjustment reflects the contractual compensation
arrangements executed upon effectiveness of the transactions and for
members of DASI management.
b) INCOME TAXES - The adjustment for income taxes represents the tax
effect on income before taxes of the combined results of the Company,
COAD, Dynamic and Connected, giving effect to the foregoing pro forma
adjustments computed at a 34% income tax rate for estimated federal
and state income taxes. DASI and COAD had historically been taxed
under the Subchapter S provisions of the Internal Revenue Code,
Dynamic as a partnership and Connected as a limited liability company,
whereby their respective earnings had been taxed at the shareholder,
partner or member level for federal purposes.
c) GOODWILL - The recognition of goodwill is a result of applying
purchase accounting to these transactions and will be amortized over a
ten-year period. Amortization of goodwill on the stock acquisitions is
not deductible for tax purposes, therefore yielding a higher effective
tax rate than would be expected from applying a statutory rate of 34%
to income before taxes per the financial statements.
d) These pro forma entries represent Dynamic and COAD net earnings prior
to their respective acquisition dates by the Company: March 31, 1999
for COAD and May 31, 1999 for Dynamic.
F-12
