<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
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Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): September 10, 1996
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SENTO TECHNICAL INNOVATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Utah 0-6425 87-0284979
- ------------------------------- -------------------- -------------------
(State or other jurisdiction of Commission File No. (I.R.S. Employer
Incorporation or organization) Identification No.)
311 North State Street
Orem, Utah 84057
----------------------------------------
(Address of principal executive offices,
including zip code)
(801)226-3355
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(Registrant's telephone number, including area code)
SPIRE INTERNATIONAL CORP.
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. CHANGE IN CORPORATE NAME; SPECIAL REPORT TO SHAREHOLDERS.
This Current Report on Form 8-K is filed for the purpose of reporting
the following events:
A. CHANGE IN CORPORATION NAME. On September 10, 1996, at the Annual
Meeting of Shareholders, the Registrant's shareholders approved a change in
the corporate name to Sento Technical Innovations Corporation. The name
change was made effective on September 10, 1996 by filing with the Utah
Division of Corporations and Commercial Code an amendment to the Registrant's
Articles of Incorporation.
B. SPECIAL REPORT TO SHAREHOLDERS. On September 11, 1996, the
Registrant began distribution to its shareholders of a Special Report to
Shareholders. The full text of the Special Report to Shareholders is
attached hereto as Exhibit 99.
<PAGE>
Sento Technical Innovations
<PAGE>
Sento Technical Innovations Corporation develops, configures, markets, and
distributes industry leading hardware and software computing solutions,
combined with expert consulting, training, and support services, to business,
government, and educational organizations worldwide through direct sales and
marketing, channel distribution, and industry partners.
<PAGE>
Message to the Shareholders
We welcome you as shareholders of the new Sento Technical Innovations
Corporation! Fiscal 1996 has been the most exciting year in our company's
history. In April, the privately held "Spire Technologies Companies" merged
with a publicly traded company which has been renamed Sento Technical
Innovations Corporation. Our move into the public market, and the recent
completion of a $1.5 million private placement, has provided us with the
additional financial flexibility and resources to invest in emerging
technologies earlier - allowing us to maximize market penetration and sustain
our growth in the exciting high technology marketplace. We now have more
opportunities than at any other time in the company's history, and a greater
ability to move quickly to take advantage of these opportunities.
Our focus in the mid-range computing marketplace during the past ten years
has positioned us to take advantage of the worldwide transition to
client/server computing. Our success is driven by our continued development
and acquisition of exciting new technologies which take advantage of the
explosive growth of the UNIX, Windows NT, and Internet environments. To
maximize these opportunities, we have strategically positioned Sento's three
subsidiary companies and our Australian affiliate to specialize in
complementary segments of these expanding markets.
These companies have established strategic software development and
distribution alliances with key industry leaders. Outlined below are a few of
our accomplishments during the past year:
Spire Technologies, Inc.
Exclusive appointment to develop, distribute, and support Corel WordPerfect
for Digital Equipment Corporation's OpenVMS and UNIX platforms, and as one of
two worldwide distributors of Corel WordPerfect for other UNIX platforms.
Australian Software Innovations Pty. Ltd.
Sento has initiated the inclusion of ASI's data collection and performance
management technology in UNIX and Windows NT based products developed by
Boole & Babbage and Digital Equipment Corporation. Sento has also obtained an
option to acquire the business and assets of ASI.
DewPoint Distributed Solutions Inc.
Selection as a worldwide master distributor of the world's leading UNIX and
Windows NT based anti-virus technology from Trend Micro, as well as Internet
security products from Secure Computing, including the BorderWare Internet
Firewall Server.
Spire Systems Inc.
Significant growth as a strategic partner with Digital Equipment Corporation,
becoming the second largest Value Added Reseller (VAR) in the Western U.S.,
as well as the leading software and services VAR in the region, and one of
Digital's most profitable VARs nationwide.
These and other opportunities are indications of our growing reputation as an
industry leader in providing state-of-the-art products, consultation,
training, and support solutions to the rapidly growing client/server computer
marketplace. With these trend setting solutions and services, we will
continue to broaden and diversify our customer base in existing markets,
while spurring growth internationally through our expanding presence in
Europe and Southeast Asia.
We are strongly positioned for success in the fastest growing segments of the
computing industry, and look forward to executing our strategies for
continued growth. We are pleased with the track record of success we have
enjoyed during the past ten years and are excited about the prospects for the
coming year.
Sincerely,
<PAGE>
Gary B. Godfrey
Chairman & CEO
Robert K. Bench
President & CFO
<PAGE>
An introduction to Sento
Spire Technologies, Inc.
Direct Sales
Spire Technologies is completing ten successful years as a "Service Added
Reseller" of leading application and system management solutions for the
mid-range computing environment. Spire Technologies is now one of the leading
sources for powerful mid-range computer software solutions and premiere
product support for governments, educational institutions, and corporations
of all sizes throughout the world.
Spire Technologies is divided into the following four divisions:
UNIX - The UNIX group provides software solutions for both single and
heterogeneous UNIX and Windows NT environments. These include Resource and
performance Monitoring, System Management, Capacity Planning, and Office
Automation tools.
Digital - Spire's Digital division provides products and services for
customers using Digital Equipment Corporation's OpenVMS and Digital UNIX
operating systems, and Windows NT. Solutions include Office Automation,
Training & Support, System Security, System Management, System Performance,
and Network Management solutions.
Internet - Our Internet team provides consultation, training, installation,
security and anti-virus monitoring, web management and reporting solutions,
data management tools, and turnkey solutions for organizations of any size.
Services - Spire Technologies adds significant value to each product by
providing high-quality, single-source technical support for such things as
system configuration, printer queue integration, installation procedures,
network integration, problem resolution, and troubleshooting.
Spire Technologies is also involved in the testing and certification of new
products and releases, both those developed by Spire, and those developed by
other manufacturers. These efforts provide higher quality software releases,
and highly competent support engineers with in depth product understanding,
and advance awareness of potential problems customers may face.
Spire Systems, Inc.
Systems Integration
Spire Systems is an authorized representative of Digital Equipment
Corporation, providing customers with Digital's superior system hardware,
desktop integration, and Gold Key Services. Our staff of Digital- trained
engineers assist in designing, implementing, and managing efficient computing
solutions, from add-ons and peripherals, to complete turnkey solutions. They
are trained and experienced with the wide range of products and services
available from Digital, and can go "right to the source" to get the answers
our clients need.
We make the implementation or upgrading of computing environments as simple
and efficient as possible, from server and hardware recommendations,
integration and connectivity solutions, expert system configuration,
consultation, and Gold Key services. We also provide networking expertise in
integrating multi-vendor networks, network consulting with respect to
connectivity, compatibility, inter-operability, and management of the
end-user's local area network ("LAN"), installation of the end-user's LAN,
including interface hardware and software, and timely, professional technical
support.
DewPoint Distributed Solutions
Product Distribution
DewPoint Distributed Solutions (DewPoint) provides worldwide distribution,
reseller, and channel management
<PAGE>
for a number of leading software manufacturers, including Corel Corporation,
Trend Micro, Inc., and Secure Computing, Inc.
With consultants, resellers, installation teams, and support centers in North
America, Europe, and Australia/Southeast Asia, we are able to provide
third-party manufacturers' products and services to customers in virtually
every part of the world. DewPoint channel partners cater to the UNIX,
Windows NT, and Internet computer solutions market. We provide superior
products, services, and technical and sales support to our channel partners
by utilizing our inside sales force to generate leads and assist in closing
sales.
DewPoint is fast becoming a leading provider of mid-range software solutions
and a central informational resource for the mid-range computer solutions
market. With current market momentum and world class software solutions, we
are poised and positioned for tremendous growth in the UNIX, Windows NT, and
Internet markets.
Australian Software Innovations Pty Ltd
Development and Asian Distribution
During the past two years Sento has developed a strong alliance with
Australian Software Innovations Pty. Ltd. (ASI), and in September, 1996
signed an agreement giving Sento an option to acquire the business and assets
of ASI.
Established in January 1987, ASI provides a comprehensive range of
UNIX- based management and performance monitoring utilities, complemented by
performance tuning education and professional consultancy services.
Our flagship product SYSMON (marketed under the OpenAviator trademark in
North America) is a technically advanced performance and availability
monitoring product which supports the widest implementation of UNIX in the
open systems marketplace, together with Windows NT and most major databases,
including Oracle, Ingres, SYBASE and Informix. Additional resource
accounting, user log-on management, and customizable menuing modules add to
our extensive suite of leading edge products.
Our growing development team is actively involved in ongoing product
enhancement, development, and supporting a customer base of over 1000 sites.
ASI's Sydney development team, combined with our development and support
center located in North America, cater to and support customers in Australia,
Southeast Asia and the Pacific Rim, Europe, North and South America, and
other parts of the world.
ASI also serves as a DewPoint and/or direct Asian/Pacific distributor of
Corel WordPerfect for OpenVMS and UNIX systems, Lotus 1-2-3 for OpenVMS,
virus detection software from Trend Micro, and a number of other, leading
software products.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operation
Historically, Spire Technologies, Inc. and Spire Technologies Systems
Division, Inc., now wholly owned subsidiaries of Sento Technical Innovations
Corporation (the "Company"), have focused their sales and distribution
efforts on two product lines within the midrange client/server computer
market niche: a Value Added Reseller ("VAR") of Digital Equipment
Corporation's network computer hardware systems and components, and a
distributor/VAR for a variety of software developed by third parties.
Recently, the Company has entered into strategic licensing and product
development arrangements with IBM/Lotus, Corel/WordPerfect, Digital, and
Australian Software Innovations, through which the Company became the
licensed developer and sole distributor of various software products.
As part of its ongoing efforts to support customers' needs in the areas of
training, support, and system configuration, the Company offers its customers
an annual maintenance agreement. This allows customers access to the
technical resources and support personnel of the Company, including automatic
product upgrades, "bug fixing," and system configuration consulting. The
demand for technical computer systems consulting represents a growth
opportunity for the Company. Additional technical consultants were hired in
January, 1996, and the Company is beginning to concentrate on marketing its
consulting services to generate additional revenues.
Since November, 1995 the Company has expanded its distribution model to
include software products that operate in the growing UNIX and NT operating
systems environments. In addition to adding this new family of products,
which serve the UNIX and NT environments, the Company also began marketing a
family of products which provide solutions relating to the Internet. These
products include a third-party product known in the industry as a "firewall,"
which is designed to protect an organization's computer network from access
by unauthorized users, and an "antivirus" product which is designed to
protect the computer network from virus intrusion originating from the
Internet.
The combined revenues of the Company, during fiscal year 1996, from
these various activities are broken down as follows:
Open VMS software sales
44% of revenues
System configuration and hardware sales
45% of revenues
Technical consulting and maintenance services
11% of revenues
With the addition of the new product lines, as described above, the Company's
management anticipates that revenues from the sale of UNIX platform products,
Internet security products, and technical consulting will grow faster, as a
percentage of revenues, than the historical product lines of the Spire
Companies.
No single market sector represents a dominant portion of the Company's
revenue base. Governmental and educational institutions represent
approximately 32% of combined revenues, and small to large corporations
represent the remaining 68%. No single customer represents more than ten
percent of the combined revenues of the Company. In June, 1996 the Company
completed a private placement of $1.5 million of common stock and warrants.
These funds will be used to acquire additional proprietary software licenses
and provide working capital for expanded operations.
The Company sells its products through a direct sales force of 45
representatives in the United States, and through a number of third-party
resellers in North America, Europe, Australia, and Southeast Asia.
<PAGE>
Selected Financial Information
1996 1995
Amount Revenue Change Amount Revenue
Revenues $13,873,401 100% 43% $9,674,683 100%
Gross Margin 5,421,358 39% 77% 3,060,608 32%
Selling, General & Admin. 4,605,402 33% 57% 2,927,081 30%
Research & Development 268,028 2% -- -- 0%
Operating Income 547,928 4% 310% 133,527 1%
Net Income 339,555 2% 244% 98,735 1%
Cash 1,552,806 103% 766,247
Working Capital 943,332 415% 183,268
Total Assets 4,544,825 61% 2,815,857
Stockholders Equity 1,480,907 250% 423,294
Results of Operations
For fiscal 1996, Spire recorded net income of $339,555, or $.08 per share, on
net sales of $13,873,401. This compares to fiscal 1995 net income of $98,735,
or $.03 per share, on net sales of $9,674,683. The improvement in net sales
resulted from an increased market penetration in both the software and
hardware product lines.
Figure 1: Revenues 1996 % Change 1995
Software Licenses/Maintenance $7,694,695 44% $5,356,572
Hardware Sales & Service 6,178,706 43% 4,318,111
Net Sales 13,873,401 43% 9,674,683
Revenues (see figure 1)
Net sales increased $4.2 million or 43% in fiscal year 1996 as compared to
fiscal 1995. The increase in net sales reflected increases in each of the
Company's product lines. Software sales in fiscal year 1996 increased by $2.3
million compared to fiscal 1995. This increase was due primarily to the
growth of UNIX and Windows NT software product sales and the release of new
versions of WordPerfect for the Digital operating platforms. Upgrade sales of
these products continued strong through the third and fourth quarters of
fiscal year 1996. The expansion of the Company's technical consulting
services and maintenance program also contributed to revenue growth during
the latter part of fiscal year 1996. Management believes the change in
ownership of the WordPerfect product earlier this year to Corel Corporation
and the Company's new maintenance program have been received well by the
Company's customer base.
The release and customer acceptance of Digital Equipment's Alpha operating
platform hardware system contributed substantially to the increase in the
hardware product line revenues. The Company's promotion during the year
bundling the new Alpha Server and Alpha version of WordPerfect contributed to
the increase in hardware sales.
Figure 2: Gross Profit 1996 % Change 1995
Gross Profit $5,421,358 77% $3,060,608
% of Net Sales 39% 32%
Gross Profit (see figure 2)
As a percentage of sales, gross profit increased from 32% to 39% from fiscal
year 1995 to fiscal 1996. The increase in gross profit as a percentage of
sales in fiscal year 1996 can be attributed primarily to three major factors.
First, the Company received the full license rights to WordPerfect for VMS
and Lotus products. This decreased the royalty paid to the owners and
manufacturers of those products. Second, the new product lines sold by the
Company are more technical in nature, and therefore carry a higher discount
from the manufacturers. Third, the Company enjoyed a higher growth in
revenues than the corresponding growth required for personnel; therefore,
fixed costs related to cost of sales were spread over a larger sales base.
<PAGE>
Figure 3: Selling, General, and
Administrative Expense 1996 %Change 1995
Selling, General & Administrative Expense $4,605,402 57% $2,927,081
% of Net Sales 33% 30%
Selling, General and Administrative Expense (see figure 3)
Selling, general, and administrative expenses increased as a percentage of
sales from 30% in fiscal 1995 to 33% in fiscal 1996. This increase was due
primarily to four factors: First, the Company began expanding its
international sales channel aggressively during fiscal year 1996. Second, a
new UNIX sales division was created to focus on new product lines. Third,
activities relating to the Company's expanded accounting, legal, and public
reporting requirements increased expenses. Fourth, activities relating to the
Company's strategy of acquiring additional products and other companies
required greater expenditures.
Research and Development
Research and development expenses consist of programming costs for new
software. During fiscal 1996 the Company had total responsibility for several
of the newly licensed products. During that year, the Company released a
WordPerfect upgrade, version 5.1+ for Open VMS/VAX, WordPerfect 5.1+ for Open
VMS/Alpha, and Lotus123 for Open VMS/Alpha. Ongoing programming is necessary
to keep pace with software innovations in several segments of the Company's
market niche. With the Company's aggressive strategy to acquire additional
exclusive licenses and proprietary technology, management expects this
expense category to increase more rapidly as a percentage of sales in future
periods. Research and development costs prior to fiscal year 1996 were not
material.
Other Income
Other income consists primarily of interest income and interest expense.
Interest income has been earned on excess cash invested in interest- bearing
instruments. Interest income is expected to decline in the future as cash is
used increasingly for operational needs and strategic expansion.
Figure 4: Liquitity and Capital Resources 1996 % Change 1995
Cash $1,552,806 103% $766,247
Working Capital 943,332 415% 183,268
Liquidity and Capital Resources (see figure 4) Since inception, the Spire
Companies have satisfied their liquidity and capital resource requirements
primarily through cash flow from operations. Long-term bank borrowings have
been kept to a minimum and used primarily for the purchase of a building to
house a portion of the Company's operations.
During fiscal years 1996 and 1995, the Company generated cash from operating
activities in the amounts of $362,131 and $434,910 respectively. For the same
years, net cash increased $786,559 and $272,787 respectively. The Company's
cash equivalents at year end reflect the additional cash obtained in the
share exchange with Amacan Resources Corporation. In addition to, but not
reflected in the cash balance at April 30, 1996, the Company completed a
private placement of $1.5 million of common stock and warrants in June 1996.
Working capital increased from $183,268 at April 30, 1995 to $943,332 at
April 30, 1996. The Company's current ratio increased from 1.08 at April 30,
1995 to 1.33 at April 30, 1996. This increase is due primarily to cash
generated from operations and the cash received in the Amacan share exchange.
On June 1, 1996, the Company established two lines of credit with a
commercial bank, one for $1,000,000, secured by trade receivables, at prime
plus two percent, expiring June 1, 1997; the other for $350,000, secured by
equipment, at prime plus two percent, expiring May 1, 1999. As of July 31,
1996, neither of these lines of credit had been used.
Based on anticipated working capital requirements, management believes that
existing cash and cash equivalents,
<PAGE>
cash generated from operations, and long-term debt financing and borrowings
under the Company's existing lines of credit will be sufficient to finance
the operations of the Company for the foreseeable future.
The Company continues to evaluate opportunities for the license or
acquisition of additional software products as well as the possible
acquisition of, or development of strategic relations with, other companies
which may have products or distribution channels that are compatible with the
business objectives of the Company.
<PAGE>
Financial Highlights
(In thousands, except per share data) 1996 1995
Net Sales $13,873 $9,675
Net Income 340 99
Earnings per common share .08 .03
Total assets 4,545 2,816
Stockholders' equity 1,481 423
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders of
Spire International Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Spire
International Corp. and subsidiaries as of April 30, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for
the year then ended. We have also audited the combined balance sheet of Spire
Technologies, Inc. and Spire Technologies Systems Division, Inc. as of April
30, 1995, and the related combined statements of income, stockholders'
equity, and cash flows for the year then ended. These consolidated and
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these consolidated
and combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Companies as of April
30, 1996 and 1995, and the results of their operations and their cash flows
for each of the years then ended in accordance with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
June 21, 1996
<PAGE>
SPIRE INTERNATIONAL CORP. AND SUBSIDIARIES (CONSOLIDATED)
SPIRE TECHNOLOGIES INC. AND SPIRE TECHNOLOGIES SYSTEMS DIVISION, INC.
(COMBINED)
Balance Sheets
Years ended April 30, 1996 and 1995
Assets 1996 1995
Current assets:
Cash $1,552,806 766,247
Accounts receivable 2,176,642 1,524,948
Other current assets 7,806 17,410
Deferred tax asset (note 4) 42,723 39,041
Total current assets 3,779,977 2,347,646
Fixed assets (note 3):
Land 36,021 36,021
Buildings 250,489 250,489
Furniture and equipment 526,005 372,669
Transportation equipment 11,516 11,516
Accumulated depreciation (256,183) (202,484)
Net fixed assets 567,848 468,211
Interest in oil and gas properties (note 2) 197,000 -
$4,544,825 2,815,857
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt
(note 3) $7,721 87,527
Accounts payable 1,050,535 998,115
Accrued liabilities 488,660 360,388
Income taxes payable (note 4) 52,715 32,154
Deferred maintenance revenue 1,017,364 686,194
Other deferred revenue 219,650 -
Total current liabilities 2,836,645 2,164,378
Long-term liabilities:
Long-term debt, excluding current
portion (note 3) 215,691 223,412
Deferred tax liability (note 4) 11,582 4,773
Total long-term liabilities 227,273 228,185
Stockholders' equity (notes 2 and 7):
Common stock, $.25 par value.
Authorized 8,000,000 shares; issued
and outstanding 3,891,325 shares
in 1996 972,832 2,000
Additional paid-in capital - 7,410
Treasury stock, 17,000 shares in
1995, at cost - (170,000)
Retained earnings 508,075 583,884
Total stockholders' equity 1,480,907 423,294
Commitments (note 5)
$4,544,825 2,815,857
See accompanying notes to financial statements
<PAGE>
SPIRE INTERNATIONAL CORP. AND SUBSIDIARIES (CONSOLIDATED)
SPIRE TECHNOLOGIES INC. AND SPIRE TECHNOLOGIES SYSTEMS DIVISION, INC. (COMBINED)
Statements of Income
Years ended April 30, 1996 and 1995
1996 1995
Revenues:
Software licenses and maintenance $7,694,695 5,356,572
Hardware sales and service 6,178,706 4,318,111
Total revenues 13,873,401 9,674,683
Cost of sales:
Software licenses and maintenance 3,100,738 2,879,943
Hardware sales and service 5,351,305 3,734,132
Total cost of sales 8,452,043 6,614,075
Gross profit 5,421,358 3,060,608
Selling, general, and administrative
expenses 4,605,402 2,927,081
Research and development expense 268,028 -
Income from operations 547,928 133,527
Other income (expense):
Interest income 24,918 10,272
Interest expense (31,831) (28,348)
Other income (expense) (4,715) 29,772
Total other income (expense) (11,628) 11,696
Income before taxes 536,300 145,223
Income tax expense (note 4) 196,745 46,488
Net income $339,555 98,735
Net income per share $0.08 0.03
See accompanying notes to financial statements.
<PAGE>
SPIRE INTERNATIONAL CORP. AND SUBSIDIARIES (CONSOLIDATED)
SPIRE TECHNOLOGIES INC. AND SPIRE TECHNOLOGIES SYSTEMS DIVISION, INC. (COMBINED)
Statements of Stockholders' Equity
Years ended April 30, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
Additional Total stock-
paid-in Treasury Retained holders'
Shares Amount Capital Stock earnings equity
<S> <C> <C> <C> <C> <C> <C>
Balances at April 30, 1994 183,000 $2,000 7,410 (170,000) 485,149 324,559
Net income - - - - 98,735 98,735
Balances at April 30, 1995 183,000 2,000 7,410 (170,000) 583,884 423,294
Issuance of treasury stock 4,386 - 65,790 43,860 - 109,650
Business combination (note 2) 3,703,939 970,832 (73,200) 126,140 (415,364) 608,408
Net income - - - - 339,555 339,555
Balances at April 30, 1996 3,891,325 $972,832 - - 508,075 1,480,907
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SPIRE INTERNATIONAL CORP. AND SUBSIDIARIES (CONSOLIDATED)
SPIRE TECHNOLOGIES INC. AND SPIRE TECHNOLOGIES SYSTEMS DIVISION, INC. (COMBINED)
Statements of Cash Flows
Years ended April 30, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net income $339,555 98,735
Adjustments to reconcile net income
to net cash provided by operating
activities:
Deferred taxes 3,127 (12,931)
Depreciation 53,699 41,056
Stock issued in lieu of
compensation 109,650 -
Decrease (increase) in assets:
Accounts receivable (632,225) (645,941)
Other current assets 9,604 9,108
Increase (decrease)
in liabilities:
Accounts payable 5,327 456,304
Accrued liabilities (95,987) 305,018
Income taxes payable 18,561 19,417
Deferred maintenance revenue 331,170 164,144
Other deferred revenue 219,650 -
Net cash provided by operating activities 362,131 434,910
Cash flows from investing activities:
Capital expenditures (153,336) (114,395)
Net cash acquired in business combination 484,781 -
Net cash provided by (used in) investing
activities 331,445 (114,395)
Cash flows from financing activities:
Proceeds from issuance of stock - -
Net borrowings on note payable to bank - -
Principal payments of long-term debt (87,527) (176,167)
Proceeds from issuance of long-term debt - 128,439
Deposit for private placement
subscriptions 180,510 -
Net cash provided by (used in)
financing activities 92,983 (47,728)
Net increase in cash 786,559 272,787
Cash at beginning of year 766,247 493,460
Cash at end of year $1,552,806 766,247
Supplemental Disclosures of Cash Flow
Information 1996 1995
Cash paid for interest $21,016 28,348
Cash paid for income taxes 378,587 23,832
See accompanying notes to financial statements.
<PAGE>
SPIRE INTERNATIONAL CORP. AND SUBSIDIARIES (CONSOLIDATED)
SPIRE TECHNOLOGIES INC. AND SPIRE TECHNOLOGIES SYSTEMS DIVISION, INC. (COMBINED)
Notes to Financial Statements
April 30, 1996 and 1995
(1) Summary of Significant Accounting Policies
Description of Business
Spire International Corp. (Spire International) is the parent of Spire
Technologies, Inc. (STI) and Spire Technologies Systems Division, Inc.
(STSDI) (collectively, the Company). STI and STSDI are resellers of computer
software and hardware respectively, and also provide technical support for
certain software. STSDI has no employees or facilities, with all work
performed by STI in exchange for a management fee. Their customers consist
of business and governmental entities, geographically dispersed throughout
the United States and abroad. Revenue from foreign sales was insignificant
in previous years, and in the year ended April 30, 1996, was approximately
nine percent of total sales. As a reseller the Company is dependent on third
party suppliers, with over seventy percent of the Company's revenues derived
from products it obtains from three suppliers. At April 30, 1996, Spire
International owned certain investments in oil and gas producing properties,
which were disposed of in May 1996 as discussed in note 2.
Basis of Presentation
The consolidated financial statements as of and for the year ended April 30,
1996, include the financial statements of Spire International and its two
wholly owned subsidiaries, STI and STSDI. The financial statements as of
April 30, 1995, and for the year then ended are the combined financial
statements of STI and STSDI. All significant intercompany balances and
transactions have been eliminated in consolidation or combination.
Fixed Assets
Fixed assets are stated at cost. Depreciation of fixed assets is computed on
the straight-line method over the estimated useful lives of individual
classes of assets. The estimated useful lives of the individual classes of
assets are as follows:
Buildings 40 years
Furniture and equipment 3-10 years
Transportation equipmen 5 years
Interests in Oil and Gas Properties
Interests in oil and gas properties, acquired in the business combination
discussed in note 2 are stated at cost to the Company, which is fair market
value at the date of the business combination.
Revenue Recognition
Revenue from the sale of software licenses and hardware sales is recognized
at the time of delivery. Revenue from maintenance contracts and customer
service is recognized as the service is performed. Deferred maintenance
revenue consists of payments received on software maintenance contracts and
recorded as revenue over the period of the contract, which is typically one
year.
<PAGE>
Research and Development
Research and development costs are expended as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Income Per Share
Per share amounts are computed by dividing net income by the weighted average
number of common shares and common share equivalents resulting from options
outstanding. There were 3,992,768 and 3,346,274 weighted average common
shares and common share equivalents outstanding for the years ended April 30,
1996 and 1995, respectively. Income per share for 1995 has been restated for
the effects of the business combination discussed in note 2 which for
accounting purposes represented stock splits for the STI and STSDI
stockholders.
Fair Value of Financial Instruments
The carrying amounts of trade receivables, notes payable, trade accounts
payable, accrued expenses, and long-term debt approximate fair value.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) Business Combination and Asset Disposition
On January 23, 1996, STI and STSDI, which were both privately held by the
same group of owners, entered into an agreement and plan of reorganization
(Exchange Agreement) with Amacan Resources Corporation (Amacan) wherein STI
and STSDI became wholly owned subsidiaries of Amacan. The Exchange Agreement
was approved by Amacan stockholders on April 18, 1996. Since 1974, Amacan, a
publicly-traded company, has been almost exclusively engaged as a participant
with others in oil and gas operations and development. Amacan's principal
assets were working interests in producing oil and gas wells and options or
rights to participate in the drilling of additional wells. As part of the
merger, Amacan was renamed Spire International Corp.
Upon approval of the Exchange Agreement by the Amacan stockholders, (a) the
389,102 shares of Amacan's common stock previously outstanding (as adjusted
for a reverse stock split) remained outstanding and (b) Amacan issued an
additional 3,502,223 shares of its common stock for all of the issued and
outstanding shares of STI and STSDI's common stock. The business combination
is treated for accounting purposes as a reverse merger wherein STI and STSDI
are shown as the acquiring companies because the former stockholders of STI
and STSDI have the significant majority of the outstanding common stock after
the combination, and management of STI and STSDI has become the management of
the combined companies. The business combination is accounted by the
purchase method of accounting with the net assets of Amacan being recorded at
their fair value at the date of closing and the operating results of Amacan
prior to the business combination are not included with the historical
operating results of STI and STSDI.
<PAGE>
The following pro forma financial information presents the combined results
of operations of STI, STSDI, and Amacan as if the acquisition had occurred as
of May 1, 1994. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had STI, STSDI,
and Amacan constituted a single entity during such periods.
Years ended April 30
1996 1995
Net sales $14,020,329 9,862,216
Net income $238,365 127,258
Net income per share $0.06 0.04
As described above, the Company acquired Amacan's interest in oil and gas
producing properties in the business combination. On May 1, 1996, these
properties were sold to an unrelated party. The properties were recorded at
fair market value as of acquisition date, as determined by the subsequent
sales price. Accordingly, no gain or loss was recorded on disposal. The
operating loss for the oil and gas operations during the period from date of
acquisition (April 18, 1996) to April 30, 1996, was insignificant.
(3) Note Payable to Bank and Long-term Debt
The Company had a $75,000 unsecured line of credit with a commercial bank
that expired March 23, 1996. No amounts were outstanding at April 30, 1996
or April 30, 1995. Subsequent to year-end, the Company established two new
lines of credit with a commercial bank: one for $1,000,000, secured by trade
receivables, at prime plus two percent, expiring June 1, 1997; the other for
$350,000, secured by equipment, at prime plus two percent, expiring May 1,
1999.
Long-term debt at April 30, 1996 and 1995, consisted of the following:
1996 1995
8.25% first mortgage payable in monthly installments
of $1,173, including interest, with final payment of
$107,417 due July 15, 1999, secured by the Company's
land and building with a book value of $255,831 at
April 30, 1996 $121,909 125,755
8.70% SBA loan payable in monthly installments of
$1,078, including interest, secured by the Company's
land and building with a book value of $255,831 at
April 30,1996 101,503 104,754
5% simple interest loan payable in monthly installments
of 1.4% of the Spire Technologies gross margin from
the prior month, secured by common stock of Spire
Technologies. Paid off in December 1995 - 80,430
Total long-term debt 223,412 310,939
Less current portion 7,721 87,527
Long-term debt, excluding current portion $215,691 223,412
Aggregate maturities of long-term debt are as follows:
1997, $7,721; 1998, $8,400; 1999, $9,139; 2000, $112,877;
2001, $5,469; and thereafter $79,806.
<PAGE>
(4) Income Taxes
Income tax expense consists of:
Current Deferred Total
Year ended April 30, 1996:
Federal $165,923 5,139 171,062
State 25,683 - 25,683
$91,606 5,139 196,745
Year ended April 30, 1995:
Federal $50,242 (11,273) 38,969
State 9,177 (1,658) 7,519
$59,419 (12,931) 46,488
Actual income tax expense differs from the expected tax expense (computed by
applying the U.S. federal corporate income tax rate of 34 percent to income
before income taxes) as follows:
Actual Income Tax Expense 1996 1995
Computed expected tax expense $182,342 49,376
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit 16,950 4,963
Other (2,547) (7,851)
Income tax expense $196,745 46,488
The tax effects of temporary differences that give rise to current deferred
tax assets and noncurrent deferred tax liabilities at April 30, 1996 and
1995, are presented below:
1996 1995
Current deferred tax assets:
Deferred compensation $16,514 9,232
Allowance for bad debts 42,723 29,809
Total gross current deferred assets 59,237 39,041
Less valuation allowance (16,514) -
Net current deferred tax assets $42,723 39,041
Noncurrent deferred tax assets:
Investment tax credit carryforwards $10,095 -
Net operating loss carryfoward 73,903 -
Total gross noncurrent deferred assets 83,998 -
Less valuation allowance (3,667) -
Net noncurrent deferred tax assets 80,331 -
Deferred tax liability - tax depreciation
in excess of book depreciation 91,913 4,773
Net noncurrent deferred tax liability $11,582 4,773
<PAGE>
The valuation allowance for deferred tax assets as of May 1, 1994, was $- 0-.
The net change in the total valuation allowance for the years ended April
30, 1996 and 1995, was an increase of $-0- and $20,181, respectively.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of April 30, 1996, will be allocated as an income tax
benefit to be reported in the statement of operations.
At April 30, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of $189,500 which expire from 1997 to 2008. The
Company also has investment tax credit carryforwards for federal income tax
purposes of $10,095 which expire from 1997 to 2001.
As a result of the business combination discussed in note 2, Spire
International has undergone greater than 50 percent change of ownership under
the rules of the Tax Reform Act of 1986. Consequently, certain of the
Company's net operating loss carryforwards and investment credit
carryforwards may expire unutilized. The maximum amount of the remaining
carryforwards available to offset future income in a given year is limited to
the product of Spire International value on the date of ownership change and
the federal long-term tax-exempt rate, plus any limited carry forward not
utilized in prior years.
(5) Leases
The Company has operating leases for office space and equipment. The Company
incurred rent expense of $80,426 and $19,973 for the years ended April 30,
1996 and 1995, respectively. Future minimum rent payments under existing
operating leases are $128,476 in fiscal 1997 and $122,425 in fiscal 1998.
(6) Retirement Plan
The Company has a qualified defined contribution retirement plan under
Section 401(k) of the Internal Revenue Code. The plan covers all employees
who meet minimum age and service requirements, and allows participants to
defer a portion of their annual compensation on a pretax basis. In addition,
employer contributions are made at the discretion of the Board of Directors.
Participants are fully vested at all times in employee contributions.
Employer contributions vest over a six-year period. Employer contributions of
$12,376 and $11,545 were made for the years ended April 30, 1996 and 1995,
respectively.
(7) Common Stock
At December 31, 1995, STI had common stock with a par value of $.01 per share
and 100,000 shares authorized and issued. STSDI had common stock with no par
value, 1,000,000 shares authorized and 100,000 shares issued and outstanding.
The Company has a stock option plan under which incentive stock options,
nonqualified stock options, stock appreciation rights, and stock units may be
granted to directors and employees of the Company. The Company has reserved
1,000,000 shares of common stock for issuance under the plan. The number of
shares, exercise price, terms, and exercise period are determined by the
Board of Directors on an option-by-option basis. No options were granted
prior to May 1, 1995. At April 30, 1996, options to acquire 551,685 shares
have been granted of which 41,830 are exercisable. A summary of activity
follows:
Number of Shares Price per share
Options outstanding at beginning of year - $ -
Plus options granted 551,685 1.24 - 3.50
Less options canceled or expired - -
Options outstanding at end of year 551,685 $ 1.24 - 3.50
<PAGE>
(8) Subsequent Events
In April, 1996, the Company undertook a private offering to sell unregistered
shares of its common stock to certain accredited investors. The Company
intends to use the proceeds to acquire additional software licenses and
technology, to fund additional research and development, and for additional
working capital. The shares were offered in units, at $7.00 per unit, with
each unit consisting of two shares of common stock plus one warrant to buy
one share of common stock for $3.50 before April 30, 1998. The Company closed
the offer in June 1996, when 223,024 units had been subscribed from which
$1,561,168 of cash proceeds were received.
Market Information
The Company's Common Stock is traded on the Bulletin Board in the over-
the-counter market maintained by the NASD under the symbol "SPCC." The
following table sets forth the high and low bid prices of the Company's
Common Stock for the quarters indicated, as reported by the National
Quotation Bureau, Inc. (the "NQB"). Prices shown for the quarter ended April
30, 1996 reflect the consummation of the share exchange, including a
one-for-seven reverse split of the shares of common stock issued and
outstanding at the time of the exchange. As of July 25, 1996, there were
approximately 423 holders of record of the Company's Common Stock.
1996 High Low
April 30, 1996 $6.00 $1.3125
January 31, 1996 .375 .03125
October 31, 1995 .125 .03125
July 31, 1995 .125 .05
1995 High Low
April 30, 1995 $.125 $ .10
January 31, 1995 .15 .125
October 31, 1994 .165 .125
July 31, 1994 .13 .125
